The Magic of Long Term Investing (Preaching to the Choir)

[Midpack]

I know this is probably a very common situation here, but I was reviewing cost basis this morning (something I rarely do), and I was surprised. I very rarely sell equity assets, and if all goes to plan, our heirs will receive most of it on a stepped up basis. If I sell any, at least it's at lower capital gains rates. And I haven't reinvested dividends since 2011 when I retired.

I'll bet there are others here who are even more capital gains heavy...

 

[FLSUnFIRE]

My basis is ~20% across my accounts... started early and harvested losses in my taxable in 2008/9 (such a cute small portfolio back then though). Makes most of my WDs taxable so a bit challenging drawing enough cash and keeping MAGI in check but a nice problem to have.

 

[chemEguy]

How about the wrinkle or unexpected impact of long term investing?

I started retirement investing when I was 23. I lived as cheap as I could and put everything I was able into investments. It was a LOT of effort for me to save and invest $5000 in a year back in the late 90s. My wife, whom I’d not yet met, was doing the same thing. Naturally, things snowball if you’re committed to the cause and we were, so today we are where we are (right at $5 mil net).

What’s unexpected about it?

I very much feel like our net worth is out of line with my profession and position at work. I’m an engineer, individual contributor and low on the food chain. But I suspect our portfolio would probably stack up ok against some of the corner office crowd.

In my mind I felt like career and finances should move in lock step. But it turns out that concept can be short circuited with long term vision and discipline…which I proved to myself mathematically on an Excel sheet back in 1996 but never anticipated would work as well as it has.

So yeah, long term investing is very powerful if the individual has the willpower over decades to stay the course. And yes, our charts look a lot like yours.

 

[marko]

Yeah. Every year around now, I start looking for some TLH.
Nada, or at least not enough to be worth the effort.

 

[FLSUnFIRE]

How about the wrinkle or unexpected impact of long term investing?

I started retirement investing when I was 23. I lived as cheap as I could and put everything I was able into investments. It was a LOT of effort for me to save and invest $5000 in a year back in the late 90s. My wife, whom I’d not yet met, was doing the same thing. Naturally, things snowball if you’re committed to the cause and we were, so today we are where we are (right at $5 mil net).

What’s unexpected about it?

I very much feel like our net worth is out of line with my profession and position at work. I’m an engineer, individual contributor and low on the food chain. But I suspect our portfolio would probably stack up ok against some of the corner office crowd.

In my mind I felt like career and finances should move in lock step. But it turns out that concept can be short circuited with long term vision and discipline…which I proved to myself mathematically on an Excel sheet back in 1996 but never anticipated would work as well as it has.

So yeah, long term investing is very powerful if the individual has the willpower over decades to stay the course. And yes, our charts look a lot like yours.

It is pretty crazy but predictable! As of the end of August my LNW is 113% of my lifetime earnings before taxes and 143% of my lifetime take home pay less property taxes. That's after 3 years of living off my investments.

 

[Midpack]

It is pretty crazy but predictable! As of the end of August my LNW is 113% of my lifetime earnings before taxes and 143% of my lifetime take home pay less property taxes. That's after 3 years of living off my investments.

I remember doing the calculation when I retired. Our net worth at the time was 94% of my lifetime earnings at that point, now it's a lot more...

 

[Koolau]

I shudder to think how little my cost basis is on Megacorp stock. Some of it can't be much more than 2% of the current stock price. Of course, I've had it - for a while!

 

[Lorenzo]

I shudder to think how little my cost basis is on Megacorp stock. Some of it can't be much more than 2% of the current stock price. Of course, I've had it - for a while!

What is the general consensus for where in the order of spending from various types of accounts this kind of highly appreciated stock falls? I sold about half of mine at some point pre-retirement just because I got the jitters, but now that I'm familiarizing myself with the concept of in what order to take what from what account for spending in retirement, I want to put more forethought into the next sale(s). My Megacorp is in the taxable account. I have long been in the 15% capital gains bracket and believe this will not change in the foreseeable future.

 

[TheWizard]

We're talking about taxable brokerage accounts here. I had close to zero in my taxable account at start of retirement in 2013; the bulk of my funds were in tax-deferred 403(b) with a small amount in Roth IRA.

I started my taxable account at Vanguard in 2017 and it started increasing nicely once I started age 70 SS in 2020.
Obviously, you want to use Specific ID in your taxable account so you can choose which lots to sell when it comes time for a new car or whatever.

I don't reinvest dividends automatically; they pile up in my settlement fund along with new money to eventually buy more shares of whichever ETF I choose...

 

[Koolau]

We're talking about taxable brokerage accounts here. I had close to zero in my taxable account at start of retirement in 2013; the bulk of my funds were in tax-deferred 403(b) with a small amount in Roth IRA.

I started my taxable account at Vanguard in 2017 and it started increasing nicely once I started age 70 SS in 2020.
Obviously, you want to use Specific ID in your taxable account so you can choose which lots to sell when it comes time for a new car or whatever.

I don't reinvest dividends automatically; they pile up in my settlement fund along with new money to eventually buy more shares of whichever ETF I choose...

I use my settlement fund as sort of a combo "mad money" and "emergency fund."

