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IFB39: Simple Tax Shelter: Tax Saving Instruments for Your Investments

tax savings instruments

Welcome to Investing for Beginners podcast, this is episode 39. Andrew and I are going to respond to an email that Andrew got asking us some questions. So today we’re going to talk a little bit about some of his questions, go in-depth and answer those for him.

So without any further ado, I’m going to turn it over Andrew, and he’s going to take us through some of the questions.

  • How trading fees can affect your investments
  • How IRAs work
  • The differences between a Roth and a Traditional
  • The benefits of a 401k
  • Some pros and cons of Robinhood

Andrew: thanks, Dave, okay this is from Kurt.  Kirk says

“Hi Andrew, I recently less than two weeks ago came across your podcast and found it so useful and informative. Then I went back to the beginning and then in the process of binge listening to my way through the list of 30 some episodes.”

Andrew: which by the way I say that I highly recommend doing that I remember when I first started listening to podcasts I went through archives of the ones I liked and that’s a great way to you know get knowledge and get acclimated with what’s going on with these topics of these podcasts. so continuing to read on with the email

“before discovering the Investing for Beginners podcast I loaded RobinHood on my phone and began thinking about which stock or fund to purchase. I’m glad I found you when I did, I still don’t have a clue which will be my first purchase, but I now understand that my original selection would have been based on greed for something that is likely overpriced or has other indicators of a poor investment.”

Andrew: sidebar again, that’s very insightful and good job there Kurt at recognizing that and potentially you know you probably saved yourself thousands of dollars in losses and pain by stumbling onto this resource and really taking it to heart and picking it up really quickly, so that’s great back to the email Kurt says so

“I set up my account with Ally, and I’ll keep reading and doing company research. I hope to make my first of many regular monthly investments around Thanksgiving, possibly sooner if something happens to cause the market to dip. thanks again for educating beginners like me to save us from ourselves.”

Andrew: you’re welcome, very well put.

“I’m finding this to be fun and refreshing after 20-some years of dealing with mutual fund and annuity managers who offer little help and don’t have a clue on how to be an intelligent investor.

Andrew: Now to the questions. Do they, so he’s talking about Ally’s  $4.95 trading fee.

He asked: do they charge both buying and selling or one or the other?

So some of these are just going to rapid fire. Dave, I know you know the answer.

Dave: that would be yes.

Andrew: yes so you got a fee on the buy fee on the sell.

How much does the investment need to appreciate before one makes that back?

Andrew: I mean that’s going to depend on how much you’re putting in. So I believe we’ve talked about it before but on 150 dollars a month that’s anywhere from one to three percent of a loss like right off the bat.

If you’re going to invest more than that obviously making $4.95 back isn’t that big of a deal. That’s a big reason why I always talk about you know try to have at the bare minimum one hundred and fifty dollars to invest. So you’re not losing five, ten, fifteen percent straight off the bat just off of a transaction fee.

When you when you talk about a thousand dollars or more it that $4.95 is unsubstantial and you know you don’t have to make you don’t have to worry about it you don’t have to wait a long time to make that up.

and even in the grand scheme of things I mean you’re going to see stocks go up in you could see him go up a percent down a percent sometimes more than that sometimes in the decimal ranges and so you don’t want to get into that mindset too much of like, oh well I got to make this $4.95 back right away.

Understand that over the course of a year, over the course of 365 days however many trading days are in there. The stocks are going to fluctuate and you’re going to see it go up and down by depending on how much you put in. It could be anywhere from a couple of bucks a couple of cents. You could see 10, 15, 20, 25 you know hundred dollars just gain and loss within a day so these are all things that happen as the market fluctuates so try not to fixate on that.

But at the same time understand that yes it does make an impact on your return. So make sure you are trying to invest as much as you can and at the bare minimum try to do like one hundred and fifty dollars per trade.

Back to the questions, he asks.

What are other real costs of training such as taxes?

this this could be a great this is this is a great topic all on its own so I think we should talk about this Dave because we haven’t really covered like capital gains taxes and me don’t it’s something that’s so basic, and to me I love getting this question because to me I’ve been doing this for five years plus and so these type of details is so intuitive to me and me it feels like two plus two equals four.

But I know that as a beginner you’re taking this all in, and it’s all brand new to you so there’s a lot of different rules and different kind of tricks that you can do to help your returns and help your capital grow and obviously avoiding taxes.

