Financial planner in the Bay Area & knotty tax problem I'm afraid of!
October 14, 2014 8:05 PM Subscribe
I'm looking for a fee-based financial planner in the Bay Area to help me figure out one simple problem, and one knottier one. I have about $10k in CDs, and I'd like to invest it in a slightly smarter, similarly low-risk way (probably index funds) that I can add to slowly and in (relatively) small increments. I'd probably also like to start a 401k. Unrelatedly, as a child I was gifted $3k in shares of a single bluechip stock that I've never touched, and it's accrued value gradually but steadily over several decades. Recently, talking to a wiser friend, she pointed out that I've never paid taxes on it! I'm not sure how to deal with that, but probably can't avoid it much longer! How money works is confounding to me; I come from a working class background and am good at saving, but not saving wisely. Anyway, I'm primarily looking for financial planner suggestions, but if you've dealt with related stock/tax issues please share your experience and advice! Throwaway: infernalsockpuppeteer@gmail.com if you'd prefer.
You don't have enough money to hire a planner. But you have more than enough intelligence to manage your own money. Go to the Bogleheads website and educate yourself.
posted by mono blanco at 8:34 PM on October 14, 2014 [2 favorites]
posted by mono blanco at 8:34 PM on October 14, 2014 [2 favorites]
The best way to invest a modest amount of money is in low-cost index mutual funds. Personally, I prefer Vanguard as the best option. They have about the lowest cost of any mutual fund. As a bonus they are owned by their funds, which means that they are owned by the investors in their fund. If you decide to go with Vanguard, you can pay $250 and get a customized investment plan for both your retirement and regular savings.
posted by metahawk at 9:00 PM on October 14, 2014 [1 favorite]
posted by metahawk at 9:00 PM on October 14, 2014 [1 favorite]
I agree with mono blanco that you can probably manage this just fine by yourself, but if you'd like someone to talk to while you're getting familiar with investing, I've heard good things about the Garrett Network, an association of fee-based financial planners. I know a couple (not in California) that's used them and is very happy with their guy.
I also nth mono blanco's suggestion to check out the Bogleheads site, but I'd like to point you to the Bogleheads wiki, which has a lot of great info for folks like you who are just getting started.
posted by kristi at 11:00 PM on October 14, 2014
I also nth mono blanco's suggestion to check out the Bogleheads site, but I'd like to point you to the Bogleheads wiki, which has a lot of great info for folks like you who are just getting started.
posted by kristi at 11:00 PM on October 14, 2014
You're not going to find anything as low risk as a CD. In order to get more return, you have to take more risk. Simple as that.
posted by jpe at 4:59 AM on October 15, 2014
posted by jpe at 4:59 AM on October 15, 2014
I am good at saving, but not saving wisely.
Any saving is wise saving. If you're saving, you're doing better than maybe 90% of the adult US population - congratulations!
As a child I was gifted $3k in shares of a single bluechip stock that I've never touched, and it's accrued value gradually but steadily over several decades. Recently, talking to a wiser friend, she pointed out that I've never paid taxes on it!
As others have said, you don't owe taxes on a stock just because you own it. When you sell it, you'll owe taxes on the gain in value ("capital gains") from your cost basis, which is $3K, not whatever the gifter paid for it originally. But I really hope you were gifted $3K in AAPL stock 20 years ago!
If the stock has paid dividends, you did owe taxes on that and you should have received Form 1099 (or whatever equivalent) from your broker - but for a single stock, it's very unlikely that we're talking significant dividend amounts. Maybe it went into a dividend reinvestment program, where the dividend is used to buy more of the same stock. That's a great (but undiversified, and thus risky) way to grow your investment.
The rest of your questions (CDs versus index funds) are also rather straightforward, and you're already on the right track. You can figure things out for yourself (unless, again, you're in the happy circumstance of trying to diversify out of $3K in 1994 AAPL stock). You won't go wrong with the Bogleheads books (1, 2) and the Bogleheads wiki linked above - it's really worth your time. In fact, it's especially worth your time to do your reading *before* talking to a financial planner, so that you can understand how much bullshit you're being fed.
posted by RedOrGreen at 8:25 AM on October 15, 2014
Any saving is wise saving. If you're saving, you're doing better than maybe 90% of the adult US population - congratulations!
As a child I was gifted $3k in shares of a single bluechip stock that I've never touched, and it's accrued value gradually but steadily over several decades. Recently, talking to a wiser friend, she pointed out that I've never paid taxes on it!
As others have said, you don't owe taxes on a stock just because you own it. When you sell it, you'll owe taxes on the gain in value ("capital gains") from your cost basis, which is $3K, not whatever the gifter paid for it originally. But I really hope you were gifted $3K in AAPL stock 20 years ago!
