Should I Contribute to an IRA with a 401k?

If you don’t have a 401k offered by your workplace, then an IRA is a no-brainer. You may even be eligible, if you have your own business, to contribute $55,000 (in 2018) to a SEP-IRA. But what if your workplace gives you a 401k? Should you contribute to an IRA on top of that? If so, what type should you choose – traditional or Roth?

First, you should understand that your limit is $5,000 ($6,000 if age >= 50). Since you have a 401k plan already, the limits and rules for an IRA on top of that are less generous. Now let’s first look at the IRS’s rules for contributions:

The key here is tax deductibility. If you stay below certain income limits, your traditional IRA contributions are deductible from your taxes, which is 90% of the benefit from these plans. However, tight income limits of $63,000 for singles and $101,000 for married filers makes this a difficult proposition. The worth of tax deductibility is based on your marginal tax bracket. The higher the bracket is, the more you save on taxes for the year with an IRA contribution. Based on 2018 tax brackets, at those incomes limits, the corresponding tax bracket is 24%. That’s quite low by historic standards. The general rule about Roth vs traditional 401k is that if your tax bracket is low now, you should choose Roth, for which you pay taxes now and everything accumulates tax free within the account. However, if your tax bracket is high now, you may benefit from deferring taxes, taking the savings up front, and withdrawing in retirement at a lower bracket. That’s the traditional IRA plan.

So basically, the conclusion is that if your income is such that you qualify for an IRA while you already have a 401k, your bracket is by default so low that you should only consider the Roth option. Now a wrench in this general guideline is state income tax. If you are in a high state income tax state such as Hawaii, California, Oregon, and Minnesota, be aware that Roth contributions mean paying all taxes up front, including state income taxes. These are the only corner cases where a traditional IRA is still worth considering even with a low federal tax bracket.

Regardless of what you do with the IRA, make sure you maximize the company sponsored 401k first, and put away enough in savings to meet emergency needs.

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Can Locums Doctors Qualify for a 20% Tax Deduction?

The new tax bill has become law and accountants are eagerly poring over the details, dissecting it for loopholes. One of the biggest giveaways is to small businesses, allowing a 20% deduction for income that is passed through (called “pass-thru” in the law) to the individual. It’s called Section 199A, and I expect that this will become a household name as famous as the 401k. The intent of the addition is to benefit small businesses (larger ones tend to go for C-corp style taxation) that employ the bulk of Americans but would otherwise be penalized at higher individual tax rates versus C-corps. To avoid incentivizing too many of these entities to be forced to convert to C-corps, it was decided to offer some token tax cut to pass through businesses. Ron Johnson largely pushed this addition through by himself, given slim margins for Republicans in the Senate.

Remember, this website isn’t interested in debating the ethics of the law or the politics behind its passage or ramifications. Rather, we want to be more practical (or nakedly capitalist if you will) – can I exploit this loophole for my own gain? This will be a more fine tuned analysis geared towards medical professionals, due to my own expertise in this area, but the principles are largely applicable to other professional service businesses as well.

To qualify, first you must be taxed as a pass through business. This includes:

  • Sole proprietors. If you’re taxed by filling out Schedule C reports of your 1099 independent contractor income, you count in this category. It’s the default if you haven’t gone out of your way to form a more advanced business structure.
  • Partnership. Basically a few sole proprietors working together on the project, each owning a portion of the firm. Each passes through income proportionally. Note that a married couple can be counted as a sole proprietor because they file together.
  • S-corp. This is where things get fun. This business model can scale as big as you want. You have all the responsibilities of a big corporation in terms of payroll, offering 401k, health benefits, getting a corporate board, and filing quarterly tax payments. It’s a big setup and reporting hassle and can be expensive to maintain. Luckily there are software packages out there that can make it easy for you to create one.
  • LLC status is a legal distinction that doesn’t matter to the IRS.

Contracted physicians (this includes the locums category) tend to be either sole proprietors or S-corp. Many have opted for the latter because you can choose to structure some income as wage income (W-2) and the rest as a pass through business distribution that is not subject to payroll tax. The IRS closely scrutinizes the proportion that is in each category to prevent people underpaying themselves and taking almost everything as a distribution. The generally accepted principle is that your income should be close to the national average for your profession and the type of work you do. Given the high incomes of physicians, this won’t save you anything in Social Security (unless you work part time) once you pass the income limit, but it will only save you the 2.9% Medicare portion of payroll tax that is applied to all earned income. It’s up to you to determine whether the tax savings outweigh the setup and maintenance costs as well as tax reporting hassles.

