Search found 304 matches

Return to advanced search

Re: Does realizing a gain provide "downside protection"?

I do have flesh and blood professionals, but you'd be surprised at how much better the advice on this board can be... I am actually surprised that you are surprised at this kind of strategy, because in my mind it was a no-brainer way to print money. Would definitely like to hear more of your though...
by johnanglemen
Tue Apr 21, 2015 3:05 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Re: Does realizing a gain provide "downside protection"?

Also worth noting that "It is the FDIC's goal to make deposit insurance payments within two business day of the failure of the insured institution. " (https://www.fdic.gov/consumers/banking/facts/payment.html). Granted, this may be different during an apocalypse, and it's still after the m...
by johnanglemen
Tue Apr 21, 2015 2:32 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Re: Does realizing a gain provide "downside protection"?

Interest rates generally move in tandem, so yeah maybe. But interest rates diverge all the time. Are you sure you want to do this though? You're looking at $4000/year (minus taxes + deduction of interest you pay to IB) per $1 million you arbitrage. The arbitrage opportunity could sour (or even disa...
by johnanglemen
Tue Apr 21, 2015 2:28 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Re: Does realizing a gain provide "downside protection"?

Yeah that's a good question. Here's a thought: the loan the brokerage gives you is completely risk-free for them, since they can sell your securities before you go underwater. But the FDIC insures accounts up to $250k, so your deposits won't be risk-free. So you're being paid for carrying the risk....
by johnanglemen
Tue Apr 21, 2015 1:42 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Re: Does realizing a gain provide "downside protection"?

In fact, since in theory (though not quite in practice) you can make a bet of any size with infinitesimally little money, I think it is wise to separate the use of margin for leverage and juicing your returns from the benefits of such a bet. After all, you say you have significant dividend income. ...
by johnanglemen
Tue Apr 21, 2015 12:50 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Re: Does realizing a gain provide "downside protection"?

That makes sense to me. However, I would caution you to separate the expected gain from the use of margin and the expected gain from the fact that the downside of this bet is reduced by your ability to offset capital gains. The majority of the upside from this move comes from borrowing at 0.6% to i...
by johnanglemen
Tue Apr 21, 2015 12:39 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Re: Does realizing a gain provide "downside protection"?

I think your reasoning is correct. One note though. You write "Aren't you better off accelerating that $10K investment to December". This is true, but the benefit of making the investment in December as opposed to the following January is in practice very limited. First of all, the invest...
by johnanglemen
Tue Apr 21, 2015 12:02 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Re: Rational to take on a little more risk when you have a g

Ordinarily you never ever realize capital gains. But say you have to unexpectedly realize (liquidate) a capital gain of $10K in January. You will owe approximately $3K in taxes on that gain. In such a scenario, would it make sense to take some cash and invest it in, say, Total Stock for the year? T...
by johnanglemen
Tue Apr 21, 2015 11:06 am
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Does realizing a gain provide "downside protection"?

Ordinarily you never ever realize capital gains. But say you have to unexpectedly realize (liquidate) a capital gain of $10K in January. You will owe approximately $3K in taxes on that gain. In such a scenario, would it make sense to take some cash and invest it in, say, Total Stock for the year? Th...
by johnanglemen
Tue Apr 21, 2015 3:30 am
 
Forum: Investing - Help with Personal Investments
Topic: Does realizing a gain provide "downside protection"?
Replies: 22
Views: 1203

Re: Can you help me solve this brainteaser about allocation?

