Pair of Colds

Hawk and I are both sick right now. We've got a pair of colds. I'm not sure if one of us brought it home and infected the other (if so, I think she infected me as her symptoms seem to be peaking 1-2 days ahead of mine) or if we got it from the same place— possibly when we dined at a restaurant with a friend on Saturday. The incubation time doesn't seem right for a Saturday infection, though. Hawk had symptoms as early as Sunday evening.

This being the 2020s it's not possible to have cold-like symptoms without having to ask, "CoUlD iT bE cOviD?!?!" Welcome to The New Normal. Hawk took a test a few days ago; the result was negative. This morning we've both taken tests. Results in a few minutes....

Update: *DING* Results are in. Negative for both. Yay, it's just a pair of normal colds. 🤧🤒😵

Update 2: My cold turned out to be a head-fake. Yay, immune system!

The 401(k) Advantage, part 2

Last week I wrote Coming Out Ahead with a 401(k) providing a simple example of how investing through a tax deferred account such as a 401(k) nets you more money than investing through a taxable account. Two things about that....

• One, it was frankly too simple as it showed an investment that grew only through capital appreciation. Fewer than 20% of individual stocks in the S&P 500 fit that profile and pretty much no mutual funds do. And mutual funds are generally all that's available in employer sponsored 401(k) plans.


• Two, the example showed the 401(k) coming out only 26% ahead after 20 years. 26% is nothing to sneeze at— we're talking 26% mo' money here— but shouldn't much-ballyhooed 401(k)s do even better than that?

It turns out that addressing one concern addresses both.

For Scenario 2, here, I'm going to change one of the assumptions from Scenario 1:

• Instead of investing in stock XYZ, which grows 7% annually and pays no dividend, you invest in mutual fund PQRST, which grows 4% annually in addition to paying a 3% distribution annually.

All other assumptions remain the same.

Note that PQRST and XYZ have the same 7% compound annual growth rate but the way they deliver that growth is different. That difference has tax implications.

The math gets complex as now there's tax due every year in the taxable account (the distributions are taxed in the year they're paid) so I'll illustrate how Scenario 2A-B works with a spreadsheet:



Click/tap the image to enlarge.

Look at the bottom line in the chart. Investing in PQRST through the 401(k) pays almost 42% better than investing in a taxable account. That's a way better advantage than the 26% we saw in Scenario 1.