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maybe it depends on what tax bracket one is. after the initial shock and looking carefully at the color of money of each stream of investment income and how it is taxed i slowly moved our bond funds in taxable (selling them only yields a small capital gain) to tax deferred and increased equity in taxable while keeping AA same. bond income is often treated as ordinary income unless they are tax exempt and even then you pay state tax. choosing low turnover rate equity mutual funds and holding it for the longterm assure minimized short term cap gains which are taxed as ordinary income. LT cap gains are taxed at 15%. i reduced REITS in taxable and increased it in tax deferred - of course they are doing badly now but i believe in holding it for diversity. but now i understand the rationale. it is sound.
also after retirement, unless you need to withdraw from your 401K, the value of total assets going up and down does not matter as much as the income they generate. i learned all this the hard way after not paying attention to location of investments as well as allocation.
what does this mean? we don't keep much cash. bond income is reinvested and that is compounding.
the amount of dollars compounded on bonds is very tiny . stocks would have benefited from the tax free compounding way more .
the fact you loose the tax advantage in the brokerage account has nothing to do with tax brackets you are in once you are past the zero capital gains bracket .
it only has to do with the amount of distributions and the time in the account .
the amount of dollars compounded on bonds is very tiny . stocks would have benefited from the tax free compounding way more .
the fact you loose the tax advantage in the brokerage account has nothing to do with tax brackets you are in once you are past the zero capital gains bracket .
it only has to do with the amount of distributions and the time in the account .
i will take a look at it. I still don't know what you mean by compounding. you can keep stocks or stock mutual funds in tax deferred. in fact we have more equity funds in IRA than in taxable. but you need bonds for diversification and fixed income. those are more tax efficient in tax deferred account.
we don't hold much individual stocks. they are all mutual funds.
i will take a look at it. I still don't know what you mean by compounding. you can keep stocks or stock mutual funds in tax deferred. in fact we have more equity funds in IRA than in taxable. but you need bonds for diversification and fixed income. those are more tax efficient in tax deferred account.
we don't hold much individual stocks. they are all mutual funds.
as kitces summed it up
"The bottom line, though, is simply this: the idea that the preferred asset location of equities is “always” a brokerage account to take advantage of favorable long-term capital gains rates, while tax-inefficient bonds would be placed in an IRA, is not always correct. In reality, the outcomes are sensitive not only to the expected returns and the tax-efficiency of the investments, but also to the time period for investing. And over multi-decade time horizons (and with IRAs that can be stretched, the time horizon could be multi-generational!) the benefits of tax-deferred compounding growth can outweigh the tax rate differential. In fact, with almost any level of turnover, stocks perform better in the long run in an IRA, and especially when there is a substantial dividend and/or any level of turnover (which could be triggered by rebalancing alone!)."
it turns out that almost any level of portfolio turnover will eventually tilt equities towards being held in IRAs given a long enough time horizon (and especially while today’s low interest rates result in almost no benefit for bonds to gain tax-deferred growth inside of retirement accounts). Which means in the end, good asset location decisions depend not only on returns and tax efficiency, but an investor’s time horizon as well! "
i felt the same way initially when post-retirement tax hit. but i think of how our income and assets gew TAX FREE all those years. look at your asset allocation and where they are located - taxable or tax deferred. income from equity (dividends and LT cap gains) are taxed at 15%. income from bond funds are ordinary income rate. hold your investments for the long term.
They grow tax free in a Roth, too. Just have to play by the rules and don't withdraw until after age 59.5.
Age 59½ to 70.
Withdrawals from a Roth IRA you've had less than five years.
If you haven’t met the five-year holding requirement, your earnings will be subject to taxes but not penalties.
Withdrawals from a Roth IRA you've had more than five years.
If you’ve met the five-year holding requirement, you can withdraw money from a Roth IRA with no taxes or penalties.
I still don't get how someone would hold such as high percentage of their assets in stocks as they are approaching retirement? A downturn in the market creating a loss of paper wealth, could take a decade to recover from, a decade you most likely don't have (depending on how much your assets are).
mathjak I have said before that owning a business is better than owning stocks, basically investing in yourself will always produce higher returns than investing in stocks. For example, you run a profitable business and invest $10,000 into it this year, and it produces $50,000 in revenue before taxes, that's a $40,000 return (400%) in one year. If you can figure out how to do this in an active way, while still having a "main gig", then instead of putting $10,000 every year into stocks, you can put it into your business and get a much higher creation of wealth much faster.
But mathjak, can you do me a favor though?
- You have been investing in stocks for decades and you propose having a significant portion of your assets in stocks. Can you give an example over the last 30 years of how your stock portfolios have performed? I'm talking either year over year, or decade over decade, how did they perform? Did you have a losing decade, then a booming decade, then a losing decade and it all averaged out to 7% per year over the long term or something? Can you provide this information?
