Dealing with Down Days in the Market
I saw a lot of frantic posts in our Facebook group on Friday about the market being down 2%+ at one point during the day.
I’m writing this on Sunday and I of course don’t know where the market is going to go this week, or the next, but I do know this:
I’m playing with a 50-year investing timeline.
If I get spooked every time the market drops 1%+ in a day, it’s going to be a very stressful ride.
There will undoubtedly be years where the market, and thus my net worth, is down well over 10%. I can almost guarantee there will be a year where the market is down over 20% in a year.
But even knowing that, I strongly believe this is the single best way to maximize my wealth over the long-term.
I particularly enjoyed this tweet from Morgan Housel on Friday:
“This is the biggest market decline since the last decline you don’t remember or care about anymore.”
And of course, if you need a little relaxation, here’s JL Collins’ famous “Guided Meditation for When the Stock Market is Dropping.”
Amplifying New FI Voices
I love it when exciting new FI podcasts come on the scene and I especially love it when they are really good.
Katie & Alan Donegan and I held our first ‘Extraordinary Event’ weekend in Vegas a few months ago and the energy there was electric.
I know of at least 2 podcasts that popped up after the event and they are both great listens if you’re looking for the perspective of people on the path to FI in earlier stages than you sometimes hear on existing podcasts.
With that in mind, here are two recommendations for your listening enjoyment:
Meghan Combs created the EverydayFI podcast and here are the links to listen on Apple Podcasts and Spotify
Mitch created the myFIcapsule podcast and you can listen on Apple Podcasts and Spotify
[Note: Get on the Extraordinary Events email list for first crack at future events – there are going to be some exciting events announced soon with events across the US and some amazing international locations]
0% Long-Term Capital Gains in Greater Detail
Three weeks ago in the newsletter I explained the concepts of:
‘Free Money’ = The amount of income you can earn before you owe any federal income tax.
How you pay 0% in Long-Term Capital Gains tax on taxable income up to $94,050 (for 2024) for married filing joint (MFJ).
If you didn’t read it the first time, here’s a link to the newsletter on our website. This is essential information.
Chinmay responded to that newsletter and asked for some more in-depth detail:
Can you please explain this if you can in more detail with an example of MFJ with one kid situation where you said:
“This means they can actually ‘Tax Gain Harvest’ $74,050 of LTCG by selling shares of stocks, mutual funds, ETFs, etc. that they’ve held for more than a year (Long-Term definition) and pay a whopping $0 of Federal Tax Liability on it!”
I wrote back with the following (made up example of the stock sale price & basis, but it highlights the power of this):
Example:
They earn: $49,200 of W-2 wages that year.
They sold stocks/funds/ETFs with a current value of: $210,000 which they bought (“basis” of) originally for $135,950. This means they will report a LTCG on their tax return of $74,050.
Incredibly, all this income will amount to $0 of federal tax liability paid.
Their tax return would look like:
$49,200 Wages
- $74,050 LTCG
– $29,200 Standard Deduction
= $94,050 Taxable Income
(The tax software is smart enough to split that into $20,000 of ordinary income (Wages – Standard Deduction) and $74,050 of LTCG at the preferential rate.)
So the $74,050 LTCG would be $0 of tax for the 0% preferential rate.
The $20,000 of ordinary income would calculate out to $2,000 of tax liability but their $2,000 child tax credit would wipe it to $0 of tax.
Voila, $0 of tax on $49,200 of wages and selling $210,000 of securities that spit off a LTCG of $74,050.
My 1% better:
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Finished Brian Feroldi’s “Why does the stock market go up?”
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Started travel rewards with my wife using your top recommended cards page.
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Started using Todoist for upcoming tasks. I no longer need to remember random tasks!
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Increased 401k contributions by 1% with my recent work anniversary.
– Stephen
Here’s my 1% better (or, 15% better!): I received a 15% raise starting July 1, which equates to a $22K+ increase! Having pivoted in 2019 from work in academia and nonprofit organizations to consulting for technology firms, I’ve now experienced multiple significant raises over the past 5 years, resulting in more than $100K increase in my salary in that short period of time.
When I was younger I never thought it would be possible for me to earn 6 digits in my lifetime, and now I’ve far surpassed it. This most recent salary bump was by far the largest (talk about “compounding”!), and I’m so excited to start directing it to my investments (no lifestyle inflation here!)!
– Britt
My wife recently received a promotion and the salary increase they offered her was less than she was hoping for. She went to her HR representative and ended up negotiating a salary increase of an additional $2k/ year. The HR representative commented that most female employees never ask for more money. Just a friendly reminder than it never hurts to ask!
– Kevin
My 1% better is I joined a yoga class that occurs twice a week at my gym to help with my lower back pain and improve my sleep.
– Maya
This week’s 1% better was shopping for, and buying, new auto and home insurance. For years now we’ve stuck with USAA. They’ve always been more expensive than other options out there but their customer service is hard to beat (in my opinion) and I really enjoy doing business with them.
However, seeing the upcoming premium increase for the auto insurance (an additional $100 for a six month premium) finally pushed me over the edge. Bundling the auto and home and moving to Progressive yielded a 37% reduction in premiums. I’m sad to move away from USAA, but loyalty has its limits.
– Brad & Eliana
Thanks to getting our finances on track we had the ability to negotiate with cash during two recent home maintenance projects. Our roofer agreed to shave $600 off the total cost when we asked about a cash discount. A tree removal service cut $500 off the total price for paying in cash for a tree removal. Having enough cash is powerful and saved us $1100 just this year.
– Erin
