G. Keenan wrote:Question for the GRB hive re index funds:
Is now a bad time to buy something like an S&P index fund? The market is so high. Is it better to wait for it to decline, then buy? I ask because I have a couple of stocks that I'm thinking about selling and using the cash to buy an index fund that I can start paying into on the regular and just sit on until retirement (God willing). The stocks are safe, pretty boring large companies. They're never gonna get too high or too low. They both pay quarterly dividends, but the positions aren't big so the dividends are not serious amounts of money. If I sell them I'll have to pay some capital gains, but I wonder if that's worth it to buy something with more long term growth potential. I'm thinking of selling them soon with the market high and parking the cash in something short term, waiting for Trump to crash the global economy in the next 1 - 4 years, and buy the market when it's low.
Is this dumb?
Buy now if you are ready to make that move I don't think timing the market is wise. There has been a next great depression basically every year of my life and really it's only happened once.
G. Keenan wrote:Question for the GRB hive re index funds:
Is now a bad time to buy something like an S&P index fund? The market is so high. Is it better to wait for it to decline, then buy? I ask because I have a couple of stocks that I'm thinking about selling and using the cash to buy an index fund that I can start paying into on the regular and just sit on until retirement (God willing). The stocks are safe, pretty boring large companies. They're never gonna get too high or too low. They both pay quarterly dividends, but the positions aren't big so the dividends are not serious amounts of money. If I sell them I'll have to pay some capital gains, but I wonder if that's worth it to buy something with more long term growth potential. I'm thinking of selling them soon with the market high and parking the cash in something short term, waiting for Trump to crash the global economy in the next 1 - 4 years, and buy the market when it's low.
Is this dumb?
I'm going to assume you own these stocks in a regular taxable account and not something deferred like a IRA or Roth IRA?
Depending on your tax bracket I recommend not owning high dividend stocks because dividends are tax inefficient. I'm a huge proponent of index diversification, so personally I would liquidate the stock. In my opinion no company is "safe" anymore. If you recall I worked for a bank with a AAA credit rating that almost went under in 08. Horrible things can happen. If what you own is over 10k I would consider buying Vanguard Total Stock Market Index Fund Admiral Shares over the S&P fund (which is also great). If we're talking mid-5 figures you might want to consider a simple 3 fund portfolio (this is my strategy).
If this is truly for retirement and you're not looking to use this money for a house or something else in the near future you owe it to yourself to put 5,500 (the yearly max) in to a roth ira and buy a target fund. It's easy to setup on Vanguard.
As for the timing - no one knows anything. Maybe your stocks tank. Maybe the market takes a nose dive, but those stocks you own now weather the storm. Maybe the republicans make the capital gains taxes lower (unlikely)? You just have to do what makes sense to you and make peace with your decision. In all seriousness, I highly recommend not tracking the market. I make it a point to not look because it drives people crazy and they make poor decisions.
Arthur Dent wrote:I just hear people talk about maxing out all these tax shelters and it seems excessive to me. First of all, few can afford that, but also, do you really need that much money, but only when you're old? The relatively wealthy professionals who can play these games in the first place seem to often have excessive self-confidence.
I'm a pretty aggressive saver because I want [expletive] you money in my early 50's and tax deferred accounts are a good way to achieve that. Basically, I don't want a lot of stuff, but I do value freedom.
I would say that your bigger concern should be the fundamentals of your position. For an individual, holding stocks in individual companies is generally a bad risk. Even boring/safe companies can have idiosyncratic problems that will harm your savings. Diversification through a broad index approach improves returns on a risk-adjusted basis.
I say sell the individual stocks and replace them with a generic index like the Vanguard target retirement date fund.
If this is for retirement, and you haven't maxed out something like Michael's list, put the money in a tax-sheltered retirement account like a Roth IRA.
*Arthur Dent LLC is not a licensed financial adviser and provides investment advice for entertainment purposes only. Not available in all 50 states. Void where prohibited.
Michael wrote:I'm a pretty aggressive saver because I want [expletive] you money in my early 50's and tax deferred accounts are a good way to achieve that.
