WCI #325: What is the 4% Rule?

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

Spycoat Investor podcast number 325 if you're finding our podcasts informative and helpful, we would encourage you to sign up for our monthly newsletter. It is totally free and includes useful, actionable information not available on the regular blog posts or this podcast. It's almost like being in a secret club. The kind of club that can boost your knowledge and enhance your wealth at the same time, with no strings attached. Sign up today@whitecoatinvestor.com Newsletter. You can do this and the White Coat Investor can help. All right, welcome back to the podcast. Recording this on June 30th. It's not going to run for like a month though.

I think July 27th, this one drops.

You know, today's the day though. The Supreme Court just ruled on President Biden's administration's rule or not rule, but their plan to forgive $10,000 of your federal student loans $20,000 if you've ever taken out a Pell Grant. And the Supreme Court, to no one's surprise, took that idea in the corner and dropped an anvil on it. All right, this is not a surprise to any of us that the executive branch cannot unilaterally, you know, decide how.

Congress is going to spend its money. And that's essentially what they're doing with the student loan forgiveness plan.

So no surprise that was knocked down. And payments are also going to be starting up again here in about a month. So if you have federal student loans, it's time to start making decisions that you haven't had to make for the last three years. You know, if nothing else, you're going to have to start paying on it. But some of you have been putting off this decision of whether you're going to go for public service loan forgiveness or refinance your loans for years. And now it's time, as those loans start accruing interest again come this fall.

Actually starting September 1st, I guess that's.

Technically still summer, whether you want to refinance or not.

And the downside, of course, is over the last year, interest rates have gone up. You may not be able to save.

Nearly as much as you could have.

A year or two years ago refinancing.

But it still may be worth the savings. You ought to check it out anyway and at least know what your options are. If you don't know about our refinancing partners.

You should go to the website, go.

Under recommended tab Student Loan refinancing. You can also go directly to whitecoatinvestor.com student-loan refinancing and you can get all the links there. If you go through those links, not only do you get cash back that you wouldn't get if you went directly to the company, but we're still giving away, at least through September. We're still giving away Fire your Financial.

Advisor, our premier flagship online course. So check that out if you are considering refinancing your student loans.

All right, what else can we talk about?

Today? We're going to be Talking about the 4% rule and a couple of questions related to it.

So maybe we ought to start just talking about 4%.

What that is where it comes from.

First of all, I wouldn't call it a rule. It's more like a guideline. Right. You know that line from what's the stupid pirate movie, Pirates of the Caribbean. Pirates of the Caribbean, whatever they call it.

Right.

And they talk about the guidelines. You know, the code is not really anything more than a guideline, I think.

I think they say in that movie.

Well, it's the same thing with the 4% rule. Where does this come from? This comes from a study done in the 90s down at a university in Texas called Trinity University. And they did the study because prior to this study and similar studies like it, financial advisors were telling people that if their portfolio is averaging 8% returns or whatever, they could take out 8% a year and be just fine. It turns out that's not true due to what's called sequence of returns risk. So even if Your portfolio averages 8%.

Over the course of a 30 year.

Retirement, if all the crappy years happen early, you, you can run out of money because the portfolio is dropping in value at the same time you're pulling.

Money out of the portfolio.

And so you have to take out some amount less than the average return of the portfolio. And how much less? Well, that's what the study was all about. They decided to take 30 year rolling periods from like 1927 to the present and look at whether you would have run out of money, taken out a certain percentage of the portfolio, adjusted upward with inflation each year and see how often your portfolio survived. And what they found was that if you only take out about 4% a year, adjust it upward with inflation each year, your portfolio is very, very likely to last at least 30 years. Even if one of those terrible things Happens, you get a bad sequence of returns. You retire right into the 2000.com crash or the 2008 global financial crisis, or World War II or the Great Depression, or the 1970s stagflation. You're still highly likely to not run out of money in retirement. That's all they're saying. That's all the study was. And its most useful aspect is to reverse engineer it and use it to kind of give you an amount of about how much you need to retire. So if you reverse engineer that equation, you'll see that you need about 25 times what you spend in order to.

Be financially independent and no longer need to work for money.

So that's the most useful thing you.

Can use the 4% rule for.

I don't think I know anybody who mechanically follows the 4% rule as a retirement withdrawal strategy. And most people do what Taylor Larimore, author of the Boglehead's Guide to Investing, calls the adjust as you go strategy.

