Personal Finance 101 for Young Lawyers Forum

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The Lsat Airbender

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Re: Personal Finance 101 for Young Lawyers

Post by The Lsat Airbender » Sun Jan 02, 2022 11:05 pm

Anonymous User wrote:
Sun Jan 02, 2022 4:33 pm
Does anyone have any idea as to what the correct answer is for my situation. I have enough money currently after bonus to lump sum my federal loans. Issue is to do so I’d need to liquidate all my stocks and pay STCG tax. Should I just bite the bullet and sell all in April and pay off before May 1? Should I just leave all my stocks to grow in the taxable account while putting any money I may until May 1 in a HYSA? Just not sure what the best process is for this and really don’t like having loans.
Most aggressive, highest-ER strategy is to make minimum loan payments while continuing to invest.

The middle road (which you probably want, reading your post) is: direct new monies (including stock/bond dividends) to loans while allowing your stocks to continue appreciating without paying tax on them.

Liquidating, and writing a check to the IRS, is just dramatically worse than either of the above options. Even paying LTCG is a huge own-goal unless we're talking about a small amount of money, or you're paying some outrageously-high interest rate on the loans.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Mon Jan 03, 2022 5:28 pm

This has probably been addressed somewhere, but if we have, say, a huge bonus that needs to be allocated to some investments, is it better to just throw all $50k into the appropriate Vanguard funds at once, or invest it maybe over a couple of months? I know you can't time the market etc. but it feels weird to throw it all in on the same day (and also feels weird to NOT throw it in on the same day lolz). Any thoughts on that?

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Mon Jan 03, 2022 6:16 pm

The optimal investment strategy is to invest it all at once (in other words, as soon as it's available to invest). Time in the market beats timing the market. Dollar cost averaging is only recommended as a strategy to send portions of regular paychecks into investments - it's the same principle: as soon as the money becomes available, you invest it. With a bonus, the money is available, so you can invest it all lump sum.

Isn't there a risk the market will immediately crash? Yes, but there's also a (slightly higher) chance the market will rise over time, per historical averages, which amounts to missed gains if you spread your investment out over a longer period. There's virtually no benefit to spreading it out. The only reason not to invest it is if you anticipate needing the money in a shorter time period in which the volatility of the stock market is an unnecessary risk. For long term investing, put it all in and forget about it.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Tue Jan 04, 2022 12:16 pm

Anonymous User wrote:
Mon Jan 03, 2022 6:16 pm
The optimal investment strategy is to invest it all at once (in other words, as soon as it's available to invest). Time in the market beats timing the market. Dollar cost averaging is only recommended as a strategy to send portions of regular paychecks into investments - it's the same principle: as soon as the money becomes available, you invest it. With a bonus, the money is available, so you can invest it all lump sum.

Isn't there a risk the market will immediately crash? Yes, but there's also a (slightly higher) chance the market will rise over time, per historical averages, which amounts to missed gains if you spread your investment out over a longer period. There's virtually no benefit to spreading it out. The only reason not to invest it is if you anticipate needing the money in a shorter time period in which the volatility of the stock market is an unnecessary risk. For long term investing, put it all in and forget about it.
Thank you!! Very helpful, just the push I needed :)

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Re: Personal Finance 101 for Young Lawyers

Post by M458 » Wed Jan 05, 2022 11:23 am

Anonymous User wrote:
Mon Jan 03, 2022 6:16 pm
The optimal investment strategy is to invest it all at once (in other words, as soon as it's available to invest). Time in the market beats timing the market. Dollar cost averaging is only recommended as a strategy to send portions of regular paychecks into investments - it's the same principle: as soon as the money becomes available, you invest it. With a bonus, the money is available, so you can invest it all lump sum.