When crafting this carve out, politicians were careful to limit its benefits to favoured categories of individuals. They like businesses that own real estate, employ people, and invest in capital equipment. They most definitely did not want this loophole to benefit high income professionals who don’t employ others. Politically that would be depicted as overly favouring the rich, who presumably don’t need this loophole. Thus the law featured two “tests” – the income test and the profession test.

The Income Test

If you’re single and your total taxable income (this includes all other investment, side job, and interest income) is less than $157,500, great! You can take this deduction no questions asked. If you’re married, the same limit is $315,000. Mind you, if your income is higher than this threshold, it doesn’t mean you can’t take it. Rather, there’s a phase out period up to $207,500 for singles and $415,000 for married individuals. The phase out is essentially linear. What it means is if your income is above the phase out thresholds, you can’t use *any* of this 20% deduction. It doesn’t mean that you can still deduct the portion that’s under $315,000.

Ironically, this creates significantly negative incentives around the phase out line where one’s marginal tax rate goes up temporarily to ~50-60% because of rising brackets and losing benefits. Greg Mankiw may chime in in five years and say that it’s a “upper middle class” income trap with bad incentives.

Don’t fret if your income is above either threshold (lucky you!). Remember this test just wants to check your total taxable income. Anything that reduces this number can make you thin enough to squeeze under the bar and claim the deduction. This includes SEP-IRA, 401k, and business expenses, all of which reduce what’s visible as taxable income.

The Profession Test

If you make more than the income cutoffs, you can benefit from the law if your business fits into one of these categories:

  1. Anyone who is in the business of being an employee (yes, being an employee is considered being in a business), and
  2. Any “specified service trade or business.” 

The IRS will spend several years filing lawsuits and refining this broad definition, but for now you can consider that if your business features your skills and services as opposed to owning property and selling goods, you’re one of the undesirable types. You will fail the profession test. Law, medicine, “consultant” and accounting are some of the professions that are explicitly mentioned as failing this test.

Somehow there are exceptions for architects and engineers. No one knows why but presumably their professional societies lobbied hard.

The Recap

So for our locums physician to take advantage of this benefit, he or she needs to satisfy the income test, because we know that medicine will surely fail the profession test. This is easier to do if you work in one of the lower paying specialties, work part-time, and are married. For our friends with S-corp setups, since the income test evaluates you on your overall income, it doesn’t matter if you slice your earnings as salary or a business distribution, they both will be counted for purposes of the limit. This obviates a big advantage of S-corps relative to sole proprietors.

Some of the more astute readers will note that there is another test called the W-2 test, which is supposed to limit abuse by preventing really high income people from quitting their jobs and becoming a consultant working the same job. Forbes explains better than I can:

I’m a partner at a BIG, PRESTIGIOUS ACCOUNTING FIRM. I am also, however, an employee; one who collects a wage. Now, let’s just assume that my annual wage is $800,000 (it is not). With the new rules coming down and offering a 20% deduction against my income, what would prevent me from quitting my current gig, and then having my firm engage the services of “Tony Nitti, Inc.” a brand new S corporation I’ve set up specifically to facilitate my tax shenanigans? Now, my firm pays that same $800,000 to my S corporation, and my S corporation simply allows that income to flow through to be as QBI. I, in turn, take a 20% deduction against that income, reducing my income to $640,000. See the problem?

My role at my firm hasn’t changed. I provided accounting services before, I provide accounting services now. But before, I was receiving wages taxed at ordinary rates as high as 37%. Now, by converting to an S corporation and foregoing wages in favor of QBI, I am now paying an effective rate on that income of only 29.6% (37% * 80%). That’s not fair, is it? Compensation for services should be taxed at the same rate, whether it’s coming to me as a salary or flow-through income.

To prevent these abuses, Congress enacted the W-2 limitations. Because, in my example, Tony Nitti, Inc. does not pay any wages, in both scenarios my limitation would be a big fat ZERO, meaning I get no deduction. Like so:

My deduction is the LESSER OF:

  1. 20% of $800,000, or $160,000, or
  2. The GREATER OF:
    1. 50% of W-2 wages, or $0, or
    2. 25% of W-2 wages, or $0, plus 2.5% of the unadjusted basis of the LLC’s assets, or $0, for a total of $0..

