Episode 69: Interest Rates Are Rising....Does That Mean You Should Adjust Your Bond Allocation?

Episode #51: Non-Qualified Stock Option Basics


 

Non-qualified stock options are a great way to incentivize and reward employees and the management of publicly traded companies. We dedicated today’s episode to exploring the basics of non-qualified stock options. Throughout the episode, Grant reviews how non-qualified stock options work, tax implications, and a few things to keep in mind if you have been granted some non-qualified stock options. Stay tuned until the end of the episode, where Grant talks about some tax planning opportunities that could help you minimize the amount of tax you have to pay in the long run.

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Episode 69: Interest Rates Are Rising....Does That Mean You Should Adjust Your Bond Allocation?

Episode #50: My Best & Worst Trades Ever


 

Over the last few months, we have received numerous questions from our listeners that have focused on what Grant is doing personally with his finances. In today’s episode, Grant shares two stories about his best trade and worst trade ever. He dives into why he made these investment decisions and what caused the very different outcomes of the two trades. Stay tuned until the end of the episode, where Grant shares his take on what he learned from these two trades.

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How & Why Asset Classes Compete With Each Other

How & Why Asset Classes Compete With Each Other

Diversification is one of the first things most people learn about investing.  The phrase “don’t put all your eggs in one basket” probably sounds familiar.

At its core, diversification means that when we build a portfolio we want to dump in a bunch of different investments with different risk profiles.  That way they’re not all likely to fall in value at the same time.  They work “together” to reduce risk.

Think of it like baking a cake.  Dumping a bunch of flour in a cake pan and tossing it in the oven probably won’t turn out very good.  But when you add sugar, milk, and eggs in the proper ratio, you’re a lot more likely to get a desirable result.

Typically, investors accomplish this by investing in two primary assets classes: stocks and bonds.  Stocks and bonds are very different animals, which is really the whole point.  In most circumstances one goes up when the other tends to go down, and vice versa.

There’s an interesting phenomenon that’s often overlooked when we view our investments this way though.  While we like to think that stocks and bonds “work together” to reduce risk, they actually compete against each other in the capital markets.  This behavior is a major reason we’ve seen such strong equity returns over the last few years, and will likely help to explain what kind of returns we see over the next 5-10 years & beyond.

This post will dive into this concept, what’s currently driving stock prices, and what’s likely to happen next.

Checking In On Market Valuations

Long term real S&P Composite price index vs. earnings. Source: Robert Shiller’s Online Database: http://www.econ.yale.edu/~shiller/data.htm

 

Checking In On Market Valuations

Long term CAPE vs. long term U.S. interest rates. Source: Robert Shiller’s Online Database: http://www.econ.yale.edu/~shiller/data.htm

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Episode 69: Interest Rates Are Rising....Does That Mean You Should Adjust Your Bond Allocation?

Episode #49: How to Make Millions While Paying $0 In Federal Income Tax

A few weeks ago, The New York Times published an article that created controversy around President Trump’s tax returns. One of the most controversial claims of this article was that President Trump paid only $750 in federal income tax in the year that he won the election. In today’s episode, Grant dives into specific sections of the tax code that enabled President Trump to reduce his tax bill and how you can incorporate similar strategies in your tax planning.

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Episode 48: The Three Golden Rules of Investing

Episode #48: The Three Golden Rules of Investing


 

Many of the investing principles we use in our portfolios today are related to a concept called modern portfolio theory. This concept was first introduced by Nobel Laureate Harry Markowitz in a paper written in 1952. In today’s episode, Grant dives into the history of modern portfolio theory, the benefits of implementing this concept, three golden rules we can derive from the modern portfolio theory, and how you can implement these three rules in your portfolio.

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Market Update Q4 2020

Market Update: Q3 2020

With the election right around the corner, Q3 was another hot quarter for global capital markets.  U.S. stocks appreciated considerably, and the bond market’s outlook for the economy improved as the yield curve steepened.  At the moment it seems like the markets are expecting another round of stimulus sometime soon.  Rumors of different packages have swirled around both sides of the aisle over the last three months.  As I write this, there appears to be a strong possibility that a bill is passed by the election.  If that doesn’t happen, we may be in for the volatility so many investors are expecting in early November.

This is an odd time, an odd year, and it’s hard to believe that stocks and bonds are both in positive territory after everything that’s happened.  But here we are.  Now is a good time to remind ourselves of a few core investment principles:

  • Diversification is your friend.  Both globally and across different asset classes.
  • Create a long term plan you can stick to.
  • Stick to that plan no matter what.

Easy enough, right?  Here’s this quarter’s market summary.

Q3 Market Update

Q3 Market Update

Q3 Market Update

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Episode 48: The Three Golden Rules of Investing

Episode #47: Mailbag! What Grant is Doing With His Kids’ 529 Plans, Spousal vs. Survivor Social Security Benefits, and Whether Value is Dead

This week on the Grow Money Business podcast we have another mailbag episode. Grant covers four questions from our listeners about Social Security benefits, the future of value investing, distribution strategies for retirement, and saving for your kids’ higher education.