Isn't there a risk the market will immediately crash? Yes, but there's also a (slightly higher) chance the market will rise over time, per historical averages, which amounts to missed gains if you spread your investment out over a longer period. There's virtually no benefit to spreading it out. The only reason not to invest it is if you anticipate needing the money in a shorter time period in which the volatility of the stock market is an unnecessary risk. For long term investing, put it all in and forget about it.
And to add to this very helpful post, if investing it all at once is giving you serious anxiety, then it may be time to rethink your asset allocation.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Fri Jan 07, 2022 10:28 am

M458 wrote:
Wed Jan 05, 2022 11:23 am
Anonymous User wrote:
Mon Jan 03, 2022 6:16 pm
The optimal investment strategy is to invest it all at once (in other words, as soon as it's available to invest). Time in the market beats timing the market. Dollar cost averaging is only recommended as a strategy to send portions of regular paychecks into investments - it's the same principle: as soon as the money becomes available, you invest it. With a bonus, the money is available, so you can invest it all lump sum.

Isn't there a risk the market will immediately crash? Yes, but there's also a (slightly higher) chance the market will rise over time, per historical averages, which amounts to missed gains if you spread your investment out over a longer period. There's virtually no benefit to spreading it out. The only reason not to invest it is if you anticipate needing the money in a shorter time period in which the volatility of the stock market is an unnecessary risk. For long term investing, put it all in and forget about it.
And to add to this very helpful post, if investing it all at once is giving you serious anxiety, then it may be time to rethink your asset allocation.
It depends what the source of anxiety is. If you’re fine being all in on stocks (which is fine for a biglaw associate who’s usually decades away from retirement) but the issue is you’re afraid the market will go down right after you make a big buy, DCA is a good idea. The best strategy is whatever gets you to put your money in index funds. If you have to do it a few K /wk that’s fine.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Fri Jan 07, 2022 3:35 pm

Anonymous User wrote:
Fri Jan 07, 2022 10:28 am
M458 wrote:
Wed Jan 05, 2022 11:23 am
Anonymous User wrote:
Mon Jan 03, 2022 6:16 pm
The optimal investment strategy is to invest it all at once (in other words, as soon as it's available to invest). Time in the market beats timing the market. Dollar cost averaging is only recommended as a strategy to send portions of regular paychecks into investments - it's the same principle: as soon as the money becomes available, you invest it. With a bonus, the money is available, so you can invest it all lump sum.

Isn't there a risk the market will immediately crash? Yes, but there's also a (slightly higher) chance the market will rise over time, per historical averages, which amounts to missed gains if you spread your investment out over a longer period. There's virtually no benefit to spreading it out. The only reason not to invest it is if you anticipate needing the money in a shorter time period in which the volatility of the stock market is an unnecessary risk. For long term investing, put it all in and forget about it.
And to add to this very helpful post, if investing it all at once is giving you serious anxiety, then it may be time to rethink your asset allocation.
It depends what the source of anxiety is. If you’re fine being all in on stocks (which is fine for a biglaw associate who’s usually decades away from retirement) but the issue is you’re afraid the market will go down right after you make a big buy, DCA is a good idea. The best strategy is whatever gets you to put your money in index funds. If you have to do it a few K /wk that’s fine.
Most of the studies showing lump sum investing beating DCA were funded by funds like Vanguard, that have a clear interest in you investing sooner. Also the studies show that the difference is marginal unless you are looking across decades, and the study doesn’t account for the extreme valuations/growth we have seen in the pandemic.

IMO, DCA is the move. You may be dollar cost averaging into a higher basis but that’s unlikely to be the case if you’re investing in the next two quarters. If you’re looking at serious long term investing (+10 years) then go lump sum and don’t look back. Just know it may shave off 15-20% in the next two years.

Of course, I could definitely be wrong.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Fri Jan 07, 2022 7:52 pm

Anonymous User wrote:
Fri Jan 07, 2022 3:35 pm


Most of the studies showing lump sum investing beating DCA were funded by funds like Vanguard, that have a clear interest in you investing sooner. Also the studies show that the difference is marginal unless you are looking across decades, and the study doesn’t account for the extreme valuations/growth we have seen in the pandemic.

IMO, DCA is the move. You may be dollar cost averaging into a higher basis but that’s unlikely to be the case if you’re investing in the next two quarters. If you’re looking at serious long term investing (+10 years) then go lump sum and don’t look back. Just know it may shave off 15-20% in the next two years.

Of course, I could definitely be wrong.
Bolded the fortune telling, and then the other important part of this post. People have been crying bear market every year for the last 7+ years.

