Smart Money Podcast: Reducing Taxes, and Picking the Best Investing Platform

Welcome to NerdWallet's Smart Money podcast where we answer your questions about real money.
This week's episode begins with a discussion of the few remaining ways people can lower their tax burdens, including making a higher contribution to retirement and health funds.
Then we turn to this week's question from Marco in New York, who says, “I've learned a little about stocks, index funds, mutual funds, and a lot more, but it's very overwhelming and I've just been trying for weeks to decide where to open an account. I was hoping you could learn more about how to choose the best platform to invest your money in. What makes some people better than others? I also currently have a 401 (k) through my company. Is it wise to have my personal investments on the same platform to be consistent? "
Do you have a question about money? Write us an SMS or call us at 901-730-6373. Or you can email us at To hear previous episodes, return to the podcast home page.
Check out this episode on one of these platforms:
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Our opinion
Fortunately, you don't have to be an expert to open a brokerage account and start investing. It's a learning project. The most important thing is to start as early as possible. The longer you are in the market, the more wealth you can build.
If you find yourself overwhelmed, you should start with an option that does most of the work for you, such as: B. a robo-advisor. These computerized platforms ask you a few questions and then put together a portfolio of investments that are constantly monitored and adjusted.
If you want to be more practical, the best investment platform will depend on a number of factors. Some firms specialize in helping new investors learn, with plenty of online educational materials and live seminars. If you are on a budget, you should look for a platform that has low cost to open an account or that offers fractional shares (basically, a portion of a stock share that might otherwise be too expensive to buy). If you want to trade on a daily basis, some platforms have more robust analytics tools and support for them than others. If you are specifically looking to invest in mutual funds, you may need to avoid certain brokers that don't offer funds. If you can open an individual account with your 401 (k) provider, this can be a convenient option. However, make sure you are getting the features and resources you need at a reasonable cost.
NerdWallet has reviews to help you sort out your options and find the best place to start.
Our tips
Dive in. You can learn how to walk.
It's not a one size fits all. The best platform will depend on a number of factors including how convenient you want to be.
Consider a robo-advisor. A company that uses computer algorithms to select investments can do the heavy lifting for you.
Episode log
Liz Weston: Welcome to the NerdWallet Smart Money Podcast where we answer your personal finance questions and help you feel a little smarter about what you are doing with your money. I am Liz Weston.
Sean Pyles: And I'm Sean Pyles. You know the exercise. Send us your money questions. Maybe you want to know if your credit is a good place to buy a home or you just want to improve your investment game. Whatever your money questions, we are here to answer them. You can call us on the nerd hotline at 901-730-6373 or send an SMS. That is 901-730-NERD or send an email to
Liz: And hit that subscription button if you want to bring more nerdy goodness to your devices every Monday. If you like what you hear, leave us a review. And one more plug before we get to the episode: we are working on a special podcast in which we will share what you have learned about your finances this year due to the pandemic or other reasons. But to do that we need to hear from you.
Sean: Right. We want your voice to be there. Please email us or send us a voice memo of your financial lessons from the wild 2020. Send them to For your voice memos, just open this voice memo app on your phone, record your thoughts, and we'll post them in a future episode.
Liz: We can't wait to hear from you so I hope you do. OK, let's get to this episode. This week we're answering a listener's money question about which investment platforms are best suited. First of all, in our This Week In Your Money segment, let's talk about how you can cut your tax burden for the next year.
Sean: Right. We are now somehow in the last quarter of the year, which means you only have a few months to reduce your tax liability for the year. Liz, let's discuss some of the ways people can do this. Where should people start?
Liz: Well the reality is that people don't have a lot of options left to reduce their tax burden. Most people don't list, and that way, you've always had to compile your prints and lower the bill. So the options left to people are fewer, but they can actually be quite effective in reducing your taxable income, and the most important one is saving for retirement - putting money in a 401 (k) when you have one , IRA if you don't. This can lower your tax burden and prepare you for the future. That is obviously the point of contact. And if you have a 401 (k), you can likely get a match for at least some of that money. Again, it's not just a tax break, it's also free money. If you have low or moderate income, there is a tax credit in addition to the tax deduction. Again, it's like topping up your retirement savings - that's a really good thing.
