Your Unbiased Advisor: Buffett is your unbiased advisor

Raid your 401k?

How long would it take you to replace the growth of that $100,000 from your 401k?

You can now take out up to $100,000 from your retirement account without paying a penalty. Savers under age 59½ would be able to tap their 401(k) and 403(b) money without the usual 10% early withdrawal penalty. Taxes would still be payable. Since most of us don’t have that much, (the average IRA balance was $98,900, reports Fidelity. For 401(k)s, (the average balance was $91,400), let’s talk about $25,000 withdrawal. You might not owe any income taxes on that money since your income for the year may be low. However, unemployment benefits are still taxable. Given that HALF of us have less than $91,400—the average—it may not be smart to raid our future retirement income no matter the need today. However, if we did, it may take just as long to replace it. When we get back to making contributions, hopefully our employer will restart their matching program. How long will it take to make up the $25,000 let alone the future retirement income level? Remember, by taking out the $25,000 now, we are giving up the miracle of compounding too! That is the force that can double our money in 12 years depending on how we invest it. It will take us 10 years of investing $167 a month in stocks to re-coop the $25,000. During that time, we give up amassing $55,000 from the original $25,000 with compounding at 10% growth. Long and short, it will take more monthly savings and another 10 years to recreate the retirement fund we could have had.

Don’t give up compounding power: https://www.amazon.com/Miracle-Compounding-Turn-day-into/dp/1470176513

Re-balance your retirement fund or not?

Wall Street has this thing about rebalancing your investments—advocates have long earned extra pay by telling clients they must do this. However, all the studies done by less biased analysts say no; don’t do it. Why? We just witnessed the most important reason: stocks go down and correct the stock/bond balance automatically over time. Of course if an analyst picks certain dates to study, the opposite answer is proved. What this kind of “proof” also forgets is that the costs of trading and taxes are not included. Over time, trading costs can take up to 60% of your total possible accumulation. Vanguard found sometimes rebalancing outperforms a drifting portfolio, and sometimes it didn’t. When investors use the short-term and long-term buckets concept, they are more likely to let their stocks rise and fall with the market and thus achieve the long-term market return of 11%. Rebalancing seems to work if you know how the market will perform in the future. Both practical and academic evidence shows that it is almost impossible to predict future market conditions consistently. This is the same reason, 95% of active traders fail to beat the market index over a 15-year period. Buy and hold securities in tax-FREE account.

Go with Vanguard’s Top Ten: https://www.amazon.com/Vanguards-Top-Ten-mutual-funds/dp/150073909X

The unbiased investor advice

Warren Buffett does not need you to invest in his fund so he is probably the ONE advisor to listen to. “And in my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there’s more money in it for them if they do. And I’m not saying that that’s a conscious act on their part. Most good salespeople believe their own baloney. I mean, that’s part of being a good salesperson. And I’m sure I’ve done plenty of that in my life too, but it’s very human if you keep repeating something often enough.” But Buffett still advises us to invest in index funds. If we have card debt, pay off debt is a sure thing: “I don’t know how to make 18%.” I mean, if I, owed any money at 18% the first thing I do with any money I had would be to pay it off. It’s going to be way better than any investment idea I’ve got.”

Best advice I ever got: https://www.amazon.com/Warren-Buffett-Your-Investment-Advisor/dp/1518690963

Wealthy get to deduct more: lower taxes

The wealthy with business property receive another tax break in the “CARES” law.

A provision of the CARES Act suspends, through 2020, the excess business loss limitation imposed by the Tax Cuts and Jobs Act (TCJA). This will allow increased deductions such as for real estate depreciation for non-corporate taxpayers. The wealthy business owner can now deduct ALL losses from income resulting in no income tax. Further their accountants can go back to 2018 and take all losses as deductions against income in an amended return. They can claim “bonus depreciation” too. “For 2020, business taxpayers may look to accelerate deductions that may cause excess business losses that they can use sooner rather than later.” America’s tax system is built by and for business. According to the Economic Policy Institute, between 1979 and 2018 worker productivity—how much value a worker produces in their job—increased by 70 percent, but hourly wages have only inched up by 11 percent. That difference increases wealth—not wages. Billionaires "do not rely on income for additional wealth," meaning their excess wealth, on its own, yields more returns on investment. Investment income is taxed at a lower level than wages.

Avoid paying their taxes: https://www.amazon.com/Trump-Tax-Shelter-Avoid-taxes/dp/1985448300

If you don’t have a business loss to reduce your taxes

You might not have a business that can shield you from higher income taxes! What is the next best thing? A tax-FREE account! Based on the assumption you want to earn over 9.5% on your retirement money with fewer years of a loss, your choice is the low-cost fund: Vanguard Wellesley Income Fund Investor Shares. As of May 5, your YTD return is down just 3% compared to the market: 500 Index Fund of -11.47%. Your fund owns stocks like Johnson & Johnson and quality bonds that hold value. The best way to avoid the future income tax increases needed to pay off the extra $3,000,000,000,000 debt is a legal tax-FREE account. This tax shelter is free of federal and state income taxes. And you do not have to hide your money in an illegal overseas tax haven either.

Avoid taxes legally: https://www.amazon.com/Tax-Advantaged-Wealth-mutual-funds-Tax-FREE/dp/1481215906

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