JUMPSTART YOUR FINANCIAL WEALTH

First, you must know your financial profile to determine your ability to save and invest. 

You want to know if you have surplus or deficit net cashflow (after taking into consideration all necessary expenses), how much available for investing, and then your financial goals.

However, if you are an employee, start by participating in your employer's retirement plan such as 401(K), and take advantage of the employer's matching contribution program.

While paying off debt is great however, there are some debts you may not be able to pay off within short time such as mortgage and student loan but paying off revolving loans as credit card and merchant card balances will be wise considering the high interest rates and charges. 

Small regular contributions can be made to your savings account while doing the heavy lifting of paying off the revolving loans.

Consider emergency fund as  'recovery fund' that allows you to maintain your lifestyle during the period of unexpected events such as loss of job, disasters (COVID 19, flood, fire, Hurricane etc.) illness etc. that reduce or wipe out your cash-inflow or income. 

Generally, it is ideal to save up to 6-9 months of emergency fund in cash or highly liquid financial assets as money market accounts. 

 A personal or family budget is needed when you have income and expenses, it can be written or non-written. 

You need a budget to help you know your cash inflow and outflow, monitor spending, adjust spending pattern and behavior, make sound financial decision,  be in control of your finances and lifestyle and be self-financially accountable. 

A written budget is ideal.

Most people fund their emergency fund account from their surplus net cashflow. 

If you have limited income, consider reviewing your budget to reduce discretionary expenses (movie, vacations, coffee, dinning out etc.) and use the money to fund your emergency fund. 

Alternate approach, is increase your income or income stream by securing a part-time job or gig or working more hours at your job; the income derived will be dedicated to the emergency fund.

To control your spending, you will need to know how much cash inflow (income) generate  periodically and corresponding cash outflow (expenses), for most people, monthly. 

If your expenses are more than income, you will have to take a look at your discretionary expenses for cuts. 

It will be helpful you put a written budget place to monitor your spending. You must be committed to your budget to accomplish desired outcome.

First, let start with non-discretionary spending, these are expenses that are considered compulsory, mandatory and needed such as mortgage payment, rent, taxes, food etc. - these expenses you one cannot do without. 

Discretionary spending or expenses are expenses on non-essentials such as cable, dining out, vacations etc.

Any debt, when put to use, generate income and increase wealth in both short and long term is considered good debt, such as mortgage, student loan, business loan etc. However, good or bad, the ideal situation is to be completely debt free. 

On the contrary, examples of bad debt are credit card or merchant card debt that create financial burden. 

Yes, anyone can be debt free, meaning, free of debt - paid off all debts, and free from any debt obligations. The ultimate goal!

There are several ways to pay off your revolving loans such as credit card balances depending on your budget. 

You can pay off all the balances at once or making more than the minimum payment towards the credit card with higher interest or towards the credit card with small balance - to build confidence and sense of accomplishment in the process. 

Making extra payment over the minimum is key to speedy payoff.

If you are able to negotiate and get a lower interest rate compare to what you currently paying if you consolidate your debts into one single debt payment then, it makes sense. 

Consolidation of debts put structure on paying off your debts and can help in faster payment of debts if discipline is applied while provides relief from the debt burden. 

Debt consolidation may not be overall beneficial if set-up fee and other maintenance fees are considered including the credibility of the consolidation company. 

Credit score, also known as FICO Score, can be improved in many ways with great discipline, commitment and simple strategies such as: 

Timely payment of minimum payment due, decrease utilization rate, reduce balances, maintain long history of accounts, error free report, minimize inquiries, request for limit increase etc. 

Well, good FICO Scores depend on the ranges which varied based on the scoring model utilized.

However, credit scores from 670 to 739 according to credit reporting agencies, Equifax and Experian, are considered good. 

The overall Scores range from 300 to 850. Very good scores range from 740 to 799; while excellent scores are considered to be 800 and up. 

You may not need another income source if you are making enough or more than enough to meet all your expenses, save for emergency funds and invest towards your financial goals. 

If, however, you are struggling meeting your non-discretionary expenses such as mortgage payment, auto note payment, rent, student loan payment etc. then there is urgent need to argument your income scream to meet your needs. 

Thus, you can join the gig economy, part-time job, working extra hours (overtime) etc. - multiple streams of income  is the fastest way to overcome a deficit budget and be debt free.

To reach financial independence is easy and depends heavily on your will. 

First, you have to be control of your finances and health, setting goals and developing a mindset of life-long investing approach. 

Expectedly, you will have to spend less than your earnings, have budget, surplus cashflow, pay off debts, maximize income, good credit, emergency fund, saving and investing surplus money to create wealth. 

The initial steps to wealth accumulation - which is the process of building your net worth and increasing your wealth over period of time are:

Having a surplus budget money to save and invest with a carefully thought-out predetermined financial goals that lead to desired financial independence, wealth and lifestyle. 

The basis for the wealth accumulation must be clear and, the investing vehicles/assets (money market, bond, cash, stock, commodities, forex, etc.) to accomplish the set goals identified and established.

It depends on the confidence, competence and knowledge level of your financial skill set and the level of complexity of your finances and investments.  

Do you need a professional to help you with your budget? Do you need someone to help you improve your credit score? Do you need someone to help you identify spending to cut or to save more money? 

You may want to seek the help of financial advisor, counselor or coach to, at least, have general understanding of your finances and challenges.  

If you need help, please contact a coach at info@gofarwealthy.com or (818)-524-9279

The good news is that you can start investing with any amount the moment you open a brokerage account. Most brokerage firms require no minimum amount to open an account. 

If you are participating in your employer's retirement plan such as 401(k) then, you already investing in the financial market. 

However, in addition to your 401(k), you can open your own retirement or brokerage account with your chosen broken brokerage firms. 

Opening an account can be done online or you can approach your local bank's investment unit to set up account (money market or capital market account as applicable and available).

It is understandable to be afraid of putting your money in the stock market if you do not understand the dynamics of the market, the reward, risks, challenges, unpredictability and opportunities. 

If you are employed, and contributing to your workplace retirement plan as 401(K), your money most likely in the stock market. 

If you want to invest for the long haul, and manage and monitor your money; your investment strategies and investing skills develop overtime will diminish your fear. 

Though it comes with some risks, the stock market is still a promising place to put your money for a long-term growth of wealth accumulation.  

Like any rewarding ventures or undertakings, the investing in the stock market has its own risks; however, the stock market risks can be mitigated through strong investing philosophy and strategies. 

The risks of investing in the stock market are but not limited to: unguaranteed returns and, possibility of losing part or all of your investment. 

Note that the far-out your investment time horizon the minimal and manageable the risk exposure. 

Aside the stock market, there are: the money market, bond market, currency market, derivatives market, commodities market, cryptocurrency market etc. 

Even conservative investments such as cash, savings, CDs, bond etc. carry inflation risk.

While fixed-income investments are considered as conservative, the instruments such as bonds, carry considerable risks such as inflation risk, interest rate risk, call risk, liquidity, default risk, repayment risk, reinvestment risk etc. 

Inflation and interest rate can erode the value of your bonds; bonds are not as liquid as stocks; bond issuer can default on repayment of principal and interest and risk of limited to no opportunity to reinvest bond proceeds. 

However, most of these risks can be managed and eventually minimized by bond holder.

First, investment is the process or mechanism utilized to accumulate wealth and simultaneously generate future income. 

This process, the assets, to create future potential income and wealth, are known as the investment vehicles. 

These vehicles help investors to move money towards their future financial goals of added values and returns. 

Thus, the investment vehicles can be in the of cash, money market accounts, certificate of deposit, stocks, bonds, mutual funds, index funds, exchange traded fund, etc.

The cryptocurrency, as a type of virtual currency, can be regarded as an investment vehicle since it has elements of an assets or products (as stocks, bonds, mutual funds and exchange traded fund) that can be used by investors to accumulate wealth and generate income. 

As per the U.S Internal Revenue Service (IRS), Cryptocurrency is a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.  

Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.

Note: Tax Consequences - The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability.

Yes, you can lose all or part of the money invested in the financial markets due to many factors and reasons. 

The markets have their peculiar risks while you, as the investor, participates in the market at your own risk (meaning that you do your due diligence before making an investment decision - when and where necessary).

You may need to seek the advise of a professional to avoid or mitigate losses. 

Again, your investment can evaporate!

You should know that when buy a company's stock, you are buying a piece of ownership in the company that engages in goods and services for the purpose to returns and equity on capital invested by the owners (shareholders). 

With this mindset, of buying a business, you will have to conduct serious and detailed research of the stock (company) you want to buy (invest in). 

This research is in the form of fundamental analysis and evaluation of the company  (earnings growth, earnings per share, price earning ratio, returns on asset employed, debt ratios, returns on equity, liquidity ratios, stability ratios, cashflow, dividend payout ratios, quality of management team etc.) to the determine the potential returns, risks, strengths, weaknesses, opportunities and threats. 

In addition, insight into the company's financial reports with evaluation of major performance indices and measurements including the company, industry, sector and market analysis. 

The fundamental analysis cannot be over-emphasized!  Technical analysis can help identify the market sensitivity to the company's stock.  

Should you need help, please contact a coach at info@gofarwealthy.com or (818)-524-9279 

Opening a brokerage account is very easy and straight forward. 

First, decide what of type of account you want to open (IRA, Roth, non-retirement account, taxable account etc.); which one fits into your investing goals; the services provided by the brokerage firm; compare transaction fees and charges. 

Once you are convinced of your needs and suitability, you can go online to complete new account application for the chosen brokerage firm, fund the account and, you are on the way to investing the moment the account is funded. 

There are lot of brokerage firms with apps to access and transact on your mobile devices.

Understanding the dynamics and workings of the financial markets is crucial to making a thought-through investment decision and managing risk. 

You can acquire skill and knowledge of the markets through:

- financial literacy program

- reading books on personal finance and investing

- reading and listening to online investors education resources of brokerage firms

- attending seminars and webinars

- using online stimulation tools for investing to build investing confidence

- listening to podcast of professionals and educators

- working with a financial coach and mentors

- watch documentary and interviews of renowned and acclaimed legendary investors

- reading fund prospectuses and companies financial statements and filings

- start investing small portion of your capital to gain insight and have hands-on experience and build confidence. 

Most investment or brokerage firms provide education resources for clients.   

In the financial markets, investing is different to trading on several factors such as: goals, time-frame, strategies, research, risk, performance, profitability, emotions, tax treatments, cost-effectiveness, etc. 

While both investing and trading may share same attributes, degrees differ. 

Investing is long-term financial commitments and strategies while trading focuses on the short-term strategies to achieve desired profit. 

In investing, the investor (the long-term investor) pays serious attention to the fundamentals of the investment such as stock (company) with analysis and evaluation of the company's performances, profitability, growth, stability, liquidity, competitiveness, leadership, operating environment and future prospect.

