miltag @miltag

Appropriate that Greenspan dies at par

What I told @TexasMonthly: @JoshBaer was the best connected person in a city full of connectors. He was irresistible to be around. He had an aura and an orbit, and we were all lucky to be pulled into it. RIP to a great human texasmonthly.com/news-politics/… #txlege

Wow. The world lost a good one.

Austen Allred @Austen

a month ago

Devastating. We’ll miss you, Joshua. Austin and Texas won’t be the same without you.

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@DickBonnet @UziCryptoo A person who buys 100k house isnt necessarily able to afford taxes 20 yrs later when its worth 500k. Its the retiree, gentrification, maintain communities problem.

@UziCryptoo Don't say the stock part too loudly. Some folks want to tax unrealized capital gains which is a very similar structure for all assets.

@Monica55dzrh 20% always. Sometimes 100%

@realEstateTrent Its torture

@TKopelman This happens soooo often. Communication is super important.

@cordes_tax Congratulations!

Peter Lynch: "People are very careful — they spend hours to get $50 off an airplane flight. They look at everything. And [then] they'll put $10,000 in some crazy stock they heard about on the bus."

@JNovy_ @NoLimitGains @grok which country is being the bully in this war

@daycock2 @RyanDetrick @grok @grok please identify specific dates for all of the above.

@RyanDetrick % not points please.

Coinbase has sent out an email that I think is confusing, and potentially misleading. They’re telling people to fix missing cost basis by logging in and entering cost basis on their system. Here’s the problem: a Form 1099-DA is an information return. What the broker reports to the IRS is not something you “fix” by trying to reshape your trades to match a form. For the 2025 tax year, brokers are not required to report cost basis to the IRS on Form 1099-DA. So when your 1099-DA is missing basis, that’s often because the broker doesn’t have it, and it may not be part of what’s being filed with the IRS anyway. If you enter basis into Coinbase, that may help your records and what Coinbase shows you, but it does not automatically mean the IRS now has a different version of your history. In fact, Coinbase’s own support guidance indicates corrected 1099-DA forms are limited, and not something that just happens because you typed a number into a box. What you need to do is what professionals do: prepare your tax return based on the correct facts. You report your capital gains and losses using your actual acquisition dates and your actual cost basis. You still need to account for what was reported on the 1099-DA, especially proceeds, because that is what the IRS may match against. But, if the basis or holding period information is wrong or missing, you correct your reporting on Form 8949 using the appropriate reporting method and adjustments, so the final gain or loss is accurate. Most importantly, don’t treat Coinbase as a go-between for your reporting to the IRS. Your tax return is where you report the truth. Relying on the exchange to “fix” the reporting for you can create more confusion, not less.

We should really simplify the tax code.

Tax Foundation @TaxFoundation

5 months ago

Americans will spend almost 7.1 billion hours complying with IRS tax filing and reporting requirements in 2025. This is equal to 3.4 million full-time workers—almost the population of Los Angeles. Read more: hubs.ly/Q0453dBh0

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@KobeissiLetter @grok explain in detail the significance if any of this information. Don't be afraid to say its irrelevant data.

@nobletaxhelp Ouch

I'm not disputing the fact that defined contribution plans opened the door to more individual investors, but one of the main reasons that +90% would have otherwise not invested in mutual funds is that they didn't have to before DC plans. Notably, DC plans largely replaced the "old" defined benefit plan model. In the "good old days," outside of a rainy day fund, many people didn't have to worry about saving much for retirement b/c between their monthly pension and Social Security checks, they were able to live comfortably. As DB plans phased out, workers became increasingly responsible for generating their own retirement income. This meant that they HAD to find ways to invest more. So, as DB plans were replaced with DC plans, the single-investor pension plan dollars were, instead, purchased separately be each individual. The 401(k) was the logical place to do so for many, but without a 401(k), the same individuals would have needed to save with taxable dollars. All of which is to say that, in the end, the +90% of individuals who otherwise would not have invested in a mutual fund is less about the rise of the 401(k) and more about the demise of the pension plan. "Defined contribution plans democratized investing, bringing in almost 100 million participants, with +90% unlikely to have invested in mutual funds or other investments otherwise." wealthmanagement.com/rpa-news/401-k…