And that's worked very well for him. He retired in like 1980 on like.

A million dollars and now he's 98.

Years or something, right? He's doing fine. He's not running out of money.

And like most people, he has more.

Now than he retired with. And so that's, you know, what the 4% rule is all about.

So with that introduction, let's take our first speak five question.

Hi, Dr. Dali. First of all, thanks for all that you do. I have a question about pensions and how to evaluate them along with the 4% rule. The example I'm thinking through is this. At first, the pension will cover just about all expenses in retirement. Let's say yearly expenses of 100k per year and a pension of 100k per year. For simplicity and not taking taxes or Social Security into account, this starts out great. But the pension doesn't adjust for inflation. So over time there will need to be a draw from an investment portfolio. I'm trying to figure out how big that starting investment portfolio needs to be to supplement the pension for a safe retirement. I have a couple ideas, neither of which is perfect but could possibly work, I think. One is to assume, let's say a 30 year retirement length. Calculate the present value of the pension, assuming average inflation. Add that value to the current value of the portfolio and see if 4% of that total is at least 100k. The other is to calculate what 100k of living expenses will be 30 years from now. Assuming average inflation. Take the difference between that number and the 100k from the pension and see if 4% of the current investment portfolio is at least enough to cover that difference. Any thoughts on these ideas? Any ideas I haven't thought of or anything else I'm forgetting? Thanks again very much.

Are you an engineer or just an internist? Because you put a lot of thought.

Into something that I don't think a lot of people think a lot about.

It's cool that you'll have a pension. Pension's great. I typically don't try to fold a pension or Social Security into your asset allocation. I think the right way to think about that is to have it subtract.

From your need for retirement income so.

That you need a smaller portfolio because you have a pension or because you have Social Security or whatever, rather than trying to somehow monetize it and calculate.

Its net present value.

Obviously, if this pension that you're going to get, it does not adjust to inflation and you're going to need more. Even if you only need to spend $100,000 a year, you're going to need.

Some sort of a portfolio.

How much do you need?

Well, that's a great question and I.

Think you can calculate that out relatively easily.

Right?

In the first year you're not going.

To need anything from the portfolio.

The next year you'll need enough to keep up with inflation.

Maybe it's 3% or 4%. So you need that portfolio to provide, you know, 3,000 or $4,000. The year after that you need the portfolio to provide six or eight thousand dollars.

And so you can calculate this out.

And determine how big of a portfolio you need. I think that's what I would do. I would just assume a reasonable amount of returns. I tend to use 5% real in.

My long term calculations.

And you can just add all that up and see what you'd need over 30 years and just run the numbers that way. I don't think I'd try to do what you're doing though. I think I'd just look at it as a separate amount.

Now the truth is, though, Social Security might rescue you there, it may provide.

The difference that you will need in addition to that pension. I mean, this is what my parents are doing, right?

They've got a pension, they've got Social Security, they've got a nest egg.

They're not even spending the stupid nest egg. I'm just taking their RMDs out each year and reinvesting them in taxable.

I keep trying to get them to spend more money. They won't spend more money. So I suspect you will end up in a similar situation living on the pension, living on Social Security, occasionally touching.

The nest egg, and your heirs will be very thankful. But I think that's the way I would run the numbers if I were going to run them.

I think that's the way most financial advisors would run them rather than trying.

To monetize the pension somehow.

Okay, let's take another one about the 4% rule.

Hello, this is Alan from Los Angeles. I was wondering how I should adjust the 4% rule if most of my invested money is in a taxable account and not so much in tax free or tax deferred accounts. Also note that I'm mostly invested in index fund and ETFs. Thank you.

Well, good job on being invested mostly in index funds and on having tax deferred and tax free and taxable accounts. Sounds like you're doing a great job preparing for retirement. I would make no adjustments whatsoever to.

The 4% rule based on the fact that you have a taxable account.

Remember, the 4% rule has to include your taxes, just like it has to include any financial advisory fees.

Right?

If you're paying a financial advisor 1% a year, your 4% rule is now a 3% rule. That's just the way it is. Same thing with taxes though. If you're going to have to be paying 25% of your income in taxes.

In retirement, your 4% rule is now a 3% rule.

Most retirees are spending significantly less than 25% of the retirement income on taxes.

However, so keep that in mind.

