Talking stocks, trading, and investing in general

[tcbinnc]

With VIX around 80, a VIX short instrument sounds interesting.

 

[chickenfark]

Up to now we have not had a taxable brokerage account - should I just open up an account at Vanguard? I assume they make it really easy to get set up?

I set up a Schwab account yesterday, super easy.

 

[jbarwick]

With VIX around 80, a VIX short instrument sounds interesting.

A few of those blew up during the crazy Vol in Dec 18

 

[Omega Male]

I've got a buddy in the airlines who could soon be in a tough spot, furloughed and bleeding cash on legal bills thanks to an ex-wife who has made it her life's mission to drag him back through the family court system every time he gets a raise. He's thinking about borrowing against his 401(k) to create a bigger cash reserve fund to hedge against the worst-case scenario (carrier goes bust, laid off, no one else is hiring in the short term). Given the demographics of the industry (huge wave of mandatory retirements coming up in next few years), he will be back flying and making good money again when the smoke clears, so there's no reason to think he couldn't pay it back in the mandated 5 years. Any other objections, or better ideas?

 

[brokencycle]

I've got a buddy in the airlines who could soon be in a tough spot, furloughed and bleeding cash on legal bills thanks to an ex-wife who has made it her life's mission to drag him back through the family court system every time he gets a raise. He's thinking about borrowing against his 401(k) to create a bigger cash reserve fund to hedge against the worst-case scenario (carrier goes bust, laid off, no one else is hiring in the short term). Given the demographics of the industry (huge wave of mandatory retirements coming up in next few years), he will be back flying and making good money again when the smoke clears, so there's no reason to think he couldn't pay it back in the mandated 5 years. Any other objections, or better ideas?

I would personally only borrow from my 401k as an absolute last resort. Does he own a home? Can he use a HELOC to provide a buffer if needed?

 

[patrickBOOTH]

I don't know, I'd rather not lose my home. If you borrow against the 401k you pay yourself back with interest. Then again he might have to pull money when the market is ****...

 

[brokencycle]

I don't know, I'd rather not lose my home. If you borrow against the 401k you pay yourself back with interest. Then again he might have to pull money when the market is ****...

Why would you lose your home? My HELOC has a draw period of like 3 years, and the minimum payment is small.

 

[Omega Male]

Yeah, the advantage of borrowing against the 401(k) is there isn't a lender involved so you "pay interest" to yourself. That can be a significant saving. The main risk is, if you can't pay back any portion of the loan, that default is treated as as a distribution from the account and you are taxed accordingly. In his case, the one spoiler I see is there is a chance of employment termination, which then triggers a 60-day window for full payback to the plan. But he's not planning to spend the cash, just keep it in the bank as a cushion, so even that's mitigated it seems to me?

 

[patrickBOOTH]

Omega, why don't you give him a loan.

 

[Omega Male]

Because he wouldn't accept it.

 

[otc]

I'm confused, if he isn't going to spend the cash...why take the loan?

Presumably he could just take a cash position in his 401k and "know" that he could always take the loan if he does need it?

 

[lawyerdad]

I'm confused, if he isn't going to spend the cash...why take the loan?

Presumably he could just take a cash position in his 401k and "know" that he could always take the loan if he does need it?

That was my question as well. A 401k isn’t a pension. You don’t lose it if the employer goes bankrupt. I could see taking a loan if you had an immediate cash need and didn’t have better borrowing options. But unless this is a convoluted form of market timing, why start the repayment clock just to create a cash reserve against future contingencies that may or may not ever happen?

 

[vdubiv]

That was my question as well. A 401k isn’t a pension. You don’t lose it if the employer goes bankrupt. I could see taking a loan if you had an immediate cash need and didn’t have better borrowing options. But unless this is a convoluted form of market timing, why start the repayment clock just to create a cash reserve against future contingencies that may or may not ever happen?

why start a cash reserve if your 401k is a cash reserve?

 

[stimulacra]

I've got a buddy in the airlines who could soon be in a tough spot, furloughed and bleeding cash on legal bills thanks to an ex-wife who has made it her life's mission to drag him back through the family court system every time he gets a raise. He's thinking about borrowing against his 401(k) to create a bigger cash reserve fund to hedge against the worst-case scenario (carrier goes bust, laid off, no one else is hiring in the short term). Given the demographics of the industry (huge wave of mandatory retirements coming up in next few years), he will be back flying and making good money again when the smoke clears, so there's no reason to think he couldn't pay it back in the mandated 5 years. Any other objections, or better ideas?

Borrowing against 401k should be a last resort. He would be cashing out at the bottom probably. He should swallow his pride and talk with his ex about some temporary relief. It's in her best interest for him to be professionally viable in his career if she has a long-view approach on things. That's assuming a lot though.

I would advise him to go rice-and-beans and cut all unnecessary expenses and moonlight or consult to get some additional revenue streams going. Start selling off his toys…

The main issue is that everyone is rushing for liquidity and cash reserves now…

 

[Omega Male]

Have no idea if this is the case, but one argument for locking in a loan would be if the 401(k) was heavily concentrated in the company's stock. You could get hit by the double whammy of a layoff and a price collapse that would reduce your available liquidity when actually needed. The limit is 50% of your vested balance or $50k, whichever is less.