Author Topic: How best to differentiate  (Read 871 times)

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How best to differentiate
« on: February 03, 2020, 11:39:40 AM »
Hey all, I'm hoping to get some advice on where to go from here or maybe be pointed to some helpful guides I can consult.

My husband and I are 34, we are pretty financially illiterate when it comes to investing, but we are good at saving and have landed a few good investments.

We earn roughly 150k together annually, save and invest as much of this as we can.  Our breakdown is as follows:

Home worth roughly 300k, 190k mortgage at 3.6%

No other debts

~60k in 401k's for both of us, employer does not match so we haven't been contributing crazily
~50k in savings earning basically nothing, need to put this somewhere
16k in mutual funds
~250k in stocks

The issue with our stocks is that they are way too heavy in one pot.  We have about 85% of our shares in TSLA, which has just hit a huge upswing. 

We are considering selling off long-held TSLA shares to reinvest elsewhere, is this what we should be doing?  Should we pay down our home instead?
« Last Edit: February 03, 2020, 11:41:54 AM by blayney48 »

dougules

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Re: How best to differentiate
« Reply #1 on: February 03, 2020, 12:04:39 PM »
If you've got >$200k in Tesla I would definitely sell all or most of that and put it into mutual funds.  Tesla is high risk, so I personally wouldn't keep anything more in it than I was willing to lose.  I'm not sure what the best strategy is in terms of taxes, though, so it would be interesting to hear from somebody that's more tax-savvy than me. 

What are the details of your mutual funds if you don't mind sharing?

At 3.6% I would probably pay only the minimum payment and invest the rest.  You should be aware, though, that paying down your mortgage vs investing is a surprisingly fierce topic of debate here.  Realistically you win either way. 

Do you both have a Roth IRAs?  I would max those out for the year if you haven't.  You have until tax day to max out for 2019, too.   

BrightFIRE

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Re: How best to differentiate
« Reply #2 on: February 03, 2020, 12:07:16 PM »
Read the JL Collins stock series (the basis for his book The Simple Path to Wealth) https://jlcollinsnh.com/stock-series/. You should be maxing out your 401ks for tax savings even without a match.

And yeah, being 85% in a single stock is pants-crappingly terrifying, so you should sell some of that and buy an index fund. If any of that is in the 401ks, you can sell there without a tax penalty.

Best savings rates can be compared at the Deposit Accounts blog https://tinyurl.com/rl5fmtn

seattlecyclone

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Re: How best to differentiate
« Reply #3 on: February 03, 2020, 12:17:31 PM »
Definitely diversify.

I wouldn't use the proceeds to pay off your mortgage, though there are two very passionate schools of thought on that.

If you ever give money to charity, consider putting a chunk of the shares into a donor advised fund (DAF). By doing this you can avoid capital gains tax on these shares, deduct the full value on your taxes in the year you make the transfer (capped at 30% of your income), and you can distribute money out of there to actual charities over a period of several years. If you're giving anyway, or plan to start in the near future, this is the most tax-efficient way to do it.

Buffaloski Boris

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Re: How best to differentiate
« Reply #4 on: February 03, 2020, 01:39:18 PM »
Read the JL Collins stock series (the basis for his book The Simple Path to Wealth) https://jlcollinsnh.com/stock-series/. You should be maxing out your 401ks for tax savings even without a match.

And yeah, being 85% in a single stock is pants-crappingly terrifying, so you should sell some of that and buy an index fund. If any of that is in the 401ks, you can sell there without a tax penalty.

Best savings rates can be compared at the Deposit Accounts blog https://tinyurl.com/rl5fmtn

Dittoes on reading the book, but keep in mind that all VTSAX is NOT an area of agreement for some of us. (Disclosure: I think itís overpriced and i personally own none of it). A diversified portfolio across asset classes and markets is a good idea.

As for having so much wealth in TSLA, I think thatís a recipe for disaster or at least an ulcer.

MustacheAndaHalf

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Re: How best to differentiate
« Reply #5 on: February 04, 2020, 05:38:40 AM »
You might look for a book called "The Investment Answer" at your local library.  It's not only a physically small book, it's under 100 pages.  But that's enough space to show historical stock data, and help both of you understand stocks a bit better.

That's such a high concentration, I suspect one/both of you work at Tesla.  You don't need to say, but working at a company and holding lots of their stock is twice the risk.  If the company hits a serious hardship, the stock price may drop right as a lot of employees lose their jobs.  So their assets drop right as they need to start spending on everyday expenses.  I'd be careful with concentrating so much of your investing in one place.

StashingAway

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Re: How best to differentiate
« Reply #6 on: February 04, 2020, 06:11:09 AM »
Dittoes on reading the book, but keep in mind that all VTSAX is NOT an area of agreement for some of us. (Disclosure: I think itís overpriced and i personally own none of it).

What do you find more reasonably priced?

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Re: How best to differentiate
« Reply #7 on: February 04, 2020, 07:43:39 AM »
If you've got >$200k in Tesla I would definitely sell all or most of that and put it into mutual funds.  Tesla is high risk, so I personally wouldn't keep anything more in it than I was willing to lose.  I'm not sure what the best strategy is in terms of taxes, though, so it would be interesting to hear from somebody that's more tax-savvy than me. 

What are the details of your mutual funds if you don't mind sharing?

At 3.6% I would probably pay only the minimum payment and invest the rest.  You should be aware, though, that paying down your mortgage vs investing is a surprisingly fierce topic of debate here.  Realistically you win either way. 

Do you both have a Roth IRAs?  I would max those out for the year if you haven't.  You have until tax day to max out for 2019, too.

No IRAs but Iím definitely going to research this and put as much as we can in for this year.

I have VTSAX, VFORX, VTABX.