You know, if you're investing in a taxable account, it's possible that you will have very little of that money taxed. And I'll explain why. First of all, there's a long term capital gains bracket of 0%. That's pretty generous, especially for a married couple. And same thing as the qualified dividend rate, right? You can get a lot of that out at 0%. Plus, when you sell shares, you generally sell the highest basis shares. So only 10% of what you're selling might be taxable income anyway. So you're paying long term capital gains on, you know, $10,000 of $100,000 withdrawal, right? And so that could easily be a 0%. Even if it's not, it's only at 15%. Now, 15% of 10% is like 2%. So you just have this incredibly low effective tax rate withdrawing from a taxable account. Now, if you've nearly drained the taxable account and you're selling shares that are almost entirely gains Then maybe you can get that up to 25% ish or.

So with state income taxes.

But even so, it's never going to.

Be much more than that.

So you just got to pay for your taxes out of those 4% withdrawals.

You wouldn't change how you do that based on what type of account it is. Just recognize that your tax bill will.

Be less so you can spend more money because you're spending less on taxes.

But it doesn't really Change how the 4% rule works.

Okay, our quote of the day comes from Gloria Steinem who said you can tell your values by looking at your checkbook stubs. In reality, what financial planning is is aligning your spending with what you care.

About with what you value.

So you're spending your money on the things that are actually going to make you happiest. That's all financial planning is. A budget is not a restrictive thing. A budget provides you freedom because it.

Shows you what you can do with your money and how you can use your money to do those things that you care about most in your life.

All right, let's talk about tax protected.

Accounts for those who want to retire early.

Hi Jim, this is Luke, a physician spouse from Northern California. I understand the WCI doctrine is to maximize tax free gross retirement vehicles before turning to a taxable brokerage account in order to achieve your target savings rate. My wife and I can achieve our target savings for the foreseeable future without ever opening a taxable brokerage account. As we develop our written financial plan, we contrast the WCI strategy with the flexibility centered strategy chosen by Scott Trench of the Bigger Pockets Enterprise whereby he prioritizes saving cash for real estate and investing in his taxable account. Jim, what is your defense of the WCI tax efficient and net worth maximizing savings strategy despite the withdrawal restrictions of tax protected retirement accounts. For folks interested in the retire early part of Fire, thank you so much for all you do for this community.

Okay, good question. I don't know, Scott, but I'm familiar.

With what you're describing. A lot of people that want to.

Retire early are concerned about the age 59 and a half rule or for 401s and 403s, the age 55 rule, in that if you take your money out before those ages and it's not for an approved purpose, AKA an exception exception, you have to not only pay any taxes due, but you have to pay a 10% penalty. And so they say, well, I don't want to pay a 10% penalty, so I'm just going to invest in a taxable account.

And that for most people, most of the time is a mistake.

Those withdrawal issues are not as big.

Of a deal as most people think they are.

Now, I suspect what may drive Scott's philosophy is not so much the withdrawal issues, but the investment issues. You see, when you're Investing in a.

401K or a Roth IRA or a.

403, your investments are generally more limited than what they are when you can.

Invest in anything you want. Right?

It's hard to go to your 401 and buy Bitcoin. It's hard to go to your 401 and buy an investment property. It's hard to go to your 401 and invest in an ATM syndication. So if that is what you want to invest in and you don't have much of a taxable account, and you don't have any way to get much of a taxable account, I can see why you might think about not maxing out your retirement accounts in order to have a taxable account. And if truly you can earn enough with that investment that it's worth giving up those additional tax and asset protections that you can get from these retirement accounts, then more power to you.

Go for it.

But as far as this withdrawal concerns, I think it's totally overblown. There are lots of reasons you can get into your retirement accounts before age 59 and a half or for 401s and 403s before age 55. Let me go over a few of these just to give you some examples. And there's more now since Secure Act 2.0 came out. But let me just go over what these are.

Okay?

And I've got a blog post on the blog you can go to. If you just search the 59 and a half rule, you'll find it. Okay, so here's some exceptions. Unreimbursed medical expenses that are greater than 7.5% of your adjusted gross income that may not be that high if you're retired, that's acceptable exception to the 10% penalty. Medical insurance. That's right. You can buy your medical insurance out of your 401k out of your Roth IRA when you're 45 years old and not pay the 10% penalty if you get disabled. The penalty doesn't apply. An inherited IRA, right. There's no 59.5 rule in an inherited IRA. Qualified higher education expenses for you, your kids, your grandkids, whoever. Doesn't apply a first home. And the IRS defines that as a home you haven't owned for the last two years. But it doesn't have to be your first home. It can be your kid's first home. It can be your grandkids first home. See how that works? You can pull $10,000 out of that account and they gift you $10,000 for Christmas.

