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Hard-won lessons about money and investing

mattcutts.com

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Re: Hard-won lessons about money and investing

#251

Post by PhantomGremlin »

walshemj wrote: post #87
zo1 wrote: post #82

Earlier quoted context omitted.

What little advice I can offer. From what I've gathered, there is no sure-fire way to protect your capital from constant things such as inflation and wild things such as economic "incidents", for lack of a better term. I've lately been thinking that some more reliable means would be to own a "wealth-generating" business. Or a few of them in varied industries, to mitigate risk. Another method that I've also thought ab…

Indexed Link Gilt's or TIPS (in the USA) can do that

TIPS open up a can of worms that most people probably don't want to deal with, unless the bonds are held in a tax-advantaged account (such as an IRA). Here's the skinny straight from the horse's mouth:[1]

   Form 1099-OID shows the amount by which
   the principal of your TIPS increased due
   to inflation or decreased due to deflation.
   Increases in principal are taxable for the
   year in which they occur, even if your
   TIPS hasn't matured, so you haven't yet
   received a payment of principal.
I.e., you must pay annual taxes on an increase in principal for your TIPS bonds, even though you don't get your cash back from the govt until the bond matures.

No thanks! Count me out of that one!

As a possible alternative (which has its own problems) there are Series I savings bonds (which also attempt to compensate for inflation). Those have the advantage of:[2]

   Tax reporting of interest can be deferred
   until redemption, final maturity, or other
   taxable disposition, whichever occurs first.
[1] http://www.treasurydirect.gov/indiv/research/indepth/tips/re... [2] http://www.treasurydirect.gov/indiv/products/prod_tipsvsibon...

Re: Hard-won lessons about money and investing

#252

Post by PhantomGremlin »

walshemj wrote: post #87
zo1 wrote: post #82

Earlier quoted context omitted.

What little advice I can offer. From what I've gathered, there is no sure-fire way to protect your capital from constant things such as inflation and wild things such as economic "incidents", for lack of a better term. I've lately been thinking that some more reliable means would be to own a "wealth-generating" business. Or a few of them in varied industries, to mitigate risk. Another method that I've also thought ab…

Indexed Link Gilt's or TIPS (in the USA) can do that

My previous reply was critical of TIPS. But I didn't offer an alternative. This is a very complicated issue to deal with; there are so many pluses and minuses to all investments.

But here's an alternative to TIPS: Roth IRA or Roth 401(k). You put your after-tax money in there and then you NEVER have to pay taxes on interest or capital gains. No taxes ever again. Of course that's at the whim of Congress. They can always bend you over 20 years from now by changing the law. TANSTAAFL.

Re: Hard-won lessons about money and investing

#253

Post by PhantomGremlin »

steven2012 wrote: post #7

I'm of the opinion that the stock markets are now inherently unstable, and they will continue to crash every 7-10 years. I'm expecting a market crash somewhere between 2015 and 2017. Most of my money is in cash, but I do hold a few select stocks like AAPL, GOOG and TSLA. I also believe that the stock market is a game , not an investment vehicle. The nature of the market has transformed every since the day trader, qua…

> It's because they make their money from the hundreds of billions of dollars they skim off the top of their customer funds.

The movie Trading Places nailed this, albeit in the context of commodities rather than stocks. But the principle is the same:

   Mortimer Duke: Tell him the good part.

   Randolph Duke: The good part, William, is that,
   no matter whether our clients make money or
   lose money, Duke & Duke get the commissions.

   Mortimer Duke: Well? What do you think,
   Valentine?

   Billy Ray: Sounds to me like you guys a
   couple of bookies.

   Randolph Duke: [chuckling, patting Billy Ray
   on the back] I told you he'd understand.

Re: Hard-won lessons about money and investing

#254

Post by ryandrake »

cma wrote: post #163
ryandrake wrote: post #102

Earlier quoted context omitted.

I question the amount of influence one can actually have on the the trajectory of a start-up, even if you are an early employee. Before I wised up and joined BigUltraMegaCorp, I worked for a number of small companies, and shared offices with brilliant, hard-workers, and we all moved mountains to try to make things work, but at the end of the day, no dice. I'm pretty much convinced at this point that start-up success…

Pets.com had a successful IPO, seems it could have easily beat out the Seibel career.

Possibly bad specific example, although they didn't survive even a year after their IPO. The point remains though. For every start-up success story, there are thousands of failures. Who's smart enough to pick the successes ahead of time AND get a job with one of them?

Re: Hard-won lessons about money and investing

#255

Post by Retric »

tacos wrote: post #235
Retric wrote: post #230

Earlier quoted context omitted.

Long term capital gains is 15% not 50+%. Also, California bonds are far from a risk free investment which is why they pay more than 1%. Remember a 5+ year bond can have negative real returns if inflation increases. EX: People have paid 50 k for a 30 year T bill, waited 5 years and sold that for less than 50k. The important thing to remember in such situations is just because you did not sell the bond does not mean yo…

Muni bond interest is interest dividend income; has nothing to do with capital gains or AMT or whatever else you Googled. I lived in California and received 1099-DIV -- have you? For a Googler making a big salary, that's 39.6% Federal plus 11% California state. Matt didn't say this in his post, you obviously don't know what you're talking about in your comment, and we've once again proven why giving investment advice…

"Muni bond interest is interest dividend income" that's completely irrelevant. It's easy to get a bond whose payout is treated as capital gains and thus taxed at 15% + state tax. As to AMT, it's relevent specificly because Muni bond's can increase your taxes if your under the AMT. Muni bond's can also increase your taxes if your getting money from SS.