I'm also an aggressive saver because I don't have much confidence in the labor market but I guess my point is [expletive] you money isn't very good if it's stashed in retirement restricted accounts when you need it.
G. Keenan wrote:Question for the GRB hive re index funds:
Is now a bad time to buy something like an S&P index fund? The market is so high. Is it better to wait for it to decline, then buy? I ask because I have a couple of stocks that I'm thinking about selling and using the cash to buy an index fund that I can start paying into on the regular and just sit on until retirement (God willing). The stocks are safe, pretty boring large companies. They're never gonna get too high or too low. They both pay quarterly dividends, but the positions aren't big so the dividends are not serious amounts of money. If I sell them I'll have to pay some capital gains, but I wonder if that's worth it to buy something with more long term growth potential. I'm thinking of selling them soon with the market high and parking the cash in something short term, waiting for Trump to crash the global economy in the next 1 - 4 years, and buy the market when it's low.
Is this dumb?
I'm going to assume you own these stocks in a regular taxable account and not something deferred like a IRA or Roth IRA?
Depending on your tax bracket I recommend not owning high dividend stocks because dividends are tax inefficient. I'm a huge proponent of index diversification, so personally I would liquidate the stock. In my opinion no company is "safe" anymore. If you recall I worked for a bank with a AAA credit rating that almost went under in 08. Horrible things can happen. If what you own is over 10k I would consider buying Vanguard Total Stock Market Index Fund Admiral Shares over the S&P fund (which is also great). If we're talking mid-5 figures you might want to consider a simple 3 fund portfolio (this is my strategy).
If this is truly for retirement and you're not looking to use this money for a house or something else in the near future you owe it to yourself to put 5,500 (the yearly max) in to a roth ira and buy a target fund. It's easy to setup on Vanguard.
As for the timing - no one knows anything. Maybe your stocks tank. Maybe the market takes a nose dive, but those stocks you own now weather the storm. Maybe the republicans make the capital gains taxes lower (unlikely)? You just have to do what makes sense to you and make peace with your decision. In all seriousness, I highly recommend not tracking the market. I make it a point to not look because it drives people crazy and they make poor decisions.
Arthur Dent wrote:I just hear people talk about maxing out all these tax shelters and it seems excessive to me. First of all, few can afford that, but also, do you really need that much money, but only when you're old? The relatively wealthy professionals who can play these games in the first place seem to often have excessive self-confidence.
I'm a pretty aggressive saver because I want [expletive] you money in my early 50's and tax deferred accounts are a good way to achieve that. Basically, I don't want a lot of stuff, but I do value freedom.
NSFW
Yes, it's a regular taxable fund, not IRA or Roth IRA.
Thanks for the input, Michael! I do think I need to liquidate these stocks because they aren't doing much of anything, don't have much potential for growth as far as I can tell, and I don't want to do anything with the money other than let it grow for retirement.
Arthur Dent wrote:Yeah, I think your list makes a lot of sense in general and basically endorse the framework. I'm curious where those interest rate thresholds on debt payoff come from. Seems like an additional factor on that would be whether it's debt you can not pay if needed.
Sorry, one more thing. The site I nabbed that from I think it a little too debt adverse, I think. Also, some debt is better than others. For example, housing interest has tax advantages. Some debt cannot be erased with bankruptcy which should be considered.
Debt like most financial advice it's rather easy to find a near optimal approach, but it's also intensely personnel and human behaviors have to be considered. For example, let's say I swimming in generic debt and I come to you looking for advice with the following:
Now, the math says to pay off Debt 1 first due to the highest interest rate, however research shows most people fail when they try and tackle the biggest principal first because they get discouraged. For most people, it's actually better start with debt 4 and work your way up.
Michael wrote:I'm a pretty aggressive saver because I want [expletive] you money in my early 50's and tax deferred accounts are a good way to achieve that.
I'm also an aggressive saver because I don't have much confidence in the labor market but I guess my point is [expletive] you money isn't very good if it's stashed in retirement restricted accounts when you need it.
