Maybe the homeless should pull themselves up by their bootstraps and buy a $6 million condo. But you Woke types would never thing of that, would you?
Homeless to Harvard
Upthread I mentioned that I have purchased EE bonds for the past few years because they have an effective rate of 3.5% over 20 years plus the benefit that you don’t have to pay any taxes until you redeem them.
The current rates on normal 20 year Treasuries are above 3.7%. I was thinking that I might have to do run some NPV calculations across different tax rate scenarios to figure out which was the better deal. But it turns out that I can buy Treasuries in a Roth IRA and never pay taxes on the earnings. It looks like Treasuries FTW.
Treasuries in a Roth seems like a leak. I’d figure you would want higher EV STONKS in the Roth for maximum tax savings. I guess if you’re one of those gloom and doom types who believes that treasures will outperform STONKS over a couple of decade time frame, then I can’t really argue with that.
Stocks are more tax efficient than treasuries. Treasury interest is ordinary income, right? REITS and bonds go in a Roth or 401k.
Tax effiency is only one variable, you also have to consider the expected return. In this link below they go through a detailed example. Obviously, everyone has to run the numbers for their own tax situation, so I guess it’s possible that in econophiles case, bonds might be better in the roth, but with a longer time horizon, I think it would tip the balance in favor of stocks being in there.
But that example they sold the entire portfolio in one year! If you sell your stocks more slowly and in low ordinary income years you can avoid most of those capital gains taxes.
“Most” depends a lot on how long you hold and what your tax bracket it. If you’re making a fuckton of money, then even in retirement you’re going to be a pretty high tax bracket. RMDs from non-Roth IRAs might put you there by themselves.
But I guess the true answer is that it depends. Here’s a quote from a Bogleheads page that basically espouses they strategy you’re talking about, but with the following disclaimer:
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
My initial comment was based on some assumptions of econophile’s situation. But I really was just guessing. And I’m sure he’s aware of all this stuff, so presumably he ran the numbers and decided that what he did was best.
If you’ve got that much money then who cares. Government bonds are a hedge against bad shit happening, which means maybe you don’t have so much money. For me it doubly doesn’t matter: I don’t make that much money and don’t buy bonds.
While I don’t know econophile’s situation, I’m quite sure bolded is not the case and I was assuming the complete opposite of that.
You never pay taxes on any Roth IRA earnings if you hold til you’re 59 1/2 though so go for highest possible return no?
ETA federal taxes anyway
This argument is rather reductive. Why even invest in bonds at all if they only have a 3% return vs. 7% for stocks? Example 3 100% stocks - way more money!
You need to do Monte Carlo simulation for this type of analysis.
Even with Monte Carlo, it’s way complicated and depends on stuff like: tax loss harvesting, tax gain harvesting, projections of future incomes and tax rates and on and on. I would generally stick with the recommended advice of bonds in tax-advantaged under the principal of deferring tax expense in the present and assume that you can find a way over the next 10+ years to reduce expected tax expense through various maneuvers.
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PBS released a new documentary - 2 hours long but its worth the watch
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we don’t owe taxes on those treasury i-bonds until they get cashed, right?
Right. To the other point about having bonds in taxable and stocks in IRAs, I feel like that gives up a lot of tax-loss-harvesting opportunities.
https://twitter.com/joeyknish22/status/1640873557600137216?s=46&t=XGja5BtSraUljl_WWUrIUg
https://twitter.com/gbaronscout/status/1640732170657452034?s=46&t=XGja5BtSraUljl_WWUrIUg
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DraftKings losing that much money is amazing. How can they not be immensely profitable? They have all the advantages of a casino and none of the overhead
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Without looking into it I would guess an insane amount of marketing expenses and that doesn’t translate into actual users using their site. Lots of competition trying to be the top dog in the online gambling space.
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Their customer acquisition costs are high relative to the ev of a customer, and they pay a lot in terms of taxes, lobbying, and compliance costs. Some of those costs may go down over time, but I’d imagine they have to make some big new investments every time a new state market opens up just to make sure their systems meet the regulatory rules of the new state and that potential players know the site is now available in that market.
They also have competition from unregulated operators that somewhat limits how much they can rake games or juice lines.
And, I’d also guess they have to (or at least think they have to) pay a fair amount for the average employee. In order to build a good site you need strong tech people (coders, people that can build good models to set lines, etc), and those people aren’t cheap. For example, a few years ago I saw them recruiting at the MIT business school… Now maybe they don’t need to be going after that pool, but if they think that that is the type of talent they need, you have to pay up because the kids graduating from those types of schools have options.
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In a lot of ways the online sports betting market is still the Wild West, even with regulation
Consolidation is inevitable.