Mostly concur. But I am concerned about the tax rate of any tIRA’s that get left to the kids. Presumably, they will be at the peak earning years when they receive the accounts, and thus, they will also be at their peak marginal income tax rates.
If I can pay 22% today to covert some of a tIRA to a Roth to avoid the kids paying ~50% tax tomorrow, I’ll do that deal.
Not clear as we haven’t retired. My mother is entirely in fixed income but she is 96. We have scaled back on equities (I think we are at 45% of our securities) and upped gold (10 or 12%) and ST bonds over the last year. We have a little money in a private equity fund focused on infrastructure. We had invested in an earlier PE fund in 2008 and it performed well because they kept their powder dry and bought assets at attractive prices when financing started to be available. We’ll see how this one does. But that allocation does not include real estate. We closed on our studio yesterday and the closing date for the house is at month-end. Those two together fully pay for the new house. But, we are building a new studio and renovating a significant portion of the new house. We are going to sell a rental property that doesn’t produce great cash flow after the mortgage, condo fee, and RE taxes, but has appreciated quite nicely. Some of the sale price of the condo will go into the renovation and some back into securities.
My aim is for us to not have liquidity concerns going into the next period. I will try to add a bit to the financial stockpile, but my big concern is that the US seems to be going to he@@ (for the moderators) in a handbasket in ways that are destructive of the infrastructure, economy and political institutions. Folks like me are doing pretty well but lots of folks in the bottom half of the income distribution have been laid off, lots of small business have and will silently close, and consumer spending will drop a lot when the government stops funding consumers (as the case in the current standoff between the Dems and Trump). I think I read that roughly 70% of the US economy is driven by consumer spending. It may make sense to buy rental real estate again (when the bottom falls out of the market). Oddly, the condo we are going to sell is in a highly desirable neighborhood. It is a seller’s market if we sell the condo but a renters’ market if we want to rent it. I would think these two should be in equilibrium, but that is not happening at the moment.
@colorado_mom, I am sure you have the correct reported statistics but I find it hard to believe that only 2000 estates per year in the US are liable for federal estate tax. They must have very creative accountants. And don’t underestimate the power of compounding over time as Warren Buffett made 99.7% of his wealth after the age of 52.
https://medium.com/the-10x-entrepreneur/warren-buffett-has-made-99-7-of-his-money-after-the-age-of-52-71e2ce04c347
The estate tax may raise more income for tax attorneys and accountants that it does for the federal treasury. 
https://www.taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax
My impression is that almost anyone with an estate of $22 MM or more can, with planning, avoid federal estate tax. I suppose it might be hard if you start a company while without any planning and you sell the company for a large amount of money. With planning, one could have started with the shares in a dynasty or other kind of trust.
Depending upon the state, it may be harder to avoid state estate tax.
This assumes the exemption amount for estate tax doesn’t change. If it were to drop back to $1 mil, a lot of us could be swept up in it, without the resources to hack around it.
I am not sure about that!!
An estate of $22 million or more would put you in the top 0.5% of households by wealth. That’s still a lot of people, but there are also some tried-and-true ways to avoid estate taxes once you’re at that level of wealth. Philanthropy, for one. Dumping a whole lot of money into life insurance, for another, which reduces taxable net worth while the designated beneficiaries receive the insurance proceeds tax-free.
Or buy a vast country estate,then donate a conservation easement to The Nature Conservancy or some other land trust. You get to live there for the remainder of your life and pass on the property to your heirs, but you reduce the taxable value of what you own because you’ve donate the development rights to a tax-deductible charitable organization. This actually creates a triple tax benefit: lower (or no) estate taxes, lower property taxes for you and your heirs, plus you get to claim a current year charitable deduction against your income taxes for the imputed value of the conservation easement which the land trust, if they’re smart (and they are) will place a high value on to make the deal more attractive to the donor. Land trusts are growing by leaps and bounds as a result, though like many charities they might suffer a bit with the recently enacted larger estate tax exemption.
You can do a somewhat similar thing with artwork. Buy a multi-million dollar piece of art—or half a dozen of them—and donate a charitable remainder to your favorite art museum. When you die the art becomes the sole property of the museum, but until then, you get to keep possession of it for your own private enjoyment. If you’re aging, the IRS will calculate that your (taxable) fractional share of the value of the artwork is pretty small compared to the value of the remainder owned by the museum. Again, lower or no estate taxes plus as an added bonus you get current year charitable deduction for the value of the remainder you’ve donated to the museum.
I’m sure there are other estate planning devices I’m not thinking of at the moment. But with the estate tax exemption where it is, estate taxes are avoidable for almost everyone, and estate tax liability is more often a consequence of failure to plan than anything else. I suppose there are some cases, e.g., a business where the owner dies suddenly and unexpectedly or simply fails to relinquish control, where estate taxes appear inevitable. But I’d chalk up even the “failure to relinquish control” category to bad planning.