Sean: OK. One thing I wanted to mention is for people who still have federal student loans to pay them back. I am in this camp. Obviously, many payments have been put on hold due to COVID relief bills, but if you still owe interest on these loans it might not be a bad idea to keep paying them as people can generally write off around $ 2,500 in interest. Personally, good or bad, I am past this point in repaying my student loans, so I am not currently paying my loans. But if you owe interest, you might as well do it so that you can get the tax break for the tax season next year.
Liz: Yeah. It's $ 2,500. It uses it or it loses it. You can't make it up for it in years to come, that's probably a good idea.
Sean: Right. And one thing I want to talk about too is copying donations. This is something that has gotten tougher for people after the tax changes in 2017. However, there is one minor change for the 2020 tax year that allows people to write off up to $ 300 in monetary donations without having to list them, which can make this a lot easier to process. We all donated more this year, at least I know that I want to use that too.
Liz: Yeah. And that was the real concern for charities: Because so many people lost that deduction, they feared that people would give less. It seemed like this happened before the pandemic, but now there seems to be this real surge in generosity that is great. And you should take advantage of that little tax break when you can get it.
Sean: What if I spent $ 70,000 on hair styling last year? Can i copy that
Liz: No, there are all sorts of fun things that you can't copy.
Sean: OK. Darn it. It was a waste of $ 70,000.
Liz: Yeah, well. Now if we go back to talking about Shea Couleé, if you are a drag artist and this is something you do to raise money, it is completely different. But yeah, for most people ...
Sean: ... It would have to be a business expense.
Liz: Yeah. And they can be difficult. If you have a side business, you should have a tax professional too. Ask your tax advisor about it.
Sean: I also want to hear from you, Liz, about flex spending accounts and health savings accounts as these are two great options for people too. Can you talk a little bit about it
Liz: Yeah. And right now we are in the open registration season. So this is the perfect time to talk about it. So flexible spending accounts and health savings accounts are separate things, and FSAs are even broken into two things. They are for medical expenses and for child care. No wonder people are very confused about this.
Sean: Right. Too many letters.
Liz: Yeah, too many letters. The fact is, however, that this is input tax. So you're saving your income, saving taxes, and putting aside money that you are likely to be spending on these things anyway. An easy way to do this is to look at your last year expenses, for example medical expenses - your out-of-pocket expenses. And you should be investing at least as much in your FSA, Flexible Spending Account, if you have one. And people worry about FSAs because they are using or losing them. However, you usually have some time to spend it after the year ends, and you can spend it on a lot of different things, so it's pretty flexible. There are also FSAs for childcare. And again, right now nobody is using childcare or very few people can use childcare. It won't stay that way forever. It's something to think about next year. At some point when you have children, you will need care again, so it might help.
Health savings accounts are really loaded, super amazing things, but they are not for everyone. And what HSAs do is they are an account that is tied to high deductible health insurance. When you put money in the HSA, you get a tax break for putting it in. The money can be invested. Not only does it sit there, it can also become deferred for tax purposes. And when you take it out and use it for medical expenses, it's tax free. It's like this triple threat - there are three different tax breaks.
Sean: But it's not for everyone.
Liz: It's not for everyone. And a lot of financial advisors tend to push these things forward because it really is the best thing since sliced ​​bread. Some even like it better than 401 (k) s, but not everyone should have a high deductible account. If you have chronic medical conditions, if you have kids, if you don't have the savings to cover that deductible, and if you were deferring health care, it all means the high deductible plan is likely not for you, which means that HSA is not for you. However, if you find yourself in a category where this might help, be sure to check this out.
Sean: I know you wrote an article about it, right?
Liz: I'm sure I did.
Sean: All right. Well, we can dig it up from the archives and link to it in our show notes post.
Liz: I didn't write it, but we have an article at NerdWallet about HSAs and FSAs, how they differ, how they are similar, and we can refer to it in the show notes.
