GMB Ep #94: 4 Tactics for Reducing Capital Gains Taxes on Appreciated Assets

 

Following the financial crisis of 2009, we entered one of the longest running bull markets in history. During this time, the Federal Reserve has injected a massive amount of US dollars into the monetary system, which has driven up the value of capital assets across the board. If you’re someone who holds equities or other assets at a substantial gain, you might be hesitant to sell them because of tax concerns. In today’s episode, Grant dives into four strategies you can use for exposure to appreciated assets and/or taxation when selling at a gain.

 

 

Show Notes

[02:29] Concentration and Risk – Why it’s risky to hold on to assets for too long and why it can be beneficial to repurpose your assets at the right time.

[07:57] Exchange Fund – Exchange funds can be used to diversify your holdings without triggering a taxable event. Grant shares his thoughts on the pros and cons of this method.

[13:28] Options – How to use stock options to reduce the risk of losing the value of your holdings during price fluctuations.

[20:05] Donor-advised Funds – Grant explores how donor-advised funds work and how investors can get tax benefits while contributing to charity.

[28:58] Charitable Remainder Trust – How charitable remainder trusts work, how they differ from donor-advised funds, and how to get started with them.

[34:38] Family & Insurance –Grant shares some ways you can reinvest the benefits of a charitable remainder trust to avoid financial stress within your family.

 

Resources

Donor-Advised Funds:
irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds

Convert Appreciated Assets into Income with a Charitable Remainder Trust:
schwabcharitable.org/maximize-your-impact/develop-a-giving-strategy/align-your-giving-vehicles/charitable-remainder-trust

GMB Ep #93: Managing Student Loans When You’re Over 50 With Erik Kroll

 

Having outstanding student loans at the age of 50 versus earlier in your career will have a very different impact on your financial status. In today’s episode, we have a distinguished guest who specializes in helping people over the age of 50 to repay their student loans. Erik Kroll, Certified Financial Planner® and the owner of studentloansover50.com joins us to explain different strategies to manage your student loans, as well as how that approach changes with time. 

 

 

Show Notes

[02:02] Student Loans Over 50 – We start the conversation with a brief review of Erik’s background, the work he’s doing as a financial planner, and what lead him into specializing in student loans. 

[04:45] Age and Student Loans – The differences between having student loans as a fresh graduate versus having student loans at the age of 50 and how our life priorities in come into play. 

[08:28] Forgiveness – Erik dives into important considerations for student loan forgiveness, including different options, qualification criteria, and taxation. 

[15:12] Accumulating Debt – Common patterns for individuals over 50 with student loans, including Parent Plus loans, post-graduate education, and career changes. 

[22:03] Double Consolidation – Erik explains the process of utilizing consolidation and other strategies to reduce monthly loan payments. 

[29:10] Rehabilitation – The path to rehabilitation and qualifying for forgiveness after your loans have gone to debt collection. 

[34:18] Student Loans Over 50 Playbook – Erik shares his thoughts on what led him to create his eBook and what readers can learn from it. 

[37:11] Recent Developments – Erik shares his take on some of President Joe Biden’s recently proposed loan forgiveness provisions. 

[41:07] Private Loans – The pros and cons to a private refinance, and important things to consider when making this decision. 

 

Resources

Connect with Erik:

LinkedIn: linkedin.com/in/erikkroll
Website & Ebook: studentloansover50.com

Past episodes on Student Loans: 

Episode #34: Why College Is So Expensive & How to Pay For It With Robert Farrington
growmoneybusiness.com/podcast/why-college-is-so-expensive-with-robert-farrington

Episode #90: This is Exactly What to Do With Your Student Loans
growmoneybusiness.com/podcast/this-is-exactly-what-to-do-with-your-student-loans

GMB Ep #92: Money Funds & Where to Park Your Emergency Cash

 

You are probably already familiar with the concept of reserving an emergency fund for unexpected expenses.  You may even already have one in place.  However, deciding how much to reserve or where to keep this money can be tricky.  We dedicated this episode to exploring why you should maintain an emergency fund, how to determine how large yours should be, and a few different savings options that can be safe & accessible, while still giving you the greatest possible returns.