It’s a lot of calculation and looks complicated, but we can actually disregard it all as this limitation will only come into play if you fail the income test. Since we’ve already determined that a physician who fails the income test will automatically fail the profession test and be prohibited from taking the deduction, we shouldn’t even worry about this section.

As Forbes explains:

Section 199A(b)(3)(A) provides that if your TAXABLE INCOME for the year — not adjusted gross income, not QBI, but TAXABLE INCOME — is less than the “threshold amount” for the year, then you can simply ignore the two W-2-based limitations. The “threshold amounts” for 2018 are $315,000 if you are married, and $157,500 for all other taxpayers. These amounts will be indexed for inflation starting in 2019. And quite obviously, you determine taxable income WITHOUT factoring in any potential 20% deduction that we’re discussing here.

The Payoff

Phew. You’ve waded through all of the above because you’re eagerly salivating over seeing how much you can save on your taxes, right?! Let’s crunch some numbers.

Our example physician is married, works as a contractor (paid as 1099), and is set up as a sole practitioner (in the end, S-corp calculations won’t be too different from this) for simplicity’s sake. Assume no kids. This person is based in Texas and to avoid troublesome state income tax calculations performs contract work in Washington, Nevada, Texas, and Florida only. Yearly income starting in 2018, the first year the new law will apply, is estimated to be $400,000.

To fit under the threshold, we maximize our SEP-IRA contributions, which are $54,000. We accumulate $22,000 in deductible business expenses. Then we also take the standard deduction of $24,000 for a married couple. That leaves us with $300,000 exact in visible taxable income. All of it is eligible for the 20% deduction.

Let’s use Marketwatch’s calculator to calculate our total tax under the new bracket system for 2018:

  • $40,179 for federal income tax
  • $0 state income tax
  • $15,958.8 Social Security (double because of 1099)
  • $12,114 Medicare (including surtax)
  • Total of $68,251.8

For comparison, if we earn that $300,000 as W-2 income (employed physician), our total tax will be:

  • $60,578 for federal income tax
  • $0 state income tax
  • $7,979.4 Social Security
  • $6,633 Medicare (including surtax)
  • Total of $75,190.4

There is a net savings of $6,938.6 with business income as opposed to wage income. The numbers are close but not exact, since the business owner will be able to deduct business expenses and half of the payroll tax that the W-2 earner can’t itemize.

I haven’t included calculations for S-corp owners because there are complex rules depending on how much you take as W-2 salary and how much is a distribution. The same thresholds apply, and you are only allowed the 20% deduction on the portion that is a distribution.

 

(Much of the details are from the source text, as well as Forbes Tax Geek and Evergreen Small Business)

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When it Makes Sense to Commute by Plane

True story. I was in Vietnam a few weeks ago and on a street food tour of Hanoi, I met an Australian expat. She was a lively conversationalist and told me the nugget of a story: there are Australian resource workers who choose to live in Bali and commute to Perth to work in the mines.

It’s true (the internet proves it so!) and it makes total sense for those involved.

  1. They get to live in paradise, or at least a place that most people pay thousands to travel to
  2. The flight is cheap (Google Flights shows direct round trip tickets to be $180 if you book a month out)
  3. At 3 hours and 40 minutes, the flight is doable given that the work schedule was described to me as 5 on 5 off
  4. Cost of living is lower in Bali than in Perth
  5. Living expenses are covered at the worksite in Western Australia, which avoids the unpleasant need to maintain two residences
  6. Enough people do it that the visa/residence aspect in Bali must not be a problem

Calculating that the cost of a flight 2-3 times per month is still less than the difference in rent between Denpasar and Perth, the miner comes out way ahead. Of course, this works best if you’re single, mobile, and without significant family attachments to keep you in Australia. But if you are single or can otherwise make this work by moving your spouse to Bali, it can work out really well.

Can this type of arbitrage be applied to other situations in life? Of course! In fact, the cost of housing in most major American cities has become so exorbitant (see $3500 per month rent in SF for a one bedroom apartment) that it’s cheaper to commute to work, even on a business class flight! It’s true. I’ve been investigating this for my own professional life and came up with one such arrangement.

