The Long Term Investor

T0rm3nted

I am around a LOT of older Millennials in Portland Oregon. Definitely a hot bed of all the latest Millennial fads. AND.....yes......every generation has had and has their fads. I am around older Millennials, ages 30 to 38. ALL of them now have kids and many are pregnant with their second and third kids. It is a regular baby boom. In fact ALL have good jobs, ALL own homes, and ALL live in the suburbs, ALL are married. As younger Millennials virtually ALL lived in the heart of the hip city, many struggled with jobs, some lived with or were supported by parents, etc, etc. I dont really believe any of the "stuff" that the media tries to sell about the Millennial generation being different. They may wait a bit longer to do things......BUT.....I would guess that when you look back in 20 years they will follow the path of the generations that came before them.

We will have to wait and see what is actually true and how it all sorts out. At this point everything said about the generation in the media, and including by myself above is simply......ANECDOTAL.

We have certainly seen the stuff about NOT buying homes proven wrong lately.

 

THIS is another.........YOU HAVE GOT TO BE KIDDING.....stock market event for me:

Stock Market Dives After CDC Confirms Second U.S. Case Of Deadly China Virus

https://finance.yahoo.com/m/5f5c0204-067f-36bd-a7b0-0d3fa066e53b/stock-market-dives-after-cdc.html

YES, I looked.....56,000 people die from the Flu each year, 50,000 people die from pneumonia every year. So far from this virus, related to the common cold, we have had somewhere in the neighborhood of 30 deaths in a third world country (China). We have perhaps 2.......YES.......2 cases in the USA and a handful around the world. This story does not give my any CONCERN about disease or health or epidemic. WHAT it DOES give me concern about is the ability and SANITY of investors. OK, traders are open to making money from anything that moves the markets...that is what they do. BUT ANYONE ELSE that is selling or worrying about stocks or funds from this virus.......well, to me that is insanity. A news event to be sure, although at this time a very minor one. I will continue to be invested for the LONG TERM as usual.

 

Weight.........thanks for the post and observations. I was thinking about my (age 70) generation. Among my close friends from college, about ten of us........at least five of the ten never had kids. One was gay in the days before gay marriage or kids, one died in his mid 30's, was married and divorced and never had kids, three never married or had kids. So 50%.

 

It DOES NOT MATTER if the markets are irrational, silly, crazy, or moving based on scientific level thinking like seen in the dark ages. Short term, EVERYTHING is on the table as a market mover, regardless of logic or rationality. Buying or selling due to a health issue in a third world country is crazy. I REALLY doubt that anyone is selling in their 401K or any other form of long term money over this issue............Coronavirus......that is being amplified and exaggerated in the media........AT PRESENT. YES......there is a small chance that this situation could expand to become an actual minor health issue for the world. Perhaps like a strain of the flu that spreads world wide. BUT, from everything that I see at the moment, even that is remote.

That said.....there is no doubt that the media is HYPING this event with massive fear mongering. There is no doubt that all the media focus is now triggering program trading on the negative side. I would not be surprised to see this type of down trading last a week or two since this sort of program, machine trading, tends to feed on itself and self perpetuate. It becomes a self fulfilling prophesy. As something that will have any lasting impact on long term investors......NOT A CHANCE. A few years down the road looking at a stock or index chart for this year will not show much for this little event. I have invested through many situations like this in the past and NONE have any staying power when it comes to impact on the markets. I have invested through AIDS, SARS, MERS, EBOLA, fear of flu, fear of ancient pneumonia, etc, etc, etc. When I say......."invested through".....I mean I simply did NOTHING in response. I simply went ahead with my daily life and did nothing with my investments in response.

HERE is the REALITY of the past with these sorts of events:

(BOLD is my opinion or what I consider important content)

How the stock market has performed during past viral outbreaks, as coronavirus infects thousands

"U.S. equity markets have experienced downbeat trade recently as investors keep one eye trained on a deadly flu outbreak in China.

