Genesis: early on I knew that if I had one objective in my life, it was to never be poor again. And I just knew that I was going to do everything in my power to achieve that.
Jamie: Meet Genesis. She's a 27-year-old business analyst at a big tech company. She lives in Boulder, Colorado with her husband and toddler. She's very proud of how far she's come and isn't shy about sharing her family's struggles. Growing up,
Genesis: I grew up in Virginia with a single mom of three kids. My mom immigrated from Bolivia. We kind of had to figure things out for food. Like, I remember, one of my favorite snacks were canned peaches, we typically wouldn't buy those on our own. They would be from donations, but I remember just like wanting to put, like 10 cans of peaches , on our little order slip.
Jamie: even as a kid. Genesis was aware of how much her mother struggled to make ends meet.
Genesis: I remember my mom coming home late one evening from one of her jobs, I remember just peeking through Essentially, it was like a makeshift bedroom There were bills on table and seeing her , sifting through documents and having her head, in her hands. I didn't know why, but I just felt that tension, that stress that she was experiencing. There was often a lot of arguing, because, we didn't have those. Basic needs met as in, yeah, we had our uh, a few rooms in a basement apartment, but we knew that we suffered from a low income.
Jamie: Genesis worked hard to become the first in her family to go to college, and it's paid off. She has a budding career at a well-known tech company. She owns two properties that provide some additional cash flow, and she began documenting her money journey on social media and now earns additional income as a content creator. But it's a lot to juggle.
Genesis: I recently took a hiatus for six weeks in Bolivia because it became a lot. And I was suffering from a lot of anxiety because if I was at home, I was thinking about work. If I was at work, I was thinking about content. I was thinking about content, I was thinking about my son. And so it's eventually your mind can't really, . Withhold that much information and, so it's a lot and I'm so grateful that I've hustled so strongly for the last four years
Jamie: there's a reason Genesis has been hustling so hard. She has a big goal in mind.
Genesis: I'm on social media, right? And I'm like scrolling and scrolling and I see some people that shared their net worth stories and year over year they doubled it 250 to 500 to a million, right? And if they can do it, why can't I? Immediately, I was like, okay, I currently have half a million dollar net worth, which I'm really proud of, but I wanna double it this year.
Jamie: And that's where we'll start today. I'm Jamie Rowe and welcome to What Should I Do With My Money? An original podcast from Morgan Stanley. We match real people asking real questions about their money with experienced financial advisors. Here at Morgan Stanley, we work with a range of clients. Some are experienced investors, others are new to working with a financial advisor. On this show, you get a front row seat to hear what these initial conversations are like and get answers to some of the questions you might have yourself.
Jamie: Genesis is the primary breadwinner in her family and works several jobs. She's built up a net worth of about half a million dollars and has set a goal to double it in a year's time. She's considering all her options, maximizing her savings, increasing the income from her side, hustles, and maybe just smarter investing. But what's the best way to fit all these pieces together? Will it be enough to help her reach her ultimate goal of buying a dream home? And what kind of guidance does Genesis need to achieve her goals?
Jamie: To help Genesis level up her financial knowledge, we have Ara a first vice president and a financial advisor at Morgan Stanley. She says her approach to financial planning is inspired by her first career as a collegiate athlete.
Ara: I played sports my entire life and I had played, Division I college basketball and as an athlete, I had always been very goal oriented. Now, in my role as a financial advisor, I actually equate it to athletics where I consider myself a financial coach. I help my clients put together financial game plans and we track progress and we set goals and all of these kind of experiences that you have in athletics really do correlate into financial planning.
Jamie: The more she found out about the world of wealth management, the more she saw similarities to the leadership skills she'd learned on the court.
Ara: I was not the best player on the team and had to fight really hard and earn. earned my spot . Ultimately, as a junior was asked to be a captain, even though I wasn't starting. It taught me that it's not just about If I can hit shots, it's about my ability to communicate with my team, to be a team player, to be a leader.
Jamie: Many of ERA'S clients are young professionals like Genesis, who are at the start of their wealth journey.
Ara: I work with a lot of individuals that work at tech companies and have equity compensation as a large part of their wealth. We also work with some founders, some athletes, but many of our clients are kind of that next generation, trying to build their wealth in different ways.
Jamie: Well era, I think you're the perfect fit for Genesis, so I'm gonna turn it over to you.
Ara: thanks Jamie and thanks Genesis for having this chat with me today. I'm so excited to talk to you
Genesis: yes, I'm excited, too. I
Ara: Oh boy, well, we'll get right into it because the time is yours.
Genesis: Okay, I want to double my net worth, right? Basically imagine it's 500, 000 and I just want to double that sucker.