 

 

Show Notes

[02:09] Managing Emergency Cash – Why it’s crucial for everyone to set aside some emergency funds and the importance of keeping your cash in the right place.

[05:23] How Much to Save – Grant shares a method of estimating how much you should save as an emergency fund based on your income, expenses, and risk tolerance.

[08:31] Too Much in Cash – Why it’s a better idea to have your emergency savings as investments and the ideal investment method for your funds.

[12:17] CD Ladder & High Yield Savings – Grant explains how using multiple Certificates of Deposits and high yield savings accounts can help you make the most out of your emergency cash.

[16:36] Money Market Mutual Funds – How money market mutual funds work, how they’re different from money market savings accounts, and some of the recent reforms related to money market mutual funds.

[24:14] Types of Money Market Funds – How the reforms led to the creation of two types of money market funds, the differences between the two types, and what you should keep in mind about parking your emergency cash in a money market fund.

[28:24] Government Funds – The feasibility of putting your emergency cash in government funds and the benefits of utilizing multiple methods of investments.

 

Resources

Money-Market Funds Buckled in Two Crises in a Row. Regulators Look to Fix Them Again:
wsj.com/articles/money-market-funds-buckled-in-two-crises-in-a-row-regulators-look-to-fix-them-again-11626687001

Firms Wary as Money-Market Rule Changes Studied After Covid-19 Run:
wsj.com/articles/firms-wary-as-money-market-rule-changes-studied-after-covid-19-run-11630056602

GMB Ep #91: Why Mutual Fund Managers Are Converting to ETFs

 

One of the trends we’ve been recently observing is the tendency of mutual fund managers to convert their fund structure to Exchange-Traded Funds. Throughout this episode, Grant reviews the structures of mutual funds and ETFs, what makes them different from each other, the reasons why it makes sense for mutual fund managers to switch to ETFs, and what investors should keep in mind about mutual funds being converted to ETFs.

 

 

Show Notes

[01:43] Mutual Funds – Grant reviews how mutual funds are structured and how the mutual fund managers use funds from a group of investors to generate greater returns than what individual investors have the capacity to generate on their own.

[08:42] Limitations – Limitation of mutual funds and how these limitations may create unfavorable situations for mutual fund managers in some scenarios.

[13:50] Understanding ETFs – What led to the creation of Exchange-traded Funds, how they work, and the difference between mutual funds and ETFs.

[21:51] Benefits – Grant dives into the attractive characteristics and tax benefits of exchange-traded funds.

[25:00] Popularity of ETFs – Grant shares his thoughts on how ETFs became popular in the last decade and the trend of some mutual funds being converted to ETFs.

[30:00] Why Investors Should Care – How this trend of mutual fund managers converting their structure to ETFs affects the investors in terms of expenses, taxation, benefits, and what to do if their mutual funds are being converted.

 

Resources

Investor Bulletin: Mutual Fund Conversion to Exchange-Traded Fund (ETF):
investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/mutual-fund-conversion-exchange-traded-fund

Making the Switch: Turning a Mutual Fund into an Exchange-Traded Fund:
bbh.com/us/en/insights/investor-services-insights/making-the-switch-turning-a-mutual-fund-into-an-exchangetraded.html

GMB Ep #90: This is Exactly What to Do With Your Student Loans

 

With roughly 44 million borrowers that collectively owe nearly $1.7 trillion, student loans, the second-highest consumer debt category, has become something that’s pervasive for young people in the United States. We dedicated this episode to exploring some of the ways borrowers can make their student loan repayment manageable. Throughout the episode, Grant dives into how the interest rates and other characteristics vary depending on the lender, repayment options, income-based repayment, federal student loan forgiveness, and more. Stay tuned until the end of the episode, where Grant shares some strategies to reduce your monthly payments by suppressing your adjusted gross income.

