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The next level

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  • Avatar green1237 
    Participant
    Status: Physician
    Posts: 10
    Joined: 01/15/2018
    Disability Insurance

    I’m coming up on one year of attending-hood and looking to up my game to the next level. I have refinanced my student loans and am aggressively paying down debt, plan to have my loans paid off within the next two years. I am a W2 employee. I have maxed out my 401K, HSA and done backdoor roth. I have a minuscule amount in a taxable account and an emergency fund in a high yield savings account.

    I would now like to move to the next level and get more advanced with my saving/investing. Currently other than my emergency fund in a savings account I am 100% invested in stocks. I would like to add some diversification to this and have some questions:

    1) What are the advantages in investing in bonds over having more money in a high yield savings account. My HYSA is currently paying 2.1% interest, I dont see any bonds yielding significantly more than this

    2) Between the different accounts available to me, which type of funds should be in which account? I understand there are some possible tax advantages here

    3) What the heck is tax loss harvesting and when do I need to think about it?

    Thanks in advance

    #214767 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 417
    Joined: 03/26/2018

    I’ll let someone else take 1 and 3. #2 I can answer easy for you with a link: https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

    As for other accounts you may or may not have, do you have access to a 457b plan? Does your 401k allow for the mega backdoor Roth? That’s different from a backdoor Roth

    #214776 Reply
    IntensiveCareBear IntensiveCareBear 
    Participant
    Status: Physician
    Posts: 137
    Joined: 12/22/2018

    …3) What the heck is tax loss harvesting and when do I need to think about it?…

    Click to expand…

    It is where people sell things for a loss intentionally (yeah, crazy, huh?). You don’t need to think about it. You would do best to just avoid buying those types of things.

    Try thinking of things and researching thing that will make money, not lose money… then let your accountant sort out the rest. The reason to sell stocks/funds is because you’ve made money, you realized you made a bad buy, or there is a significantly better buy available (so you need the cash). If you own something that is down simply due to market conditions or for no good reason, you should probably buy more if it’s a good investment vehicle (it would now be better at lower price and higher % dividend) or you could hold it and collect dividends.

    If you want to some offset gains, that is what commercial real estate depreciation or business expenses are for. TLH is for novices. Any “TLH” should be done by accident on the few bad picks you sell after realizing it was a mistake (news after buy cripples the stock or cuts dividend, etc).

    “What are the advantages in investing in bonds over having more money in a high yield savings account. My HYSA is currently paying 2.1% interest, I dont see any bonds yielding significantly more than this…”

    …bonds vs cash savings is up to you. I’m assuming this is for your smallish emerg fund (should be 10k max)? Talk to your accountant about tax consequence for the account the bonds would be in; also remember that the accountant time costs you money. Bonds pay retardedly low nowadays and aren’t immune to price dips and variability that hit stocks; at the time you’d be most likely to need your EF (bad economy), bonds typically dip just like NYSE and almost anything else… look at 2008, Oct/Nov last year, etc etc etc on graphs. I would just keep it in savings, which generally gets your bank account and brokerage trade fees lowered (or eliminated completely) when you have high enough balances. Between those three factors of bonds not immune to losing value, tax/hassle potential, and banking/broker fees, the savings account almost always wins for EF. It will be a different story of bond yields go back to being 5 or 6 o 10%, but that is simply not the case today. Bonds have almost no current utility besides lowering risk in very big portfolios… and even those usually have better options at present rates. GL

    #214779 Reply
    Avatar Dilaudidopenia 
    Participant
    Status: Physician
    Posts: 163
    Joined: 05/22/2016
    Splash Refinancing Bonus

    I am just finishing my 2nd year of attendinghood, hoping to offer perspective.

    Questions:

    1) What is your student loan debt and what is the interest rate?

    2) What specialty are you?

    3) Kids? Planning on kids?

    4) How much Emergency Fund do you have?

    5) Have you secured disability and life insurance?

     

    “Next level” things:

    -Kill the loans faster.  I delivered the death blow to my ~220K (upon med school graduation) of debt a few months ago.  It is sooooo nice.

    -Fund more into taxable – depends on your loan amount and interest rate – I opted to kill to loans – felt better psychologically; however, I am also fulling funding a solo-401k (I am 1099)

    -Open 529 if you have kids or if kids are imminent

    -Go on a couple bougie a** vacations.  You deserve it.

     

    As long as you don’t do something stupid like buy a Maserati or a $1M house you’ll be fine.

    #214807 Reply
    Liked by EndoRobert
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1848
    Joined: 03/01/2018

    You should post specifically what you’re holding in your various accounts, what the investment choices and expense ratios are. Cover the basics before worrying about “next level”. Or should we assume you’ve made the right choices already?

    Also what’s your marginal tax rate fed and state.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #214814 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 426
    Joined: 06/18/2018

    Next level for you is reading and educating yourself. The answers to #2 and #3 can be found quite easily from myriad sources online. Figure out how to quickly answers such questions for yourself whern they arise, then you’ll be better equipped to maximize your finances.

    #214836 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3614
    Joined: 01/08/2016
    I would like to add some diversification

    Click to expand…

    in terms of what specifically? funds, allocation? i dont recommend anyone be 100% stock.

    What are the advantages in investing in bonds over having more money in a high yield savings account.

    Click to expand…

    they pay more, but also have more risk.

    My HYSA is currently paying 2.1% interest, I dont see any bonds yielding significantly more than this

    Click to expand…

    total bond has a 2.9% yield, so definitely more, but not incredibly so.
    you also forgot that the mutual fund itself can also appreciates in value.