While in trading, the investor (short-term investor) is engaged in buying and selling securities to make profit in the shortest timeframe as possible, in seconds, minutes, hours, days, weeks but usually less than a year. 

In trading, the investor glues to the price movements and volumes to develop market entry and exit strategy to maximize gains and minimize losses.

Though both investing and trading have similar goal to make profit, the approaches and strategies are overwhelmingly different, reason while a long-term investor is called a fundamentalist and the short-term investor a stock technician or chartist. 

Short-term gains and long-term gains are taxed differently. 

If your are new to investing, you must determine if you are going to be short-term or long-term investor or both to help develop clear investment goals and strategies.

Managing your own portfolio involve related and inter-connected tasks and activities that are circular and continual in formulation and execution to achieve desired financial goals.

First, self-assessment, as an investor is necessary such as knowing your investment goals and objectives, risk tolerance, and investing philosophy. 

As a self-directed investor, you can manage your investment or portfolio actively active and or actively passive approaches while utilizing appropriate tools for the portfolio returns enhancement, risk management and cost reduction to achieve desired overall investment goals including the level of returns. 

The portfolio management tools are among others: rebalancing (asset allocation), diversification, low-cost investment products etc. 

Finally, note that your investment goals and strategies are the main driver of your portfolio management philosophy and process. 

To be a successful investor, the following attributes among others are needed to sustain the dynamic investment environment: 

- having clear investing goals

- financial literacy and conceptual knowledge of investing

- analytical skills, 

- understanding risks

- exercising patience

- investigative instinct

- strong emotional resilience

- discipline

- focus

- intellectual curiosity

- understanding how business works and earns money

- passion

- perseverance and,

- truthful self-analysis and evaluation.

Active investing is an investing approach utilize by an investor to directly identifying , buying and selling securities and other investment products for the purpose to making profits and to outperform the market index or desired benchmark.

Active investing involves actively monitoring your portfolio, investment environment and the market conditions all time.

The active investing strategies require that the investor is equipped with financial analytical skills, understanding of the geo-political-economic- business environment,  great analysis and evaluation of potential securities for investing. 

Actively managed investment fund are pool of funds for investing purpose, singularly or collectively managed by individual or group of individuals (as a team) with the desired goal to outperform the market or identified benchmark. 

In an actively managed investment or fund, it means, you as investor, or investment professional are constantly monitoring the performance of the portfolio and making timing strategic decisions on  buying, holding and selling of securities or asset in the investment portfolio, and aligning the investment philosophy with the fund goals. 

Actively managing investment fund involves the manager/s utilizing both quantitative and qualitative tools (scientific, judgement and knowledge) to making decision.

Refer to the definition and description of actively managed investment fund that is sharply in contrast to the passively managed fund. 

Passively managed investment or fund follows the a market index such as the S&P 500, Nasdaq 100, Dow. 

The passive managed fund is also called passive investing as the fund seek to mimic the performance of the index being tracked. 

Obviously, the goal of the fund is not to outperform the index benchmark but to replicate the index performance. 

An S&P Index Fund is a passive fund that track the S&P 500 Index - this approach comes with in-built mechanisms of  diversification, low turnover, low transaction fee, low expense ratio/management fees etc.,  and accompanied with higher returns compared to actively managed fund.

As per the U.S. SECURITIES AND EXCHANGE COMMISSION [Investor.gov]:

[A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. 

The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. 

Each share represents an investor’s part ownership in the fund and the income it generates.

An “index fund” is a type of mutual fund or exchange-traded fund that seeks to track the returns of a market index. 

The S&P 500 Index, the Russell 2000 Index, and the Wilshire 5000 Total Market Index are just a few examples of market indexes that index funds may seek to track.  

A market index measures the performance of a “basket” of securities (like stocks or bonds), which is meant to represent a sector of a stock market, or of an economy. 

You cannot invest directly in a market index, but because index funds track a market index they provide an indirect investment option. 

ETFs (Exchange Traded Funds) are a type of exchange-traded investment product that must register with the SEC under the 1940 Act as either an open-end investment company (generally known as “funds”) or a unit investment trust.  

Like mutual funds, ETFs offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool.  

Unlike mutual funds, however, ETF shares are traded on a national stock exchange and at market prices that may or may not be the same as the net asset value (“NAV”) of the shares, that is, the value of the ETF’s assets minus its liabilities divided by the number of shares outstanding.

ETFs are not mutual funds.  Generally, ETFs combine features of a mutual fund, which can be purchased or redeemed at the end of each trading day at its NAV per share, with the intraday trading feature of a closed-end fund, whose shares trade throughout the trading day at market prices.  

Unlike with mutual fund shares, retail investors can only purchase and sell ETF shares in market transactions.  

That is, unlike mutual funds, ETFs do not sell individual shares directly to, or redeem their individual shares directly from, retail investors]. 

Mutual funds are actively managed while ETFs and index funds are passively managed investment vehicles.

It's all about the future expectations! 

Growth stocks are companies with high expectation to grow substantially their revenue and earnings at incremental faster marginal rate than the industry and market average.

Thus, the share price of a growth company is anticipated to grow at a faster rate. 

A growth stock has competitive advantage through its unique products, services, innovation, patent etc. 

Growth companies are not known to be generous with paying dividends as the companies reinvest most of their retained earnings in research, development and acquisition projects to further enhance market dominance.

Value stocks are shares of companies that are on sale. Yes, on 'SALE'! 

The market price of the share is lower than the the actual book value of the stock or the intrinsic value based on the underlying fundamentals of the companies such as: 

- low Price-to-Earnings ratio

- high dividend yield

- low Price-to-Book ratio

- high free cashflow

- relative profitability and performance

- business management and leadership.  

Note, when a stock is trading at a price levels below what should be the intrinsic value then the stock is at a bargain price (below what it is worth). 

Investment portfolio diversification is first and foremost a risk management mindset. 

The hallmark of investing is the effectiveness and efficiency of managing risks and optimizing returns to achieve overall investment goal. 

Why should you diversify? When your portfolio or investment is diversified, you effectively reduce manageable risks such as industry, business and financial; though some risks cannot be avoided such as natural disaster - called systemic risks. 

However, diversification can help you offset losses and underperformance of portfolio. 

Diversification can be done in multiple investing strategies such as: asset classes, style, philosophy, geographical locations, time horizon etc.

You can allocate your portfolio or investment funds across stock, bond, cash, domestic stocks, international stocks, growth stocks, value stocks, fixed income securities, EFTs, Index funds, REITs, actively managed fund, passively managed fund, sectors, industries, size, market capitalization etc. 

However, the key to achieve a diversified portfolio is having asset classes with very low or negative correlations to create offsetting mechanism when one asset moves downward the other compensates. 

Note, diversification reduces your risk exposures.

Investing in the bull or bear markets should be primarily be based on your investment goals, risk profile and time horizon irrespective of the market you are in. 

While the bull market is characterized with economy expansion and upward directions and movements of securities such as the stock market, the bear market, contrarily, signal a contracting economy with downward trend of all indexes of the stock market. 

The bull and the bear markets are affected by the directions of the followings which are, in most cases, always in tandem such as: the gross domestic product (GDP), unemployment, inflation, interest rate, and other monetary and fiscal policies of the government. 

For a long-term investor, the goal is to buy and hold for a long time thus, buying undervalued stock (of good business) during the bear market will be a great strategy.

Same approach during the bull market, determine value and growth stock while keeping eyes on your investment goals and time horizon. 

Remember, the bull market last more than the bear market but opportunities abound in both market conditions. 

Lastly, your emotions are completely different under the two markets as some investors panic during the bear market resulting in market sell-off, some are exuberance in bull market thus fueling the significant upward movements in stock prices and valuation through injection of money in the market. 

As a long-term investor, no need to panic in a bearish market. 

There are several factors to consider determining how much you need to retire. 

While average retirement age continues to shift upward from 62 to 64, inflation and other cost of living are rising as well. 

The bottom-line is that the amount you need at retirement greatly influenced by  your pre-retirement annual income and expected lifestyle after retirement.  

There is the general consensus that  your retirement  income should be about 70 - 80%  of your pre-retirement income. 

Now to determine how much need to retire, you have to calculate how much you expect to spend (all your expenses - cash outflows ) annually and compare to the 70-80% of your current annual income. 

This assumption is based on the fact that you should be able to live on 70-80%  of your current annual income in retirement. 

So, if your current annual income is $120,000 annually, to maintain same lifestyle your annual retirement income should be $84,000 - $96,000. 

You will need to adjust for inflation when figuring the retirement fund and withdrawal from the fund. 

As you analyze how much you need to retire; focus on how much you have saved, what are retirement income streams, how long do I expect to live (some retirement expert suggested that a 25 years living time horizon after retirement is ideal assuming retirement is at statutory retirement age of 67). 

As self-directed investor, there are great resources and tools including online calculators to help determine expected retirement income, withdrawal rate, retirement fund duration coverage.  

If you are currently contributing to your employer's retirement plan such as the 401(k) account, you might be eligible to open an individual retirement account (IRA) provided you meet the requirements and also qualified; the IRA account can be Traditional IRA and Roth IRA. 

Your current and future tax and income situations should be taken into consideration when considering the appropriate retirement plan. 

IRA accounts (Traditional and Roth) have distinctive characteristics regarding: 

- income limitations

- contributions

- tax consequences

- withdrawals etc. 

First, both are investment vehicles or accounts with distinctive characteristic of tax break.

While the contributions to a traditional IRA are tax deductible,  the withdrawals from this account are taxable  - reason it is regarded as a tax deferred investment retirement vehicle. 

However, the Roth IRAs are considered tax-free retirement accounts simple because the contributions are not tax-deductible but the future withdrawals are not taxed.

While the traditional IRA provides immediate tax break, the Roth IRA provides future tax benefit. 

Which one is better, depends on your income and tax bracket and profile at the time of retirement - if you expect to be in lower tax bracket when you retired, then the traditional IRA will be ideal. 

If you expect to be the same or higher tax bracket, then Roth IRA will minimize your tax burden in retirement. 

For the traditional IRA, the distributions in retirement are taxed as ordinary income; and there are required minimum distributions (RMDs), no RMDs for Roth IRAs.

If you expect to be in higher tax bracket in retirement, Roth 401K is worth considering. 

Roth 401K, as Roth IRA, provides benefit of non-taxable withdrawals; the Roth 401k is sponsored by employer through savings plan that gives employees the option of investing after tax dollar towards retirement. 

For Roth 401K, you already paid taxes on the contributions, the withdrawals in retirement or after meeting pre-retirement age and time requirements, at tax-free - as the Roth IRA. 

Whether you should consider a Roth 401K will depend on both your current and future tax brackets, tax savings and benefits, and the distributions requirements and tax consequences. 

Note that having both Roth and traditional 401K provide opportunity managing your taxable income in retirement while enjoys the benefits of tax-free and/or tax-deferred accounts. 

