If only I had invested $2,000 in a Roth Account...

9 years ago

in 2002 (only 12 years ago) in Netflix common stock (NFLX), my holdings as of last night would have been worth $110,000!! Well, unfortunately I didn't. And profits would have been tax-free. There's probably a similar scenario out there today...if someone would only tell me what it is??

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Comments (17)

kayjones
9 years ago
Google is a good investment.
joyfulguy
9 years ago
If your Dad had bought stock in Hudson ... Packard ... Lasalle ... Star ... Studebaker a couple of generations ago ...

...they'd have died on the vine.

I note that you didn't mention purchase your Netflix until after the breakup of the technology bubble, about the turn of the century.

And how many other similar stocks had a great story to tell ... but didn't work out worth a darn.

Not such fast, major growth ... but how about buying shares in a Canadian bank? They're pretty solid ... and most pay about 4% dividend ... which, reinvested, would grow quite well between now and the time that you'll be turning over your residual assets to your offspring. Or, at least, mine did - and I'm not quite ready to pass mine on ... yet.

You've heard of the Motley Fool guys? Quite a few say that they have some good ideas to offer - and they opened in Canada just over a year ago ... recommend one Canadian and one U.S. stock per month. Met some of their guys at a big financial presentation in Toronto a week ago today.

I rather like another advisory group's suggestions, as well ... but don't want to name them at the moment. Probably do so in reply to an email.

ole joyful
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Elmer J Fudd
9 years ago
And if you had put $2000 into Netflix stock in July 2011, by Aug 2012 you would have had lost 80% of your investment and would have had less than $400.

Going back to doing it your way, gains in IRAs aren't tax free, you pay the tax when the money is taken out.

Tech stocks are very volatile and also cyclical. You're probably more likely to lose a bunch of money than to make a bunch of money if that's where you like to invest. Think of tech sector investments like putting money down on a roulette wheel and you'll never be disappointed. The payoffs can be big but few get there.
sleeperblues
9 years ago
Earnings on investments within a Roth IRA are neither subject to income tax nor are they included in the IRA owner's income. Instead, they accumulate on a tax-deferred basis and are tax free when withdrawn from the Roth if the distribution is qualified.
kfca37
Original Author
9 years ago
Snideley Pay Attention!

I said this was a ROTH Account which you open with money you have already been taxed on, NOT a Pre-tax IRA contribution. You do know there is quite a difference on what gets income taxed & what doesn't on cashed-in retirement accounts. Seems like we had this discussion before.

Also, to update, Netflix closed yesterday at $385. If you had bought the stock somewhere in July 2011 for approx. $280 & held, you would have still made a profit of $104 per share on Friday's evening or about 37% over a 3-year period.
Elmer J Fudd
9 years ago
yes, yes, I read too fast. My comment was wrong, thanks for the correction for IRAs of the Roth flavor.

My comment about investing in tech stocks remains. The market has been up over the last 3 years, the old cliche that a rising tide lifts all boats applies. If you'd owned an S+P 500 index fund over this period, it would be up over 40%, plus around 2% dividends each year, plus less risk.
arkansas girl
9 years ago
Where is that crystal ball? Hindsight is 20/20.
susanjf_gw
9 years ago
or it takes a great friend! one advised my mother to buy polaroid and she made a great savings nest egg when she sold ....
kfca37
Original Author
9 years ago
Joyfulguy

The reason I didn't mention Netflix "until after the breakup of the technology bubble, about the turn of the century" was that Netflix wasn't around then as a publicly-traded stock. It went public in 2002 (which year I did use) at $15. a share, split only once at 2:1 a year or two later, and has never paid a dividend. Thus its current original "adjusted cost basis" is $7.50 a share from Year 2002.

BTW, I checked Morningstar, and found the following annualized returns, apparently including dividends, for the S&P 500:

1 year: 14.46%
3 years: 18.67%
5 years: 15.12%
10 years: 8.25%
15 years: 4.75%
nicole__
9 years ago
If you'd purchased GPRO(the little video cameras) in August and sold around October 1...you would have doubled your money....

http://www.nasdaq.com/symbol/gpro/stock-chart
Elmer J Fudd
9 years ago
kfca, I know you understand but for others, your info shows that the 3 year return on S+P 500 totals 18.67 x 3 = 56%

joyfulguy, there's an unfavorable tax result when Americans receive dividends from a Canadian company. There's withholding of Canadian tax, that causes the average person a unpleasant complexity in their tax returns they may not know how to handle and thus would prefer to avoid.

nicole, looking at another scenario with GoPro stock, if you'd invested $2000 on Sept 30 and sold it on Friday (10/24), you'd have gotten only $1535 for it. That's the problem with tech stocks, they move so quickly in both directions that trying to pick the right timing is really not possible.
nicole__
9 years ago
snidely.......the market is aaaaaaaaall about timing....