Or you know we’re not saying illegally but crafting the tax code to work beneficially for you is a big part of investing. Obviously rich people know how to shield their money from the government if you want to put in in those terms.

So let’s talk about taxes real quick, capital gains taxes there’s long term and short term. First Dave why don’t you go over like how can we avoid taxes as an investor.

Dave: by never selling.

Andrew: that’s true I mean honestly like you know people talk about Buffett and stuff, and I think he’s talked about that before where you know that that that’s one of the best ways to have a tax shelter is never to sell.

Dave: yes and that’s actually what I try to practice.

Andrew: so yeah I mean there’s not only are their performance gains from doing that but obviously the tax implications. But you know you started your site as IRA for beginners.com, IRAs are a fantastic way to limit the impact of capital gains taxes. So break those down for us and how they relate to like the tax dilemma.

Dave: well I guess the easiest way, in kind of the simplest terms when you think about the different kinds of accounts that you could you can open and what I’m talking about accounts I’m talking about IRAs.

So when you look at either a Roth IRA or a traditional IRA, it has implications on whether that money is taxed upfront or whether it’s going to be taxed on the back end.

And so when you look at an IRA, for example, let’s say that you have $100 that you’re taking out of your paycheck and you’re depositing that into a Roth IRA to invest for your future. That hundred dollar has already been taxed by the government, so Uncle Sam at the end of let’s say that grows to $1,000 someday which would be awesome.

tax saving instruments

When you take that money out, you are not going to be taxed on that money because you’ve already paid your taxes on that hundred dollars so the only tax implication you would have would be on the investment itself on the gains and the investment.

But with a traditional, the traditional is not taxed, so that is going to be money that is going so there’s traditional there are to not benefits. I guess you could say benefits there are when that money is the hundred dollars is taken out of your paycheck and is put into your traditional IRA. That reduces your taxable income by a hundred dollars so that on that particular paycheck and when you do your taxes at the end of the year. that money is a hundred dollars less so in theory you’re paying Uncle Sam a little bit less money at that time however when you put that hundred dollars in that traditional IRA and you go to take that money out you’re going to be taxed on that money 30, 40, 50 years down the road.

So it depends on how you want to do it there’s a lot of different trains the schools of thought on how you should handle IRAs, and we’ve talked a little bit about that in the past, and I’ve written some articles about that as well.

to go more in depth on that the I guess the quick and dirty, easy way to think about it is if you’re younger it’s probably a better way to go by going with the Roth route because you’re going to have all those decades of time to earn all that money that you’re not going to have to pay taxes on when you quote-unquote graduate.

and you know you get done with working, and you get to retire and sit on that beach you don’t have to pay taxes on those monies but the flip side of that you know and the other advantage and this is what the school of thought is with the people that go with the Roth route is that we don’t know what the tax rates going to be 30, 40, 50 years from now.

Heck, we don’t even know what it’s going to be two years from now because right now they’re having a lot of discussion about changing our tax code.

So these all have big implications on what our money is going to be the flip side of that is the traditional is that you know you are reducing your taxable income now. But you’re taking the chance that you’ll be in a lower tax bracket fifty years from now and you’ll have to pay fewer taxes upon that.

So there are a lot of the ins and outs on that, and I’m very much simplifying this and if this is something that you’re serious about learning more about I would strongly encourage you to talk to an accountant that would be able to give you tax advice. I am I’ll say this right now I am NOT a tax accountant and I am not licensed to talk to you about that specifically.

But I can give you the overview of how it works so that they can kind of help you go a little bit farther into that. Now Andrew is much more versed in the capital gains than I am, I’ll be honest with you on that, and I know he can speak a lot more intelligently about that than I can.

Andrew: yeah so I mean there’s not going to be. Obviously they have these tax vehicles for when you want to retire. So we talked about the IRAs, keep in mind that you know an IRA is the same as having like a checking account in the sense that you know you can go to a bank open the checking’s, open the savings, you can go to another bank open another checking there.

You can open an IRA you know we like to use TradeKing that’s now called Ally. I know I use that personally, I’ve also had an IRA with Merrill Edge, one that I opened years ago. So you can have these IRAs with multiple brokerage companies, and it’s no different than having separate checking accounts.