However, with a Roth IRA, you must take Required Minimum Distribution (RMDs) from a Roth 401(k) required age.

Tax-advantaged retirement accounts are referred to qualified retirement investment vehicles that provide tax-savings benefits to holders of such retirement accounts. 

Examples of the tax-advantaged investments or savings plan are: Traditional IRA, Roth IRA, 401(k), Roth 401(k), 403(b), SEP IRA etc. 

The tax advantages are in the forms of tax-exempt, tax-deferred and tax-free status of the respective account. 

For example, the Roth IRA contributions are taxed going into your retirement account but the withdrawals are tax-free. 

Tax-advantaged retirement accounts are part of the core strategies for tax-efficient investments - providing immediate and future tax break depending on individual tax bracket or marginal tax rate. 

The good news is that it is never too late to save or start saving for retirement. The best time is now! 

There are several ways you can fund your retirement and catch up assuming you have determined how much you need saved up when you retired. 

To shorten the catch-up time, you will need to have free-up cash to invest towards your retirement fund - done through eliminating consumer debt, budget cut, financial outlay downsizing, additional income (second job, gig economy, renting out extra room), saving etc.

Having a free-up money and surplus budget (income more than expenses), you will be position to maximize your retirement savings and taking advantage of the benefits of employer sponsored retirement plan such as 401(k), Roth 401(k), 403(b) or the Traditional IRA, Roth IRA, SIMPLE IRA and other applicable and appropriate qualified retirement plans or accounts. 

If you have access to workplace retirement plan, and your employer matches employees' contribution, maximize your contributions! 

If you are 50 years and above, take advantage of catch-up provisions for people 50 and above - know the limits for the annual contribution and the catch-up contribution (for example, in 2022, an employee, 50 or older can make, in addition to the annual contribution of $19,500, an annual catch-up contribution up to $6,500 for a total contribution of $27,000). 

Remember, the goal is to put away, fund your retirement, as much as you can possibly can. 

Again, determining how much you will need monthly in retirement will help structure your expected saving habit and rate, and provide workable roadmap. 

Maximize your annual contribution if you are 50 or older! 

Note, any pre-tax contributions (deductions from your wages or salaries) will reduce your taxable income, also the traditional IRA contributions - income limits do apply.

While an individual, as employee, have access to retirement plan provided by his or her employer such as 401(k), Roth 401(k), 403(b) or have own Traditional IRA or Roth IRA etc.

 A self-employed individual or small business owner have the following retirement vehicles available to fund his or her retirement income: 

- Traditional IRA

-  Roth IRA

-  Solo 401(k)

- SEP IRA

- SIMPLE IRA or a defined benefit plan.

When deciding which retirement plan is appropriate and ideal , you will need to consider the: contribution limits, catch-up limits, tax benefits and advantages, access to your account balance through loans and hardship distributions, ease of administration, maintenance fee etc. 

Here are brief highlight of some of the retirement plans available to self-employed or a business owner:

Simplified Employee Pension (SEP):  Contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $61,000 for 2022 ($58,000 for 2021, $57,000 for 2020 and $56,000 for 2019).

Savings Incentive Match Plan for Employees (SIMPLE IRA Plan):  You can put all your net earnings from self-employment in the plan: up to $14,000 in 2022 ($13,500 in 2021 and in 2020; $13,000 in 2019), plus an additional $3,000 if you're 50 or older (in 2015 - 2022), plus either a 2% fixed contribution or a 3% matching contribution.

Solo 401(k): Regarded as a one-participant 401(k) plan is sometimes referred to as a solo-401(k) or individual 401(k); same as 401(k) plan with no employees other than spouse who also work for the business.

Note, most retirement plans and accounts are offered by many mutual funds, banks and other financial institutions, and by plan administration companies.

This is a tough one. However, there is general consensus on the 4% rule. 

What is 4% Rule? The rule of thumb of 4% withdrawal rate from your next eggs, retirement savings or portfolios annually to meet your needs. 

These rule is based on the assumptions that retiree will live up to 25 to 30 more years after retirement and, withdrawing at this annual rate (4%) will stretch the retirement funds through and in the years of retirement. 

However, caution is made regarding the unavoidable inflation effect on future withdrawals; thus, the rate of withdrawal can be adjusted for inflation annually, the main goal is that the retiree will not run out money in retirement. 

How does it works? Let say, you have $2m saved in your retirement account, 4% annually withdrawal in the first year of retirement will be $80,000. In the second year, your can adjust the withdrawal amount for inflation. 

Let assume the inflation rate is 2% (price of good and services gone up), then the withdrawal amount for the second year will be $81,600 (the first year amount plus 2%); in third year, the  withdrawal amount will be $83,232 (the second year amount plus 2%)…..in fourth, fifth, sixth and so on. 

However, there are many drawdowns that can affect the efficacy of this 4% rule, the length of retirement years, drastic and unexpected changes in spending needs, returns on investments, hyper-inflation etc. 

Conservatism in withdrawal is the key to not run out money.

Absolutely yes. The social security income will be additional source of income along side your other retirement accounts such as 401(k), IRA, 403(b) and other self-directed investment accounts. 

You can determine what your social security benefits or income will be if you stop working now or later. 

The expected social security income should be incorporated into your retirement income planning strategy. 

Including the SSA benefits in your retirement income estimate give a clear picture of expected overall income. 

Remember, your goal is to capture all anticipated incomes to reach your retirement goals.

Tax-efficient retirement accounts are retirement investment accounts that provide the benefits for taxes on investment returns/gains to be exempted or deferred. 

Tax-efficient retirement accounts are also called tax-advantaged retirement accounts - both use interchangeably [see tax-advantaged retirement FAQ].  

Examples of tax-efficient retirement accounts are 401(k), Roth 401(k), Traditional IRA, Roth IRA. 

The tax-deferred retirement accounts provide immediate tax break as contributions are deductible thus lowering your taxable income, and you are taxed at the point of withdrawal. 

On tax-exempt retirement, such as Roth IRA or Roth 401(K), your contribution is not tax deductible since the contributions made with after-tax dollars  but there no tax obligation at withdrawal  - withdrawal (the capital invested and gains) is tax-free if applicable requirements are met. 

When compared to brokerage (non-retirements) these tax-efficient retirement accounts the tax advantage outweigh that of brokerage account short and long-term capital gain taxes. 

Investing instruments such as the Treasury bonds and Series I bonds (savings bonds) are considered to be tax-efficient due to the state and local income tax exempt status when  compare to corporate bonds.

Free money is great! If your employer have a matching contribution to your retirement plan contributions such as 401K, it's no brainer that you take advantage by maximizing your contributions to fully benefit from the employer's matching contributions.

Even if your employer does not match, your participation in the employer-sponsored plan  will provide the benefit of tax-deferred advantage - having your contributions reduce your taxable income immediately and postponing taxes on part of your income into the future. 

The agreed automatic deductions from your paycheck  makes investing toward your retirement easy and consistent. 

If you are in high income tax  bracket, huge amount can be saved in taxes. In an employer-sponsored retirement plan such as 401(k), 403(b), SIMPLE plans etc., employee's contributions to the plan are pre-tax deductions, before income tax with-holding applied. 

Aside from the tax advantage, the money in your employer-sponsored account are protected from creditor only if the money remains in the account. 

Finally, strongly consider participating in your employer's retirement plan for tax benefits and retirement wealth accumulation; you can potentially borrow from the retirement fund when vested. 

When you changed job or leaving an employer, you have several options regarding what to do with the employer sponsored retirement plan such as 401K.  

You will  have the options of:

- Take no action, leave the account with the same retirement fund management firm. 

- Roll over the 401(k) balance from your would be former employer to the new employer's plan, if one exists.

- Also, you can roll over the 401(k) account balance  into Individual Retirement Account (IRA).

- You can cash-out the account balance - such as taking lump sum distribution, an early withdrawal. 

Note that penalty and taxes apply to this cash-out option; this option is counter-productive if your goal is to save and accumulate wealth for retirement.

Lastly, evaluate each option to determine which one is appropriate for your before making decision to rollover, cash-out or do nothing. 

First, reasons why someone checks his or her 401(k) are, among others:

- to review the account balance

- see if on track with retirement goals

- performances of the assets

- asset allocation or rebalancing etc. 

Now, to the question, how often? Your investing philosophy and goals will, most often, determine how often. 

For a long-term saver/investor, once a year is considered HIGH except you are closer, few years proximity to your retirement and to withdrawing the money in the account to fund your retirement or meet targeted needs.  

You should check or review your 401(k) not out of fear, anxiety, financial market turmoil or hearsay BUT out of conviction to track your retirement goals, fund performance, asset allocation or rebalancing with HIGH moderation. 

If you have a 401(k), you should be able to roll over this account to traditional IRA or Roth IRA. 

Both IRA do have tax consequences depending on your situation (consult a tax adviser on this). 

You can also roll over a Roth 401(k) to Roth IRA. 

When making the decision to roll over, consider the current income, existing portfolio, tax effect, future withdrawal plan, and other investment options and benefits  available to specific IRA account.

IRA conversion is beneficial to greater extent when done properly and appropriately to maximize the accompanied tax advantages and account flexibility. 

When your transfer a retirement fund from the traditional IRA account balance to a Roth IRA account, then you have a Roth IRA Conversion - this provide you, the owner of the account, a tax-exempt retirement income and withdrawal when specified condition are met.

Notably, among the benefits of a Roth conversion are: the tax-exempt status, no early withdrawal penalty, lower future taxes (if you will be in high income bracket), contributions and earning grows in the account tax-free,  no required minimum distributions unlike the traditional IRA. 

However, the Roth IRA do not provide immediate tax benefit for contributions to reducing taxable income, your pay taxes on conversion - this is a taxable event (consider the tax implication when making the decision to convert), and may not be beneficial if you will be in lower tax rate in the future. 

Contact your tax advisor to figure out the tax implication and consequences of converting to Roth IRA. 

Finally, Roth IRA conversion is considered as integral part of long-term retirement plan tax strategy.

No one should withdraw from their 401(k), IRA or any retirement account! 

However, life happen, period. If you should withdraw due to unavoidable economic and financial hardship or exigency then the withdrawal must be carefully done after exhausting non-retirement accounts or funds or taxable assets as brokerage account, stocks, savings accounts etc., then  consider tax your deferred assets before the tax-exempt assets.

The strategy is to avoid early withdrawal penalty and minimize taxes.  

For example, should you withdrawn from a 401(k) or traditional IRA plan for covered expenses as stipulated by the IRS, a 10% penalty is assessed and income taxes due on the amount withdraw; with a Roth IRA, a tax-free and penalty-free withdrawal available for permitted expenses before age 59½. 

Withdrawing money from your 401(k) or retirement fund should be a last resort.

