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After Tax Yield: Doug’s Quiz Corner

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

November 17, 2017

Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug discusses a strategy for getting a higher after tax yield.

Consider this Scenario:

Your friends George and Kathy are analyzing the holdings in their taxable joint account. They own $100,000 of an ETF that holds taxable bonds. This ETF has a yield of 2.30%. Assume George and Kathy have a federal tax rate of 28% and a state tax rate of 5%.

George and Kathy are considering replacing the taxable bond ETF with a municipal bond ETF that has a yield of 1.85%. Assume that the dividends for this municipal bond ETF are exempt from Federal and State taxes.

Does it make sense for George and Kathy to replace the taxable bond ETF with the municipal bond ETF in their taxable joint account?

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Doug's Quiz Corner ETF Strategies and Investing

Traditional vs Roth IRA Strategies: Doug’s Quiz Corner

October 20, 2017
Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug compares traditional IRA versus Roth IRA contribution strategies.  Consider this Scenario: Your friend Max would like to contribute money to a retirement account and he is determining whether to contribute to a traditional IRA or a Roth IRA. Assume Max is eligible to contribute to either of these options. Max has a current income tax rate of 25% and he expects to face an income tax rate of 25% after he retires. [+] Read More

Accepting Bond Tender Offers: Doug’s Quiz Corner

September 22, 2017
Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug discusses the complexities of bond tender offers. Consider this Scenario: Your friend Patricia has received tender offers on two bonds that she owns. A tender offer is a formal offer to buy bonds from the current holders at a specified price. [+] Read More

Foreign Investments Return: Doug’s Quiz Corner

August 15, 2017
Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug discusses returns on foreign investments. [+] Read More

Anticipating Inverse ETF Returns: Doug’s Quiz Corner

July 18, 2017
Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug teaches a lesson on antcipating inverse ETF returns. Consider this Scenario: Your friend Gary is feeling bearish on the stock market so he purchased $10,000 of an inverse ETF.  The inverse ETF he purchased aims to return the opposite of the daily return of the S&P 500 (for example, if the S&P 500 goes down 1% on a given day, the inverse ETF should go up 1% on that day). There are several reasons why an inverse ETF may not be exactly the inverse of the index on a given day (expense ratio of the ETF, tracking error, trading costs, etc.) but for the purposes of this example, assume that Gary’s inverse ETF returns exactly the inverse of the daily returns of the S&P 500. [+] Read More

Which is Less Volatile, Stocks or Bonds? Doug's Quiz Corner

June 20, 2017
Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug explores portfolio volatility. Consider this Scenario: Your friend Margaret has recently inherited some money and is considering how to invest it. Her current portfolio is invested exclusively in long term US Government bonds. She is leaning toward investing the inheritance in more long-term US Government bonds, but her friend Tiffany has suggested that Margaret invest this inheritance in a diversified portfolio of stocks instead of buying more bonds. The inheritance will make up 10% of her total portfolio. Margaret isn’t so sure and she tells Tiffany, “I’m not comfortable with volatility in my portfolio. I want to have as little volatility as possible. So I’m leaning toward just adding more long-term US Government bonds since bonds typically have less volatility than stocks.” If her goal is to have as little volatility as possible in her portfolio – which investment option for the addition, is most likely to achieve Margaret’s goal: 1) more long-term US Government bonds of the same duration as her existing holidngs or 2) a diversified portfolio of stocks? [+] Read More

Is it Better to Fund College Expenses from a Taxable Joint Account or an IRA? -  Doug's Quiz Corner

May 16, 2017
Quizmaster Doug Hutchinson presents his monthly wealth management test. This month he quizzes your knowledge on whether it’s better to pay for college expenses from a taxable joint account or an IRA. Consider this Scenario: Your friends Rick and Andrea have a granddaughter, Alexis, who is getting close to college age. Rick and Andrea would like to help out with college expenses and they are considering two options to fund a tax deferred investment account for Alexis' college expenses. [+] Read More

Tax Efficient Giving with Appreciated Stock Donations -  Doug's Quiz Corner

April 18, 2017
Quizmaster, Doug Hutchinson, presents his quiz for the month.  Here, Doug explores donating appreciated stock versus selling the stock and donating the cash. [+] Read More

Do You Have to Pay Capital Gains Tax on Mutual Funds? - Doug's Quiz Corner

March 10, 2017
Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug explores how to manage capital gains tax on mutual funds.  Consider this Scenario: Your friend Joe is preparing his tax returns and is confused as to why he owes taxes on a mutual fund position that he hasn’t sold and went down in value from the purchase price. "I bought $100,000 worth of a mutual fund on October 1st at $10.00 per share in a taxable brokerage account. On December 1st I received a capital gains distribution from the mutual fund. At the end of the year the mutual fund was worth $9.90 per share." "I didn't sell any shares of the mutual fund after I bought them and the price per share has gone down in value since I bought the mutual fund. Why would I owe taxes in this scenario?" What is a potential reason why Joe would owe taxes in this scenario? [+] Read More

Doug's Quiz Corner: Familiarity Bias

February 21, 2017
Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug discusses the pitfalls of familiarity bias.  Consider this Scenario: Your friend Jake is considering different investment options and he asks for your advice. "I'm thinking about investing my retirement account in a tech sector equity strategy. I've worked in the tech industry for years and I know the space well so that is the area of the stock market that I'm most comfortable with." "I'm also thinking about investing some funds in my personal brokerage account in the equity of a local Fortune 500 Company. I know a couple of people in my circle of friends who work there so I feel comfortable investing in that company's stock." What feedback should you give Jake about his investment decision making process?  [+] Read More