We actually sold off about 20% of our TSLA shares when it was down below 360 a little while ago and now itís blowing up. We have been aware we need to differentiate but are pretty illiterate on where to go from here, so I will definitely check into all suggestions here.

Itís hard to sell it right now when it keeps jumping every day but we plan to offload another chunk of our long held shares today most likely.

dougules

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Re: How best to differentiate
« Reply #8 on: February 04, 2020, 11:28:11 AM »
No IRAs but Iím definitely going to research this and put as much as we can in for this year.

I have VTSAX, VFORX, VTABX.

We actually sold off about 20% of our TSLA shares when it was down below 360 a little while ago and now itís blowing up. We have been aware we need to differentiate but are pretty illiterate on where to go from here, so I will definitely check into all suggestions here.

Itís hard to sell it right now when it keeps jumping every day but we plan to offload another chunk of our long held shares today most likely.

Just to be specific Roth IRAs are different from traditional IRAs.   They are for after-tax money, but they save you from having to pay any tax on dividends and capital gains later.  The only catch is that you can't take out any growth until 59 1/2 without a penalty like a 401k.  You are free to take out the amount you've put in, though.  There's also a contribution limit that's currently $6k/year.  Since there's a limit it makes sense to try and max it out every year if practical since you can't make up for missing a year. 

VTSAX is a staple.  VFORX looks reasonable from what I can tell, too.  I don't know much about international bonds, so somebody else would have to chime in about VTABX.

Another way to look at the TSLA windfall is that you haven't made any money until you sell.  It may keep skyrocketing, or it may completely crash.  Or it may go way down despite the company being successful if the market decides it's not going to meet the current expectation that it will eventually outearn Honda, Ford, and GM put together.  It's a total gamble with only mildly better odds than going to Las Vegas.  You can also think about the fact that if you take $200k and buy VTSAX you will still have $500-$1000 of TSLA within that. 


Buffaloski Boris

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Re: How best to differentiate
« Reply #9 on: February 04, 2020, 12:24:39 PM »
Dittoes on reading the book, but keep in mind that all VTSAX is NOT an area of agreement for some of us. (Disclosure: I think itís overpriced and i personally own none of it).

What do you find more reasonably priced?

International. I like the UK. Im keen on a few unloved  sectors in the US like financial, chemicals, and mining. Bonds make stocks look cheap, so Iím much heavier cash than I really want to be.

StashingAway

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Re: How best to differentiate
« Reply #10 on: February 04, 2020, 12:35:32 PM »
Dittoes on reading the book, but keep in mind that all VTSAX is NOT an area of agreement for some of us. (Disclosure: I think itís overpriced and i personally own none of it).

What do you find more reasonably priced?

International. I like the UK. Im keen on a few unloved  sectors in the US like financial, chemicals, and mining. Bonds make stocks look cheap, so Iím much heavier cash than I really want to be.

Ah, I see. I was thinking it was fund fees or something. It sounds more like a preference. I would wager that you would still be OK with being in VTSAX over most other funds, just not as much as your few favored ones. For instance, you would prefer it over VFIAX or TSLA.

In other words, as general advice, someone would be 80% of the way there getting out of Tesla and into a mutual fund, 90% in an index fund like VTSAX, and the last 10% we could speculate on endlessly and possibly never agree. Is that what I'm reading, or am I thinking too hard, lol!

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Re: How best to differentiate
« Reply #11 on: February 04, 2020, 12:41:27 PM »
I've definitely known we need to differentiate for a while, my laziness in addressing the problem paid off :p

We do work for TSLA and have been maxing out ESPP contributions, as well as taking various bonuses in stock.  The intention was to sell the ESPP as soon as it was given to take advantage of 15% off, but again...being lazy in making those moves paid off (so far).

We sold off about 26k today, thinking we will just sell off long held shares in tables and reinvest them elsewhere, max 401k and IRA for both of us, and putting more into funds.

Buffaloski Boris

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Re: How best to differentiate
« Reply #12 on: February 04, 2020, 01:38:29 PM »
Dittoes on reading the book, but keep in mind that all VTSAX is NOT an area of agreement for some of us. (Disclosure: I think itís overpriced and i personally own none of it).

What do you find more reasonably priced?

International. I like the UK. Im keen on a few unloved  sectors in the US like financial, chemicals, and mining. Bonds make stocks look cheap, so Iím much heavier cash than I really want to be.

Ah, I see. I was thinking it was fund fees or something. It sounds more like a preference. I would wager that you would still be OK with being in VTSAX over most other funds, just not as much as your few favored ones. For instance, you would prefer it over VFIAX or TSLA.

In other words, as general advice, someone would be 80% of the way there getting out of Tesla and into a mutual fund, 90% in an index fund like VTSAX, and the last 10% we could speculate on endlessly and possibly never agree. Is that what I'm reading, or am I thinking too hard, lol!

My aversion for VTSAX doesnít have to do with fees or Vanguard. I love Vanguard and view Jack Bogle as a national Hero. My practical problem is in how VTSAX is structured and what it owns. This is a  cap weighted US based mutual fund. As a practical matter most of your exposure is in relatively small number of stocks. Is owning the top 50 stocks that everyone else owns really diversification? On top of that, the US market happens to be very pricey right now.

VTSAX, at least for me, tends to be a sort of shorthand for sloppy thinking and investing. I think way too much emphasis has been made on this idea that you can simply throw money at one mutual fund and Badda Bing, ten years hence youíll be farting through silk. You might do well, but to me itís unnecessary uncompensated risk. Why not buy international funds AND sector funds AND precious metals AND real estate AND some derivatives AND insulate your house AND buy some stocks you fancy, AND sure, buy a piece of large US based cap weighted mutual fund? Invest, diversify, and stay the course during market downturns should be the mantra.