- The Finance Gourmet

Tax Loss Harvesting for Regular Investors

September 9, 2024 by Finance Gourmet

Every so often, tax loss harvesting seems to show up in various marketing literature like it was just invented. The funny part is that tax loss harvesting has been around for a long time. In fact, it’s less important today than it was before Bush the Second cut long-term capital gains tax rates to 15 percent. So, what is tax loss harvesting, and how is it important to the average investor? Understanding Tax-Loss Harvesting and Capital Gains To understand tax loss harvesting, you first have to understand capital gains taxes. Income taxes apply to most forms of income. However, the profits made from the sale of certain types of investments — for our purposes, stocks, bonds, and other equities — are taxed differently. These taxes are known as capital gains taxes. The easiest way to understand it is by example. Capital Gains Example If you buy $10,000 worth of Apple stock and then sell it a few years later for $20,000, then you have made a $10,000 profit. This profit is a form of income known as capital gains. The original investment amount, or purchase price, is known as the basis. The basis may be adjusted depending on several factors, but …

Get Rich Investing Reality?

January 2, 2024October 15, 2023 by Finance Gourmet

Albert Einstein once said that the most powerful force in the universe was compound interest. What most people don’t understand is that, while powerful, compound interest needs a lot of time to work. Unfortunately, when most people start looking for financial planner, or stockbroker, or just researching how to invest on their own, they start with unrealistic expectations of how rich investing can make them. The most important thing to remember is that it takes money to make money, even in investing. If you aren’t starting with a million dollars, you won’t be making a million dollars any time soon. How Fast Can Investing Make Me Rich? When a lot of people start investing, they start with something like their 401k plan or other retirement plan. Usually, they contribute a small part of their paycheck each month. Over time, the money adds up nicely, but not to the extent that makes anyone excited. After saving up some money outside of a retirement account they start thinking about online trading, or investing in something that grows faster. Not to put too fine of a point on it, they want to get rich fast. Unfortunately, that isn’t really how investing works. If …

Real Power of Compound Interest

January 2, 2024August 17, 2023 by Finance Gourmet

I have a full follow-up coming in response to some of the questions I received on a recent post about how to get rich fast investing in the stock market. In that post, I showed how it is nearly impossible to get rich investing in less than a decade or two, unless you start out with a sizable amount of money in the first place. The reason this is so shocking to people is that they hear all the time about the power of compound interest. While it is true that over the long-term, compound interest is very powerful, it takes a long time to get going. Imagine the trickle of a mountain stream building slowly over miles and miles until it becomes the Mississippi River, and you get some idea of what the real power of compound interest looks like. In the meantime, I stumbled across this instructive comic from xkcd.com about the power of compounding interest.

Acorns Investment Portfolio Review

July 4, 2023March 15, 2023 by Finance Gourmet

Recently, I did a review of the Acorns app. If you are not already familiar with the Acorns savings and investing app, you should read that for an introduction how to use Acorns first. It also covers questions like Is Acorns safe, What are Acorns fees, and If Acorns is legit. Essentially everything you would expect in an honest Acorns review. Now, let’s take a look at Acorns funds and how they invest your change. Are Acorns Investments Good Portfolios? The idea of the Acorns automatic money savings app is that it rounds up all of your transactions and automatically invests that money for you. There are some nuances about how Acorns works you should understand first. Money is only transferred once the minimum round-up amount is $5, and it only happens once per day, unless you use the Acorns debit card or Acorns checking account. Before we get too in-depth here, it is important to remember a few things. First, when you get started with Acorns, we are talking about a very small amount of money. That means that as far as real dollar amounts go, the difference in percentages won’t be big. For example, if you have $100 in …

Cathie Wood and Ark Innovation Reviewed

February 6, 2023 by Finance Gourmet

Cathie Wood is the chief executive and fund manager behind a series of tech-focused ETFs. The most well-known is ARK Innovation ETF (ARKK). The fund describes itself as investing in “disruptive innovation” which they define as companies with new technological products or services that “potentially change the way the world works.” That’s a pretty lofty description. In the vein of our popular look at the track record of Jeremy Grantham, let’s take a look at Cathie Wood and ARK Innovation. The ARK Innovation Fund There are two major pieces to the ARK Innovation Fund. One is an actively managed ETF that invests primarily in tech companies that have new, or “gee whiz” products. Main investments are unsurprising in companies like Tesla and Zoom (totaling almost 17.5% of investments as of 02/06/23). Another 7% in Roku makes me nervous for a company that seems to be running out of road on the way to a dead end. I mean, the Amazon Firestick is better than the Roku stick, and between Apple TV+, and smart TVs, and cable companies, I’m not sure where Roku fits in the rapidly consolidating future of entertainment. — Maybe that’s the point. Is Roku ready to be …