The only reason to DCA is for your own psychological comfort (i.e. helps you sleep at night and you cant bring your self to lump it all in). It is a valid reason. But ask your self, if the money were currently invested, would you sell the fund and hold the cash and then reinvest it slowly? That is essentially what you are doing.

Choose an asset allocation you are comfortable with, and then stick to it.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Sat Jan 08, 2022 12:02 am

So I know this is a total dumb noob question but: got married this year. Made no adjustments to withholding or anything based on the marriage. My spouse has income of like 15k on the year (I.e. super low). I'm a sixth year associate. What's my tax bill likely to be compared to last year? Roughly same? Significant difference? I know I can google and everything but I trust the people in this thread to have a way better handle on this than me or whatever general stuff Google tells me.

(for sake of posterity I'll also report back here after I actually do my taxes)

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Wanderingdrock

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Re: Personal Finance 101 for Young Lawyers

Post by Wanderingdrock » Sun Jan 09, 2022 4:39 pm

Anonymous User wrote:
Sat Jan 08, 2022 12:02 am
So I know this is a total dumb noob question but: got married this year. Made no adjustments to withholding or anything based on the marriage. My spouse has income of like 15k on the year (I.e. super low). I'm a sixth year associate. What's my tax bill likely to be compared to last year? Roughly same? Significant difference? I know I can google and everything but I trust the people in this thread to have a way better handle on this than me or whatever general stuff Google tells me.

(for sake of posterity I'll also report back here after I actually do my taxes)
This isn't legal or tax advice, etc., etc.

Your tax bill will likely be lower. Married filing jointly has higher brackets than single filers for the same percentages of federal tax (e.g., you start paying the higher rates at higher income levels than you would if unmarried), and this is often the case for state taxes as well. You also get a higher standard deduction, which also reduces your taxes assuming you don't itemize. The difference is likely to be in the thousands.

https://www.nerdwallet.com/article/taxe ... x-brackets

Many single attorneys are in the 35% bracket. Most single-income married attorneys (which you effectively are) aren't even in the 32% bracket after all deductions are taken into account.

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Re: Personal Finance 101 for Young Lawyers

Post by Wanderingdrock » Wed Jan 12, 2022 12:22 pm

Wanderingdrock wrote:
Sun Jan 09, 2022 4:39 pm
Anonymous User wrote:
Sat Jan 08, 2022 12:02 am
So I know this is a total dumb noob question but: got married this year. Made no adjustments to withholding or anything based on the marriage. My spouse has income of like 15k on the year (I.e. super low). I'm a sixth year associate. What's my tax bill likely to be compared to last year? Roughly same? Significant difference? I know I can google and everything but I trust the people in this thread to have a way better handle on this than me or whatever general stuff Google tells me.

(for sake of posterity I'll also report back here after I actually do my taxes)
This isn't legal or tax advice, etc., etc.

Your tax bill will likely be lower. Married filing jointly has higher brackets than single filers for the same percentages of federal tax (e.g., you start paying the higher rates at higher income levels than you would if unmarried), and this is often the case for state taxes as well. You also get a higher standard deduction, which also reduces your taxes assuming you don't itemize. The difference is likely to be in the thousands.

https://www.nerdwallet.com/article/taxe ... x-brackets

Many single attorneys are in the 35% bracket. Most single-income married attorneys (which you effectively are) aren't even in the 32% bracket after all deductions are taken into account.
Was just thinking back on this randomly and realized I should have specified something - your bill will likely be lower *as a percentage of your income*. If your income significantly increased, your absolute tax bill may be higher.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Sat Feb 05, 2022 11:31 pm

deleted
Last edited by Anonymous User on Mon Feb 07, 2022 1:26 am, edited 1 time in total.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Sun Feb 06, 2022 5:19 pm

I will be at a big law summer associateship (market rate) this year, and starting with the same firm the following year. My spouse just got a big raise about 5 months ago, almost doubling their salary, and putting them into the mid-100,000s. I'll be going from 0 to summer salary this year. And from 0 to at least 205,000 the following.

I don't know how to deal with our tax situation. This year I thought we were withholding more than enough (I had a paid summer internship and I thought I withheld aggressively), but we literally just scraped by. I think the education tax credit saved us. I'm worried that I won't withhold enough this summer, and that I have no idea how to make the best of our new tax situation the following year.

