082 - How to Turn Stock Losses into Tax Wins With Tax Loss Harvesting

We’re always looking for ways to decrease the money coming out of our pockets.  

Most people think it’s all about cutting things out of your life, but in reality, tax strategy has more to do with keeping your income and becoming wealthy. 

I know, thinking about taxes used to make me cringe too but when I realized that tax is actually the biggest thing that we spend money on, you may change your mind.

So today, we’re going to show you how you can turn any stock loser into a tax deduction legally with tax loss harvesting. 

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Transcript

Welcome to Roaming Returns, a podcast about generating a passive income through investing so that you don't have to wait till retirement to live your passions. We're always looking for ways to decrease the money coming out of our pockets.
Most people think it's about cutting things out of your life, but in reality, tax strategy has more to do with keeping your income and becoming wealthy. I know thinking about taxes used to make me cringe too, but when I realized that tax is actually the biggest thing that we spend money on, you may change your mind. So today we're going to show you how you can turn any stock loser into a tax deduction legally with tax loss harvesting.
Let's dig into it. Okay. So we are, we're back.
We're back living the dream. All right, guys, hopefully you really dug into the last two portfolio things that we did. All right.
So tax loss harvesting, you hear about it at the end of the year, even though you technically can do it anytime during the year. Pretty much anytime you buy or sell something in your brokerage, it's remembered for the whole year. Yeah.
Which is kind of nice. We just realized that Schwab- I just looked into Vanguard. Vanguard has a realized- Oh, they do too? If you're in your brokerage account, you can go to a tab that's labeled realized gains or losses, and that is your gains or losses for that particular year.
So in 2024, we could look in Schwab and see that we're like $8,000 negative in the amount of trades we made this year. That means I've lost more money than I've made on paper because everything else is not paper. It's unrealized.
Yes. And what that means is an unrealized gain means that you have an increase in the value of the stock that you own, but you haven't sold it yet to make it a realized gain. So there's a difference between, and I'll actually talk about that here in a little bit.
So basically I got really stoked about looking into tax type stuff because I realized that one of the biggest ways that you can cut your expenses or reduce some of your spending is through taxes. And what most people don't realize is that you actually are spending about 40% to 50% of the money you make on taxes. There's an outstanding article that I downloaded and I sent to Carmel.
I don't know if she's going to post it with the show notes, but- She probably will. It's from 2001, and it actually does a detailed breakdown of hidden taxes that people don't know they're paying, like fuel tax, food tax, utility tax. There's taxes in pretty much everything you do.
Your cell phone has taxes, and it's all hidden taxes. You just think it's part of the cost of something when it's actually not. It's actually technically a tax.
So you're paying- So like gas taxes, food taxes, exercise taxes, work taxes. Like gas taxes, for example, in Pennsylvania, you're paying 80 some cents a gallon in gas taxes. Well, that's Pennsylvania.
Pennsylvania is really bad. So when you're pumping up a tank, you're like, oh, it's 329. Nice.
It's actually, it should only be like 240, but you're actually paying additional taxes that you don't necessarily know. We didn't even realize how bad it was until we traveled out of state. And you're looking at the gas app that I have, and when you hit West Virginia, it's almost a freaking dollar less.
It's insane. Absolutely insane. So anyway, back to the tax thing.
So this is one of the ways to minimize taxes. I will say you're going to want to listen through to the end because I kind of think our strategy inadvertently does this without you having to be too intentional about it. But there are some types of investing strategies that like this is a moot point.
And if you have your money in certain accounts, like it's basically a moot point as well. And we're going to actually talk about other ways to reduce taxes in a different episode. But this episode is specifically about tax harvesting, just because we're getting up to the end of December.
And we wanted to have this out there just in case you do have losses, you want to lock in to take advantage of this tax strategy. So what is it? What is tax harvesting? So tax harvesting is basically a strategy that the IRS allows you to lower your taxable income by intentionally selling off an investment that you see has like unrealized losses because you know you're going to lock in gains in another asset or you have already locked in gains. So basically like you have a win in one and you have a loss in the other.
