UnThreaded | Threaded | Whole Thread (8) | Ignore Thread Prev | Next
Author: jeffy3 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75540  
Subject: Re: Unconventional Approach? Date: 2/21/2000 3:24 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
>>>I am in a similar situation. My wife and I are both in our mid-thirties. We are in the 39.6% bracket so I have been very tax conscious on all my investments and investment planning. We both work for a firm that has a profit sharing plan that contributes 15% of our gross pay (Up to $30,000.00/yr. each). We can not contribute anything to that plan, it is funded entirely by the firm. We do not qualify for Roth IRA's and any money we would contribute to a traditional IRA is not tax deductible. I decided not to contribute to the IRA and instead invest in a taxable account to take advantage of the 20% LTCG tax rate. I suggest you use a retirement calculator to see what your retirement needs will be. Based on our retirement needs our retirement accounts already have enough in them so further funding is not necessary. (But since my firm keeps giving me this damn money I may as well take it:). You might want to contribute to the 401k's only to the extent of matching funds. If you qualify for a Roth, (although I recognize you probably don't) contribute to that. Otherwise LTBH is probably the best way to go.

You only need to hold an investment for a year and a day to get the Long term capital gains rate. To take full advantage of the 20% LTCG rate and the magic of compounding, you only want to sell one time (when you intend to take the money). If you turn over your portfolio every 5-10 years you will be getting taxed on your gains at 20% every time you sell. Skimming that 20% off every few years really does add up.

In my taxable account I employ a LTBH Index investing strategy. I like indexing over individual issues primarily because it is hard to project what any individual company might do over 30+ years. With an index, you only need to believe that the market (or your chosen indices) will go up in value over time. This way you can realistically employ a LTBH strategy without the uncertainty that accompanies holding a single stock. Indexing is especially powerful in taxable accounts due to their relative "tax-friendliness". Indexing is far more than the S&P 500, although it does not necessarily have to be. I recommend reading up on indexing as an investment strategy (pay a visit to the Index Fund message board)and explore index investment vehicles. FWIW, I use the retirement account for all investment strategies that will require sales of equities sometime in the next 30+ years.

I also agree with the post that recommended investments other than equities. Real estate can be fun (vacation homes not rentals).

Remember, most investors are investing to create wealth. Investing to maintain wealth is different. I tend to be a conservative investor, but I have the luxury of being able to afford to be conservative. For me that is a comfortable place to be. It really wasn't difficult for me to be a real risk taker when my portfolio was $5,000.00. A 20% drop in the market is only $1,000.00. No biggie right? Well, that same 20% drop in a $500,000.00 portfolio is $100,000.00. Now that hurts! I know its all relative, but it still hurts.

Good luck,
jeffy3


P.S. If you are at risk for personal liability (e.g., doctor or lawyer), your taxable accounts could be reachable via a judgment or by other creditors (determined by state law), and accordingly you may want to protect your assets in a retirement account or even a variable annuity. They cost you more in terms of dollars, but the protection and peace of mind might be worth it.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (8) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Value Hounds

Kate Spade's Wild Ride
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement