Investment that grows long-term without (much) income along the way?

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Sylvie
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Joined: Mon Aug 22, 2016 10:04 am

Investment that grows long-term without (much) income along the way?

Post by Sylvie »

We have some cash (5 figures now, possibly low 6 figures eventually) that we don't expect to need for about 15 years. We'd like to invest it wisely for long-term growth, but to delay income from it (interest, dividends, gains, etc.) until we sell it. Until then, we need to avoid even tax-exempt income. These assets aren't in retirement accounts -- we're already maxing those out. Is there a type of investment that's decent for long-term growth but that delays income?

The rest is just background and details...

Why? Our household is near the income cap for some (pretty dang awesome) health insurance subsidies. If we have too much investment income, our household won't qualify for the subsidies any more. Even tax-exempt income counts towards the cap. There's a cliff, so if we make a dollar more than the cap, we could easily end up paying well over 10K/year more for insurance and healthcare costs. So, unless the underlying growth more than made up for it, we'd actually be better off earning nothing! But staying in cash seems inadvisable for the long-term, too. So, we're hoping to invest for growth, but to delay income until after we'll be on Medicare, or until there are fundamental changes to health insurance and healthcare costs.

Financial context: If there is such an investment type, I know there's more to consider in terms of how it fits our overall portfolio, and I'm not needing advice about that now. In terms of the broad outlines, we're early-retired (or mostly so) as of this year, in our early and mid 50's, and we have assets that should be able to last our lifetimes.

We're hoping there's something pretty mainstream that fits -- we're not looking to get into anything too unconventional. I'd once read something about bullet bonds that don't pay anything until the end of the term, but my Fidelity rep hadn't heard of them, which makes me suspect they could be too arcane for us.
livesoft
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Re: Investment that grows long-term without (much) income along the way?

Post by livesoft »

Berkshire Hathaway stock is the typical answer to your question, but it has some risks that something like a Small-cap Index fund that loses money all the time does not.
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bryanm
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Re: Investment that grows long-term without (much) income along the way?

Post by bryanm »

If you are okay with some income, there are a number of "tax-managed' funds, such as VTCLX, that attempt to minimize income. If you truly need no income, then you'e stuck buying individual stocks for companies that do not pay dividends. Berkshire is one example, with the bonus of some diversification. But you could also attempt to "replicate an index" by buying a handful yourself. I've read other comments that M1 finance may allow you to do this fairly easily. I've not used it--perhaps someone who was could chime in.
retired@50
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Re: Investment that grows long-term without (much) income along the way?

Post by retired@50 »

What you're seeking is sort of the holy grail of taxable investing. Some folks use individual stocks that don't pay dividends, other people use mutual funds that focus on growth companies. These growth companies tend to pay out fewer dividends.

For individual stocks you could try BRK-B
https://finance.yahoo.com/quote/BRK-B?p=BRK-B

For small growth companies you could try VSGAX.
https://investor.vanguard.com/mutual-fu ... file/VSGAX

If you choose to invest in either of these above, you'll be creating a lump in your otherwise diversified portfolio, by concentrating some money in a single company or a single sector. I wouldn't do it. I'd use the Vanguard S&P 500 fund VFIAX and cope with the annual dividend payments on my taxes.

https://investor.vanguard.com/mutual-fu ... file/VFIAX

Regards,
This is one person's opinion. Nothing more.
ScubaHogg
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Re: Investment that grows long-term without (much) income along the way?

Post by ScubaHogg »

retired@50 wrote: Wed Mar 25, 2020 11:27 am I'd use the Vanguard S&P 500 fund VFIAX and cope with the annual dividend payments on my taxes.

Regards,
It sounds like the OP isn’t trying to minimize taxes so much as minimize taxable income to avoid some kind of health insurance subsidy cliff, where a tiny change in income might cost $10,000 in subsidies. A >100% marginal “tax rate” so to speak.
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dboeger1
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Re: Investment that grows long-term without (much) income along the way?

Post by dboeger1 »

I'm not too familiar with the specific rules around the subsidies you mentioned, but would charitable donations not be taken into account? If they could be used to reduce the income towards the threshold, and you were willing to hand over some of your gains to charity because you mostly just cared about putting money to work, you might want to look into donating your dividends. Similarly, if you have younger relatives or other people for whom you had intended to leave an inheritance, you could gift them the money up to the IRS limit each year and let them worry about the taxes.
Gill
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Re: Investment that grows long-term without (much) income along the way?

Post by Gill »

How about Savings Bonds, both Series I and EE?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
ivk5
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Re: Investment that grows long-term without (much) income along the way?

Post by ivk5 »

I'd buy growth index in taxable and complete it with value index in tax-advantaged.

And +1 to I Bonds (as part of fixed income allocation).
HEDGEFUNDIE
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Re: Investment that grows long-term without (much) income along the way?

Post by HEDGEFUNDIE »

Motif Direct Indexing of the S&P 500 allows you to exclude all the high dividend paying stocks.

https://www.motif.com/products/direct-index-portfolios

Hold those in the form of a Large Cap Value ETF in your tax-advantaged accounts.
fujiters
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Re: Investment that grows long-term without (much) income along the way?

Post by fujiters »

Gill wrote: Wed Mar 25, 2020 11:41 am How about Savings Bonds, both Series I and EE?
Gill
+1.
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Topic Author
Sylvie
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Joined: Mon Aug 22, 2016 10:04 am

Re: Investment that grows long-term without (much) income along the way?

Post by Sylvie »

dboeger1 wrote: Wed Mar 25, 2020 11:40 am I'm not too familiar with the specific rules around the subsidies you mentioned, but would charitable donations not be taken into account? If they could be used to reduce the income towards the threshold, and you were willing to hand over some of your gains to charity because you mostly just cared about putting money to work, you might want to look into donating your dividends. Similarly, if you have younger relatives or other people for whom you had intended to leave an inheritance, you could gift them the money up to the IRS limit each year and let them worry about the taxes.
Good thought, but charitable contributions aren't deducted for these subsidies. (Very few regular deductions are.) I don't know of any way to avoid counting amounts gifted to others as income.

Lots of good leads to look into here so far -- I'll dive in, and I welcome more!
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