The Sunday Best is a collection of articles I’ve curated from the furthest reaches of the internet for your reading pleasure.
Every week, I scan hundreds of headlines, read dozens of posts, and bring you the best of the best to save you time and mental energy.
Financial Independence (FI) is a primary focus, but it’s an awfully broad topic. I tend to approach FI and early retirement from a fatFIRE perspective and through the lens of a physician, so expect to see those biases in the selected articles.
For more great articles, take a peek at The Sunday Best Archives. Now let’s get to the best… The Sunday Best!
The Sunday Best
We can stop wondering what the short-term effects of the novel coronavirus will be on the stock market. We’ve already seen a correction of greater than 10%. What about the long-term effects? The FI Physician, an infectious disease doc, talks a lot about the virus and associated disease, and a little about the stock market. Coronavirus Pandemic Won’t Have Long-Term Effects on the Stock Market.
- That prediction is consistent with How the stock market has performed during past viral outbreaks, according to Mark Decambre of Marketwatch.
If not the coronavirus, what about the FIRE movement? Will its frugal non-contributors burn this economy down to the ground? The Early Retirement Dude responds to a New York Times article. No, the FIRE movement isn’t gonna crash the economy…although maybe it should.
What if they’re both wrong? What if the stock market loses half its value like it did twice in the 2000s? Dylin and Allison of Retire by 45 were there for both and still managed to fatFIRE. Survive a Market Crash! How We Thrived After 2 Financial Meltdowns.
You know what’s worse than a crashing stock market that will almost certainly recover? Having your money stolen. Physicians Were Targeted, Allegedly Scammed out of Tens of Millions of Dollars.
Sometimes it feels good to be lazy, too. The Physician Philosopher tells us why Lazy Workers are Bad; [but] Lazy Portfolios Are Great.
Does working less make you lazy? Not if you’ve got a good reason to cut back, and there are many. Passive Income MD lists a few and discusses the best timing of such a move. Work Less Now or Work Less Later. What’s Better?
I wouldn’t call them lazy, but some physicians, including me and Crispy Doc, have decided to work less. Here are two more in the series.
I wouldn’t call Mike Zaccardi of zmansmoney lazy. He plans to work until he has 25x his after-tax salary + benefits saved up, which happens to be a multiple of his paltry annual spending. How and why he came up with this equation in FIRE My Way.
Will he make that goal and Retire by 40? Quite possibly. Joe Udo did, and he’s interviewed himself and a couple of others in a new series.
- It Takes More Than Money to Retire Early: Retire by 40
- It Takes More Than Money to Retire Early Interview: Route to Retire
- It Takes More Than Money to Retire Early Interview: Mr. Tako Escapes
If you guessed she struck it rich inventing a medical device, I’d say “good guess, but no.” That would be one way to potentially reach FI fast, though. Medical Device Patent: A Quick Path to Financial Independence?
Tax Loss Harvesting Time
If you’ve purchased mutual funds or ETFs in your taxable account any time in the last three to four months, there’s a very good chance you paid more for it than you can sell it for today. That’s not a good thing, but it does give you an opportunity to save $1,000 or more on your 2020 tax bill.
For full details on how this all works, please see the two posts below. Briefly, what you do is sell one asset and buy another that one would expect to perform similarly. That creates a “paper loss,” but you’re not really locking in a loss of money since you remain invested. Up to $3,000 in losses can be used annually to offset ordinary income and additional losses will be carried over year after year.
- Tax Loss Harvesting with Vanguard: A Step by Step Guide
- Tax Loss Harvesting with Fidelity: A Step by Step Guide
One thing to keep in mind if you’re going to TLH from asset A to B to C and so on is the 60-day qualified dividend rule, as The White Coat Investor points out. If you own an asset for less than 60 days and it pays a dividend during that timeframe, those dividends will be taxed as ordinary, non-qualified, even if they would normally be considered qualfied dividends with a more favorable tax treatment.
However, unless you’re taking a very small percentage loss (less than 1%) on a large sum of money (six figures), the rule isn’t going to cost you much. Below is the comment I left on his post, and I think it’s worth sharing here.
“I’ll be the first to admit that the 60-day rule is barely on my radar when I tax loss harvest. Running the math, I see little reason for concern. There is a consequence to violating it, but it’s rather minimal.
Let’s say I purchased $20,000 of VTSAX earlier this month and now it’s down 10%, or $2,000. I exchange it for VFIAX, creating a $2,000 paper loss.
Next month, VFIAX pays a quarterly dividend of about 0.5% or $100.
But the market continues to drop, and in early April, my VFIAX is down 5% from when I purchased it, so I decide to TLH again by exchanging it back to VTSAX, harvesting an additional $1,000 in paper losses. It’s been more than 30 days, so no wash sale issues, but less than 60 days, so my $100 dividend that was paid out in late March will be taxed at ordinary rates rather than the qualified dividend (long-term capital gains rates).
Let’s say I’m in the 32% federal income tax bracket and my state / local income tax is 5%.
Tax loss harvesting saves me 37% on the first $3,000 harvested (and further losses harvested may save me even more in the future if tax rates increase or my marginal bracket is higher. So I saved $740 on the first $2,000 harvested and $370 when I went back to my original position in VTSAX in April, for a total of $1,110 in tax savings.
Let’s look at the taxes on the dividend. If I had held VFIAX for more than 60 days, I would owe 15% + 3.8% NIIT + 5% state income tax for a total of 23.8%. On $100, that’s $23.80.
By holding for 31 to 59 days, I turned what would have been a qualified dividend into an ordinary, non-qualified one. I owe 37% of $100 or $37 on it.
The difference is $13.20.
It’s such a small percentage of the benefit you get from tax loss harvesting that it’s essentially inconsequential.
Now, if you’re harvesting a $50 loss on an asset held between 30 and 60 days, it’s a different story, but even then, you might want to do it to get back to your original position.”
It’s Still Safe to Drink Corona
I don’t have a whole lot to say about the stock market drop other than I plan to stay the course. You know, Don’t Just Do Something. Stand there!
I am surprised that it took this long for the market to react to the spreading novel coronavirus, though. The knowledge that it was highly contagious, spreading, and sometimes lethal has been out there for a while now.
There are now a few dozen reported cases in Spain, and we are practicing our best hand hygiene. At least one epidemiologist is thinking most of us are bound to get it, regardless, but I’d love to put that off until a vaccine can be prepared and tested, if at all possible. I’d also like to get back to the states next week as scheduled. We are watching the news very closely, as it is a dynamic situation.
We’re clearly not the only people a little spooked by the disease, and word association is a powerful thing. A survey found that Americans are avoiding Corona beer, and apparently 16% are unsure if there’s a connection there or not! As a result, Corona’s owner has been losing money hand over fist to the tune of $170 Million according to this article.
I’m not saying it’s a good idea to drink Corona, but unless you drink a few too many, it’s not going to make you sick.
Wash your hands frequently, don’t bother wearing a mask (unless you’re coughing and sneezing), and drink what you like. 🍻
Have an outstanding week!
-Physician on FIRE