Right? Okay. Well, that may not be ethical, but.

It seems to be legal. New child, you have another kid or an adoption, you can take $5,000 out. If you got to pay an IRS levy, that's also an exception. If you are a military reservist, you can take money out. That's also an exception. And let's see, what were the ones with the Secure Act 2.0? There's some other ones. Like if you've been domestically abused now, you can take a withdrawal without paying that 10% penalty.

Let me see what other ones there were. There are several others.

Yes, the Domestic Abuse 1 and the Terminal illness. If you get a terminal illness, you don't even have to die or be disabled. But if you have a terminal illness starting in 2022, you can avoid the 10% early withdrawal penalty. But you know what the biggest exception to this rule is? Early retirement. Early retirement is an exception to the 10% early withdrawal penalty. Now, in order to retire early, you got to follow a rule they have called the substantially equal periodic payments rule, which essentially allows you to take out 3% or 4% a year without paying that penalty. So 3 or 4% is what it works out to be in your 50s. You have to continue that until you're 59 and a half or for at least five years, whichever one is longer. All right, so those are all the ways you can get your money out without paying that penalty. But again, worst case scenario, right, all your money's in tax protected accounts and you gotta pay an extra 10%, heaven forbid.

Right?

And it's not going to be on everything you ever withdraw out of there. Right? It's only going to be on some of it because you're going to have exceptions for some of that stuff, you know, and the truth is, the extra tax benefit you get from it over those years is going to be more.

Than the 10% you end up paying.

So don't skip out on using a retirement account to save for retirement just because you think you're going to retire early. But the truth is most people, and you might be an exception to this, but most people who retire early also have a taxable account because in order to retire early, you tend to have.

To save a Lot of money.

And that tends to be more than you can fit into retirement accounts. Now some people have lots of retirement.

Accounts where they're really frugal and that doesn't apply to them.

But almost every doctor I know who retires early has a taxable account. Not because they deliberately built it by skipping out on their tax protected accounts, but just because that's how life worked out. Like right now our taxable account is our largest account. And so we're never gonna have to even think about these exceptions. In fact, we're probably never gonna spend.

Any of our money in retirement accounts. It's probably gonna be inheritances and going to charity as we're gonna live the.

Rest of our lives on our taxable.

Account whenever we stop working.

And that sort of situation is far.

More common among docs that retire early.

But if you're in that really unusual situation where everything you ever save is going to be in a tax protected account and you know the SEP rule plus the other exceptions just isn't enough for you, and you don't think that 10% is less than what you will save over the years from that tax protected growth. Well, I guess you can skip out on a few contributions to your retirement accounts. But the main reason people do it.

That'S, you know, is not because of the distribution issues, it's because of investment issues.

They just want to invest in their small business.

They want to invest in a real estate portfolio.

And while you can do that in a self directed 401k, you can do that in a self directed IRA.

It's a little bit more hassle.

Don't forget also the asset protection benefits and the estate planning benefits of retirement accounts.

Right?

In most states, all that retirement account money is protected from your creditors in the event you have to declare bankruptcy. That's not insignificant benefit. Plus those accounts can be stretched for 10 years by your heirs when they're inherited. You can just name a beneficiary, no will, no trust needed. So they're pretty handy accounts. So for the most part, yes, taxable accounts are great. I have a taxable account, but I.

Don'T put money in it until I've maxed out my retirement accounts.

Hope that's enough of a defense and an explanation of why I do that. Let's talk about paying down debt versus investing every white coat investor's favorite question.

Here's Mark's version.