When you talk about things like 401k’s which tend to be tied to like the company you work for a lot of times. You know you have that account separate and then when you leave the company then you can roll that into an IRA and that that becomes another account you can have.

So something that you should think about if you’re using an IRA obviously realizes that this is money that’s going not to be touched until you retire or else you’re going to pay huge penalties.

So I mean there’s no like magical tax shelter that’s going to let you cheat taxes this year and completely be able to spend that money this year and just not pay taxes it’s just not going to happen.

This is one of the government’s ways of really incentivizing people’s investments and the savings rate. But also understand that there are like contribution limits to how much you can put in, and that’s across all IRAs that you might own.

So per year, the cap in that it’s going to be different depending on how much you make, what your income is so trying to look that up you know this is obviously disclaimers for the absolute beginners. But be aware of that and then that should kind of help you decide on what kind of an account you want to buy as, well not buy but sign up for.

So when you talk about long-term for short-term capital gains, pretty much when you sell a stock the government’s going to want whenever you made from that they’re going to want a piece of that.  Now there is a short-term in a long-term so the way they define that is a short-term capital gains tax means any stock that you’ve held for believing it’s like a year.

You know I don’t know what the exact if it’s 365 or if it’s 364 days. So if you’ve held a stock for a year or less that’s short-term capital gains tax if you’ve held a stock for more than a year and I believe it’s like right when you get to 366 days then it becomes a long-term capital gains tax.

So you know say its November now 2017, I buy a stock today if I sell it next week, it’s a short-term capital gains tax. If I sell it lets say December 2018 then now it’s a long-term capital gains tax.

So again another reason to hold for the long term your taxes are going to be better. Now the difference between the short-term and the long-term capital gains tax it could be pretty huge, especially the wealthier you are such long-term capital gains tax is going to be taxed at your ordinary income bracket.

So I mean you know you could I don’t know what your situation is maybe you’re in the 25%, 35%, 39.6% income tax bracket. That’s what you’re going to pay as a tax, and that’s pretty huge area means say you got a stock that double then you may like ten grand you know almost five grand that’s going to the government that obviously sucks. But that’s how it is and one way to kind of get around that is like what Dave was talking about with the Roth IRA.

Where because you already pay tax on that when you sell that stock you don’t have to pay that capital gains tax. So you make a stock that doubled, and you’ve made five grand you keep that five grand and as long as you withdraw it when you retire that’s your money.

Now for the long-term capital gains tax rate, they have different ones, and this is as of this recording 2017 they’ve been known to change it but right now if you’re in the 25 to 35% tax bracket. You’re going to pay 15%, and if you’re in the highest tax bracket, you’re going to pay 20%. So it’s still a lot cheaper than then paying at the ordinary tax rate and something also to consider is let’s say you sold a stock say you sold two stocks right.

You made a thousand with one, and you lost like five hundred with the other well you’re not going to pay taxes on the ones you lost and the one you lost is going to credit towards the one you gained.

so in reality you only made 500 by gaining 500 losing 500, I mean gaining a thousand losing 500, so you’re only going to pay tax at the end of the year based off 500, so that’s why sometimes you’ll hear on the financial media they’ll talk about like at the end of the year which we’re coming up on now.

We’ll talk about people tax harvesting, basically selling positions that are down to lower their tax load and don’t get me started on like how stupid that is like to lose money on purpose so that you can pay fewer taxes is the most ass-backward thing you could do.

But just understand that that’s the way taxes work, and there’s no magical way to get around paying taxes. So you can understand why that’s such a huge issue in politics is because yeah there’s such a potential to make money in the stock market and then when you realize like how much of it goes to the government it can be disheartening at the beginning.  But that’s another reason why when I talk about my eLetter, and I talk about the real money portfolio, and this is the one that we’re putting 150 dollars a month in that’s in the Roth IRA, so I’m actually the way I segment it is I have these trailing stops, and so I’m actually selling positions maybe more frequently than your average buy-and-hold investor.

And a big reason you know something that to keep in mind is if you’re not following along with a Roth IRA you might be paying capital gains taxes on top of that so it might not be as profitable for you.

But because I’m in a Roth IRA I understand that I don’t have to pay capital gains taxes because they took the money upfront and so that puts me in a position to move through my positions as I like and compound money at a much faster rate.

Assuming that I’m making good stock picks and taking those sales and putting them into bigger and bigger positions.

