When to Invest Bonus Forum

[Anonymous User]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

All* firms, hopefully. 22% is federal law for bonus withholding. (To be clear: that's the withholding rate. You still owe the full income tax on it come tax filing time, as this poster points out.)

Does the IRS count such a low bonus withhold rate against you for underwithholding penalties?

Yes, but the penalty is lower than the expected return of investing the money, so it's worth it to pay the penalty anyway.

[temp69420]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

All* firms, hopefully. 22% is federal law for bonus withholding. (To be clear: that's the withholding rate. You still owe the full income tax on it come tax filing time, as this poster points out.)

Does the IRS count such a low bonus withhold rate against you for underwithholding penalties?

Yes, but the penalty is lower than the expected return of investing the money, so it's worth it to pay the penalty anyway.

The IRS penalty is 3% per year. You can borrow far cheaper than that using, e.g., a margin loan from interactive brokers. You're better off just paying the taxes and using margin.

[The Lsat Airbender]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

All* firms, hopefully. 22% is federal law for bonus withholding. (To be clear: that's the withholding rate. You still owe the full income tax on it come tax filing time, as this poster points out.)

Does the IRS count such a low bonus withhold rate against you for underwithholding penalties?

Yes, but the penalty is lower than the expected return of investing the money, so it's worth it to pay the penalty anyway.

The IRS penalty is 3% per year. You can borrow far cheaper than that using, e.g., a margin loan from interactive brokers. You're better off just paying the taxes and using margin.

why not max both to get to 420% leverage

[legalpotato]

I would only look at the I-bonds; current max of 10k/year and this year's rate is 7%, though it will adjust with inflation. Better than letting that 10k sit in the bank.

OP here - thanks all for the advice!

I'm curious about this point - do you mean to say that I should start putting my $30k rainy day fund into I-bonds over the next few years? Would the I-bonds be sufficiently liquid (after the first year, of course) for that? I'm worried that if I need the $ quickly I won't have time for my local bank or the Treasury Department to process the redemption.

Not the poster above, but when I went to my bank to cash a Treasury note recently, it took 4 minutes. Granted, that was a Series E (I think?) and was only ~$200, but I'd imagine up to $10k they're all about evenly liquid. Maybe if you're doing it all online through Treasury it would take a little longer for the money to reach your bank account, but I have trouble seeing it take much longer than, say, transferring out of an online HYSA like Marcus earning 0.5%.

Any experience investing in bond ETFs? Buying direct from the treasury seems like a pain and much easier to just buy some ETFs through my brokerage account.

[temp69420]

I would only look at the I-bonds; current max of 10k/year and this year's rate is 7%, though it will adjust with inflation. Better than letting that 10k sit in the bank.

OP here - thanks all for the advice!

I'm curious about this point - do you mean to say that I should start putting my $30k rainy day fund into I-bonds over the next few years? Would the I-bonds be sufficiently liquid (after the first year, of course) for that? I'm worried that if I need the $ quickly I won't have time for my local bank or the Treasury Department to process the redemption.

Not the poster above, but when I went to my bank to cash a Treasury note recently, it took 4 minutes. Granted, that was a Series E (I think?) and was only ~$200, but I'd imagine up to $10k they're all about evenly liquid. Maybe if you're doing it all online through Treasury it would take a little longer for the money to reach your bank account, but I have trouble seeing it take much longer than, say, transferring out of an online HYSA like Marcus earning 0.5%.

Any experience investing in bond ETFs? Buying direct from the treasury seems like a pain and much easier to just buy some ETFs through my brokerage account.

Certainly bond ETFs are easier. Series E and I savings bonds, though, have some attractive features -- series E has a high guaranteed return if you hold them for 20 years, while series I are inflation protected with real yields of zero. Both give significantly higher returns than a bond fund will (and also are taxed more attractively). Both are capped at $10k per SSN, though. Just depends on exactly what you're looking for -- liquidity versus a long-term arbitrage (though one with low returns overall).

[nealric]

I'd be pretty leery of stablecoins. They are a pretty attractive basis to run a Ponzi scheme if one was so inclined, and major ones like Tether are under investigation for lying about their reserves. There's no free lunch in the investment world. If you are being paid 8%+ when even junk bonds aren't paying that much, it's not going to be risk free.