Genesis: How can I do that? I know that I will have to increase my income. That's a given, but what can I do with my investments in order to achieve that goal or at least get me closer?
Ara: Well, with just your investments, it will be very challenging to do that in one year and. Honestly, it's probably not going to happen just with investments that is a very, very, very short time horizon to double your money. so there's a couple of things that we think about when it comes to doubling your money and the first just kind of. Little secret I want to share is About the rule of 72 now this doesn't exactly apply to your situation because we only have a one year timeline for this But for everyone else the rule of 72 essentially tells you how long it's gonna take you to double your money With a given rate of return. So you use the number 72 and divide it by your rate So, in this case, let's just say 6%. And that will give you an approximate number of years that it will take to double your money. So, if we said, okay, 6%, 72 divided by 6%, 12 years to double your money.
Jamie: So someone might think 6%. I can do better than that. But what's good to know is that the average annual return of the stock market measured by the s and p 500 index over the long run is about 10%, a little less when adjusted for inflation. So using this as a proxy for reasonable expectations of market returns, it would take a little over seven years. Now for a one year time horizon, it's even harder to predict because in one year periods, the market can provide returns that are much higher or much lower, even negative.
Ara: So instead, if our goal is to double our money, we need to think about all the other little things that we do every day to help grow our net worth.
Ara: So things like saving more, spending less, and making more money, those are things that are actually going to help increase that total net worth.
Genesis: Okay, That's helpful.
Ara: And then we might want to focus on other things like your forced savings. And what I mean by forced savings is things such as your 401k. So investing as much as possible into your 401k, especially if your employer has a match. And then additionally, if your employer offers things like mega backdoor Roth options, taking advantage of those within your employer.
Jamie: Okay, mega Backdoor Roth. Stay with me.
A regular Roth IRA or Roth 401k is a different flavor of an IRA or 401k.
Jamie: As you may know, as you may know, traditional IRAs and 4 0 1 ks are retirement accounts that allow you to make. Tax deductible contributions for IRAs or before tax contributions from your paycheck for 4 0 1 ks up to a certain limit.
Jamie: The earnings grow tax free, but then the distributions are taxed as ordinary income. When you make withdrawals in retirement with a Roth 401k or IRA, you make. After tax contributions and the earnings grow tax free, but then the distributions do not get taxed as income when you withdraw in retirement. If you meet the requirements for qualified distribution, however, there are income limitations to who's allowed to invest in a Roth IRA, and limits to how much you can contribute to both Roth IRA and Roth 401k. However, there are income limitations to who's allowed to invest in a Roth IRA, and limits to how much you can contribute to both Roth IRA and Roth 401k in 2024. The 401k limit is 23,000. If you're under 50, and if you're over 50, it's 30,500 for IRAs. The 2024 limit is $7,000 or 8,000 if you're over 50.
Jamie: So hopefully you're still with me. A mega backdoor Roth is a strategy available at some companies to enable people who reach the regular 401k contribution limits to make contributions to their traditional 401k on top of the usual limits on an after-tax basis, and either convert them to a Roth 401k within the same plan, or roll them over into a Roth IRA.
Jamie: There are two reasons some people do this. One reason is that you can make additional contributions to your retirement account beyond the limits. I mentioned before for 2024, total contributions are capped at $69,000. If you're 50 or older, the limit is 76,500. This amount includes all contributions to your retirement accounts, including any company match. The other reason people do this is that you can enjoy the benefit of a Roth account where your withdrawals are tax free during retirement.
Jamie: Obviously, this is complicated and there are other nuances to it too, including potential tax implications, so it's best to discuss the options with your tax advisor to see what's right for you.
Ara: Additionally, if your employer has an ESPP program or an employee share purchase program, that's another great way to do forced savings from your paycheck. Not only do you get the benefit of after tax savings, but most companies also buy the shares for you at a discounted price and then also just automating. Automating is an amazing tool where all of a sudden you look at your accounts and you've accumulated all this wealth that you now have to figure out how to invest into things, and that money is just going to continue to compound and make you more money.
Genesis: I like the way that you, it sounds like forced savings. Is that the actual name for it?
Ara: That's what I call it.
Ara: When your savings are out of sight and out of mind, you don't even think about it. And the only time you would really start to worry about it is if you had additional cashflow needs. And then we'd say, okay, where are areas we should adjust to ensure we have enough cashflow to meet our day to day needs.
Genesis: I love that. How can I avoid becoming emotionally attached to an investment? Things like stocks, real estate, whatever it may be.
Ara: Money is emotional. It is very personal, and people tie money to their life events, their families. We have clients that they've inherited stock from their grandfather 20 years ago, and they just won't sell because their grandfather gave it to them. And there's kind of the logical thing to do and in some cases, but then there's always gonna be that emotional aspect. And that's actually one of the benefits of working with a financial advisor. We can help you take the emotion outta some of these decisions and focus on your financial goals.
