January 09, 2024

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The average American's credit card balance has been reported on heavily in recent months as the nation's total surpassed $1T for the first time. This sounds bad, but can you guess what the average inflation-adjusted balance was just 4 years ago? Is it — A. $8,120 B. $9,456, or C. $10,847?

Here are the topics for today:

Is it Time to Phase Out Mutual Funds?
401(k) Mistakes to Avoid in 2024
How to Pay Off Your Credit Cards Quicker

INVESTING

Is it Time to Phase Out Mutual Funds?

Mutual funds and exchange-traded funds (ETFs) are two peas in a pod. They share a lot of similarities on their journey to achieve the same goal, but there are some important differences.

Their past and present

Mutual funds predate ETFs by almost 70 years, starting all the way back in 1924 with the $MITTX fund, whereas our first ETF didn't arrive until 1993 via SPDR's $SPY fund.

The long history of mutual funds is reflected in the number of funds they hold too, with US assets under management (AUM) totaling almost $22T at the end of 2022 — and that's after a sharp decline.

The popularity of ETFs has boomed lately, but they still lag by a lot even after growing by 130% to $7.6T since 2018.

Their future

But there's no denying that mutual funds have been on the decline. Assets under management have dropped by almost 20% since their 2021 peak, dinged even more by -$431B of outflows in 2023.

Why is that? Well, mutual funds come with some distinct differences that can hurt investors' wallets. Mutual funds tend to cost investors more in taxes, more in fees, and carry a higher risk if they're actively managed.

The capital gains mutual funds distribute can be especially painful if they're held in a taxable account such as a brokerage, Roth IRA, or 401(k). With the overwhelming majority of them being actively managed (92.2%), the fees don't help either.

Should you switch your mutual fund for a comparable ETF? Maybe.

Because of these differences, mutual funds may have shortcomings that aren't suitable for every investor. If that's you, it might be time to consider swapping out your mutual fund for a comparable ETF.

How do you go about doing so? It's fairly simple for the most part. For one, check with your existing mutual fund provider's website to see what comparable ETFs they have available.

For example, if you own $VTSAX in your retirement account and you'd prefer to keep your asset allocation about the same, the most logical choice to switch to would be something like $VTI, the ETF equivalent to your mutual fund.

💡 Top tip: Check in with an Origin financial planner and find out if there are other ways to optimize your portfolio and minimize expenses.

RETIREMENT INVESTING

401(k) Mistakes to Avoid in 2024

401(k)s are by far the most popular kind of retirement account used by working folks in the U.S., taking up nearly double the market share relative to their IRA counterparts. They are without a doubt the backbone of retirement saving, meaning easy mistakes can quickly harm millions.

We've often talked quite a bit about what you should do with your 401(k), but perhaps not enough about what not to do. Let's take a look at some of the most common, yet often overlooked, mistakes made by 401(k) owners — and why 2024 is a good time to start avoiding them.

Our top 5 mistakes

Not matching: 98% of employers that offer 401(k) plans are also offering a full or partial match, and not taking advantage of that if possible is to miss out on free money. If you make $50K and your employer offers a 50% match on your contributions of up to 6% of your salary, not only are you missing out on $1,500 of free money that year, but $1,500 per year and all of the capital gains compounding that comes with that.
Not vesting: Although an employer match is technically free money, that money is sometimes not available to you until it's considered "vested" — meaning you're not eligible to keep those funds until a certain period of time has passed. Sometimes this is instant, but sometimes it takes years. Each employer is different. We understand that sometimes circumstances change, but if you've accrued a significant amount of unvested funds and the situation is salvageable, it would be worth another look.
Not making it a habit: The fire of compound interest burns the hottest when it's consistently being stoked, not when we just throw on a log every once in a while. Not making saving a habit can eventually cost 401(k) holders thousands of dollars in the long run. Make sure your 401(k) is set up to automatically deduct the amount you choose every paycheck, and adjust it upward if possible — even 1% can be huge in the long run.
Not knowing your holdings: Although it seems pretty foundational, the reality is that it's extremely common for 401(k) account holders to simply not know what they're invested in. It's often easy to take the "set it and forget it" approach to an extreme here, but this lack of attention and optimization can yet again cost you thousands over the long haul.
Not picking the right account type: This falls right in line with letting your account go on autopilot. 401(k)s come in different flavors, all having different pros and cons for different situations. Not knowing the difference between a traditional 401(k) and a Roth 401(k), for example, can end up causing you to choose one that costs you more in taxes.

MONEY TIP

How to Pay Off Your Credit Cards Quicker

The average household in the U.S. has over $10,000 in credit card debt. But, guess what? Historically speaking, that's actually not as bad as it's made to sound. Adjusted for inflation, the mean household credit card balance was often actually higher than this over the last two decades.

Now that the numbers have been put in perspective, let's acknowledge the fact that it is equally burdensome to be in this much credit card debt in 2024. History aside, the problem is the same, and the solutions remain as well.

But what's the most efficient way to eliminate CC debt? There has to be a faster way, right?

Here are a few helpful methods

Generate momentum by paying down your smallest balances or itemized purchases first. This is classically known as the snowball method, and although it might seem like a mind game, getting the psychology right can actually prove beneficial to both your cadence and attitude toward the process.
Stop viewing it as dollars spent. It can be tempting to keep credit card debt around longer in an effort to maintain savings, but when you already have an emergency fund established, not using that money to pay off debt hurts your payoff timeline. Instead of viewing it as dollars spent, realize that spending that money to pay off debt actually has a neutral effect on your net worth. You're losing money, but your net worth remains the same while eliminating debt.
Stop using them until it's paid off. It's common to use credit cards for everyday purchases and reap the benefits of cashback. Even if you plan to pay off these routine transactions regularly, continuing to use your credit cards at all can have a subconscious influence on your debt levels. Go cold turkey — it might shave a few months off of your path to being debt-free.

🌊 BY THE WAY

💳 Answer: It's C., $10,847. This is about $600 higher than the average household balance from late 2023. Maybe we should give ourselves more credit? (WalletHub)
🌍 20 states still have the $7.25 minimum wage in 2024 (Axios)
🥅 The goalposts of 'wealth' keep moving, outpacing consumers (CNBC)

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