What are y'all investing in long term? 10-20 years.

[repoman0]

Yes, I like schemes like this, and I've never quite figured out the Roth conversion ladder, but keep it in the back of my mind for when I might need it. Thanks, I'll go back over this a dozen times because it might make more sense to me than the other reams of information that I have tried to understand about it.

The only risk I see is you have to hope that tax rules don't change until you hit 59.5, or you could be well and truly screwed if they change things too much to your disadvantage. Thinking about it more just now, maybe it makes sense to hedge bets and blend the Roth conversion ladder scheme with saving up say 10 years of expenses.

There's always fun but low paying/low stress jobs to make the money you save last longer too ... those old dudes teaching beginners how to ski/snowboard always look like they're having a grand old time, I wouldn't complain if I turned into one of them some day.

 

[Sho'Nuff]

But Chipotle is only a lost opportunity with hindsight. How many other franchise chain stocks have done that well over the same period of time? And how would you have known to sell it at $750? What if you'd had that good feeling about the < Joe's Imaginary Pretzel Hut > IPO instead?

It's like wishing you'd bought Apple, when at least at one point they had a good chance of going under. If I recall correctly Microsoft helped prop them up partly to be able to show there was "competition" in the OS market. Had they chosen not to, those shares could have been a loss.

Since I know I can't predict what's going to happen with any company or market, I don't try. And as a bonus, I can binge-watch something on Netflix instead of doing research

Oh your points are well taken, particularly re: selling at the peak. That said, I felt that Chipotle was going to be successful at the time simply because I ate there quite a bit prior to their IPO, and at that time every Chipotle was mobbed with people. It was a slow day if there were 20 people in line ahead of you.

Also FWIW, I did buy apple stock shortly after they came out with the first IPOD. I got in at ~$80 and sold at $160. Was it a gamble? Sure. But I understood the product, why it was desirable, and at the time it was utterly unique in the marketplace and wildly successful.

If Apple stayed purely a computer company, they would have never grown to what they are today. They are successful because they made the worlds first truly useful and commercially desirable smart phone.

 

[Sonikku]

What are y'all investing in long term? 10-20 years.

I'm investing in myself.



I expect to lose money.

 

[overst33r]

*only if you plan to "retire" at "normal" retirement age and live out the best years of your life like a chump. Only sorta kidding...the primary advantage of brokerage accounts is that this is the money whose interest you plan to live off of, if you retire way early, and simply can not access your retirement accounts. Granted, you have to be one of those "crazy" types that choose to live rather than work, and it is obviously always very wise to max out and contribute to tax-advantaged accounts to your greatest ability, when you can, but there are very real advantages to taxable accounts that, in many cases, can prioritize over tax-advantaged accounts.

Can you clarify the advantages of a taxable account over a tax-sheltered account? For example, in what scenario would you invest in a taxable account over a Traditional IRA? I can see a 401k being fee dependent since you may not have access to low cost funds.

As mentioned by someone else, the 72t and Roth IRA conversion ladder are two ways of getting money out of tax sheltered accounts prior to retirement age. This obviously assumes the tax rules stay the same for the foreseeable future, which isn't a given.

 

[zinfamous]

Can you clarify the advantages of a taxable account over a tax-sheltered account? For example, in what scenario would you invest in a taxable account over a Traditional IRA? I can see a 401k being fee dependent since you may not have access to low cost funds.

As mentioned by someone else, the 72t and Roth IRA conversion ladder are two ways of getting money out of tax sheltered accounts prior to retirement age. This obviously assumes the tax rules stay the same for the foreseeable future, which isn't a given.

Right. outside of funky schemes like conversion ladders (which have those yet-unknown pitfalls), it is the only account where you aren't age-restricted in accessing your money. The way I see it, a brokerage account is far more important for FIRE people (financially independent, early retirees). If you are retiring in your early 30s or mid, or later, and expect to live another 40 or more years, you actually need a large pile of money, that is itself growing while providing you enough interest and dividends to meet your annual expense needs. The younger you are, the less able you are likely to do this through a roth conversion ladder. Of course, all the tax-deferred accounts are just as important for such people, but you only plan for that money 30 years later. Remember that if you are really really retired, then you declare this to the IRA, and if living purely off of interest and dividends, capital gains from mutual funds--then your effective tax rate on all of your income (through your brokerage), is only 15%. So, it's a good way to live cheaply and efficiently off of your own money and without the complexities of spending and declaring and converting the proper amount to remain legal with conversion ladders.

IMO, a brokerage account is important for everyone and not just planned early retirees, but balancing your funds between the various accounts is determined by your goals. I tend to think that brokerage is the new savings account. Just keep cash as cash (your emergency 6 months or whatever it is), and "real savings" in an account that grows real money--not some piddly 1% (if you're lucky these days)

 

[DaveSimmons]

My feeling is that you are going to need your IRA/401k money long term even if you do choose to retire early. So max out your tax sheltered contributions first, then open the regular brokerage account.

