Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[lewdog]

Have a ROTH IRA question.

I've been maxing my ROTH for a few years now but after numerous large house projects needing to be completed in the past few years (new roof, new AC units and this year a pool remodel) all which were paid for in cash, I am going to be a few $k short on maxing my ROTH while I build our emergency savings back.

However, a post about someone contributing to a ROTH for 15 years and not realizing they needed to actually pick funds with their contribution, while it simply say in a money market account got me thinking (Wow, that's bad understanding!!!).

ROTH contributions can be withdrawn at any time right? So why can't I take the few thousand I'm missing to max this year and just put it in the money market account part of the ROTH and treat it like liquid savings? If I end up needing it, can I choose these funds in the money market account to withdraw or is it required I sell an investment to withdraw? Does anyone know how withdrawing funds from a ROTH works as far as choosing where that money comes from in the account?

[Buehler445]

Originally Posted by lewdog

Have a ROTH IRA question.

I've been maxing my ROTH for a few years now but after numerous large house projects needing to be completed in the past few years (new roof, new AC units and this year a pool remodel) all which were paid for in cash, I am going to be a few $k short on maxing my ROTH while I build our emergency savings back.

However, a post about someone contributing to a ROTH for 15 years and not realizing they needed to actually pick funds with their contribution, while it simply say in a money market account got me thinking (Wow, that's bad understanding!!!).

ROTH contributions can be withdrawn at any time right? So why can't I take the few thousand I'm missing to max this year and just put it in the money market account part of the ROTH and treat it like liquid savings? If I end up needing it, can I choose these funds in the money market account to withdraw or is it required I sell an investment to withdraw? Does anyone know how withdrawing funds from a ROTH works as far as choosing where that money comes from in the account?

Preface: I’ve never done it so I might be full of shit.

I think what you have to do is sell a fund so it goes into the money market or whatever idle account, and then ACH it to your checking account.

I wouldn’t do it though.

If you take funds out and it moves up 10% over the year while, you won’t be participating in that portion. Whereas if the run up starts now, you’d miss out on quite a bit. If you’re talking about 6 months, it probably doesn’t matter.

I wouldn’t pull it out until you needed the money that isn’t in your emergency account.

[scho63]

I see a rally for the 1st quarter of 2023.

Pessimism all over and tax selling done. Too much money on sidelines with so many stocks beaten down into oblivion.

[Hog's Gone Fishin]

I read a good random thought the other day:

If you're going to buy a $50,000 car and want to pay cash to avoid interest that's fine

At the end of 5 years you have a car that's worth $20,000 that fully paid for

If you instead put $50,000 into a stock paying a monthly dividend at 8% and use the dividend to make a loan payment on the car then at the end of 5 years you'll have your $20,000 car paid for and $30,000 left in your stock investment for a total of $50,000


Paying cash for shit might not always be the best thing to do

[myselff77]

Originally Posted by Hog's Gone Fishin

If you instead put $50,000 into a stock paying a monthly dividend at 8% and use the dividend to make a loan payment on the car then at the end of 5 years you'll have your $20,000 car paid for and $30,000 left in your stock investment for a total of $50,000

Who is the company paying a monthly dividend at 8%? I'll put some money into that. I need to start building a car fund anyway.

[lewdog]

Originally Posted by Buehler445

Preface: I’ve never done it so I might be full of shit.

I think what you have to do is sell a fund so it goes into the money market or whatever idle account, and then ACH it to your checking account.

I wouldn’t do it though.

If you take funds out and it moves up 10% over the year while, you won’t be participating in that portion. Whereas if the run up starts now, you’d miss out on quite a bit. If you’re talking about 6 months, it probably doesn’t matter.

I wouldn’t pull it out until you needed the money that isn’t in your emergency account.

I'm just trying to avoid the fact that you can't go back and add money later to a ROTH for years you didn't max it. If I put it in, even to sit in a money market account, in case I need access to it this year in a worse case scenario, it also leaves open the fact that I may not need it this year and then can invest it as needed for the next few decades.

So while my emergency fund needs built back a bit to my normal level, I feel like not maxing my ROTH this year is a bad idea just to put my emergency fund where I want it, even though I can withdraw on a ROTH if needed almost like an emergency fund.

I hope I'm making sense.

[lewdog]

Originally Posted by Hog's Gone Fishin

I read a good random thought the other day:

If you're going to buy a $50,000 car and want to pay cash to avoid interest that's fine

At the end of 5 years you have a car that's worth $20,000 that fully paid for

If you instead put $50,000 into a stock paying a monthly dividend at 8% and use the dividend to make a loan payment on the car then at the end of 5 years you'll have your $20,000 car paid for and $30,000 left in your stock investment for a total of $50,000


Paying cash for shit might not always be the best thing to do

Math doesn't add up, although I agree on not paying cash for a depreciating asset like a car when interest rates are low.

Dividends are paid off the stock price. So getting an 8% dividend is not like it's extra cash. After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.

So while you're getting a "dividend," you capital tied up in the share price is dropping too. Couple that with a stock that still changes value like any other stock and that $50k you put in this year, could easily only be worth $30k just from a bear market alone.

Too many people think dividends are free money, and most are not.

[KCUnited]

Originally Posted by lewdog

Have a ROTH IRA question.

I've been maxing my ROTH for a few years now but after numerous large house projects needing to be completed in the past few years (new roof, new AC units and this year a pool remodel) all which were paid for in cash, I am going to be a few $k short on maxing my ROTH while I build our emergency savings back.

