I feel stuck in the middle class. Will a loan help me build generational wealth?

On the Money is a monthly advice column. If you want advice on spending, saving, or investing — or any of the complicated emotions that may come up as you prepare to make big financial decisions — you can submit your question on this form. Here, we answer two questions asked by Vox readers, which have been edited and condensed.

I’m doing all the normal things to save for retirement (Roth IRA, employer 401(k), match, ETFs, etc) but it still feels like middle-class money (I’m just getting by and won’t have a surplus to pass down). I have excellent credit, so should I take out a low-interest personal loan and invest in ETFs to increase profit? I want to be the first in my family to build generational wealth.

Dear Middle Class,

Taking out a low-interest personal loan and using the money to purchase ETFs is a terrible idea. First of all, even the best personal loans have higher interest rates than they did a few years ago, with APRs of around 8 percent for people with excellent credit. Second of all, the stock market is currently experiencing both record highs and typical volatility — and although you can try to time your purchases to one of the tumbles (otherwise known as “buying the dip”) you may still end up buying in at a relatively high position.

But even if the stock market were at record lows, going into debt to purchase ETFs is still a bad move. I’m assuming you’ll want to hold on to the ETFs for a while, which means that you’ll need a way to pay off the debt while the money you borrowed is locked up in the market. If you have enough extra income to pull that off, why borrow the money in the first place? Why not just put the extra income directly into the market? 

If you were planning on buying and selling ETFs rapidly enough to make debt payments with the returns and have profit left over to reinvest and/or put into savings, well — good luck with that, I guess. Plenty of people have tried day trading, but only a rare few have come out with more money than they put in. 

I’m not saying that there aren’t instances in which going into debt right now in order to increase your net worth in the long term is a smart move — and if you’d like to learn more about that process, including how to use debt to fund long-term investments in housing, education and (in some cases) the market, I recommend reading Thomas J. Anderson’s The Value of Debt in Building Wealth. This book discusses how much debt you might want to take on at different stages of your life, which could serve as a good metric. Anderson’s book also looks at how much you could save and how you might want to manage your assets as you proceed through life — which brings me to the second, more important part of your question.

You want to know how to get out of your middle-class money situation. You want to end each month with a little extra in the bank, and you want to turn that surplus cash into the kind of wealth that can be passed along to the next generation. 

The truth is that this may not be achievable. Our current economic system is designed to keep as many of us living as close to paycheck-to-paycheck as possible. Since you’re in the middle class, your paycheck-to-paycheck life is probably fairly comfortable, all things considered (which is one of the reasons why the system works) and even Anderson’s book about debt and asset management acknowledges that for many of us, the goal isn’t wealth as much as it is equilibrium, which he defines as the ability to meet your financial needs, manage your debt and save enough money for retirement. 

There are ways for people in your situation to accumulate the kind of surplus, post-retirement cash that can be turned into generational wealth, many of which involve serious frugality combined with serious entrepreneurism. (I combined both of those tactics with a series of moves — first to a lower cost-of-living city and then, a few years later, back to the rural area where I grew up.) 

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

You already know the answer — and it’s the same as it’s always been. Education. Socialization. The ability to make friends and influence people, combined with the skills required to not only navigate but also contribute to an increasingly complex world. This includes financial management skills, which might not extend to a literal inheritance but could help the next generation proceed through their own paycheck-to-paycheck life in a balanced, thoughtful way.

My wife and I are 65. We have retirement money with half getting interest of 5 percent, and the other half in index funds and big-name non-tech stocks. Is there a way to protect this half from large market drops without buying an annuity or putting it all in cash?

Dear Retirement Money,

If you really want to protect your money from large market drops, consider putting it all into cash as soon as you have what you need to fund your retirement. If you happen to have what you need right now, while the market is at an all-time high, you’re in a best-case scenario.

Keep in mind that “selling your investments” doesn’t mean the same thing as “taking distributions from your retirement accounts.” You may be able to put your retirement money into a HYSA or into CDs without taking distributions, and earn a guaranteed return that could keep pace with inflation. (It looks like you’re already doing something like that with a portion of your retirement savings, and I’m glad to see you’re getting 5 percent interest.) If you’re planning on rolling over a 401(k) to put your money in an IRA that gives you access to one of these low-risk options, you might want to talk to a financial advisor who can help you avoid any unexpected tax issues that sometimes show up when you move money from one kind of retirement account to another.

That said, some people prefer to keep their money in the market for as long as possible, aka “buy and hold,” and that strategy could still work for you as long as you have enough time on the horizon to handle market volatility. If you’re 65, you might have another 30 to 40 investing years ahead of you — which is plenty of time for the market to rise, then drop, then rise again (and then rise and drop a few more times for good measure).

It’s also worth doing the math on whether your investments are likely to ever yield the value you need to support you during retirement. If you aren’t going to earn enough money through investing, then you may need to start thinking about other ways to fund your golden years.

Since I gave the last letter-writer a book recommendation, I’ll give you one as well: Morgan Housel’s The Psychology of Money. Housel writes honestly and carefully about the risks and rewards offered by the stock market, including the risk of large market drops. He explains what people can do to manage those risks and earn as many rewards as possible. He also reminds us that the way we fund retirement today was developed during the 1980s, and we’re still figuring out how to make this new system of 401(k)s and IRAs work for the majority of retirees.

If you want it to work for you, start by assessing how much money you might need for the remainder of your retirement and how much time you have to generate that cash — and then ask yourself how much risk you’re willing to take on.