If you actually lock in that loss, it basically takes that taxable income from the gain down and it like nullifies it. So you pay less tax, even though you technically kept the money. It's pretty fantastic that they have this available.
It can be done at any time during the year, which we've already said. I don't know why they talk about it at the end. The last two weeks of the year, you'll see a lot of it in all the publications and the experts talking heads talking about like towards the end of the calendar year, not the fiscal year, the calendar year, like before December 31st, you'll see a lot of people dumping losers specifically for a tax, for tax purposes.
That's why the markets drop pretty heavily like that last period in December. And that's another reason they don't really rebound right away in January. People have to wait a 30 day window if they're getting back in the same stocks.
And we'll talk about that because that's the rule of the wash sale that the IRS has. So what's even cooler is if you end up having more of a loss than you did have a gain for it to cancel out, you can actually take $3,000 on a personal level, $1,500 if you're married, each person's piling separately, but you can apply that to your actual personal income or other types of ordinary income. And I believe that also includes your dividends.
So because we're dividend investors, you can actually offset some of your dividend gains that are considered regular income or W-2 income with $3,000 in addition. And then if you have even more money as a loss locked in, you can actually use another $3,000 each sequential year going forward, but it's only $3,000. You can pass that down annually per year.
And we actually don't have that opportunity because of that Ponzi scheme that we invested in forever ago. And we lost $50,000, $60,000. So basically we have already got our $3,000 passed down for the next 20 years.
Yes, 20 years. If we ever get there. So we basically have that locked in for life.
So we get screwed on that. So if you're planning accordingly, you do have to kind of be smart with the numbers because you might not get as much advantage as you're hoping for. This is another reason why I'm always saying you have to monitor your portfolio more than once a year.
Like I said, forget it. I understand it's easy and it's convenient, but if you actually take the time, you can lock in gains and lock in losses to balance out things. You can help it grow faster sooner.
And I do think you get a benefit in the beginning of investing or being more attentive in the beginning. And then you can get more lacks or set specific check-in points once you hit your metrics. But I will tell you from personal experience, our investing strategy compared to other types of investing strategies like Forex trading, day trading, momentum trading, a whole bunch of the other ones, this is very, very, very low attention compared to those.
Low maintenance. Yeah, low maintenance. You literally have to be balls in the screen for the whole time the market's open because as soon as you walk away from the commuter, that's when you miss one of the ins and outs and you just like kick yourself in the ass for going to the bathroom.
I've been there. It's stressful. It's annoying.
And I realized after about a month of doing that, that I was like, yep, I need more freedom. This is not my strategy. So this is perfect for me.
And again, once you get into the swing, once you get stuff dialed in, it's not that big of a deal. All right. Who is tax harvesting actually for? So this strategy is for people who actually plan to buy and sell investments in a taxable brokerage account.
The taxable is the keyword. Taxable is the keyword there. It's not for people who have a 401k or an IRA because both of those are a tax advantaged already account.
So the 401ks are typically, I guess technically the IRAs too, are tax on the, you have deferred tax, you pay tax when you withdraw it. So like they don't, this rule does not apply to them. Same thing with the Roths.
You don't get any benefit in this from the Roth standpoint because you're already putting in pre-tax dollars. So you're never taxed on that money and they're ever again. And it's not just 401ks and the IRAs.
It's like the like kids' school ones. I forget what the actual numbers and stuff are, but you get the gist. Taxable is the keyword and non-taxable or already tax advantaged accounts for tax, taxable accounts, not for the non-tax accounts.
So that's pretty easy, quick and dirty. The other thing that tax harvesting really, really helps are the people in the higher brackets of income. If you're making more than 47,000, I guess this is a 2024 numbers.
If you're making more than $47,150 a year, you go from a 12% tax rate to a 22% tax rate. I think most people fall into the 22% tax rate, but if you're up above the 100,000 tax break, you jump from 24% to 32%. That's almost a freaking 10% jump.