So these are all things to keep in mind maybe it changes your strategy and in the sense that if you’re in a traditional, maybe you’re buying. You’re going to be more buy and hold than a portfolio that’s a Roth because the traditional will have capital gains taxes which I believe that’s when you’re when you take it outright is one they’ll when they’ll take those capital gains taxes. They’re not going to they won’t charge.

Dave: yeah, no it’s only it’s only when you make a withdrawal.

Andrew: right okay so I mean but it still might change your strategy a bit because knowing that you have to pay those taxes as you know might be wrong there might not be any capital gains taxes on just retirements in general right because they’re only they may only tax you on the withdrawal amount and not so much like letting all the tech capital gains taxes accumulate. I don’t think they would let them would be just based on whenever you make what drawl from the account. Right so like they say you withdrew a hundred thousand they would do whatever the withdrawal taxes. Yes so yeah I mean there you go right there like the capital gains taxes aren’t going to be applicable you know in a retirement account.

But if you have just a regular brokerage account where it’s not an IRA or now the 401K you’re going to be looking at capital gains taxes that you’re going to have to pay that year. Yes, huge differences as far as having these tax shelters and seen big differences in how much you’re going to pay in taxes every year.

Dave: yeah for sure and you know another thing to keep in mind with the IRA and the Roth, or I’m sorry the traditional and the Roth. A lot of people will refer to an IRA is just a traditional so forgive me if I slip on upon terms there for a moment.

There are some exceptions that allow you to take the money out of the traditional without paying the penalty and those are typically things like buying a house for the first time or education expenses. They will allow you to withdraw the money without having to pay any penalties for those.

The Roth you have a five-year window that you have to keep the money in, and then after that, you can withdraw it at any time without any penalty on the money. So you know the government has set them up such that there are some different restrictions that they’re trying to help people help themselves and you know to save the money and keep the money in there.

When Andrew was talking about the 401ks, the 401ks are set up similarly in that you have a choice whether you want to choose to have your investments put in either a traditional or Roth and you can split them too you can do 50/50 you can do 75 25 it really kind of depends on what your long-term strategy is with your plan for retirement.

And you know when you work for a big company and they’re matching if you are not taking advantage of that you need to be slapped because that’s free money that you’re not taking advantage of.

when I work for Wells Fargo they’ve had it they matched at 6% so you bet my butt that I was investing at least 6% or a paycheck and they were matching it so that was a nice little perk, and you know so there’s you know there’s advantage to both of these, but you know definitely want to look at however you want to set it up, and you know when you’re talking about 401k’s.

when you stop working for that company one of the things that you want to investigate when you leave the company some companies will charge you a fee sometimes it’s monthly, sometimes it’s annually to hold your money for you because if you’re not working for them then obviously there’s no perk and there’s no advantage. you know to keep you having your money invested with a company and some companies will charge you a fee to keep your money in their account and so that’s something you definitely want to research, and you can roll them away from the company into another brokerage account wherever you want and I would strongly encourage you to do that if you know if you work for company for five years and you got fourteen thousand dollars in that IRA, I’m sorry the 401K I would strongly encourage you to roll that away from that company so that you keep track of your money.

I’ve heard horror stories when I was working at the bank of people that would you know their spouse would pass away and they would all suddenly start finding 401ks that were a company they worked at 32 years ago, and they didn’t know anything about it.

They weren’t a beneficiary on it just was forgotten and you know some cases it was a fair amount of money, and it was you know a very expensive, very complicated process to try to get that money to the person that it deserved to go to.

But because there was nothing setup ahead of time the person that passed away forgot about it didn’t do anything about it neglected it. Whatever maybe it becomes a very complicated problem so I could go on and on and on about some of those kinds of stories that I’ve heard and seen and had to deal with in my time.

And so I would encourage you if you have any of those kinds of things not just to neglect it or think I’ll get to it another day. Deal with it now, set it up, make sure that you have it where you have control over it and also make sure that I’m not charging your money because that’s money is coming out of your pocket, you earned it.

You know you’re saved it, and now they’re taking it away because you’re just left it there so anyway I’ll get off my soapbox on that sorry.