So you've essentially decided that the market won't ever fall more than X% from the point at which you began investing, and therefore you're comfortable with 105% right now. Well, with a leveraged strategy it's more like "you've decided that the market won't ever fall more than f(x)% from its ...
by johnanglemen
Mon Apr 20, 2015 5:31 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

Exactly! This is why I'm trying to find a scalable strategy early on, because an outcome like this (with smaller numbers) seems inevitable. So you said you've already set 100% equities as your baseline. Does that mean that you currently keep your allocation as 100% equities rain or shine, bust or b...
by johnanglemen
Mon Apr 20, 2015 4:29 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

It's just a learning curve for me because previously my approach to investing was based on two (what I thought were) axioms: (1) the higher the exposure to equity, the higher the likely return; and (2) you should evaluate your market/risk exposure at any given moment in a vacuum, as if you had just...
by johnanglemen
Mon Apr 20, 2015 2:57 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

My point is that I see no reason to abandon the efficient market hypothesis and the principles of this board with the excess money. If you think that investing in an individual stock is an uncompensated risk with smaller dollars, then you also think it's an uncompensated risk with large dollars. Wh...
by johnanglemen
Mon Apr 20, 2015 2:49 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

just because I'm willing to take more risk doesn't mean I want to take stupid/unsystematic risk. I still believe in the efficiency of markets, so I still want the excess to be invested in something that has a sensible risk/return ratio. So an investment in which you could lose $95 million of $100 m...
by johnanglemen
Mon Apr 20, 2015 1:40 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

From a practical perspective though, if you set 100% equities as the ceiling, then it is likely that you will soon reach a point where you portfolio has grown to the point where it is almost unthinkable that you will ever have to adopt a safer asset allocation to protect against a 95% drop. E.g. af...
by johnanglemen
Mon Apr 20, 2015 1:21 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

In your original $100 million case, why not simply invest the profits in excess of $100 million in a higher risk / higher reward asset that would go to zero in an extreme catastrophe? I'm not sure what aaaaaaabbbbbbbbbb's answer would be, but mine would be that just because I'm willing to take more...
by johnanglemen
Mon Apr 20, 2015 1:19 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

If Bob deleverages on the way down in the same manner you do, then he will not end up in debt (nor will he be wiped out). I say "according to you" you're leaving money on the table because there's a risk involved if you use significant leverage. Yes, your strategy insures you won't drop b...
by johnanglemen
Mon Apr 20, 2015 9:51 am
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

The underlying issue is the mistaken assumption that allocation decisions are ultimately mathematically solvable. Allocation decisions need to be based on human, not mathematical, criteria. In this case we have conflicting criteria between maximizing expected return (presumably risk-adjusted return...
by johnanglemen
Mon Apr 20, 2015 9:11 am
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Why doesn't foreign tax paid match the figures on this site?

This site (https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/taxcenter/foreigntaxcredit) offers instructions for manually calculating foreign tax paid / foreign tax credit for Vanguard funds. For instance, if you go to the page for Vanguard Total International (https://advisors.vangua...
by johnanglemen
Mon Apr 20, 2015 8:59 am
 
Forum: Investing - Help with Personal Investments
Topic: Why doesn't foreign tax paid match the figures on this site?
Replies: 1
Views: 163

Re: Qualified dividends in international funds

In fact, until recently, Vanguard Total International used the very same index as that iShares ETF...
by johnanglemen
Sun Apr 19, 2015 11:24 pm
 
Forum: Investing - Theory, News & General
Topic: Qualified dividends in international funds
Replies: 11
Views: 526

Re: Qualified dividends in international funds

Here's a link to page that talks about foreign qualified dividend income: http://sherayzenlaw.com/foreign-qualified-dividend-income/ Qualified Foreign Corporation IRC Section 1(h)(11)(C)(i) defines the concept of qualified foreign corporation as (subject to certain exceptions) any foreign corporati...
by johnanglemen
Sun Apr 19, 2015 11:23 pm
 
Forum: Investing - Theory, News & General
Topic: Qualified dividends in international funds
Replies: 11
Views: 526

Re: Qualified dividends in international funds

Here's a link to page that talks about foreign qualified dividend income: http://sherayzenlaw.com/foreign-qualified-dividend-income/ Qualified Foreign Corporation IRC Section 1(h)(11)(C)(i) defines the concept of qualified foreign corporation as (subject to certain exceptions) any foreign corporati...
by johnanglemen
Sun Apr 19, 2015 9:27 pm
 