The overall goal of providing and allowing tax-advantage investing and retirement account is to encourage savings by individuals towards future or retirement. 

Thus, to discourage depleting the tax-advantaged covered retirement account such 401(k) plan, the IRS assess penalty and taxes on early withdrawal unless the reason for withdrawal is allowed or an exception. 

The consequences for early withdrawal of 401(k) are:

- 10%  penalty on the amount of fund withdrawn before the age of 59 1/2.

- The amount withdrawn is considered as income and, it is taxable.

To avoid surprises at time one is filing his or her tax returns, provision or deduction for the penalty and taxes be made, to avoid unexpected HUGE tax bill. 

An early withdrawal from 401(k) MUST be thought through!

Yes, you can trade, meaning buying and selling exchange traded funds (ETFs) in your retirement account such as the Roth IRA. 

Note, the ETFs thus trade like stocks, and can be bought and sold at any time during the day when the stock market is opened. 

ETFs mix in your retirement portfolio is great diversification strategies and cost-effective mechanism due to the lower fee compare to mutual funds. 

Most brokerage firms platforms allow ETFs transactions with no or minimal transaction fee.

If you have certain retirement accounts such Traditional IRA, employer-sponsored retirement plan, and other covered retirement plans, you are required to take out certain minimum  amount from the retirement savings plan after you've reached stipulated statutory mandatory age of 70 1/2 (this could change)  to avoid paying tax penalties.   

This certain minimum amount is known as the Required Minimum Distribution (RMD). 

The custodian administrator of your retirement account will communicate the RMD and necessary information to you and the IRS. 

Roth IRA has no required minimum distribution, a distinct feature from the traditional IRA.

If you are in DIRE need of the money why not. 

However, if you have other income streams and are enough to meet your living expenses then you should consider delaying claiming the social security benefits. 

While the minimum age to claim benefits is 62, you have the choice to postpone claiming the benefit at full retirement age of 66 or 67 depending on birth year or late up to 70. 

It is important to note that taking the benefits early will reduced and denied of the full benefits potential income if you 've waited far beyond the full retirement age. 

Thus, there is no need to apply for social security benefits if you do NOT need the income to support your lifestyle.

You can begin getting Social Security retirement benefits as early as age 62. 

But we will reduce your benefits by as much as 30 percent below what you would get if you waited to retire until your full retirement age. 

If you wait until your full retirement age (66 for most people), you will get your full benefit. 

You also can wait until age 70 to start your benefits. 

Then, we will increase your benefit because you earned “delayed retirement credits.”

Choosing when to start receiving your Social Security retirement benefits is an important decision that affects your monthly benefit amount for the rest of your life. 

Your monthly retirement benefit will be higher if you delay claiming it.

You can start receiving your retirement benefit as early as age 62, or as late as age 70. If you claim it early (before your full retirement age), your monthly amount will be reduced. 

On the other hand, if you delay claiming your benefit, your monthly amount will be increased for each month of delay. These adjustments are permanent for the rest of your life.

The increases from delaying your benefit can be large. For example, a worker with a $1,000 benefit at her full retirement age of 66 would receive $750 a month if she starts her benefit at age 62, or $1,320 a month if she delays until age 70. 

Married couples have two lives to plan for. If you are the higher earner, delaying starting your retirement benefit means higher monthly benefits for the rest of your life and higher survivor protection for your spouse, if you die first.

Other factors to consider:

Deciding when to start receiving your retirement benefit is a personal decision, based on many factors that are unique to each individual. 

For example, in addition to the monthly benefit amount, you may want to consider personal and family circumstances, including whether you are working or plan to work, current and future financial resources and obligations, and current and anticipated health and longevity. 

The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2022, your maximum benefit would be $3,345. 

However, if you retire at age 62 in 2022, your maximum benefit would be $2,364. 

If you retire at age 70 in 2022, your maximum benefit would be $4,194.

When you get a retirement or disability pension from work not covered by Social Security, we may calculate your Social Security benefits using a different formula. This lowers your Social Security benefit. 

We do this whether your pension comes from work you did for a U.S. government agency or in a foreign country.

Social Security does not count unemployment benefits as earnings. They do not affect retirement benefits. 

However, income from Social Security may reduce your unemployment compensation. 

Contact your state unemployment office for information on how your state applies the reduction.

The current full retirement age is 67 years old for people attaining age 62 in 2022. (The age for Medicare eligibility remains at 65.)

Social Security does not count pension payments, annuities, or the interest or dividends from your savings and investments as earnings. 

They do not lower your Social Security retirement benefits.

Unexpected changes may occur after you apply to start your Social Security retirement benefits. 

If you change your mind about receiving benefits, you may be able to withdraw your Social Security claim only if it has been less than 12 months since you were first entitled to benefits.

Your date of entitlement is the month you start your benefits and may not be the same as the date you actually receive your first check. 

If you withdraw your claim, you may re-apply at a future date. 

To withdraw your claim, you must make a request in writing to withdraw and repay the benefits that you received.

We use your total yearly earnings to figure your Social Security credits. The amount needed for a credit in 2022 is $1,510. 

You can earn a maximum of four credits for any year. The amount needed to earn one credit increases automatically each year when average wages increase.

You must earn a certain number of credits to qualify for Social Security benefits. 

The number of credits you need depends on your age when you apply and the type of benefit you are applying for. 

No one needs more than 40 credits for any Social Security benefit.

The estimated average monthly Social Security retirement benefit for January 2022 is $1657. The estimated average amount changes monthly.

Social Security is now processing some retirement, surviving spouse and lump-sum death payment claims for same-sex couples in non-marital legal relationships (such as some civil unions and domestic partnerships) and paying benefits where they are due. 

We encourage you to apply right away for benefits, even if you aren't sure you are eligible. 

Applying now will protect you against the loss of any potential benefits.

You can get both Social Security retirement benefits and military retirement. Generally, we do not reduce your Social Security benefits because of your military benefits.

No, you will not receive a penalty or fine if Social Security denies your claim because you do not qualify for benefits.  

Likewise, if you appeal that decision or apply again, you will not receive a penalty or a fine.

Your status in a civil union or other non-marital legal relationship may affect your entitlement to benefits. 

You must tell us if you are in a civil union or other non-marital legal relationship.

If you have questions about how a same-sex civil union or non-marital legal relationship may affect your claim, please call 1-800-772-1213 (TTY 1-800-325-0778) or contact your local Social Security office.

We are now able to recognize some foreign same-sex marriages for purposes of determining entitlement to benefits. 

If you believe you may be eligible for Social Security benefits, we encourage you to apply now to protect you against the loss of any potential benefits.

You must be at least age 62 for the entire month to be eligible to receive benefits. 

If you were born on the first or second day of the month, you meet this requirement in the month of your 62nd birthday. 

If you were born on any other day of the month, you do not meet this requirement until the following month.

You can apply up to four months before you want your retirement benefits to start. 

For example, if you turn 62 on December 2, you can start your benefits as early as December, and apply in August.

Even if you are not ready to retire, you still should sign up for Medicare three months before your 65th birthday.

No, if you turn age 62 on or after January 2, 2016, you are required or “deemed” to file for both your own retirement and for any benefits you are due as a spouse, no matter what age you are. 

Deemed filing means that when you file for either your retirement or your spouse’s benefit, you are required or “deemed” to file for the other benefit as well.

The rules for deemed filing apply only to retirement benefits based on your own work record and to the spousal benefits (including divorced spouse’s) you receive based on retirement. 

If you receive a spousal benefit because you are caring for a child who is under age 16 or disabled or if you receive spouse's benefits and are also entitled to disability, deemed filing does not apply and you are therefore not required or “deemed” to file for your retirement benefit.

Achieving the dream of a secure, comfortable retirement is much easier when you plan your finances. 

The Social Security Retirement Benefits page provides detailed information about your Social Security retirement benefits under current law. 

It also points out things you may want to consider as you prepare for the future.

If you have reached full retirement age, but are not yet age 70, you can ask us to suspend your benefits to earn delayed retirement credits. 

If your benefits are suspended, you will not be able to receive benefits on someone else’s Social Security record. 

In addition, if you suspend your benefit, anyone receiving benefits on your record (excluding divorced spouses) will also be suspended for the same months you request suspension.

Your payments are suspended the month after the request was made. 

The suspension ends with the earlier of the month before you turn age 70; or the month after your request to resume benefits is made.

You can get Social Security retirement benefits and work at the same time. 

However, if you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefit. Starting with the month you reach full retirement age, we will not reduce your benefits no matter how much you earn.

We use the following earnings limits to reduce your benefits: If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit.

For 2021 that limit is $18,960.

In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit, but we only count earnings before the month you reach your full retirement age.

If you will reach full retirement age in 2021, the limit on your earnings for the months before full retirement age is $50,520.

Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.

Use our Retirement Age Calculator to find your full retirement age based on your date of birth.

Use our Retirement Earnings Test Calculator to find out how much your benefits will be reduced.

What counts as earnings:

When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net earnings if you're self-employed. 

We include bonuses, commissions, and vacation pay. 

We don't count pensions, annuities, investment income, interest, veterans, or other government or military retirement benefits.

Your benefits may increase when you work:

As long as you continue to work, even if you are receiving benefits, you will continue to pay Social Security taxes on your earnings. 

However, we will check your record every year to see whether the additional earnings you had will increase your monthly benefit. 

If there is an increase, we will send you a letter telling you of your new benefit amount.

When you’re ready to apply for retirement benefits, use our online retirement application, the quickest, easiest, and most convenient way to apply.

Sometimes people younger than full retirement age retire in the middle of the year and have already earned more than the yearly earnings limit. 

There is a special rule that applies to earnings for one year, usually the first year of retirement. 

Under this rule, you can get a full Social Security benefit for any whole month you are retired, regardless of your yearly earnings.

When you’re ready to apply for retirement benefits, use our online retirement application, the quickest, easiest, and most convenient way to apply.

Everyone working in covered employment or self-employment regardless of age or eligibility for benefits must pay Social Security taxes.  

However, there are narrow exceptions to paying Social Security taxes that apply at any age, such as an individual who qualifies for a religious exemption.

Each year we review the records for every working Social Security beneficiary to see if the additional earnings will increase their monthly benefit amounts. 

If an increase is due, we calculate your new benefit amount and pay the increase retroactive to January following the year of earnings. 

For example, if you have earnings in 2020 that will increase your monthly benefit amount, we will increase your benefit amount retroactive to January 2021 once we review your record.

After you retire, you may get payments for work you did before you started getting Social Security benefits. 

Some special payments to employees include bonuses, accumulated vacation or sick pay, severance pay, back pay, standby pay, sales commissions and retirement payments. 

Or, you might get deferred compensation reported on a W-2 form for one year, but earned in a previous year. 

See Special Payments After Retirement for more information (including additional types of payments that may qualify).

The goal of investing is to generate income, and income generated are subject to tax unless exempted. 