If you have more questions you’d like us to cover, visit growmoneybusiness.com, and drop your questions in the Mailbag section. Grant will answer your questions in a future episode.

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How are Incentive Stock Options (ISOs) Taxed?

How Are Incentive Stock Options Taxed?

Incentive stock options are a wonderful benefit to receive.  They’re often granted to executives of publicly traded companies and early stage employees of startups, in an effort to align their interests more closely with shareholders.  They’re also more complicated than their close cousins, non-qualified stock options thanks to certain tax advantages.  The timing of when your shares vest, when you exercise, and when & whether you sell the resulting shares determine how your options are taxed & whether these advantages will apply.  This post will cover the basics of incentive stock options, how they’re taxed, and a few points to consider if you’ve been granted them.

 

The Basics of Incentive Stock Options

Stock options give holders the right to buy or sell a certain security at a certain price for a certain period of time.  You can buy and sell stock options on thousands of publicly traded stocks through a typical brokerage account.  Incentive stock options are the same basic contract, where you’re given the right to buy a certain number of shares of your company for a specific dollar amount.  Here are a few basic terms you’ll need to know.

Strike Price: This is the price at which you have the right to purchase shares.  This is often discounted from the current market price.

Fair Market Value: Fair market value (FMV) reflects the value of a company’s shares at any given time.  This is easy to ascertain for large, publicly traded companies since their equity value is constantly being traded over exchanges.  FMV for a given day is simply the average of the high and low selling prices on a particular trading day.  For privately held businesses, FMV is typically determined by a formal appraisal or business valuation.

Vesting: Vesting is the concept of your options becoming “active”.  Often companies will issue stock options that vest over time.  This incentivizes employees to stick around and continue building the value of the company.  A common vesting schedule might be 25% over four years.  This means that if you’re issued 1,000 options, 250 will be available for you to exercise one year after the grant date.  Another 250 would vest after two years, and so on.  Another common schedule for ISOs is a three year cliff, where none of the options vest for the first three years.  Then when the three year date arrives, 100% vest.

Grant Date: This is the date the company gives you the options initially.  Vesting “clocks” start ticking on the grant date.

Expiration Date: This is the date the options expire.  Note that sometimes expiration is triggered upon resignation or termination of employment.  Usually you’ll have 90 days after leaving to exercise your options, but this isn’t always the case.

Bargain Element: The difference between the fair market value of the shares and your strike price is the bargain element.

Qualifying Disposition: If you sell ISO shares at least two years after the grant date and one year after exercising, it’s considered a qualifying disposition.  This comes with favorable tax advantages.

Disqualifying Disposition: Any sales of ISO shares that are not considered qualifying dispositions are considered disqualifying dispositions.  Disqualifying dispositions are taxed differently.

 

Example:

Let’s say that your employer gave you 1,000 incentive stock options three years ago that just vested.  The strike price (exercise price) is $10, and equity shares of your company currently trade over an exchange at $25.  The bargain element works out to $15 per share: $25 – $10.  Even though shares of your company might cost $25 on the open market, your ISOs give you the right to buy them for $10.  If you exercised your options and hung onto them for one year, you could then sell the shares in a qualifying disposition.  Exercising and immediately selling would be considered a disqualifying disposition.

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How Are Non-Qualified Stock Options (NSOs) Taxed?

How Are Non-Qualified Stock Options (NSOs) Taxed?

Non-qualified stock options (NSOs) are a very popular way to compensate employees at publicly traded companies, and a wonderful benefit to receive.  But the tax consequences, and how to handle them, can be confusing.

How you handle an NSO grant should depend on your personal financial situation: your objectives, your tax situation, your cash needs, the rest of your portfolio, etc.  Managing your NSOs thoughtfully can lead to a huge tax savings over time.  Managing them haphazardly can lead to an unwanted (and unneeded) bill to the IRS.

This post will cover how NSOs are taxed, and a few questions you should ask yourself before deciding how to handle them.

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Episode 48: The Three Golden Rules of Investing

Grow Money Business Episode #45: Emotions & Money Messaging With Mariah Hudler

Hi everyone –

As you may know, I launched a podcast last December called Grow Money Business.  Thus far we’ve been hosting the episodes on Libsyn, and posting them each week to growmoneybusiness.com.

This week we’re starting something new.  Rather than posting new episodes to growmoneybusiness.com only, I’m going to start posting them here as well.  If you’re hearing about the podcast for the first time, you can check out the first 44 episodes on growmoneybusiness.com if you’re interested.

Enjoy!

 

In today's episode we have another distinguished guest: Mariah Hudler. Mariah is a financial therapist who helps people build balanced, comfortable relationships with money. Throughout this episode, Mariah shares her wisdom about what contributes to our attitude toward financial matters, how our backgrounds impact our financial decision making, and what you can do to improve your relationship with money. Stay tuned until the end of the episode, where we talk about some valuable tips for reducing financial stress.

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