 

 

Show Notes

[01:43] Background – The pervasive nature of the U.S. student loan programs and why they have become pervasive.

[05:10] Who Lent You the Money – Grant explains how the interest rates and repayment options may vary depending on the institution that is underwriting a student loan.

[07:38] Repayment & Refinancing – Once students have graduated and their forbearance period has finished, it’s time to paying back the student loans. Grant explores some of the options available for students at this point and how to decide whether to refinance with a private lender.

[10:19] Staying in the Federal System – Although it might make sense in some cases to refinance with a private lender, staying in the federal system has its own benefits. We talk about what these benefits are and how students can take advantage of staying in the federal system.

[13:07] Income-based Repayment – How the income-based repayment programs work, requirements for eligibility, and how they help people make their monthly payments manageable.

[18:13] Forgiveness – One of the features in income based-repayment is being able to get your debt forgiven after a certain number of years. Grant dives deep into how debt forgiveness works, how taxation comes into play at the point when the debt is forgiven, and what to consider when deciding whether to pursue forgiveness.

[22:32] Administrative Forbearance – As a part of the stimulus package introduced under the CARES Act, an additional forbearance period was introduced for student loans. Grant shares his thoughts on how to take this into consideration when making decisions about student loan repayment.

[27:15] Strategy for the Federal System – Grant shares some strategies for those who are in the federal system to make loan payments manageable by suppressing their adjusted gross income.

 

Resources

Episode #34: Why College Is So Expensive & How to Pay For It With Robert Farrington:

https://podcasts.google.com/feed/aHR0cHM6Ly9ncm93bW9

Market Review: Q3 2021

Market Update: Q3 2021

Even though the delta variant has many areas reconsidering reopening & masking protocol, the world’s economic rebound is in full force.  The U.S. economy added 943,000 jobs in July, unemployment fell to 5.4% from 5.9%, and global earnings estimates continue being revised upward.  These are all positive themes.

The underlying theme giving some investors pause is inflation.  Monthly inflation numbers have continued to lurch upward, despite the Federal Reserve’s insistency that it’s “transitory”.

Will prices continue higher?  They could.  We just passed a $3.5 trillion bill immediately after a $1 trillion infrastructure bill.  This type of fiscal policy injects a whole lot of dollars into and through the banking system that we’ll have to borrow to finance.  With more dollars chasing the same amount of goods and services available, prices tend to get pushed up.

But then again, many of the price increases we’ve seen recently are supply chain oriented.  Computer chip shortages have driven up used car prices.  Lumber costs are still high as there’s simply not enough available to supply the glut of home improvement projects.  The common thread here is that factories and manufacturing facilities are still crawling back to full capacity.  Many workers used the pandemic as an opportunity to change careers or jobs.  Some decided not to go back to work at all.  So while prices of the goods & services we all enjoy do continue to march higher, the real question will be what happens once capacity is truly back at full strength.

Here’s this quarter’s market review.

 

Market Review: Q3 2021
Market Review: Q3 2021

Market Review: Q3 2021

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GMB Ep #89: Investing Myths #4 – U.S. Multinationals Provide Enough International Exposure

 

This week on the podcast, we’re continuing our mini-series dedicated to debunking popular misconceptions around investing by exploring the truth about whether U.S. multinational securities provide enough international exposure for your portfolio. Throughout today’s episode, we dive deep into why international exposure benefits investors, how the differences of key aspects between the U.S economy and other countries influence the returns of an investment, methods of accurately evaluating the potential of foreign investments, and how you can avoid some of the biases that negatively affect our financial decision making.

 

 

Show Notes

[2:50] Diversification – Why people feel that they have ample diversification in their portfolios and what they’re missing out on by only investing in U.S. corporations.

[04:00] U.S. Economy vs. Other Countries – Grant reviews some key aspects of world economies that make some other countries, such as China, grow rapidly in comparison to the United States.