Also, taxes are part of cost of investing that affect the bottom-line of the return on and of investment. 

As an investor, your goal is to maximize returns, and in doing so, you will have to minimize taxes -  thus, the need to be concerned about the effect of taxes on your investment. 

The good news is that there are ways, utilizing investing strategies, to minimize the effect of taxes on your investment portfolio such as: 

- type of investment account

- managing capital gain transactions

- identifying tax-sheltered and non-tax sheltered accounts etc. 

Taxes can easily erode your investment gain if it is not properly considered and managed when making investment decisions.

You do pay tax when or and after you 've engaged in taxable event or transaction. 

A sale of an asset at a gain will result in capital gain, and subsequently attract capital gain taxes (short or long term capital gain). 

Also, taxes are paid investment income depending on several factors and the type of investment vehicle income to determine if such income is exempted from taxes at federal and or state level - such as municipal bonds interest, U.S Treasury bills and certain government savings bonds.  

Most investment incomes are taxed at capital gain tax rate or ordinary income tax rate. 

Earnings and gains in tax-deferred retirement account are not taxed until the fund is withdrawn or distributed.

In investment, capital gain is the realized amount over the cost (basis) of the investment (stocks, bonds, virtual currency, real estate, ETFs etc.) when you sold the investment - this is difference between the realized proceed (sales price)  and the cost price (basis). 

You have a gain when the proceed is greater than the cost price. However, the capital gain are classified as short-term or long-term capital gain depending on the holding period of the underlying asset. 

If you held the disposed asset less than a year , the gain is classified as a short-term capital gain. 

Conversely, if the asset had been held for a day more than a year before disposal, the gain is regarded as long-term capital gain. 

On tax consequences: short-term capital gains are taxed at the taxpayer's income tax rate while the long-term capital gain taxed at a lower capital gain tax rate when compare to the short-term tax rate. 

Understanding the impact of taxes is very crucial on decision and timing of acquiring and disposing investment assets.

In general, taxes are due and paid on dividend received, taxable. However, if dividends are distributed in a retirement account such as 401(k), IRA, 403(b) etc., then the dividends are not taxable unit fund is distributed. 

Note that dividend income is taxable but in different ways depending on the characteristic of the dividends - if classified as qualified or non-qualified dividends. 

Qualified dividend are taxed at long-term capital tax rate while non-qualified dividend taxed at ordinary income tax rate. 

All dividend income received must be reported when filing your tax returns; a 1099-DIV normally issued by the brokerage firm to report the dividend payments.

Qualified dividends are dividends from shares held for a specified holding period, and usually taxed at capital gain rate if certain requirements are met. 

When compared to ordinary dividends, the ordinary income is taxed as ordinary  income and at the taxpayer's income tax rate which higher than the capital gain rate. 

Taxable investment accounts are accounts with gains or proceeds in these accounts taxed as ordinary income or capital gain.  

In these accounts, income generated such as interest, dividends, capital gain are subject to tax when  realized. 

A non-retirement brokerage account is example of a taxable investment account as taxes are due on the interest, dividend payment received, and capital gain tax on excess of sales proceed over the cost or basis of asset disposed if the asset held over a year (long-term capital gain) but taxed at taxpayer income tax rate if asset disposed held less than a year (short-term capital gain). 

As a long-term investor, there is no great tax incentive but carefully throughout tax planning strategies can be implemented to reduce taxes with this account.

However, a non-taxable investment accounts are typically retirement accounts with tax advantaged privileges and benefits; the contributions in these accounts grow tax free but taxes may or may not be due at the time of distribution depending on the type of retirement account. 

Example of non-taxable retirement plan accounts are 401(k), 403(b), HSA accounts, traditional IRA, Roth IRA, Municipal bonds etc. 

When investing for retirement, it is worthwhile to determine the tax consequences of both taxable and non-taxable investment on your overall portfolio. 

It is typical for most  investor to have both accounts investment return and risk strategies.

When it comes to investing, tax is one of the dominant factors to consider as the impact on investment returns can be monumental and thus affect the bottom-line of the investment. 

Now, how can you minimize taxes on your investments? How can your shield your investment income or returns from taxes? 

You can legally minimize investment taxes strategically with pre-determined tax-minimization and efficient strategies and goals alongside with your investing philosophy and strategies, for example if you are long-term investor. 

First approach is to define and identify your taxable account and non-taxable account, your investment goals, investment vehicles, your personal tax profile and current and future income. 

Having done thorough analysis, you then identify appropriate tax-efficient investment vehicles,  tax-advantaged investment accounts, tax-deferred accounts, tax-exempt investments and tax-free accounts.

The tax-savings strategies can be also be effective if proper timing is utilized such  as taking advantage of capital gain/loss on investment  - timing of buying and selling your investments to trigger desired tax benefit outcome. 

Note that the following:

- Personal ordinary Income tax rate higher than the long term capital gain tax rate.

- Short  term capital gain taxed at the taxpayer's ordinary  income tax rate.

- Capital loss can be used to reduce your taxable income - Loss harvesting strategy helps in this regard.

- Most retirement accounts (401(k), 403 (b), IRA, etc.)  are tax-efficient and tax reduction strategies. 

- Investing in tax-exempt investment vehicle such as Municipal Bonds - as interests on the this investments are mostly not taxed at the federal level but state tax treatment varies.

As long-term self-directed investor, consult an investment/financial professional and tax advisor to asses your situation and, to guide you to on the best strategy and efficient way to minimize your investment tax burdens.

Tax deferred means tax payment is postponed. On what? No tax is due on the contributions and earnings in the retirement accounts until there is withdrawal or distribution. 

The taxpayer benefits from the attribute of the tax-deferred account with immediate tax deduction of the amount contributed, though limited by the tax payer adjusted gross income. 

At the time of withdrawal or distribution, the amounts taken out of the retirement account are taxed at the taxpayer's ordinary income rate.  

The deferred retirement investment accounts are great ways to save money towards your retirement and reduce your taxable income when actively working and investing. 

For a long-term investor or saver, consider your employer 401(k), 403(b) or traditional IRA - this are popular example of tax-deferred retirement plan and accounts.

Most retirement income are taxed at and during retirement when withdrawn or distributed - reason that the contributions were pre-tax contributions and the earnings in the retirement account were not taxed as they increased. 

To avoid paying taxes on your retirement income, then  the investment vehicle of choice and option will be have a tax-free retirement plan such as the Roth 401(k) and or Roth IRA - contributions to these accounts are after-tax dollars contribution with no immediate tax benefit but future tax free withdrawal if required conditions are met by the taxpayer. 

In addition to Roth IRA and Roth 401(k) tax-free attributes, investing in municipal bonds will eliminate paying federal taxes on the interest generated, and also certain qualified levels of social security benefits are not taxable, withdrawals from health savings account upon meeting specified requirements. 

When investing for retirement, and for the long term, consider  adding tax-free retirement income investment vehicles to your overall portfolio as part of your investing strategies to better your investment returns and retirement cashflow.

Yes. Diversification can greatly minimize taxes on your investment if done intently and strategically. 

While most diversification focus on risks and returns of portfolios no doubt, the outcomes of such diversification exercise, do have tax consequences. 

To minimize the tax consequences, diversification of investment should be implemented strategically to allow for tax-effective-efficient investing by using absolute or combined investment accounts with distinct tax treatments that minimize taxes and maximize returns - such as:

- the tax-advantaged (tax-deferred account)

- fully-taxable, tax-exempt and,

- tax-free accounts or investment vehicles [brokerage taxable account, retirement plans, education plan, health savings account, municipal bond etc.]. 

If you are investing for the long-haul, diversifying your investment portfolio into combination of these tax-efficient investment buckets will eventually minimize your taxes now or later.

However, you should consider the balancing and any trade-off of your investment/retirement  goals and the tax-minimization strategies.

Harvesting losses, in the investment brokerage parlance, typically called Tax-Loss Harvesting (TLH) is investing cum tax-savings strategy to offsetting capital gains with capital losses, both from disposing of securities, to minimize the capital gain tax liability. 

While the capital losses can reduce the capital, a net loss will further offset the taxpayer's taxable ordinary income, though limit applies, and depending on the taxpayer's filing status. 

The tax loss harvesting applies mostly to taxable accounts such as brokerage accounts, and this is considered also as an investing strategy to minimize taxes, maximize returns and further increase the rate of asset accumulation. 

Note that TLH does not apply to tax-deferred retirement accounts since the gains in the accounts are taxed until withdrawn and distributed. 

If you are considering using the tax-loss harvesting, avoid wash sale - deducting capital losses against capital gains of the same securities bought and sold within less than 30 days - such transactions not IRS tax-allowable. 

You should consider the cost-benefit of tax-loss harvesting on your overall investment goals and returns before executing this investment strategy and take optimum advantage of the tax law provisions. 

Consult with your tax advisor on the provision of the tax law, and with your financial planner. 

Some brokerage firm with Robo Advisor platform or services do provide tax-loss harvesting transactions in managing clients' taxable accounts. 

Check with your brokerage firm.

When investing, understanding the time-effect of certain investment decision is very crucial as this affects both the investment risks and returns. 

On the holding period of an asset, the extent of duration is important because of the nature of the tax treatments , consequences, benefits, returns, risks, costs  on the entire investment portfolio - the period an investor held the asset from acquisition to disposal. 

In investment, an asset held for less than a year, his regard held for a short-term while asset held for more a year (365 days) is considered held for a long-term. 

Both the short-term asset and long term asset have different tax treatment; short term is taxed as ordinary income tax rate while the long-term asset taxable at capital gain tax rate which his lower tax rate than the ordinary income tax rate.

Holding a stock or exchange traded fund (ETFs) for a long term is more beneficial to the long-term investor because advantage of power of compounding, lower capital gain tax rate, low transaction expenses, investment growth, long-term returns, and overcome market volatility.  

For a short term holding, the costs outweigh the benefits, and not ideal for a long-term investors except to cut permanent losses on investment assets. 

Tax-efficient and tax-advantaged investment accounts are sometimes used interchangeably, they are investment accounts or plans that have tax benefits attributes to investors or holders of such qualified investment vehicles.

The investments classified as tax-efficient or advantaged are tax-exempt, tax-deferred and tax-free. 

Example of tax-efficient-advantaged investment or financial accounts are 401(k), 403(b), IRAs, Municipal bonds, 529 Savings Plan, Health Savings Accounts etc. 

These accounts are tax-efficient and advantaged because of the tax deferment, deductibility of pre-tax contributions to minimize taxable income and non-taxable of the dividend income and capital gain in the accounts or plan until there is withdrawal or distribution. 

As long-term investor, the goal is to maximize returns on and of your investment, thus carefully and strategically investing in tax-efficient and advantaged to pay the least amount of taxes allowable should be part of overall investment plan.

First, capital gain is the profit on the disposal of asset (capital assets as investment securities like stocks, ETFs, Cryptocurrency, etc.). 