Hey Jim, my name is Mark and I have another pay down debt versus invest question. I'm a 40 year old surgeon making approximately $500,000 a year including 50,000 of 1099 income. I save approximately 18% to tax protected retirement accounts and another 5 to 10% in real estate syndications. I want to know how to best employ some additional capital. I have no other debt than a $930,000 mortgage which is a 30 year fixed at 3%. I would ideally like to pay my mortgage off in 15 years and have the option of going part time. That requires me to extra 35,000 a year in principal payments because of the mortgage tax deductions on my personal and business income. It seems better to invest this money in taxable My question is how to best invest this money while still having the option of paying everything off in 15 years. My asset allocation is currently 65% stocks, 10% bonds and 25% real estate with a slight small cap value till if I invest in taxable and keep my current allocation, I risk not having the cash to pay the mortgage when I want it. On the other hand, I could invest this money in a side fund with an asset allocation of 60, 40 or 70, 70, 30 total stock market in a muni bond fund for instance. I'm not sure what's the best plan. Part of me wants to just keep it simple and maintain my overall asset allocation knowing that if I just stay the course I'll have enough in taxable even if the market is down. Another part of me thinks I don't need to take this risk given my overall savings rate and I should just take the 3% tax free return. At the end of the day, the more conservative side fund seemed like the best compromise. What do you think? If using a side fund, how would you invest in it? Anything else I'm missing here?

Okay, great question. We all deal with this, we all deal with it.

When are you going to pay down the debt? Most of us don't want to have debt in retirement. Lots of us would love to be mortgage free by mid career. But we look at that and we go shoot.

If my investments can't beat the interest rate on my debt, I got bigger problems.

And it's true, you do.

When Katie and I were thinking about.

Getting rid of our debt for a couple of years, we invested instead. We invested in taxable and said okay, well this will probably grow faster than our mortgage rate, which I think was 2.75% or something.

And so we started that taxable account.

And we invested in taxable, invested in taxable, invested in taxable. And a couple of years later it.

Became silly for us to have a Mortgage.

It just didn't make sense anymore. It was a trivial part of our life, and we were making more money. White coat investor was starting to make money. So over the course of six months, we wrote two big checks and paid off our mortgage.

And I suspect something like that will.

Happen to you at some point down the road.

You may never use this taxable account.

To pay off your mortgage. You may have a windfall from something else. Maybe you inherit some money, maybe your income goes up. Maybe you end up investing in a surgical center and end up selling it.

And that's what you use to pay off your mortgage. And you never actually touch this taxable account. So I don't think I would have a dedicated taxable account just for this goal. You could if you wanted to, but I think I would just fold it into my regular asset allocation, invest it in my taxable account until such a time that paying off that mortgage becomes.

A bigger priority for you.

And I suspect at 50, it'll be.

A bigger priority for you than it is at 40.

And maybe you choose to liquidate some.

Of it and pay off the mortgage.

Or maybe you just decide to start directing new money toward that, because in 10 years time, maybe instead of making.

500,000, maybe you're making 900,000, and all.

Of a sudden you're looking at that.

Mortgage and the mortgage is down to $400,000, and you're like, I can just wipe this out.

And you choose to do so. But I think it's reasonable for now for you to continue to essentially invest on leverage. You got a mortgage and you got investments, and that's okay. It's okay to have debt. It's not the end of the world.

You want to manage it. You want it to be a reasonable amount.

You want to have a plan for it.

But it's not the end of the world to have a little bit of mortgage debt. So I think that's what I'd do.

I don't think I'd have a dedicated 60:40 fund on the side.

I think I'd just fold it into my overall asset allocation. And what that works out to be.

Even if it's all stocks in there, and even if maybe it's down on that date when you want to be mortgage free, you know, heaven forbid you got to push that date back a.

Year or something, chances are you're probably still going to come out ahead.

So that's what I'd do. Good luck with your decision. There's no wrong answer here. And if you're really not sure what to do. Split the difference. Put half of it toward the mortgage and invest the other half. Okay. Some doctors buy WCI books for new classes of residents or people rotating through their clinic. Thank you. If you're one of those who's done that, thanks for spreading financial literacy. If you would like to do something like that, you should be aware that we offer bulk book pricing for orders of 25 plus books. All orders include the shipping costs and it takes about two weeks to arrive once they're ordered.

Right.

These aren't coming out of the Amazon warehouse downtown. They're printed after you order them. So it takes a couple of weeks. But we sell the original White Coat Investor book, A Doctor's Guide to Personal Finance and investing for $15.99 each for 25 plus copies. Financial Boot Camp is 1699 each, the Guide for Students is 1799 each, and the Guide to Asset Protection is 1899 each. So these are significant savings off the list price. Now, there are times when Amazon's selling it for real discounts. You got to look at that and see if they're selling it for even less than our bulk book offering. But most of the time they're not. Most of the time this is a significant savings. And if you want to buy 100 or more bucks, we'll give you an additional discount. Just email us booksitecodeinvestor.com and we'll help.