Normally, We invest in individual stocks with only small amounts in mutual funds ( which I abhor), and a moderately small amount in bonds. The thinking is why pay the high fees of mutual funds and get less upside when we already pay for a FA. We tried the MF route, got lower returns and never a big upside.
The switch to individual stocks was great. Better returns and if you want to invest in indexes there are certainly low cost ETF’s and indexes.
This year has been a bit different. I considered Covid to be a black swan event and we made moves on 1/28. Early before the bigger dips. Didn’t pull fully out of the market though I wanted to. But did change our approach. We have gold in our portfolio for the first time ever. And lots of other moves than aren’t oyr usual approach. Up 7% for the year and definitely watching the next three-5 months closely. Will try to ride out any bumps including election recounts and Covid waves. Never trying to time the market but in this environment just trying to mitigate risks so we are much less stock heavy than ever.
Both Fidelity and Vanguard offer many mutual funds with no loads and essentially trivial management fees. And rigorous empirical studies have shown that only a vanishingly small number of investors outperform stock market index funds. On average, throwing darts at a dartboard would produce similar results to stock picks based on advice from a FA, and it’s a heck of a lot cheaper. Once you consider the costs of a FA, whether through commissions or up-front fees, you’d be an exceptionally lucky investor to consistently beat the market as a whole over the long run. In the short term, perhaps, but in the long run, highly unlikely.
This makes sense if you think about it. In principle, the market responds to all known information—something neither you nor your FA can possibly do. So you’re essentially a blind man groping. Unless you’re involved in illegal insider trading, you’re not going to outsmart the market, no matter how cocky an investor you are and no matter what line of bull your FA is selling you. You might get lucky and for a period of time be that rare investor who outperforms the market . But the mathematical principle of regression toward the mean suggests that sooner or later your luck is probably going to run out.
@bclintonk Well we have beaten the market with this strategy for many years even considering the cost of the FA. I hold an advanced degree in a related field and have done various things over the last 30 years. Have gotten it to the point where our risk reward is very good. Not going to try to convince the mutual fund lovers to convert, we bought that line for years also and never/rarely beat the market. We don’t blindly follow the FA either. And you have to remember the last many years has been a huge uptick in the markets. We have been in tech stock, formerly very heavily and those exploded. When I bought MSFT back in the 90’s the broker who was in person those days at Stock cross said it’s not going to go up. Well, that was a pretty dumb call. Likewise, early understanding of some now major Tech stocks will expand in the markets has always undergirded our investments. Did we beat the market with a strong tech holding? You betcha. But that’s the sector we understand. We have had some great holdings over the years. Though we did miss out in Amazon.
I find it so funny that everyone thinks the fidelity approach works. Everyone should buy mutual funds and let some company properly manage them. Well, they make a lot of money doing that too. Any fee is pretty much too high for me. I’m cheap and frankly with few exceptional money managers don’t see them bearing the market either.
We’re happy with our results and I wanted to share a different approach that is pro-stock v. Mutual funds.
Why have a financial advisor who presumably charges some sort of fees when you seem to be confident in your own stock picking abilities?
@Happytimes2001, living close to Silicon Valley I use similar techniques as you and I have been beating the market (using all metrics I can find) in the last 20 years, using Fidelity’s calculations. I am in Fidelity’s Private Wealth Management because of the size of my portfolio but I told them I won’t be using their advisory.
I bought a lot of tech stocks day after Black Monday in 1987 and survived the tech bubble in 2000 by trimming smaller companies along the way. I am a big believer in not panicking in down markets treating it as a buying opportunity instead. MSFT is one of the stocks I purchased day after Black Monday and it has become my biggest position through multiple splits in the 90s. I am thankful I didn’t sell it all during the Ballmer years.
I have a physician friend who put everything into one stock…AAPL. She retired early and who is to tell her that one should diversify?
Apple very nearly went bankrupt in the late '90’s… depending on when she bought in, she could have lost everything.
Telling someone who has hit the lottery that lottery tickets are a bad bet is not going to be well received advice. Ask the people who had their entire 401k’s invested in Enron stock how that worked out.
Some people will beat the market, that’s how distributions work. But it’s mathematically impossible for everyone to beat the average.
@cbreeze Agree that there are many ways to get to retirement. My spouse was in tech in the early 90’s and so was I. We saw some major firms and worked for some of them. Knew which ones made sense and either invested in them or ended up with employee stock ( back in the day when your bonus was stock). We also found some good ( and strange stocks) that were on the cutting edge. I remember reading about intuitive surgical and thinking why not buy some stock in some of those exploring that area. We also got a good telecom understanding from one of us working in that field. An odd and technical field but lots of growth there too. Working in consulting also gave us exposure to many firms. You learn to read what is .com nonsense and what has potential bang for the buck. You can also see if companies are faltering or have avenues for growth. The more you know in tech the more you can assess.