    2) Between the different accounts available to me, which type of funds should be in which account? I understand there are some possible tax advantages here

    Click to expand…

    read the bogleheads wiki.

    you basically have all tax advantaged accounts, so it doesnt really matter.

    and you said your 100% stocks, so it doesn’t really matter.

    but basically, FI doesn’t go in your rIRA…

    3) What the heck is tax loss harvesting and when do I need to think about it?

    Click to expand…

    TLH is used to exchange one security for another thats similar, but not the same.

    for example, total US VTSAX drops 10% over a month. you sell it, claim the losses against any gains and then your income, but you also immediately buy s&p500 VFIAX. your money is still 100% invested, and still 100% in US equity. so your overall plan didnt change, and you got benefits.

    there are rules involved, please learn about it before attempting. however, its not difficult, takes < 5 mins, and if you never do it, your plan will still work out fine.

    this only works when something really drops in value. so not too often. but a few here on this board likely still have carry over losses from 2008 they are working through.

    ignore the intensive med student.

     

    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 793
    Joined: 02/11/2019

    I agree.  If you have not already start with the WCI book.  Bogleheads wiki is another good and free choice as is the getting started posts on WCI.  If  you decide you want to be a DIY investor develop a plan and feel free to ask us to critique.  Good luck!

    “Never let your sense of morals prevent you from doing what is right.”

    #214873 Reply
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 3171
    Joined: 01/21/2016

    “Next level” often implies exotic investments, strategies and opportunities. Having been down that rabbit hole, I think it is best to think about keeping things as simple as possible. Next level thinking may be along the lines of avoiding the next level.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #214884 Reply
    Avatar Gamma Knives 
    Participant
    Status: Physician
    Posts: 130
    Joined: 06/25/2017

    …3) What the heck is tax loss harvesting and when do I need to think about it?…

    Click to expand…

    It is where people sell things for a loss intentionally (yeah, crazy, huh?). You don’t need to think about it. You would do best to just avoid buying those types of things.

    Try thinking of things and researching thing that will make money, not lose money… then let your accountant sort out the rest. The reason to sell stocks/funds is because you’ve made money, you realized you made a bad buy, or there is a significantly better buy available (so you need the cash). If you own something that is down simply due to market conditions or for no good reason, you should probably buy more if it’s a good investment vehicle (it would now be better at lower price and higher % dividend) or you could hold it and collect dividends.

    If you want to some offset gains, that is what commercial real estate depreciation or business expenses are for. TLH is for novices. Any “TLH” should be done by accident on the few bad picks you sell after realizing it was a mistake (news after buy cripples the stock or cuts dividend, etc).

     

    Click to expand…

    I will have to disagree that TLH is for novices and not crazy. Certainly it is ideal if you never have a loss (on paper or realized) but the market goes up and down. So, unless you don’t invest in stocks there will almost certainly a time where there is the potential for TLH. Your post sounds like you are talking about buying individual equities which is not the strategy most of the board uses. I agree that if you have shares of a company and still think it is a good long term investment then selling for a loss is not a good idea.

    With index funds you can sell lots of one index fund and buy a different (but similar) fund that serve the same objective in your portfolio to create a loss that you can deduct against regular income (up to $3000 per year and you can carry the loss forward). Of course this decreases your cost basis so you will have more gains in the future but if they are long term gains they will be taxed at a lower rate than your marginal income tax rate (at least under the current tax code).

    #214990 Reply
    IntensiveCareBear IntensiveCareBear 
    Participant
    Status: Physician
    Posts: 137
    Joined: 12/22/2018

    …With index funds you can sell lots of one index fund and buy a different (but similar) fund that serve the same objective in your portfolio to create a loss that you can deduct against regular income (up to $3000 per year and you can carry the loss forward). Of course this decreases your cost basis so you will have more gains in the future but if they are long term gains they will be taxed at a lower rate than your marginal income tax rate (at least under the current tax code).

    Click to expand…

    Correct. It is basically just kicking the tax can down the road if I trade IVV for VOO at the end of a down year. I didn’t actually save any money.

    (and they’d usually be short term cap for me since I would probably be position trading them or selling covered calls and losing them occasionally)

    I would assume most people who max out their IRA and 401/403 and have the types of market cash accounts TLH could even “work” in are not simply holding indexes forever. Those are usually people with significant piles of money who typically want more than average (minus fees) returns. Maybe that’s not the case. Focusing on long term cap gains neuters the ability to sell profitable options, do/hire active management, and the ability to pivot from certain indexes or shares to others when opportunities arise. I would always encourage much more focus on ways to improve biz/invest/earning skill than ways to avoid a bit of taxes. I guess I view myself as the money generator, and the CPA is the maintenance man. Have a good weekend.

    #215095 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1848
    Joined: 03/01/2018
    Correct. It is basically just kicking the tax can down the road if I trade IVV for VOO at the end of a down year. I didn’t actually save any money.

    Click to expand…

    tax loss harvest can actually save you money, now. By offsetting capital gains and saving those taxes, or offsetting income tax on $3k ordinary income per year. I do agree that it is kicking the can down the road because you’re resetting to a lower basis.

     

    (and they’d usually be short term cap for me since I would probably be position trading them or selling covered calls and losing them occasionally)

    Click to expand…

    short term losses are the best kind for tax loss harvesting

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #215098 Reply

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