Apr 15th, 2008
Total Portfolio Makeover: The Start
One of my physician friends (when you work in a hospital, you tend to have a lot of physician friends) asked me about dividends last year and whether or not she had to pay taxes on them.
“Is this an IRA or 401(k) or other tax sheltered account?” The answer was no.
“Then, of course. It’s income, but if they’re qualified dividends, typically the federal tax is pretty low.”
She said that she didn’t understand how this was income as she never saw any money.
“Well, if you’re not actually seeing checks, either cash is being deposited in your investment account or better yet, it’s being reinvested and buying more shares of whatever stocks or funds are generating the dividends.”
I mostly forgot about this discussion until this year, when the same friend asked about capital gains as well as dividends and why she had to pay taxes on money that she didn’t earn, and in fact that her portfolio was really no bigger than it was last year.
“What’s in your portfolio?” I asked.
“I don’t really know.”
She and her husband (who is also a physician) have turned over control of this portfolio to a financial planner. They have absolutely no idea what is in the portfolio aside from generically (”mutual funds and stocks”), but she does know that she is being taxed for dividend income and capital gains and not seeing much of an increase in the value of her portfolio.
It looks like it’s time for a change, I think.
“Tell you what, I don’t want to know the details of your actual numbers, but at least get the names of the funds and stocks in your portfolio and I’ll take a look at them.”
If she follows through, I’ll share what I find and look at what we can do to give this portfolio a total makeover. Let’s see how we can combine her goals with our investing principles of low cost, indexing, passive management, high quality, and diversification to make her portfolio a winner!
[...] in 401(k)s and equivalents, Bonds, Goals, IRAs, Investing, Mutual funds, Retirement, Stocks, Taxes I had hoped to look at doing a makeover on one of my physician friend’s portfolio, but she still has homework to do. So, in the meantime, another person I know has asked for help [...]