Sean: OK. One last thing I know might be of paramount importance to some people. I've got this question from a couple of friends so far this year, and it's about whether they can write off that portion of their apartment or house that they'll be using as a home office next year on their taxes. What about it?
Liz: Oh yeah. That's a good question. The home office tax deduction is a business allowance, which means you must have a business income, [form] 1099, something like that. It's not really for employees. And there are rules for that, so you definitely want to do some research and maybe speak to a tax professional, but that's one way to save a little bit more on a tax bill.
Sean: All right. Well I think that covers it for now. People have a few months left to sort this out, but I think now is a good time to look into it. Perhaps over the upcoming vacation you will spend some time figuring out how to get the tax cuts to help you when you need to apply next year as you will not be able to do so after that year.
Liz: Yeah, the clock is ticking.
Sean: All right. Let's get to the money issue of this episode, which was written by Marco in Brooklyn. You write: “Hey NerdWallet. I absolutely love your podcast and it was a great resource for getting knowledge about investing while quarantined. I am 27 years old and live in Brooklyn. My money has been in a savings account for years. The reason I didn't touch it and gradually added it is that I always had the intention of buying real estate. But as I get old I realize that shopping in New York City seems daunting, and I don't think I want to put my money into a 5 by 5 bedroom. "I can understand that, Marco.
Well. “With this in mind, I recently started researching how to invest. I've learned about stocks, index funds, mutual funds, and a lot more, but it's very overwhelming and I've just spent weeks trying to decide where to open an account. I was hoping you could learn more about how to choose the best platform to invest your money in. What makes some people better than others? I also currently have a 401 (k) through my company. Is it wise to have my personal investments on the same platform to be consistent? Thanks for your info as always. "
Liz: Oh, I love these questions from "older" 27 year olds.
Sean: I know. I was going to say Marco, you are 27 and this is not old, but I appreciate the detail of your question so thanks for that. But again, 27 isn't old, and indeed, that age could be a huge benefit for you. To answer Marco's question about this episode of the pod, let's speak to Kevin Voigt, an investing super nerd.
Liz: Oh, I'm really looking forward to it. Hey Kevin, welcome to the show.
Kevin Voigt: Hi guys. Thanks for the invitation.
Sean: We are very happy to have you. We have that question and we knew we had to have you. Our dear, undecided and older 27-year-old Marco wants to invest but doesn't know how to start. What do you think about it?
Kevin: First of all, like you said, oh my god, I wish I was Marco. I would like to go back to my 27 year old self and say, “Please invest more in your 401 (k). Are you starting to invest in your 401 (k), but why not do something about the $ 10,000 credit card debt that you keep going? "It seems like he's in a great position to invest. And it's so surprising. Ever since the stock market started its turmoil with the coronavirus, a lot of people go in and what they call the dip when the Prices go down when the market goes down, get in there and buy Marco mentioned he has a savings account, which is great. That's great. Definitely do that. But we're in a low interest rate environment right now - really low historically And in a savings account, you can expect to currently earn 1% interest per year or less.
Sean: Yeah, a lot less than a year ago.
Kevin: If you invest in the S&P 500 or in stocks related to the S&P 500, that has averaged 8% interest per year over the past 50 years. The difference between 1% and 8% is obviously big, and Marco has the biggest advantage an investor has, which is time. Oh my God. I pulled out the trustworthy NerdWallet investment calculator just to say OK, if Marco pays $ 100 [per month] into the savings account and earns 1% while investing that money and making an average of 8% what would be the difference over 10 Years? And in 10 years he would be making about $ 700 in interest at 1%. At 8%, he would earn $ 7,000 in interest over the same period. It's just the magic of compound interest.
Liz: But Kevin, we should point out that you don't get an 8% guarantee every year, right?
Kevin: Oh, that's for sure. That's it. Investing is a long-haul strategy as that 8% seems mathematically good over time. Meanwhile, the S&P 500 fell 34% between February and March. But there will always be a churn in the amount you might get out of your investments, right? But time is on your side so that investments definitely pay off compared to what you bought the original investment for.
