I have pulled about 95% of my retirement account into money market funds and the like for the moment until I figure out what to do. I am considering investing in non-U.S. markets but really don’t know where to begin with that. I am not exactly ready to retire, but I am seriously debating leaving the U.S., possibly for a long time or even indefinitely, which would mean either a) Canada, where I have the legal right to work but by most accounts the job market is terrible; or b) to some other country that’s cheaper to live in than Canada, but where my choices will either be some kind of non lucrative visa, or becoming a business owner or the like in my 50s, which doesn’t thrill me and seems inherently risky.
So what should I do with the rest of my life? And how do I keep the bulk of my retirement savings relatively safe while doing so?
I made that mistake in 2008. Some of my holdings eventually came back, but a number of them just became actually worthless.
Unfortunately most of our current assets are in non-retirement funds. I’d really like to reduce exposure to volatility, but I’m reluctant to hand over a substantial chunk to the taxman in capital gains…
No kidding. After I cashed out some of my less stable funds last year I found a nasty little surprise called the “net investment income tax” had kicked in.
And then in two years Auntie IRMAA is going to come calling:
I don’t know what I would have done differently though.
I’ve said this in another thread. I don’t have a conceptual problem with CG tax, but a huge amount of my retirement savings is in a regular taxable account (for reasons out of my control), and managing that money can cost me. It’s really frustrating.
I don’t know if you can create a situation where you actually want to increase your tax burden.
A few years back, in order to get the full EV tax credit I deliberately created capital gains by selling and buying back some things. Essentially just resetting my cost basis for free.
The CG taxes were built in as you made the gains. They graciously allowed you to accrue them, not pay them, year after year. But that money was already gone, no matter how you slice it.
Holding a crashing asset to avoid giving the IRS money that was already indelibly earmarked for them is silly.
My rule of thumb: if I would not buy it today, why would I want to own it today??
One slice is if you think you will never cash it. If it going to be in your estate it’s another thing. Otherwise yeah pay it now or pay less later because you have less capital gains there after it crashes?
Yes of course. IF you assume hold forever and sell much later. If it hits zero meanwhile, too bad so sad. Much better to have sold years ago for the after tax value.
Quite understood, of course. As the saying goes, “sooner or later you have to eat your peas”.
Mind you, in our case, we are at least partly thinking in terms of a legacy to our children.
We don’t have any planned upcoming major expenses, the house is paid off etc. And when we finally kick the bucket (not anytime soon, I trust) the step-up basis rule kicks in.
Aside: I’m rather amazed they still allow that, and would not be at all surprised if it goes away sometime…
You may be sure that, unlike 2008, I am watching our financial accounts like a hawk.
Anything that goes underwater will be dumped in a microsecond.
I don’t get this? You’re hardly changing your cost basis “for free”?
Unless somehow going over a threshold switched on a credit that would not have been allowed at all otherwise? But most tax things don’t usually work on an all-or-none basis like that; they are graduated?
Sounds a bit to me like when people say there’s no point in getting a raise because you’ll have to pay more tax (only in reverse)…?
sure, which is why it is critically important to have an asset allocation that you can stick to as the market goes up and goes down, as it always has. The key question is what level of risk are you willing to accept, not just in good markets, when your investments are rising in value, but also very bad markets when equities are tanking and it seems like there is no good news on the horizon.
The EV tax credit, at least for 2024, was for those who had an AGI below a certain limit. (Married filing jointly, for instance, was $300k.) If you made more than that limit, you didn’t qualify. If you sold stock or mutuals and created CG income, you certainly didn’t do that get the full EV tax credit.
Want to hear something a little funny? Cruiselines have shareholder benefits for people taking cruises. Generally you buy 100 shares of stock (and they’re usually not expensive) and you get some onboard credit depending on the length of your trip.
I’m taking a cruise next week and I thought why not buy the shares, it’s only $2000 and it’ll give me $250 of onboard credit and I’ll probably sell them back at the same price, the stock is reasonably stable.
Stock dropped 12% this week and I’m out … $253 in value.
It’ll probably come back up as the industry is doing well, but I thought that was a little funny.
Also TSLA dropped $13 at market open which was an instant 7% gain for my portfolio. I hope this is the day of the TSLA reckoning but I have a feeling it’ll go up to a modest loss of $3 or $4.
