Investing 102

[Vegas69]

Greg, I'm confused on what makes a stock dividend or gain short or long term?

[dylanCamaro582]

Greg,

The closest trading symbol i could find is LPVIX on Google Finance.And yes, I'm pretty young compared to most of you guys.

I would like to increase in 401 K contributions from 10% 15% as you said, but with paying off student loans and other debts accrued during my schooling and working a barely living wage manufacturing job, and trying to save for my own place, my money can get stretched pretty far.

[GregWeld]

Originally Posted by Vegas69

Greg, I'm confused on what makes a stock dividend or gain short or long term?

Ah ha!


Okay --- Dividends have some very specific rules - regarding short term holdings like if you're just trading stocks to pick off the dividend.... and that's for an individual to discuss with their accountant BEFORE they start that kind of trading....


For our purposes here -- we're going to ASSume that you're buying stock for long term (at least one year and one day) and that the dividend payouts are just every quarter and so on. At that rate they are just taxed as DIVIDEND INCOME -- 15% for "most people". They can be zero for low income earners - and they can be a MAX of 20% for those high income folks (single is 406K adjusted gross and 457K for married).


So dividends are just going to be taxed at 15% for most everyone.


Long and Short Term gains are when you buy a stock and then sell it.... and those gains (provided you sold higher than were you bought) are taxed at either the LONG TERM RATE of 15% if you held the shares for the one year and one day rule --- or SHORT TERM which is anything less than one year and one day. SHORT TERM CAPITAL GAINS are taxed at ordinary income tax rates.


HERE is where people need to have a very good understanding of what they're doing if they have gains and then want to offset those gains with losses.

Near the end of the year (tax year) --- you may want to look over your accounts (we're talking TAXABLE ACCOUNTS HERE NOT IRA's or ROTHS).... and if you have some gains you want to take advantage off ---- then you'll be smart to also prune your losers and create some offsetting losses to help ease the tax man pain. Pure losses are NOT a 1 for 1 deduction off your income taxes... if you have pure losses - I think the limit is $3K per year... so if you took a 9K loss - it takes you three tax years to recoupe that. I AM NOT an accountant and as such I'm not up on the latest changes if any to these rules. Which is why everyone should discuss this stuff with their tax dude.

But lets say you have a 20K short term gain you want to take.... and you have a 10K loss in another stock you'd like to dump anyway.... then sell the winner and cut the tax bill by 10K by also selling the loser.

Conversely ---- You have a big 20K loser....and you wan to sell it. You're only going to get a 3K write off this year.... so might as well prune some winners for 17K and with the 3K write off... you're just about even.

Where people get screwed is that they concentrate on the possible tax bill --- and forget about the details. Details such as -- maybe taking your gains pushes you into that next higher bracket and now your entire income is moved into the higher bracket by only $100..... and now your tax bill went UP by $1000's. Ask me how I know about this. I've never made that mistake again!

BUT ----- If you buy and hold (again - talking about taxable accounts here) --- there is no taxable event on your PAPER GAINS... regardless of their size. So you could buy a stock at $1 and have it go to 1 million and there's no tax ---- until you sold it! That's the beauty here ---- your net worth is going up without a direct tax consequence. You'll only be paying a small tax on the DIVIDENDS. 15% isn't very much of a tax bite.


If you're in IRA's --- in other words --- retirement accounts... then the questions are mute as there is no taxable event until you withdraw. Thus the beauty there as well.... over 30 years your money could grow 100's of percent and you only withdraw a little at a time thus keeping you in the bottom of the tax brackets. If your IRA is a ROTH there is NEVER ANY TAX EVER.


Many people are confused by these terms --- and they need to fully understand them BEFORE they make any moves!

[Vegas69]

Very interesting to say the least.

Let's say you bought additional shares this year in a stock you have held for over a year and a day. Does it revert back to a short term gain or only on the new shares?

[GregWeld]

Originally Posted by Vegas69

Very interesting to say the least.

Let's say you bought additional shares this year in a stock you have held for over a year and a day. Does it revert back to a short term gain or only on the new shares?

