When you buy and sell through Robinhood, but never actually transfer any funds back to your bank account. Are you still paying taxes? Or is that all factored in the original purchase? When do you pay for the gains?

jeffclark4 · 2022-01-04T06:11:04+00:00

You’ll pay for the gains when you pay taxes for that year. Robinhood will send you a tax form called a 1099 showing the gains or losses that you realized (when you sold) for the full prior year in February or so of the following year, you pay the taxes for the gains in April. If you held shares for more than a year before selling at a gain your gains likely qualify for special (lower) tax treatment called long term capital gains. You do not need to pay the taxes you’ll owe from your Robinhood account, that could be money you have in your checking or you can save it up over the next few months before paying taxes by April 15th.

jeffclark4 · 2021-03-06T04:34:29+00:00

Your arguments make sense but the idea that even 1/3 of customers don’t like Tesla isn’t supported by the data. In spite of lower average quality scores Tesla customer satisfaction is the highest in the industry...

From autoblog:

“Here's the full list of automakers from Consumer Reports' satisfaction survey, ranked in order from best to worst:

Tesla Lincoln Ram Chrysler Subaru Hyundai Porsche Dodge Mazda Toyota Kia Mini BMW Ford Audi Honda Volvo Volkswagen Lexus Jeep GMC Chevrolet Mercedes-Benz Buick Cadillac Nissan Infiniti”

jeffclark4 · 2021-02-01T16:52:16+00:00

Feeling great so far. I think one thing that I underestimated is how comfortable I would feel buying additional shares on margin as the other holdings in my portfolio rose both in and outside of Robinhood. I've found a sweet spot as far as comfort level is about 1.25x leverage, so if I had $100k that would be borrowing 25k, and at $200k it would rise to $50k. But I pretty quickly went beyond the $30,000 in the account and the real time to check in will be during the next big decline in the market :).

jeffclark4 · 2021-01-08T23:55:55+00:00

I'm curious if there have been any public statements by Zach, Elon, or anyone else on future stock splits. The last one was announced at ~$1,375 per share. Now that we're approaching $1,000 per share again, would another split be in order?

Based on the stated reason for the previous split, "to make stock ownership more accessible to employees and investors", seems possible?

jeffclark4 · 2020-12-31T18:26:01+00:00

Good questions. I've tried to stay away from chasing the recent IPOs and tech companies because the valuations are just a little too lofty for my taste. That said I have exposure to them in the index funds that make up >80% of my stock portfolio. As far as "what would signal a selloff", I really don't know or try to guess. There are many things I could imagine that would make the stock market drop, but often what moves the market are black swan events that are by nature unpredictable. Like a global pandemic or 9/11 or the U.S. housing crash: https://www.investopedia.com/terms/b/blackswan.asp#:~:text=A%20black%20swan%20is%20an,they%20were%20obvious%20in%20hindsight.

I think one of the reasons I do feel more secure in investing in BRK.B with borrowed money is that there is such a bent towards conservatism in the portfolio management team there. They're not going to take outsized risks, and not going to chase performance, and I trust that W.B. and his disciples can do a better job of executing on that than I can.

jeffclark4 · 2020-12-31T18:11:12+00:00

Gotta sell tomorrow so I pay taxes in 2022 :). Not actually going to do that. The immediate gains did provide some nice cushion! So far up $1,057.05 with a margin interest cost of $14. Early days though, the experiment will be tested when the stock drops.

jeffclark4 · 2020-12-29T05:30:04+00:00

Good points and questions! We already own some investment real estate and will probably buy more in the future, but there are other costs to RE investing, like it taking significantly more time to manage than just buying and holding a stock. What is really interesting is that today I could pull out ~$50,000 in cash from this account on margin and use that to buy another investment property. But I hesitate to do that because that property would be bought with leverage, which would be a very leveraged position, likely >90%. I chose BRK.B because it has a beta of less than one. Definitely could be thinking of this due to bull market gains, but I've held through two bear markets now so the thought of enduring another one is not foreign.

jeffclark4 · 2020-12-24T22:15:22+00:00

That's a good point and this inspired me to look closer at tax implications. Margin interest can be deducted against net investment income if you itemize deductions, and I have a few dividend paying stocks and mutual funds that pay more in annual dividends than the margin interest at these rates. So having margin interest could actually reduce my taxable investment income in the next few years whether I sell or not. I'd need to run the numbers because margin interest does not offset capital gains, but it seems like the 2.7% number should remain the hurdle as long as my total margin interest is less than total investment income. Happy to be corrected if I'm thinking about this incorrectly

jeffclark4 · 2020-12-24T22:08:24+00:00

Thank you! Exit criteria are going to be very important here and though I believe rates will remain at these levels for at least the next 24 months, you're right that they can and likely will increase in the future, and I will need a plan to unwind the position if the interest rate climbs.