You to do a bulk book order.

All right, next question is from Michael.

Let's take a listen.

Hi Dr. Dali, this is Dr. Michael Rogowski. I have a question that seems simple, but I haven't been able to get a satisfactory answer by looking at the IRS website or elsewhere. And basically it's to what extent can you use long term capital losses to offset short term capital gains? And let's assume that the difference is greater than $3,000. So it's not in the exempt category for writing off losses. If I had a capital gain of $50,000, for example, could I use that to write off $40,000 of mosses? Your help on this would be greatly appreciated. Thanks so much.

All right, great question. This might be a better question for a blog post than a podcast.

I don't know if you read the.

Blog and you asked it on the podcast.

So let's talk about it.

So the way to answer this question is to go to Schedule D. Schedule D is the capital gains and losses.

Schedule on your 1040.

So if you go there, you'll see that part one talks about your short.

Term capital gains and losses.

Part two talks about your long term capital gains and losses. So in your question, we're talking about short term gains. So you're going to get to the end of part one and you're going to have a gain, right, a gain on line 7 of Schedule D. And then you're going to do part two and you're going to go through all that and by the time you get to the bottom of that, you're going to have a loss, a long term capital loss on line 15. So then you move into part three and that's the summary. And the first step there is you add 7 and 15, those two lines, you combine them and enter the results. So essentially you're putting the results together. So for the most part, schedule D is treating them as the same.

But you got to work through all.

The fine print here in this entire part three. So it says if line 16 is a gain, go to line 17 below. If it's a loss, skip line 17.

Through 20 below and then go to line 21 and complete line 22.

Okay, so there's lots of stuff to work through there. But this is where you would work through it is on schedule D. So let's say I can't remember your example. Let me pause this for a second.

And listen to that again and we'll try to use your actual numbers here.

If I had a capital gain of $50,000, for example, could I use that to write off $40,000 of losses?

Okay, so you are using $40,000 of long term capital losses and $50,000 of short term capital gains. So when you combine those, you're going to have $10,000 of short term gains left. All right, so that means line 16 is a gain. So you put that on line 7 of your 1040. So lines 15 and 16 are both gains. So you go to line 18 if you're required to complete the 28% gain worksheet. You're not, because that's not a collectible. I assume you do 19, you don't have to do run recaptured section 1, 1250 gains, lines 18 and 19 both 0. Yes. So then you complete the qualified dividends and capital gain worksheet in the instructions.

Presumably you don't have any qualified dividends. You probably do actually. And then you work your way through that worksheet. You don't hit 21 and 22.

So basically what that is telling me as I work my way through there is that yes, you can use your long term capital losses to offset your.

Short Term capital gains.

So straight from schedule D. Don't believe me? Just pull out schedule D and work.

Your way through it and I think.

You'Ll see that it will work just fine.

Hopefully I didn't miss anything there. I'm sure I will hear from the.

CPAs listening to this if I messed it up. All right, another tax question. This one about tax loss harvesting from Adam.

Hi, Jim. Thanks for all you do. And thanks to you and the physician on fire for writing step by step guides how to do tax loss harvesting. I recently put on my adult DIY investor pants and did some tax loss harvesting for the first time at my taxable brokerage account at Vanguard. But at the end, I forgot to write down the grand total of the losses I harvested. Now I can't seem to find it. How am I supposed to report this amount to my accountant at the end of the year if I don't know where it is? Perhaps you could explain where on Vanguard's website we find this information. That would be awesome. Thank you.

Okay, Adam, great question. Good news. You do not have to find it. Vanguard will send you a consolidated 1099 at the start of next year that has that information on it. And all you have to do is send that 1099 to your accountant and they will have all that information so you don't have to find it. However, you're a white coat investor and you're probably interested in finding it. So let me see if I can tell you where you can find that. All right, so go to vanguard.com, log yourself in. I'm doing this as we speak so I can walk you right through it. I'm logging in. It now wants to text me a number.

All right, so we're going to have.

It text me a number. All right, there's the number. My two factor authentication. All right, so I put that in. I am now logged into my Vanguard account.

Now let's pick one of.

Well, first of all, I got to.

Tell them I don't want to enroll.

