Posts Tagged ‘personal finance’
Two weeks ago I wrote about the tax strategy to use during a sabbatical, career transitions, and early retirement. This week’s article is a continuation of that theme, focusing on tax gain harvesting.
This discussion stems from the fact that investment gains are taxed differently than our ordinary income. In fact, they have their own tax brackets. See below:
Let’s take Joe Doe for example. He is a lawyer and his usual taxable income is $600k. That puts him squarely in the 20% capital gains tax bracket. On top of that, based on his income, he must also pay the Obamacare surtax of 3.8%. That makes the tax rate on his investment gains (and qualified dividends) 23.8%.
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I have done many portfolio reviews over the years and I’ve seen all kinds of mistakes people make with their investments. Starting today I will do a series of articles on this specific topic. Hopefully, you will learn from these examples and therefore avoid repeating them.
First let me clarify a couple of terms:
- Financial Advisor: the guy who gives you financial advice and tells you where (what funds) to invest your money. Most of them work for big brokerages like Merrill Lynch, Morgan Stanley, and others (therefore the conflict of interest), and most of them can direct your money.
- Fund Manager: the guy who works at a mutual fund who does not interact directly with you, but nevertheless decides what stocks and bonds or other funds your money should be invested in once your financial advisor has invested your money in his fund.
To review a portfolio, first and foremost, I examine the hidden costs:
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Today, a client of mine invited me to his house for lunch. His son Kevin has just finished college and started a job. The lunch invitation was not just for a celebration, but also to give Kevin a quick financial education and set him up for future financial success.
Kevin is employed by a small company that pays him a $60k starting salary. As part of his employment benefits, he also gets a 401k plan with 3% employer match.
As I sat down with Kevin, I had a clear plan of what I wanted to convey to him in the form of questions that I would answer for him.
When should he start saving and investing?
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The reward of a financial advisor
Posted on: January 7, 2013
Recently, a client of mine fell, broke his hip and ended up lying on the floor for 20 hours before he was rescued. I went to visit him in the hospital a couple of times. The good news is: he is out of immediate life-threatening danger. The bad news is: he may be wheelchair bound for the rest of his life.
When John first came to me to seek my help with his personal finance, I looked at his overall financial big picture and was pleased overall. He worked at federal and state jobs and enjoyed good pensions. On top of that, he had a decent investment account.
But there was a gaping hole in his retirement security: he was turning 70 then, was divorced, and his children lived far away. That meant if he were to get sick, nobody would be there to take care of him; he would need to hire caregivers. Right then, I insisted that he buy long-term care insurance.
The Investment Scientist 