When you go to SELL there is always a check box "choice" for selling "tax advantaged lots" or similar statement ---- meaning --- the brokerage will sell the shares with the dates that are the most tax advantages for you... unless of course you're sell "all".

The shares (brokerages do this for you) all have purchase dates.... per "lot" or per transaction date. So of course you'd only want sell the shares in your account that are LONG TERM rather than short term. Adding to the holdings doesn't change the entire holding -- only the shares that were bought on a/that particular date. They're not "retroactive".


You asked earlier about the dividends and dividends get different treatment because of course - the tax man always wants his pound of flesh --- so they're not going to let you get away with buying a stock a day before "ex-dividend" then scooping up that dividend and selling the shares... and then only letting you get away with paying 15% tax on that dividend portion. They made a rule about it... so that if that's what you were doing -- you're going to get slammed with the income tax rate not the dividend rate.

Now --- I've said this before. Taxes should never be a part of an investors strategy. An investors strategy is to maximize his income or gains or return on investment... and the taxes just are what they are. If you make a million bucks this year and you owe Uncle Sam 390K of it... SO WHAT! You still kept the rest... so in my view it's a choice... and I'd prefer to pay as much tax as humanly possible - because that means I made a fortune! LOL

What NONE OF US WANT TO DO however is to inadvertently cost ourselves a tax if we don't have to. So checking a date on the shares you plan to sell --- if you're just "pruning" or perhaps just want to change your portfolio... then why sell them one month "early" and get hit with a short term gain - when waiting a month would have saved you some tax money. Of course explaining all of this is harder than it looks --- because if a guy has a loss and he thinks he's going to lose MORE -- then there'd be no sense in holding on to the shares and taking a larger loss - just because it didn't work out on the income tax form.... conversely.... if you could sell shares and scoop up 100K gain... and maybe not get that gain if you waited until the exact right date for taxes... well then that might prove to be dumb.

It's more just something that should be "considered" before just hitting the sell button.



NOW -- for investing 102 -- We haven't touched on MANY other details. We've mostly just touched on buying - reaping the dividend - plowing that back into more shares and compounding these returns.


There's things like WASH SALES.... oh boy -- here we go! The WASH SALE rule to a way for the tax man to keep you paying max taxes. The Wash Sale Rule says that you can't sell a stock at a "loss" and then turn right around and buy the shares back. You must wait 30 days to buy them back - or you're DISALLOWED the "loss". But there's ways around this rule as well. Let's say you owned Chevron (CVX) and you have a loss at the end of the year - so on December 10th you sell -- writing off the loss against gains you had taken. Now that tax year is 2014 which ends on December 31st.... A new TAX year starts January 1st - so on the 2nd you buy Chevron shares. OH NO YOU DON'T!!! Not so fast --- the tax man says that's complete BS... and you just wanted to take the loss against 2014... and he's right of course. So they disallow the loss as a WASH SALE -- and the loss you took gets added to the cost of the new shares you just bought... It gets complicated --- so just don't do it. WAIT at least 30 days -- and that means 31 days... before you repurchase the shares of the company you just sold at a loss.

The way to beat this is --- you sell Chevron and buy anything else that is SIMILAR - but not substantially identical - if you need "oil" in your portfolio -- so you take the loss on Chevron and buy Conoco or Exxon... but you can't sell Chevon common and buy their preferred convertibles... that would be considered substantially identical.

If you've figure out a trick --- they've figured out how to counter that.

[GregWeld]

Originally Posted by dylanCamaro582

Greg,

The closest trading symbol i could find is LPVIX on Google Finance.And yes, I'm pretty young compared to most of you guys.

I would like to increase in 401 K contributions from 10% 15% as you said, but with paying off student loans and other debts accrued during my schooling and working a barely living wage manufacturing job, and trying to save for my own place, my money can get stretched pretty far.

It can't be "close" it has to be THE exact symbol of the shares in your account.


We all understand just starting out. Everyone starts somewhere. The fact that you're started is what counts.