Forum: Investing - Theory, News & General
Topic: Qualified dividends in international funds
Replies: 11
Views: 526

Re: Qualified dividends in international funds

Why do total international funds consistently have a dramatically lower percentage of qualified dividends than total US funds? Vanguard Total International, for instance, hovers around 70%, while Vanguard Total Stock hovers around 100%. I am aware that dividends from a few countries are not eligibl...
by johnanglemen
Sun Apr 19, 2015 9:22 pm
 
Forum: Investing - Theory, News & General
Topic: Qualified dividends in international funds
Replies: 11
Views: 526

Re: Qualified dividends in international funds

If you don't like the tax treatment of international funds, reduce or eliminate your allocation to them. You have to decide what's more important to you, the tax treatment or the diversification. This doesn't address my question. My question is whether there is some structural reason that internati...
by johnanglemen
Sun Apr 19, 2015 9:07 pm
 
Forum: Investing - Theory, News & General
Topic: Qualified dividends in international funds
Replies: 11
Views: 526

Qualified dividends in international funds

Why do total international funds consistently have a dramatically lower percentage of qualified dividends than total US funds? Vanguard Total International, for instance, hovers around 70%, while Vanguard Total Stock hovers around 100%. I am aware that dividends from a few countries are not eligible...
by johnanglemen
Sun Apr 19, 2015 8:45 pm
 
Forum: Investing - Theory, News & General
Topic: Qualified dividends in international funds
Replies: 11
Views: 526

Re: Can you help me solve this brainteaser about allocation?

Also, since you seem to understand exactly what I'm getting at here, I'm curious to hear your take on whether or not the strategy I'm describing is in fact the one with the highest expected return, even though it seems counterintuitive due to the buy-high / sell-low conundrum. Is that what you were...
by johnanglemen
Sun Apr 19, 2015 8:21 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

You have $100 million. You want to grow it as much as possible for heirs and charities. But, in the case of extreme catastrophe, you still want to have $5 million left over for yourself. You define "extreme catastrophe" as a 95% decline in Total World Stock Market. Based on the language o...
by johnanglemen
Sun Apr 19, 2015 5:08 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

The underlying issue is the mistaken assumption that allocation decisions are ultimately mathematically solvable. Allocation decisions need to be based on human, not mathematical, criteria. In this case we have conflicting criteria between maximizing expected return (presumably risk-adjusted return...
by johnanglemen
Sun Apr 19, 2015 5:02 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

One objection to your terms is that apparently "grow it as much as possible" is actually a code word in your mind for 100% Total World Stock Market, and your only question is whether or not you should set aside the $5M. We already answered that you should not set aside the $5M because you...
by johnanglemen
Sun Apr 19, 2015 4:53 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

You have $100 million. You want to grow it as much as possible for heirs and charities. But, in the case of extreme catastrophe, you still want to have $5 million left over for yourself. You define "extreme catastrophe" as a 95% decline in Total World Stock Market. Based on the language o...
by johnanglemen
Sun Apr 19, 2015 4:49 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

Typically "drops of x%" are defined peak to trough. So maybe you could set your asset allocation so that you'd have $5 million so long as you didn't drop more than 95% from the all-time market peak. I've encountered a similar problem when contemplating using margin (and how much margin to...
by johnanglemen
Sun Apr 19, 2015 4:43 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

Typically "drops of x%" are defined peak to trough. So maybe you could set your asset allocation so that you'd have $5 million so long as you didn't drop more than 95% from the all-time market peak. I've encountered a similar problem when contemplating using margin (and how much margin to...
by johnanglemen
Sun Apr 19, 2015 4:41 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

