Jon is wondering if now is a good time to move his RRSP into a tax-free savings account, given the market downturn. He knows you can’t time the market, but the opportunity is tempting. What should he do?
Laurel’s question revolves around the CARE Act and early withdrawal from a 401k. She needs to rebalance her 401k and wants to buy a rental. Instead of selling stocks, should she sell bonds as a form of rebalancing and to withdraw for a rental property?
After seeing so many businesses experience financial hardship, Rebecca and her husband are curious: why don’t companies have emergency funds?
Salome sees the stock market downturn as an opportunity for tax-loss harvesting, but does this hold if you’ve held stocks for less than a year?
Josh and his wife have funds in Vanguard and Betterment, and they own their apartment in Queens, NY. Does the equity they have in their apartment count as real estate, or should they invest in something else for more diversification?
Jenny and her husband earn $220,000, max out their 403b and HSA, and have an extra $4,000 per month to invest. Where should they put this money?
Sheena has the option to purchase company stock at a 15 percent discount through an Employer Stock Purchasing Plan. However, it’s volatile right now. Should she contribute the maximum amount, or nothing?
My friend and former financial planner Joe Saul-Sehy joins me to answer these questions. Enjoy!
Rebecca asks (at 3:33 minutes):
With so many companies experiencing financial hardship right now, why don’t companies have an emergency fund – anywhere from three months to nine months – like it’s recommended for individuals to have?
Laurel asks (at 20:08 minutes):
I have a question about the new CARES Act and early withdrawal from a 401k. We need to rebalance our 401k soon, and we also want to buy a rental property. Rather than sell stocks, should we sell bonds as a form of rebalancing to withdraw for a rental home? I know that we would owe taxes on the withdrawal for up to three years if it’s not reinvested into the 401k, but I wanted to get your take on whether it’s an option to consider if we find a good rental property.
Salome asks (at 31:25 minutes):
I can potentially harvest some losses by selling funds, but the funds I want to sell were purchased in the months leading up to this crisis. Is there anything to keep in mind on doing such a short-term tax-loss harvest, or does the length of ownership not matter with tax-loss harvesting as much as tax-gain harvesting?
Can losses on assets held for less than one year be treated the same as losses from assets held longer? Would they follow the same rules of being able to carry over $3,000 worth of losses against ordinary income per year and every year following until the losses are realized? Is the biggest watch-out still going to be the wash-sale route? Could I avoid this by potentially buying a different enough asset – selling VTI and buying the S&P 500 ETF?
Jon asks (at 36:20 minutes):
I wanted to get your opinion on moving my RRSP to my tax-free savings account. With the massive downturn in the markets, does it make sense to pull money from my taxable account and put it into one that won’t be taxed long-term, while the markets are low? I know you can’t time the market, but I thought this might be a good move.
Josh asks (at 42:33 minutes):
I’m in my mid-40s and married with two kids. We live in Queens, NY, where we have a mortgage on our apartment.
My question is about diversification. If two-thirds of our money is in some combination of Vanguard index funds and Betterment stock/bond mixes (which are also essentially vanguard funds), and one-third of our money is in the equity in our apartment… should we diversify more? Additionally, how should I think about the equity that we have in our apartment? Is it diversification in the real estate market?
Sheena asks (at 50:59 minutes):
I’m in a relatively new job that includes an Employee Stock Purchasing Plan (ESPP). It allows us to purchase company stock at a 15 percent discount and provides a look-back feature.
I would follow the conveyor belt approach where I buy at a discount, sell as soon as I can, and buy diversified funds with the amount I sell. I contribute $18,000 per year in taxable brokerage accounts, so I would contribute to the ESPP and then move the money to a taxable brokerage as soon as I can sell.
However, my company’s stock is volatile right now – it lost 50 percent of its value with Covid-19. It’s back at 70 percent of its pre-COVID value. It’s possible that it could drop more than 15 percent, but if I sell quickly enough after the purchase date, there could be a two to three-day lag before I can sell. More often than not, I’d be making a 15 percent profit. You generally can’t make a 15 percent profit on an index fund over time.
I also have restricted stock units that will vest over the next four years – about $25,000 per year will come in. My plan is to sell this when it’s at a reasonable price, but I may have to hold it during a recession to achieve that. I have about $125,000 between retirement accounts and taxable brokerages, a six-and-a-half month emergency fund, and $10,000 extra set aside if we want to buy a car.
Our jobs seem stable as we can work from home. If one of us loses our job, I can pause the contributions, but I can’t increase the contributions from what I choose during the next offering period.
In the next 10 years, we’d like to take a one-year mini-retirement to travel. The rest of our savings is for flexibility in taking a lower-paying job or moving downtown.
In light of that, should I contribute the maximum to the ESPP, or nothing at all?
Jenny asks (at 1:08:04 minutes):
My husband and I make around $220,000 – $240,000 per year. We own everything other than our house, which has a mortgage balance of $220,000. I max out my 403b and HSA at work.
We have a rollover 401k to IRA in Vanguard and an extra $4,000 per month available to invest. What should we do with the rollover 401k, and where should we put the $4,000 per month?
Resources Mentioned:
Rebecca’s Question:
- How to Gain a Competitive Edge, with Morgan Housel – interview
- Who Pays For This? – article on Collaborative Fund, by Morgan Housel
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