[thisismytlsuername]

But they're called stablecoins! Stable is in the title! They're trustworthy! We promise!

[The Lsat Airbender]

But they're called stablecoins! Stable is in the title! They're trustworthy! We promise!

Broke: giving MBS a AAA rating

Woke: analogizing crypto staking to a bank account

[Anonymous User]

OP here - bumping this thread again to see if opinions have changed. I invested nearly all of my bonus last year and am having trouble shaking off regrets (I'm down >10% across all my investments from this time last year). I'm in a similar situation this year and am wondering whether people's advice has changed (especially with recession predictions still looming). Invest it all again? Spread it out? Wait for the Fed to settle? What does everyone think?

[thisismytlsuername]

Smart. You should wait to invest until you know the market is going to go up.

[butonawednesday]

The inverted yield curve is not as reliable an indicator of a coming recession as it once was. The Bloomberg Surveillance pod with Tom Keene is a great way to stay current. Many of the people I follow are saying we are near a recession again and a 30% loss in the Dow may come soon, like early 2023. "Money for the rest of us", "We follow Billionaires" and "Odd Lots" are other great pods.

[Anonymous User]

Smart. You should wait to invest until you know the market is going to go up.

You realize there's a lot of room between "please predict the future" and "what's your plan given that you can't," right?

[Wanderingdrock]

OP here - bumping this thread again to see if opinions have changed. I invested nearly all of my bonus last year and am having trouble shaking off regrets (I'm down >10% across all my investments from this time last year). I'm in a similar situation this year and am wondering whether people's advice has changed (especially with recession predictions still looming). Invest it all again? Spread it out? Wait for the Fed to settle? What does everyone think?

I hope nobody's opinion has changed. I'm also down, but that happens sometimes. We're playing the averages. I do DCA to an extent, in recognition of my risk-aversity, but it is still true (even with this one additional annual datapoint we've added since the last time this conversation happened ITT) that lump sum investing is the option with the highest returns over the long term.

[Antetrust]

Everything is on discount - why wait to buy? Will prices continue to fall? Maybe. But they will eventually go back up. By waiting, you risk losing out on (potentially massive) gains. The point is not to accurately predict what will happen in the next 6-12 months but to make the most sensible decision with the information you have available.

You should not regret your past decisions simply because they don't pan out in hindsight. That would be like regretting your decision to stay with a 19 in blackjack just because the next card turns out to be a 2.

[thisismytlsuername]

Smart. You should wait to invest until you know the market is going to go up.

You realize there's a lot of room between "please predict the future" and "what's your plan given that you can't," right?

Historically, lump sum gives better results. If you know better than that, you should quit law and open a fund.

[butonawednesday]

"Everything is on discount, why wait to buy"

Japan.
Housing, land, stock market all peaked in 1989. Then a crash.
They're still not back to 1989 levels.
34 years of misery.

The Dow Jones Average?
600 in 1959

How about 23 years later in 1982?
700.
My Grandfather told my Dad everything was on discount in 1959.

[thisismytlsuername]

"Everything is on discount, why wait to buy"

Japan.
Housing, land, stock market all peaked in 1989. Then a crash.
They're still not back to 1989 levels.
34 years of misery.

The Dow Jones Average?
600 in 1959

How about 23 years later in 1982?
700.
My Grandfather told my Dad everything was on discount in 1959.

Oh hell yeah, are we cherrypicking data points that prove our arguments?

The Dow Jones Average?
9881 in February 2009

How about 12 years later in 2021?
38700.

My aunt's tarot card reader told his house cleaner everything was on a discount in 2009. He was right.

[butonawednesday]

Anything to say about my comment on Japan?

My point? When you say it's all on discount, they were saying that in Japan 34 years ago.

[butonawednesday]

you also may as well mention the run up of Bitcoin from 2011 to 2021

On discount

[thisismytlsuername]

you also may as well mention the run up of Bitcoin from 2011 to 2021

On discount

A Bitcoin was $1 in 2011. A Bitcoin is currently $21k. What point are you trying to make here here? That you were alive and investing in Japan in the mid 1980s? I find that hard to believe.