However, gauged by the market’s performance during the onset of other infectious diseases, including SARS, or severe acute respiratory syndrome, Ebola and avian flu, Wall Street investors may have little to fear that this disease will sicken a U.S. stock market that finished 2019 with the best annual return in years and has kicked off 2020 at or near all-time highs.

That said, many investors are recommending caution amid the current bout of coronavirus that was first identified late last year in Wuhan City, China, and has claimed at least 80 lives, with nearly 3,000 people sickened as of Sunday, according to reports. The ability of the virus to halt travel and harm consumption, particularly in Beijing, are some of the ways an outbreak could have economic implications that could wash up on U.S. shores.

“Risk velocity – the pace at which major risks and ‘black swan’ events can affect asset prices – is elevated in today’s markets compared to 10 years ago for three key reasons,” said Seema Shah, chief strategist at Principal Global Investors, in a research note, referring to the theory for the impact of unexpected events on markets and economies, popularized by Nassim Nicholas Taleb in his book The Black Swan: The Impact of the Highly Improbable.

The strategist said a social-media driven news cycle, the interconnectedness of global supply chains and a pricey stock market, make Wall Street more vulnerable to a black swan.

“External shocks can derail economic trends and abruptly alter market sentiment. Not all risk is economic policy or monetary,” wrote David Kotok, chairman and CIO at money manager Cumberland Advisors, in a recent research note.

On Friday, the Dow Jones Industrial Average DJIA, -1.57%, the S&P 500 index SPX, -1.57% and the Nasdaq Composite Index COMP, -1.89% ended the day and week lower and stocks were turning sharply lower early Monday.

Investors lately have been attuned to updates on the spread of the disease, with the first U.S. case reported Tuesday in Seattle, Wash., on Thursday and a fifth in California popping up over the weekend, according the Centers for Disease Control and Prevention.

Historically, however, Wall Street’s reaction to such outbreaks and quickly spreading diseases is often short-lived.

According to Dow Jones Market Data, the S&P 500 posted a gain of 14.59% after the first occurrence of SARS back in 2002-03, based on the end of month performance for the index in April, 2003. About 12 months after that point, the broad-market benchmark was up 20.76% (see attached table):

Epidemic Month end 6-month % change of S&P 12-month % change of S&P
HIV/AIDS June 1981 -0.20 -10.73
Pneumonic plague September 1994 8.22 26.31
SARS April 2003 14.59 20.76
Avian flu June 2006 11.66 18.36
Dengue Fever September 2006 6.36 14.29
Swine flu April 2009 18.72 35.96
Cholera November 2010 13.95 5.63
MERS May 2013 10.74 17.96
Ebola March 2014 5.34 10.44
Measles/Rubeola December 2014 0.20 -0.73
Zika January 2016 12.03 17.45
Measles/Rubeola June 2019 9.82% N/A

SARS resulted in a total of about 8,100 people being sickened during the 2003 outbreak, with 774 people dying, according to data from WHO and the Centers for Disease Control and Prevention.

Separately, the S&P 500 rose 11.66% in the roughly six months following reports of the 2006 Avian flu virus — a fast-moving pathogen also known as H5N1. The market gained 18.36% in the following 12-month period.

Data are similar for equity performance across the globe based on data from Charles Schwab, tracking the MSCI All Countries World Index 892400, -0.43%. The index has gained an average 0.4% in the month after an epidemic, 3.1% in the ensuing six-month period and 8.5% a year later (see graphic below):


The severity of the virus, ultimately, will dictate the market’s reaction and just because indexes had managed to shrug off the contagion from outbreaks in the past doesn’t mean that will be the case this time.

For one, coronavirus comes during the important Lunar New Year, when Asia tends to see peak travel and consumer spending.