I could have sworn man like I just moved a couple times recently actually and I got something in the mail from my broker. It was saying like if you don’t confirm the change of address or something, then you’re going to forfeit your account or something.

it was really a Wow everything to Reno’s like yeah I’m logging in right this second and yeah this is up-to-date because they said something about like abandoning an account if I don’t know if they don’t hear anything from you or yes you don’t get I don’t know it feels like a mail back or you know something in their system it’s really strange. So yeah be careful out there right.

Dave: be careful I mean when I left Wells it was one of the first questions I asked them.  I called the HR department and asked them if they’re going to be any fees because I tried reading through the prospectus and you know that’s lots of fun let me tell you. And you know I tried reading through that to find out if there were any fees that they charge and I couldn’t find anything.

so then I called some of the people in the company, and a few of them I had to talk to you had no idea what I was talking about so I had to go back to talk to my financial adviser that I worked with at the branch, and he told me they don’t charge anything so I left it there for a little while until I got figured out what I wanted to do with it and I rolled it into another IRA.

So it’s very easy to do, what’s nice about that too is like you said it every company can kind of be different whereas if you have an IRA, it’s Universal.

Andrew: yep it’s like oh well I’ve already had with this broker I know what their fees are I don’t have to write around about that you had to call him right.

Dave: yeah the last little tidbit I wanted to talk about with IRAs is Andrew and I focus a lot on brokerage accounts because of investing, and that’s our focus. But you can open IRAs in a bank you can go to whoever you bank with, and they should offer IRAs whether it’s a Roth or traditional and you could do them in a savings account, or you could do them in CDs.

Now, the interest rates on both of those are quite poor, and you know if that’s a route you want to go then there is that option. It’s safe it’s secure its FDIC insured up to $250,000 if you are with a bank. Credit unions I think have different rules but if you’re with Bank of America, for example, you know that you know any accounts that you have are insured up to $250,000 with the FDIC which is nice, and it’s safe, and it’s secure. but you’re also not going to make diddly-doo so keep that in mind

Andrew: good boy yeah I think all right let’s move on. so he talked about taxes he says

If I sell some shares of a company that I’ve been investing in over a period am I selling the first shares I purchased or the last?

Not sure if I understand what he’s trying to ask.

Dave: I think what he’s trying to ask is if you buy let’s say you buy ten shares, ten shares, ten shares, ten shares, ten shares. When you go to sell are they selling are they selling the first ten shares that you bought for $10 or are they selling the last ten shares that you bought for $40.

Andrew: that doesn’t matter no.

Dave: I know it’s not it’s not first-in first-outright.

Andrew: okay I mean yeah it’s like those shares it’s like its account balance, so if you if your account is worth $500 and you sell 20 shares then it’s going to be you know what $25 right okay.

So yeah I mean and the markets going to dictate what those shares are worth it’s not going to be what your opportunity cost was right?

Okay thank you helped me out of that one.

Dave: you’re welcome.

Andrew: doesn’t matter for taxes net game

Now if you use those funds to purchase another stock right away you still have to pay then that gain taxes on the previous sell I assume yes

so we’re this that we’re talking about like if you have a brokerage account so obviously try to get into those IRAs and 401ks and then use those contribution limits as much as you can if you have money out on top of that you’re, and you want to invest.

You might be looking at like an individual brokerage account, and then you’re going to be looking at capital gains taxes. So in this example, he’s talking about I’m going just to take those funds roll them over to a new to a new stock so can I get out of the taxes that way and then, unfortunately, you can’t do that.

like yes you can take the money and you could purchase a new stock but you’re going to have to have money set aside for when your tax bill comes around next April, so I mean it’ probably a better idea to take that money and deduct what you made already and then take the rest of it and throw that into the account.

It a same as running the business and if you’re not you know if you’re not paying taxes on every single piece of income like a paycheck you know people’s w-2s and they get those deducted automatically. But if you’re a small business owner sole per there anything like that you might not be automatically withdrawing from every single sale, every single piece of revenue.

so you really it’s a good idea to have some savings and really be tracking that because when tax season comes around you’re going to be left with that bill and trust me you don’t want to have the IRS, they’re the last people you want to be chasing you for money yeah no kidding.

Not that I know from experience yet here yeah how the tax bill and I that was the priority number yeah yep.

So next question kind of transitioning into two brokers. now so these are all great questions by the way Kurt

If I were to switch brokers at some point do my stocks go with me or can I have them transferred to another broker or will they forever be handled by the broker I use initially?

Dave if you switch they got to go with you?