If you can't afford to retire early on the investments you've made in addition to the tax-sheltered ones, then perhaps you haven't really gathered enough to retire early after all.

 

[dullard]

Can you clarify the advantages of a taxable account over a tax-sheltered account? For example, in what scenario would you invest in a taxable account over a Traditional IRA? I can see a 401k being fee dependent since you may not have access to low cost funds.

1) There is the obvious benefit of financial flexibility. You can let your tax-deferred accounts grow even larger when they are tax-deferred for longer. Or you can withdraw just enough of your IRA/401(k) to hit whatever tax bracket you choose (hint 0% or 10% is a good idea). Just use your taxable account to make up the difference.

2) But, to me, the bigger benefits come for specific purposes. An inherited stock comes with some very nice benefits. Suppose you buy stock for $1000, die when it is $8000, and your heir sells it for $10,000. How much profit is taxed assuming you don't pay the estate tax? Hint, the first $7000 is tax free and only the last $2000 is taxed. That is a nice way to give your heir $7000 profit that never gets taxed.

3) When you donate stock from a taxable account it is even better. Not only are the gains not taxed, but you also get to double-dip and deduct the gains from your taxes. The drawback is that you actually have to make a donation at least once in your life, but hopefully you are in a situation to do so.

Take the $1000 stock example that grows to $8000. You could sell that stock, and pay taxes on the $7000 gain. Assuming it was a long term investment, you usually pay 15% tax, or $1050. You net $6950 on the sale ($5950 profit after tax). Suppose you then wanted to make a generous donation of $6950 to your favorite charity. So you write a check and get a $6950 deduction. Assuming you are in the 33% income tax bracket (fed + state) that saves you up to $2293.

But, here is the benefit of a taxable account. Don't sell the $8000 of stock. Donate the stock instead. If you donate it, you never sold it, so you don't have income. You don't pay $1050 in tax. Also you get to deduct $8000 instead of $6950. Your tax deduction saves you up to $2640 in the 33% tax bracket, $346 more than if you donated cash. So, not only do you avoid tax, but you get a larger deduction. You save a net $1396 because you had it in a taxable account vs using cash for your donation. And the charity gets $1050 more!

Yes, you can donate from a tax-deferred account, but then you are losing the tax-deferral from there on out and you are limited to only a few thousand a year that you can put into the tax-deferred account. The taxable account isn't limited. So if you can avoid the tax, you get the benefits of the IRA without the limits (unless you are donating a very massive amount).

4) The long term capital gains tax rate is currently 0% if you are married filing jointly with a taxable income of under $75,300. Think about it. Keep your income to a "low" $75k and your gains are tax free. https://www.thebalance.com/how-to-use-the-zero-percent-tax-rate-on-capital-gains-2388995

 

[DaveSimmons]

Speaking of donations, Charles Schwab and Fidelity have donor-advised charity programs where you donate your stock to an account with them, get the full tax writeoff immediately and like dullard said you pay no taxes on your gains.

Then you pick individual charities to make grants to out of the fund at any time. Meanwhile the fund continues to grow in value. It's like setting up your own charity organization without any of the paperwork or fees.

If you donate while you're making good money before you retire, you can build up a "charity retirement fund" balance so you can still keep donating to the causes of your choice even after you retire and your income drops.

https://www.schwabcharitable.org/public/charitable/donor_advised_funds

I use this method to donate to Northwest Harvest and the Seattle Times Fund every year. I donate mutual fund shares to the fund, avoid taxes on my gains, get the tax writeoff, and have the fund send the checks to NWH and STF. I'd do this with Child's Play too but then I wouldn't get to shop for toys

 

[dullard]

Speaking of donations, Charles Schwab and Fidelity have donor-advised charity programs where you donate your stock to an account with them, get the full tax writeoff immediately and like dullard said you pay no taxes on your gains.

Then you pick individual charities to make grants to out of the fund at any time. Meanwhile the fund continues to grow in value. It's like setting up your own charity organization without any of the paperwork or fees.

This has started to get some bad press. It is great, as you said, for an individual. But charities are starting to dislike the idea. People are using it to take the tax donation deduction now, but for the most part the charities aren't getting any money yet. They really are just getting an IOU for money that they'll get in the future if you don't change your mind. The government has a bit of a qualm with it too. Why should you get the tax donation if no charity is getting the money (yet)? The charity would usually rather get the money that they can invest and grow according to their needs.

So, take advantage of that while it lasts. It might not last forever though, especially if it gets more popular and if the next president is less friendly to the concept.

