Bye Bye 2008
2008 is finally around the corner now. What a busy year! Now 2008 will soon be a memory, I took the chance to write a final annual summary so the year will be remembered when I looked back decades from now.
Family
What's Good: My wife, my son and I, as a family, has much stronger bonding compared to last year. We enjoyed a lot of precious family moments. My wife continues to have success in her great freelance job, and my son, now at grade 2, is starting to having fun in his school. Everyone, including my extended families, is still healthy.
What's Not So Good: Really nothing. I feel blessed our family is growing in the right direction.
Work
What's Good: I'm taking much more responsibilities at work than a year ago and received an important promotion as a result. I continue to feel valued and am excited to come to work on most of the days. I derive a lot of fun working with my team, including my new boss who was parachuted to us 6 months ago.
What's Not So Good: For the entire year, I was essentially taking the workload of two, and the financial crisis has been challenging the effectiveness of our team to optimize resources. Many times, I felt I am consumed by the work by having to get up 6m in the morning and attend late-night calls. Also, I took more business trips than last year -- I spent altogether over 100 days on the road for business. To some extent, the economic crisis and accompanying reduced level of business travel is a blessing :-) In all means, 2008 is simply the busiest year ever I had in my career.
World Exploring
What's Good: My job keeps taking me to new places of the world (that it, before the financial crisis hits us and we mandated a travel freeze), and we as a family continue to enjoy from traveling. New places visited: Vietnam, Taiwan, Spain, Belgium, Netherland and Denmark. Family trips: Seattle, San Diego and Sanya -- we love beaches, isn't it?
What's Not So Good: There are still many fascinating places on our plan for a long time but we never made it to our itinerary. On the watch for 2009: Egypt and Greece.
Financials
What's Good: If I have to pick up some silver linings, that'll be that I still have a highly paid job that is safe, and I can still provide for the family and keep a highly positive cash flow without dropping quality of life.
What's Not So Good: Our portfolio of $800k at the start of the year is not spared of the financial crisis and the worst stock market performance in decades. Albeit the positive monthly cash flow we used to infuse our portfolio, we ended the year with less money than we started the year with. 2008 might be remembered as the year that is lost.
Blogging
What's Good: Hmmm … thank you for still reading this post after the seven-month drought.
What's Not So Good: I can make excuse about heavy workload or writer's block, but the fact is I do feel bad I didn't keep the blog alive for the most part of the year. Let me make a wish to do better in 2009 -- after all, the bar I set in 2008 is low enough to cross.
So Bye Bye! Sayonara! Adieu! I look forward to a different 2009 that will bring new surprises and happiness.
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Tax-Loss Harvesting For Buy & Hold Mutual Funds and ETFs
Always the procrastinator, I finally sold some shares of my punished mutual funds and ETFs in order to do some tax-loss harvesting. There are only two days left in 2008!
What is Tax-Loss Harvesting?
The main idea of this tactic is to legally pay less taxes by taking advantage of the fact that losses are taxed at potentially different percentages than gains are.
The IRS lets you claim a deduction for investment losses against your ordinary income. For example, if you lose $3,000 on an investment, and you realize that capital loss by selling the stock or fund that incurred the loss without realizing any capital gains in the same year, you can claim a $3,000 deduction on your income tax return. This means you won’t have to pay income tax of up to 35% on $3,000 of your income that you would’ve had to pay otherwise.
On the other hand, a realized capital gain of $3,000 which you held for at least a year would only be taxed at a maximum of 15%. Therefore, although losses are still undesirable, if we plan on holding the investment for at least another year, we should “harvest” all the losses we can get.
Expanded Example
Taken and edited slightly from a older post:
Scenario #1: You are in the 28% tax bracket. Say this year you bought $10,000 of IVV, an ETF that tracks the S&P 500. In 2006 it drops to $9,000, and in 2007 it rebounds to $11,000 and you sell. You’d have a long-term gain of $1,000 from your original $10k, so you pay 15% in taxes ($150), and end up with $10,850 in your pocket. Net gain of $850.
Scenario #2: Same 28% tax bracket, same start period. You buy $10,000 of IVV, and in a year (2006) you sell at $9,000, and the very same day you buy IWB, an ETF that tracks the Russell 1000 Index, but is very similar (but not identical) to the S&P 500. Since it tracks very closely, your $9,000 of IWB in 2006 will also rise back to $11,000 in 2007. After a year and a day, you sell your IWB for $11,000.
Now in 2006, you had a capital loss of $1,000 from your IVV. So you deduct $1,000 from your ordinary income taxed at 28% and save $280 in taxes. That’s $280 in your pocket. Then, in 2007 you realized a long term capital gain of $2,000. You pay your 15% tax ($300) and you end up with $11,000 - $300 = $10,700. Add in your $330 from the last year, and you end up with $11,030.
This time, even though you had basically the same level of market risk, you obtained a net gain of $1,030.
Substantially Identical?
Note that you must do this with similar, but not “substantially identical” investments. For example, you can’t buy IVV back again right after selling it and try this. That would be called a ‘wash sale‘ by the IRS.
The Year In Review: What I Have Learned
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