Last year after Europe seemed to have been hammered pretty well, I decided to put my 2011 Roth IRA contribution in Vanguard’s Total International Index. This turned out not be so great because Europe continued to have problems and a tsunami clobbered Japan. US stocks (where the rest of my money is) stayed about the same, but it was a roller coaster ride. Continue reading
I keep a spreadsheet of my investments and one of my favorite things the spreadsheet does is track not just the average cost of the investments, but overall how much it is worth over the net amount of money spent on the investment (accounting for dividends and so forth). It also tracks reportable gains or losses using average cost or by identifying shares sold. As I held onto investments for longer periods of time, I wanted to get an average annual return, so I came up with a formula based on the date I first buy shares in something to set a timeline up to now. And it uses exponents correctly so it doesn’t just say that if you have a 50% gain over 5 years that you have a 10% annual return (it would really be more like 8.4% annually with compounding). The flip side of that is if I buy something and it goes up even a small amount after the first day (a tiny fraction of a year), it shows a ridiculous annual percentage increase. Now, I don’t like to brag about stock picks because I am losing money on the year, but I did buy some Bank of America one week ago (not enough to make a difference since most of my money stays in mutual funds). I bought at $6.50 a share and soon it was down as low at $6.01 a share. But then Warren Buffet made a play and it went up over 20% during one day (less than that by the end of the day). And my spreadsheet showed some ridiculous percentage increase. But it has kept going up for a couple of days. Usually by a week, the percent gain drops to something reasonable, but right now my investment (on paper) is up 28% in a week. In fact the percentage is so high that Excel just showed #######, meaning the number is too large to fit in the square (as an investor this is something that makes you feel pretty good, like on the Dukes of Hazzard when Boss Hogg was calculating how much some scam of his would make on his calculator. Once he pressed the equals button he hollered for delight. Roscoe asked him “How much will we make?” And he said with great glee: “This calculator don’t go that high!”). It turns out that if you take into account compounding, 28% in a week gives me an equivalent annual return of 34,753,785% which would make me a millionaire by the end of the year (really in almost exactly 28 weeks). Actually I won’t last nearly that long because I put in a sell order when it goes up by 50% (I usually do 20%, so this is almost certain to backfire).
Several years ago Dekalb County voters passed a freeze on property value assessments. So since that took effect, my house and land have had the same assessed value each year. Since the crash of 2008, however, property values have gone down, even in my snooty neighborhood and the freeze was only supposed to stop increases in assessments, not decreases. But this has never been reflected in my assessment, which has remained frozen . . . until this year. I got a notice last week that the value of my house and land has dropped 31.6%. The last time the assessment changed was back in 2006. The oldest form I could find was 2001, and the new value is 17.6% lower than that.
January is time to think about where to put my Roth IRA contribution. Last year, I split the contribution between Fidelity Contrafund and Vanguard Total International Stock Index. Previously I had done well with small caps and emerging markets so I was afraid they wouldn’t hold up. But actually those continued to do well (two different small cap funds were up 25% and 27% and an emerging market fund was up 20%) while large caps lagged (Contrafund earned 16%) and international stocks were troubled by Europe and the continuing recession (up 10%). Still, overall 2010 was a pretty decent year and just about everything did pretty well. I was thinking about looking for some mutual funds that lagged and therefore might do better next year, but I couldn’t really find anything that did that poorly. Japan has done really poorly for a long time, so I thought about putting money there, thinking they might be insulated from US and European economic troubles. I didn’t want to load up any more on small cap stocks, so in the end I put the whole thing into Vanguard Total International Stock Index again. Hopefully it will work this time.
Jenny at work, who adores Austin, has pictures of him that she has printed out on regular paper all around her desk. She has almost as many Austin pictures as she has pictures of Johnny Depp. So for her birthday last week, her friends gave her two framed pictures of Austin, so she would have something a little nicer than paper pinned to her cube. One of them was a picture I had take one day when I was taking pictures of flashlights outside during the daytime to get better light (my camera doesn’t take good pictures indoors). Austin got tired of me doing that and laid down. So I got a picture and it was one that Jenny printed out and then was one of that was framed for her. So that got me thinking that when I got my Capital One card, I could pick any picture and I had been waiting until I got a good picture of the dogs to use. So I went ahead and ordered a credit card with this picture on it:
I’ve known about wash sales for a while and what I always thought it meant was when you sell a stock at a loss and then buy it back within 30 days. The IRS sees this as just a way to harvest some losses without actually changing what you invest in, a move done solely for tax purposes. So what they do is say you have to defer that loss until you sell the shares permanently. But when I have shares bought at different times and then sell some of those shares, I would rather show a gain than hassle with deferred losses from a wash sale.
