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✊ The YOLO movement

April 29, 2021 Sign up
TOGETHER WITH Finny

As we close out Financial Literacy Month, here's why compounding really is magic: the Dow has compounded at less than 3 basis points or 0.03% a day since 1970. Since then it's up more than 3,750%! 

Here are the money topics for today:

  • The art of selling at a loss, and why selling at a loss can be a win
  • You only live once—the YOLO movement 
  • What's the best savings rate you can get these days? And how do you get one?

INVESTING & TAXES

The art of selling at a loss & why selling at a loss can be a win!

Selling at a loss is something that many of us have gotten very accustomed to over the last couple of months. With the markets seemingly in nonsensical disarray where certain stocks break their 200 SMAs and the indexes contend with all-time highs, now is a great time to learn how to use this to your advantage. 

Selling at a loss is an emotionally painful thing, especially to an investor’s ego when they thought they’d done their due diligence. Despite the agony it may cause, it’s truly an inevitable aspect of investing that we should adapt to work in our favor.

Yes, this is about taxes

When you sell a stock, receive a dividend that isn’t reinvested, or sell other assets like property, you usually incur a capital gains tax on the profit. As we’ve been over and detailed before, capital gains are a tax specifically created for taxing and tracking the sales of equities and assets that lie outside of ordinary income, and something all investors must contend with. 

The good news is that, well, the tax code wants you to minimize your tax bill so you’re incentivized to invest, and that’s where tax-loss harvesting (TLH) comes in. It helps you turn a negative into a positive.

How to TLH

When your tax bill is calculated every year, the amount owed is based on your total income from investments, minus your cost basis for those investments. What you paid for the investments is subtracted from what you profited, and because of that, investments that you sold at a loss end up decreasing your tax bill. 

By using tax-loss harvesting, you can decrease the amount of your taxable capital gains if you strategically sell positions that are presently sitting at a loss. The amount of money you have in your investment account doesn’t change, it’s just that you’ve converted some open positions into cash instead to pay less in taxes this year.

For example: If you made $10,000 on all sales in your brokerage account this year, but in November you got caught holding the bag on $SNDL again to the tune of $2,000, you can sell that bag and reduce your capital gains income to $8,000. The difference it makes in your tax bill will depend on your income bracket, and if you held the stock for over a year (long-term gains) or not.

It’s way more legal than it sounds

Tax-loss harvesting is perfectly legal. The IRS can’t exactly say “hey guys, you’re not allowed to sell positions that are at a loss in the month of December to decrease your tax bill for 2021.” That would be ridiculous, and investors are allowed to sell regular equities at any given time. 

They do try to curtail any blatant harvesting though. The IRS has placed somewhat of a safety net underneath the loss harvesters known as the wash sale rule, which essentially prohibits investors from buying back the same or any “relatively identical” security within 30 days of selling a position at a loss. That “identical” part is where the ambiguity lies, and sometimes open to interpretation. 

For most people though, this isn’t an issue, and can easily be avoided by simply staying away from the stocks you sold for the next month before opening your positions back up again. If you missed the run in that time, that’s part of the risk you take, and you have to decide if you’d save more on taxes by taking the loss, or potentially profit more on the investment by holding.

📚 Want to dig a little deeper into TLH? Take this quick and fun bite-size lesson on it:

LIFESTYLE

The YOLO movement

Everyone has an economic existential crisis every once in a while. Am I sure I want to be in this career? Sure I want to work at this branch? Sure this salary is enough? These are questions most of us ask ourselves on a cyclical basis and they never fully resolve themselves throughout a career or a lifetime.

It’s different now though because it’s culturally normal and accepted to think this way. More and more people are embracing the epiphany resembling something like... “Oh wait, none of this matters. I can do whatever I want. Why am I doing this?”