So if you're straddling that thing and you have say $5,000 in income, if you go looking that's going to get taxed at that higher rate, if you go looking for something in your investing account that you can lock in a loss on, you can actually completely eradicate the 32% on that higher thing if you're in that bracket. So tax loss harvesting can be beneficial for people that have money like jumped in one of those big 10% tax bracket and Then obviously you're not going to benefit from this if you're not actually buying and selling stocks with whatever strategy you're using So you have to actually have stocks buying and sold to have realized gains or losses You don't have don't have that problem with us. Yeah, you won't have that problem I get it out of stuff as valuations But if you're if you're one of the Bogleheads or the people that's into like the ETF Full-market index funds where you literally the goal is to buy and buy and buy and buy and buy and hold for 30 years You never sell so you never have realized gains, which is a great strategy If that's what you want to pursue it makes it a lot easier But you like tax loss harvesting is a complete moot point for people in that investing strategy I've seen things where you can wait till there's a market drop and get out of stuff like indexes and things but the problem is Market timing and a lot of times when the markets really really fall they usually have a pretty quick uptick after that and Because the IRS has that thing which is a wash rule You can't get back into the same investments for a 30-day period so that really screws you So I do not recommend using that strategy unless you know for sure you're getting out of something and not Going to get back in for the 30 days So like for example what we just talked about last week. We sold all of our bond funds DSU, YYY, and PDI I have no intention getting back into those within probably the next six months or so so that's a perfect example of selling something and not get back into it, but like hypothetically say one of those just had a Catastrophic news come out and they dropped like 30% Well, then I wouldn't be able to actually lock in the tax the tax harvesting loss Yeah, you would actually be getting back into it within 30 days and that's not good for that But it's good for your overall Way the pros and cons there Well, you just have to be aware that that's a thing to just be intentional that if that is something that happens You have to be like, okay, I can't put any money back into this Is this price gonna stay down for that 30-day period you can sit and watch or you can possibly get in a different thing? And I'll talk about that here in a second where there's you don't have to let that money sit in cash You can reinvest it You just can't reinvest into something that's like identical and that gets a little foggy when it comes to ETFs The main thing here though is like if you're getting out of something to lock in a loss and then wanting to get back into that Same thing you're not actually getting rid of the tax altogether.
What you're doing is you're actually deferring it down the road So if you have your dip you sell it and you lock it in that's your new buy-in point So you're still gonna get that extra gain as opposed to had it read road down and then road up. So it's like there's Sometimes it's not worth the effort and now since all brokerages basically don't charge you fees for selling and trading and stuff that Kind of goes out the window But the headache the hassle the like Hawkeye watching stuff like if you have a more passive strategy I don't really see the benefit of tax harvesting on a more active level. So just FYI on that one So basically what you really need to know about this again, it can be done at any point of the year Yeah, I don't know why they always talk about at the end of the year reason that this is important for our particular brand of Investing is because dividends are income.
Yes What most almost every one of our investments we and we generate income from? So that at the end of the at the end of the tax year all that all those dividends are added to your working income Yeah, so basically you pay no tax up front So you're getting hit and you're seeing it the hardest actually because that's what we were talking about in the beginning where we said that most people don't realize they're paying between 40 and 50 percent in taxes because most of it is taken out of Your paycheck before you see it But the people who work small businesses and the side hustles and all that other stuff when you're a small business owner You're like self self-employed You actually see your money first and then you have to watch watch it go to the taxman in like cognitively Which is very painful anybody who's been there dividends work the exact same way It's in your account and then you have to pay the taxman and that's super super annoying. So for us Personally taxes are a big deal with what we made this year working for her dad in the landscaping Plus the dividends that we got this year that would put us above the 40 some thousand dollars. It was a 42,000 I think I'm right on the edge of it 47 47 So it's like it'll put a most likely to put us above the 47,000 when you and when you add the income plus the dividends But because we locked in losses losses, then we have that rolling $3,000 We won't actually we won't be at that high we stay but we stay below that's why it's kind of pertinent for our particular Circumstances.