However, a post about someone contributing to a ROTH for 15 years and not realizing they needed to actually pick funds with their contribution, while it simply say in a money market account got me thinking (Wow, that's bad understanding!!!).

ROTH contributions can be withdrawn at any time right? So why can't I take the few thousand I'm missing to max this year and just put it in the money market account part of the ROTH and treat it like liquid savings? If I end up needing it, can I choose these funds in the money market account to withdraw or is it required I sell an investment to withdraw? Does anyone know how withdrawing funds from a ROTH works as far as choosing where that money comes from in the account?

Sounds like you should just keep it in the MM part of your ROTH.

The Roth IRA as an Emergency Fund

The advantage of putting emergency savings into a Roth IRA is that you don’t miss the limited opportunity to make that year’s retirement contribution. You can only contribute a few thousand dollars to a Roth IRA each year, and once a year passes without a contribution, you lose the opportunity to make it forever. However, accessing these funds should be your last resort...

The part of your Roth IRA contribution earmarked as your emergency fund doesn't belong in stocks, bonds, or mutual funds like a typical retirement contribution. It belongs in a liquid account (meaning cash or something that can easily be converted to cash and that earns interest) that can be withdrawn from at a moment's notice without losing principal.

[lewdog]

Originally Posted by KCUnited

Sounds like you should just keep in the MM part of your ROTH.

The Roth IRA as an Emergency Fund

The advantage of putting emergency savings into a Roth IRA is that you don’t miss the limited opportunity to make that year’s retirement contribution. You can only contribute a few thousand dollars to a Roth IRA each year, and once a year passes without a contribution, you lose the opportunity to make it forever. However, accessing these funds should be your last resort...

The part of your Roth IRA contribution earmarked as your emergency fund doesn't belong in stocks, bonds, or mutual funds like a typical retirement contribution. It belongs in a liquid account (meaning cash or something that can easily be converted to cash and that earns interest) that can be withdrawn from at a moment's notice without losing principal.

Perfect, that's exactly how I see it. Needed to see it thought out like that though. Thanks for finding!

I'll max my contribution this year but leave the chunk I'm putting in now in a money market fund until my actual emergency savings is back to level. When it gets there, this chunk will get invested.

[Buehler445]

Originally Posted by lewdog

I'm just trying to avoid the fact that you can't go back and add money later to a ROTH for years you didn't max it. If I put it in, even to sit in a money market account, in case I need access to it this year in a worse case scenario, it also leaves open the fact that I may not need it this year and then can invest it as needed for the next few decades.

So while my emergency fund needs built back a bit to my normal level, I feel like not maxing my ROTH this year is a bad idea just to put my emergency fund where I want it, even though I can withdraw on a ROTH if needed almost like an emergency fund.

I hope I'm making sense.

Makes sense. I hadn’t thought of it that way.

[ChiliConCarnage]

Lew,

Yeah, that makes sense. Depending on your broker, you may need to choose a money market fund or they may default free cash into one. Vanguard defaults to a good one, Schwab puts me into a cash account that pays nothing but you can buy SWVXX or one of the others and get 4% interest or so

Schwab Value Advantage Money Fund® – Investor Shares (SWVXX). 7-day yield (with waivers) as of 12/28/20224. 4.26%. Minimum Initial Investment.

Short term tbills are pretty juicy (nominally) so money market returns are alright. Well, based on what was available for years

[Hog's Gone Fishin]

Originally Posted by myselff77

Who is the company paying a monthly dividend at 8%? I'll put some money into that. I need to start building a car fund anyway.

I've got my daughter in "MAIN" It pays monthly at 7.4% right now

Keep in mind it's 7.4% yearly but pays monthly which gives you an advantage in compounding.

[Hog's Gone Fishin]

Originally Posted by lewdog

Math doesn't add up, although I agree on not paying cash for a depreciating asset like a car when interest rates are low.

Dividends are paid off the stock price. So getting an 8% dividend is not like it's extra cash. After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.

So while you're getting a "dividend," you capital tied up in the share price is dropping too. Couple that with a stock that still changes value like any other stock and that $50k you put in this year, could easily only be worth $30k just from a bear market alone.

Too many people think dividends are free money, and most are not.

I was throwing a generality out there . I know the math isn't correct. It's the concept.

I'm interested in what you say about the price action of a dividend stock dropping when a dividend is paid. That's interesting. Seems like there would be no point in owning a dividend stock.

My daughter invested $3200 in MAIN exactly 2 years ago and the value now is $4181. ETRADE says her gain is 12.56%

Thats 30.65% increase by my calculation 3200 to 4181 . What am I missing?

[Rain Man]

Originally Posted by Hog's Gone Fishin

I was throwing a generality out there . I know the math isn't correct. It's the concept.

I'm interested in what you say about the price action of a dividend stock dropping when a dividend is paid. That's interesting. Seems like there would be no point in owning a dividend stock.

My daughter invested $3200 in MAIN exactly 2 years ago and the value now is $4181. ETRADE says her gain is 12.56%

Thats 30.65% increase by my calculation 3200 to 4181 . What am I missing?

Maybe the 12.56 is an annualized result. The numbers don't work out exactly, but maybe there was some dividend reinvestment that muddies it up or it's not exactly two years.

[Hog's Gone Fishin]

Originally Posted by Rain Man

Maybe the 12.56 is an annualized result. The numbers don't work out exactly, but maybe there was some dividend reinvestment that muddies it up or it's not exactly two years.

All the dividends were reinvested back into the stock to help it grow over time

Her initial purchase was 100 shares at 31.962 on 1/6/2021

So why don't they calculate the dividend reinvestment into the end result ??

STUPED computers!