Fund Trader Pro, LLC
Chief Investment Officer
William 'Bill' DeShurko started in the investment industry in 1987, learning early the financial perils of bear markets during Black Monday (October 1987) when the DOW dropped more than 20% in a single day. That lesson has guided Bill's investment strategy ever since. During the "Tech Wreck"in 2000 - 2001, frustrated by the losses in typical "buy and hold/diversified" portfolios, Bill created the computer based algorithm used today at www.FundTraderPro.com. The strategy behind the algorithm was tested using data from 1972 - 2005 by Professors Samuel L. Tibbs and Stanley G. Eakins. The results were co-authored with Mr. DeShurko and resulted in the paper, "Using Style Index Momentum to Generate Alpha" that won the Charles H. Dow Award in 2007. The Charles H. Dow Award is the most prestigious annual award given for the best paper that advances technical analysis in the year. The award is granted by the Market Technicians Association, the home of the Chartered Market Technician® (CMT) Program, the preeminent, global designation for technical analysis.
His blog can be found at: www.deshurkoblog.com
Author of: "The Naked Truth About Your Money" a primer for the Millennial Generation and all new investors to help with making responsible financial decisions. Available at: https://www.amazon.com/Naked-Truth-About-Your-Money/dp/1592576508/ref=sr_1_1?ie=UTF8&qid=1485467128&sr=8-1&keywords=deshurko
Contributor to multiple financial news sites including; www.HorsesMouth.com, www.MarketWatch.com. www.Kiplinger.com, www.theStreet.com and more...
Bill is also a board and finance committee member for Homefull Inc. a non-profit group seeking to end homelessness in Dayton Ohio.
Managing Member and owner of 401 Advisor, LLC a registered investment advisor, since 2004
BA. Economics, University of Rochester
The opinions expressed are those of Bill DeShurko. Past performance is not a guarantee of future success. Consider all risks before investing and it is always advisable to consult with a professional before making investment decisions.
AI Marketing Video Bill DeShurko
The $20,000 that you contributed to the Roth can be taken as a tax-free withdraw as you have already paid taxes on this amount. You didn't say what kind of taxes you owe, but if income taxes, you could contact the state or IRS and see if they would accept the $20,000 now and then make payments for the balance. This would at least spread out the tax penalty over several years, allowing the balance to continue to grow. If they don't agree they will probably require you to liquidate what you need from the Roth. But with penalties and interest, you want this resolved.
If you are changing existing stock and bond holdings to new stock and bond holdings, I would first be sure that you are in a fee account, not commission. And even in a fee-based account, you could be paying transaction charges on all those trades. Get an upfront estimate of costs to implement this strategy before moving ahead.
For the cash. Having that much currently in cash implies to me that you are a conservative investor. You are wise to think of using a dollar cost averaging strategy. However, I would suggest implementing over a 5 year period, not just one. A common strategy would be to invest using what is called a bond ladder strategy. Divide the $900k by 5 and invest 1/5 into individual bonds, or my favorite investment for this, ETF's with a defined maturity. 1/5 of your money will mature in each of the next 5 years. When the bonds mature, you can then decide on whether to move 60% into equities and reinvest the 40% into the ladder strategy. Or invest less in the stock market if it seems high, or go "all in" if the market has gone through a major correction and seems low. The proceeds from each matured bond can be put in the market over a 12 month period, as you suggested, to further reduce your risk of mis-timing of the market. This can be a little complicated but your advisor should understand exactly what I mean (he may not agree, but he should understand and be able to explain it to you in more detail)...if not, change advisors. You have a significant amount saved, in my opinion, you should be working with a knowledgeable advisor with significant experience, and ideally on a fee basis.
Congratulations on the excellent job you did of saving!
Not only are taxes lower on dividends then an IRA withdraw, but think of it this way; if you take regular distributions from a mutual fund within your IRA, what happens if the market declines? You would be liquidating shares of your mutual funds to meet your distribution requirements. This depreciation accelerates the lower and longer the market declines. When the market does recover, your account will be worth less than what you started with because you have fewer shares.
On the other hand, if you have a portfolio of solid dividend stocks, you can live off your dividends and not sell any shares of stock even during a market downturn. When the market recovers, your portfolio should too.
Even though you lose the tax advantage, I recommend using dividend stocks in your IRA as well and match your distributions to the portfolio's dividend yield.
No, please wait! Just kidding!!!!
My words of advice are this: Avoid any insurance product that is pitched for "tax deferral". May sound good now but such products are ridiculously overpriced, destroy liquidity and just push you into higher tax brackets when you do want your money. Let me broaden that to say, don't invest in anything that does not stand on its own investment merits without any alleged tax benefits. Never invest in anything where you need to borrow back your own money to spend it. Other than municipal bonds, in 30 years I can't think of a tax advantaged investment that I didn't regret using for my clients.
What to do: Start building a very solid boring portfolio of high quality large company stocks. Stocks are tax deferred until sold. Unlike annuities and insurance products, when cashed in you pay lower capital gains taxes instead of higher ordinary income rates. Individual stocks have no insurance or management fees. In 30+ years every single account of substantial size that a client has inherited looks nearly the same - filled with bellweather stocks (yes many pay dividends that are taxable, but like capital gains at a lower tax rate). Reinvest dividends when paid and take advantage of compounding.
Read about investing - not the BS "How To..." books, but focus on books about or that interview real successful investors. Read about Warren Buffett. Read the series of books by Schwager - The Market Wizards, The New Market Wizards... Also "Just One Thing" by John Mauldin. Anything by Michael Lewis. By 40 you will be your own market "guru"!...and pretty darn wealthy!
Reinvest, reinvest, reinvest!! Albert Einstein is usually credited with saying that compound interest is the eighth wonder of the world. By reinvesting your dividends, you take advantage of compounding interest. Don't argue with Albert.