Investment general discussion thread

In My Humble Opinion
1061

One thing to consider is if you will need to access the funds before age 59-1/2. The Rule of 55 might allow you to do this with funds from your current 401k. Check to see if your current 401k allows this. If so, it might be worthwhile to transfer your old 401ks into your current 401k, but you would also need to check if the funds from your old 401ks would be available under the Rule of 55. Frankly I am not sure if they would be or not, but it’s worth checking out if indeed you are looking to retire before age 59-1/2. Note that the rule of 55 is only for 401ks, not IRAs, though you could set up a SEPP (or Rule of 72(t)) with an IRA.

Confused? You won’t be after this week’s episode of retirement Soap.

1062

I keep waiting for the correction, and it never comes. My defensive plays from early 2025 have done well, but the S&P 500 has done better. I feel like we’re all standing around an oil refinery watching a kid set off fireworks.

1063

how do the (many) americans in this thread feel about the dollar losing value (vs. mixed currency basket)? … -10% YTD

a worry for you or no? … (Don’t get me wrong, I understand your INs and OUTs are in dollar so it should be “indifferent” to you) … but still… there are also opportunities …

I (non-merican) personally am pretty torn: Wallstreet is doing great, but the Wallstreet-dollar gains are getting squeezed by the -10% reduction in value of the greenback for me …

a non-issue for domestic-investors? a worry? an opportunity?

thoughts?

1064

My honest response is that I don’t know?

From a ground level short term perspective yeah it doesn’t matter to me.

Bigger picture? I think I have more concerns of a weaker dollar than a stronger one. But my confidence of which one is better or worse is not strong. Very swayable by good arguments either way. I’m more convinced though that lack of confidence in where it will be in a year is a bigger issue than where it actually is at that point

1065

Within normal bounds I’m indifferent. If we saw a 50% swing it might impact me in a meaningful way, but otherwise I’m “Meh”

1066

OK, I have some questions. Was just reviewing our investments as we are putting together our will.

Our retirement savings look pretty paltry until you add in our other investments. I wondered if that was a problem. We’ve been maxing out our Roths every year but that’s about it. However, if you add the sum total of investments, it’s more than the recommended target for our age for retirement. I just wondered if there’s anything inherently wrong with that.

I don’t fully understand the benefit of a non-Roth retirement account as opposed to some other kind of investment. Is it just the risk level?

Our non-retirement investments vary in risk level from quite conservative to moderately risky.

We are 42.

Also, I don’t like to talk about this because I don’t like to plan based on money that might happen, but my husband’s grandmother has an irrevocable trust for her grandchildren. It occasionally spits money at us and I can’t figure out the rhyme or reason. It’s not annual. The amounts can be odd, sometimes, in the sense that they are down to the penny. When it spits money at us, we usually invest about 90% of whatever amount, which is really why we’re doing so well with our investments. We’d be strapped otherwise.

I’ve grown curious about it because we are looking at possibly setting up a trust for our son. We are going to talk to the lawyer about it tomorrow. Our financial advisor told us to avoid probate as much as possible. I get the gist of what a trust is, and I’ve read some articles, but I really don’t understand it. Why is a trust inherently better than probate? What is probate?

Does irrevocable mean money can’t be taken out of it? Can money be put in it? Can people be added to it (for example, could she add her great-grandchildren?) Is it an investment or a bank account? I’m guessing his grandmother has something set up on a schedule to pay a certain percentage out to her grandkids. It doesn’t appear to be age-based because she has 19 grandkids of various ages and it’s usually the same amount for all of us.

So there’s that, and there’s also how much should I really be worried about money knowing that trust money is there? And also, does money coming down the line mean we really should set up a trust for our son? He’s almost six; at this age I’m not sure what he’s going to be like at 18, but when it comes to maturity, emotion regulation, patience, delayed gratification, I’d say he’s about at age three or four, so I’m kind of expecting him to be delayed in these areas by 2-3 years. But it’s very hard to predict.

Just curious about thoughts/experiences.

1067

Nah. But you need to pay attention to tax strategies. Roths are untaxed when you take them. But regular IRAs and 401ks are taxed as income when you take them. If you’re talking about an investment account, the gains in those accounts will be taxed as capital gains, generally 15% for holdings >1year and 20% for <1 year. HOWEVER, how much income you take from any source considered income impacts the CG rate. I can’t begin to do it justice here, but applying the right strategy of how much you take and from what account in a year can save (or, done wrong, cost) HUGE money. The unfortunate “lie” about IRAs and 401ks is that if you are a big saver, and they pay out (say) $250k/year, you’re going to be paying way more than the 15% you’d pay on a regular investment account. Upper middle class problem, I know, but still.

I really like this tool for modeling taxes. Note the tabs that let you visualize it two different ways:

Someone else can do a better job, I’m sure, but basically probate is the process where the state determines who the rightful inheritor is and allocates the assets to that person. Can take a year, can cost a bunch of money, and some things like real estate can have minimum wait times to ensure there isn’t someone out there with a claim to it. A trust basically does all that before the person dies, so on day one “here you go”

There are many trusts, some of which can have money pulled out and some cannot. I know we have pretty knowledgeable people here, but your attorney should be asking what your objectives are (avoid probate? Provide for a feckless kid? Protect assets from Medicare?) and then tell you what type you want.

