7 Dec 2009 by Chetan Shah.

If you have securities for which you are losing money and do not want to part with it then one way of avoiding future tax payment is to transfer the securities over to a Roth IRA account that way when in future it is making money, you will not be taxed on profit the security returns. In addition you will be able to claim the loss now as part of your current year tax filing.

For example : If you bought a stock of ABC company at $15 and now it is trading at $10 but you do not want to part with it, then a strategy could be to sell the ABC stock at $10 and claim tax deduction (if you have held it for more than a year) for loss ($500 loss if you have 100 shares) and after 30 days buy the same stock in your Roth IRA account.

The advantage of doing so will be :

1. You get a tax deduction now because of the loss you had by selling it.

2. You will not be required to pay on the profits you make in future.

With the income caps going away in 2010, opening a Roth IRA account should be even more easier.

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5 Aug 2009 by Chetan Shah.

I cannot stress enough the importance of saving money using Roth IRA. Roth IRA is a great vehicle to save money as the investment proceeds from this account are completely tax free. That means that if you make a 20%, 30% or any number of profit on your investment, IRS cannot ask you to pay income on that profit.

Which makes me think to open a Roth IRA account for my wife also. She does not work and therefore has no income to report on our joint Income tax. The question is can I open a Roth IRA for her too and contribute the maximum allowable limit in her account also (in addition to making my 100% contribution to my Roth IRA). The answer is YES, you can contribute to your spouse’s Roth IRA account (even if s/he does not work).

IRS Link : http://www.irs.gov/newsroom/article/0,,id=134667,00.html

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15 May 2009 by Chetan Shah.

Lately I have been hearing that “buy and hold” is dead. I am not sure whether I am completely sold on that thought but I do believe in keeping small (10% or less) portion of my investing funds assigned to short term trading. Before my “options” days I used to buy a stock outright and then sell it when it fetched me a pre-determined profit margin. Thus if the stock price was $10, it would have costed me $1000 to buy 100 shares. I would sell it when it hits $15 thus making a $500 profit due to this transaction. i. e. : 50% return.

From options perspective it is all about “differences”. Please refer to my options blog to get an overview of what call and put options mean.

Therefore in this scenario, if the call option for this stock is trading at a $1 I would be able to buy 10 contracts (each contract comprises of 100 shares). If the stock hits $15, the option value will rise by $4 thus making it a $5 value option. Since I bought 10 contracts, my profit will be $4000 as compared to $500 if I had bought the stock outright. Taking the options route I was able to get a 400% as compared to a meagre 50% by taking the stock purchase route.

Caution :
1. This strategy only works when you are buying a stock to sell it in a short time period.

2. Options do expire at a predetermined date. If the stock goes down below the strike price then the option is worthless and you will end up losing the entire ($1000 in the above example). If you had taken the stock route, atleast you will be holding the stock and have a chance to recuperate your losses in future.

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21 Oct 2008 by Chetan Shah.

Completely understand that the stock market is kicking us from all directions that sometimes it feels like calling it quits. But if you have loss making positions then you can sell those and buy it back after 30 days. This way you can atleast claim it as capital loss on income tax return and make uncle sam refund you the amount which is equal to (whatever your income tax bracket is)*loss.

Watchout for the Wash Sale Rule though.

Even more sophisticated way to do this to sell a covered call option. That way you can make the market pay for your promise to sell the stock at the price you chose.

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8 Jun 2008 by Chetan Shah.

Recently I bumped into an article in Money magazine (June 2008 - pg. 22) which stated that we are *not* required to show the id on being asked for one by the checkout person at grocery store (for example). Seems like a lot of the merchants don’t know about this but Visa, Mastercard and Discover actually forbid stores from asking for a id from the customer. The merchant is supposed to honor the transaction even if the customer declines to show their id.

Privacy.org has complete details from MasterCard and Visa

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4 Apr 2008 by Chetan Shah.

I understand lot of individuals are car lovers and crave to have an expensive car like BMW, Lexus, Acura etc. Personally I consider car as purely a tool to take you from point A to point B. No wonder I bought a Toyota Corolla in 1999 and still is serving me well without any maintenance problem of *any* sort.

In economics there is a term called Opportunity Cost and I think it is relevant in this case of also. By buying an expensive car an individual forgoes the opportunity to invest that extra money in something which could in future give decent financial returns.

I am basing my discussion on the fact that Toyota Camry costs ~$21000 and Cheapest BMW model costs ~$33000 . Therefore you will have ~12000 to invest somewhere else. This is assuming that you have the capacity to do down payment for both the cars, which people like me will never be able to. So in that case, you will paying interest on the car loan. Needless to say you will pay more in interest for an expensive car as compared to a cheaper car. So the effective cost of your dream car (BMW in this case) will be much higher depending on the interest rate you lock in.

Following are some of the things which could be bought instead of buying an expensive car.

- Mutual Funds / Stocks / Exchange Traded Funds : If you do not know which mutual fund to buy just pump in cash in S&P 500 index fund and forget about it till you are really in need of cash (Remember : urge to buy a new car every 5 year does not count as a need), if you are an A+ investor (unlike me) most probably you would not be reading this as you would have already figured out how to invest your hard earned cash effectively.

- Buy a home (if you are renting one) / rental property (if you already have purchased a home) : Buying a house is a perfect thing to do in *any* market. It is imperative to build home equity if you are renting currently. In addition to building equity, the government will give you a tax break for the mortgage interest which will not be the case if you buy a car. If you already own a house, buy a rental property with the money saved by opting for a cheaper car. Having a renter pay for your rental property sounds like a win win situation to me.

- Max out your 401(k), IRA etc.: Before thinking of sinking money in a BMW, please ask these questions to yourself
- Have I maxed out my 401K, IRA ?
- Do I have adequate life insurance to support my family in the event something happens to me?
- Will I have enough funds to give my kids excellent education?
- Have I taken my family to vacation outside of my home country (I strongly believe that
traveling outside your home country spawn new creative thought processes)
- Have I donated money to charity?
- Do I need to get higher education to make me more competitive in this tough market?

Fidelity’ Investor Quarterly (go to page 10) did a research study on how much it costs to replace a car every 4 years. This will give you a general idea of what you will losing by buying an expensive car instead of cheaper car.

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