Point #5, on the wash sale rule, has prompted some questions, so I wanted to provide a further explanation. The wash sale rule is relevant when an investor sells a stock, bond, mutual fund or other investment at a loss in a taxable account. Ordinarily, selling an investment at a loss would provide a tax benefit. It could be used to offset other gains, or if there are no other gains that year, then up to $3,000 of the loss can be applied against ordinary income, such as wages. However, if the investor has purchased the same or a “substantially identical” security within 30 days before or after the sale, then the investor can't take the loss for tax purposes at that time. The loss can only be used at a later time, when the entire position is ultimately sold. Here's an example: Suppose an investor buys 10 shares of a mutual fund on January 1 and purchases additional 5 shares on June 1. Then on June 15, he notices that the share price has declined. He can sell his original 10 shares from January, but due to the wash sale rule, the loss won't provide a tax benefit because of the shares he had purchased on June 1 (i.e., within 30 days). This investor can only book the loss for tax purposes after he has sold all 15 shares. If a mutual fund is set up to automatically reinvest dividends, it can inadvertently cause wash sale violations, because additional shares are being purchased regularly. If an investor wants to sell some of his shares at a loss, he'll need to check carefully that there hasn't been a dividend reinvestment within the prior 30 days and also needs to make sure that a dividend reinvestment doesn't happen within 30 days after his sale. Importantly, the wash sale rule applies across all of an investor's accounts, including retirement accounts. If the same fund were held in both a retirement account and a taxable account, then a dividend reinvestment in a retirement account could cause a wash sale problem in a taxable account. That's why I recommend disabling automatic reinvestments even in retirement accounts. In other words, the wash sale rule is complicated, and automatic reinvestment of distributions makes it that much more complicated!
The government’s debt can be measured two different ways: gross debt and net debt. I used net debt, which excludes debt owed to another branch of the government. Gross debt is indeed at 120%+. By either measure, debt is near all-time highs, but thank you for the question. To see the detailed numbers by year: https://www.cbo.gov/publication/59946#_idTextAnchor019
this link also explains how each debt measure is calculated.
Thanks, Nuke. I appreciate that. But I do think it’s wise for us to keep an eye on AI. In my experience, its writing isn’t very interesting, but it’s well-organized, and when it’s accurate, it can be quite helpful in providing basic information. In my view, AI is really just the next generation of search engines. But we’ll see!
Thank you for your thoughts on this and for sharing your story. That’s fascinating about your father’s experience. Isn’t it amazing how quickly the human mind will adapt when placed in extreme environments?
Thanks, David. I think that Black Swans are, by definition, random, but they happen frequently enough that we all need to expect that they will arrive far more frequently than we’d like. I don’t have it in front of me, but there’s a great footnote in When Genius Failed that explains that the risk that took down Long-Term Capital should have happened in something like once every billion years.
Thanks, and I agree. The risks we face also evolve as we age. As we move into retirement, one of the biggest is longevity risk—that is, the risk of outliving our savings. Risk, in other words, is a moving target.
Thanks for the kind words. I agree that we are in the infancy of AI. Maybe HumbleDollar will run this experiment every year so we can see how it evolves. I suspect it will continue to improve.
Thanks, Steve, for your thoughts on this. I agree that risk is an awfully difficult concept to even define. If you haven't read it, I definitely recommend Howard Marks's "The Most Important Thing," which dives deep on this topic.
Comments:
Point #5, on the wash sale rule, has prompted some questions, so I wanted to provide a further explanation. The wash sale rule is relevant when an investor sells a stock, bond, mutual fund or other investment at a loss in a taxable account. Ordinarily, selling an investment at a loss would provide a tax benefit. It could be used to offset other gains, or if there are no other gains that year, then up to $3,000 of the loss can be applied against ordinary income, such as wages. However, if the investor has purchased the same or a “substantially identical” security within 30 days before or after the sale, then the investor can't take the loss for tax purposes at that time. The loss can only be used at a later time, when the entire position is ultimately sold. Here's an example: Suppose an investor buys 10 shares of a mutual fund on January 1 and purchases additional 5 shares on June 1. Then on June 15, he notices that the share price has declined. He can sell his original 10 shares from January, but due to the wash sale rule, the loss won't provide a tax benefit because of the shares he had purchased on June 1 (i.e., within 30 days). This investor can only book the loss for tax purposes after he has sold all 15 shares. If a mutual fund is set up to automatically reinvest dividends, it can inadvertently cause wash sale violations, because additional shares are being purchased regularly. If an investor wants to sell some of his shares at a loss, he'll need to check carefully that there hasn't been a dividend reinvestment within the prior 30 days and also needs to make sure that a dividend reinvestment doesn't happen within 30 days after his sale. Importantly, the wash sale rule applies across all of an investor's accounts, including retirement accounts. If the same fund were held in both a retirement account and a taxable account, then a dividend reinvestment in a retirement account could cause a wash sale problem in a taxable account. That's why I recommend disabling automatic reinvestments even in retirement accounts. In other words, the wash sale rule is complicated, and automatic reinvestment of distributions makes it that much more complicated!
Post: Danger: Taxes Ahead
Link to comment from November 17, 2024
The government’s debt can be measured two different ways: gross debt and net debt. I used net debt, which excludes debt owed to another branch of the government. Gross debt is indeed at 120%+. By either measure, debt is near all-time highs, but thank you for the question. To see the detailed numbers by year: https://www.cbo.gov/publication/59946#_idTextAnchor019 this link also explains how each debt measure is calculated.
Post: Paying the Piper
Link to comment from July 7, 2024
Thanks, Nuke. I appreciate that. But I do think it’s wise for us to keep an eye on AI. In my experience, its writing isn’t very interesting, but it’s well-organized, and when it’s accurate, it can be quite helpful in providing basic information. In my view, AI is really just the next generation of search engines. But we’ll see!
Post: Life’s Potholes
Link to comment from May 29, 2024
Thanks so much for the kind words, Max! I don't know much else about Carveth Read but have always loved that line.
Post: Life’s Potholes
Link to comment from May 29, 2024
Thanks, Rick! I really appreciate it. And congratulations to you on #150!
Post: Life’s Potholes
Link to comment from May 29, 2024
Thank you for your thoughts on this and for sharing your story. That’s fascinating about your father’s experience. Isn’t it amazing how quickly the human mind will adapt when placed in extreme environments?
Post: Life’s Potholes
Link to comment from May 29, 2024
Thanks, David. I think that Black Swans are, by definition, random, but they happen frequently enough that we all need to expect that they will arrive far more frequently than we’d like. I don’t have it in front of me, but there’s a great footnote in When Genius Failed that explains that the risk that took down Long-Term Capital should have happened in something like once every billion years.
Post: Life’s Potholes
Link to comment from May 29, 2024
Thanks, and I agree. The risks we face also evolve as we age. As we move into retirement, one of the biggest is longevity risk—that is, the risk of outliving our savings. Risk, in other words, is a moving target.
Post: Life’s Potholes
Link to comment from May 29, 2024
Thanks for the kind words. I agree that we are in the infancy of AI. Maybe HumbleDollar will run this experiment every year so we can see how it evolves. I suspect it will continue to improve.
Post: Life’s Potholes
Link to comment from May 29, 2024
Thanks, Steve, for your thoughts on this. I agree that risk is an awfully difficult concept to even define. If you haven't read it, I definitely recommend Howard Marks's "The Most Important Thing," which dives deep on this topic.
Post: Life’s Potholes
Link to comment from May 29, 2024