Tax Conscious Stock Sale: A Case Study
I wrote a couple of weeks ago about why some basic tax knowledge will not only help you to maximize your tax refund after the fact, but will also serve as good guidance on how one should plan financial activities beforehand. Case on point: my exit strategy on my investment in Apollo Group, Inc. (APOL).
For those of you who don't know, Apollo Group is the operating of University of Phoenix, Inc. (UPX), an accredited university with predominant online presence, and many other educational institutions. I bought 400 shares of its stock at $35.07 apiece on November 20, 2006, following strong recommendation from Morningstar equity research's recommendation. (In retrospect, I bought the stock almost at its 3-year nadir. What a perfect timing!)
Now the stock APOL is trading at over $75 apiece and I'm happily watching my original investment of $14,000 turned out to be another double-bagger. Apparently the stock is no longer cheap at 22 times forward P/E. In fact, in my latest monthly portfolio review, I have listed my target (sale) price of APOL as $65, but I still haven't sold the stock yet. Why?
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What A Year of 0% APR Arbitrage Has Brought Me
Long-term readers of PFBlog knows I have been taking advantage of credit card companies for years. Especially, I'm very good at 0% APR arbitrage, whereby I sign up for new credit cards with attached introductory 0% APR balance transfer offer, move the entire balance immediately to my bank account, and enjoy the high saving account rates of 5% or more while remitting only the monthly minimal payment back to the credit card company.
Of course, this strategy will drag down your credit score. Last summer, especially, I applied five cards in two months' time, and my credit score tanked from 720s to 640s, and I was essentially denied new credit application after being seen a credit risk by most banks. But credit score is only of cosmetic value if you don't need credit any time soon. To me, after all, I have no better use of my credit score now that I'm sitting on a portfolio of over $800k and has no plan to buy a property any time soon.
The below chart is a great summary of what happened in the last dozen months:
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How to: Sell Your Home Without an Agent
The Value of Essential Tax Knowledge
Now you can always choose to tackle the annual chore of filing tax return by 1) learning to file tax yourself, or 2) paying someone else to file your tax. You may think the difference is just the $100 or so you pay someone sitting in the booth in Walmart in April, but it can be much more than that.
Take myself as an example, given that I'm working in Asia, taking paycheck from a US-based company corporate entity, running a sideline business and still having to pay federal income tax in the States, my tax profile is on the complicated end of the spectrum. I'm thankful that my employer is paying KMPG several thousand dollars a year to file my tax. I will never be able to figure out how to navigate the intrigue laws governing federal tax on foreign earned income.
Now I also need to confess I'm a control freak when it comes to managing money, so in each of the past two years, I took KMPG's draft return, and crunch every line again in a mass-market tax software, until I can satisfactorily say I understand how all numbers are tied together to produce my total tax number.
This exercise took me about 10 hours every year, and it is worth every minute I put to it. Why? In each of the past two years, I found at least $2,000 worth of error in my favor. The first year, KMPG classified my business income as US earned instead of foreign-earned, effectively depriving me of the opportunity to offset some of my foreign-paid tax. The second year, KMPG even forgot my employer withhold taxes from my vested restricted stock grants.
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Review of Fidelity Income Replacement Funds
Having accumulated a big retirement portfolio but uncertain about how you should count on the portfolio to generate regular inflation-adjusted monthly payments? Our innovative financial service industry is not hesitate to help. Introducing the latest innovation in mutual fund industry … Fidelity Income Replacement Funds.
As marketed on the Fidelity web site:
Fidelity Income Replacement Funds are a new type of mutual fund designed to combine the power of professional asset management with professionally managed withdrawals to help turn part of your savings into regular monthly payments. The Funds are designed to be used in combination with other retirement income products and provide:
- Regular monthly payments that seek, but are not guaranteed, to keep pace with inflation
- Flexibility to change your mind at any time; you maintain 100% control of your investments with no additional fees or penalties
- Professional management of your assets and withdrawals
- Transferability of any remaining assets to your heirs, as with all mutual funds
In the hypothetical example included in the video demo, one can invest $100,000 today, and start getting inflation-adjusted monthly payout immediately, starting at $580 in Year 1 (to $680 in Year 6, $950 in Year 12 and $1,425 in Year 20). Expected total payout over the lifecycle of 20 years? Over $216,000. READ FULL POST ...
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Running Household Finance As A Business: Charting the Money-Making Machine
This is the second installment of the series "Running Household Finance As A Business". My goal in this series is to "examine our household finance under the corporate finance microscope," which, I hope, will bring up some new perspectives in thinking about personal wealth accumulation.
In the first part of this series, I devised some fancy names for our corporate structure, including MM Household as the umbrella holding company, and Money Manager Co., Perfect Future Publishing Co., Expat Services Co. and Value Invest Co. representing our diversified income streams. While I purposefully concealed some details of each entity, it suffices to know that our financial life is really complex, or for the lack of a better term, diversified.
In this chapter, I attempt to show how all these pieces work together as a money-making machine. Let me start by showing you a chart that describes how money flows through MM Household in the first three quarters of 2007.
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What’s Your Nest Egg Score?
As I am doing my regular web surfing of personal finance news, I bumped into A.G. Edwards's site and particularly its Nest Egg Score section. A.G. Edwards labels the Nest Egg Score as "a comprehensive indicator of how well U.S. households are doing at building personal wealth."
With its online Nest Egg Score Estimator, A.G. Edwards will supply your individual score after you answer 14 quick questions. It only took me 3 minutes to finish the questionnaire, and here is what I got:
Your estimated score of 786 gives you a Nest Egg Score ranking of Excellent, which means you've done an outstanding job of building your nest egg up to this point in your life. Now you may want to focus on developing strategies for continuing to build and preserve your wealth, protecting it from unexpected costs (such as long-term health care or a disability), and providing for heirs in the event something happens to you.READ FULL POST ...
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A Beginner’s Guide to Investing in Art
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