If the stock has paid dividends, you did owe taxes on that and you should have received Form 1099 (or whatever equivalent) from your broker - but for a single stock, it's very unlikely that we're talking significant dividend amounts. Maybe it went into a dividend reinvestment program, where the dividend is used to buy more of the same stock. That's a great (but undiversified, and thus risky) way to grow your investment.
The rest of your questions (CDs versus index funds) are also rather straightforward, and you're already on the right track. You can figure things out for yourself (unless, again, you're in the happy circumstance of trying to diversify out of $3K in 1994 AAPL stock). You won't go wrong with the Bogleheads books (1, 2) and the Bogleheads wiki linked above - it's really worth your time. In fact, it's especially worth your time to do your reading *before* talking to a financial planner, so that you can understand how much bullshit you're being fed.
posted by RedOrGreen at 8:25 AM on October 15, 2014
For the kind of money you're talking about, I don't think a financial planner is worth the cost, even if they're willing to manage a portfolio that small. What I'd do in your case is set up an online brokerage account - I've been happy with CapitalOne 360 - which was ING Direct when I joined it. You can link that account to your bank account and set up a recurring monthly transfer into the brokerage account that will automatically save/invest for you without you having to pay attention. If you need to pull money out, it's equally simple.
Then I'd put the money into index funds as you say. If you want to be a little more specific than that, you should also be able to set up a plan online that invests $X per month in a particular stock, and that will even let you buy fractional shares if you're trying to buy a high value stock on a budget.
Basically, this plan will give you better returns at honestly not that much more risk, and is entirely simple enough for you to manage yourself in say half an hour a month with very low fees. That's what you want to avoid. For the small numbers you're talking about, standard brokerage fees would eat you alive. It's just not worth it. Online is the way to go.
posted by Naberius at 10:10 AM on October 15, 2014
Then I'd put the money into index funds as you say. If you want to be a little more specific than that, you should also be able to set up a plan online that invests $X per month in a particular stock, and that will even let you buy fractional shares if you're trying to buy a high value stock on a budget.
Basically, this plan will give you better returns at honestly not that much more risk, and is entirely simple enough for you to manage yourself in say half an hour a month with very low fees. That's what you want to avoid. For the small numbers you're talking about, standard brokerage fees would eat you alive. It's just not worth it. Online is the way to go.
posted by Naberius at 10:10 AM on October 15, 2014
Oh, also, re the stock - the term you need to hear is "unrealized" gains. That's what you have until you actually sell the stock. Right now, you owe nothing. If the stock is now worth, say $20K and you sold it, you'd have a capital gain of $17K and that would become taxable once you "realized" it. Right now all those gains are just theoretical because you haven't sold the stock and may never sell it. Doesn't matter how much paper gains you have until you sell.
posted by Naberius at 10:16 AM on October 15, 2014
posted by Naberius at 10:16 AM on October 15, 2014
People are right, you can do this yourself, but if the thought of doing all the research on your own is unappealing or overwhelming (and for some people it is - there's nothing wrong with that), your situation sounds like it may be simple enough to use a service like Wealthfront (or similar - more info on them plus a comparison chart here). Companies like this are called robo-advisors and will get some information from you, put together an asset allocation plan and low-cost investments and then rebalance them regularly for a minimal fee (Wealthfront has no fee for the first $10k and is 0.25% after that).
To address a few of your issues:
-CDs are as low-risk as you get, because they are covered (up to $250k) by the FDIC. CDs are essentially a savings account.
-Index funds shouldn't be thought of as being synonymous with "low risk". They track various market indices and are therefore diversified and probably lower cost, both of which are good things which reduce some risks. But there are plenty of indices which are fairly volatile, which can mean larger gains or losses.
- You'll only pay tax on the gains of your stock when you sell it. So you can defer this tax as long as you want, as long as you don't sell. Tax on the dividends paid is a separate tax and has been covered above.
posted by triggerfinger at 8:08 PM on October 15, 2014
To address a few of your issues:
-CDs are as low-risk as you get, because they are covered (up to $250k) by the FDIC. CDs are essentially a savings account.
-Index funds shouldn't be thought of as being synonymous with "low risk". They track various market indices and are therefore diversified and probably lower cost, both of which are good things which reduce some risks. But there are plenty of indices which are fairly volatile, which can mean larger gains or losses.
- You'll only pay tax on the gains of your stock when you sell it. So you can defer this tax as long as you want, as long as you don't sell. Tax on the dividends paid is a separate tax and has been covered above.
posted by triggerfinger at 8:08 PM on October 15, 2014
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Have you received any dividends? They can be paid in cash, or in additional shares of stock.
posted by alms at 8:14 PM on October 14, 2014 [2 favorites]