Investment question

[polksalet]

Aight, my wife can invest a certain amount of her income in WMT stock over the course of a year and is matched at 15%. The amount isn't huge so this question is basically academic but since I'm cheap I watch every penny. My main investment is my "farm". My interest on the place is 6%. Since I am getting a 15% ror instantly on the stock I am getting hit approx 40% (?) for taxes. This moves my ror to 9% which is still 3 percent higher than the interest on my note. It appears that I am getting paid the 3% for risk of volatility on the stock. I normally hold the stuff til it gets to $55 and then dump however this stock market has me freaked.

 

Am I understanding this correctly? What are your thoughts?

[geeteebee]

A couple of things. First, I doubt you are paying 40% in tax unless you are in the highest tax bracket and paying state income taxes, which you don't in TX and you are probably getting taxed since this is income, not because of any instant return on the stock. Second, since you are tax affecting the stock, you need to also tax affect the mortgage so 6% is really costing you ~4% so the difference is actually bigger. Third, it sounds like this match is in a taxable account and not in some sort of tax exempt vehicle like a 401k, right? Fourth, are there any restrictions on selling the stock? When my wife worked for Medtronic, she wasn't able to sell stock any time she wanted to.

 

You understand this correctly, but she is taking equity risk by buying the stock and if WMT drops and you need to sell, then she will have lost money. It used to be that many companies would match 401k contributions in company stock (this may have changed over the years since Enron when peoples savings were wiped out when the company stock evaporated) so buying additional stock was not always a wise decision if you believe in diversification.

[polksalet]

A couple of things. First, I doubt you are paying 40% in tax unless you are in the highest tax bracket and paying state income taxes, which you don't in TX and you are probably getting taxed since this is income, not because of any instant return on the stock. Second, since you are tax affecting the stock, you need to also tax affect the mortgage so 6% is really costing you ~4% so the difference is actually bigger. Third, it sounds like this match is in a taxable account and not in some sort of tax exempt vehicle like a 401k, right? Fourth, are there any restrictions on selling the stock? When my wife worked for Medtronic, she wasn't able to sell stock any time she wanted to.

 

You understand this correctly, but she is taking equity risk by buying the stock and if WMT drops and you need to sell, then she will have lost money. It used to be that many companies would match 401k contributions in company stock (this may have changed over the years since Enron when peoples savings were wiped out when the company stock evaporated) so buying additional stock was not always a wise decision if you believe in diversification.

 

A few things because that is really all I have to offer.

 

I don't really know what my tax rate is but I'm pretty sure it "was" around thirty. We took about a 50% income hit last year so I don't know about now and because I sell stock so infrequently I haven't noticed that either.

 

At one time about 50% of her 401k was tied up in wmt stock. Now there is none and I am incredibly diversified across the markets with about 10% in bonds.

 

You can't buy enough stock when it is low to get the full match. WMT has it structured so that it takes a full year of buying to get the full match.

 

Thanks for the advice. I was curious if I was on the right track.

 

FWIW my portfolio is basically 50% dirt and trees and 50% stock ans the tiny amount of bonds. I only do stock because I can't buy dirt and pigs through the WalMart 401k plan. A wise man once told me (Muck) to invest in something I knew something about.