It is the difference between cost or basis of the asset and sales proceeds, which is subject to a capital gain tax. 

Conversely, disposal of capital asset can result into loss, if the proceed from the sale of the asset is less than the cost or basis of the disposed asset. 

Capital gain tax rate is the rate which the gain on disposed asset is taxed; however, the rate varies depending on the holding period of the asset disposed. 

If the asset was held by the owner or investor for more than one year, the long term capital gain rate is applied. 

The current long-term capital rates, in 2022, are 0%, 15%, or 20% and, this further depends on the taxpayer's income tax bracket. 

For an investor who held an asset for less than a year before disposing the asset for a gain will be subjected to a short-term capital gain tax rate which is at the taxpayer ordinary income tax rate. 

Capital gains only apply to realized gain.

As a long-term investor, strategically consider the effect of taxes on your portfolio when rebalancing your portfolio through disposal of assets, during tax loss harvesting, and other tax-effect investing decisions.

As part of overall investing strategies, an investor also look for tax-neutral investment to minimize effect of taxes on the performance of the portfolio - to maximize the returns on investments. 

Example of smart tax-neutral investments are tax-managed mutual funds and municipal bonds that are tax-efficient with lower or no taxes. 

Assuming your are a long-long term investors, there are numerous ways to legally reduce taxes on your investments utilizing tax effective and efficient investing strategies throughout the life-cycle of assets in your portfolio. 

The ways to reduce current and future taxes in investments are but limited to the following:  

- Contributions to retirement accounts such as 401(k), 403(b)

- Traditional IRA will provide immediate tax advantage as the taxes on in these accounts are deferred until the contributed funds or investments are distributed or withdrawn, and there are immediate reduction in your taxable income depending on your income limit for the amount contributed during the tax year. 

Contribution to tax-free account such as Roth 401(k) and Roth IRA, since the contributions where after-tax dollar - no immediate tax benefit but provide a tax-free withdrawal and distribution if specified requirements are met. 

Investing in tax-exempt investment vehicle as municipal bonds will reduce taxes. 

Asset holding strategies  - holding on to an asset longer than a year (long-term) to avoid short-term capital gain (normally at higher tax rate), harvesting losses to reduce the high tax burden on capital gains - know as tax loss harvesting. 

Strategically, a long-term investors or taxpayer has more opportunities to manage his or her portfolio in appropriate ways to legally reduce both current and future taxes.

According to the Internal Revenue Service (IRS) Publication 550, a wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: 

1. Buy substantially identical stock or securities, 

2. Acquire substantially identical stock or securities in a fully taxable trade, 

3. Acquire a contract or option to buy substantially identical stock or securities, or 

4. Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA. 

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale. 

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). 

The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. 

Your holding period for the new stock or securities includes the holding period of the stock or securities sold.

On the tax implications, you cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities. 

1099-B is used to report wash sale transactions to the IRS by your broker, a copy is sent to you to file your taxes.

Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.  

Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency.  

The IRS uses the term “virtual currency” in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.   

Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes.  

Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.  

For more information on the tax treatment of virtual currency, see Notice 2014-21.  

For more information on the tax treatment of property transactions, see Publication 544, Sales and Other Dispositions of Assets. 

Cryptocurrency is a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.  

A transaction involving cryptocurrency that is recorded on a distributed ledger is referred to as an “on-chain” transaction; a transaction that is not recorded on the distributed ledger is referred to as an “off-chain” transaction. 

When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses.  

For more information on capital assets, capital gains, and capital losses, see Publication 544, Sales and Other Dispositions of Assets. 

If you held the virtual currency for one year or less before selling or exchanging the virtual currency, then you will have a short-term capital gain or loss.  

If you held the virtual currency for more than one year before selling or exchanging it, then you will have a long-term capital gain or loss.  

The period during which you held the virtual currency (known as the “holding period”) begins on the day after you acquired the virtual currency and ends on the day you sell or exchange the virtual currency.  

For more information on short-term and long-term capital gains and losses, see Publication 544, Sales and Other Dispositions of Assets. 

 Your gain or loss will be the difference between your adjusted basis in the virtual currency and the amount you received in exchange for the virtual currency, which you should report on your Federal income tax return in U.S. dollars.  

For more information on gain or loss from sales or exchanges, see Publication 544, Sales and Other Dispositions of Assets. 

Your basis (also known as your “cost basis”) is the amount you spent to acquire the virtual currency, including fees, commissions and other acquisition costs in U.S. dollars.  

Your adjusted basis is your basis increased by certain expenditures and decreased by certain deductions or credits in U.S. dollars.  

For more information on basis, see Publication 551, Basis of Assets.

Yes.  When you receive property, including virtual currency, in exchange for performing services, whether or not you perform the services as an employee, you recognize ordinary income.  

For more information on compensation for services, see Publication 525, Taxable and Nontaxable Income.

Yes.  Generally, self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee.  

Consequently, the fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income and is subject to the self-employment tax.

The amount of income you must recognize is the fair market value of the virtual currency, in U.S. dollars, when received.  

In an on-chain transaction you receive the virtual currency on the date and at the time the transaction is recorded on the distributed ledger.

If, as part of an arm’s length transaction, you provided someone with services and received virtual currency in exchange, your basis in that virtual currency is the fair market value of the virtual currency, in U.S. dollars, when the virtual currency is received.  

For more information on basis, see Publication 551, Basis of Assets.

Yes.  If you pay for a service using virtual currency that you hold as a capital asset, then you have exchanged a capital asset for that service and will have a capital gain or loss.  

For more information on capital gains and capital losses, see Publication 544, Sales and Other Dispositions of Assets.

Your gain or loss is the difference between the fair market value of the services you received and your adjusted basis in the virtual currency exchanged.  

For more information on gain or loss from sales or exchanges, see Publication 544, Sales and Other Dispositions of Assets.

Yes.  If you exchange virtual currency held as a capital asset for other property, including for goods or for another virtual currency, you will recognize a capital gain or loss.  

For more information on capital gains and capital losses, see Publication 544, Sales and Other Dispositions of Assets.

Your gain or loss is the difference between the fair market value of the property you received and your adjusted basis in the virtual currency exchanged.  

For more information on gain or loss from sales or exchanges, see Publication 544, Sales and Other Dispositions of Assets.

If, as part of an arm’s length transaction, you transferred virtual currency to someone and received other property in exchange, your basis in that property is its fair market value at the time of the exchange.  

For more information on basis, see Publication 551, Basis of Assets.

Yes.  If you transfer property held as a capital asset in exchange for virtual currency, you will recognize a capital gain or loss.  

If you transfer property that is not a capital asset in exchange for virtual currency, you will recognize an ordinary gain or loss.  

For more information on gains and losses, see Publication 544, Sales and Other Dispositions of Assets.

Your gain or loss is the difference between the fair market value of the virtual currency when received (in general, when the transaction is recorded on the distributed ledger) and your adjusted basis in the property exchanged.  

For more information on gain or loss from sales or exchanges, see Publication 544, Sales and Other Dispositions of Assets.

If, as part of an arm’s length transaction, you transferred property to someone and received virtual currency in exchange, your basis in that virtual currency is the fair market value of the virtual currency, in U.S. dollars, when the virtual currency is received.  

For more information on basis, see Publication 551, Basis of Assets.

A hard fork occurs when a cryptocurrency undergoes a protocol change resulting in a permanent diversion from the legacy distributed ledger.  

This may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger.  

If your cryptocurrency went through a hard fork, but you did not receive any new cryptocurrency, whether through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses) or some other kind of transfer, you don’t have taxable income.

If a hard fork is followed by an airdrop and you receive new cryptocurrency, you will have taxable income in the taxable year you receive that cryptocurrency.

When you receive cryptocurrency from an airdrop following a hard fork, you will have ordinary income equal to the fair market value of the new cryptocurrency when it is received, which is when the transaction is recorded on the distributed ledger, provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency.

 If you receive cryptocurrency from an airdrop following a hard fork, your basis in that cryptocurrency is equal to the amount you included in income on your Federal income tax return.  

The amount included in income is the fair market value of the cryptocurrency when you received it.  

You have received the cryptocurrency when you can transfer, sell, exchange, or otherwise dispose of it, which is generally the date and time the airdrop is recorded on the distributed ledger.  See Rev. Rul. 2019-24 PDF.  

For more information on basis, see Publication 551, Basis of Assets.

If you receive cryptocurrency in a transaction facilitated by a cryptocurrency exchange, the value of the cryptocurrency is the amount that is recorded by the cryptocurrency exchange for that transaction in U.S. dollars.  

If the transaction is facilitated by a centralized or decentralized cryptocurrency exchange but is not recorded on a distributed ledger or is otherwise an off-chain transaction, then the fair market value is the amount the cryptocurrency was trading for on the exchange at the date and time the transaction would have been recorded on the ledger if it had been an on-chain transaction.

If you receive cryptocurrency in a peer-to-peer transaction or some other transaction not facilitated by a cryptocurrency exchange, the fair market value of the cryptocurrency is determined as of the date and time the transaction is recorded on the distributed ledger, or would have been recorded on the ledger if it had been an on-chain transaction.  

The IRS will accept as evidence of fair market value the value as determined by a cryptocurrency or blockchain explorer that analyzes worldwide indices of a cryptocurrency and calculates the value of the cryptocurrency at an exact date and time.  

If you do not use an explorer value, you must establish that the value you used is an accurate representation of the cryptocurrency’s fair market value.

As an investor, fundamental analysis of a company is primary the critical analysis and evaluation financials to determining the true book value, know as intrinsic value, of the company based on qualitative and quantitative factors of the underlying assets, liabilities, capital and human capital (management profile) and other related economic factors from micro to macro-economic factors. 

During the analysis, the company's sub-sector, sector, industry and general economic trends are examined to arrive at the intrinsic value. 

More often than not, fundamental analysis by investors are done to determine if the company's stock price is undervalued or overvalued or fair (rightly priced by the market - fair market price).

As a long-term investor, one of the goals is to long for bargained company or stock to buy and hold to a long time before the market noticed the 'mispricing'.

To perform the fundamental analysis of a company, the financials of the company are analyzed for profitability, stability, sustainability, solvency, liquidity and other non-financial factors that affects the company's current and future value, prospect and competitive edge. 

Finally, long-term investors benefited most from fundamental analysis!

Analyzing a company requires analytical skills as both qualitative and quantitative factors affecting and relating to the company will be critically scrutinized and evaluated to arrive at desired goals such as the company's viability, going concerns, profitability, liquidity, growth rate, industry peer analysis, valuation, stability, solvency, turnover, effectiveness of management, competitive edge, cash advantaged positions. 

However, the following analytical tools are mostly used to analyze company, for performance and prospect, using the company's financial statements [income statement, balance sheet and cash-flow statement] as primary source documents, financial ratios:  profitability ratios, solvency ratios,  liquidity ratios, valuation ratios, management ratios. 