As of Friday, Beijing had shut down parts of the Great Wall, as well as 16 cities, restricting movement of some 46 million people, and canceling many events related to the Lunar New Year.

“There are concerns that the coronavirus may spread quickly within and beyond China, causing economic and market damage. This is particularly a concern as travel ahead of the Lunar New Year is getting underway,” wrote Jeffrey Kleintop, Charles Schwab’s chief global investment strategist. China also extended the holiday to Feb. 3, to help contain the virus.

The Wall Street Journal reported that the incubation period for the virus is around 14 days, citing health officials. People are most likely not contagious before symptoms develop.


A pandemic couldn’t come at a worse time for China’s sluggish economy, which slowed to 6.1% rate of annual growth last year, according to gross domestic product figures released last Friday, which reflected the lowest reading for Beijing in nearly three decades.

“The upcoming Lunar New Year celebration…could accelerate the virus’s spread as well as its economic impact,” wrote analysts at Wells Fargo Securities, led by Jay Bryson, in a Wednesday report.

Meanwhile, WHO has thus far avoided declaring an international health emergency but was convening to discuss the outbreak again on Monday.

And travel related stocks have taken a hit this week thus far.

Shares of Priceline.com parent Booking Holdings Inc. BKNG, -2.75% are down 3.3% on Monday. Expedia Group Inc. shares EXPE, -2.73% lost 2.6% and TripAdvisor Inc. shares TRIP, -2.69% have declined 2% early Monday.

Airline stocks are also mostly lower, with United Airlines Holdings Inc. UAL, -5.21% off 4.4%, those for Delta Air Lines Inc. DAL, -3.37% down 4.6% and American Airlines Group Inc. AAL, -5.54% has lost 5.6% so far in the session.

Experts emphasize that it is important not to generalize the potential for unexpected results from epidemics on economies and markets.

“We cannot draw any fixed conclusions about the effects of pandemics upon stock-market performance. Equity markets react unpredictably to the unknown; nevertheless, such events should not be examined in isolation, but viewed in common with other prevailing market conditions,” according to a 2006 report commissioned by Fidelity Investments and cited by Bloomberg News."

AND

The 5 health crises of the 21st century that have roiled markets

https://www.foxbusiness.com/markets...her-outbreaks-like-ebola-impacted-the-markets

(BOLD is my opinion or what I consider important content)

Just as U.S. stock markets prepared to close, the State Department issued a travel advisory that asked Americans to "reconsider travel to China due to novel coronavirus first identified in Wuhan, China." This came on the heels of a volatile session over fears of a potential pandemic -- marking the fifth time in the last two decades that U.S. markets have been roiled by scenarios that were once Hollywood storylines for movies like "Outbreak" and "Contagion."

Following the outbreak of the deadly flu-like illness in Wuhan, China, and its subsequent spread to other countries including the United States, Australia, Canada and the United Kingdom, some investors are pointing to ripple effects. All three major indexes were down Monday as news of the virus, which has claimed the lives of more 80 people and sickened over 2,000 worldwide, gained more traction.


The Dow Jones Industrial Average was down over 453 points, or 1.57 percent, at market close Monday. The S&P 500 slid 1.57 percent and the Nasdaq Composite dropped 1.89 percent.

The stock market, however, generally tends to overreact after these types of incidents unless it’s something that becomes prolonged, Jeffrey A. Hirsch, chief executive officer of Hirsch Holding Inc. and editor in chief of Stock Trader’s Almanac, recently told FOX Business.


Here's how the markets have reacted to similar incidents that have occurred in the 21st century, in part tracked by the Dow Jones Market Data Group.

SARS
When the "severe acute respiratory syndrome" or SARS virus, hit in 2003, it killed nearly 800 people and sickened 8,000. Markets briefly halted at the onset of the deadly pneumonia. A 2004 analysis determined that the SARS crisis cost the world economy a total of about $40 billion, but stocks ultimately ticked back up. The Dow Jones Market Data Group, citing historical market data, showed the S&P posted a gain of 14.59 percent following the first report of SARS. After 12 months as fear died down the benchmark was up 20.76 percent.