Buy on rumor...sell on news.....
Elmer J Fudd
9 years ago
By the time you as an individual investor would hear either, Nicole, it's much too late to act on your guess about a market reaction might be. Most of that isn't hard-wired anyway. Anyone who says they make money by following news and anticipating timing is full of baloney.

My career was spent working in a private sector "finance" capacity in Silicon Valley. Part of what I did involved capital markets, so I do understand very well how the markets work and also how they don't work.
jemdandy
9 years ago
One can get a distorted view if he looks at only a few selected years. For example, the market was great for the year 2013, but it was a disaster for the period of 2008 thru 2009. When assessing a stock's long term performace, I like to include this disaster period to get a feel how the business might weather another bout with a bear market. I also like to look at how fast a stock recovered after the disaster. The average stock lost 30 to 40% during the downturn, a few lost 50% or more while a lucky few lost only 20% and had a quick recovery.

The experts warn that the past is not an accurate predictor for future performance. Unfortunately, this is true.
kfca37
Original Author
9 years ago
I noted that the S&P 500 Index Fund did well for 3 & 5 year periods (as actually did many other mutual funds), but really slipped in the 10 &, particularly, 15 year periods, to 4.75% in the latter.

When I retired approximately 16 years ago, I took my retirement money out of my employer's choices & decided to handle this money myself. So I added about 80% to a particular Fidelity mutual fund which had done quite well for me for my personal IRA's for several years; the other 20% I invested in another Fidelity fund (though for the past several years, its ALL been moved into that first Fidelity fund).

Now in some years, clearly other mutual funds would have done better for me, but according to current data, over the last 15-year period (which period definitely had 80% of my retirement money), my chosen fund has an annualized return of 12.89%, much better than the 15-year S&P 500 Index return of 4.75%. I'm still satisfied.
joyfulguy
9 years ago
Some like to time the market ...

... some don't, figuring that brokers like to suggest that ... as the commissions make them rich.

How about buying a quality stock 47 years ago for $4.17 (seems like a lot of "4"s and "7"s here), paying about 10 - 12 cents dividend annually, at low tax rate .

Stock value went up ... down ... and sideways.

In 2007, could have sold for about $107 (not sure whether it topped some higher), paying $3.08 per year - at even lower tax rate. In the fall of '07, they increased the dividend by 40 cents, almost 10% of the original share price, to $3.48 annually ... granted, 40 years later.

Shortly after that, they were involved in a financial almost-meltdown in another country ... share price skidded to about $40.00. Some said that they'd cut the dividend, but others said that they wouldn't dare, or it'd cut another leg off of the share price. Dividend rate continued at $3.48 for 4 years, then advanced, now is $4.00 per share. If I can remain alive a little longer ... maybe it'll achieve the $4.17 rate of annual payout that I paid for each share, those 50 or so years earlier.

Share price now hovering around $100.00.

I have some mutual funds, also - haven't bought any in 25 years. Those managers charge 2.5% annually for their supposed financial expertise ... but over 80% of them can't manage to grow faster that the segment of the market in which their various funds participate.

Since I bought the shares that I mentioned above - haven't paid a cent to anyone for management.

When I kick the bucket, the shares will be transferred to my offspring and the income tax people say that it's the same as though I'd sold them, so my estate will be liable for tax at regular rate on half of the capital gain. The start rate for share price for the kids will be the price on the date of transfer.

Some will be transferred to a charity ... and there'll be no tax levied on the capital gain.

So there's a tax advantage to giving shares with major appreciation to a charity.

As I live, frugally, by choice rather than necessity, within my pensions, the investments are more or less "play money" ... until I need them, whether for advanced medical care, if not covered by our medical system, or home care, or residential or nursing home coverage.

Hope you`re all having a great start on a new week.

ole joyfuelled ... with a bit ÃÂ² help from dividends
jim_1 (Zone 5B)
9 years ago
Here's my thoughts. You didn't do it. OK, I can accept that. Have you since invested in a Roth? If you haven't, then you are d-u-m-b! If you have, your are s-m-a-r-t!

Try to convince all of your relatives and friends to do something for their retirement. Furnace guy came last week to check things for winter. I asked if he was saving for retirement. He said, "I'm only 26, why do it!" I gave him about 5 minutes of information and walked away. Will he do something? I doubt it. He had looked at me as though I wanted something from the conversation.

If you don't invest in something, then you are extremely short-sighted.

Jim

If only I had invested $2,000 in a Roth Account...

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