Calculating and analyzing these ratios provide ground to determine the company's worth or intrinsic value.

As a long-term investor, computing the financial ratios and able to interpret the significance of the ratio is a must to a valued investor.

Investing or money management is a serious venture that requires time commitment to understand the intricacies and managing expectations - returns and risks. 

If you do not have the basic understanding the financial markets, and have not time to learn or acquire the basic skills to manage your investments or money, then your need a financial planner or an investment planner to guide and manage your money. 

It is important your weigh the cost-benefit of managing your investment or hiring a professional fund manager or an advisor. 

As a long-term self-directed investor, you already in charge and responsible for the outcome of your investments - meaning, you are an active investor making the investing decisions. 

However, you can be a long-term passively active investor  seeking a low-cost managed funds or investments. 

Note, not hiring a financial or investment advisor will save you money on management or advisory fee (avoiding 1-2% of fee saves your thousands of dollars over the long holding period of your investments).

However, you must be mentally and emotionally prepared to face the challenges and complexities of the financial markets to avoid loss of capital.

To fast track your investing skills, acquire financial markets knowledge or get a financial or wealth coach to guide or mentor you.

First, your portfolio is the collection of your total investments as an operational unit to achieve desired financial or investment goals. 

The investment vehicles or asset classes within this unit of portfolio can varies from stocks, ETFs, index funds, mutual funds, CDs, treasury bills, bonds, REITs, real estate, commodities, virtual currencies etc. 

Since each investment has identifiable specific features and characteristics then, there is the  need to manage the portfolio, even if there is only one investment vehicle such as stock, in terms of investment objectives, selection, allocation, re-balance, monitor, measure, performance to ensure it is in line with the investment goals that maximize your investment returns and minimize risks - the primary objectives of long-term investors. 

Portfolio management is a business-minded approach to investing by serious and goal-seeking investors.

In life things get out of whack, so also in investing. 

It is common that investment portfolio do get out of originally intended order due to positive or negative events affecting the portfolio's returns and risks, and impacting the investment goals or objectives. 

The rebalancing of portfolio is primarily to maintain the desired risk profile of the portfolio, ensuring optimum asset classes mix that compensate each other through appropriate weighting mechanism and adjustment. 

To achieve effective and efficient investment strategy and risk profile, constant monitoring and periodic portfolio rebalancing is required. 

The rebalancing approach may involve acquiring and disposing assets to meet desired investment goals. 

On how often should you rebalance, there is no number of time you should rebalance your portfolio but constant monitoring and having trigged threshold in your portfolio will provide timely signal to review and rebalance your portfolio. 

While the happenings in the domestic and global economy (interest rate, fiscal policies, inflation, unemployment, recession, conflicts, pandemic) can and will affect the degree of portfolio returns and risk exposure, it is appropriate to rebalance your portfolio accordingly to minimize effects on investment goals. Rebalancing can be done proactively! 

As long-term investor, periodic and timely portfolio rebalancing should be one of the cores of your investment strategies for the long-haul!

Asset allocation is the division or allocation of investible fund into various asset categories based on investor's investment objectives, financial profile, and risk tolerance. 

These assets could be cash, stocks, bonds, REITs, ETFs, real estate, commodities, etc. 

However, the two main models of allocating funds to different assets during the course of investing are both strategic and tactical. 

While the strategic model or approach is considered to a long-term asset allocation based on investor's investment goals and risk profiles, the tactical approach takes into consideration the external factors such as the financial markets conditions in asset allocation or portfolio mix rebalancing.

While the strategic asset allocation is a long term view, the tactical asset allocation is triggered and focused on prevailing market events. 

Furthermore, while the strategic allocation can be done periodically to align the portfolio performance with investment goals, the tactical allocation is dynamical and done more more frequently due to ever-changing market conditions coupled with risks and opportunities - necessitating active investment approach.

As a self-directed long-term investor, both hats (strategic and tactical) must be worn for efficient and timely asset allocation. 

The major striking difference between an index fund and an exchange traded fund (ETF) is the transactional element - trading of the index and the ETFs.

 Index funds are traded at the end of the trading day at a set price point whereas the ETFs can be traded, like stocks, at any time during the trading day or hours.

However, to analyze and compare the index funds and ETFs, the analytical comparison should be done on the following fundamental attributes: 

- minimum investment, management fees (expense ratio), 

- tax efficiency, 

- ease of liquidity and fund assets holdings.

While both attempts to track or replicate specific index, both are also passive approach to investing as both funds are managed by active professional managers compensated with the management fees. 

On the surface, the two funds appear the same but their differences lie in the detailed analysis of the attributes of minimum, taxes, fees, liquidity and holdings.

For a long-term self-directed investors, not ready to research and pick individual stocks, going the way of the index and ETFs is more ideal and appropriate.

However, appropriate index and EFTs that are suitable to investment goals and risk profiles be identified and selected to build desired portfolio. 

Investing in index funds and or ETFs can help diversified your portfolio, and be effective in managing your investment portfolio. 

Note that the index funds or ETFs are made of bucket of stocks - can be hundreds and thousands - that tend to mirror and track specific benchmark market index; both can be tax efficient and cost effective thus, can be useful strategic tools in investment or portfolio diversification in addition to other investment vehicles that can be selected as a unit such as a stock of a company, a city or state bond, treasury bond, etc. 

The advantages of the index funds and EFTs are the platform to invest in hundreds or thousands of investment vehicles as collective unit, at minimal cost, with specific investment goals, defined and anticipated market volatility and risks and the low expense ratio. 

As tools for diversification strategy, index funds and ETFs are defined and classified into: Value, growth, balanced, dividend, fixed income, market, RIETs, bonds, emerging, international, small cap, mid-cap, blend, large cap, crypto, and or the funds made up by sectors or industry categories. 

Self-directed investors can use the index and ETF funds to manage and diversify their investment portfolio to maximize returns and minimize risks in the long run.

In order to properly manage and diversify investment portfolio, investment professionals and investors classified and grouped investments into various categories, and further sub-categorized based on peculiar characteristics, laws, regulations and the degree of correlation in the marketplace. 

The typical or traditional financial assets categories are: Cash and Cash Equivalent, Equities, Fixed Income, Real Estate; other investment classes are: commodities, futures, cryptocurrencies, financial derivatives, etc. 

Asset classes are key component of investment diversification strategy to help manage the portfolio to achieve optimal returns while controlling risks and volatility. 

The equity asset class are commonly stocks of companies, this can be sub-categorized in small-cap, mid-cap, large-cap, etc.

Cash and cash equivalent class are money market instruments, commercial papers, treasury bills and other highly liquid assets that can be converted into cash within or less than a year.

Fixed income are typically debt securities instrument that investor invested with anticipation of interest income and principal amount invested repayment at specified future date, known as the maturity date - example of this instrument are: treasury bonds, corporate bonds, municipal bonds, etc. 

On real estate, the classes can be residential building, land/plot, commercial building /office complex, etc.

As well informed investors, investing in different classes of asset should be the core of your investment strategy as each class of investment liner or non-linear to each other, and this will minimize portfolio risks while maximizing total returns as the investment adapts to financial market and environment dynamics.

Please read the response to the question on Rebalancing for more insight. 

On your question on how to keep track your investment portfolio to align with your financial goals, you will have to know first, your investment goal in quantitative terms, your portfolio mix, performance of the each asset class as related and weighted to achieve desired targeted returns. 

Investors use different methods to keep track of the performance of investment portfolio and make necessary adjustment if the performance and risk exposure are not in alignment with the investment or financial goals. 

Most popular method is used by brokerage firm's Robo Advisors - using automated process.

A self-directed investor can use spreadsheet to analyze and track performance; use of various investment software and apps to monitor divergence and variation of the portfolio mix to the expected or targeted investment goals; keeping investing journal on acquisition and disposal of assets help monitor the allocation of assets. 

Overall, uploading and offloading of assets in your portfolio will help in rebalancing the entire portfolio toward achieving desired investment goals. 

Long-term investors tend to engage in strategic asset allocation to achieve investment goals while utilizing tactical asset allocation approach to respond and adjust to frequent changes in the financial markets and environment, to align portfolio to investment goals.

The mutual, index and exchange-traded funds (EFT) funds are collections of investment assets put together as investment vehicle or investible unit, managed by investment and financial professionals for regular fees called the expense ratio. 

The expense ratio is made up of the management and operating fee of paid to the fund company when invested in the fund. 

The expense ratio is very important to investors as it affect the bottom-line of the returns on investment or profitability especially in for a long-term investor. 

The expense ratio can be considered high or low by investors, while the ratio is relativity of the fund fees and the value of the fund's assets, it is not uncommon to see funds with 0.04%, 0.07%, 0.09%, 0.25%, 0.75, 1.00%, 1.25%, etc. 

The expense ratio can be cheaper  or expensive depending on the value of funds asset and the fund company fees profile. 

As an investor looking for the expense ratio is a must as this will affect the overall potential returns on your investments, thus look for funds with lowest expense ratio. 

Mutual funds expense ratio normally higher than the ETFs expense ratio. 

This expense ratio is typically and automatically deducted from the fund returns. 

Note that the expense ratio can be stated as gross or net; included in the gross expense ratio are the fee waiver and reimbursement, and the net expense ratio is the net amount of the gross after the fee waiver and reimbursement are deducted. 

In summary, if you are investing in mutual, index or ETFs, you must consider the impact of the expense ratio or fee on your long-term future potential investment return as this can boost or deplete overtime your future return thousands of dollars. 

The expense ratio of selected funds must be reasonable!

Before distinguishing the stock market from the economy, it is instructive to state that the stock market is not the economy, neither the economy is the stock market!

However, while both are not the same, they are connected and inter-related to the extend that stock market is an integral component of the economy - through the activities of the participants in the stock market - investors and businesses. 

Both the stock market and the economy have economic and market cycles, both do not occur at the same time and, not predictive events on how each will react to the cyclical changes. 

The measurement of the performance of the stock market is done through the performance of the market indexes such as the S&P 500, Dow, Russell, Nasdaq etc. - made up of companies.

While the performance and strength of the economy can be measured by factors such as Gross Domestic Product (GDP), Consumer Price Index (CPI), employment level, housing market, general spending in the economy. 

As a long-term investor, the dynamics in both spaces cannot be overlooked as the optimism and pessimism about the future of the economy have direct relationship to your view or projection of the stock market and its components.

As self-directed long term investor, you must be conversant with the changes in the key determinants of the direction of the economy such as: 

- interest rate, 

- inflation rate,

- unemployment rate, 

- monetary policies, 

- fiscal policies, 

- and other government economic pronouncements

All the above will help you stay in tuned and focused while making investment decisions to optimize your portfolio growth and returns, and avoidably minimize risks through the market or economic circles.