Avian flu virus
The arrival in 2016 saw the destruction of more than 200 million birds worldwide that resulting in economic losses of over $20 billion. Still, the S&P rose more almost 12 percent six months after first reports and the market gained 18.36 percent in the 12-months after initial reports of the outbreak.

Another smaller outbreak occurred in seven years hitting China and one iconic American brand hard. Its KFC outlets were virtually empty following nine deaths with sales dropping as much as 20 percent at one point

MERS
More recently, when the "Middle East Respiratory Syndrome" or MERS virus, claimed the lives of more than 850 people and sickened 2,500 starting in May of 2013, the S&P shot up more than 10 percent in the first six months and nearly 18 percent after a full year. However, the market tremored again in 2015 when South Korea was hit with an outbreak. Some 200 people were infected with the illness and 38 died. The country ordered the closing of 3,000 schools and the South Korean tourism industry was severely damaged when more than 100,000 trips to the country were canceled.

Ebola
In 2014, the outbreak of the Ebola virus in West Africa was the “largest, most severe and most complex Ebola epidemic” in history, according to the World Health Organization. What made this outbreak more urgent in the USA than before while 28,000 people were infected, and 11,000 people died -- nine of the people who contracted the disease outside the US brought the disease to the U.S. mainland traveling as airline passengers or as medical evacuees. Of those nine, two died. In addition, two nurses contracted the disease but recovered.

As a result, many airline stocks were down double digits and The S&P 500 fell more than nine percent from its September 19 high to its October 15 low with Ebola hitting the U.S. in the middle of that period. After watching intently, the markets inched back up and after six months the S&P was up five percent; a year later up 10 percent.

Zika
In 2016, when the mosquito-borne Zika virus hit tourism and travel-related stocks were hit hard. Most of the major cruise lines such as Carnival and Norweigian sail from South Flordia and in 2016 more than 1,000 cases were reported and 226 were contracted locally prompting many vacation cancelations and airlines, cruise ships and hotel altering cancellation policies.

The leisure companies eventually rebounded as Zika fears died down as seasons changed and mosquitos were chased by the cold. The S&P was up 12 percent six months after the crisis first struck and increased 17 percent after a year.

While “epidemics and pandemics do have market consequences and raise risk” and “external shocks can derail economic trends and abruptly alter market sentiment,” David Kotok, chairman and chief information officer at Cumberland Advisors research note last week, the severity and length of the outbreak will ultimately determine the market’s reaction.

Chinese officials have placed a quarantine on Wuhan, impacting the movement of more than 56 million people, as they grapple with how to contain the virus from spreading.

Analysts have historically preached caution: “We cannot draw any fixed conclusions about the effects of pandemics,” a 2006 report from Fidelity Investments read. “Equity markets react unpredictably to the unknown; nevertheless, such events should not be examined in isolation, but viewed in common with other prevailing market conditions.”"

MY COMMENT

VIRTUALLY ALL economic indicators are very positive. SO FAR......this health scare is really isolated to one country....CHINA. The amount of business WE do with China is extremely small as a percentage of our economy. There is NO DOUBT that the media is playing this little event for MAXIMUM fear mongering and doom and gloom. I expect erratic markets for a short while due to cascading, self fueled, program trading due to this event. I also expect traders and other short term market movers will be doing everything they can to manipulate this situation for their trading benefit. As a LONG TERM INVESTOR, I KNOW that this event will have virtually NO impact on my portfolio or results in any truly meaningful fashion. SO.......as usual in this sort of very short term event.... will simply do NOTHING and will remain fully invested as usual.

 

In conjunction with the above post, lets talk about corrections, recessions, and bear markets.