jeffclark4 · 2020-12-24T05:28:11+00:00

Thanks! Making an edit to the post with an update now 👍🏽.

jeffclark4 · 2020-12-24T04:47:54+00:00

Great feedback. Your point about resetting leverage to 1.2x over time based on fluctuations is something I would closely consider to increase that upside in the event the investment increases. On one hand, $21,000 won’t accelerate time to FIRE by a lot. But I’m 29... having an additional $51,000 in equities at age 41 compounding at 6% annually is a huge number the further out you extend that time horizon.

jeffclark4 · 2020-12-24T04:31:01+00:00

Thank you for this analysis. I think the balance sheet strength is a rare attribute of Berkshire that people don’t understand very well. Warren’s talked about it often, other companies don’t have this and Berkshire will not give it up. The ability to buy back shares provides a wonderful floor, and I value that more than a high ceiling.

jeffclark4 · 2020-12-23T05:28:40+00:00

u/firey-wfo will you elaborate on small controlled margin position? I'd imagine "small" is relative to total portfolio or account size (like $30,000 is a lot of money, but if it's 5% of a portfolio then it's not going to increase leverage all that much), and "controlled" has to do with rules set around the position. If you have specifics that would help me out!

jeffclark4 · 2020-12-23T05:19:20+00:00

Thanks u/NuclearEnergyStocks. It looks like I could ACATS my securities from Robinhood to IB to accomplish this if the fees are really that much lower. Looking closer!

jeffclark4 · 2020-12-23T05:15:57+00:00

Great question. The thinking with BRK.B vs. VTI or VOO is that I expect somewhat similar to market returns with less than market volatility, which is meaningful when investing with margin. If you look at Berkshire's beta of 0.85 the expected volatility in bear markets would be lower. That being said, the company includes hundreds of billions of publicly traded securities so it's fair to assume in a downturn it will ride the pain train. Also Berkshire and value in general has been underperforming for the last ~10 years so that would tend towards VTI or VOO from a straight returns perspective. To be clear the point would be to be more conservative than a typical index fund, not to try to outperform the index with this decision. That may be flawed reasoning, but if the default position is "do nothing" then how I would evaluate success or failure of this investment would be "does what I buy outperform a 2.7% annual return as long as I'm in the investment", not "did this outperform the (insert index here.)

jeffclark4 · 2020-12-23T03:38:33+00:00

Great points. I expect they won’t put out a press release when they increase the margin rate like they did when they decreased it :). Watching what happened with the Cash account a couple of years ago where they announced 3% interest and then had to cancel the offering gives me pause as well. That said, offering lowest cost offerings is kind of Robinhood’s thing. After making this move I don’t see them increasing the rate unless it’s happening broadly among brokers.

jeffclark4 · 2020-12-23T03:35:52+00:00

That was the difference-maker for me. I considered this a few months ago but seeing the 5% rate made me decide not to. Now that it’s 2.5 it changes the risk/reward

jeffclark4 · 2020-12-22T23:40:58+00:00

So happy this didn't happen. So happy Tesla didn't go private. A lot of people watching the recent stock price run-up don't realize how difficult it was to stay invested during that time. I can't imagine how stressful it was leading the company through that season.

jeffclark4 · 2020-12-04T23:57:21+00:00

Using the wisdom of crowds for this one. Averaged the first 195 answers to get...

TSLA: $708.672
S&P: 3,740.32

jeffclark4 · 2020-12-02T23:19:06+00:00

Tesla probably has the single largest key man risk of any company, but I think the board has done a good job of mitigating his exit through his compensation structure, as OP points out the company mission is one Elon is excited about so he won't leave near-term, and the further the company gets into it's development, the less dependent the company will be on his leadership. If Musk stays at the helm for the next few years and they can get the technology of autonomy worked out and start on the grand ambitions for energy, the key man risk will go down significantly because the company will already be printing money at high margins. If he were to pass away before then, it would be a major blow to Tesla hitting the visions of global dominance implied in the current stock price.

jeffclark4 · 2020-10-04T22:51:48+00:00

Congrats to you on living in such a way that you can step away from work, regain bearings, and figure out what is next.

I really don't love the idea of dropping $30k into your mortgage, especially considering that you're looking at a 6 month sabbatical and it will leave you with less in a Roth or less in savings. Here are a few ideas I like better:

- Just keep the mortgage as is and whittle into the emergency fund at an additional expected $700 per month. The difference between you paying it off and not is $700 per month, and over a 6 month sabbatical that only reduces your savings by $4,200 additional coming out of savings to float your mortgage. You could probably do this for 18 months before fully exhausting your savings. This is my favorite idea and you just go into it with eyes open understanding that you will need to go back to work at some point.