[9:40] P/E Ratio – Grant explains what the P/E ratio is, how you can use cyclically-adjusted P/E ratio to assess the potential returns of stocks, and why it’s better than just looking at the historical performance of stocks.

[16:14] Correlations – Securities markets have some trends and behaviors that show correlations between U.S securities and foreign securities. Grant talks about why investors should invest in international securities despite these correlations.

[21:05] Diversification of Currency – Why investing in companies that do business transactions in a diverse selection of currencies can be beneficial to investors in the long term.

[22:52] Dealing with Biases – How certain psychological characteristics of the human brain can get in the way of making savvy investment decisions and how to avoid these traps.

 

Resources

Morningstar: Does International-Stock Diversification Still Work?
morningstar.com/articles/1034112/does-international-stock-diversification-still-work

Hartford Funds Chart on the Performance of International Stocks:
hartfordfunds.com/dam/en/docs/pub/whitepapers/CCWP014.pdf

The Wall Street Journal – Why It Might Be Time to Invest in Non-U.S. Stocks:
wsj.com/articles/why-it-might-be-time-to-invest-in-non-u-s-stocks-11596900477

GMB Ep #88: How Securities Lending Drives Down Investment Costs

 

Securities lending is one of the widely misunderstood concepts in the investment community, and securities lending shows up intermittently in the news for both positive and negative reasons. However, this complex trading pattern driven by short selling can drive down costs for the investors. In today’s episode, Grant dives deep into how securities lending works, the different parties involved in it and their roles, how investors participate in securities lending, and how it impacts the performance and costs of ETFs and mutual funds.

 

 

Show Notes

[02:40] Understanding Securities Lending – How securities lending works, how it relates to investment funds that many people put their money in, and how it generates revenue for brokerage firms.

[07:13] Trading Settlement – The process of trading securities is a bit more complex than it looks from the outside. Grant reviews how trade settlements work and how securities lending comes into play.

[12:50] Short-Squeeze – How unexpected fluctuations in stock price can cause investors to lose money in certain scenarios.

[13:47] Driven by Short Selling – Grant reviews how securities lending transactions between several parties create a complex ecosystem that facilitates short selling and how the demand for securities lending is driven by short selling.

[16:23] Supply and Demand – How brokerage firms can make money through securities lending depending on the demand for shares.

[19:10] Sources of Supply – Grant explains the sources brokerage firms use to get the securities they lend to other parties and how investors can make money by lending securities to brokerage firms in some scenarios.

[21:40] ETFs and Mutual Funds – How ETFs and mutual funds are involved in securities lending as another source of supply and how it benefits investors by reducing expenses.

[27:20] Facilitating Short Selling – A common argument about securities lending is that you may not want your shares to be lent out because you don’t want to facilitate short selling in a company that you own. Grant shares his take on the relevance of this idea.

 

Resources

My Take On Short Selling: www.abovethecanopy.us/my-take-on-short-selling/

GMB Ep #87: Top 10 List: Behavior Biases Impacting Your Investing

In today’s episode we’re diving into ten behavioral biases that negatively impact your investment decision-making. Throughout the episode, we explore the psychological background of these ten behaviors, how they get in the way of sound investment decision-making, and how you can be conscious about your financial decisions so that you won’t make mistakes because of them.

 

 

Show Notes

[3:10] Oversimplification – Grant explains what happens when our brains are overwhelmed and are trying to process information in the most efficient way by oversimplifying complex scenarios in an attempt to break them down into bite-sized pieces, ultimately leading to poor investment decisions.

[6:15] Restraint – When we come across an opportunity that we think is beneficial to us, it’s very hard to show restraint. The problem that gets in the way of our sound investment decision-making is our overestimation of our ability to show restraint. Grant explains how this practically affected the cryptocurrency market.

[8:53] Familiarity – People naturally trend toward investments that they know and are familiar with. Grant dives into how this can negatively affect your investments and how to avoid falling into this trap.