Many investors today have ZERO experience with any of the above. Most people that are under age 35 have been investing for perhaps ten years now. Those years represent the GREATEST BULL MARKET in history.......an aberration. YES, we have been in a GOLDEN era of investing......BUT.....this is NOT NORMAL.

To make matters worse, during that time the financial media and others have corrupted the normal definitions of correction, and bear market. Time and time again I have seen some little event that lasts a few weeks to a month called a correction. Now, last September to Christmas, that was a REAL correction. AND...people did not react well. The typical correction you will see in your life, once or twice a year,....... even in the middle of a great bull market.....will be nasty, fear inducing, and will last two, three, four months perhaps even up to six months.

The SH*T will really hit the fan for all the modern young investors, that have never experienced one, when we have a good old fashioned, SOUL SUCKING, BEAR MARKET. Many that think they have risk tolerance, and are experienced investors will PANIC and sell when we get a REAL bear market. When it happens the markets will be down and stagnant and linger for a year......or even TWO years and sometimes even more. As time goes by more and more investors will capitulate and give up and sell. What KILLS you in a bear market is not usually a sudden drop but the drip, drip, drip, of stocks slowly going down, down, down....FOR YEARS. Often the drop is not dramatic, but it is relentless. There might even be bull periods during a bear market. This is when every investor is TESTED. Those that hold on and can stand the pressure of this sort of market will be GREATLY REWARDED when the good times start up again.......and they always do. It will be very interesting to watch the human behavior when we see a typical bear market that lasts a year or two again.

The above, corrections and bear markets are NORMAL market events. Now what about RECESSION. I really dont care about RECESSION in the least as an investor. Actually, often a recession is a great time to be an investor and stock action in general can often be very positive even in a recession. We went through EIGHT DISMAL economic years in the OBAMA era. Our economy was caught up in a stagnant eight years of deflationary depression. REGARDLESS of cause or politics, the economy during those eight years SUCKED. YET, stocks did just fine. I NEVER assume that recession equals poor investing results.

SO.......the bottom line......ANYONE reading this that HAS NOT ever experienced a really nasty correction.......6-9 months......or a really nasty bear market 1-3 years is in for a TREAT when it happens. AND......it will happen if you are a long term investor. Many of you will be very SURPRISED how you react in the face of this sort of event and many will NOT react well. FOR MANY, how you imagine you will hold up and react will turn out to be fantasy when the real event hits.

 

YES........I agree....."people are morons". The BIG institutional traders and banks will be laughing all the way.

 

People are really not morons. Their lives are crazy with kids, work, school, family, etc, etc. Many dont have time to learn about investing which means taking time to do a lot of reading. It is very intimidating. Those of us that have done it for a while take for granted what we know and our experience. Social Media is also the ULTIMATE TIME SUCK. Add in all the predatory stuff that is out there to TRAP uneducated investors, all the human emotions connected to money and investing, genetic human brain chemistry and behavior, etc, etc, etc and you have a difficult topic for many to deal with. That is why for my family members that do not have the inclination or time to deal with investing I recommend a simple SP500 Index Fund as their one investment vehicle for LIFE. Like Warren Buffett, I have STRONGLY recommended to my wife and my sister that when I am gone or no longer able to handle their investments that they simply invest EVERYTHING in a SP500 Index Fund. Nothing more, nothing less.

 

LETS hang in there to the close today. NO late day fade......please. My recent buy of PG is now positive by about 1%........YEA.

Tom.....I look back and consider myself pretty lucky that I had parents that reinforced going to college my entire life and were willing to talk about money, investing, and finances in an age appropriate way when my sister and I were kids. We also had the ADVANTAGE of NO social media and and went to schools that were very much focused on college prep and the basic subjects of English, Social Studies, Math, PE, Science, History, and Language.