 

[DaveSimmons]

This has started to get some bad press. It is great, as you said, for an individual. But charities are starting to dislike the idea. People are using it to take the tax donation deduction now, but for the most part the charities aren't getting any money yet. They really are just getting an IOU for money that they'll get in the future if you don't change your mind. The government has a bit of a qualm with it too. Why should you get the tax donation if no charity is getting the money (yet)? The charity would usually rather get the money that they can invest and grow according to their needs.

So, take advantage of that while it lasts. It might not last forever though, especially if it gets more popular and if the next president is less friendly to the concept.

It depends on how you donate. I donate the same amount to Northwest Harvest through my donor-advised fund as I would if I wrote the check myself. They get just as much money now as before.

They might like it better if I pre-donated the next 10 years worth of checks as a lump sum of stock, but why should I? I don't trust charities not to over-spend now then whine about shortfalls later because they've already spent my donations that were supposed to be used in 5+ years.

Also, you get the full deduction now because you have donated the money, just to Schwab, Fidelity, etc.'s charity not to who you'll eventually be funding. Once you do that, you can't change your mind and get the money back. And if you die, they donate your full account balance to the charities that you've chosen in advance.

 

[dullard]

It depends on how you donate. I donate the same amount to Northwest Harvest through my donor-advised fund as I would if I wrote the check myself. They get just as much money now as before.

They might like it better if I pre-donated the next 10 years worth of checks as a lump sum of stock, but why should I? I don't trust charities not to over-spend now then whine about shortfalls later because they've already spent my donations that were supposed to be used in 5+ years.

Also, you get the full deduction now because you have donated the money, just to Schwab, Fidelity, etc.'s charity not to who you'll eventually be funding. Once you do that, you can't change your mind and get the money back. And if you die, they donate your full account balance to the charities that you've chosen in advance.

You just have to put yourself in the charity's shoes. They were getting $1000 a year from DaveSimmons. But now, they will get $60,000 in 30 years from DaveSimmons in a lump sum. Yes, that is more money overall. But they have expenses to pay and mouths to feed today.

 

[DaveSimmons]

You just have to put yourself in the charity's shoes. They were getting $1000 a year from DaveSimmons. But now, they will get $60,000 in 30 years from DaveSimmons in a lump sum. Yes, that is more money overall. But they have expenses to pay and mouths to feed today.

No, with a donor-advised fund you give Fidelity $10,000 for 2016, then you tell them to send a $1,000 check to Northwest Harvest and a $1,000 check to the Seattle Times fund. Your balance at Fidelity drops to $8,000 and Northwest and Seattle Times get their $1,000 right now. If you die tomorrow then that $8,000 is split up and donated per your instructors for "on death give to x."

It's a nice way to turn over a lump sum to charity now, but still decide (within strict limits set by the IRS) how to spend it later. And like I said this lets you build up a nest egg (in stocks so it grows over time) set aside for donations to charity.

I imagine some charities are salty about it because they want all your cash monies now, instead of waiting for you to donate at your own pace. Before donor-advised funds they probably got more lump sum stock donations while now they get the $1,000 check instead.

 

[jpiniero]

IMO, a brokerage account is important for everyone and not just planned early retirees, but balancing your funds between the various accounts is determined by your goals. I tend to think that brokerage is the new savings account. Just keep cash as cash (your emergency 6 months or whatever it is), and "real savings" in an account that grows real money--not some piddly 1% (if you're lucky these days)

Considering to get much more than 1% you have to either have to "invest" in the stock market (20-30% overpriced) or bonds (likely to not do much if rates keep increasing) the choices aren't great really. Worth gambling to an extent the crash never happens but that's about it. Being 98% in stocks is just asking for trouble.

At least with the target date funds (well at Vanguard) is that they have an international component to them, which is important simply because of China.

 

[Ns1]

You just have to put yourself in the charity's shoes. They were getting $1000 a year from DaveSimmons. But now, they will get $60,000 in 30 years from DaveSimmons in a lump sum. Yes, that is more money overall. But they have expenses to pay and mouths to feed today.

As someone who runs a charity, I will take 60k in 30 years vs nothing at all. I will take 1k a year vs nothing at all. I will take anything, anytime, because as a charity I need money all the damn time and appreciate whatever I get, when I get it.

One thing I will never do: complain about anything people are generously donating to said charity.

 

[zinfamous]

Considering to get much more than 1% you have to either have to "invest" in the stock market (20-30% overpriced) or bonds (likely to not do much if rates keep increasing) the choices aren't great really. Worth gambling to an extent the crash never happens but that's about it. Being 98% in stocks is just asking for trouble.

At least with the target date funds (well at Vanguard) is that they have an international component to them, which is important simply because of China.