  1. Live in Tokyo, where the monthly rent is about $1200 in the city itself, even cheaper if you live in the suburbs
  2. Catch a direct flight to a west coast city in the US for a job as a locums nocturnist (bonus if the job is in Washington state where there is no state income tax)
  3. Work 7-10 days straight and then take the rest of the month off

Mind you, the living expenses stateside are of course all covered by virtue of being locums, absolving the nocturnist of maintaining a costly car and pied-a-terre in the city. There is a secondary bonus. Normally night shift workers are paid a premium in the US, due to the unsociable hours. However, Japan is far enough away from the US such that accounting for time zone difference, our nocturnist will be working a daytime schedule back home! By keeping the number of contiguous shifts high and the number of trips back and forth low, our nocturnist gets to maximize his # of days off, pay per shift, and minimize overhead expenses (time, money) involved in the commute. With a round trip ticket from Tokyo to Seattle about $850, rent in the US will just need to be more than $2000 per month for this commute to be worthwhile. That’s not even accounting for how much cheaper and better life is in Japan compared to the US.

Of course, one can think of similar arrangements for a British locums physician seeking to live in SE Asia and commute to the UK to work night shifts on an as needed basis.

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Unfair Comparisons on Cost of Living

I’m livid after reading Marketwatch’s recent article on cost of living differences, in which it tries to make a blanket comparison between Asian cities and American/European ones.

The key part is in how they designed the study:

The study rated the cities according to how expensive it is to buy basic items there at supermarkets, mid-priced stores and specialty outlets, using the price of food, drinks, clothing, recreation and entertainment and the cost of buying and running a car (including the cost of gasoline).

It also includes recurring expenses, including the cost of renting a home, utility bills, private schools and domestic help.

I understand why they’re doing this – to create an apples to apples comparison. However, there’s a reason the government changed the index of inflation to account for substitutions. Essentially, to have the same or better lifestyle in an Asian city vs an American one, you can go without certain things. The cost of owning and operating a car in Tokyo, Singapore, or Hong Kong is exorbitant because of incentives/taxes against congestion. Plus you don’t need a car to get around anywhere. It’s actually probably faster to take the metro/subway to avoid the surface congestion. Whereas in an American city you absolutely need a car to live.

Another aspect is private schools. I understand why they’d want to keep that in the comparison – the article is geared at high powered corporate expats who want to replicate a western lifestyle in Asia (note that they include domestic help in the calculations). However, again in the US you need to send your kids to a private school to get any kind of decent education. Not so in Asia. There, the locals hardly ever do so because public schools are so good (extremely competitive by world standards). This is anther example of a cost that’s not experienced evenly between Asia and America.

Finally, I’m not sure how they calculate food, but in my experience food in Japan (assuming you eat Japanese style meals) is much cheaper, tastier, and of better quality than the equivalent American ones. Restaurants are also cheaper, mostly due to not having to pay tip.

My gripes about this article are similar to my wife’s experience moving back to the US from Asia.

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Don’t Do Something, Just Stand There

Another week, another all time in the stock market. North Korea’s saber rattling and the devastation wrought by the hurricanes don’t seem to have put a dent in the market’s relentless ascent. Furthermore, with this being the “most hated” bull market in history (or so they all say), things don’t seem primed for a major collapse. A mild pullback on the order of 5-10%? Sure, perhaps it will happen within the next year, but a major recession doesn’t seem to be in the cards.

What’s the best mentality for an average investor to have? The same as always – don’t change your long-term strategy due to short-term circumstances. Ignore the noise going on around you and robotically invest what you won’t touch in the next 5-10 years. The mantra that my mentor in medicine told me, which brings “do no harm” into the modern world, is encapsulated by the title of the post. Sometimes it’s simply better to do nothing than to react like a jumpy cat to every slight movement.

Take this advice of this article for instance:

“If you don’t want to invest in equities because you fear a market crash, then you should never be in equities, because equities always crash,” Ritholtz said, speaking at Morningstar’s annual ETF conference.

He noted that there was a bear market in equities—defined as a 20% drop from a peak—every five years, on average, although the recent market environment has been bereft of even much smaller declines. Current valuations have led to concerns that such a crash could be imminent, but “If you’re under [the age of] 50, you should be rooting for a market crash, because it would be nice to have a 20% discount and then 20 years to compound that discount.”

