Investing -2

Taxes on Gains

Obviously, taxes are fucking inevitable. So taxes are a large part of the consideration when finding a place to invest. For some bizarre reason, different types of income are taxed differently. That is why, allegedly, Warren Buffet has a lower tax rate than his secretary. I won’t go into the details, but generally capital gains (money earned from investing) tax rates are lower than labor income taxes. Isn’t that messed up? But that’s the way it is. To further confuse you, different types of investments return different types of income. For example, short-term dividends and savings interest are considered basic income, while interest on federal bonds are treated differently. Also, your stock gains are taxed differently depending on how long you had them for (it’s generally less if you had the stock for more than a year).

 

So all in all, it’s super complicated, and that is why I don’t directly invest. Usually whatever brokerage service you use will give you a tax form so you can file your taxes rather conveniently, but it’s still something you have to think about.

 

Direct Investing

There are multiple ways to directly invest. You probably heard of Robinhood, an app that allows you to trade stocks on the phone. There are other online brokers like Charles Schwab, TD Ameritrade, so  you can pick and choose, if you want to directly invest. For cryptocurrency, you can invest through many different platforms, but the one I used was Coinbase Pro. It has a much lower fee than Coinbase, and your trades are quicker. If you want to go down the rabbit hole of directly investing in cryptocurrency, I suggest that you stay within the top 30 coins, and not go deep into the weird ones (like EMC2). Just from my personal experience, half-assing direct investing usually ends up with a lot of time wasted and money lost. But I think it’s also a good way to learn how the world works. For example, I learned a lot about how different dynamics are at play for the stock market in my turbulent journey through direct investing.

 

Robo Advisors

I use Robo advisors for all my investments. After the stressful year and a half, I didn’t want to stress over my investments any more. Obviously if you have a strong mentality for investing, you won’t be stressed over, but I just think it’s not worth the trouble. Also, since I’m planning for a much longer term investment, I just dump money and not look at it. What these `robo advisors’ do is that they make a portfolio of diverse exchange traded funds (ETFs) depending on your risk tolerance. ETFs are, in simple terms, a collection of securities with a common theme. If you don’t want to know anything about ETFs and securities and whatever, it’s okay. What I do is that I have it set up so that every week 400 dollars would be sent to my investment account. That’s it. I sometimes check it when I’m bored, but that’s it. I just let it do its thing. The portfolio has done much better than when I was incessantly checking the prices. So I’m happy. Every year, it spits out tax forms that I can use, and it’s quite convenient. 

Property

A lot of people consider their house as a major part of their investment. In my opinion purchasing a house for your primary sole residence is not a good move. The thing with houses is that you have to pay insurance and tax on it. On top of that, you’re paying interest in your mortgage. So to even break even, your gain of your house price going up should match the property tax and insurance you pay in a year, and the mortgage interest. It’s an investment that requires you to pay constantly. Of course you get to save on rent, but sometimes it’s not worth it. I feel like owning a house comes with a lot of unforeseen events. However we are sort of told from a young age that it’s the thing you’re supposed to do (like get married, have kids, get a house). But it’s definitely something you should logically consider.  Buying and selling a house costs a lot, with all sorts of fees (e.g. realtor fee, inspection fee, etc.), so if you plan to move away soon, it’s probably not a good idea.

 

But here’s the case for houses. For the property tax and mortgage interest, you get to deduct that from your taxes (limitations apply). And you get to save on rent. 

 

I think one of the scenarios it makes sense to purchase a house is if you want to rent it out. If you have a house that you want to make rent off of, and the money you get from rent exceeds your property tax, insurance, mortgage interest, and other miscellaneous costs, you’re generating revenue from having the house. On top of that, if your house goes up in price, that’s an extra money you get.

 

Again, I’m not an expert, so I can’t really speak in detail. But my point is this - there are a lot more costs than what people think in owning a home - both short term and long term - and you should do your calculations before you get one. Also, I consider stressing over stuff also a cost, although it’s not a financial one. In my apartment, I call the maintenance people to fix things. But if I have my own house, I would have to mess with all these things, and I value my mindspace and convenience more.