As promised: sequencing risk in retirement. If you have not read my post from yesterday, the summary is that the order in which returns arrive during your working life matters substantially for the wealth you accumulate, and no strategy can avoid this without incurring substantial costs in the form of missed returns. Today, I show that the problem is even worse once you stop working. During accumulation, early losses are recoverable: your portfolio is small, and future contributions have decades to compound. Late losses are devastating because they hit a large portfolio with no contributions left. In retirement, the logic reverses. Early losses are now the killer because you are withdrawing. If the market crashes in your first years of retirement, you must sell assets at depressed prices. Those assets will never participate in the recovery. This is the “reverse dollar-cost averaging” problem. When you are accumulating, volatility is your friend: your contributions buy more shares when prices are low. In retirement, volatility is your enemy: your withdrawals sell more shares when prices are low. Let me make this concrete by examining a worker who retires at age 68 with $1 million in accumulated assets. Note that the world is Markovian: which strategy led to $1 million (e.g., all equities, a glide path, winning the lottery the day before you retire, Uncle Jaime has passed away, you were the only heir, and his businesses in Argentina turned out to be a gold mine) is no longer relevant. Additionally, your portfolio is Markovian: if you hold a lot of equity trading at low prices, it is equivalent to owning zero equity. You can always sell your bonds and buy equity (yes, there are tax consequences, but they are country-specific and, if you are smart, you can get around most of them by trading in your retirement account). A trivial point that many of yesterday’s comments missed. Now they need to draw it down. The standard advice is the well-known 4% rule, popularized by William Bengen: withdraw $40,000 in the first year and adjust for inflation in subsequent years. The 4% is what the literature calls the safe withdrawal rate (SWR), the highest percentage of your initial capital you can withdraw annually, in real terms, without running out of money over a given horizon. Historically, a 4% SWR has been sustainable over 30 years with high probability. But the 4% rule is an average statement. It indicates that, across all historical 30-year windows, a 4% withdrawal rate has typically worked. It says nothing about your specific 30-year window. Consider two retirees. Retiree A retires at the start of a period with strong early returns. After year one, the market is up 20%. Their portfolio increased from $1 million to $1.2 million, excluding the $40,000 withdrawal, leaving $1.16 million. The withdrawal was a small fraction of a growing portfolio. The remaining $1.16 million has decades to compound. Retiree B retires at the start of a period with poor early returns. After year one, the market is down 20%. Their portfolio declined to $800,000, minus a $40,000 withdrawal, leaving $760,000. The withdrawal was a much larger fraction of a shrinking portfolio. And that $760,000 now needs to generate all future returns and fund all future withdrawals. Retiree A and Retiree B might experience the exact same average return over their 30-year retirement. But Retiree B is in trouble. Early losses, combined with withdrawals, create a vicious spiral: the portfolio shrinks; each subsequent withdrawal represents a larger percentage of remaining assets; the portfolio shrinks faster; and the next withdrawal does even more damage. This is not a marginal effect. Consider a retiree who began drawing down in 1966. Over the next decade, they faced the 1966 downturn, the 1969-70 recession, and the catastrophic 1973-74 bear market, during which stocks lost more than 40% in real terms. Each year, they were withdrawing from a shrinking portfolio. By the time the market recovered in the late 1970s and 1980s, their portfolio had been so depleted that the recovery could not save them. Now contrast this with a retiree who started drawing down in 1982. They caught the beginning of one of the greatest bull markets in history. Even after the 1987 crash and the 2000-02 dotcom bust, they were fine: the early gains had built such a large buffer that subsequent losses could not seriously threaten their retirement income. Same withdrawal rule. Same index. Same 30-year horizon. Radically different outcomes. Let me make this point more systematically. I use the same data as in the first post: actual annual real total returns on the S&P 500 (including reinvested dividends) and 10-year U.S. Treasury yields from 1945 to 2024, deflated by the BLS CPI-U. The only difference is that I now run the clock forward from retirement rather than backward from it. I took 34 cohorts of retirees, one for each year from 1991 to 2024. Each retires with $1 million and follows the textbook 4% rule: withdraw $40,000 per year in constant real terms, regardless of market conditions. The portfolio is allocated 20% to the S&P 500 and 80% to 10-year U.S. Treasuries, with annual rebalancing, a standard conservative retirement allocation. For