Should I be trying to see a tax specialist for a one-off consult? If not, how do I figure out how to do this? I never know how to withhold when I get a new job, but until now it hasn't mattered much because we've had such a low combined salary. Now I'm scared I'll accidentally get us into a situation where we owe the fed/state several thousand.

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Re: Personal Finance 101 for Young Lawyers

Post by tlsguy2020 » Mon Feb 07, 2022 2:10 am

Anonymous User wrote:
Sun Feb 06, 2022 5:19 pm
I will be at a big law summer associateship (market rate) this year, and starting with the same firm the following year. My spouse just got a big raise about 5 months ago, almost doubling their salary, and putting them into the mid-100,000s. I'll be going from 0 to summer salary this year. And from 0 to at least 205,000 the following.

I don't know how to deal with our tax situation. This year I thought we were withholding more than enough (I had a paid summer internship and I thought I withheld aggressively), but we literally just scraped by. I think the education tax credit saved us. I'm worried that I won't withhold enough this summer, and that I have no idea how to make the best of our new tax situation the following year.

Should I be trying to see a tax specialist for a one-off consult? If not, how do I figure out how to do this? I never know how to withhold when I get a new job, but until now it hasn't mattered much because we've had such a low combined salary. Now I'm scared I'll accidentally get us into a situation where we owe the fed/state several thousand.
When I was a summer associate, unless an SA requested otherwise, the firm withheld taxes at the same tax rate as first-year associates. Paychecks were in the low 5,000s each. Led to getting a massive tax return. My impression is that if your wife earns in the mid-100s, the firm will, as standard practice, withhold enough for you to be clear on your end. Can't speak to withholding from your wife's end though.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Mon Feb 07, 2022 1:52 pm

Has anyone had any experience with a JD mortgage like featured on https://www.biglawinvestor.com/marketplace/jd-mortgage/ ?

I might be moving within the next year, and won't have enough for a 20% downpayment based on expected home values. Wondering if it is feasible to find a program where I can put 10% down and not pay any PMI. Would qualify as a jumbo mortgage.

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Re: Personal Finance 101 for Young Lawyers

Post by Wanderingdrock » Wed Feb 09, 2022 3:56 pm

Anonymous User wrote:
Mon Feb 07, 2022 1:52 pm
Has anyone had any experience with a JD mortgage like featured on https://www.biglawinvestor.com/marketplace/jd-mortgage/ ?

I might be moving within the next year, and won't have enough for a 20% downpayment based on expected home values. Wondering if it is feasible to find a program where I can put 10% down and not pay any PMI. Would qualify as a jumbo mortgage.
Yes. My firm had a relationship with a bank that offered an interest rate reduction and no-PMI deal on 10.01% down. It was a good deal and fairly easy to do through the reps assigned to my firm.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Thu Feb 17, 2022 10:20 pm

Need to decide what to do with my bonus plus some savings (in total, $200k). Is there any wisdom in putting some of it in a managed ETF or some other type of index fund with a higher expense ratio for tax-harvesting reasons?

My initial thought was to dump it all into VT or VOO, in the good old-fashioned "Set it and Forget It" strategy because I won't need this money any time soon and have savings to cover emergencies. However, I talked to a guy at Fidelity who did note that, given my tax bracket (I'm a 5th year now), people in this salary range lose a LOT, ultimately, in ETFs due to tax reasons. So, even though the managed index funds have a higher cost or expense ratio, they employ tax-savings strategies that net out better than a more passive ETF with a low cost.

Is there any wisdom in that, or is he tryna sell me somethin?

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Fri Feb 18, 2022 1:47 pm

Anonymous User wrote:
Thu Feb 17, 2022 10:20 pm
Need to decide what to do with my bonus plus some savings (in total, $200k). Is there any wisdom in putting some of it in a managed ETF or some other type of index fund with a higher expense ratio for tax-harvesting reasons?

My initial thought was to dump it all into VT or VOO, in the good old-fashioned "Set it and Forget It" strategy because I won't need this money any time soon and have savings to cover emergencies. However, I talked to a guy at Fidelity who did note that, given my tax bracket (I'm a 5th year now), people in this salary range lose a LOT, ultimately, in ETFs due to tax reasons. So, even though the managed index funds have a higher cost or expense ratio, they employ tax-savings strategies that net out better than a more passive ETF with a low cost.