Yeah, but that's why it's very important for you to have tax savviness or at least tax awareness when you are investing in an account That is like a 401k 19,000 in dividends this year about there. Yeah, and I'm not sure what I made with my dad. I have to I know Tim has nothing Okay, so in order to claim your tax loss Tax losses you have to sell the investment.
You have to lock in the loss. You have to have that realized loss Yes to counteract a realized gain, but if you don't have the realized gain like whatever whatever either way you're locking something in With that money you can either buy another asset that is not Substantially identical according to the IRS is saying or you can wait 34 days And I'd be 31 to be on the safe side because I don't know if it's you know Is that business days? I see that I think it's calendar days But still it's I would go 31 if it were me because I don't want the IRS like activating the wash rule But that's why when you enter it in your taxes You have to like every time you buy and sell like it adds up and one of the big ones too is right here This also if you sell off a partial shareholding and you keep part of that asset You can claim that partial as the tax loss, but you are not allowed to reinvest in it during that 30-day period Including your dividend reinvestments now, that's really really big key for us So I told Tim when he sold IEP I was like hey are the dividends like on for reinvesting in that because I figured they were But because that one actually is a quarterly payer that 30-day window is after or like before the the dividend would get paid So we were actually okay and didn't have to turn that drip off But again, that's another like caveat you have to be really aware of otherwise You can get screwed and not have that that loss lock in So you have to make sure the drips off if that is that situation? So like I just said you don't need to sell the entire position you can do partials But it gets a little more muddy for your own personal like upkeep and stuff So you just have to be aware when these things and that's why it's good to be intentional with the whole thing And then if you do buy back again be very very very conscious of that 30-day window Otherwise the wash-sale rule and that's basically just the way the IRS calls it when you buy back in Before the 30 days and they basically slap your hand and say nope no dice. You don't want that you yeah, you don't want Yeah, cuz then they probably are gonna be like what else did you screw up? We're gonna audit.
Yeah, what else are you doing? All right. So how does offsetting gains working work? This this is where tax awareness comes into play You've heard about capital gains But I don't know if other people or if everybody understands that to the nuance and I was even Confused there for a while because the way they say at the higher capital gains rate I always thought it was higher than your actual normal bracket, but that's not true So a capital gains is when you're selling it in a year or less time frame The government essentially penalizes you or I don't even know if it's really penalizing you But basically that locks you in at your normal tax rate for that gain and basically makes it normal income But if you hold that asset before you sell it for that profit For over a year like a one day over a year. You actually get what's called long-term Capital gains.
Excuse me. I said this wrong. Sorry You have short-term capital gains and long-term capital gains But the short short-term capital gains are the one where you lock it in at your normal tax rate and that's the year or less The long-term capital gains is actually when you get a tax advantage where most people are gonna fall into the 15% tax bracket and that's if you're making between 47,000 and $518,000 a year so it's a huge window for that Now if you make less than that 47,000 like we like to stay in you basically pay zero dollars for that long-term capital gains So there is a possibility of you doing this dividend approach if you keep your earnings Love the the short-term capital gains versus long-term capital gains conversation.
It's so interesting Well, it's it's not that difficult So I should probably make a little chart because it's pretty easy But basically like if you stay below that 47,000 bracket you could concede and you hold your assets for a year a year and a day or more You actually make pay zero zero percent in taxes to the government for the dividends and the capital gains Which is pretty freaking sweet. And then if you're in a state that exempts you from state tax You don't pay anything and that's kind of our goal Like the long-term capital gains, so your objective is to get to the zero tax rate But if everything's reinvesting the dividends that's never gonna happen, is it? Say we have a monthly dividend pair. So we're getting dividends every month So if we sold it at a year and a day even though like the last dividend was like 27 days prior to that Would they still count it as holding it for over a year? It's not actually a year for the dividends.