- How did you pick stocks? Did you just do all Index all the time, did you do individual picks, etc.? I know you said you followed strategies in the newsletter, but can you elaborate?
Right now I'm totally against stocks and favor using business ownership for high growth, while using conservative Bonds and long-term/brokered CDs for the remaining fixed income portions. My annual returns in total since doing this strategy have always been well over 300% per year.
If someone can convince me that the stock market isn't technically "gambling and speculation" I might look at shifting my strategy. I'm only 32 and have a lot of time, but I can't see how anyone can forecast returns in the stock market seeing as though the "appreciation" of the paper value is based totally on aspects that are OUT of the individual investor's control.
I still don't get how someone would hold such as high percentage of their assets in stocks as they are approaching retirement? A downturn in the market creating a loss of paper wealth, could take a decade to recover from, a decade you most likely don't have (depending on how much your assets are).
mathjak I have said before that owning a business is better than owning stocks, basically investing in yourself will always produce higher returns than investing in stocks. For example, you run a profitable business and invest $10,000 into it this year, and it produces $50,000 in revenue before taxes, that's a $40,000 return (400%) in one year. If you can figure out how to do this in an active way, while still having a "main gig", then instead of putting $10,000 every year into stocks, you can put it into your business and get a much higher creation of wealth much faster.
But mathjak, can you do me a favor though?
- You have been investing in stocks for decades and you propose having a significant portion of your assets in stocks. Can you give an example over the last 30 years of how your stock portfolios have performed? I'm talking either year over year, or decade over decade, how did they perform? Did you have a losing decade, then a booming decade, then a losing decade and it all averaged out to 7% per year over the long term or something? Can you provide this information?
- How did you pick stocks? Did you just do all Index all the time, did you do individual picks, etc.? I know you said you followed strategies in the newsletter, but can you elaborate?
Right now I'm totally against stocks and favor using business ownership for high growth, while using conservative Bonds and long-term/brokered CDs for the remaining fixed income portions. My annual returns in total since doing this strategy have always been well over 300% per year.
Running your own business requires a lot more work and a lot more risk, doesn't it? For those with the appetite for the effort and challenge, I'm sure it can work out, but I don't think that's most people. I don't think it makes sense to compare entepreneurship to passive investing for the average joe.
Running your own business requires a lot more work and a lot more risk, doesn't it? For those with the appetite for the effort and challenge, I'm sure it can work out, but I don't think that's most people. I don't think it makes sense to compare entepreneurship to passive investing for the average joe.
But here's the thing Mr. Zero, don't you really have some of the same risks with Stocks? Maybe the only difference is the amount of "active work" involved, but think about it for a minute:
- Both are equity investments (owning a business and stocks), but with one equity investment you have total control over the direction, management, creative, etc. of the investment which means it's your experience and competency (and ethics) you are relying on to make the returns, not someone else's. Wouldn't that make owning a business LESS risky than holding a stock?
- You can lose your principal investment in both investments, the paper value of the stock can fall lower than what you purchased it for and you would have to hold it with the hope that it returns back to break-even level and then to a higher level for "some" return. You have the same risk with a business, you could lose the principal, but with the business you have the potential for 100% - 500% annual returns, with a stock you are only talking 6% - 12% annual returns. So wouldn't holding a stock be more risky in that I could lose the value of the principal while only going after 1 digit or 2 digit percent returns, rather than 3 or 4 digit percent returns?
- All studies show that the people in this country with the most wealth, acquired that wealth from investing in themselves and running profitable businesses, not from holding/trading stocks. This is public knowledge. So wouldn't the most prudent thing be (if I wanted to get wealthy) is to get good at business or invest in a particular degree/certification that can increase my income year over year?
I'll await your response. Remember, my portfolio right now is solely business investing and fixed income, there's absolutely no stocks in my portfolio at all, but I have never lost money because I have control over all of these investments. I can do extensive research on a company and pretty much forecast their ability to pay my bond interest and principal back on time by holding until maturity.
But I'm open to considering stocks if someone can give me some information here.
i can post how they did since i used a publicly available news letter that prints out our yearly performance that can be displayed publicly.
i can tell you every 100k put in the growth model since 1986 is worth 2.1 million as of june 30th and that includes 15 great years and 15 below average years since 2000.
that is using nothing special fidelity funds . i started in 1987
50% equity's or 60/40 have been standard retirement portfolio's ever since they have been doing retirement research.
they have made it through every 30 year time frame to date including the retirement time frames containing the great depression , the world wars and the inflation of the 70's.
what has failed over and over ? being to conservative in retirement .
even if you were ballsy enough to use 100% equity's in retirement you would had very good success rates since the times you had up markets grew plenty of cushion for the down markets.
drops are already calculated in when you do retirement planning.
first the link to the portfolio's. you can click on the different model results.
then i will post the success rates for various retirement allocations so you can see 50/50 has been excellent for retirement .
Last edited by mathjak107; 07-25-2015 at 07:42 AM..
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