2020 changed perspectives

2020 brought us a pandemic that altered millions of lives in ways that very few saw coming. For some of us remote workers, nothing much changed, but for your everyday people in classical work environments, everything did. Thousands of retail jobs were lost for months, and some for good. Other sectors have gone entirely remote or embraced a partially remote working arrangement ever since last March, and many don’t plan on going back. 

This sort of dramatic pause that was inserted into millions of American’s lives and careers made many people realize something—the fact that they might as well go for it. Those who were previously unaware were now realizing that this societal and economic structure we’ve built around ourselves is nothing more than a facade that they are free to exit at any time.

More risk-taking, less settling

This sort of economic, career-oriented existentialism has led to an increase in career changes, startup ideas, and in general, just more going for it, you could say. Americans have been career-oriented for decades now, dating all the way back to the industrial revolution, and being boosted even more during the mid 20th century when the “American Dream” was posited as the ultimate goal.

While this has all served to forge great progress in our society, it has also caused us to overlook happiness in exchange for safety and idealism in some cases, ultimately dissuading millions of workers from attempting what they really want. 

We’ve begun to realize this over the last decade or so, and 2020 really stuck a fork in it for us. It doesn’t mean that everyone should quit their jobs for good, become a freelance photographer, and live in a Jeep while hiking a lot and becoming a Tik Tok influencer—as cool as all that sounds. But it does mean that, well, maybe we should stop being so scared to go for it. 

And so, this is the new YOLO economy. It's not a bad time to chase what you want.

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SAVING

What's the best savings rate you can get these days?

It's easy to forget that only a few years back, banks were practically begging you to open a savings account with them. Ally Bank and others were offering APYs north of 2% on savings. Slowly but surely over the last couple of years, getting those quarterly emails from your bank or banking service saying “your rate is changing” (as they try to put some kind of positive spin on the decrease) has become the norm. 

The Fed has been cutting rates for a while now, especially in light of 2020, and therefore, so have banks. Unfortunately, we now have to scrounge around to find even 1%.

Savings rates are bad, but here are our options

The best savings rate you’ll ever find will probably not be from your local brick and mortar bank, but rather from online-only banks that have access to certain ATM chains if you do need cash. 

You’ve likely seen the ads on social media for online banking services and noticed that they’re a dime a dozen at this point. There’s a reason for this, and it’s worth noting and being aware that most online banks are simply white-boxing the services of an actual bank with physical locations. 

Chime leverages Bancorp for banking services. Aspiration uses CCB, Affirm uses CRB, and so on. This isn’t a problem per se, just worth knowing.

That being said, here are a few options.

  • Aspiration: Offers a 1% APY with no minimum deposit required. They also offer up to 10% APY on debit card purchases, have unlimited withdrawals at Allpoint ATMs, and they will even plant a tree with every round-up you make. 
  • Paramount: Offers 0.75% APY on their checking accounts, up to $100,000.
  • Affirm: Offers 0.65% APY on their savings accounts. 
  • Ally Bank: A reputable, longstanding remote bank, offering 0.5% APY on all savings accounts.
  • T-Mobile Money: This is a bank account that T-Mobile (yeah, that T-Mobile) offers to anyone with a savings rate of 1% APY and 4% APY for T-Mobile customers on up to $3,000 dollars. So obviously, the upside is limited.

✨ TRENDING ON FINNY AND BEYOND

  • US equity market is red hot.  What about the rest of the world?  Take a look at Finnyvest's country equity scanner. (Finnyvest
  • Financial Literacy Month. When you learn, you earn! If you've been learning on Finny, redeem your Dibs for gift cards, enter our Giveaways for the month, and other rewards. (Finny's Rewards Shop)
  • Want a happy retirement? Have at least this many hobbies (MarketWatch)
  • Finny lesson of the day. With the tax deadline approaching and all the chatter about capital gains on Capitol Hill, take this quick 5-minute lesson to refresh on the topic:

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses!  It's sent twice a week (Tues/Thurs). The editorial team for this issue: Austin Payne and Chihee Kim.

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