Is there any wisdom in that, or is he tryna sell me somethin?
He’s trying to sell you something.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Fri Feb 18, 2022 4:51 pm

Anonymous User wrote:
Fri Feb 18, 2022 1:47 pm
Anonymous User wrote:
Thu Feb 17, 2022 10:20 pm
Need to decide what to do with my bonus plus some savings (in total, $200k). Is there any wisdom in putting some of it in a managed ETF or some other type of index fund with a higher expense ratio for tax-harvesting reasons?

My initial thought was to dump it all into VT or VOO, in the good old-fashioned "Set it and Forget It" strategy because I won't need this money any time soon and have savings to cover emergencies. However, I talked to a guy at Fidelity who did note that, given my tax bracket (I'm a 5th year now), people in this salary range lose a LOT, ultimately, in ETFs due to tax reasons. So, even though the managed index funds have a higher cost or expense ratio, they employ tax-savings strategies that net out better than a more passive ETF with a low cost.

Is there any wisdom in that, or is he tryna sell me somethin?
He’s trying to sell you something.
Would you mind expanding a bit, please? Isn't it true that we get taxed at like 20% for dividends for ETFs, which can be avoided in a more managed account, thereby offsetting the higher expense ratio of the managed accounts?

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Re: Personal Finance 101 for Young Lawyers

Post by clarion » Sat Feb 19, 2022 1:41 am

Anonymous User wrote:
Fri Feb 18, 2022 4:51 pm
Anonymous User wrote:
Fri Feb 18, 2022 1:47 pm
Anonymous User wrote:
Thu Feb 17, 2022 10:20 pm
Need to decide what to do with my bonus plus some savings (in total, $200k). Is there any wisdom in putting some of it in a managed ETF or some other type of index fund with a higher expense ratio for tax-harvesting reasons?

My initial thought was to dump it all into VT or VOO, in the good old-fashioned "Set it and Forget It" strategy because I won't need this money any time soon and have savings to cover emergencies. However, I talked to a guy at Fidelity who did note that, given my tax bracket (I'm a 5th year now), people in this salary range lose a LOT, ultimately, in ETFs due to tax reasons. So, even though the managed index funds have a higher cost or expense ratio, they employ tax-savings strategies that net out better than a more passive ETF with a low cost.

Is there any wisdom in that, or is he tryna sell me somethin?
He’s trying to sell you something.
Would you mind expanding a bit, please? Isn't it true that we get taxed at like 20% for dividends for ETFs, which can be avoided in a more managed account, thereby offsetting the higher expense ratio of the managed accounts?
He’s trying to sell you something. I think you have to take a step back. Do you “know” that it will offset the higher ER? Or is that just what someone is telling you? High fees can cannibalize your returns as they “compound” just like your returns do, and they don’t care if your portfolio is up 30% or down 50%. Taxes can be offset in a number of ways outside tax loss harvesting. But those returns lost to fees are gone.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Sat Feb 19, 2022 6:19 pm

clarion wrote:
Sat Feb 19, 2022 1:41 am
Anonymous User wrote:
Fri Feb 18, 2022 4:51 pm
Anonymous User wrote:
Fri Feb 18, 2022 1:47 pm
Anonymous User wrote:
Thu Feb 17, 2022 10:20 pm
Need to decide what to do with my bonus plus some savings (in total, $200k). Is there any wisdom in putting some of it in a managed ETF or some other type of index fund with a higher expense ratio for tax-harvesting reasons?

My initial thought was to dump it all into VT or VOO, in the good old-fashioned "Set it and Forget It" strategy because I won't need this money any time soon and have savings to cover emergencies. However, I talked to a guy at Fidelity who did note that, given my tax bracket (I'm a 5th year now), people in this salary range lose a LOT, ultimately, in ETFs due to tax reasons. So, even though the managed index funds have a higher cost or expense ratio, they employ tax-savings strategies that net out better than a more passive ETF with a low cost.

