WWII 032: Opportunity Cost in Investing, Return of Capital Taxation, Saving for Retirement, Donald Trump's Effect on Inflation

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In this episode, I shine the light on opportunity cost, the method that Warren Buffett and Charlie Munger use to run the portfolio at Berkshire Hathaway.

Main Topic: Opportunity Cost and its trade-offs

Opportunity cost refers to the value forgone in order to make one particular investment instead of another.

Explicit Opportunity Cost is investing money in a NEW position, a new idea. You don't already have a position in that investment

Implicit Opportunity Cost is allocating capital to positions that you already own. You find an opportunity to increase the position in a current holding.

Opportunity cost is all about the most basic of economic concepts: trade-offs. It's a notion inherent in almost every decision of daily life and of investing: if you make a choice, you forgo the other options for now. And what's been given up can sometimes turn out to have been the wiser choice, which is why opportunity cost is best measured in hindsight -- after all, it is impossible to know the end outcome of any investment.

Opportunity costs are a factor not only in consumer decisions, but in production decisions, capital allocation, time management, and lifestyle choices.

Click here for the extensive blog post I did on this subject of opportunity cost

Ask JB: Return of Capital Taxation, Saving for Retirement

How is a ROC taxed in the US? (self.investing_discussion)

submitted 2 months ago by quicksilver545


So I am an investor in the great white north, and I have a bit of a complicated scenario, so please indulge me:

There is a Canadian stock which has announced a ROC. This stock is also trading over the PINX exchange as a US security. I would like to purchase it over the US exchange as it is currently trading at a discount to the distribution.

My concern is, because it is a US security, will it be subject to the dividend withholding taxes that the US imposes? I am not very familiar with this tax code. Or does a ROC receive different treatment than a dividend payment?

Thanks in advance!


JB Says: Return of Capital is non-taxable regardless of what country it comes from. If you lend you friend $100 and he gives you $100 back, that was getting your principal back and is therefore non-taxable. If you charge him 10% interest, and he gives you another $10, that is taxable.

Need help with retirement investing (newbie) (self.investing_discussion)

submitted 2 months ago by Surf904

Hello reddit, I would greatly appreciated any advice you could give me on how to save for retirement. I know this question is asked daily, and I researched as much as I could before posting, but I just want to make sure I'm moving in the right direction.

About me: -26 years old -60k income -no debt -7500 savings

401k fund allocation: -80% Vanguard institutional index fund (follows S&P 500) -20% Vanguard total international stock fund I contribute 10% currently (company matches 4%)

I also plan on opening a roth IRA with vanguard and using the same exact fund allocation. I also plan on maxing out my roth IRA before contributing more than the 4% to my 401K.

Questions: How does my fund allocation look? Is it okay to use the same for both 401K and roth IRA? -should i add bonds? currently i don't see the point and accept the risk How much should I keep in a emergency fund? 6 months expenses ?

Any advice would be appreciated, whether its about retirement investing, or money in general? Thanks

JB Says: If I were in my twenties, I would have a 100% equity allocation. There is nothing inherently wrong with have similar allocations across accounts, especially it you are index investing.

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News: Inflation Under Donald Trump's Administration

JB Says: No-one knows what will happen with inflation under Donald Trump. The same talking heads that were wrong about the election now think they can forecast inflation. What a joke.

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Thoughts on this podcast? Disagree with me on some point? Something I missed? Leave a comment!

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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