Jamie: Era boils it down to risk tolerance versus risk capacity.
Ara: So risk tolerance is the amount of risk you're comfortable taking. If it comes down to emotions, and you say, I don't care what happens to this stock, my grandfather gave it to me, I'm holding it no matter what, you're going to feel a little bit more tolerant about how that particular stock moves, but let's say that you have to. Put your kid into college and we are doing that in 18 years. There might be a change in the allocation that has to happen. And that's what our risk capacity is. It's the amount of risk that we have to take in order to achieve those goals. And so there is a conversation that's had about what's more important to you. Is it the emotional need to have this stock for a personal reason, or do I want to reach this other goal?
Jamie: speaking of goals, especially stretch goals, Genesis knows exactly what she wants to put her money toward.
Genesis: Really my financial goal is to afford this $3 million house in Boulder, Colorado. My husband and I we'd go on walks and this house, when we were walking with our three month old, it like piqued my interest and I looked at it and I was like, that's the house that I want. I looked it up on Zillow and I fell in love with it even more. It has two in law suites in there. I also want to have the ability to be able to host my family members, , my mom, whenever she gets of age or my siblings, if they ever want to move in with me. So I do have this desire to, have my family with me. My goal is to buy this house. By the time I'm 30. I have three years
Ara: Okay.
Genesis: If that's the goal that I want, how much do I have to make per year in order to actually afford it? Because sometimes we talk about like affordability. Oh yeah, I can afford that. But it shouldn't be like 80 percent of your income.
Ara: Yeah, well the home sounds lovely, uh, but there are a couple of things to consider when we think about buying a house. And the first thing is how much you can actually afford to put down. So on a $3 million home, generally we would consider putting down 20%. So about $600,000. Then we actually need to determine what is a comfortable monthly payment from a cashflow perspective. That monthly payment also has to take into account your mortgage, your insurance, your property tax, your maintenance, and that might end up being a number that is beyond your current income.
Genesis: Okay,
Jamie: in order to make this home purchase possible, Genesis has a lot of things to think about. Where will her down payment come from? What does her income need to be to afford the monthly carrying costs of that home? Key to all of this will be for Genesis to decide if that dream home is a realistic goal in the next few years, if she also wants to stick to her other financial goals.
Ara: the general rule of thumb would be not to spend more than 28 percent per month of your income on your housing. I think now given inflation and changes in the cost of real estate, it's probably closer to 30 or 35%.
Genesis: That's helpful. I like the percentages, when I can do that, I'll be able to maybe say, yes, I accomplished that Because that easily allows people to just like quickly calculate and be like, Okay, am I good? Or am I bad? Right? So that's really helpful.
Jamie: Genesis also wants to ask about the equity she has at work. Her company stock has been doing well, but she knows she could be doing more with it.
Genesis: I recently had a conversation with a coworker and I told them how much I had in, my tech equity. And they were like, Oh my gosh, I can't believe you've held onto it since you started your job four years ago. And thankfully it has performed well. So for the sake of just rounding down, I'm going to say I have a 100K , in my tech company and, I don't know what to do with it. I imagine I am not very well diversified, and I would like to be, what would you do, with this money?
Ara: The general rule of thumb when it comes to financial planning is to not have more than 20 percent of your net worth in one individual stock. However, my team having specialized in working with individuals that have equity compensation, we have absolutely seen what concentration can do. So we usually like to say that concentration can create wealth, but diversification can preserve it. It just depends on your risk tolerance and how comfortable you are with volatility. Some companies that have been around a really long time and have grown at pretty consistent rates, those are a lot of the companies that our clients they feel a little bit more comfortable holding more concentration versus maybe some newer companies where the verdict's still out on if that's going to go up or down. Another thing I'll note is a lot of times with concentrated positions, our clients Consider this a forced savings. So you continue to save that money, save that money, save that money. And then when it comes time to diversify, they don't know what to do. And in a lot of cases, we might have a low cost basis.
Jamie: Low cost basis means there's a large gap between the price you paid to acquire a stock and the actual value the stock is trading at in the market, or the valuation of the stock. If it's a private company, this is often the case in equity compensation plans. If an employee is given company stock at a reduced price,
Ara: We have to be really aware of the fact that if we sell, we're also going to have a potential capital gain. So keeping in mind what your tax situation looks like is also important when it comes to diversification.
Genesis: That’s really helpful. What s interesting too about that actually that I find extremely valuable in this conversation is I pay tithing. I m Christian. And, that is a huge way to pay tithing with your stock, in order to, reduce your capital gains tax. That's something that I'm focused on this year. Typically, I would pay it, with my paycheck every single, pay cycle. And, now I'm not, which is nice because I basically have more money. But also because I'm reducing my capital gains tax.