[butonawednesday]

To answer your question, the point I'm making is that just because it's down doesn't mean it's on discount.

The pods I mentioned are pretty uniform in saying that we are in for some pain in 2023.

One I especially like is "We Study Billionaires". Jan 12, the permanent supply chain disruptions that will sink the economy with Jim Rickards.

I guess we can meet again Jan 2024 and see who was right.

I'm done. It was nice talking to you.

[thisismytlsuername]

To answer your question, the point I'm making is that just because it's down doesn't mean it's on discount.

The pods I mentioned are pretty uniform in saying that we are in for some pain in 2023.

One I especially like is "We Study Billionaires". Jan 12, the permanent supply chain disruptions that will sink the economy with Jim Rickards.

I guess we can meet again Jan 2024 and see who was right.

I'm done. It was nice talking to you.

You should be shorting the shit out of everything because the podcasts told you to, so you can be retired in 2024 then.

[nealric]

"Everything is on discount, why wait to buy"

Japan.
Housing, land, stock market all peaked in 1989. Then a crash.
They're still not back to 1989 levels.
34 years of misery.

The Dow Jones Average?
600 in 1959

How about 23 years later in 1982?
700.
My Grandfather told my Dad everything was on discount in 1959.

For one, that ignores dividends. Dividends were a much bigger component in market returns in the 1960s-80s than today.

As a practical matter, nobody goes all-in on a given year and withdraws everything on a given year. If you contribute a reasonable percentage of your income for each year of your working life, and withdraw a reasonable percentage for each year of your retired life, you earn a reasonably healthy return in just about any stock market short of WWII era Germany (or other cases where the entire country melted down). If the whole country melts down, poor investment returns are the least of your worries. Even a Japanese investor who started working in 1980 and retired in 2020 actually did ok in terms of lifetime returns by investing in a Nikkei index. They lost a lot of money in 1989, but they also made a lot in the early 80s and late 2010s. Their overall average buy-in was below where the market is today.

True, real-estate never fully recovered but unless you are in the real estate business, you don't get to dollar cost average your real estate purchases. If anything, that's an argument against putting too much of your nest egg into real estate.

Nobody can predict what the market will do tomorrow, let alone the coming year or decades. But financial "gurus" love to preach doom and gloom because doom and gloom is interesting. It gets people to pay attention, and attention is currency if you are in the business of attracting viewership or investment. If you are a business executive, you are also incentivized to talk down the market to reduce the hurdles for your compensation. That doesn't mean there won't be a huge crash or a decade of stagnation, just that nobody can accurately predict it will happen.

[Wanderingdrock]

To answer your question, the point I'm making is that just because it's down doesn't mean it's on discount.

The pods I mentioned are pretty uniform in saying that we are in for some pain in 2023.

One I especially like is "We Study Billionaires". Jan 12, the permanent supply chain disruptions that will sink the economy with Jim Rickards.

I guess we can meet again Jan 2024 and see who was right.

I'm done. It was nice talking to you.

We can all reconvene in January 2024 but you're still not going to be "right." Given the information we have today, which indicates that lump sum investing is the best rational economic decision, we are going to be right whether the 2023 datapoint shifts that view marginally more strongly or weakly.

[jamestaylorrecordsas]

To answer your question, the point I'm making is that just because it's down doesn't mean it's on discount.

The pods I mentioned are pretty uniform in saying that we are in for some pain in 2023.

One I especially like is "We Study Billionaires". Jan 12, the permanent supply chain disruptions that will sink the economy with Jim Rickards.

I guess we can meet again Jan 2024 and see who was right.

I'm done. It was nice talking to you.

We can all reconvene in January 2024 but you're still not going to be "right." Given the information we have today, which indicates that lump sum investing is the best rational economic decision, we are going to be right whether the 2023 datapoint shifts that view marginally more strongly or weakly.

But when to invest that lump sum?
How about if there's a strong chance of recession?
Invest the lump sum anyway as soon as you get it?
Should Ray Dalio at Bridgewater fire the hundreds of people who work for him and simply funnel all incoming new money into the S&P 500? As it comes in the door?