Sean: Investing, especially if you don't need that money in the next five years, is a breeze. You'll just do more, and that has been proven over time. But Marco was pretty unsure how to invest. He mentioned stocks, index funds, mutual funds. Can we talk about each of these options and maybe talk about some advantages and disadvantages?
Kevin: Sure. Stocks are probably the most common thing people have heard of. You're buying stock in a publicly traded company - the apples of the world, Microsoft - there are thousands of publicly traded companies. And you literally become the owner of it for every amount you buy in it. The disadvantage with stocks is that it is difficult to buy many stocks in many different companies. And you don't want to buy too many stocks in just one company because that company may be fine now, but who knows five or ten years from now? Enter mutual funds. And mutual funds - "We buy the stocks so you don't have to." It's companies that go out and buy and invest in all of these different businesses. Instead, you buy shares in this fund.
The other thing he mentioned was index funds, and index funds are like mutual funds in that they go out and buy all stocks so you don't have to. But where they differ is - you heard about this thing, the S&P 500 - which is a stock market index with the largest market share. 500 companies in US index funds come up with the idea, “Hey, you know what? We don't necessarily want to beat the market, we want to be the market. "As we found, the S&P 500 is up 8% on average. It's a jagged line, but on average every year. And index fund investors say," You know what? That's fine. I'll take that. "While a lot of mutual funds or actively managed mutual funds are trying to beat the market. When the S&P 500 averages 8%, they want to bring in 10% or 12%. News flash: They rarely do that. It's very difficult to beat the market.This is the description of these three assets - stocks, mutual funds, and index funds.
Liz: And I know at NerdWallet, we really like the index fund approach because it's passive and cheap. Warren Buffett likes it too, right?
Kevin: Yeah. Warren Buffett is famous for saying it, and this is probably good advice for Marco to hear if there are a bewitching number of things you could do. There is stocks, there is options trading, there is futures trading. What about forex? You can buy a well-diversified fund or two, put more money in them regularly, call it a day and open the piggy bank after retirement and enjoy your life.
Liz: And you will probably do a lot better.
Kevin: Yeah. For sure.
Liz: Okay, Kevin. We've discussed the basics of your investment. How do you invest now? How do you proceed?
Kevin: Right. And here Marco seems to be frozen. "What do I do? There are so many" - and there are. We review dozens of different brokerage deals, and that's what you need to do in order to open a brokerage account. With stocks, you can't go to a department store and say, "I'd love to buy Apple stock, please." You need to go through a licensed brokerage and that opens a brokerage account. So this is for starters. You need to open a brokerage account to start trading. Then the next decision - and if Marco were in the room, I could ask him a few more questions about it because he mentioned stocks, index funds, mutual funds - which one should I go? The next decision you have to make is, "OK, do I want to do all of this myself?" That is, "I'll choose which stock, I'll choose which index fund. ..." We don't have bonds, or exchange-traded funds, or all of these various asset classes. "... would I like someone to do this myself?"
And when you do, you'll want to open a self-directed brokerage account where you basically answer a few questions and fund the account. And once you've funded your account, you still have time to decide what to buy. So you can actually fund your account before you make that decision to buy or do any further research, but you need to have that to get started. And there are many out there. For example Ally Invest, Fidelity, Merrill Lynch, Schwab, Robinhood, SoFi Invest, TradeStation, Vanguard and some of those names you know, some have only been around for a few years. It was really the advent and explosion of technology and online commerce that really expanded the number of options consumers have in this regard.
If instead you want someone to "make these decisions for me, I'll give you the money and you tell me where to go," your next choice would be a robo-advisor. These are companies that you go online. You fill out a questionnaire detailing your risk profile and most of these robo-advisors have different portfolios to choose from based on your risk profile. And that is what you do, you sign up, and often when you sign up for regular posts they push the startup limits and lower an account. There are quite a number of other names to choose from in this world. There's Betterment, there's Wealthfront, there's E * TRADE, Schwab has it too, Ally Invest, many others who offer this form It's a real innovator for investors.
