Ride the Wave 20 - Stock Market Winners

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Happy Mother’s Day! Nothing better than mothers. Treat them well!

Volatility usually is not a concern for long term investors, but this craziness has my Money Market account at an all-time high. Earning interest at a .70% rate 😅

Instead of fooling around in this market like Portnoy,

I plan to store cash in a money market account for the rest of 2020. The primary reasons are:

  • a move DT Raleigh in July will increase expenses

  • to save for a significant after-tax 401(k) contribution in December 2020 and do a Mega Backdoor Roth Conversion (more details below)

This approach means I am ok with whatever stocks do between now and December. Prices go up, prices go down. Doesn’t matter. It’s a short-term game that is not worth playing.

Each paycheck is still contributing to a S&P500 fund in my 401(k).


Proven Winners

Bought $AMZN and $VTI.

Disclaimer: I am not an expert. Financial decisions based on my newsletter are your responsibility. I write this letter for educational purposes. Formulate a plan that works for you.

The position size won’t equal 100%. I have small positions that I like to watch/track and build to. Once a company’s position size is greater than $VTI/VOO, I will add it to the table.


Journal

$XOM - to track what is going on with gas. Plan to sell by the end of 2020.

Selling activity since last post:

This mass selling is to prep for a Mega Backdoor Roth Conversion. Also, so I can move money into Proven Winners.

  • $CMG - Restaurants are a tough business. I'm not entirely sold Chipotle can keep the success they’ve built on the food delivery front. Chipotle can be a winner and has handled chaos well in the past, but figure you can invest in better industries/companies with lower expectations - $AMZN.

  • $BIDU - tax harvesting.

  • $FCAU, $MU, $BRBR - so I can buy $VTI in ROTH.

  • Individual positions in 401(k) - transferred these positions to a S&P500 fund since I will do a Mega Backdoor Roth Conversion every ~6 months.

  • $ROKU, $DLX, $HGV, $NKE, $TSE, $UIS, $UTHR - so I can buy $AMZN in ROTH.


Mega Backdoor Roth Conversion

(this not financial advice)

Below is my experience and what I believe is good advice. I’ve had 2 employers and neither have offered a ROTH 401(k) option. I want to get as much $$$ in ROTH accounts as I can which is why I’m sharing this.

To Get Started.

  • this tax advantage is incredible

  • the sooner you can get started, the better

  • 2020 max employer + employee 401(k) contribution is $57k

    • for those under 50

Best article I read about this trick.

  • ask 401(k) plan administrator if/how you can contribute the max

    Ask if rollover is possible? yes (italics are answers based on my situation)

    • this may not be common

  • Can the rollover be set to automatically happen? once every 6 months

  • Any fees/taxes to do this? yes, on the earnings

  • Please confirm the pro rata IRS rule will not trigger fees? talk to a financial advisor

    • The IRS has a pro rata rule regarding traditional to roth ira conversions

      • your tax bill from a traditional ira to a roth ira rollover incurs a lot more tax than just the earnings

        • i do not have a traditional ira.

          • this clears me from any fees or taxes. Outside of the tax on earnings.

    • Rollovers of After-Tax Contributions in Retirement Plans

      • I am good since I am only rolling over after-tax

  • What’s the deal with pro rata if you don't have a traditional ira?

    • “This could quite possibly be the golden goose of the whole arrangement. Since your contributions in excess of $19,000 are made on an after-tax basis, you can convert the non-deductible portion of your 401(k) to a Roth IRA…and do so without incurring any income tax liability on the conversion!”

    • “One potential problem with this transaction is the IRA pro-rata rule. Basically, you’re not allowed to earmark only non-deductible contributions for a conversion. So if you have existing pre-tax IRAs, you’ll be forced to convert some of your deductible contributions as well.

      Say, for instance, that you have $90,000 in Traditional IRA assets, which came from deductible contributions. Then you put in $10,000 as a non-deductible contribution with the intention to roll it into a Roth IRA.

      But when you do a conversion, you can’t convert just the $10,000 non-deductible contribution. You’ll actually have to roll over a total of 10% of your Traditional IRA assets, spread evenly across deductible and non-deductible contributions. So you’ll actually roll over $9,000 of deductible contributions and $1,000 of non-deductible contributions.

      To get around this in the future, you’ll need to either roll all your Traditional IRAs over to a Roth account, or roll your Traditional IRAs to an employer-sponsored 401(k). The first option can cost you a lot in taxes (especially since you’re already in a high tax bracket), and the second could cost you earnings if your 401(k) doesn’t have great investment options.”

Final thoughts.

Linked this article a second time and copied and paste most of it within this letter. Read it.

  • “But that doesn’t necessarily mean that a backdoor Roth will work best for you. Here’s when you might try it:

    • If you don’t have other pre-tax IRAs to worry about, then a backdoor Roth won’t cost you much at all in taxes, making it an ideal option.

    • If you can roll your pre-tax IRA into your employer’s plan without losing valuable investment options, then you benefit from a backdoor Roth (but only after those assets are converted).

    • If you’re self-employed and newly starting a Solo-401(k) into which you can roll your pre-tax IRA assets, then using a backdoor Roth for additional retirement savings could be helpful.”

  • “As with any complex retirement move, it’s a good idea to consult with a tax professional before you attempt to actually use the backdoor Roth method. But now you know that investing in a Roth IRA is, indeed, an option, even if you’re over the IRS’s income limits.”


Beat the S&P500 by riding the winners. This is my plan to build wealth using simple trend following tactics like adding to winners, cutting losers, and buying companies that I know and understand.

No idea where/how to start investing, email me!


This newsletter was fueled by dark chocolate! 😋

Recently found out I enjoy 95% and have been eating a lot of it! Hopefully I have enough stocked up since it won’t ship well in the summer. 🌞

📚📚 recs!

Thanks for reading!

✌️ Luke