That sounds right. Imagine that I have only $10. If I want to make sure to have no more than $10 in a crisis, I don't have to do anything. I can just hold cash. If I have $1,000,000 and don't want to have more than $10 in a crisis, I need to put that money in some seriously risky investments. Think...
by johnanglemen
Sun Apr 19, 2015 4:33 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

If there is a 95% loss (total loss in your example) in the "risky" asset, then it is likely there will be no such "risk free" left at that point. I believe the only time, last 100 years, when the market (USA) had a compounded loss was during great depression - 80%. Other places ...
by johnanglemen
Sun Apr 19, 2015 4:31 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

The "resolution" is just the realization that you're looking at conflicting advice. A static, rebalanced percentage-based asset allocation follows a different strategy than liability matching or some kind of safe/risky strategy. On a related topic, Wade Pfau has talked about retirement in...
by johnanglemen
Sun Apr 19, 2015 4:27 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

If you know you'll need a set "emergency" amount, it makes more sense to just keep that $5m as a cash buffer .. leave it untouched .. Seeing as you don't want to raid it (therefore it's no use for rebalancing) and you don't need to grow it -> seems obvious to compartmentalise it like that...
by johnanglemen
Sun Apr 19, 2015 4:25 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Can you help me solve this brainteaser about allocation?

The "resolution" is just the realization that you're looking at conflicting advice. A static, rebalanced percentage-based asset allocation follows a different strategy than liability matching or some kind of safe/risky strategy. On a related topic, Wade Pfau has talked about retirement in...
by johnanglemen
Sun Apr 19, 2015 4:24 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Can you help me solve this brainteaser about allocation?

[I posted a similar question recently but it went off in a different direction, so trying again here with a narrower framing of the problem.] You have $100 million. You want to grow it as much as possible for heirs and charities. But, in the case of extreme catastrophe, you still want to have $5 mil...
by johnanglemen
Sun Apr 19, 2015 3:37 pm
 
Forum: Investing - Theory, News & General
Topic: Can you help me solve this brainteaser about allocation?
Replies: 55
Views: 2702

Re: Asset allocation strategies at very large sums

Warren Buffett was talking about LeBron James asking him for advice and he seriously said that he would give him the same advice he gave in his 2013 Berkshire Hathaway Annual Letter to Shareholders. Hold enough in cash to feel secure and put the rest in a low cost equity index fund that buys Americ...
by johnanglemen
Sun Apr 19, 2015 10:19 am
 
Forum: Investing - Theory, News & General
Topic: Asset allocation strategies at very large sums
Replies: 13
Views: 1486

Re: Asset allocation strategies at very large sums

There are a lot of tangential conversations happening here, but I was asking a very specific question, so going to try to steer it back to that. If you did follow the strategy outlined in the post -- hold enough stock such that you'd have $5M left over in a 95% crash -- what would you do *during* th...
by johnanglemen
Sun Apr 19, 2015 10:14 am
 
Forum: Investing - Theory, News & General
Topic: Asset allocation strategies at very large sums
Replies: 13
Views: 1486

Re: Asset allocation strategies at very large sums

Regardless of the amount of money, if you had 20 times more than you needed, a valid approach would be to set aside the amount that you need in "safe" investments and put the rest in equities. One might characterize this as a two bucket approach. Imagine you had a pension that was inflati...
by johnanglemen
Sat Apr 18, 2015 11:16 pm
 
Forum: Investing - Theory, News & General
Topic: Asset allocation strategies at very large sums
Replies: 13
Views: 1486

Re: Asset allocation strategies at very large sums

I suppose there's a more general question here that doesn't require large sums. People who talk about 100% stock portfolios talk about being mentally prepared to lose 70-90% of their money. But what is the reference point for this? Is it 70-90% of the portfolio's peak value? Why isn't it 70-90% of t...
by johnanglemen
Sat Apr 18, 2015 11:09 pm
 
Forum: Investing - Theory, News & General
Topic: Asset allocation strategies at very large sums
Replies: 13
Views: 1486

Asset allocation strategies at very large sums

Say you had $100 million and lived according to the following principles: (a) You need $5 million for yourself to live a happy and fulfilling life. (b) You want to grow your money as much as possible to leave to your heirs and charity. (c) You are willing and able to tolerate extreme volatility to s...
by johnanglemen
Sat Apr 18, 2015 11:00 pm
 
Forum: Investing - Theory, News & General
Topic: Asset allocation strategies at very large sums
Replies: 13
Views: 1486

Re: Is state tax refund taxable in this case?

