The Investment Thread

[KeithStone53151]

The current GameStop situation might be a turning point in the stock gambling game, as it seems that some savvy individual investors have acquired enough expertise to figure out the dirty tricks that hedge funds use to make money and crowdsource against them. Certainly fun to watch the transfer of wealth to random people on the internet.

 

Exhibit A for why this site needs a "like" feature...

[LouisEly]

 

I think you lose the pre tax advantage of the 401K....unless you are allowed to take it out pre tax and then invest it elsewhere but I am guessing that's not allowed.

 

Are you maxing out a Roth?

 

I never put anything in a 401k that is pre tax to me it is just a dumb idea to pay the taxes later when you will be on a limited budget.

Disagree - take the tax break now when I'm at peak earning years when the tax break will be greater. Plus, if you have an employer that has a decent match (back in the 2000's I worked for a company that matched dollar for dollar up to 10%), it's free money. A tax break of the 401K limit of $19,500 means a lot now, plus my company matched another over $5000 last year.

 

Also, greater accumulation of wealth and compounding of interest now means being on less of a budget later.

[nate82]

 

I think you lose the pre tax advantage of the 401K....unless you are allowed to take it out pre tax and then invest it elsewhere but I am guessing that's not allowed.

 

Are you maxing out a Roth?

 

I never put anything in a 401k that is pre tax to me it is just a dumb idea to pay the taxes later when you will be on a limited budget.

Disagree - take the tax break now when I'm at peak earning years when the tax break will be greater. Plus, if you have an employer that has a decent match (back in the 2000's I worked for a company that matched dollar for dollar up to 10%), it's free money. A tax break of the 401K limit of $19,500 means a lot now, plus my company matched another over $5000 last year.

 

Also, greater accumulation of wealth and compounding of interest now means being on less of a budget later.

 

A ROTH 401k is basically what I am talking about so I am not losing money and fairly certain I will be in a different higher tax bracket when I retire well sort of.

 

To expand on this I have an annuity that I set up about 10 years ago that should pay out between $3000-3500 a month plus my ROTH 401k plus a part time job will put me in a higher tax bracket.

[jerichoholicninja]

The current GameStop situation might be a turning point in the stock gambling game, as it seems that some savvy individual investors have acquired enough expertise to figure out the dirty tricks that hedge funds use to make money and crowdsource against them. Certainly fun to watch the transfer of wealth to random people on the internet.

 

Exhibit A for why this site needs a "like" feature...

 

This is nothing new. It happened already in the late 90's and has no doubt been happening ever since.

[young guns]

Can someone explain to me what's happing with the gamestop stock like I learned everything I know about the stock market from trading places?

[Zad Fnark]

This probably helps:

 

https://www.bbc.com/news/business-55817918

[homer]

Robinhood has suspended trading on the culprit stocks.

[young guns]

This probably helps:

 

https://www.bbc.com/news/business-55817918

That did help answer some of my questions thank you. Though I have a few more if anyone is willing to answer. What's the endgame here? Like I'm guessing the stock will eventually drop like a rock, because gamestop sucks, and someone will be left holding the empty bag. How does this affect the company gamestop? It seems there is some questions to the legality of whats going on, is it actual legal questions or more like counting cards in a casino level of legality? I'm guessing that's probably the big question that needs to be answered by the SEC though? Thanks in advance to anyone who trys to continue to walk me through this

[homer]

None of this has to do with how good a company GameStop is or is not. All the stocks that are part of this are weak companies - Koss, Nokia, GameStop are all has beens. It's simply that hedge funds bet a lot of money that their stocks would go down (via Short selling them).

 

Unless GameStop issues more shares it doesn't impact them at all. I believe one of the stocks (might be NAKD?) is doing just that. So sell shares at the inflated price to raise revenue to run the business sort of a thing.

 

There is nothing illegal about what's going on. It is simply a large group of individuals buying a few select stocks to drive the price up so that the hedge funds that shorted them lose a boatload of money (while making bundles themselves assuming they sell before the inevitable crash).

[CheezWizHed]

I think the other thing to consider is that no one knows what taxes will look like in 20, 30 years.

We are in a low tax era right now so it makes sense to shift from 401K to Roth but that doesn't mean it will stay that way. There are probably a lot of people that 20 years ago thought they'd be in a higher tax bracket now and they are not. Everyone's situation is different obviously.