Is there any wisdom in that, or is he tryna sell me somethin?
He’s trying to sell you something.
Would you mind expanding a bit, please? Isn't it true that we get taxed at like 20% for dividends for ETFs, which can be avoided in a more managed account, thereby offsetting the higher expense ratio of the managed accounts?
He’s trying to sell you something. I think you have to take a step back. Do you “know” that it will offset the higher ER? Or is that just what someone is telling you? High fees can cannibalize your returns as they “compound” just like your returns do, and they don’t care if your portfolio is up 30% or down 50%. Taxes can be offset in a number of ways outside tax loss harvesting. But those returns lost to fees are gone.

Thanks, appreciate this input.

I guess the problem is, I don't know what these other means of offsetting taxes are. The guy kept telling me that as a high-earning lawyer, at the end of the day my taxes will be very high and that they will cut into any gains to be made in ETFs in a big way, and that professionals can help mitigate this.

Also, don't taxes "cannibalize" returns and "compound" in the same sense that fees do?

If a professional can help with that, AND help with guiding a portfolio through the particularly rough and volatile markets we're seeing these days, I'd have thought this would be more of a "tough call" than people on TLS make it appear to be, unless I'm missing something...

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Re: Personal Finance 101 for Young Lawyers

Post by clarion » Sun Feb 20, 2022 8:24 pm

Anonymous User wrote:
Sat Feb 19, 2022 6:19 pm
clarion wrote:
Sat Feb 19, 2022 1:41 am
Anonymous User wrote:
Fri Feb 18, 2022 4:51 pm
Anonymous User wrote:
Fri Feb 18, 2022 1:47 pm
Anonymous User wrote:
Thu Feb 17, 2022 10:20 pm
Need to decide what to do with my bonus plus some savings (in total, $200k). Is there any wisdom in putting some of it in a managed ETF or some other type of index fund with a higher expense ratio for tax-harvesting reasons?

My initial thought was to dump it all into VT or VOO, in the good old-fashioned "Set it and Forget It" strategy because I won't need this money any time soon and have savings to cover emergencies. However, I talked to a guy at Fidelity who did note that, given my tax bracket (I'm a 5th year now), people in this salary range lose a LOT, ultimately, in ETFs due to tax reasons. So, even though the managed index funds have a higher cost or expense ratio, they employ tax-savings strategies that net out better than a more passive ETF with a low cost.

Is there any wisdom in that, or is he tryna sell me somethin?
He’s trying to sell you something.
Would you mind expanding a bit, please? Isn't it true that we get taxed at like 20% for dividends for ETFs, which can be avoided in a more managed account, thereby offsetting the higher expense ratio of the managed accounts?
He’s trying to sell you something. I think you have to take a step back. Do you “know” that it will offset the higher ER? Or is that just what someone is telling you? High fees can cannibalize your returns as they “compound” just like your returns do, and they don’t care if your portfolio is up 30% or down 50%. Taxes can be offset in a number of ways outside tax loss harvesting. But those returns lost to fees are gone.

Thanks, appreciate this input.

I guess the problem is, I don't know what these other means of offsetting taxes are. The guy kept telling me that as a high-earning lawyer, at the end of the day my taxes will be very high and that they will cut into any gains to be made in ETFs in a big way, and that professionals can help mitigate this.

Also, don't taxes "cannibalize" returns and "compound" in the same sense that fees do?

If a professional can help with that, AND help with guiding a portfolio through the particularly rough and volatile markets we're seeing these days, I'd have thought this would be more of a "tough call" than people on TLS make it appear to be, unless I'm missing something...
“If something sounds too good to be true, it probably is.”

Taxes don’t cannibalize in the same way. Here’s a quote I found from a quick google:

“The Impact on Investor Profit
Fund expenses can make a significant difference in an investor's profit. If a fund realizes an overall annual return of 5% but charges expenses that total 2%, then 40% of the fund's return is eaten by fees.”

Unless you’re selling your entire portfolio every year, paying short term CG taxes on a quarterly dividend payout will have nowhere near the same impact. If the person you spoke to was concerned about what happens when you go to sell your assets to buy a boat or supplement retirement, there are, e.g., margin loans and tax planning mechanisms out there. Not to mention you’ll be paying LTCG taxes on those long term returns, at a rate (currently) of either 0, 15 or 20%. You can get professional tax planning help with that rather than giving up X% of returns in an up year (or exacerbating bad returns in a down year).