Anyway, your really a perfect example of someone that bought bonds without actually really understanding them or their tax implications that well. Sure, it worked out well for you, but when giving advice it's really important to understand the big picture. Not just, hey it worked for me and your probably in exactly the same situation aka let’s assume without saying that everyone lives in California.

Re: Hard-won lessons about money and investing

#256

Post by Retric »

mytochar wrote: post #215
Retric wrote: post #129

Earlier quoted context omitted.

Living really cheaply in SF is really just a question of cheap rent and never eating out. If your willing to have roommates you can get below 1k/month rent making 25k/year living expenses doable. Granted, Heath issues, dependents, or debt can make this a non starter. But, just because most people you work with spend most of what they make every month means you need to do the same.

25k / year living expenses still works out to about 40k per year. And you have a lot of room mates. But now if it's only a quarter of your income, you need... 100k / (1 - (0.28[1] + 0.093[2])) = 159,489. Plus if you retire, you're going to be managing your own health insurance, so the required living expenses number increases, probably by thousands of dollars a year. And it's not like you can flip from a frugal livin…

There is little reason to stay in a high cost of living area while retired and even 600$/month can get you a nice place in much of the US let alone the rest of the world with the difference covering health insurance. As to income some people really do make more than 200k/year. And it’s such high income earners where such savings rates really become not just viable, but a reasonable choice.

More importantly the goal is not necessarily full retirement. Plenty of things are entertaining and make some money. Perhaps you only make 5k/year as a writer or painter well on its own that might not mean much but it can easily boost your nest egg over the next 20 years. Or perhaps teach a class at the local collage or even some of those short training classes. Not to mention long shot’s like trying your hand at acting.

PS: Your expenses often rise as you age but even just working 10 years entitles you to some Social Security benefits.

Re: Hard-won lessons about money and investing

#257

Post by jpp »

arkem wrote: post #142
jpp wrote: post #109

Earlier quoted context omitted.

I made a comment elsewhere in this thread, but will reiterate it here: tax loss harvesting only shifts the tax burden to the future. If you put in $100k today (post tax dollars), and tax loss harvesting is able to fully "realize" that $100k, you'll have to pay tax on that $100k when you go to sell it (because the basis will be down to $0). Yes, you get the potential gain on the difference in your net worth; consider…

I'll take any interest free loan that I can get, offsetting today's gains to lower my tax bill means more money to invest. I agree that in many situations tax loss harvesting isn't helpful and even in the best case it's not amazing but if over the long term it can be worth the 50 basis points that the robo-advisors claim then it might be worth paying 15-25 basis points for it. Hearing about Schwab's entry into the ma…

I like interest free loans, too!

I feel like the services that tout tax-loss harvesting don't do a clear job of explaining that it's only interest free loan if your future tax bracket is the same.

For example, if you're going to be moving to a different state after the tax losses are harvested—say, from MA to CA—then that "interest free" loan will cost you ~5% (the difference in tax rates between those states).

Or, if you're just starting out in your career, and you're going to be in a higher tax bracket in a few years—about the same time that many would start looking at buying real estate—then it's again a cost equal to the delta in marginal tax rates (say, 3% or 8%, depending on how your starting salary compares with your salary 5 years into your career).

I'd love if Vanguard got into this market as well; although it seems like they already are, with their target date index funds. Admittedly, no tax-loss harvesting, if that's important to you.

Re: Hard-won lessons about money and investing

#258

Post by [deleted] »

grimlck wrote: post #78

"Google worked out a deal with “full service” broker to give us free accounts" That is actually really interesting. How much did this broker have to pay to get this box full of highly lucrative leads - access to a large set of newly wealthy individuals, many of which don't have experience with managing large amounts of money. A bunch of people who may be experts of technology, but probably are not experts on finance.…

[deleted]

Re: Hard-won lessons about money and investing

#259

Post by ssanders82 »

jpp wrote: post #108
influx wrote: post #31

I use Wealthfront, which allows you to park your money into an account, and depending on your level of risk, will automatically balance it across the US Stock Market, dividend stocks, emerging and foreign markets, bonds, and natural resources. For account values over $100K, they will do tax loss harvesting for you automatically, and prevent wash sales. For over $500K account values, they will actually buy stocks for…

An important note on tax loss harvesting: it only defers taxes. If you'll be in a lower tax bracket in the future, that can be good; but if you'll be in a higher tax bracket when you need the money (eg house down payment), tax loss harvesting will actually cost you money, so beware.

This can be balanced against the fact that you get to invest and compound that deferred tax until you do end up paying it, possibly several years later. So instead of multiplying your account by .65 every year (assuming 35% tax rate), you only multiply it once, at the end.

Re: Hard-won lessons about money and investing

#260

Post by walshemj »

hnnewguy wrote: post #224
walshemj wrote: post #210

Earlier quoted context omitted.

you do know that bond prices and the bank rate are linked bank rate goes up bond prices go down - sucks if you lose 20% of your capital that way and that has happened recently

> you do know that bond prices and the bank rate are linked bank rate goes up bond prices go down Yes, that is true. But how is the bond price relevant, from the Fed's perspective, if they aren't selling the bonds?

well I think the down side is for the holders ie you and me and our pension funds :-(
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