It's like it's it's really technical which is why I didn't put it in here It's like 60 days after the last ex-dividend date of something There's something about a hundred and twenty one day spread or like it's more complicated But basically if you're shooting for six months to a year, like you're in the green zone For the dividends versus the capital gains But anyway, the whole point of this is the the IRS makes you use your tax harvested income So if you lock in a long-term capital loss, you have to first offset a long-term capital gain There you go and then you can actually pass that down to the short-term capital gain before you pass that off to anything that is ordinary income and The vice versa is also true So if you lock on a short-term capital loss, you have to offset it with the short term and then the long term So it's like first in first out or like like equals like first, so it's for whatever reason they have that set up Which is I guess it kind of makes sense, so they're trying to they're trying to keep more money in the short-term Crap to just screw. Yeah. Yeah, you get more taxes if you're not planning so it's written so it's created and written and legislated to keep the majority of investors in the short-term rate Which is 22 or 32 or whatever it might be Yeah as opposed to the 0 or 15 and like with a lot of the trades that we do It's a little harder to plan those long-term things because a lot of them are dependent on like the macro economic shifts and like news that pops out and Sentiment shifts, so it's like depending what we're doing and sometimes it'll be pretty obvious when it's gonna be a longer smoother transition And other times it's like oh crap Like we need to sell this now or something came out that we weren't aware of this was a thing like we need to sell now and then Tim's not gonna look at or he'll probably put not put a lot of credence or Emphasis on how long we've held it.
It's more important to get the profit in itself because Profits still profit it is and like for the majority of people listening you're going to fall in the income bracket that we're in so like the Just selling it when the macro climate presents itself isn't really gonna lead to exorbitant taxes now if you're in the hot like if you're in a super high tax bracket you listen to us rock on but We're there we're in the lower black bracket so like when I sell things I don't really I've never said Oh, I have to worry about that's what I mean like we're in there by choice because of the tax conscientiousness But if you're I think most people are more in the middle one which will end up being the 15% but 15% is still not That bad and even then 22% is like your normal tax rate which again I'd rather have 80% of $100 then like a loss with no percent at all Look, I'd rather pay that 20% in taxes and not you know what I mean It's it's your your boat your choice like these are just things you need to keep into consideration when you're doing stuff And again, we'll reiterate here that that annual deduction limit is $3,000 towards your ordinary income after you've done that loss deduction Which is pretty sweet that they allow you to do that and then ideally what it sounds like ideally is you'd be able to Basically every year have a realized gain or loss of about $3,000 exactly That's kind of the goal because that'll cover your gains for the year then it'll give you the 3,000 that you can then carry over to ordinary income which would be your dividends or if you're working a w-2 job you can Knock so that is the lesson from this is when you go into your brokerage looking you realize Gains or losses tab and you want that to be it and like around negative 3,000 and so Ideally, I do want to make a caveat here Just like a thing that the IRS can change their stupid whatever requirements at any given point So you should check in on this on a regular basis, but this is what it is as of right now So blah blah blah blah blah, and this is only the federal Tax on the state level differs from state to state So you'll have to look into that on your own or which we did and if you're like us You're leaning towards somewhere like South Dakota. There's like no taxes Yeah, and I'll actually talk about it that at the end because it's yeah, there's a few states I think Nevada, South Dakota, Florida or like states where you're to your state dividend tax rate is negligible, okay so when the IRS Will activate its wash rule it is very vague in what is written when it says that it you need to not buy back into A substantially identical security. I actually scoured the internet for this and like it's very very vague They actually have robo traders and like other tools that are out there that can supposedly help you like not getting it out But I did find an example that was talking about like if you sell an S&P 500 index fund and you buy into a total market index fund that does not count as Substantially identical.
So I would assume that there's some percent that it has to be like like right and again Regular like companies obviously like icon and app or completely different companies. They hold one company They are not identical in any way shape or form but when you get into the ETFs and the like the funds it can get a lot more complex and like knowing how Substantially identical is something that's gonna trigger and not trigger I would say when in doubt either consult an expert or just wait the 30 days Or not don't rely on it for your For a tax harvesting situation like for example, we sold PDI and we got into PHT. Well, they're technically different closed-ended funds that deal with bonds, but one does like S&P 500 company bond bonds and the other one is like local box So it said it has to be structured the same and have very but for that reason I don't I'm not I'm not relying on that to apply towards our Total tax bill for the end of the year because there's a possibility that they could be construed by the government as the same Yeah, so and I don't know how exactly you put that into your Tax stuff, but I imagine Yeah, yeah which we're gonna have a rocky road here in a couple like I guess in a month when I figure this out since our guy Freaking is a we're firing him is all we have to say.