Dave: so you can if it’s in a let’s say it’s our Roth IRA with a broker you can roll it into broker B and depends on the brokerage. Some brokerages could do it for you. Other ones you’ll have to go to broker A and sell the shares or I’m sorry not shell shares you’ll have to go to them and request a rollover, and they could do the rollover for you.

That’s why I had to do I had to go back to my original one, and it’s a lot of back and forth, but you know don’t be lazy with this stuff this is thousands of dollars it’s definitely worth the couple hours on the phone that it takes to get this done. Yeah I like if that’s going to depend, but some of them are pretty seamless yep.

Andrew: next question for instance if I was one of the Millennials that used Robin Hood to purchase several dollars of SNAP, he put some parentheses which I’m not good job and then listened to your show and wanted to move it to Ally to manage my shares with one broker take that cash and purchase new shares with the second.

Oh sorry I completely misread that so

If he listened to our show he purchased snap and wanted to move it to Ally to manage my snap shares along with my other more intelligent investments is that possible or do I need to sell my shares with one broker, take that cash and purchase new shares with the second broker?

Dave: Yes so if you can roll over you can like I said before you can roll over or shares you had another company to another account but then if you want to purchase other shares of that particular company you have to purchase them separately.

So you can’t you can’t merge accounts, so basically like if it’s in the individual brokerage account you’re going to have to pay that capital gains taxes.

So yes get it transferred in that sense right exactly and also with if it’s in a Roth IRA you have to roll it into a separate Roth IRA and then purchase shares into that account, you can’t merge the accounts.

Andrew: yeah I believe they have to like you say it has to be like a dollar balance they call it to remember what they call them it’s like they call it some stupid chair thing or they make like a quantity of it but basically it’s equivalent to each one you have is a dollar you’re right.

yeah okay here’s a great topic

 

Does it ever make sense to use a fee less broker like Robin Hood to purchase stocks?

Dave: I’m going to say no. Why I think so my reason for not using them is they it’s not feed less, and you put it, he put that in parenthesis Robin Hood does have some opportunities to make money.

Yes, they do not charge you to open an account, yes they do not charge you to trade and let me rephrase that they do not charge you to buy a stock.

However when you so he asked later another question how are they able to offer a fee less system? How do they make a profit?

Well, I’m going to tell you how they make a profit, I’m just glad that real quick we don’t either must use Robinhood, but this is all we do not know not only a lot of investors have reported back about this so.

Yeah exactly so RobinHood has several streams of revenue. The first one is that they earn interest off of any unused cash in your account let’s say you open an account with a thousand dollars and you buy five hundred dollars or whatever it is that you want to buy if you have that five hundred dollars just sitting there for years and years and years and years.

Robin Hood is going to be making interest off of that money that they get to keep. You do not this is part of their contract, and they are we going allowed to do this it’s at whatever the Fed fund rate is at that time which I think hovers around two to three percent.

So it’s not huge money, but if you got a million people leaving five hundred dollars in their account and they’re earning any interest off that’s a lot of money.

The other ways that they earn enter that they earn money is there is there have been quite a few angel investors that have bought into RobinHood as an investment. And the last I read it was up to sixteen million dollars has been invested in the company to invest in the app.

Another reason why I do not like Robin Hood was I personally have never used it, but I had a co-worker that used it for a while, and it is an app only on your phone it is not an app you can use, or they do not have a website you can go to on your computer and do research and things like that.

so the research tools that they have available to you are limited so it’s not as robust as la would be for example the other source of revenue that they have is they you when you sell a stock by the SEC re the SEC and FINRA rules these are the institutions that govern the trading buying and selling of stocks.

They have a law that requires that they have to take money from the investor whenever they sell a stock and now granted it’s a very small fraction it was twenty-three dollars and ten cents off of every one million dollars of trading.

So if you sell your hundred dollars of Microsoft, it’s not going to be much but again when you have a million or more users selling buying and selling stocks it can become extremely expensive very, very quickly and so that’s a big reason why that they don’t make money. All right I’m sorry that’s how they make money off of this service, and another reason why I’m not a big fan of RobinHood was that my friend said it’s like Facebook and you can go there you can swipe right you can buy a stock. It’s just it’s too easy.