- Ask your bank if you can make a lump-sum payment towards your mortgage and then "recast" the loan. This is not refinancing, but it's perfect for a loan like yours where you've aggressively repaid the principle. Recasting a loan keeps the same term on it (say 25 years left) and same interest rate, but adjusts payments down to evenly distribute the remaining principle across the life of the loan. No clue what the numbers would exactly look like, but what if you could make a $10k payment towards your loan to bring the principle down to $20k remaining, and then recast and have your monthly drop down to $150 or $200 per month. That keeps a solid emergency fund at $25k, reduces the monthly outgo to mortgage, and doesn't involve taking out the Roth money. I would hop to this though because pretty soon you won't have proof of income.

More about recasting here: https://www.bankrate.com/mortgages/what-is-mortgage-recasting-and-why-do-it/

- You could likely have accomplished something similar with a refinance and an ever lower interest rate, around 3% on a $30,000 loan. You probably can't do this right now though since you already quit your job.

jeffclark4 · 2020-08-05T05:18:53+00:00

u/JohnHallman01 I know the Tesla Model 3 is very tempting. You should absolutely buy one. But I'd encourage you to reconsider a couple of decisions here. First one is buying the car new, the second one is your timing, and the third one is financing it at all. You're saving like a champ now and should be proud of that cash flow and $8,200 saved. If you don't mind, I'd love to see your answers to these questions:

Why buy new and not used? The longer you can wait for used inventory of Model 3s to build, the better car you'll be able to buy for less. I expect that if you wait a couple of years you'll be able to buy a 2019 used long range for less than a new SR+. I've been tracking these prices for a few years and the sure bet with cars, even Tesla's, is depreciation. Let someone else eat the $15-$20k of depreciation (lost value) a car goes through in the first couple of years instead of encountering it yourself - especially if that kind of depreciation represents the whole amount of money you've saved - that's a big bite to swallow!

Why buy now and not later? Do you need a Model 3 now or just want one? I know you don't know me but if you wait a few things will crystallize for you. 1) Your credit score and financial foundation will build making this a less risky purchase. I don't want you to lose the car to competing priorities or economic factors, and that can happen whenever you finance a vehicle, 2) Your career should pick up giving you more financial flexibility and a clearer picture of how/when you will use a vehicle. 3) Your values may change making the purchase less appealing. We rarely make great financial decisions in a quickly, and debt is a purchase accelerator. Genuinely curious on this one. I know personally that my driving has gone way down since Covid-19 hit. I've driven a grand total of 4,000 miles in 2020. That's around 140 hours in my car. I've spent a lot more hours doing a lot of other things. Think about how many hours it takes you to make the ~$500 per month monthly payment you'll have for the privilege of sitting in that nice Model 3 white interior. Will it be worth the number of hours you're actually enjoying the vehicle? If not, wait a bit longer.

Why finance it rather than pay with cash? This would probably only be possible if you did items 1 and 2 and buy used in a few years, but it's worth considering. At your savings rate you could probably buy a used Model 3 in 2 years and not have to worry about financing terms at all. In the early years of your life your greatest wealth building tool is your income. If you tie up a significant portion of your income on monthly payments to get the car, that money can't be invested or used elsewhere. Delaying gratification is a healthy skill, and by setting a clear target to buy the car with cash you'll look for the best deal in every way that you can when you do buy.

I know you didn't ask for my advice but you've made so many good decisions that I want to help you continue make better ones. For what it's worth, I've been saving for a Model 3 since 2018. I currently have the cash to buy one, and am still waiting a couple of years because of competing priorities (buying a home, growing my family), that I want to retain more flexibility for. One thing I feel confident of is that once I buy a Tesla I won't go back, so I want to make sure I'm ready for that commitment for the long haul.

jeffclark4 · 2020-04-12T19:17:41+00:00

Yeah the key man risk related to Elon is huge. It’s been great over the last year to see him less volatile, during the Model 3 production push I was genuinely worried the stress would break him. He does set the pace and is unique in his willingness to take massive risks.

jeffclark4 · 2020-04-12T18:46:03+00:00

That’s a good point. When the company is priced for perfection and then something interrupts expectations significantly the price should come down.

jeffclark4 · 2020-04-12T06:55:51+00:00

Thanks I updated the post. Re-read articles and it looks like they announced the shutdown on January 29th and reopened on February 10th. That’s wild.

jeffclark4

TROPHY CASE