How To Choose 529 Investments

December 12, 2022November 17, 2022 by Finance Gourmet

If you don’t already have a 529 plan opened, you should start with the instructions for opening a 529 plan before worrying about which investments you use. Trust me, when I tell you, as a former financial planner, that the biggest drag on saving money for college isn’t choosing the wrong investments, it’s taking too long to get started. No amount of tax advantages will make that up. Most parents overestimate the amount of merit-based scholarships their child can get, and underestimate how much financial aid they may need in the form of loans. Whether you are using education savings accounts, a Coverdell IRA, or a 529 plan, you want to cover as many qualified higher education expenses as you can without loans. The amount you need will be more influenced by need than merit, which means if you have a higher income and higher assets, you are going to pay more. That is just the way the world works right now. The only thing you can really do is deduct all the qualified educational expenses you can from your taxes and pay the rest with tax-free money from 529 accounts and the like. At least then your qualified education …

Tender Offer ADT Shares

October 16, 2022 by Finance Gourmet

I still have to write up my big Webull review (it goes along with my Public, Wealthfront, Robinhood reviews), but suffice to say that during my test of Webull I was granted one share of ADT Inc. stock as part of my “You may receive one share of any stock up to Apple and Microsoft and really awesome stocks that you want to own… <in fine print> or a sucky one valued at at least $4.” Hey, free is free, right? So, it was with some confusion that I received a Time Critical – Must Respond letter from Webull Financial LLC in which they gave me no idea whatsoever what was going on, or why it was time critical. Since this is still Web 2.0, or whatever, they did provide a website where I could take one number from the top of the letter–and after some searching–a number from the bottom of the letter to log into what my wonderous offer might be. A Tender Offer The reason they sent me a letter is because I own shares (one share) of ADT stock. This is technically a tender offer under which I can sell my ADT stock for $9. On …

Did Americans Really Lose $900 Billion in The Recession

October 3, 2022 by Finance Gourmet

Anyone who has been online for more than a day or two knows that the way to get clicks is to have a big, shouting, headline. One popular search engine optimization (SEO) plugin won’t give your title a passing score until it has “a positive or negative sentiment.” Ideally, it also contains a number and a “power word.” Is it any wonder then that financial news headlines scream things like, “Americans Have Lost $900 Billion Since…” or “America’s Richest Tech Billionaires Have Lost $315 Billion In the Past Year?” How Do You Actually Lose Money When the Stock Market Crashes? Let’s talk about investing and losing money. First, we are going to talk about net worth and how much equity you have in your home. It’s for a good reason, I promise. Your net worth is the value of all of your assets minus all of your liabilities. The key word there is all. If your car is worth $15,000 and you owe $8,000 that counts as $9,000 of your net worth. Even that ping pong table in the basement that is worth $50 counts towards your net worth. As you can imagine, this goes off the rails quickly. The …

Power of Compound Interest – A Case Study

January 23, 2023August 17, 2022 by Finance Gourmet

Over at MarketWatch recently, was an interesting article entitled Make Your Kid Rich for $1 a Day. I’ll let you go over there and read the particulars if you are interested. However, I think that the concept provides a great way to study the phenomenon of compound interest, and the elements that go into it. Compound Interest Only Works Over Long Periods People love to quote Albert Einstein saying that the most powerful force in the universe is compound interest. What most people forget is, that as a physicist, Mr. Einstein was used to working on a very large scale, with a very long timeframe. Let’s start at the beginning. Compound interest is not magical. It is merely the phenomenon of earning interest on your previously earned interest. So, if you invest $10,000 and earn 10 percent interest annually, then you would earn $1,000 in interest, and have $11,000 at the end of the year. (Sort of, depending on how interest is paid and compounded, but let’s not quibble.) The following year, you would also earn the same 10 percent interest. However, this time, you earn 10 percent on $11,000, not just the original $10,000. In other words, you are …

Roth 401k and Roth 457 Plans

January 17, 2023July 16, 2022 by Finance Gourmet

By now, many people are familiar with the basic concepts of a 401k retirement savings plan. But did you know there are different kinds of 401k plans? Do you know what a 457 plan is, or what its variation, the Roth 457 plan is? If you already have a good understanding of regular 401k plans, or traditional 401k plans, then it’s pretty easy to see the difference. If not, don’t worry, we’ll walk you through it step by step. Standard Features 401k and 457 Plans The regular parts of a 401k plan are relatively well known. An employer must start and run the 401k plan. Contributions made to the 401k plan are traditionally made with pre-tax dollars. That means that you pay no taxes on the amounts you contribute to a 401k plan. Also, no capital gains taxes or taxes on dividends are due while the money grows inside of the 401k savings plan. In exchange, you cannot withdraw money from a 401k plan prior to age 59 1/2 except in very specific circumstances without penalty. In addition, you will have to pay taxes on the money as you withdraw it from the account. And, finally, once you turn 70 1/2 …