So I will update you on that crap fired So Tim has already done a couple examples like so if you like IEP is a really good one where? We sold IEP this year and we lost $8,000 in long-term Capital gain and we chose We held it for ever almost four years So when we sold it that that went into the long-term capital gains of negative 8,000 But he sold it not necessarily to lock that in to get back in it He sold it because it's metrics change and we decided to actually like change our allocation because it was just getting too big and then That bad news that came out. So he was like, okay, I'm gonna sell this. I'm gonna lock in this loss We're just gonna apply to whatever The money that we use my IP went in to say like it went into it One of them was an oil fund and another one was An AI fund so like I'm pretty confident that those would be able to be used For tax purposes because they're not even remotely in the same arena as each other Yeah, and what Tim noticed is where is it in here realize games? There's a button here in Schwab Schwab II that you can click on your realize gains and losses and I think It actually shows you here if your period for the year It shows you your total proceeds your total cost basis.
You have your long-term your short-term your net loss I don't know what disallowed means. I imagine this is them telling you. Hey, this doesn't count So maybe this thing maybe Schwab actually tells you if that bond funds like got dequeued with something.
That's very possible If you scroll down I'll bring it'll like bust it out into individual transactions throughout the year Yes, you can actually see so if we go back to like how far ago. Did you do icon icon was pretty recent? You'll see it when you get down towards the bottom. It's a huge number Look at that loss lock-in so a total transaction total long-term transaction and look at that loss negative I don't know which is seven point seven thousand two hundred and seventy five hundred I don't know what's what but apparently we're locking in That's a pretty big loss.
Mm-hmm But like again, I don't really care about the tax Situation because we're not going to be above 47,000 but if you're going to be above 47,000, that's when you need to be concerned with taxes and your gains and your losses for the year because you Can actually save a lot of money by being conscientious of what you lost. Yeah Yeah, so if we lost 7,500 and I think it said that we had like 8,000 in gains or something So that would offset so we'd still be paying in 2,000 some hundred in gains and we lost like 11,000 and losses. So we're down about 8,000 Okay, so if we have that 8,000 if we wouldn't have had that Ponzi scheme thing we would be able to then apply 3,000 of that towards our regular income and then the difference of it's gonna get passed on for future So because we're already that we're kind of like racking up the amount that we can you know pass down for future probably until we die at this point Because we have a lot of losses to lock in other considerations for tax harvesting You have to remember the realized gains aspect just because of an investment goes up in price does not mean that The gain is realized and you need to like freak out and sell off your stuff Unless that is intentional and you want it you're choosing to lock that in and choosing to lock in that loss again You have to remember to if the market is dipping that's usually when we're buying not when we're locking in losses That's what we bullet shares.
Yeah, because because we want to reinvest at those things So it's like if you're following our strategy a lot of the reasons that people use this or the strategies that they use with tax loss Harvesting kind of become a moot point It's probably what the unrealized gain was because I'm in and out of bullet share so often probably that's actually probably makes sense Yeah, exactly. It's the exact same shares every time Yeah, but that's where I dump my money whenever I have money. I just dump it in the bullet shares uh BSJU Yeah, and then again, like if you are getting in getting out, you're not really getting away with not paying tax You're deferring it.