Something in E Delivery. All right, here we go. Let's pick one of my taxable accounts here. All right, so now I've clicked on that taxable account, and at the top, it gives me all kinds of options on a dropdown menu. The first one is summary information. But if I go down there, one of those options is realized gains and losses. So let's click on that realized gains and losses. Again, click on that taxable account and.

It tells me I don't have any. Very unfortunate. Well, that's the way it is last 90 days. I don't have any. So let's do not. If I've done any tax loss harvesting in 2023, let's look at 2022 and.

It will show me, once it gets done with the circle of death here.

Will show me that my Internet connection is very slow or the Vanguard website is very slow today because it's still giving me the circle of death.

But anyway, once you click that, you select the appropriate dates, it will tell you what all of your realized gains or losses are, and that's what you're looking for. So if you wanted to find that, you can.

I'm not sure why the website's working so slowly for me today. Hopefully it doesn't do that for you. There it is. Okay.

It came up and it shows me all these great tax loss harvesting I did last year.

I got lots of them last year. Yeah. Wow.

2022 was not a good year. But at least I got a whole bunch of tax loss harvest tax losses harvested that I can carry forward. So hopefully that's helpful to you, walking you through that on the website.

But seriously, you don't need to worry about this. You'll get it on your 1099 at the end of day the year.

All right, next question's from Tim. Let's see if it's Tim that used to be in San Francisco and now lives in Salt Lake or a new Tim.

Hi, Jim. This is Tim in Salt Lake City. I have a question about programs through brokers that pay you to lend out your shares to short sellers. In particular, Interactive Brokers has a program called the Stock Yield Enhancement Program that does just that. If you read the fine print, they have caveats, including that the shares are not spic insured or they may not be protected. Also, it can mess up qualified dividends because you get payments in lieu of dividends if they're loaned out. I'm wondering what you think about these programs and whether they're worth the risk and complication for the yield they provide. Thanks, man.

We're really out in the weeds now.

So funds do this all the time, but anybody can do it. The Vanguard mutual funds will lend out.

Securities to short sellers.

And when you're shorting something, you have.

To borrow a security and then you pay for it later. Essentially, you're hoping you can pay for it at a lower price than what you originally bought it at, and it's essentially lent out to you that way.

So whether you should do this is optional. Can you make some additional Money doing it.

Can you?

Yes, you can. Are there downsides?

Yeah, I mean, while it's lent out.

You don't have that SIPC protection.

Let's be honest though, that's not worth all that much and it may affect.

Your dividends as well. I think Vanguard has one of these programs as well.

I think it's relatively new, but I recall seeing something about it on either a forum or an email that Vanguard sent me.

I haven't bothered with it, but Interactive Brokers, which is, you know, this is a brokerage account that a lot of.

People use that want to use a margin account because their margin rates tend to be relatively low.

Let's see what their website is saying about it.

If you pull it up here at.

Interactive Brokers, they have their stock Yield Enhancement program and basically advertise it as a way to earn extra income on the fully paid shares of stock held in your account by allowing Interactive Brokers to borrow shares from you in exchange for collateral, either U.S. treasuries or cash, and then lend the shares to traders who want to sell them short and are willing to pay interest to borrow them. So while your stock's on loan, you'll be paid interest on the collateral for the loan based on market rates. Interactive brokers pays you 50% of a market based rate.

And if you've been approved for a.

Margin account there or you have more.

Than $50,000 with them, they let you do that.

I mean, I think it's fine to do it.

Earns you a little bit more income. This is not like the way you get rich though, right? This is like some little thing on the side. It's like playing games with your credit cards, you know, and trying to get some extra rewards. It's going to take a little bit more hassle. Maybe there's a little bit of risk in there, but for the most part.

It'S a little bit of hassle, A.

Little bit of risk for a little bit of reward. Not something I plan to start doing. But you know, it's something that is not crazy to do. This is not a scam. This is not, you know, insanity to do this. You can do this if you want.

And they go through the risks and downsides of it. You know, that the loan rates can change, that shares loaned out may not be protected by the sipc, that the loans can be terminated at any time by Interactive Brokerage, that just because you tell them you want to loan it out doesn't mean they will, that the borrower actually has the voting rights on the shares if you care about that, that if you sell your shares or.

You borrow against them or you withdraw cash from your margin account, then that'll terminate the transaction. But those aren't huge risks.

I think that's fine to do.

If you want to do this, don't count on it. You know, saving a retirement that otherwise is unsavable.

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