A few years ago, I wrote about my Deferred Compensation Plan at work and said that at the time, I was averaging a 7% return over the previous 13 years. Since Jeb posted his Green in Wintertime post, I thought I would post this graph which comes from a spreadsheet I use to keep up with how much I have contributed, how much my account is worth and the difference between the two which is the gain or loss.
You always want the yellow line (the current value) to be above the pink line (total of my contributions). If the yellow dips below the pink, I am losing money. It has happened twice, but is not happening right now. The neat thing that happened in June 2000 was the blue line (gain or loss) crossed the pink line. That meant that my gains exceeded my contributions, or, in other words, I had doubled my money! At the time I had an average annual return of 33%, which was clearly unsustainable. About two years later, I had lost every penny of my gains and was showing an average annual loss of 1.18%. Five years later, I was showing a lifetime average gain of 11.3% but nowhere close to doubling my money yet. 18 months later, I had lost all my gains again and had an average loss of 0.31% per year over the previous 16 years. Now I’m showing a gain again of 4%, which is pretty lousy, but I’ll take it. Though the account value is back to where it was before the 2008 crash, you can see that today’s gains are about half of what they were then.
Last year I put my Roth contribution into Fidelity Contrafund, a large cap growth mutual fund. It did pretty well, returning about 26% on the year. But in late March it seemed sluggish so I took some out and put it in the peppier Fidelity Small Cap Growth fund which turned out to be a good move since it has gone up 51% since then vs. Contrafund which was up “only” 36% since that time.
If 2009 trends continue, then small caps will continue to outperform large caps and international funds will do well (I put some money into Vanguard’s emerging markets index last year and holy cow! 70% gain). But I looked at how my Roth funds are allocated now and I feel like I have a lot of representation from small caps already, so I think I will put some money in large caps and hope they have a good year. I tried to see what sectors underperformed this year, thinking they were due to do better next year. Some of the big tech companies haven’t done as well and biotech didn’t do very well. So I was thinking that I might try out Vanguard’s FTSE Social Index fund again which has pretty big positions in tech, health care, and financial companies. Maybe those will do pretty well, so I was thinking I would put $4k of the 2010 IRA contribution there and then throw the remaining $1k I’m allowed to contribute at Vanguard’s Total International Index to give me a little more foreign diversification.
You may remember that last April I bought some I Series Savings Bonds that promised to pay 6% interest, though not for another six months. It turned out to be a great investment, not just because of the high interest rate, but because it prevented me from investing that money in the stock market, which I would have done otherwise, what with me being tapped out by October when the market was still pretty far off the bottom it hit in November and well before falling to new lows just last month.
Figuring taxes is one of those things that seems like it should be pretty simple, but gets kind of complicated. I have tried coming up with a spreadsheet in the past and always get bogged down in tax brackets, long term gains rates, deductions, and personal exemptions. Since I was changing my withholding allowances this year and the official IRS calculator is so unfathomable, I thought it might be easier to try a spreadsheet again.
The biggest problem is dealing with the different tax brackets. For instance in 2008, the first $8,025 is taxed at 10%, then a 15% bracket kicks in until $32,550 when the rate goes to 25%. If you make $40,000 you pay 10% of $8,025, 15% of $32,550 minus $8,025 and 25% of $40,000 minus $32,550. So I came up with a spreadsheet with five nested IF statements to handle the six different tax brackets (rather than trying some sort of lookup function). Then I had to look up tax brackets and rates for the last few years since each year is different.
Then it was a matter of dealing with qualified dividends and long terms gains which are taxed at 15% (20% before 2003). Unless you have losses in which case it counts against your income (but only up to $3,000 which the spreadsheet doesn’t deal with; you just have to enter a maximum of $3,000). Those amounts, if positive, are subtracted from your income and taxed at a lower rate. Your reduced income is taxed from the tax tables. There are actually a couple of different capital gains rates for lower incomes, but I skipped that part.
So far so good, but I was still getting the wrong answer. That’s because the tax is based on your income in the tax tables, rather than the actual percentage of your income. For instance, if your income was $40,005, you would go into the table for the amount for $40,000 to $40,050. And that tax amount is actually based on $40,025. So I rounded down to the nearest $50 and added $25.
Using the same formulas for every year, I was able to accurately generate my taxes going back to 2001. Then I was able to project forward to 2009 and figure out about how much I would owe or get back next year. I am probably not withholding enough taxes if I want to hit my target of a $200 refund. So I think later in the year I will reduce my withholding.