Edit: I literally alt-tabbed to my portfolio after I finished this post and in that 2 minutes it took me to write this post my portfolio is up another 3%. Whee.
It was a very special situation. At the time, the EV tax credit (rebate? there probably is a correct term) offset tax liability. So to get the full $7500 rebate, you need to have $7500 or more in taxes. (Total liability, not just what you “owe” on April 15, I’m not confusing those things). If you only paid $5000 in taxes that year, then you’d lose $2500 in credit.
That year I also had some other tax credits/rebates. Perhaps there was a child one, or maybe a home energy credit, or something, or multiples. So, maybe I needed to have a total tax liability of $12,000 in order to take advantage of all of the credits I qualified for, but based on just my salary, investments, and deductions I was only going to pay $8000 in taxes. I needed to somehow pay another $4000 in taxes, or lose the credit forever.
I know I recharacterized a small traditional IRA to a Roth IRA, and converted some index mutual funds to the new (at the time) Fidelity 0% fee index mutual funds. So I used the credits I wouldn’t otherwise be able to take advantage of to pay the capital gains from selling my old mutual funds.
The capital gains were “free” to me. Money is fungible, so saying I paid them when I bought the car is completely legitimate. The important thing is that if I hadn’t owed the capital gains, I would have forfeit the money from the credits.
I said it was a very special situation, that is unlikely to apply in other cases.
Thanks for the explanation @echoreply. Makes good sense. I’m impressed that you knew about this so that you could take steps before year-end to achieve what you needed to accomplish.
Back to the discussion, today I pulled the trigger and sold all my shares of a large-cap index fund, which was about 20% of my IRA. It hadn’t done as well as I expected, and it has certainly suffered in the past few weeks. Using about 75% of the proceeds, I will purchase corporate bonds which will yield between 5 - 6.5 % over the course of the next 3-5 years. The rest I plan to put into a money market, at least for the immediate future.
This action will help me in that I don’t have to worry what the market is doing each and every day.
Yeah. I’m set up with somewhere around 3 to 10 years’ living expenses in low-volatility “safe” assets. Unless of course the craziness gets crazy enough and well-rated corporate bonds and US treasuries become worthless or inflated to nothing.
I’m expecting the remainder of my more growth-oriented portfolio to have recovered from the trumpmusk follies by then. Unless of course the craziness gets crazy enough and the S&P blows up or hyperinflation hits.
It’s a LOT easier to pay less atttention to the present ructions when I may well be naturally and most sincerely dead before I run through my Treasury ladder.
The thing I heard on a podcast, read here, or got stuck in my head someplace, is to avoid corporate bonds and only invest in government ones, because they have all of the risks of stocks, but a limited upside potential. If the company goes bust, the stocks and bonds become worthless. If the company does great, the stock could go up by multiples, but the bonds never will.
I’m sure it’s not that simple, and I’m sure one of the reasons that it stuck in my head is because it confirms my bond strategy, which is to only buy government bonds. (Other than a few corporate ones held by some of mutual funds).
I think I get what you’re doing, in that you don’t think the company will go bankrupt, even if the stock price plummets, and the bonds guarantee a return of 5-6.5%. If you’re wrong and the stock does go to the moon, oh well, at least you got the return you expected.
That is similar to my thoughts on the government bonds. I’m not buying them because I think the price of the bonds will go up, I’m buying them for the guaranteed rate of return. What I lose is opportunity costs of not having that money somewhere more productive, but if I could predict what was “more productive” I’d already be retired with more money than I could ever spend.
That is all to say, tell me where I’m wrong, or what I’m misunderstanding.
Historically US treasuries had zero risk. Or within a rounding error of zero. Corp bonds have more than zero. The higher the yield, the more the riskiness and the more the junkiness. The low risk ones are only slightly less secure than treasuries. Government bonds of states, municipalities, etc., have more risk than treasuries.
Buying a single corp bond means betting on that one corp. Buying a corp bond fund or ETF means betting on all the corps in the fund. Or more accurately, placing a much larger number of much smaller bets on a much larger number of corps. Some might crash, but most will be fine.
The 90jillion dollar question now is what the USA’s future will be with madman vandals at the controls. The assumption that treasuries are zero risk is now under significant strain.