Sean: And I thought this was probably the easiest way for Marco to go because there are a lot fewer choices. And when you're circling and trying to figure out what to do, it's easier to just find one that does a lot of the heavy lifting and complicated math, and all of that for you. When I was just starting to invest, I was pretty much in the same position as Marco. I wanted to, but it took me a long time to figure out how to do it. And as soon as I jumped in and signed up for a robo-advisor, I was shocked at how quick it was to sign up. It took me 15 minutes versus the 15 hours I'd spent thinking about all of these different options. But now that I do it and have monthly dues, it is a huge relief to know that I am doing something. And again I hardly think about it because it is easy and I have my contributions. But when I think about it, I pat myself on the back because I actually invested. I think that would be a good option.
Kevin: Yeah. And it's beneficial because it's similar to Netflix. You simply sign up for it and receive a direct deposit every month. It is really easy. But many people like to actively invest. The longer I've been here at NerdWallet, the more I don't like actively investing for myself because it's really scary. But a lot of people, certainly in these times when we are seeing it, a lot of people are very excited to try more advanced investment opportunities for themselves. And we spend a lot of time looking for these consumers as to which platforms are the best for options trading. What are the best platforms for forex? And so on. But personally: "Yes, please do it for me."
Sean: Yeah. Well, that brings me to my next question: what would one of these do better than another? Because that was also an important part of Marco's question.
Kevin: Yes, and it's difficult to answer without Marco in the room. And this might be a good time to pause and say that for any investor like Marco it wouldn't be bad to spend some of those savings to see a paid financial advisor or two to help you get out with some of these thoughts. And it's always good to get an outside opinion on your financial condition. Even so, there are so many of these brokers out there right now and they all have really different characteristics. It really depends on what you are looking for. If you are new to investing and want to learn more about investing for yourself, there are plenty of companies out there that specialize in strong educational resources, live seminars, and of course an extensive bank of online educational materials. That could be a new way.
If you are a fund investor, there are some brokers out there who don't trade in mutual funds or index funds. So be careful if you sign up for a service and find out, oh wait, I can't buy index funds or mutual funds through this provider. Obviously, if you're on a budget, you'll want to look for someone whose cost of opening an account is low or who might have options like partial shares. Buying Apple stock is very expensive. So fractional stocks are like just buying an affordable piece of it. That would be one thing to see. And if you want to go the daily business route - I don't have the stomach for it, but if you do - then there are definitely vendors out there who have very heavy analysis tools, a very deep bank of resources that you can possibly pay you additionally at your standard brokerage fees. But they're out there waiting for you. It really depends on what you want to make of it I think.
Liz: So, Kevin, Marco asked if he should use the same platform for his individual account as he did for his 401 (k). What are the pros and cons of it?
Kevin: It's a very good choice when this company has all of the bells and whistles you want. For example, a 401 (k) provider may or may not have partial shares on offer. You may or may not have day trading platforms on offer. I would look at it. There may also be incentives companies offer to encourage you to open a second account with them as well, as in this situation. But as long as this company is doing the things you want to do with your investment life, that's perfectly fine. Why not in one place?
Sean: Should Marco even be worried about putting all of his investment eggs in one investment basket?
Kevin: No, because he doesn't put all his money into any particular investment. It can only be done through this brokerage account. They may have limited choices when it comes to certain types of investments, but no, don't worry about transferring all of your money to that one account.
Liz: Well one of the things that we should really briefly mention is the SIPC (Securities Investor Protection Corporation) insurance.
Kevin: Yeah. SIPC insures broker accounts up to $ 500,000, of which $ 250,000 in cash if the brokerage business fails. That being said, investing is a buyer's caution, so there is no insurance against bad investment decisions.
Sean: Well Kevin, do you have any last words of wisdom for our dear 27 year old older Marco?
Kevin: Yeah. Just a few rules of thumb to always keep in mind when investing are number 1 as you mentioned earlier. I believe, Sean, never invest any cash that you will need again in the next five years. You want the crowd to be able to weather the natural ups and downs of value that will occur over the course of a few years. Another rule of thumb is not to hold more than 10% of your portfolio in individual stocks just to stay diversified. One more warning: if you are looking to buy individual stocks, never invest more than you can afford to lose.
Sean: Well, thank you very much for talking to us, Kevin. Am grateful.

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