 

[MarieIG]

Very nice Midpack! Yes we have some capital gains baked into some of longer held assets.

 

[Badger]

We do something similar as Midpack. Once we retired in 2011/2012 we stopped all purchases in tIRA and stocks with all dividends/interest swept into MM accounts. I don't want to think about what our taxes would be if we tapped into those if we needed money for our expenses. Only the Roth continues to buy more of the same MF with dividends. The tIRA money that was swept into a MM account is used for RMD. All the taxable money is in CD ladder, bonds, or cash account. The taxable account money is the only place where we draw money and the other accounts are left alone and will more than likely be inherited. Neither of us have many wants or needs but the money is there if we choose to use it. So far the majority of living expenses comes from SS and a couple of small pensions since the house is paid off and health care costs are minimal. After all the years of modest living and hard core saving I am enjoying (and have no fear of) encouraging my wife to buy whatever she wants.

 

[audreyh1]

We also let all dividends interest and distributions sweep into MM funds. By the end of the year I often have enough to cover a large chunk of our annual withdrawal in Jan with minimal rebalancing needed.

 

[523HRR]

Same here. TLH has gotten difficult to find losses to take to meet the $3,000 annual tax deduction.

 

[Texas Proud]

Just checked one account... 67% of the value is cap gain...

Oh wow!!! My other account is 77%... it is the larger account...

It is a problem to find securities to sell as the gain is so much...

 

[Sara]

I’m

I know this is probably a very common situation here, but I was reviewing cost basis this morning (something I rarely do), and I was surprised. I very rarely sell equity assets, and if all goes to plan, our heirs will receive most of it on a stepped up basis. If I sell any, at least it's at lower capital gains rates. And I haven't reinvested dividends since 2011 when I retired.

I'll bet there are others here who are even more capital gains heavy...View attachment 52199

 

[Sara]

I have an adult child who has struggled with mild intellectual learning disabilities. He never qualified for any government assistance of any kind. He has only worked a part time retail job on minimum wage for most of his adult life getting only about 20 hours of work a week on average. (Full time employment is hard to get for disabled individuals like my son even though he has tried very hard to get full time work)
As parents, we provide him free room and food. He does many chores for us to pull his weight around the house. He pays for his own personal expenses and healthcare premiums. We have diligently helped him fund his Roth IRA annually with his own earnings investing in broad based index funds and ETFs.. His portfolio is now approaching 1/2 a million dollars all in after tax Roth.
The true power of compounding can’t be beat!

 

[Koolau]

^^^^^^^^^

You sound like very caring parents. Funding the Roth will pay dividends for a very long time. Good on you!

 

[pjigar]

From the last 12 years of transaction data, 67% gain+dividends and 33% cost basis!

 

[pjigar]

^^^^^^^^^

You sound like very caring parents. Funding the Roth will pay dividends for a very long time. Good on you!

We do 100% match from "bank of Dad" for any contributions DD makes to her retirement accounts (Roth for now). She can eat her cake and have it too; and we can start passing (tax-free) gifts sooner rather than later.

 

[athena53]

I started monitoring new money additions/withdrawals in 2003. The balance I had at 1/1/2003 was 8.3% of what I have now. Additions and withdrawals netted out to 13.5%. The rest, 78.2%, is investment results. Wow.

 

[NeilDH]

How about the wrinkle or unexpected impact of long term investing?

I started retirement investing when I was 23. I lived as cheap as I could and put everything I was able into investments. It was a LOT of effort for me to save and invest $5000 in a year back in the late 90s. My wife, whom I’d not yet met, was doing the same thing. Naturally, things snowball if you’re committed to the cause and we were, so today we are where we are (right at $5 mil net).

What’s unexpected about it?

I very much feel like our net worth is out of line with my profession and position at work. I’m an engineer, individual contributor and low on the food chain. But I suspect our portfolio would probably stack up ok against some of the corner office crowd.

In my mind I felt like career and finances should move in lock step. But it turns out that concept can be short circuited with long term vision and discipline…which I proved to myself mathematically on an Excel sheet back in 1996 but never anticipated would work as well as it has.

So yeah, long term investing is very powerful if the individual has the willpower over decades to stay the course. And yes, our charts look a lot like yours.

NW out of line with your profession: I experienced the same, so those still in the profession seem to be bewildered that I no longer have to be in it. But I don't think I did anything crazy, except invest in some individual (mostly tech) stocks starting in 2000 that of course "compounded" nicely. That's still 25% of our portfolio tops. Yet I guess most people wouldn't do that.

 

[freedomatlast]

Most of the higher ranking people that I knew well at my MegaCorp were so busy making money for the company and positioning themselves for the next promotion, that they had little time for investing and earning passive income for themselves. Most spent every bit and more than they made to uphold the image of the next position they strived for.

After seeing this firsthand, it's not a surprise to me that those of us that have taken investing seriously from a young age now make more money while we sleep than they do while they're awake.

 

[kcowan]

I am conflicted as I watch my GCs struggle to survive a buy a house. I could help them with a balloon loan for the down payment but I do not want them to be committed to rent money from the bank for their lives. They are the first of five GCs and will not have my Great GCs until they are established!