Nine Traits That Got Me to Financial Independence at 41

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6 Responses

  1. Bo says:

    Great article. How do I sign up for email updates when you have new articles out?
    Can’t find a link to that..

  2. Bo says:

    “I can count on my fingers the number of times that I have sold a security for a reason other than annual re-balancing.”

    Curious, how do you account for taxes when re-balancing inside a standard brokerage account? Selling stock and buying bonds to ‘re-balance’ leads to a tax-event, so how did you go about accounting for that during your 18 years?

    • Joe Freedom says:

      Simple: avoid rebalancing in taxable accounts. All of my rebalancing transactions are done in tax deferred accounts, so no tax impact. In the very limited situations where I have had to trade inside of a taxable account, I have tried to time gains and losses to coincide in order to minimize or negate any tax impact. And if you are good (or lucky), you can use movements inside taxable accounts to your advantage. Back in 2008/2009 when the markets had cratered, I wanted to move all of my international fund/ETF holdings to my tax deferred accounts (at the time they were much less tax efficient that US funds), but I held a good bit in the taxable accounts. I used to market meltdown to sell at a big capital loss while simultaneously shifting amounts in the tax deferred accounts to international funds to keep the same allocation across the portfolio (mindful of course of the wash-sale rule which does apply to purchases in tax-deferred accounts). So I kept the same target portfolio allocation, moved all the international to tax deferred, and generated a big capital loss for tax purposes that I carried forward and used in a number of future years.

      So while you may not always have the option, if you do, I would say that you do all that you can to avoid creating tax drag on investment performance by creating taxable gains in taxable accounts. But of course, if you’re invested incorrectly or otherwise have no rebalancing option, then you have to do what you have to do (and look for other tax-mitigating strategies like ensuring you get long-term cap gain treatment, etc.).

      • M says:

        I too, have a huge aversion to selling in taxable accounts and absolutely refuse to incur capital gains. This has done two things for me–

        1) It has made me more conscience of what am buying, knowing that my holding period is “forever” in those taxable accounts. Index funds are clearly the way to go.
        2) I’ve used incurred capital losses to offset income ($3k/yr). I rotated my mutual funds like you did in early 2009 (not the exact bottom, but close enough) and have had enough losses for the last 10 years, and will have a few more. Offsetting that income is saving me $1k/year in taxes.

        That said, I am periodically re-balancing towards my asset allocation in the retirement accounts.

        I enjoyed the article, especially the idea of social indifference. I work in an engineering environment, and one of the many things that is nice about it is that there is not much bragging about brands or purchases. I’m convinced nobody knows what brands of watch, clothes, or shoes people wear, or more importantly, cares.

        • Joe Freedom says:

          Thanks M. I particularly enjoy the social indifference topic too. I’ve read a bit of the scientific/academic research in this field and it’s fascinating. And of course you know that engineers seem to have an unfair advantage over everyone else when it comes to building wealth. That is supported anecdotally by their disproportionately large representation in the FI community (MMM, Mad Fientist, Mr. 1500 come to mind just for starters) in addition to being documented as wealth-over-achievers in the research data contained in The Millionaire Next Door. Lawyers and doctors on the other hand are on the opposite end of the scale!

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