All of that is a very good approach. About the only thing we do differently at my house is that we invest about 95% in stocks, mostly US stocks but a bit of international stuff sneaks in now and then, and about 3-4% in bonds with the rest in a money market account so that we have a pool from which to buy more stocks. Mutual funds aren't a bad choice, but the low risk and low returns didn't do it for us. Lastly, CDs were decent back in the first half of the 1980s, but they'd be a foolish choice in the last 20 years or so.
They say the first million is the hardest, and that seems to have been true for us. That milestone took about 15 years after starting from scratch, and now 3 years later we're 70% of the way to the second, thanks to the magic of compounding. Warren Buffett once joked that compounding should be illegal. That got a good laugh from the crowd.
You are only talking about year to year (no compounding) and this is money that would either be in the bank or at IRS. Until banks start paying a lot more than they are now, I will leave it with the government.
I know about that but you are still playing chicken. If I sell a stock around the end of the year, I have some cushion down at the tax man. Most brokers don't want to screw with withholding and if you just send in one estimated payment in December, they might ding you for it. I have done it and got away with it but it just depends on why they might be looking at your return. I will handle venomous snakes, wrestle with alligators and pick fights in bars but I am not screwing with the IRS.
Do you really think inflation is as low as the government says it is? They underplay it for political reasons and also so they can justify paying such low rates on federal paper. When you owe almost $30 TRILLION a half a point on your interest racks up cost pretty fast.
Where would I swing that dead cat to hit any kind of safe investment that pays 10%? Letting Sam hold my money is as safe as anywhere I can put it. The difference between the IRS (zero percent) and a T bill is about
0.01-0.07%. My $5k gets me a whopping $1.52 at the 52 week T bill rate right now. Then there is an FDIC bank at 0.25%
Anyone who doesn't have a lot of cash laying around has no business investing the money they will need on 4/15 in some risky investment hoping to make a couple hundred bucks so I am not sure who you think I am giving bad advice to. As I said, the penalties and interest would eat that little profit you made pretty fast if you guess wrong. Like Frank says, they might take couple years before they catch you but the interest starts accruing in the year you files. They may also tack on a penalty plus a lot of hassle. There are other ways to make money without playing chicken with the IRS.
If those are your only two options, then you've placed a constraint on yourself that the rest of us don't have. Think about your choices.
What is this chicken of which you speak? I'm familiar with the game of chicken but I don't see why you've introduced it into this discussion. There is no chicken going on.
None of that makes the least bit of sense. All transactions are recorded and taxes are paid, one way or another. Your broker issues 1099's that you use to calculate your tax obligation. If you have a broker that you can't trust, why are you still using that broker?
T-bills?? Banks?? I thought you were more sophisticated than that.
No one said anything about people who don't have a lot of cash laying around or people making risky investments. Try to keep up.
Complete nonsense. Where does the guessing come in? This is like your claim of 'chicken' in the previous post. If your investment decisions involve guessing and playing chicken you're exactly where you belong with your .25% bank rate and the losses that that guarantees. Like I said, if losing that much money is fine with you, that's great.
Catch you? What are you doing that involves a risk of being caught? Whatever it is, you may want to reevaluate your choices.
Again with the chicken reference. If you're skirting the law, as you seem to be suggesting, I'd advise you to take a better look at what you're doing.
For those that want to take time to follow the stocks I agree that the mutual funds do not pay as well, but they do pay very good compaired to other things and I do not have to spend time trying to pick the stocks. I do try to pick the funds that have a low overhead cost. I still average around 10 % on the stocks on the long run and lately about double that or so. One only did about 8 % while the others were over double that, so that fund got swapped for another.
I don't do the bonds mainly because I do not want to try and understand them. So know nothing about them. From what I understand, they are about as bad as the CDs over the last number of years for the most part.
I fully understand and agree. My wife enjoys doing stock research more than I do, and she has the time to do it. My son takes an easier route and subscribes to a stock picking newsletter from Motley Fool. On an annual basis he sees about 17-28% return in the last decade, but it's not for everyone. He's in his 30s, so he can tolerate a lot of risk. My wife and I are a bit more conservative in our stock picks, but we still do OK at around 20-25% annual return, although recent years have far outpaced those numbers.
Excellent approach. When dealing with mutual funds, it always pays to be aware of the fees. In the last year or two the big brokerage houses have eliminated the fees related to buying and selling stocks, so that simplifies things a bit. Fidelity, and possibly others, also do 'by the slice' now so that small investors can buy partial shares of stocks. If a particular stock is valued at $600 a share and you only want to invest $50, you can do that now. That doesn't benefit us, but it's good for the little guys.
Bond strategies tend to be focused on 'preservation of principal' rather than 'growth', although there are certain tax strategies that can come into play. Tax-free dividends, for example, can sometimes be used to your advantage. In the big picture, bonds can sometimes be used as a hedge against stock market declines. Just as with stocks, the safer approach with bonds is probably to just buy into a bond fund that agrees with your goals, rather than picking specific bonds to hold.
You said you keep your ready cash in a money market. Tell me which one pays that 10% you alluded to and I will put my money there. I have plenty of investments that pay me well. We are talking about a couple grand. I am not going to obsess about the fraction of a percent I am losing.
If you have no clue what you will have to be paying taxes on and some of it will not be subject to withholding, like selling stocks or maybe other assets, you are gambling it won't be too much to trigger that underpayment penalty and just mailing the IRS a check in December or early next year isn't going to get it. I like a little buffer in the kitty. I am at the point where a little change on my line 9 makes a big difference on the rest of that return (SS calculations, taxing of dividends etc). My wife can also tip that scale by deciding to cash in some of her 401k to buy a car for the grand kids.