He added, “there’s no escaping this: markets go up and down, that’s what they do. But if you’re still worried, you should significantly lower your expectations for future returns” by buying safer—but lower growth—alternatives. He noted that over the past century, U.S. stocks have returned about 10 times what Treasurys have, although they also experienced numerous massive selloffs over that time, something the government bonds hadn’t.

“The risk you assume when you buy equities is that there will be a significant drawdown in the 20 to 30 years you own them. But you get rewarded for that risk. Treasurys don’t have the same kind of drawdowns, but don’t deliver the same kind of returns.”

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Can You Avoid Paying Income Tax?

Elon Musk is depressed from overwork, just like many American his age. This is why your life goal should be to strive for full financial freedom by creating enough income streams such that your needs are fully met without you having to devote your time to it.

If you’ve read my book, you’ll know that I’ve identified being a digital nomad operating your own online business as one of the best ways to achieve that end. While I was pondering this, I wondered if there was a loophole in the system, a backdoor lifehack to circumvent existing laws regarding residence, territoriality, and taxation. That is, can you avoid paying all income tax completely?

As it turns out, others have wondered the same thing. Basically, most countries will not tax you if you haven’t lived in that country for a certain amount of time to qualify for residence. Usually it’s something close to  less than half of the calendar year. By staying below that level,  you avoid being considered a tax resident of that country. The US is a little different, being one of only two countries (along with Eritrea) to tax you on worldwide income regardless of residence, though it does give a foreign earned income exclusion.

The loophole is due to laws regarding residence and taxation that have not yet caught up with modern innovations in travel, communication, and technology. Before with income tied to jobs which were tied to location, countries can get their share of tax from your employer or from you based on your residence (if you operated a small business, for instance). However, now we have online web businesses that we can run from anywhere in the world. If governments can’t tax us at the source of production (because the business is “based” in a tax haven) or by residence (due to the digital nomad being constantly on the roam, never staying long enough in any country to gain residence), we’re free from all income tax.

As an example, let’s take a British citizen who wants to start a web business offering cultural sensitivity consulting to large established companies. This adventurous individual incorporates in Bermuda or the Cayman Islands, and then proceeds to travel the world, never staying long enough in any single place to owe taxes. This is made easy with visa free access to many of the world’s most fun destinations, and eventually our nomad settles on a regular cycle of Ireland -> Thailand -> Singapore -> Australia -> Panama -> Ireland. Meanwhile, all the web income generated from work done remotely is not subject to tax in any of the countries visited, since the corporate income is categorized as earned in the tax haven.

Let’s celebrate this with a Joan Baez song glorifying the joy of avoiding taxes:

 

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How Not to Support Spending

What’s one way that you can stretch your spending beyond your means? By financing it. What used to be bought entirely with cash has turned into longer and longer payment schemes. From 10 to 30 and even longer mortgages, and ever increasing auto loan durations, it’s one more way for cash strapped modern families whose wages haven’t grown to keep up with their neighbours.

I can understand doing it for housing – it’s generally a productive asset that will increase in value or at least hold its own. Many may say cars are a necessity for modern life, so that’s fine, but do try to be frugal with how luxurious a car you get. What’s inexcusable though is financing every aspect of your life including luxury spending and consumption. That’s just asking for debt trouble. Live by the old mantra that if you have to go into debt to buy a depreciating asset, it’s probably not a good decision.

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Get Out of a High Cost Area

You probably know that coastal cities are expensive. Actually, if  you’re reading this blog, chances are better than not you’re an educated person living in an urban area. It’s also not surprising that the high cost of living serves as a wall that prevents the migration of poor workers from e.g. Ohio or West Virginia. Interstate mobility in the US has decreased, and part of that can undoubtedly be explained by pull (family ties) and push (cost of living) factors. This has contributed to political polarization, overall wage stagnation, class-based segregation, and increased resentment all over the board.

The key tenet in my book is that wages are not going up, at least not as fast as cost of living. This article makes it abundantly clear that it’s driven by housing:

Housing costs have grown much faster in high-income places than low-income ones since 1960. Housing has always been more expensive in high-income places, but the difference is getting more extreme. In 1960, on average, US states with 10% higher incomes had housing costs that were 10% higher. In 2010, states with 10% higher incomes had 20% higher housing costs.

I would also add labour to that mix. As part of overall price pressures, you have to pay more for help, since they need to be able to afford to live there or otherwise be compensated for a long commute in from the exurbs.