So I wouldn't be like strategically maneuvering stuff to make this a thing because I mean there's a time I could see like say you sell your sell something Or you have a large like I'm gonna assume I don't know if inheritance applies But say you get like a large sum of money somewhere and it's like put you into a higher tax bracket I could see applying this could absolutely strategically use this So it's like if you have a one-off year where you do end up in a higher tax bracket for some reason You may want to defer any of your gains in that thing because they're gonna get taxed at a much higher rate So you want to lock in a loss to try to counteract that but this like kind of goes across your entire tax thing And this is why I've gotten pretty interested in the whole tax Strategic planning because it kind of makes a lot of sense because it's just like playing around with like readjusting things here and there but the same thing holds true that like if you want to defer those gains over a long period of time because you know you're Gonna not be working in a couple of years or something So your taxable income if you're gonna drop down to a significantly lower bracket and potentially pay zero taxes that may make sense but again it's gonna be a long-term planning and I feel that most people need to have a lot of diligence and a very like specific plan in place to do that So just FYI, that's a thing That is something that I would consider if you are in Situations that specifically would benefit greatly from that because 20% tax dropping down to like 0% tax. That's a pretty juicy difference Like like for real All right. So again, if you apply things to our strategy with tax loss harvesting, I Really do think that the way that we invest it kind of happens organically I can tell you that I pay attention to the realized gains and losses every year and this year We did have the one-off with icon if you take icon out of that We were just looking at we would be around the $2,500 loss where I'm normally.
I'm normally about 1,000 up to 2,500 down on any given year and you'll see it next year because we'll bring it up next year I won't have the icon lost or to worry about it. I have something else though. Who knows? No, like it's been pretty consistent to last like seven years.
This is the one you this is the first year We've had a huge huge huge realized loss. Yeah, so like it doesn't organically it just happens to work that way yeah, and like those types like the icon those typically will be like a one few and far between because Tim is so balls-deep and like checking the earnings reports and keeping up with the strategies of stuff and the timing of getting in at the good price if you recall the reason that it was a cut the dividend the second time which is a But then it was what they were doing with the money that they cut the dividend. I was like, that's not good that's when we decided to actually pull the trigger and get out of it in the retirement and then half in the van life portfolios Because I don't like what they're doing for the shareholders.
So I was like, all right Yeah, and then like a lot of times you can avoid selling something for a gain by just turning the drip off So it depends on how how much your allocation of that asset or that asset class is in your total portfolio We use that strategy quite frequently if you're on our email Email Once it hits his five six percent threshold He turns the drip off and then that so that doesn't reinvest to increase that position and sometimes naturally that position will settle in kind Of nice or even go back down so you can turn the drip back on Other times it'll like surge up and he'll have to actually watch the last video We went through like a lot of more I said turn that you can see we got this much dividends in Hercules But the drip was off because Hercules was too much of our portfolio size plus it was too overvalued So I turned the drip off and it Naturally corrected course and it dropped like two or three dollars per share so that it was back into the right area Yeah, so like most people who do dividend investing they hold they do hold for long term But because we do value investing in combination with dividend investing I asked him if he was ever gonna get to a point where he doesn't sell off when like they ride up and he's like I don't think I'll ever get to that point. So it's just gonna become a natural part of like our strategy You can absolutely opt to do something different for yourself always let the winners run man run forest run Well, okay, so I will caveat that so Tim will let the winners run once we get our initial investment completely out not That's why we do what we do the way we do it is because once we like say I invested $5,000 into her whose capital once I pull out $5,000 I don't care what Hercules capital does because I've got my initial investment out plus I'm up X amount plus I'm having my dividends reinvest so I could care less what it does from that point. Yeah, like so basically We don't really recommend being actively looking for things to tax harvest It's more along the lines of if something in your portfolio does something unexpected or really drops far It may be worth considering if you have a lot of other gains locked in The only time I would recommend this as we've mentioned is if you have like a one-off year where your income is Just like say tripled for whatever whatever reason that's the only time I would even look into this What I was thinking I was thinking to that it's possible that like if you need to lock on a loss It might be better to use something like the yield max to lock in as opposed to One of your actual good stocks because yield maxes are so freaking volatile You can always get back in probably like a similar Quickly to you max you don't pay attention But that but I'm saying you can use that I think if you really need to lock a loss in because some gain like came out Of left field and threw you into a higher tax bracket.
Like I think I'd harvest a yield max loss Yeah, we do have a that's what I'm saying. Like I think we could do have an experiment currently Yeah, we do. I would definitely say if you're looking to lower your taxes This is a strategy, but I would say it's probably not the best strategy We'll actually cover taxes in in a more Probably deep thing in the beginning of the year when people start getting there like 1099s and their WT's and stuff I guess me since Tim has no interest in this topic whatsoever.