We generally bought 100 shares in many things. Then kept those shares long term. We have many friends who have done the same. I think lots of people in their 50’s and 60’s who bought any tech at all and kept it did pretty darn well. We also have friends like your AAPL friend who bought a large position and kept it. Our GOOG friend sent his kids to college, bought a large boat and paid off his house and still has most of his shares.
@ucbalumnus Well, I am in another field so I don’t have time to look at stocks daily and know every aspect of something. I know what stocks I like and the FA brings another group of shares, we discuss. Sometimes it takes quite a while. I follow his lead but if it’s something I don’t like, we sell it. He has control of buying and selling and I’m not trying to time the market. I have done extremely well with my individual stock sales over the years. I buy what I know and I buy what I think is solid in terms of brining it to market. Not one to jump on pipe dreams and companies with no income. But there are lots of industries that give our portfolio balance ( like energy) where I know almost nothing. Yet, it’s important to be in that arena also. I guess I don’t mind paying for expertise. I’m in a field where I am paid for my expertise so recognize that no one is an expert in many fields. We pay for tax accountants and others too. I believe it’s not only the knowledge you have of the specific thing/stock/policy but also the context in which you consider it.
Learned a good lesson a long time ago, even if you can do it, it doesn’t necessarily mean that you should.
That’s why you need to know the companies you invest in. Enron committed fraud. Management is key. Don’t invest in something you don’t know anything about. (per Peter Lynch) Most FAs don’t have fiduciary duty. Fidelity FAs don’t, unless you are in Private Wealth.
My friend in question is a very sophisticated investor. She goes to all shareholder’s meetings and uses options to protect her downside. I agree with you that most people should stick with ETFs if they don’t have the time or inclination to study the market.
Also most of the Enron folks who lost big owned the shares and worked for the company. One of the rules is, if you work for the company, you are already exposed so you should not own as much stock or you should at least realize your exposure. Can’t understand why someone would keep 100% of their money in a single stock. And what about the ones who owned tons of shares and also had a pension from a company that went bust. Yikes.
Yes, and fiduciary duty is critical. If the person is not working for you, you are in trouble and at risk. Even if they are a fiduciary, you should question what they present. People don’t even check their FA to see if they have a record of issues. Good idea to check every year. I wouldn’t care if they were in Private Wealth or not. Actually, in private wealth my first concern would be, am I the average customer or is my account larger/smaller than the normal size. Too big and I’m likely not getting the right service and too small and I might be ignored. Has to be a Goldilocks situation.
I like reading Kiplinger’s (founded 1947).
https://www.kiplinger.com/investing/stocks/601222/stocks-warren-buffett-buying-selling-q2-2020
Aug 2020 issue had a mutual fund one page spot light - I like to look at 10 year returns (so I will have to look those up).
I was looking for a past article with a very good analysis of the stock market and ‘avg return’ …
Covid is giving us an very unusual situation, both in US and globally.
H and I were impacted with the high inflation during the purchase of our second home purchase in 1980 in TX. We should have gone with variable rate due to facts we didn’t know (we thought we would be there a long time; we weren’t). Our 1st and 3rd home purchases were with assuming the prior owner’s loan/interest rate (paid more in for build up of equity. We stayed at 3rd home longer than expected - but IDK if refinancing would have paid off or not.
The downturn of 2008/2009 - we had just refinanced our home prior to this. In more recent years we were able to get a 2.5% interest rate through one of our credit unions at little closing cost for the remaining $100K of home loan.
I think the young are going to have to deal with more of the unknowns that those of us with assets and other stabilizing factors. However the young also can make some changes with being flexible and the choices they have. Us parents can help them feel secure while also venturing forward.
Kiplinger June 2019 has an article about lessons from the college scandal, and has a piece of advice about having the young people working towards a goal to making us feel worthwhile “it tends to be when they were starting out, working extra hours and eating ramen noodles because they couldn’t afford anything else” - psychologist asking clients who have achieved substantial success to reflect on the best time of their lives.
Kiplinger, May 2019 has a one page article “Do the Math. Is $1M enough to retire?”
Being concerned, review facts, adjust accordingly. Tend to things today. Think about the future but don’t worry about the future - put energy where you can do something.
I don’t know, I work 90+ hours per week, have no time to follow daily market changes or individual stocks other then the FAANG. I have no problems with my Vanguard, Fidelity, TRowe price accounts being managed by professionals for the small fees I pay.
I guess I could go buy 6 quarts of oil, an oil filter, air filter for $25. Take 40 minutes to change my oil by myself and say I beat the local oil change $29.99 price.
I honestly don’t believe anyone who says they consistently beat the market for 30 years, unless of course their name was Bernie Madoff.
And I certainly wish I had followed Elon Musk’s “T” company much earlier this year.