 

Yeah, this is a good point also that I've been concerned about. If our taxes look more like Germany (45% on a friend of mine that works a similar job I do), my 401k (non Roth) will be worth much less obviously. That point and because I'm actually doing pretty well, has me considering that a Roth will make more sense for me. A couple years ago, my company started offering a Roth 401k option, so I've been converting my contributions over to that bit by bit and have considered converting the whole thing over... but that is a big tax hit to take suddenly.

[homer]

One nice thing if you go the Roth 401K route is that you can contribute to both the Roth 401K and the Roth IRA. So you get the limited options but larger contributions of the 401K with the flexibility to invest where you want but limited contributions to the IRA.

[GAME05]

Melvin Capital is on the hook $1 billion for every $7 increase in GME.

[igor67]

I'm not sure how long the price needs to stay inflated to cost the hedge fund folks their money, but at some point the price will come down and some fraction of these retail investors are going to lose some serious money as well.

[OldSchoolSnapper]

Small, nit-picky thing. This is 95% true, but it was the new board member hires from Chewy (has done very well) about 2 weeks ago that kicked this into high gear.

 

None of this has to do with how good a company GameStop is or is not. All the stocks that are part of this are weak companies - Koss, Nokia, GameStop are all has beens. It's simply that hedge funds bet a lot of money that their stocks would go down (via Short selling them).

[MrTPlush]

I make my contributions Roth, but my employer match goes to traditional. I just think of it as diversifying between the two so whichever ends up the better in the end I am half good.

 

Of course some day down the road I will start moving it all to traditional. I’m far off, but I envision my income staying about the same in retirement if not slightly more. So in my later years Roth really won’t make sense unless some tax hike looks obvious at the time.

[nodakfan17]

Regarding the Roth vs. Traditional debate:

 

Remember, there will likely always be a standard deduction in place. You’re probably OK keeping some funds in a traditional 401(k) or IRA because you should be able to sneak a little money out tax free every year.

[FVBrewerFan]

For most people you will come out far better with traditional vs Roth. Just look at the cumulative effect of taking that money pre-tax every year for decades. That growth will far out-weigh whatever the tax changes may or not be in retirement. Again, for MOST people.

[MrTPlush]

For most people you will come out far better with traditional vs Roth. Just look at the cumulative effect of taking that money pre-tax every year for decades. That growth will far out-weigh whatever the tax changes may or not be in retirement. Again, for MOST people.

 

I calculated it out once. Compared Roth vs. Traditional using realistic investment growth and a reasonable tax rate increase (as in not going to doomsday normal person paying 45% like some think we will eventually head to). I wish I could remember where the break even point was for tax rate increase...but thus I do not.

 

The way I calculated it out they ended up within a couple hundred thousand of each other, slight advantage to the Roth. The total account at the end was around $4mil so that couple hundred thousand difference wasn’t much in all honesty.

 

As I said before I think Roth is a bit overrated and I do think people miss a lot of important details. People always seem to ignore that compound growth the traditional has on that untaxed money. It certainly is not a no brainer decision.

[OldSchoolSnapper]

For most people you will come out far better with traditional vs Roth. Just look at the cumulative effect of taking that money pre-tax every year for decades. That growth will far out-weigh whatever the tax changes may or not be in retirement. Again, for MOST people.

 

This is empirically false.

 

For most young people, Roth is almost always the best option. As you age and advance in your career, traditional IRAs start to make more sense.

 

Generally I would say above the 24% tax bracket the traditional starts to really break away. The brackets 15% and below make up more than 3/4 of the US tax base and Roth is a slam dunk winner there.

 

There are exceptions to every rule and so many variables that everyone really needs to research this for themselves (what state you will retire in, what kind of income mobility you expect over your career, etc.) and there are other benefits of Roth which make it attractive to lower bracket households. They can tap into the contributions for any reason at any time without penalty, which is not ideal, but they are the folks most likely to need it.

 

But the statement that "most" people will do "far" better in a traditional just isn't true. Even if you take out the 0% bracket, which is a lot of people who probably don't have this choice to make, the 10 and 15% still comprise the majority of the tax base.

 

For households at median and probably up to twice that, my advice would be to have a traditional 401k if offered at work, and max out a Roth, and do checkups at life stages to see if conversions make sense.

 

The only thing that's "almost always" true is a that Roth is superior for young people.

[adambr2]

There is bipartisan anger toward Robinhood in regard to their trade suspension. I think almost all Americans are united finally in delight to see the little guys organizing a screwing of the billionaire hedge fund class.