I don't totally disagree, although you can take money out of these account earlier than 59 1/2 with some caveats. I also put some money in taxable and as I get older I expect that % of my investing to grow. Tax deferred accounts while you're young are the sweetest thing. I think not putting money in those deferred accounts while I'm young is giving up too much reward to hedge fairly minor risks (my situation).
Last edited by Michael on July 6 17, 8:23 pm, edited 1 time in total.
Now, the math says to pay off Debt 1 first due to the highest interest rate, however research shows most people fail when they try and tackle the biggest principal first because they get discouraged. For most people, it's actually better start with debt 4 and work your way up.
Totally agree. I think debt, in general, is something people struggle to deal with psychologically in many ways. In addition to the achievement aspect paying something off, just closing out a balance as an item you have to be always be dealing with and worrying about is surely worth some money.
Michael wrote:Also, some debt is better than others. For example, housing interest has tax advantages.
It does, but this is fairly overrated for many people given the standard deduction. Big subsidy for owners of really expensive homes though.
Edit:
Michael wrote:Tax deferred accounts while you're young are the sweetest thing. I think not putting money in those deferred accounts while I'm young is giving up too much reward
Oh, agreed with this. Putting money in versus maxing them out are different things though. If you're maxing out a 401k, an IRA, and a HSA to avoid having a taxable account, you are likely saving too much for retirement and not enough for other concerns.
If you haven't maxed out a Roth IRA though, I'd definitely do that before any taxable because the ability to withdraw the principle allows it to serve a dual purpose.
Michael wrote:
Depending on your tax bracket I recommend not owning high dividend stocks because dividends are tax inefficient. I'm a huge proponent of index diversification, so personally I would liquidate the stock. In my opinion no company is "safe" anymore. If you recall I worked for a bank with a AAA credit rating that almost went under in 08. Horrible things can happen. If what you own is over 10k I would consider buying Vanguard Total Stock Market Index Fund Admiral Shares over the S&P fund (which is also great). If we're talking mid-5 figures you might want to consider a simple 3 fund portfolio (this is my strategy).
When I check out that Vanguard Total Stock Market Index Fund Admiral Shares I see that it's also available as an ETF. What's that about?
Michael wrote:
Depending on your tax bracket I recommend not owning high dividend stocks because dividends are tax inefficient. I'm a huge proponent of index diversification, so personally I would liquidate the stock. In my opinion no company is "safe" anymore. If you recall I worked for a bank with a AAA credit rating that almost went under in 08. Horrible things can happen. If what you own is over 10k I would consider buying Vanguard Total Stock Market Index Fund Admiral Shares over the S&P fund (which is also great). If we're talking mid-5 figures you might want to consider a simple 3 fund portfolio (this is my strategy).
When I check out that Vanguard Total Stock Market Index Fund Admiral Shares I see that it's also available as an ETF. What's that about?
Since I buy shares every month with a fixed dollar amount I prefer mutual funds (ie dollar cost averaging). ETF's are like buying a stock, so you have to buy whole shares. For example, let's say I have 1000 to invest and the shares are trading at 110 dollars. With a mutual fund I'll get 9.09 shares (1000/110). With an ETF I'll get 9 shares with 10 dollars left over. It's a slight difference, but it can add up over time.
One risk with an admiral mutual fund is if dips below 10k you'll be moved to the slightly higher fee mutual fund. Therefore, I wouldn't buy the mutual fund at the lowest limit of 10k. I'd want something like 12.5k to ride out the swings a bit better.
Another advantage of ETFs is you can day trade it like a stock, while the mutual fund sales settle at the end of the day. If you aren't in to market timing like me this isn't a big deal.
If you buy on Vanguard.com both etf and mutual fund purchases are commission free.
As someone who buys these funds every month (as little as $1) and has a long term view I prefer the mutual fund version. If you're lower on cash and/or if you're looking to just buy as a one time thing, ETFs might make more sense. Either way the differences aren't huge and I wouldn't sweat the decision too much.
edit - ETF's are also more portable to different brokers if you decide to leave Vanguard someday. That said, you can convert your mutual funds to ETFs without a tax event.