The way I see it, VTSAX pretty much covers international "investment" as well, because these Large Cap US companies are global companies, with large international investments and whose success, these days, depends largely on overseas economies. It's all baked in. I think that what you may be losing in more direct diversification, you are gaining by not paying the crazy ERs of those international Index funds or Target Funds (which aren't quite so crazy, but still)

Of course "the crash" will happen. That's just how it goes. And then it will recover, and things will normalize, and go back up. And crash again. I think that, more important than bonds, is to invest also in some decent dividend-paying indexes that offer a bit more stability than individual dividend stocks. Something like a REIT, which should be able to sustain a crash or recession a little better than the overall stock market, and also offers decent dividends--so you barely notice, if any, a drop in income even if the value of each share drops significantly.

If the real real real crash happens and the country dissolves, I think we all have more pressing concerns than our retirement portfolios. This is why I also stash bottle caps and iron scraps.

 

[Exterous]

Can you clarify the advantages of a taxable account over a tax-sheltered account? For example, in what scenario would you invest in a taxable account over a Traditional IRA? I can see a 401k being fee dependent since you may not have access to low cost funds.

As mentioned by someone else, the 72t and Roth IRA conversion ladder are two ways of getting money out of tax sheltered accounts prior to retirement age. This obviously assumes the tax rules stay the same for the foreseeable future, which isn't a given.

The 72(t) rule is a very inflexible rule that doesn't make allowances for changes in personal circumstances and must conform to a very limited number of IRS withdrawal options. These selection of those options only allows a one time change in payout method so if you're in the early stages of planning for an early retirement I would hesitate to rely on it

My feeling is that you are going to need your IRA/401k money long term even if you do choose to retire early. So max out your tax sheltered contributions first, then open the regular brokerage account.

Assuming your 401k\403b provider offers decent fund options. Unfortunately many still do not. In addition to some of the advantages mentioned earlier a brokerage account can allow you to leverage one or more of the many unique tax situations that exist within our overly complex tax code. These tend to be narrowly applicable but a fair number seem to exist and they can result in some notable tax savings.

 

[DaveSimmons]

Assuming your 401k\403b provider offers decent fund options. Unfortunately many still do not. In addition to some of the advantages mentioned earlier a brokerage account can allow you to leverage one or more of the many unique tax situations that exist within our overly complex tax code. These tend to be narrowly applicable but a fair number seem to exist and they can result in some notable tax savings.

True, but most people will change jobs and (if they have any sense) roll over their 401k funds into an IRA. So over time their 401k money will migrate to good funds.

 

[Mai72]

Compound interest is your friend. The earlier you start the better.

I was watching a YT video with Tony Robbins. Yea, I know. Anyway, he brought up two brothers.

The one had I believe it was 15% of his income taken out every week and put into an investment that he couldn't touch. He did this from 18 until he was 30 and stopped.

The other brother started at 35 and put 20% of his income in an investment until he was 65 years old.

Now, when both brothers reached 65, the one who stopped at 30 had 4X more money saved than the brother who began at 35, put more money in his investment and did it for 30 years. It's the power of compound interest. Because the first brother started at 18, he had 47 years his money kept multiplying. The second brother was short on time. That's why he had the least.

*Both brothers were getting 10% ROI.

 

[OverVolt]

Thank you, oh great company analyst.

YW, although I know you're being sarcastic.

You can always get a market analysis and charts and projections just about anywhere these days. They're pretty much all useless unless you specialize in some kind of arbitrage based on that data.

Best thing will always be buy and hold because you can drop the ball quickly if your trading system stops working and you can't figure out why.

There are no richest men in the world who made their money day trading or by trading options. Never forget that.

 

[OverVolt]

Compound interest is your friend. The earlier you start the better.

I was watching a YT video with Tony Robbins. Yea, I know. Anyway, he brought up two brothers.

The one had I believe it was 15% of his income taken out every week and put into an investment that he couldn't touch. He did this from 18 until he was 30 and stopped.

The other brother started at 35 and put 20% of his income in an investment until he was 65 years old.

Now, when both brothers reached 65, the one who stopped at 30 had 4X more money saved than the brother who began at 35, put more money in his investment and did it for 30 years. It's the power of compound interest. Because the first brother started at 18, he had 47 years his money kept multiplying. The second brother was short on time. That's why he had the least.

*Both brothers were getting 10% ROI.

Somewhat true. Ups and downs in the stockmarket don't actually generate perpetually compounding returns in real life like a bond. But of course bond rates are shit.

10% -20% 30% does not average out to a 10% compounding return. Its actually less than that. The bad years completely $%^& the compounding of your investments.

 

[OverVolt]

There is a reason why the website is called fool.com...

If I knew who the next J&J would be, I would be running the most successful hedge fund ever. Hindsight stock picking is easy, but knowing the future is impossible. This is why you diversify with ETFs and don't try to pick the best names unless you enjoy being wrong from time to time.

I think Unilever has their shit together from a global and US perspective.

Heinz Kraft trying to buy them out is almost comical, because I don't think Heinz Kraft is that well managed right now.