But one of the biggest ones is Living in a state that does not Charge you. I'm all for this Yeah, it doesn't charge you state income tax and like the biggest known ones are like, Florida, Texas, South Dakota There are some states that have a state income tax, but they do not charge you on your dividend or investment earnings So that is something to look into if you potentially are considering moving somewhere else We're getting a job somewhere else because sometimes your wages and stuff aren't Apples to apples sometimes you have to consider your taxable income and things so it really does make a big difference and like even just Just not having at the small bracket because I think our accountant told us that like Pennsylvania charges What was it 4% 4% 4% for our? Basically our dividend income and stuff and like that adds up quick and it's something that's completely irrelevant If we can move to a state that doesn't even have the state income tax, so that's pretty fantastic and That's why we're gonna be moving to South Dakota pretty much as soon as we get the condo sold to lock that in and that's a very nomad friendly state and since we're gonna be living in the van like that just Aligns with the lifestyle that we're choosing and you should do something similar for whatever lifestyle That you're opting into like there are definitely like places and ways that you can make things work work to your advantage as opposed to like Losing cat cat cat stuff and Just so you guys know I probably have at this point posted the first video of a yield max experiment You're probably going to check that out Yes We finally decided to put our money where our mouth is banging with we were saying that oh yeah Yo max is amazing people could be paying their debt down extra and all this other stuff and I was like, huh? I just remembered I actually have a line of credit for $15,000 and because I was telling my cousin about all this and I was like, you know what? I was like we should probably be the first guinea pigs for this. So YOLO, I pulled out the 15,000 and we stuck it into CONY because Tim thinks CONY is the best one that's valued right now And he's the best what has the best best low-risk yield max for the potential for appreciation Yeah, so for the experiment that we're doing so if you want to keep up with that I'm gonna update it on a monthly basis as I make I'm taking the full payment out from from CONY and paying off So I should have minimal interest repayment and I'll basically getting if it's a hundred percent yield I'll be getting a free $15,000 at the end of the 12 or 15 month period depending on the the payouts So that's gonna be an interesting thing to watch and potentially something that can help people Use other people's money to pay off their debt faster.
Well, because we initially said should we get a HELOC out? I probably I'm still gonna consider that and because I still have a house with $85,000 on it. So like that's something that I've been kicking back Once I get my credit score back under control I don't know if the HELOC is something that I want to do right now, but man When in Rome, I guess huh? We'll see It's gonna depend on our finances and I have to jump through hoops and the banks are stupid So I have to make sure I can do that. But anyway, okay So the next episode we're doing is Tim's 2025 predictions and you're gonna want to tune in for that because it is gonna be juicy AF he's got tickers out the Wazoo's there's like 50-some ticker So and like use I love listening to his Oracle with his predictions cuz he's been like how many weeks is it? You've been putting like three weeks in I put a lot of time a lot of time effort and research so you're gonna want to hear his thought process on this whole thing to see what sectors and like what stocks he thinks are gonna pop off and if if you tuned into the 2024 prediction review You'll see exactly why because that portfolio had you done invested the way that he hit the stocks that he picked It was up.
What did you say? 68% was I think it was 77% had you If you equally invested each of the stocks across the stocks It would have been you have been up 78% total That's what we didn't even do which is with some really bad losses Like there was a couple in there that were down like 40% but like there was some that just were crazy Yeah, so basically like so that's coming up and that's um, it's probably gonna be a two-parter because it was quite lengthy Yeah, it's gonna be a two-parter, but it's gonna be very juicy And I think it'll be a great end of the year like going out with a bang So we're gonna have two parts of that and then we got the best one of the whole years We're a Tim's The whoopsie daisies, so we'll run over that they're like screw-ups of 2024 and it's not all losses in the way you're thinking Yeah, it's not losses. You'll want to tune in for that lost money, but no Thanks for tuning in Do what you need to do to secure your finances and the labor eat your life. Yeah.
See you next time. Later on.