BUT....on your topic of TRADING. I agree. If I was a trader........I am NOT obviously.......I would be comparing myself to the DOW, SP500 and Total Stock Market every year and If I could not equal or beat any of them on a long term basis I would not trade the majority of my money. I can see where people might like the CHALLENGE of trading and the mental stimulation of trying to beat the unmanaged indexes. But if I was a trader and could NOT beat them I would have the majority of my money in indexes and would just trade a small percentage, perhaps 10%, for the mental challenge and stimulation.

BUT.....everyone has to do what they do, how they do it. To each their own........it's their money and their future. For some reason this topic reminds me of the number of young males I have seen lately that want to be professional GAMERS or professional poker players. It is not a bad thing to have a dream as a teen or young adult....BUT...at least get your education so you have something to fall back on when the dream occupation does not work out. Plan for the BEST and the WORST and you will be ok anywhere in-between.

 

In this "little" post I am going to talk about income taxes.....for those age 65 or over. I was looking at a few things in preparation for doing my taxes in a few weeks. I noticed that......for tax year 2019...... there is a new tax form for SENIORS age 65 or older. 1040SR. There is also an INCREASED standard deduction for those 65 or older. I had not heard about this previously. So for any that are age 65 or older here is the info on the increased standard deduction for SENIORS. For my wife and I it will mean an extra standard deduction of $1300 each or a total EXTRA DEDUCTION of $2600. To use this you have to NOT itemize your deductions. We now use the standard deduction since we have no mortgage interest and the few things we can deduct are below the standard deduction amount. I ASSUME that Turbotax and the other tax programs will incorporate this into their programs.

(BOLD is mine)

https://www.thebalance.com/tax-breaks-for-seniors-and-retirees-4148392

"You Get a Larger Standard Deduction
You won't have to pay taxes on as much of your income when you get older because the IRS allows you to begin taking an additional standard deduction when you turn 65. For 2020, if you’re single or you file as head of household, you can add an extra $1,650 to the standard deduction you’re otherwise eligible for.2

If you’re married and you file a joint return, you can add $1,300 for each spouse who is age 65 or older. Both of you don't have to have yet hit your 65th birthday. If even one of you has, that's good enough for the IRS and you can claim one of the additional deductions.

You must turn 65 by the last day of the tax year, but here’s a catch: The IRS says you actually turn 65 on the day before your birthday. If you were born on January 1, you would qualify as of December 31—just in the nick of time to claim the extra deduction for that tax year.3

The following table summarizes some of the standard deduction changes and compares taking the standard deduction to itemizing your expenses.

Pros

• STANDARD DEDUCTION:
  
  
• A new, larger standard deduction means you'll pay taxes on a smaller base of income
  
  
• The regular standard deduction plus the new standard deduction for age will likely save you much more money than itemizing
  
  
• Helps those who have paid off their mortgage and no longer have an interest deduction
  
  
• ITEMIZING:
  
  
• Can result in a larger deduction if you still have mortgage interest, large charitable donations, and other expenses that exceed the standard deduction

Cons

• STANDARD DEDUCTION:
  
  
• Can no longer itemize expenses if you choose the standard deduction
  
  
• Personal exemption no longer exists
  
  
• ITEMIZING:
  
  
• Need much larger amount of expenses to beat the deduction threshold

Standard Deduction or Itemizing Deductions—Which Is Better?
Keep in mind that the standard deduction is claimed in lieu of itemizing your deductions—you can't do both. But you would have to have incurred a lot of qualifying expenses to make itemizing worth your while anyway, particularly in 2018.

The Tax Cuts and Jobs Act (TCJA) pretty much doubled standard deductions for all filing statuses—the standard deduction you can claim before you claim the extra bonus deduction for being age 65 or older. These deductions are in place from 2018 through at least 2025:

• The standard deduction for single filers and those who are married but file separate returns increased from $6,350 to $12,000 in 2018 ($12,200 in 2019, and $12,400 in 2020)
• The standard deduction for head of household filers increased from $9,350 to $18,000 ($18,350 in 2019, and $18,650 in 2020)
• The standard deduction for qualifying widow(ers) and married filers of joint returns increased from $12,700 to $24,000 ($24,400 in 2019, and $24,800 in 2020)4

Most older taxpayers find that their standard deduction plus the extra standard deduction for age works out to be significantly more than any itemized expenses they could claim, particularly if their mortgages have been paid off so they don't have that itemized interest deduction any longer.

