Just Read Hannah: Volume 2

Oh hello there! 👋 Welcome back to Just Read Hannah, where I dive deeper into the money topics from my videos, answer audience questions, and talk about my latest obsessions! In this week's edition:

In my latest video, I pointed out the subtle flaw in many people’s 401(k)s: investments with really high expense ratios. An expense ratio, expressed as a percentage, is how much of your money the fund provider is taking every year. Most people are blissfully unaware of this because they never actually see the money leave their account - it doesn’t show up as a withdrawal or transaction - it just silently reduces your balance.

As an example, in my 401(k) at Fidelity, they have two main options available for international stocks:

So two very similar funds - both investing in large, international stocks across the globe. One follows a passive strategy (just aims to track the overall market) and one follows an active strategy (aims to beat the overall market).

The active strategy sounds appealing, until you read the scores of data and research that shows that the vast majority of active funds, more than 90% in most categories, underperform their index over 15 to 20 years. And this isn’t just a bad run - studies show that this is a permanent structural reality rather than a rough patch, and investors are best served by low-cost index funds.

That “structural reality” is largely the higher fees they charge. 0.031% vs 0.59% might not seem like a big deal, but it can add up to a massive difference over time, due to the effect of compounding.

Let’s take two people, each maxes out their 401(k) each year, starting at 35 - $24,500. One invests entirely in passive funds, paying 0.031%. The other invests in active funds, paying 0.59%. Before fees, let’s say both grow by 8% per year, on average over the next 30 years.

How’s their account looking when they stop working at 65? Let’s take a peek. 🔎

That’s a 10% smaller retirement, or a down-payment for your retirement villa in St. Tropez.

(Side note - both scenarios show that investing over time builds a lot of wealth, even if the fees are a drag. So even more important than avoiding high fees is making sure you actually invest in the first place!)

So here’s your (quick and easy) homework: log into your 401(k), find where it lists what you’re invested in, and look up the expense ratio. Anything over 0.20% is worth a second look. If it’s high, it’s likely one of these old school actively-managed mutual funds. They were big with boomers before index funds were widely available, and they remain in these plans because they are cash cows for the fund companies and 401(k) providers. This isn’t financial advice, but I’d strongly encourage folks to consider moving this money into a low-cost index fund. Future you will thank you.

I plan to include deals, tips, and hacks I personally use in this newsletter. All my friends know I love getting a deal and finding under-the-radar tricks to save money, and I love sharing those finds even more.

This week, I wanted to highlight inKind. My friend Steph put me onto it a few weeks ago, and I was skeptical at first, but now I’m obsessed. Essentially they give financing/capital to restaurants and coffee shops, except instead of having to repay in cash, the businesses repay it in Food & Beverage credits, which inKind users can earn when they pay via the inKind app. So the businesses win via lower-risk, lower-cost capital (vs. taking on debt), users win with juicy cash-back (in the form of credits) at local restaurants, and inKind wins off of the spread, marketing opportunities, etc.

If you sign up with my referral link we both get a little bonus cash to use at local spots. My link will get you $25, but if you find a better one, please use it!!!

Great question, Katie! Savings vs. something like VT/VTI is really about time horizon. If it’s long term money (e.g. for retirement, general wealth building, stuff you won’t need for 10+ years) I focus 100% on stocks like VT. They have the highest expected returns over the long term, but can be very volatile in the short-term, so not good for money you might need to access.

If it’s short-term money, like saving for a downpayment for a house or another big expense, I keep all of that all in something risk free like savings, because you don’t want to risk that money falling in a market downturn.

Savings is also great for an emergency fund. Anywhere from 3-12 months of spending needs in case something unexpected happened like job loss or surprise medical expenses.

This has nothing to with finance, tips, advice, or otherwise, but I thought it might be fun to include some of the other things I’m into at the end of these posts. I’M A WELL-ROUNDED HUMAN, I SWEAR!

I absolutely love reading, and right now I'm deep into The Daughters' War by Christopher Buehlman (poet, playwright, novelist - the man contains multitudes). I'm only 25% in and already blown away. It technically lands in grimdark fantasy, but his prose elevates it into something else entirely. The protagonist is a (female! queer!) warrior in a special division of the kingdom's military who fights alongside war corvids (think 6-foot-tall crows) against an existential threat to their world.

It's propulsive, clever, and genuinely beautiful. Consider this the first of hopefully many Hannah Book Recs!

That’s all for now. I know this was a long one, but I’m learning I have so much I want to share! Thank you so much for taking the time, and I hope to see you again next time!

xx

Hannah

P.S. I read all emails, comments, and dms, and sometimes I even feature them in this newsletter! (with permission of course). Keep sending me questions, comments, or words of encouragement. I love it!

Fine print: this is not financial advice and I'm not your advisor, just a person with opinions and a spreadsheet. For actual money decisions, please talk to a licensed professional who knows your full picture.