How to Keep Savings from Yourself

In this episode of Q&A: Real World WynnSights, we explore a growing movement toward employer-promoted savings vehicles, admit the 2020 equities market wasn't all that bad and applaud excellent investing prowess.

Names and personal information are excluded to protect privacy. NOTE: Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion.

Q: How do I put personal savings to the side and not touch it?

There are many ways to save, but the key in every case is the saver’s self-control and ability to leave it alone.

There’s a movement growing in popularity among employers that offer 401(k) and other retirement plans. More companies are considering programs that promote savings through payroll deductions to encourage workers to build personal savings accounts. Such non-retirement funds can cover unexpected expenses (Rainy Day funds)… and avoid invasive raids on their retirement funds. Some existing programs are basic, e.g., simply allowing employees to request **split paycheck deposits**. Employers that use the direct deposit method generally offer split deposits to an employee’s checking and savings accounts.

Other employers offer sidecar accounts attached to existing 401(k) plans that allow employees to use payroll deductions to build savings in-house to avoid traditional banks’ minimum balance requirements and account fees. Also, some 401(k) providers offer savings features that permit workers to contribute to 401(k) savings accounts as well as pretax contributions to retirement accounts. This savings feature allows employees to withdraw money from savings accounts for emergencies. But…always a but… in this case, the portion of withdrawals that represents *earnings on the contributions is subject to income taxes*, maybe even penalties.

A survey by AARP found that 71% of employees polled would probably participate in a payroll-deduction, Rainy Day savings program if offered. And… no surprise here… the possibility of an employer match increased the probable participation level of such plans to 87%. But these same folks voiced aversion to a bunch of restrictions on these savings accounts. The survey indicated that folks considered a successful plan one that allowed the freedom to start or stop saving at will, the ability to choose the financial institution where the money is deposited, and immediate access to their funds... in short, to have the cash readily available when needed. Which raises the question of self-control.

Do these employer-related savings plans – or any plan without withdrawal disincentives – run the risk of making it too hard to leave it alone?

Q: Was 2020 a good year to invest in equities? Why or why not?

Despite the unsettling market events of 2020, I would surmise that, so far, 2020 has been a surprisingly good year for equity investors. The so-called Coronavirus Crash, a global bear event that began in late February 2020 and ended in early April 2020, was the fastest fall in financial history… the most devastating since 1929. The abbreviated five-week 30+% decline in February and March was no doubt gut-wrenching for all concerned, but so far, so good for the patient investors among us. On Monday, December 1, 2020, the S&P 500 closed at a high of 3,662.45 (up 431.67 or 13.4% from 2019’s 3230.78 close). From the March 23 low (2,237.40), the December 1, 2020 close (3,662.45) represented a recovery of 1,425.05 or 63.7%. If the market can hold this high ground, it won’t match up with 2019’s outsized gain of 28.9%, but a gain of 13% would be a good year by anyone’s definition, particularly in light of 2020’s pandemic travails.

Highlights Recap:

• On 12-31-2019, the S&P 500 closed at 3230.78, up 28.9% for the year.

• On 12-01-2020, the S&P 500 closed at 3,662.45, up 13.4% thru November.

• On 03-23-2020, the S&P 500 closed at 2,237.40, down 30.7% from 12-31-2019.

• On 12-01-2020, the S&P 500 closed at 3662.45, up 63.7% from the 3-23-2020 low.

Q: I have no debt, max out my Health Savings Account and get a company for my Roth 401k. Should I max out my Roth IRA or invest in my company’s stock...or both?

I suggest that you keep maxing out that Health Savings Account. and begin maxing out your Roth IRA versus investing in your company stock. I have a personal bias against folks investing in the stock of the company that also pays their salary… even at a 10% discount. Enron was once a thriving company, too (yes, the origin of my bias has been revealed). You seem to be a very discerning investor – no debt, a routine saver going the Roth route, optimizing the match, and maxing out an HSA. I like your style. Stay the course.