Hopefully that’s helpful. But it really is not a tough call if you understand the math and the benefits being offered to you. (For example, you will still pay taxes on earnings with whatever services this professional is offering).

Anonymous User
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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Tue Feb 22, 2022 4:14 pm

clarion wrote:
Sun Feb 20, 2022 8:24 pm
Anonymous User wrote:
Sat Feb 19, 2022 6:19 pm
clarion wrote:
Sat Feb 19, 2022 1:41 am
Anonymous User wrote:
Fri Feb 18, 2022 4:51 pm
Anonymous User wrote:
Fri Feb 18, 2022 1:47 pm
Anonymous User wrote:
Thu Feb 17, 2022 10:20 pm
Need to decide what to do with my bonus plus some savings (in total, $200k). Is there any wisdom in putting some of it in a managed ETF or some other type of index fund with a higher expense ratio for tax-harvesting reasons?

My initial thought was to dump it all into VT or VOO, in the good old-fashioned "Set it and Forget It" strategy because I won't need this money any time soon and have savings to cover emergencies. However, I talked to a guy at Fidelity who did note that, given my tax bracket (I'm a 5th year now), people in this salary range lose a LOT, ultimately, in ETFs due to tax reasons. So, even though the managed index funds have a higher cost or expense ratio, they employ tax-savings strategies that net out better than a more passive ETF with a low cost.

Is there any wisdom in that, or is he tryna sell me somethin?
He’s trying to sell you something.
Would you mind expanding a bit, please? Isn't it true that we get taxed at like 20% for dividends for ETFs, which can be avoided in a more managed account, thereby offsetting the higher expense ratio of the managed accounts?
He’s trying to sell you something. I think you have to take a step back. Do you “know” that it will offset the higher ER? Or is that just what someone is telling you? High fees can cannibalize your returns as they “compound” just like your returns do, and they don’t care if your portfolio is up 30% or down 50%. Taxes can be offset in a number of ways outside tax loss harvesting. But those returns lost to fees are gone.

Thanks, appreciate this input.

I guess the problem is, I don't know what these other means of offsetting taxes are. The guy kept telling me that as a high-earning lawyer, at the end of the day my taxes will be very high and that they will cut into any gains to be made in ETFs in a big way, and that professionals can help mitigate this.

Also, don't taxes "cannibalize" returns and "compound" in the same sense that fees do?

If a professional can help with that, AND help with guiding a portfolio through the particularly rough and volatile markets we're seeing these days, I'd have thought this would be more of a "tough call" than people on TLS make it appear to be, unless I'm missing something...
“If something sounds too good to be true, it probably is.”

Taxes don’t cannibalize in the same way. Here’s a quote I found from a quick google:

“The Impact on Investor Profit
Fund expenses can make a significant difference in an investor's profit. If a fund realizes an overall annual return of 5% but charges expenses that total 2%, then 40% of the fund's return is eaten by fees.”

Unless you’re selling your entire portfolio every year, paying short term CG taxes on a quarterly dividend payout will have nowhere near the same impact. If the person you spoke to was concerned about what happens when you go to sell your assets to buy a boat or supplement retirement, there are, e.g., margin loans and tax planning mechanisms out there. Not to mention you’ll be paying LTCG taxes on those long term returns, at a rate (currently) of either 0, 15 or 20%. You can get professional tax planning help with that rather than giving up X% of returns in an up year (or exacerbating bad returns in a down year).

Hopefully that’s helpful. But it really is not a tough call if you understand the math and the benefits being offered to you. (For example, you will still pay taxes on earnings with whatever services this professional is offering).
Thank you! This is very help, much apprecaite. It gave me confidence I needed to help make my the decision with a bit less trepidation.

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nealric

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Re: Personal Finance 101 for Young Lawyers

Post by nealric » Thu Mar 10, 2022 7:20 am

Anonymous User wrote:
Sat Feb 19, 2022 6:19 pm
clarion wrote:
Sat Feb 19, 2022 1:41 am
Anonymous User wrote:
Fri Feb 18, 2022 4:51 pm
Anonymous User wrote:
Fri Feb 18, 2022 1:47 pm
Anonymous User wrote:
Thu Feb 17, 2022 10:20 pm
Need to decide what to do with my bonus plus some savings (in total, $200k). Is there any wisdom in putting some of it in a managed ETF or some other type of index fund with a higher expense ratio for tax-harvesting reasons?