Like any worthy ventures, it takes time, efforts, commitment and perseverance to  understand the intricacies. 

However, to fast track your skills and knowledge acquisition, you must commit your time to reading, studying, listening, watching investing related materials - books, audiobooks, podcast, videos on investing written or presented by successful investors or investment professionals and academicians. 

To be a great investor, you must understand the language of business - Accounting - as the most basic financial and investment information are presented in accounting terminologies that are interpreted to make informed investment decisions. 

Most online brokerage firms do have education sections on their websites to educate clients on fundamentals of investing in stocks, bonds, options, mutual funds, ETFs, index funds, money market instruments etc. 

Note that investing is both a science and an art, and with time, both will be utilized intuitively when analyzing and evaluating investments. 

To actualize your goal of fast tracking your skills and knowledge, open a brokerage account if you have not done so or horn your skills through stock stimulators or actual investing of your money - though you can start small to avoid costly mistake.

To be a self-directed long-term mindset investor, no doubt, you must understand and conversant with the language of business - ACCOUNTING and able to read and understand financial statements and reports.

You can seek the service of a financial or wealth education coach to help fast track your knowledge and skills.

Absolutely yes! You can engage in trading and investing at the same time. 

First, trading involves capitalizing on prices movements within short period of time usually less than a year. 

Most trading are done in days, weeks and months thus these market participants are called short-term traders, day traders or swing traders. 

The traders are different from investors who tend to buy and hold on to their investments for years thus they are the long-term investors.

While you can trade and invest at the same time, they both have different approach and mindset in decision making. 

For example, a short-term day trader may not be concerned with the fundamentals of the security or company to make a buy or sell decision but heavily depended on the price movements with anticipated directions using the stock chart to arrive at such conclusions. 

Thus traders are known to engage in technical analysis of securities as compared to long-term investors whose mindset to hold on their investments for the long haul. 

Investors, not the traders, focused more on the investment fundamentals such as earnings, assets, growth potentials, capital structure, debt level, management profiles, industry and sector analysis, general market and economy atmosphere, key economic indices etc. to arrive at a buy and sell decisions. 

Overall, both trading and investing involves strategies to achieve desired goal and manage accompanied risks. 

For a long-term mindset investors, you must be ready to persevere through the market or economic cycle to see desired or anticipated outcomes having done thorough research before picking the securities or investments. 

For a trader, the time-span to make entry and exit decision very short, could a minutes, hours, days or weeks since the investment time-horizon is short.

Congratulations! If you are investing the whole amount of the gift with no further contribution to the stating amount of $205,000, at 8.50% for 30 years, your total investment account when you are 56 years old will be worth $2,369,442. 

Due to the power of compounding, your investment of $205,000 generated and earned total interest of $2,164,442. 

The lesson here is: the best time to start investing is NOW! 

Take advantage of the miraculous power of compounding and be a long-term mindset investor.

Dollar-Cost-Averaging, also known as DCA, is investing strategy in which an investor systematically proportionally invest money periodically to purchase targeted or desired assets such as stocks, mutual funds, index funds, ETFs, bonds etc. 

This investing approach allows specified same dollar amount invested daily, weekly, bi-weekly, monthly, quarterly or any period that suit the investor. 

This approach is very passive and easy to implement, and the constant investing method and its methodologies greatly reduce the impact of market volatility in the long-run. 

With the DCA, the following are the benefits and upsides: market timing is avoided, emotions are reduced, investment risks are minimized, an effective passive investing approach and perpetually investing regardless of the market conditions, and great for long-term mindset investors. 

On the drawbacks, the DCA investing approach may not allowed an investor to take advantage of the market volatility for a high returns since smaller specified dollar-amount already committed to purchase certain asset on consistent basis; regular transaction fee may be incurred as purchases are made frequently; missing out of upside potentials on certain investment opportunities, and the DCA approach can discourage the necessity to research and investigate the true value of assets such as securities at each time of purchase.

Overall, DCA approach as an investing strategy, can be done in combination with other investment strategies depending on suitability and investment style. 

The main overall positive feature of DCA is that it makes the investor stays in the market regardless of prevailing conditions, volatility, risks or returns because of the investor's committal mindset of investing. 

First, all investment or investing activities come with risk or potential risk. These risks can be systemic or non-systemic risk but both can be managed or avoided. 

Cryptocurrency also known as virtual currency are digital asset or digital money with no physical substance and such are classified as intangible assets. 

As an investment vehicle, cryptocurrency comes with the risks of: loss, fraud, theft, non-transparency, minimal or no regulations, volatility, lack of underlying assets, restricted acceptability etc. 

The foregoing are the factors that should be considered to know if investing in cryptocurrency is safe. 

Is it a speculative financial asset? Well it an investment that cannot be valued based on its underlying assets and other fundamentals thus crypto is regarded as a speculative financial assets - as the investment only reflects future expectations of value based on hope that the pricing of the asset will increase in the future.

As a long-term investor, engaging in speculative investing activities will not be appropriate, and negate the long-term value seeking principle. 

There are hundreds of cryptocurrency used as medium of exchange and store of value but not FDIC insured like money deposited in the bank.

When you receive cryptocurrency in exchange for property or services, and that cryptocurrency is not traded on any cryptocurrency exchange and does not have a published value, then the fair market value of the cryptocurrency received is equal to the fair market value of the property or services exchanged for the cryptocurrency when the transaction occurs.

Your holding period begins the day after it is received.  For more information on holding periods, see Publication 544, Sales and Other Dispositions of Assets.

No.  A soft fork occurs when a distributed ledger undergoes a protocol change that does not result in a diversion of the ledger and thus does not result in the creation of a new cryptocurrency.  

Because soft forks do not result in you receiving new cryptocurrency, you will be in the same position you were in prior to the soft fork, meaning that the soft fork will not result in any income to you.

No.  If you receive virtual currency as a bona fide gift, you will not recognize income until you sell, exchange, or otherwise dispose of that virtual currency.  

For more information about gifts, see Publication 559, Survivors, Executors, and Administrators.

Your basis in virtual currency received as a bona fide gift differs depending on whether you will have a gain or a loss when you sell or dispose of it.  

For purposes of determining whether you have a gain, your basis is equal to the donor’s basis, plus any gift tax the donor paid on the gift.  

For purposes of determining whether you have a loss, your basis is equal to the lesser of the donor’s basis or the fair market value of the virtual currency at the time you received the gift.  

If you do not have any documentation to substantiate the donor’s basis, then your basis is zero.  

For more information on basis of property received as a gift, see Publication 551, Basis of Assets.

Your holding period in virtual currency received as a gift includes the time that the virtual currency was held by the person from whom you received the gift.  

However, if you do not have documentation substantiating that person’s holding period, then your holding period begins the day after you receive the gift.  

For more information on holding periods, see Publication 544, Sales and Other Dispositions of Assets.

If you donate virtual currency to a charitable organization described in Internal Revenue Code Section 170(c), you will not recognize income, gain, or loss from the donation.  

For more information on charitable contributions, see Publication 526, Charitable Contributions.

Your charitable contribution deduction is generally equal to the fair market value of the virtual currency at the time of the donation if you have held the virtual currency for more than one year.  

If you have held the virtual currency for one year or less at the time of the donation, your deduction is the lesser of your basis in the virtual currency or the virtual currency’s  fair market value at the time of the contribution.  

For more information on charitable contribution deductions, see Publication 526, Charitable Contributions.

A charitable organization can assist a donor by providing the contemporaneous written acknowledgment that the donor must obtain if claiming a deduction of $250 or more for the virtual currency donation. See Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements PDF, for more information.

A charitable organization is generally required to sign the donor’s Form 8283, Noncash Charitable Contributions, acknowledging receipt of charitable deduction property if the donor is claiming a deduction of  more than $5,000 and if the donor presents the Form 8283 to the organization for signature to substantiate the tax deduction. 

The signature of the donee on Form 8283 does not represent concurrence in the appraised value of the contributed property.  

The signature represents acknowledgement of receipt of the property described in Form 8283 on the date specified and that the donee understands the information reporting requirements imposed by section 6050L on dispositions of the donated property (see discussion of Form 8282 in FAQ 36). See Form 8283 instructions for more information. (12/2019)

Charitable organization that receives virtual currency should treat the donation as a noncash contribution. See Publication 526, Charitable Contributions, for more information. Tax-exempt charity responsibilities include the following:

Charities report non-cash contributions on a Form 990-series annual return and its associated Schedule M, if applicable. Refer to the Form 990 and Schedule M instructions for more information.

Charities must file Form 8282, Donee Information Return, if they sell, exchange or otherwise dispose of charitable deduction property (or any portion thereof) - such as the sale of virtual currency for real currency as described in FAQ #4 - within three years after the date they originally received the property and give the original donor a copy of the form. 

See the instructions on Form 8282 for more information. (12/2019)

No.  If you transfer virtual currency from a wallet, address, or account belonging to you, to another wallet, address, or account that also belongs to you, then the transfer is a non-taxable event, even if you receive an information return from an exchange or platform as a result of the transfer.

Yes.  You may choose which units of virtual currency are deemed to be sold, exchanged, or otherwise disposed of if you can specifically identify which unit or units of virtual currency are involved in the transaction and substantiate your basis in those units.

You may identify a specific unit of virtual currency either by documenting the specific unit’s unique digital identifier such as a private key, public key, and address, or by records showing the transaction information for all units of a specific virtual currency, such as Bitcoin, held in a single account, wallet, or address.  

This information must show:

 (1) the date and time each unit was acquired, 

(2) your basis and the fair market value of each unit at the time it was acquired, 

(3) the date and time each unit was sold, exchanged, or otherwise disposed of, and 

(4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.

If you do not identify specific units of virtual currency, the units are deemed to have been sold, exchanged, or otherwise disposed of in chronological order beginning with the earliest unit of the virtual currency you purchased or acquired; that is, on a first in, first out (FIFO) basis.

You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.

You must report most sales and other capital transactions and calculate capital gain or loss in accordance with IRS forms and instructions, including on Form 8949, Sales and Other Dispositions of Capital Assets, and then summarize capital gains and deductible capital losses on Form 1040, Schedule D, Capital Gains and Losses.

You must report ordinary income from virtual currency on Form 1040, U.S. Individual Tax Return, Form 1040-SS, Form 1040-NR, or Form 1040, Schedule 1, Additional Income and Adjustments to Income PDF, as applicable.

 Information on virtual currency is available at Virtual Currencies (IRS.gov/virtual currency).  Many questions about the tax treatment of virtual currency can be answered by referring to Notice 2014-21 PDF and Rev. Rul. 2019-24 PDF.

The Internal Revenue Code and regulations require taxpayers to maintain records that are sufficient to establish the  positions taken on tax returns.  

You should therefore maintain, for example, records documenting receipts, sales, exchanges, or other dispositions of virtual currency and the fair market value of the virtual currency.