[68Cuda]

Originally Posted by GregWeld

BUT -- the NUMBER ONE thing I'd do if I was you --- OPEN A ROTH IRA and start funding it with as much as you can.

Dylan - good idea, but do not do this at the expense of your company match! Make sure you max that out before you go outside the 401k! Take the free money! I'm not suggesting Greg was implying you forgo the free company money, just making sure that it is clear that the free money comes first!

As for the student loans and other financial strains I can relate. I started grad school a few weeks after the company I was working for closed and my twins were six months old. As soon as I was drawing a true pay check again I put in what I could to get the company match at a minimum and increased my withholding with each raise until I had maxed it out. I recently went with the "high deductible" health plan which comes with a HSA that the company kicks a little into and I now am maxing that out. HSA money is tax free going in and tax free coming out, just has the limitation of only being used for health care. Since our plan has an out of pocket maximum and I have three kids it is fairly easy to predict how much I need to put into the HSA. If I do not use it all it carries forward anyway.

[captainofiron]

Originally Posted by GregWeld

SO -- Since I'm on a roll this fine Sunday morning... I found a terrific chart to show why I use LIMIT ORDERS to buy or to sell!!!!!!

Not important when buying 25 o5 50 shares... then I'd just do a market order most likely - but it doesn't hurt you to put in a limit order as long as you're going to stay on top of what you're doing!

Here's a ONE DAY chart of a company where the "range" was over $2 a share! On a $16 dollar stock... that's a HUGE percentage. On top of that - it would make you FEEL GOOD if you bought more near the bottom than the top. AND if you sold (using a limit order) nearer the top than the bottom! Just by setting the price you want to buy at or sell at rather than just paying/selling at "market" using a market order.


Check out this chart. You could buy at Market and pay $16 or you could have stuck in a LIMIT ORDER and put the price at $15 or any other number you chose and you'd have gotten a fill. The one day RANGE on this stock was over $2.00 !!! It traded as low as $14.30 and as high as $16.36.... where would you have rather bought the shares? LOL


THIS IS A WILD EXAMPLE.... normally I'm trying to bid a .50 cent or 1.00 range.... but if you're willing to stay on top of your trades and manage them - you can play the game and win.


https://www.google.com/finance?q=arp...BsGZqAHtoYHIBw

Thanks for explaining this, I never fully understood that or how to use it to my advantage, so I would just do a regular order

[GregWeld]

Originally Posted by captainofiron

Thanks for explaining this, I never fully understood that or how to use it to my advantage, so I would just do a regular order

That's what this thread has become all about --- taking the mystery out of things that nobody ever taught us.

[sebtarta]

Well if you missed the GoPro IPO don't worry, Schumacher has you covered.

Thanks to this

Report: Michael Schumacher's Brain Injury Caused by Helmet-Mounted GoPro

Formula 1 driver Michael Schumacher's traumatic brain injuries—sustained during a skiing accident last year—were caused by a helmet-mounted GoPro camera, a French journalist in contact with the family said this week.


F1 Star Michael Schumacher In Critical Condition After Skiing Accident
Michael Schumacher is in critical condition after he suffered a traumatic head injury yesterday…
Read on deadspin.​com
F1 commentator Jean-Louis Moncet told a French radio station that he's been in contact with Schumacher's son, Mick.

'The problem for Michael was not the hit, but the mounting of the Go-Pro camera that he had on his helmet that injured his brain," Moncet said on the show.

Investigators believe the camera mount may have caused his helmet to shatter on impact. According to the Telegraph:

"The helmet completely broke. It was in at least two parts. ENSA analysed the piece of the helmet to check the material, and all was OK," said a source close to the investigation.

"But why did it explode on impact? Here the camera comes into question. The laboratory has been testing to see if the camera weakened the structure."
Schumacher spent six months in a medically-induced coma after the skiing accident last December. Family members have told the media that the driving legend is "waking up very slowly" in a medical suite installed in his home in Switzerland.

http://gawker.com/michael-schumacher...-he-1645544653