However, if you still have a mortgage, you could gain a larger deduction by itemizing. Factor in property taxes, medical bills, charitable donations, and any other deductible expenses you might have. While many deductible expenses are subject to caps and limitations, tally up these amounts if you think they're significant enough to exceed the new, higher standard deduction."

MY COMMENT

ALWAYS nice to find a way to save a little bit on taxes. This change, which I was not aware of will increase our standard deduction by $2600 for the two of us. With this little bit of extra deduction our standard deduction will be $27,000.Part of being a good investor and building up financial assets for your family is taking advantage of any portions of tax law that apply to your situation. EVERY little bit helps.

 

SPEAKING OF TAXES. Lets talk about tax planing. With the HUGE use of IRA and 401K plans MANY people are going to find out that in retirement they are paying more in taxes than during their work life. I have a relative in that situation. Her TAXABLE INCOME is 2-3 times what it was when she was working. Because various retirement plans like the 401K turn a lifetime of capital gains into fully taxable income........... taxable income is greatly increased in retirement. Being aware of this situation, I have planed my retirement income to actually pay WAY LESS that ever before in taxes. When I retired early at age 49 I lived on personal assets for the next 21 years till this year when my income annuities kicked in for the life of myself and my wife. When we could start to take IRA funds at age 59, we made the intentional choice to draw from retirement funds for our income and EXHAUST those funds by age 70. This is one reason it is NICE to have a taxable brokerage account and NOT have ALL your EGGS in tax deferred accounts......IF.....BIG IF.....you are able to financially do so.

Between our annuities and social security we will have income of about $175,000 before capital gains and interest from brokerage accounts. Since part of each annuity payment is return of basis, you do not pay income taxes on that portion. So starting this year our taxable income on the annuities.....(gross payout $135,000 per year)......will be about $50,500 per year. Add in social security and capital gains on our mutual funds and a tiny bit of interest and our taxable income from age 70 on will be approximately $100,000 per year.

After standard deduction of $27,000 and the maximum, $10,000, for property taxes.......AND....our taxable income will be about $63,000. So with our tax planing we will from age 70 on see our taxable income decrease by at least $100,000-$140,000 per year for life. We will save at least $15,000 to $20,000 per year in income taxes. Of course much of that savings will go into the BROKERAGE ACCOUNT for investment. That should GREATLY increase our brokerage balance over the LONG TERM.

It is a good thing to have a 401K or IRA as the basic platform for your retirement income. If YOU are NOT a government worker that is probably the primary source of retirement income you will have. The COMMON KNOWLEDGE is to take funds from your retirement accounts LAST......stretch those accounts out as long as possible before you have to take minimum distributions. HOWEVER it is OFTEN to your advantage to exhaust those accounts FIRST if you have other personal assets or sources of income in retirement. The NASTY LITTLE SURPRISE that many are going to see in retirement is that tax deferred accounts are going to turn 30, 40, 50 years of capital gains and compounding into FULLY taxable income. I am seeing many people that are finding out that they are paying HIGHER taxes in retirement than in their working lives......AND....will do so for the rest of their lives.

 

What looked like a DISMAL day today.....suddenly turned around and closed NICELY POSITIVE. This market STILL refuses to be down for long. AMAZON earnings will be a big topic of conversation tomorrow.