the years I have data (through 2024), each cohort experiences the actual historical real returns that occurred during their retirement. However, most of these cohorts have not yet retired long enough to determine whether they will run out of money. For years beyond 2024, I use a block bootstrap: I randomly draw 5-year blocks of actual returns from the full 1945-2024 historical sample and stitch them together. Five-year blocks preserve the tendency of bad years to cluster, which matters because isolated bad years are much less dangerous than sequences of them. I then run each cohort forward until it either exhausts its funds or reaches 2075, whichever occurs first. The results are shown in the figure. Each line represents a cohort, colored by retirement year: dark blue for the early 1990s, through red for the 2020s. The dashed vertical line marks 2024, the boundary between observed data and the bootstrap simulation. Everything to the left of that line occurred. Everything to the right is one plausible future drawn from the historical record. 32 of 34 cohorts run out of money before 2075. The fastest to go broke is the 1999 cohort: they retired straight into the dot-com crash, never recovered, and are depleted by 2040. The cluster of cohorts retiring between 1998 and 2005 all reached zero between 2040 and 2051, because they shared the same devastating opening act: the dotcom bust followed by the 2008 financial crisis. Only two cohorts survive: 1991 and 1995. Both caught the extraordinary bull market of the 1990s in their critical early years, building a buffer large enough to absorb subsequent downturns (2000, 2008, 2022). Even so, the 1995 cohort is barely hanging on with $96,000 by 2075. The message is stark. With a conservative 20/80 portfolio and a fixed 4% withdrawal rate, the bond-heavy allocation does not generate sufficient real return to sustain withdrawals over a 50-year horizon for most cohorts. The only survivors are those who got lucky in their first decade. There are dozens of variations of this basic experiment you can run: different withdrawal rates, different stock-bond splits, different bootstrap methods, different starting capitals, and longer or shorter horizons. I have run thousands of them. They all give you essentially the same answer. You can raise the SWR to 5% and shorten the horizon to 25 years, which is more realistic for someone retiring at 68. The depletion dates move around. The core result does not change. This is why I am skeptical of the 4% rule as commonly presented. It is not that 4% is wrong as a rough guideline. It is that it obscures the enormous variance around that average. A retiree who happens to retire into a bear market faces a fundamentally different problem than one who retires into a bull market. The standard advice to mitigate this is the same glide path logic applied in reverse: hold more bonds in early retirement to cushion against a crash in those critical first years. But as I argued in the previous post, bonds are not risk-free. The retiree who shifted into bonds in the early 1970s was hit by inflation. The one who shifted into bonds in 2022 was hit by rising rates. The cushion is unreliable precisely when you need it most. There are partial remedies. Variable withdrawal strategies, in which you reduce spending after bad years and increase it after good years, are particularly effective. If you can cut your withdrawals by 10-20% after a market crash, you can dramatically reduce the damage from selling at the bottom. But this requires flexibility in retirement spending that not everyone has. Another approach is to maintain a cash buffer (two years of withdrawals in very short-term instruments) so that you never have to sell equities during a crash. You live off the buffer while the market recovers and replenish it during good years. This is simple and effective. The cost is the drag of holding two years of spending in low-return assets, but relative to the risk it mitigates, it might be a price well worth paying. Annuities get too much of a bad rap in my opinion. A life annuity is the only product that truly eliminates sequencing risk in retirement: you hand over a lump sum and get a guaranteed income stream no matter what markets do. The insurance company bears the investment risk, not you (though the company could go bankrupt, and you may not live in a country where the government backstops that). But the downsides are real too: you give up the upside, you lose liquidity, the annuity may not be indexed to inflation, and if you die early, the insurance company keeps the money. If there is one practical takeaway from these two posts, it is that, no matter how hard you try to design your investment strategy (and I have tried many), you cannot avoid most of the sequencing risk without incurring substantial losses in excess returns. Finally, you can gain substantial benefits from a flexible retirement age. I will discuss this point when I have time.

Wild market. We haven't seen anything like this since the dotcom bubble burst. Over the last 8 sessions, 115 stocks in the S&P 500 have decline 7% or more in a single day. The average drawdown when that happens is 34%. Right now we're 1.5% below the all-time high.