At 42, you have plenty of time. The odds of both of you going in the next 10 years is pretty small, I’d wager. Basically airplane crash or horrific auto accident.

1068

But if you have a will, isn’t all of that spelled out ahead of time?

1069

Yes, but probate is the very careful and slow process to accomplish that.

1070

Got it.

I think in that case we’d definitely want a trust, then, because our big fear is what happens if we die before our son is an adult. He has special needs and we don’t need that money tied up in probate when it should be going immediately to whoever is going to raise him.

1071

Two misconceptions you may have here. You say your retirement savings look paltry until you add in your other investments. “Other investments” can be used for anything you want, including retirement. I assume what you’re referring to as retirement savings are the tax-advantaged retirement accounts, like 401k, Roth, regular IRA. Those have various tax advantages (though OldOlds warnings are worth checking out) as long as you don’t try to use the money before you reach 59 1/2 years old. Regular investments have no such tax advantages, since you can pull out money whenever you like, but of course there’s nothing preventing you from using them in your retirement either. How much to put into retirement vehicles is where a tax advisor can be useful.

And the type of account, Roth, 401k, regular IRA generally has nothing to do with risk level - you can pick whether you want to invest it all in a US Treasury bond fund with essentially no risk (as in that fund collapsing means society has likely collapsed too) or put it all in incredibly risky stock funds, or something in between, in any combination thereof. That has nothing to do with the type of retirement account it is.

1072

Speaking as a non-professional, there is a vehicle called a ‘special needs trust’.

Here is an article about it from Investopedia, a site that I think does a good job of explaining things.

IMO, this is something you should definitely look into.

1073

I also should have mentioned that CG rates have changed many times over the years, and so I would not assume there won’t be another before you retire/expire.

1074

Actually you should be talking to an estate planning attorney about a special needs trust regardless of anything else you have said here about your assets and prospects for an inheritance.

It will cost a bit of money up front, but it could be absolutely a life changer in your financial lives as you grow older.

1075

Not necessarily. I can think of at least 2 reasons you may not want to do that. First, having money in a pre-tax IRA will gum up the process of completing a “backdoor Roth” IRA. This is essentially a process where high earners (who can’t directly contribute to a Roth IRA) can make a non-deductible contribution to a traditional IRA, then immediately convert that to a Roth IRA. Having any money in a pre-tax IRA will result in the dreaded “pro-rata” rule coming into play. Second, 401k’s (ERISA plans) generally offer stronger, unlimited creditor protection under federal law than typical IRAs. For those with higher liability concerns, that might be something to think about.

1076

Thank you for this link! I have been trying to figure out how to structure my itemized deductions to keep from giving the US gov’t 24% of my income, and this is very handy.

1077

Just one example, for married joint:

If one were to take $75k in income and $75k in CG, total tax would be $8013, because at that income level you get a 0% CG on $53k of CG

Taking all $150k as income would mean paying $15898, basically double.

Taking $100k as income and $50k as CG means $11013

Taking all $150k from CG means a paltry tax bill of $3270

I’m often taken by how different those numbers are just based on what money you choose to spend in what order.

1078

Seconded. I passed that link along to my husband for us to look at later.

He’s generally the one in charge of our investments. I manage the household budget and short-to-medium-term stuff. I make sure the bills get paid and we have enough money to travel, buy clothes, or pay for our kid’s birthday party. I don’t have the patience to sort through a bunch of minutiae on investments, and he seems to understand it better than I do. Which isn’t to say that, if left on my own, I couldn’t figure it out. What he usually does is figure out the three best options and then present them to me and we decide together. For the most recent investment decision, he ended up deferring to me, and that’s partly because I have a firmer grasp on what’s in checking and savings and what we can afford to lose. I use YNAB to track everything and I am in there daily checking things out.

So like I’m not totally ignorant about investments but I’m still learning at my own pace.

1079

Is that something a tax-preparer would automatically consider? My husband owns his own practice so we outsource our tax preparation. Would we need to talk to them about that, or is it just part of their job to figure it out?

1080

I don’t use a tax preparer, but I would assume most of them are just reacting to what you did last year, not advising you on next year. My accountant (for work, not personal) does some of this for her clients, but I’m not her client except in my role at my job.

I don’t mind nerding out on this stuff, so it’s easy enough to research yourself. But if you’re not so inclined, and if you have some assets, it might be worth talking to an accountant or tax attorney. [Edit 2: Financial advisers should be able to help as well, but as discussed in this thread I’m not prepared to give them 1% of my money every year for that] But it’s not relevant until you’re ready to start taking money out, and by then who knows what changes will have been made to the tax code. At 42 I think you just need to be aware of it and deal with it when you’re close to retirement.

ETA: As mentioned the other day, brokerages (ie Fidelity) often offer services to their customers, like consulting on tax strategies and insurance options, etc. Might be worth seeing if yours does and if you have enough there to get any of those freebies.