 

AND......two minutes later....here it is:

Amazon beats holiday-quarter sales estimates, shares up 10%

https://www.reuters.com/article/us-...les-estimates-shares-up-10-idUSKBN1ZT2XU?il=0

(BOLD IS MINE)

"(Reuters) - Amazon.com Inc (AMZN.O) on Thursday beat analysts’ estimates for fourth-quarter revenue, as its efforts to speed up delivery helped attract more shoppers during the holiday season, sending its shares up 10%.

Retailers usually generate a majority of their annual sales and profit during the holiday period.

The company forecast net sales in the range of $69 billion and $73 billion for the first quarter. Analysts were expecting revenue of $71.65 billion, according to IBES data from Refinitiv.

Net sales in North America, its biggest market, jumped 21.6% to $53.67 billion during the fourth quarter. Analysts had expected revenue of $52.23 billion from the segment.

Revenue from its lucrative cloud computing unit Amazon Web Services (AWS), which sells data storage and computing power in the cloud, surged 34% to $9.95 billion. Analysts had expected $9.84 billion.

Amazon’s total operating expenses surged 21.8% during the quarter to $83.56 billion.

Net sales rose 21% to $87.44 billion in the fourth quarter ended Dec. 31 , beating estimates of $86.02 billion."

MY COMMENT

These are some BIG TIME numbers from a JUGGERNAUT company. Amazon is one of those RARE once or twice in an investing lifetime sort of companies. I have owned a few. Microsoft in the early 1990 to 2002 era. Amazon now. Costco from its inception to now. Nike for at least 2+ decades now. These are the sort of businesses that take COMPOUNDING to the next level. Solid, dependable, well managed, ICONIC, businesses.

 

THE CRAZY INSANITY of after hours trading.......AMAZON.......UP $203 per share. YES, that is not a typo, the stock is up over $200 per share after hours. I would be surprised for this to carry over to the open tomorrow. Guessing it will be up $30 to $60 tomorrow at the close. SIMPLY A GUESS. Dont go and bet the farm on this GUESS. I do like it as a long term investor. Gains tend to often come in big spurts. We could get a good day tomorrow to end the week and close out the first investing month in the new year. Fully invested for the long term as usual.

 

Some Dude.....what I am saying is a lifetime of gains....which would be taxed as low tax capital gains if in a taxable account.......when in a 401K will ALL be taxed as regular income when you are retired and for the rest of your life. That is why as soon as I had the chance I started taking my IRA money for my entire yearly income from age 59 to age 70 at which time I had exhausted the IRA. My other, non retirement funds which continued to build over that time as I was taking nothing out of those funds for living expenses. In other words I made the intentional choice to exhaust my IRA pot of money by age 70 rather than stretching that out for 20-30-40 years of retirement. I than moved on to my second pot of money.....my income annuities and social security.....of which ONLY about $63,000 out of a yearly income of $175,000 will be taxed. When I was drawing out my IRA money my taxable income averaged about $190,000 per year. So from 2020 on, my tax burden will be reduced by about $15,000 to $25,000 in tax payments per year.

This why a good businessman friend many decades ago gave me the advice that is might not be a good thing to have all your money in tax deferred retirement accounts. So, over my lifetime, the MAJORITY of my funds has been in a regular taxable brokerage account. I did have one IRA, which was a rollover from my business KEOGH PLAN (a type of small pension plan for businesses in the old days that allowed me to contribute $30,000 per year). This is the money that I exhausted first.

OBVIOUSLY MANY people will NOT have this choice in retirement since they will only have a 401K. But EVERYONE in retirement can at least evaluate their assets and try to use those assets in the best way to minimize taxes over retirement. Especially since most people will NOT see their taxes go down in retirement. At least that has been my observation.

I had my sister cash in an inherited IRA and another IRA. She just took the one time tax hit. She was better off to take the one time hit of taxes and from that point on pay nothing in taxes on that money as it grew except for a small amount of capital gains tax. All distributions from those two IRA accounts would have been near the top tax rate for life. Her retirement taxable income is 4 times what she made while working.