investing · Personal Finance

My Investment Arsenal

A few folks have requested to see my approach to investing in more detail, so I decided to conjure up the following post. It obviously features a level of diversification, but more in style than substance. I see investments as both ways to grow money and also explore different concepts, so at times certain targets are selected more for interest than practicality.

Stock Accounts

1. Individual Account (Taxable)

This houses the bulk of my investing money, at times to great annoyance. The biggest upside is easy movement of funds If I need to do something important in the short-term, but the negative surrounds tax policy requiring me to hold longer than I would prefer in some cases.

2. Individual Robo-Managed Account (Taxable)

I got this to take some weight off my shoulders on a weekly basis. My broker service offers different plans optimized for taxes, conservative wealth strategies, or growth, and I place a small amount in each month with minimal overhead where management fees are concerned.

3. Roth IRA (Non-Taxable)

Probably the best place to store your investment holdings for the long run. The money goes in post-tax, but then grows without penalty until you’re older, providing no early withdrawals have been made. I do my best to max this out each year, though I fell short a few years back, and more recently got penalized by the IRS for contributing too much based on my salary.

4. Employer 401k

While I am not a fan of 401k programs, I started putting in 5 percent this year (pre-tax) because my income was creating expensive charges when tax filing rolled around. I made sure to pick the lowest fees for my funds, and generally don’t pay much attention to it other than the occasional checkup.

Fixed Income Sources

1. Savings Account

One can shop around, but I use the decently-high option from my broker service. This account yields a little over 1 percent and is effectively an airlock for money that will journey to any of the first three accounts mentioned.

2. Lending Club

This is more of a novelty than anything else to me. The site allows participants to purchase loans and get paid interest, providing you meet specific income standards. I tossed a grand in at the beginning of the year, focused on two different lines of credit. Probably should check it more frequently, but they don’t come due until a few years from now.

Real Estate

1. Fundrise

Not sure this goes here exactly, but I started with the REIT broker last year, and have enjoyed their products thus far. They offer different portfolios depending on your priorities, but I mostly bought in to take advantage of the projected growth in Midwestern city redevelopment. Biggest downside is receiving multiple forms to enter for taxes, which can create a problem if your software (*cough H&R Block*) doesn’t recognize small dividend amounts. That becomes a non-issue after you have been with them a while, however.

2. Physical Real Estate

As some of you know, I purchased a house earlier this year. Thus far it has required time and pennies, but the goal is to have at least half the mortgage paid by renters, and possibly as much as 100 percent. It also gives me the space to start a new business venture I have been planning for some months now. We’ll see whether I was smart to buy or not in the years to come.

Alternate Hedges

1. Cryptocurrency (Coinbase)

I’ve been nibbling on Bitcoin, Litecoin, Ethereum, XRP, and even 0x for a while now. Can’t say any of them have done spectacularly well, or at least not long enough for me to react. I keep adding despite Coinbase’s obnoxious fees because we can never know what will happen to fiat currency in the future.

 2. Precious Metals

I continue to accrue silver whenever possible. A key thing to consider is WHERE you are purchasing it. Going to a pawn shop or metals joint can lead to astronomically higher prices with no chance of a refund. Make sure to Google the value of whatever you choose to buy, and check online retailers to ensure there is no extreme markup.

investing · Personal Finance

We Can’t Take Rate Cuts Back

Josh Brown said something on CNBC today that I’ve believed for a long time under the Trump Economy: it’s now impossible to walk-back rate cuts.

We all remember the debacle of December 2018, when the Federal Reserve raised rates by a quarter point, from 2.25 percent to 2.5 percent. The result was a devastating market drop of 20 percent.

After the last seven days of Coronavirus fear and loathing, the Fed made an emergency rate CUT to stave off concerns, and the Dow fell by almost 3 percent. I guess it wasn’t enough, but just imagine if they had attempted to RAISE rates.

Much as Religious Investor thinking may help quench queasy market appetites by feeding the “There’s no limit!” mentality of millennial dreamers, fueled by the likes of Tesla and Virgin Galactic, at a certain point the ties which bind may horribly snap.

In that moment, will rates be cut or raised? Will it even begin to matter?

investing · Personal Finance

The In-SECURE Act

I have a general rule for life in the United States: anything which saves you money is eventually removed.

A few of you may know about the passage and signing of the SECURE Act in December 2019. This drama-free legislation made some interesting reforms to retirement plan rules, allowing Americans to make certain penalty-free (but not tax-exempt) withdrawals for qualifying reasons, and also lengthened the timeline under which required minimum distributions (RMDs) must be taken by retirees.

That all sounds good, but there is something else to the story. A separate shift in distribution laws could leave you seriously screwed down the road where taxes are concerned.

Under previous rules, people who inherited an IRA from their parents had the liberty of “stretching” RMDs over the course of their own lifetimes, thus reducing the taxes paid on that money and building inter-generational wealth. Not anymore.

The SECURE Act upends this tradition by placing a 10-year distribution requirement on such inheritance IRAs. So if your parent dies and hands over an account with $500,000, you would need to withdraw something like $50,000 annually to spread it out over that period, or take the lump sum. In either case, taxes will be high.

Perhaps the rule won’t be so horrible for folks who inherit at the age of eighteen, but for others it is bad news. Imagine pulling in a six-figure salary at age 45 and having to stack $50,000 on top of that. Your taxes will giggle with delight.

A broader issue relates to how America prevents people from building wealth if they are not extremely rich. Under current tax laws you can even be penalized for making too much while also maxing out a Roth IRA, and few lucrative deductions are available for middle class people. The SECURE Act is just a garnish on that system.

investing · Personal Finance

The Religious Investor

Just how HIGH can it go?”

You’ve probably heard something along those lines in market-based articles. After all, greed and overconfidence are the virtues of constantly churning stock wheels.  It should never stop.

Over the last few years, we have witnessed a rather new phenomenon: the Religious Investor. In this case, it is a person who has no regard for reality or the underlying principles of value. Any outcome, regardless of nature, is an affirmation of their stock’s worth, and skepticism? We simply won’t have it!

The Religious Investor operates much like the Chant Warrior where psychological tropes are concerned. Anything Bad is Good, and anything Good is good. Low polling? That’s because the polls are wrong! Not getting positive attention? Only because of media bias! There is zero possibility of an alternative, because that contradicts the religious narrative.

You probably recognize by now that my target here is Tesla. To be clear, it applies to shareholders in other stocks as well, like Buttondown notes:

One January 29th, 2020, they released a fresh earnings report showcasing the following:

Q4 Non-GAAP EPS of $2.14 beats by $0.38

GAAP EPS of $0.58 misses by $0.26.

Revenue estimate was $7.05 billion, actual was $7.38 billion, beating by $330 million

In reaction, the stock rose from around $570 to $644, roughly 11 percent. This despite relatively poor results in the second half of the year, and a weak track record

Look at how Tesla bulls respond to skepticism:

Comparatively, Apple released the following results not long ago:

Q1 GAAP EPS of $4.99 beats by $0.45.

Revenue of $91.82B (+8.9% Y/Y) beats by $3.41 billion.

Apple’s uptick? About 2 percent. And even in that case, after a long run of success, calling for a sell gets you shredded by the true believers.

So should we all go to cash, or stop being haters and buy?