Investing Guide

I contribute over the maximum this year into my 401(k).Here is a discussion on Fatwallet.  I have a few options I can choose.  Here is a good answer from Netguru253 answer to someone who overcontributed by 5,000.

“Your options:
1) Do nothing. In this case, you will have to add the $5000 to line 7 (wages) of your Form 1040 and pay tax on it. The advantage of this option is that you will get to keep your earnings and matching contributions in the 401k. The disadvantage is that you will have to pay taxes on the $5000 both now and when you withdraw it after you retire.

You may find several places on the web that say there will be a penalty every year until you withdraw the extra $5000 from the 401k. The people that say this are confusing the 6% excess contribution penalty on IRAs with the 401k rules. The excess contribution penalty does not apply to a 401k. The only “penalty” is that the extra $5000 will be taxable this year but still considered before-tax money in your 401k. “

I’ve decided to leave the contributions in there and pay the taxes twice.  I only went over by a small amount and I prefer to receive the match from my employer. 

Here is an article on Barron called “Sorry Warren, Your Stock is too Pricey.”  The author states that Berkshire stock is expensive compared to its historical Price to Book value.  Valuing the stock at 1.7 P/B gives a value of 130,0000, 10% over its quote. 

I just read a great post on The Simple Dollar blog called The Meaning of It All. To me, money is freedom. Money gives a person the freedom to do what they want. But it won’t buy happiness. After the necessities are taken care of, people are not any happier if they are richer. On the surface, money seems like it can buy happiness, but in reality it cannot. Retail therapy is short lived. New stuff bought soon becomes old and forgotten. Some people think they need the latest gadgets, nicest cars, and biggest houses. These goods drain cash flow and will become a burden if they are bought on credit.

Money gives people options. It gives them the freedom to pursue their dream and passion. Some people take advantage of the fact that the money will give them freedom and they make good use of the opportunities. They can pursue low paying careers or do charity without worrying about income.

Others are not able to use their money wisely. They have debts that imprison them, limiting their freedom Working long hours at a job you do not like is a good recipe for unhappiness. Why do people do this? Consumerism. Consumerism is the equating of personal happiness with the purchasing of material possessions and consumption.” They are stuck in a hedonic treadmill.

What’s the solution? Using money wisely. Be frugal. Make good use of money so that you can have the freedom to do what you want instead of slaving away at a job that you may not like. Have goals, plan and work towards them everyday.

There are a few simple things people can do near the end of the year. 

1.  Sell losers to offset winners to lower the tax bill.  If there are a few losers, now may be a good time to get rid of them to offset the short term capital gains you have for the year.

2.  Do not buy mutual funds that have a large distribution because you will be taxed on the distribution.  I held off buying some more OAKWX because of the distribution during mid December.  It is okay to buy funds in a tax sheltered account because there will be no taxes due.

3.  Buy undervalued securities now to take advantage of the January Effect (undervalued stocks bought near the end of the calandar year usually perform better because of tax loss selling).  There are a lot of bargains out there.  The market is very volatile.  It is during these volatile times that there are bigger pricing discrepancies between price and true value.  If you don’t know which stocks are undervalued, you can get a good value mutual fund after their distributions.