My initial thought was to dump it all into VT or VOO, in the good old-fashioned "Set it and Forget It" strategy because I won't need this money any time soon and have savings to cover emergencies. However, I talked to a guy at Fidelity who did note that, given my tax bracket (I'm a 5th year now), people in this salary range lose a LOT, ultimately, in ETFs due to tax reasons. So, even though the managed index funds have a higher cost or expense ratio, they employ tax-savings strategies that net out better than a more passive ETF with a low cost.

Is there any wisdom in that, or is he tryna sell me somethin?
He’s trying to sell you something.
Would you mind expanding a bit, please? Isn't it true that we get taxed at like 20% for dividends for ETFs, which can be avoided in a more managed account, thereby offsetting the higher expense ratio of the managed accounts?
He’s trying to sell you something. I think you have to take a step back. Do you “know” that it will offset the higher ER? Or is that just what someone is telling you? High fees can cannibalize your returns as they “compound” just like your returns do, and they don’t care if your portfolio is up 30% or down 50%. Taxes can be offset in a number of ways outside tax loss harvesting. But those returns lost to fees are gone.

Thanks, appreciate this input.

I guess the problem is, I don't know what these other means of offsetting taxes are. The guy kept telling me that as a high-earning lawyer, at the end of the day my taxes will be very high and that they will cut into any gains to be made in ETFs in a big way, and that professionals can help mitigate this.

Also, don't taxes "cannibalize" returns and "compound" in the same sense that fees do?

If a professional can help with that, AND help with guiding a portfolio through the particularly rough and volatile markets we're seeing these days, I'd have thought this would be more of a "tough call" than people on TLS make it appear to be, unless I'm missing something...
Investment salespeople like to make investment tax planning sound like rocket science. This is often so they can sell tax advantaged products that also come with very good commissions and high fees to you that typically offset the tax benefits (whole/variable life insurance policies come to mind). Tax planning for investors like yourself should be pretty straightforward:

1) Max out ALL available tax advantaged space first. 401k, Backdoor Roth (megabackdoor if available), HSA, 529s (if applicable). You may have six figures of that space available to you in total.

2) Once you are in a taxable account, regular index funds/ETFs like VTI (vanguard total market) and VOO (vanguard S&P 500) are really all you need. If you have a tranche (or series of tranches) that drop significantly in value, then it's time to tax loss harvest. You can sell a tranche of VTI and immediately buy VOO (or vise versa), which gives you a tax loss without a substantial change in economics. That allows you to shelter a small amount of ordinary income, and also allows you to sell some appreciated equities tax free at a later date. Just be mindful of wash sales (don't purchase more VTI within the wash sale window after swapping it for VOO).

There are tax managed funds out there as well, but I'm not convinced in the value add over just vanilla VTI/VOO with tax loss harvesting. They tend to be higher fee and/or depart from the index in ways I'm not convinced result in a net positive, even for high income professionals with a lot of ordinary income.

iar

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Re: Personal Finance 101 for Young Lawyers

Post by iar » Tue Mar 22, 2022 4:53 pm

Would really appreciate some advice on how best to move forward, because I just don't know what order to do things in.

- HCOL area
- SA coming up @ market, but salary will probably come down to 25k after withholding. Intend to return to this firm.
- ~40k in high yield savings account
-Will have ~70k in fed loans on graduation
~No retirement (for me) or investment accounts (either of us)
~SO earns mid-100s, has 401k, and 15k in federal loans

Our primary goal is to eventually buy a house (we're in our 30s). I don't know what I should be doing, and in what order, to get us there. Should I be paying off our student debt when the 0% interest ends? Should I spend some of my SA salary on school so I graduate with 50-60k? And where should we put savings for a downpayment? (given that we're still probably 3-5 years off) Sorry for all the questions, I'm totally lost.

Seriously? What are you waiting for?

Now there's a charge.
Just kidding ... it's still FREE!


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