[11:20] Incentive Bias – How some of the systemic features in our financial systems, in some cases, lead people to make poor decisions and how the general public can identify these incentives that could potentially lead them toward poor investment decisions.

[14:40] Self Attribution Bias – Grant dives into one of the behaviors in which our egos play a major role. He explains how this behavior is largely visible among day traders and how to be aware of this trait of human brains.

[18:05] Information Bias – Picking reliable data is crucial for making savvy investment decisions. For instance, not being able to grasp the difference between correlation and causation can lead to disastrous investment decisions. We talk about why we need to be vigilant about the information we consume.

[20:55] Groupthink – Since humans naturally like to be in groups, it can be extremely uncomfortable to make a decision that severely deviates from what everyone else is doing. In investments, succeeding in some scenarios may require exactly that. Grant explains how we can grow beyond the herd mentality while being open to new ideas to make savvy investment decisions.

[24:30] Anchoring Bias – When we take time and energy to research something and come to a decision, we like to be anchored on that decision, making us less open to ideas that are contrary to our decision. This tendency to remain anchored on our original decision is something that simply gets in the way of making sound decisions.

[26:50] Loss Aversion – The losses in our investment accounts feel worse than the gains feel good. And because of that, people make investment decisions very commonly, in an attempt to avoid the losses, without appreciating the opportunity for potential gains in the same manner. Grant explains why you should try to avoid this behavior in your decision-making.

[28:40] Confirmation Bias – How our minds tend to cherry-pick certain information in an attempt to process information efficiently, how it affects our investment decisions and how to avoid making mistakes that occur due to confirmation bias.

Resources

Investing Myths #3: You Need To Keep Up With the Financial News: growmoneybusiness.com/podcast/ptkre5734rgwc

GMB Ep #86: Buying the Building Your Business Will Operate In With Justin Smith

Commercial real estate is something many investors seem to be interested in both as an asset class as well as a place for operating their businesses. Justin Smith, a broker, industrial advisor, and author, joins us today to talk about investing in commercial real estate. Throughout today’s episode, we explore what investing in commercial real estate is like as an asset class and what business owners who are considering buying buildings for their own businesses need to consider prior to day one and from day one to the day that the business no longer occupies the building. Stay tuned until the end of the episode, where Justin shares some strategies that help real estate investors with taxation.

 

 

Show Notes

[2:50] Justin’s Background – Justin has been working at Lee and Associates for 17 years, focusing primarily on industrial property. We talk about how Justin got into the real estate industry and what he learned through his long career.

[9:40] Buying a Building – Justin explains where to start if you’re looking for a building to buy and how the process differs according to the type of business, type of property, and whether it’s a lease or ownership.

[20:05] Transition From Tenant to Owner – Switching roles from the tenant to owner often calls for some construction work. Justin explains what potential property owners should know about working with contractors and other parties and maintaining compliance.

[26:55] Selling the Current Building and Purchasing the Next – What business owners need to think about when selling their current building to move to another and how their options differ based on liquidity, capacity, and capital.

[34:41] Potential Property – What makes a potential property or building an attractive investment in a portfolio, and what to look for in a potential real estate investment in terms of its cash flow.

[42:45] 1031 Exchange – Justin shares his thoughts on the future of the 1031 exchange, which gives business owners an option to avoid paying capital gains taxes when selling a property and reinvesting in similar properties.

[46:30] Tips for Pure Investors – Justin shares some tax strategies for people who are looking at real estate as a pure investment.

[49:00] Industrial Intelligence – Justin’s book, Industrial Intelligence: The Executive’s Guide for Making Informed Commercial Real Estate Decisions, came out last April. We talk about what he covers in the book and how it helps investors make smarter decisions for real estate investments.

Resources

Industrial Intelligence: The Executive’s Guide for Making Informed Commercial Real Estate Decisions: amazon.com/Industrial-Intelligence-Executives-Commercial-Decisions

Connect with Justin Smith

LinkedIn: linkedin.com/in/justinbsmith

Website: smithcre.com