[DHonks]

For most people you will come out far better with traditional vs Roth. Just look at the cumulative effect of taking that money pre-tax every year for decades. That growth will far out-weigh whatever the tax changes may or not be in retirement. Again, for MOST people.

 

not true at all. If you look at a calculator that does this, it all is dependent on your tax situation. If your tax rate is the exact same at the time of contributing and when withdrawing, they will result in exactly the same amount of money. However, I think nearly everyone agrees that taxes will not be going down long-term...if anything they may go up. Therefore, it's better to pay the taxes at a lower rate now than later in life at a higher rate. Even beyond that, it's nice to look at the balance in my Roth 403b and know that the balance is what I'll get, whereas the balance in my 403b will lose a chunk to the gov't--that's the emotional/optical aspect.

[DHonks]

As I said before I think Roth is a bit overrated and I do think people miss a lot of important details. People always seem to ignore that compound growth the traditional has on that untaxed money. It certainly is not a no brainer decision.

 

This is misleading. It assumes the person is taking their deferment and sticking it into the IRA/401k/457b/403b. I would argue that's not the case. Most people probably figure out what they can afford to put into their account and do so, probably without thinking "ooh, I can stash more money because it's tax-deferred."

[LouisEly]

There is nothing illegal about what's going on. It is simply a large group of individuals buying a few select stocks to drive the price up so that the hedge funds that shorted them lose a boatload of money (while making bundles themselves assuming they sell before the inevitable crash).

Not necessarily. It's not that dissimilar from other pump and dump schemes orchestrated by private parties who buy a bunch of a cheap stock and then use various media channels to try to get others to buy the stock to get it to go up and then sell.

 

The dividing line typically is whether it is an individual entity or multiple entities, and whether it is a coordinated event among multiple entities. It is legal if it is one entity doing it, or multiple entities doing it independently without knowledge of others doing it. Broadcasting the intentions on any type of media is where it gets into a very gray area because it is no longer a single entity or multiple entities doing it independently. It is not known if the people on Reddit bought the stock before or after they announced their intentions; if it was before, then it is probably not legal.

 

"Investment houses" (let's not generically call them "hedge funds" because hedge funds hedge their bets to take bigger risks but also limit their losses) cannot legally coordinate an effort like this with other investment houses; that's where it becomes illegal because that is market manipulation. What's the difference between two investment houses in a coordinated effort (which is illegal) and 200,000 individuals coordinating an effort on Reddit? Both have the same buying power, and both are attempting to manipulate the market for profit.

 

One thing to note, most people who work for investment houses and have access to financial and market information are typically barred from owning individual stocks. A family friend of mine founded and was managing partner of a financial consulting firm that valued stocks and sold that information to investment firms; when he sold the company he said, "Now I can finally become an investor." He couldn't own stocks because of a potential conflict of interest, and that is the case with most people who work at those firms. Individuals who work at those firms are not directly profiting from it; it may affect their bonuses, but it could also cost them their jobs.

 

The other problem is individuals who are buying the stock without access to/knowledge of what is being broadcast on Reddit. If they miss a sell signal from the coordinated effort, then they are the ones left holding the bag. This does not just affect big investment houses; this can also cost individuals (just like every market crash in history). Big losses on one investment lead to selling another... which leads to more losses, and more selling, and that's how crashes start. Also, big investment houses aren't the only ones shorting stocks; individual investors do that too.

[FVBrewerFan]

For most people you will come out far better with traditional vs Roth. Just look at the cumulative effect of taking that money pre-tax every year for decades. That growth will far out-weigh whatever the tax changes may or not be in retirement. Again, for MOST people.

 

not true at all. If you look at a calculator that does this, it all is dependent on your tax situation. If your tax rate is the exact same at the time of contributing and when withdrawing, they will result in exactly the same amount of money. However, I think nearly everyone agrees that taxes will not be going down long-term...if anything they may go up. Therefore, it's better to pay the taxes at a lower rate now than later in life at a higher rate. Even beyond that, it's nice to look at the balance in my Roth 403b and know that the balance is what I'll get, whereas the balance in my 403b will lose a chunk to the gov't--that's the emotional/optical aspect.

 

If tax rate is the same they result in the same amount? Not possible. If you invest those pre-tax dollars you're saving from pre-tax contributions you build far more.

[OldSchoolSnapper]

The key word is when withdrawing. Your pre-tax account withdrawals are taxed. What he's saying is correct. If the tax rates are identical, the after-tax value of both accounts is exactly the same. You can run this through a calculator and it will always be the case.