Ara: absolutely. I mean, a great way to think about any type of charitable gifting is to use your low basis stock because of the potential for additional deductions and having those conversations with your tax advisor to maximize those deductions is a great, next conversation
Genesis: perfect. Thank you. That's really helpful. From what you know of what my finances are like. Do you have any advice for me of where I could, educate myself on like different, investments or just in general of. areas that I can improve my own finances.
Ara: So I think the first thing I would do is put together your A team. And when I say A team, I mean your accountant, your attorney, and your advisor. That's important, especially when you have multiple side hustles, because there might be potential for tax deductions that you're not familiar with. There might be entities you want to set up that an accountant or attorney can advise on, and having those three people in your corner can really put you in a good position for success.
Genesis: Super helpful. I would say that probably one of the first questions that anyone has when even considering a financial advisor is to know when is it time to get one. And so that's my question for you,
Ara: great question. I like to say that we manage money for people that are unwilling, uninterested or unable to do so. And that is kind of broad, so I'll break that down a little bit more. Someone like yourself where you are really interested in doing it and you enjoy doing it. A financial advisor might help you in other areas. Such as estate planning or insurance planning, but once you continue to grow and grow in your career. You might enjoy it, but you might not have the time. And having to delegate some of those duties to an advisor, such as portfolio management or financial planning can help you excel at what you do in your job and in your side hustles.
Genesis: that's really helpful. When I'm looking at my finances, I realize I'm just trying to save and invest as much as possible, but for me, what is the best way for me to know if I'm on the right track? And obviously this depends on your goals…
Ara: Yeah, of course.
Genesis: right? But like, I don't even know. I don't know how to decide. Oh yeah. You're doing great. Genesis.
Ara: it's tough. I think the definition of success Has to be flexible. One of the things that I look at, especially with my equity compensation clients, where we do have a concentrated position is if the stock went down 20%, 40%, 60%, how would you feel? And if the stock went up 20%, 40%, 60%, how would you feel? the same thing about our net worth if your net worth doubled How would that make you feel and how much would your life change? But how would you feel if it got cut in half and how much? Would that affect your day to day and I think once you get to the point where if your net worth gets cut in half You And you're still going to be okay and be able to reach your goals. I think that's a good measure of feeling like you've been successful.
Genesis: That's helpful. truthfully, I almost see it as like financial therapy. It's like, that's what a therapist does, you know?
Ara: I wanna bring it back to my days as an athlete and talk about making sure that we've practiced enough to where we're actually ready for the game When we have a financial goal. It's not just gonna happen overnight. It usually takes work and a game plan, it takes action, and we have to be able to track those actions and make sure that they're adding to our progress and ultimately our goal. A great place to start would actually be with putting together a game plan, putting that financial plan in place to track our progress and really see where we need to decrease spending, increase savings, or adjust our asset allocation. That will really help us be in the best position possible for success.
Jamie: Well, ERA. Thank you for your guidance today. You provided a straightforward framework for how to increase your net worth, set up for savings, determine the affordability of a home. All very helpful.
Ara: Thank you, Jamie, for having me. And Genesis, thanks so much for the conversation
Genesis: Yes, absolutely. You were extremely helpful. And I feel like I have a really good guideline of where to go next. Thank you
Jamie: so Genesis, was there anything surprising in the guidance Ara shared with you today
Genesis: the mega backdoor, roth investment into my 401k was something that I haven't necessarily explored in the past. And so that's definitely something that I'm going to explore.
Jamie: Are there any other things you're going to explore based on what Ara told you today?
Genesis: Yes. I want to see how much money do I need to make in order for my 3. 2 million house to not exceed the 28 percent rule to buy real estate.
Jamie: That was helpful, right?
Genesis: Yes, it is. Right. Because we often have these goals, um, and I'd say you need to have the mini goals. in order for them to actually be attainable,
Jamie: do you feel differently about your finances in any way?
Genesis: Coming into it, I wasn't sure, like, am I doing well? Like The numbers say I'm doing well. But after the conversation, I'm feeling more confident, and just eager to keep on learning.
Jamie: Well, it was a pleasure having you on today, Genesis. Thank you for coming on and being so forthcoming about your situation and your goals.
Genesis: Yes, absolutely. Thank you so much for having me seriously. A pleasure to talk to financial advisor and to have it recorded.
Jamie: If you'd like a deeper dive on what was discussed today, if you'd like to learn about our spending and budgeting tools, or if you're interested in having a financial plan done for you, come see us@morganstanley.com slash my money.
Jamie: I'm Jamie Rowe. Talk to you soon
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