Last year in December we noticed that one of our Municipal Bond mutual funds had short-term losses. That’s not a huge surprise after the post-election bond yield surge and hence it was time to harvest those losses. If you’re not familiar with Tax Loss Harvesting, we wrote two earlier posts on the topic, one dealing with the general concept and one dealing with the implementation. In any case, after we sold the underwater tax lots, where do we put the money? For 30 days we can’t invest in the same fund (or different fund with identical benchmark) or we’d run afoul with the IRS wash-sale rule. There was one asset class that we had never owned but had definitely been on our radar screen for a while. Finally, we took the plunge and invested in… drumroll …
Tag: Taxes
Why would anyone have a mortgage and a bond portfolio?
We are homeowners with a pretty sizeable mortgage but we also accumulated a nice retirement nest egg, which is actually many times larger than our mortgage. Even our taxable investments are several times larger than the mortgage. Still, we don’t pay off the mortgage because we like the benefit of leverage. We have a liability with a low-interest rate and assets with a much higher expected rate of return, so our overall expected rate of return is higher than without a mortgage. Our friend FinanciaLibre (now a defunct site) did some nice number crunching on this topic recently and we agree wholeheartedly.
Moreover, if you follow our blog you’ll also remember that we take a pretty dim view on bonds:
- The Great Bond Diversification Myth
- When bonds are riskier than stocks
- Have bonds lost their diversification potential?
So, personally, we skip the bond allocation altogether. Others have written about this, too, check Physician on Fire’s 2-part guest post here and here. In light of all of this, here’s one question that occurred to us:
Why would anybody have a 30-year mortgage at about 3.50% and a bond portfolio currently paying around 1.8 to maybe 2.5% interest for safe government bonds?
Leverage works only when the asset has a higher expected return than the liability!
Continue reading “Why would anyone have a mortgage and a bond portfolio?”
Our Interview on the Amber Tree Leaves Blog
Our first interview! Ever! Be sure to check out our…
Interview on the Amber Tree Leaves Blog
We talk about everything related to our options trading strategy! Continue reading “Our Interview on the Amber Tree Leaves Blog”
Shorting an inverse ETF? A bad idea! (Or: Why “Beta-Slippage” isn’t alpha)
A while back, I came across an interesting blog post. A guest writer on the White Coat Investor blog put forward an intriguing, almost too good to be true, money-making scheme. Unfortunately, it is too good to be true. It works neither in practice nor in theory. The more I looked into this subject, the more flaws I found with the analysis and I thought people might find it useful when I share my notes here.
It would have been so nice to announce here – with great fanfare – that, yes, there is a way to consistently beat the stock market. But it wasn’t meant to be. Oh, well, sometimes it’s just as insightful to understand why things don’t work! Continue reading “Shorting an inverse ETF? A bad idea! (Or: Why “Beta-Slippage” isn’t alpha)”
Trading derivatives on the path to Financial Independence and Early Retirement
Derivatives and FIRE (Financial Independence and Early Retirement) sound like two things that don’t mix. Like oil and water. Financial derivatives (options, futures, etc.) have the aura of opaque and highly risky investments. On the way to Financial Independence, most people are either oblivious to derivatives or avoid them like they carry communicable diseases. Probably derivatives are also traded in some smoke-filled backroom or an illegal gambling joint, right?
Let’s look at the myths vs. facts! Continue reading “Trading derivatives on the path to Financial Independence and Early Retirement”
We just saved $42,000 by not switching to Betterment
There is a popular car insurance commercial featuring someone who “just saved a ton of money by switching to GEICO.” How much is a ton of money? $400? Well, by that measure we just saved more than “100 tons of money” or a whole century worth of car insurance savings. And we didn’t do so by switching, but by not switching our brokerage account. Ka-Ching, how easy was that? Continue reading “We just saved $42,000 by not switching to Betterment”
Tax Loss Harvesting: what is it and how large is the expected benefit?
Tax Loss Harvesting is the rage now. Robo-advisers do it for you, and every DIY saver should seriously consider the benefits. Let’s look at what Tax Loss Harvesting is, how and why it works and how large (or small) the expected benefits can be. Continue reading “Tax Loss Harvesting: what is it and how large is the expected benefit?”
That sneaky 30% Federal Income Tax Bracket (27% with the new post-2018 tax brackets!)
[Update: This post was written in 2016, but in light of the changes to the tax brackets starting in 2018, that 30% bracket became a 27% bracket!]
Running some income tax scenarios for when we finally retire in 2018, we ran into a situation where our ordinary income would be taxed at a whopping 30% marginal rate on our federal return, despite having a total income of “only” around $100,000 (married filing jointly). How is that possible? There is no 30% bracket, only 10, 15, 25, 28, 33, 35, and 39.6%. Moreover, the 30%+ rates don’t even start until $231,450 taxable income for married joint filers, right?