I agree with that conceptually but I don't see how it works out that way in the forms. TurboTax collected the information and concluded on the Form 1040 Line 10 Worksheet (State and Local Income Tax Refund Worksheet) that most of the refund is taxable. It divided the extension payment made in 2014 b...
by johnanglemen
Tue Apr 14, 2015 10:16 pm
 
Forum: Personal Finance (Not Investing)
Topic: Is state tax refund taxable in this case?
Replies: 4
Views: 582

Is state tax refund taxable in this case?

In April 2014, I made an extension payment of $20K for my 2013 state tax return. When I later filed the return, I calculated an overpayment of $18K that I applied to my 2014 state estimated taxes. I received a 1099-G from the state for this $18K refund. I did not include the $20K in the amount of st...
by johnanglemen
Tue Apr 14, 2015 9:25 pm
 
Forum: Personal Finance (Not Investing)
Topic: Is state tax refund taxable in this case?
Replies: 4
Views: 582

Re: Would this margin interest be deductible?

Dale_G wrote:Do you expect to use the private stock as collateral for the margin load?


No, it will be collateralized by public securities. Why do you ask?
by johnanglemen
Tue Mar 10, 2015 2:06 pm
 
Forum: Investing - Help with Personal Investments
Topic: Would this margin interest be deductible?
Replies: 6
Views: 400

Would this margin interest be deductible?

I borrow money from someone for one month and use it to make an investment in a private company. A month later, I take out money on margin from a firm and use it to pay the person I borrowed from. The investment remains outstanding in the private company. Would the interest on the margin loan be ded...
by johnanglemen
Tue Mar 10, 2015 3:20 am
 
Forum: Investing - Help with Personal Investments
Topic: Would this margin interest be deductible?
Replies: 6
Views: 400

Re: What makes my marginal tax rate behave like this?

Not sure what is happening, but in terms of the mechanics I would calculate the marginal rate by calculating the tax on your 830K + the amount in the left column, then calculate the tax after adding $1000 to that total, marginal rate will be (tax2-tax1)/1000. Are you suggesting this because I'm cal...
by johnanglemen
Sat Mar 07, 2015 6:12 pm
 
Forum: Investing - Help with Personal Investments
Topic: What makes my marginal tax rate behave like this?
Replies: 15
Views: 1798

Re: What makes my marginal tax rate behave like this?

You are seeing a rise and fall in the rates because of the phased-out exemption, and the change in AMT marginal rate as you increase your AMTI. It is really messy. I went through the worksheet the other day, by hand. Ugh. Aren't I already well above the phaseout range at this point? The information...
by johnanglemen
Sat Mar 07, 2015 6:11 pm
 
Forum: Investing - Help with Personal Investments
Topic: What makes my marginal tax rate behave like this?
Replies: 15
Views: 1798

Re: What makes my marginal tax rate behave like this?

Not sure what is happening, but in terms of the mechanics I would calculate the marginal rate by calculating the tax on your 830K + the amount in the left column, then calculate the tax after adding $1000 to that total, marginal rate will be (tax2-tax1)/1000. Are you suggesting this because I'm cal...
by johnanglemen
Sat Mar 07, 2015 4:05 pm
 
Forum: Investing - Help with Personal Investments
Topic: What makes my marginal tax rate behave like this?
Replies: 15
Views: 1798
Next

Return to advanced search