Andrew: you know drunk trading would be like on the peak like way more so than regular drunk trading on a regular broker right exactly so you know I guess the answer it Kurt’s question it’s not fee less.  There are they are making money you know there’s just no way any company would ever do something like that and not make money so does it cost you not necessarily but you know if you’re you know they’re making money off you. Not using your money to invest in the market, so that’s why when you know when you invest you should try to invest as much of that money as you possibly can.

Disclaimer there’s also been some reports that the sell button disappears temporarily. I don’t know if that’s an app glitch or what that is there’s also been a report that there’s a maximum deposit of $50,000 per day.

I don’t know what that’s all about and they are moving towards margin accounts now, so that’s going to be an obvious big potential revenue stream for them to be able to charge the kind of fees that come along with margin accounts and margin calls and borrowing and buying stocks by borrowing. And obviously charging interests on that so that’s something to watch in the future yes you can buy stocks now with no fees but like they’ve talked about there are other ways that they are getting paid, and you are participating in that personally I like Ally just because like you said the whole obviously being able to do that on the computer is nice.

Also Robinhood’s limited not to say that I’m not buying US stocks, but from what I can see from their website it looks like it’s just really US equities at this time. I don’t see options to buy internationally. Maybe that’s different for if they are in other countries but something to keep in mind as well and you know it’s just kind of like that thing there’s no such thing as a free lunch.

you have to be skeptical of something that kind of masquerades as being free and I think that may be the biggest thing I forgot to mention this obviously this is huge for the way that we love to invest is you can’t do a DRIP on it you cannot automatically reinvest your dividends on any of these positions and so just based off that that would turn me off to the company.

I never in the past thought about looking at them much and obviously, I’m very happy with Ally. it is great to see different competitors come up and I think at the end of the day it’s going to really force the brokerage industry to kind of look at itself and say okay we got to be honest and we got another race to make this kind of services affordable it’s better for that consumer obviously and the people who use them like us.

but these are some of the pros and cons to keep in mind when it comes to RobinHood, and I don’t even know if they do retirement accounts or not that was something I didn’t look into but obviously they are making money and it looks like they are going that route of being the popular and collecting users and going to find a way that monetizes the end you know if these founders are making money from venture capitalists and they don’t really have to worry   about turning a profit at the end of the day.

No could be a leader on the other stocks that we talked about which are terrible that could be great companies but terrible investments so yep those are hopefully that answers all of Kurt’s questions.

I’m those make up the majority of them I’m glad he brought them up. I think again these are going to be a lot of things that people who are first certainly now are going to come across and then they’re going to be questions and obviously the more questions that we can resolve, the simpler that the whole process becomes.

and so I hope this is a valuable resource and lesson and maybe something to listen to again and like he said in the email you know go back through the archives, and kind of binge listen and gain as much knowledge as you can I think it’s a very smart thing to do and it’s a great way to learn different topics and passions and techniques and obviously to invest falls into that very nicely.

Dave: yeah exactly and you know I think the last little thing that I wanted to kind of tag on with what Andrew was saying was knowledge is power.

The more you know, the more you could do the better you can do, and you know as you know you continue to listen to what Andrew and I are trying to help everybody with. Hopefully, we can help you grow as an investor, and you know I know every day that I sit down, and I read through the different blogs in the books and magazines and the articles that I read through it.

I’m just I’m trying to learn I’m trying to absorb everything as much as I can every single day and you know I approach this as an opportunity to learn something new every day and I do and that’s what you know keeps me excited and energized and juiced about all this it’s you know it’s just an endlessly fascinating topic to me, and you know. I enjoy talking with Andrew about it, and I enjoy talking to you guys about it, and it will you know I guarantee you the more that you study this, the more you absorb it will become easier and easier and easier for you.

It’s just it’s baby steps you just got to keep doing it. As my grandmother used to say to me when I was younger, you know water dripping on a stone eventually makes an impression. So you know just keep at it don’t get discouraged and just keep at it.

Andrew: I love it.

Dave:  all right well I guess that’s going to that’s going to wrap it up for us for tonight. I hope you enjoyed our conversation answering the questions that Kurt sent us Thank You, Kurt, for sending those to Andrew those were great questions, very intelligent and very well thought out and I hope we answered all those for you.

And we talked a little bit about IRAs we talked a little bit about brokerages and capital gains taxes and taxes are a very important thing to think about.

So without any further ado I’m going to go ahead and sign us off you guys have a great week, and we will talk to you guys next week