So if you’re living in an expensive city, carefully examine your own life and entertain the notion that you may have more disposable net income after moving to the sticks. (Note: this doesn’t factor in the potential for career advancement and networking opportunities in the big city)

Better yet, take advantage of geographic arbitrage using techniques from my book.

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How to Buy a Car (From an Expert)

I somehow got subscribed to the daily Quora mailing list with interesting questions and answers. The one for today was about how to get a good deal when buying a car. Pasted here is the entirety of the response:

Let me make your life easy (I own a few dealerships). It takes 5 minutes. Once you know exactly what kind of car you want, simply go to the dealer, a salesmen will greet you. Tell him you’d like to go inside and talk about the car your interested in. Go inside, tell him you’re comparing with two other brands but you like this one the best. Tell him, I’d like to buy this car now if you can match the other dealers’ offers which is $100 over invoice. Tell him kindly, “Please let your manager know my offer is $100 over invoice, which is what the other dealers offered me, and if he accepts, I’d like to see a copy of the invoice (which they must do legally – you’re welcome), and then we can wrap this up now and I’ll buy you lunch for your great service.” That’s it. Unless it’s a specialty car, it will go down just like that. If you’re paying cash, it’s a done deal 99.9%. If that doesn’t work, call the next town over, tell them you were offered $100 over invoice but you don’t like how they do business so want to go to the competitor. If they agree (which they will because the car biz is super competitive) ask them to email a copy of the invoice. Once they do, call them and tell them you’re on your way. Side note- best time to buy a car is New Years Eve, 2 hours before closing using this method….just tell them “Come on guys, let’s wrap this up quickly so we can all go spend time with our families.” It’s not as hard as people think. Believe me, the salesman just wants to sell a car, he cares more about closing the deals than anything else because if he doesn’t, he doesn’t get paid. Another note, the faster the deal, the better. And be POLITE, good salesman ARE expert salespeople and they’ll rip your head off without you knowing if you’re an ass. Oh, and all your friends who think they’re experts…are not! Even if you buy the car for 50 cents they’ll tell you that you’ve been screwed, lol. Buy a decent car for $100 over invoice and go home happy. And don’t over spend on cars, they all have four wheels….just get a good running car. The more you spend, the more they depreciate and they’re all worth $2500 in 10–15 years. This is advice for new cars. Used cars….offer 3k less than the asking price OR 500 over wholesale book whichever is less (use blue book online between trade-in & private party value)(pay cash)…also 5 minutes. But only do these if you’re ready to buy in that moment. Test drive all first. If you don’t have cash, get pre-approved at a credit union and take the letter to the dealer to solidify your seriousness. If you have bad credit….it’s the bank that will screw you, not the dealer. Also with bad credit, the dealer had to pay bank fees so they can’t come down as much on the price. Bank fees range from $500–$3000! depending on how bad your credit is. My thumb is tired now…good luck!

All I can say is that these recommendations make sense. I usually go through Costco Auto which gives a pre-fixed price, but direct bargaining with a dealer can work as well. Go in with a no nonsense attitude, have an anchoring price, and come prepared with a preapproved loan (or cash). That takes away the multiple possible ways that the dealer can screw you over. Be prepared to walk away if the dealer can’t meet your pre-established price though.

It also helps to go in at certain times of the year (4th of July sale, Christmas sale) at the end of the season when sales reps are trying to meet quotas. Also what can help is buying a model that is not that popular that the dealer is trying to move off the lot. Sedans right now are losing ground relative to SUVs and light trucks, so it’s a good time to scoop up one and go against the grain.

Of course, going for a slightly used car instead of a new one can save you money, as this post shows.

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To Buy or Not to Buy at Market Highs

There is always a bit of fear when evaluating buying in at all time highs. The sentiment is understandable. Everyone is afraid of buying in at a market peak and eating the recession that follows. After all, after almost a decade of uninterrupted growth, aren’t we due for a downturn?

However, the data analysis (done by someone else!) and existing scholars such as Tobias Moskowitz supports momentum investing. In other words, when the market or an individual stock is rising, it’s more likely than not to keep rising than to suddenly reverse.

Applied to current market highs, I would still encourage ordinary people to invest their new capital in accordance with prior allocation ratios, to achieve a healthy rebalance despite stock market highs. More likely than not, the market will be even higher (even after adjusting for inflation) in the next decade. If prior trends hold, we may be on the cusp of a 1-2 decade run of sustained all time highs.

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