The Best Short-Term Investments, Get into the Market or Get Out, Capital Gains and Lots, ValueAct Influenecs Seagate ($STX)
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Main Topic: The Best Short-Term Investments
The topic in this episode is where to put your short-term money to work. I wrote an extensive manifesto on this topic of short term investments and I suggest that you check it out. Before getting to the specifics, here are my requirements for a short-term investment:
1. Any time we are talking about the short-term, the investment must have safety of principal over all other things. If you will need the money soon, the stock market is out of the question because of its volatility. Even if you have a year or two, the market can correct and stay depressed and when your two years are up and you need the money, you will have lost some principal.
2. The most preferable short-term investments will be those where your principal is guaranteed or insured, or backed by the safest government repayment promise. Anything other than a guaranteed or insured investment is too risky for short-term investing.
3. The short-term investment should be liquid or have a maturity equal to when you will need the money. You should not buy illiquid investments that are difficult to unwind, or that mature after you need the money.
4. Anyone should be able to invest in them. If they are difficult to find or figure out, they are not right for most people.
With those requirements, our universe of possible short-term investments is limited to a select few. First, I will lay out the list of possibilities, and then we will deep dive into each one. As I see it, you can safely choose from the following short-term investments:
1. FDIC insured interest bearing checking or savings accounts.
2. FDIC insured Certificates of Deposit at Tier 1 banks with maturities equal to your need or laddered.
3. U.S. Treasury Bills and Notes, and FRNs with maturities equal to your need.
4. Agency bills and notes with maturities equal to your need.
5. Money Market Accounts
These recommendations will provide you safety of principal and a reasonable return relative to other potential investments.
Ask JB: Should I get into the market, or wait?
Each lot is reported and taxed separately, even when multiple lots are bought or sold in the same transaction.
You do not take the average age. Each share is effectively taxed based on the age of that share and the profit made on that share.
If a broker fails to provide a choice to select which shares to sell first, or you fail to use that choice (such as if it was there and you couldn't find it). IRS regulations require a default default of FIFO (you sell the oldest shares first).
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