Retirement and intergenerational wealth: Should you take out loans to invest?

On the Money is a monthly advice column. If you want advice on spending, saving or investing — or any of the mixed emotions that might arise as you prepare to make a big financial decision — you can Submit your questions on this formHere, we answer two questions submitted by Vox readers, edited and condensed.

I’m doing all the normal things to save for retirement (Roth IRA, employer 401(k), matching, ETFs, etc.), but it still feels like middle-class money (I can barely get by with nothing left over to pass on to future generations). My credit is pretty good, so should I take out a low-interest personal loan and invest in ETFs to grow my profits? I want to be the first in my family to build generational wealth.

Taking out a low-interest personal loan and using that money to buy ETFs is a terrible idea. First, even the best personal loans have higher interest rates than they did a few years ago. For people with good credit, the annual interest rate is about 8%Second, the stock market is currently experiencing all-time highs and typical volatility – while you can try to time your purchases during a dip (also known as “buying the dip”), you may still end up buying at a relatively high level.

But even with the stock market at historic lows, borrowing money to buy ETFs is still a bad move. I’m guessing you’ll want to hold the ETF for a while, which means you’ll need a way to pay off the debt, and the money you borrow will be locked up in the market. If you have enough extra income to make this happen, why borrow the money in the first place? Why not just invest the extra income in the market?

If you plan to buy and sell ETFs quickly so that you can pay off debt with the proceeds and have some profit left over for reinvestment and/or savings, then — I guess, good luck to you. Many people have tried day trading.But only a very small number of people get more money than they put in.

I’m not saying that borrowing money now to increase your long-term net worth isn’t a smart move in some cases—if you want to learn more about this process, including how to use debt to make long-term investments for housing, education, and (in some cases) the markets, I recommend reading Thomas J. Anderson’s The Value of Debt in Wealth BuildingThe book discusses how much debt you might want to take on at different stages of life, which can be a good gauge. Anderson’s book also explores how much you can save and how you might want to manage your assets throughout your life – which brings me to the second, more important part of your question.

Do you want to know how to get rid of your The financial situation of the middle classYou want to have a little extra money in your bank account at the end of each month, and you want to turn that extra cash into wealth that you can pass on to the next generation.

The truth is, that’s probably not possible. Our current economic system is designed to keep as many people living paycheck to paycheck as possible. Since you’re middle class, your paycheck to paycheck life is probably pretty comfortable by all accounts (which is one reason the system works), and even Anderson’s book on debt and asset management acknowledges that for many of us, the goal isn’t wealth but balance, which he defines as the ability to meet your financial needs, manage your debt, and save enough for retirement.

For people in your situation, there are many ways to accumulate surplus cash in retirement and turn it into generational wealth, many of which require serious frugality combined with serious entrepreneurship. (I combined the two strategies and took a series of steps—first Cities with a lower cost of living A few years later, I returned to the village where I grew up.

But let’s say you like your job, and you like where you live. Let’s even say you like the way you spend your money. What else can you pass on to the next generation to ensure they have a better chance of escaping the middle-class paycheck-to-paycheck lifestyle?

You already know the answer – it’s the same as always. Education. Networking. Make friends and influence othersand incorporate the skills needed to not only navigate an increasingly complex world, but to contribute to it. This includes financial management skills, which may not extend to literal inheritance, but can help the next generation live their paycheck to paycheck in a balanced, thoughtful way.

My wife and I are 65 years old. We have a retirement fund with half earning 5% interest and the other half invested in index funds and well-known non-tech stocks. Is there a way to protect this half from a big market drop without buying an annuity or putting it all in cash?

If you really want to protect your money from a big market drop, then once you have what you need for retirement, consider cashing it all in. If you happen to have what you need now, and the market is at an all-time high, you’re in the best position.

Remember, “selling your investments” does not mean “taking money from your retirement account.” You can house or CD You get a guaranteed return that keeps pace with inflation without taking distributions. (It looks like you’ve already done something similar with part of your retirement savings, and I’m glad to see you’re earning 5% interest.) If you’re planning to roll your 401(k) into an IRA so you can use one of these low-risk options, you may want to consult a financial advisor who can help you avoid any unexpected tax issues when you retire. Transferring money from one retirement account to another.

Still, some people prefer to keep their money in the market for as long as possible, a.k.a. “buy and hold,” and that strategy can still work for you, as long as you have enough time to ride out market fluctuations. If you’re 65, you probably have 30 to 40 years left to invest—enough time to see the market go up, down, and up again (and then down a few more times).

It’s also worth calculating whether your investments are likely to generate enough value to support you in retirement. If you can’t make enough money from your investments, then you may need to start considering Other Ways to Fund Your Golden Years.

Since I recommended a book to the last writer, I recommend one to you: Morgan Hauser’s The psychology of moneyHousel writes honestly and carefully about the risks and rewards of the stock market, including the risks of a large market decline. He explains what people can do to manage these risks and maximize their returns. He also reminds us The way we fund retirement care today was developed in the 1980s.We are still figuring out how to make this new system of 401(k)s and IRAs work for most retirees.

If you want it to work for you, first assess how much money you might need during the rest of retirement and how much time you have to earn that cash — then ask yourself how much risk you’re willing to take.