I get 1099s but that is after the fact, usually showing up in late January and I have had several brokers. None withhold for the IRS.
Frank gave you the perfect example. He underestimated his withholding and ended up writing too big a check A couple years later they actually looked at his return, assessed a penalty and charged interest on that penalty for a couple years before he even knew he was in trouble.
I don't know what that contrived scenario has to do with what we've been talking about. Your estimated withholding is unrelated to any capital gains or losses you encounter as a result of selling financial instruments.
You don't have Federal tax withheld (from what? from where?) on the off chance that you might sell some stock shares and make a profit. Those are two entirely different things, not captured anywhere near each other on your return and not related to one another in any way.
Is that what you've been worrying about all this time? Well, don't.
I think what might have confused you is that the net of capital gains minus capital losses is added to (or subtracted from, if negative) your ordinary income amount and the sum is reported as total income. Withholding isn't affected by capital gains, though. It's possible to owe a ton of Federal tax if you made a ton of capital gains, but that doesn't enter into the calculation on whether you didn't withhold enough throughout the year. The IRS knows that taxpayers have no idea what the market rate will be when a taxpayer decides to sell an asset. They aren't going to penalize you for selling in a hot market. Think about it.
You've misunderstood something. There is no money market that pays 10%. I said that I keep a small amount, usually $100K or less, in a money market account and I've also separately said that investment returns of 10% up to
40% or more are possible under the right circumstances, but those are two different things. The high returns aren't from a money market account.
Like I've been saying, I'm no longer trying to save you any money. You've made it clear that you have enough to the point where a few hundred here or there or even a few thousand here or there isn't going to affect anything. I only wanted to try to warn others, who may be less fortunate than you, not to do what you're doing with regards to a large Federal tax refund. Who knows who all reads this newsgroup, or may read it in the near future.
OK, I'm pretty sure I see your concern and I went into some detail in another post just now to try to address it. Bottom line, the IRS knows that we taxpayers have no control over the stock market (or bond market, futures market, commodities market, etc.) so there are no possible penalties for not having enough money withheld *from another income source!* to cover the taxes on a sale over here. It just doesn't work that way. It couldn't work that way.
If you're getting a $5000 refund, you're way beyond the point of a little buffer in the kitty, but it's up to you. Do what you like. It's just money.
Don't file your Federal taxes until you get all of your 1099s. That way there's no after the fact surprises. And as stated above, there's no requirement to have money withheld just in case you sell some stocks. That has never been the case.
They make the rules. Just follow their rules and no one will be f****ng with anyone.
I have been using TD Ameritrade for the stocks I play with. They used to charge under $ 10 per trade, but now do not charge anything. Many years ago I looked at trading stock with the savings and loan company I was dealing with. Forgot what they wanted but it was way out of line to use them for trading. I much perfer just to do the trading on line. Most of the time I will just tell the computer to buy or sell a stock at a certain ammount. There are other ways to do it. I have set it to sell or buy if the stock moved a certain dollar or percentage ammount.
I left the details to my broker, and on his advice bought as much clean uranium as I could. Buy a good distribution of stock & bonds in nuclear reactor builders & maintainers as well as uranium prospecting & processing on all continents.
Then you find out that some of your prospectors found precious metals silver, gold, platinum, rare earth metals, copper, and vanadium, which is the key component of *huge* (as Americans would say, 'football field sized') batteries; perfect for sucking power out of uranium whilst the world waits to wake up to another clear and clean day.
I'm not sure how much actual uranium world-wide is owned by me, because there are lot of people who do futures trading on all metals, especially uranium, companies owning pieces of each other, and nobody really knowing who is going to find what valuable metal or who's reactors of the hundreds under construction will come on-line first while oil is unstable as well as always being expensive & dirty to ship, &c.
It all started with that Canadian uranium that Hillary sold to Russia. I got in on it before I really understood what was happening, but I'm glad I did anyways.
Just my grocery bill, the cost of energy, the cost of various materials I buy, the cost of real estate/rents and the cost of consumer goods, in spite of most being made by Asians or 3d world workers. The exception is electronics but that is just because of the technology getting smaller/cheaper. There is far less labor involved. What used to be hundreds (thousands?) of parts soldered together by hand is now on a chip that costs pennies to produce and is wave soldered on a board by a robot. I am not sure what the government puts in it's basket to get the CPI but I don't seem to buy much of that.
My grocery bill is basically the same. I'm still paying the same price for bread ($5.49 for two 32oz loaves) that I was paying five years ago. Milk has not gone up. Fresh veg are about the same. Grapes are a bit higher (0.50/#) as they're shipped from south america this time of year. I still pay $4.99 for a rotisserie chicken at Costco. That hasn't changed for a decade. Salmon varies through the year between 7.99 and 9.99/lb; currently it's at 8.99. Dungeness crab is up, mainly because the fishing season was cut short.
Yes, lumber has gone up thanks to Trump's foolish tariffs, for which you can blame the protectionist republicans.
Real estate has been increasing every year since the Clinton administration and is a function of supply-and-demand; unrelated to inflation.
On Sun, 18 Apr 2021 16:29:51 -0400, Ralph Mowery posted for all of us to digest...
That is what you worked for. Spend it for yourself and wife. Have fun. That is why I recommend a financial advisor. They will look at what your objectives are and help you keep enough for the nursing home. Won't have to play with the taxes because they are on it along with their tax people. If you want to give money to charity do it in your will. Make sure you have your Living will and Last Will up to date. If you want to play the stock market let them know and set up an amount you, your wife and the advisor recommends. Make a long term game out of it, fun...
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