It's a tax law that limits the tax deduction you can take for, well, basically sucking at investing. Invest ten grand in a partnership that buys used train cars in Germany and refurbs them to become restaurants. Yeah, it went bankrupt. The partnership raised a million in equity and four million in debt and all of it netted zero...like even the banks didn't get paid.
You can only deduct the amount that you've put in, more or less...you can't add in incremental deductions beyond your contributions. That is, you can only deduct as tax losses from investments, the capital you had "at risk."
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Finance: What are Unsuitable Recommendat...0 Views
finance a la shmoop what are unsuitable recommendations I'm putting little old
ladies in extremely risky venture capital investments that likely don't [Old lady cartoon travels along ventural capital timeline]
get liquid for a decade yeah that's unsuitable putting the whole
portfolio of twenty-eight year olds in US government short term paper [28 year old portfolio opens]
unsuitable telling anyone to buy lottery tickets unsuitable the basic idea is
that if you are guiding a client as their investment advisor you have to you
know do right by them so that you match their tolerance for risk and reward
hunger for the reward there yet in investment packages that make sense [Risk and reward on a balance beam]
old people for the most part just want to live their golden years in peace so
that they don't have to lean on their kids for financial support do they care [Children sitting on sofa]
whether they make twenty times their money on an investment in ten years no
at least probably none is by the time the investments pay off they'll likely
be doing backstroke Six Feet Under you know on a gentle sloping hill with a [Man points to gravestone]
view of the babbling brook or be so old and well they won't know the difference
yeah so they want their money safe just to keep up with inflation maybe a little [Elderly man sitting in rocking chair]
bit better than that and they want it to be managed with low risk until you know
the end young people have kind of the opposite concern ie not taking enough [Young girl holding bonds]
risk being too safe and just owning safe US government paper well that has them
losing buying power over time after tax three percent government paper a tax
that ordinary income is something less than two percent and if inflation is now
three percent while they're losing a point a year in buying power and with
20-somethings they have something like fifty years before they really have to
worry about drawing on their savings so they can handle this ups downs sideways
but over long periods of time the market goes up like think about where it [Market price increases]
was 50 years ago relative to today and while they go via one path or another
from here to here and the bottom line is that the recommendations financial
advisers give their clients have to be suitable for the key elements of their
life their stage in life like your age their level of wealth their tolerance [List of considerations appear]
for risk and a whole bunch of other things that make the market a lot more
like this than like and trust us you don't want to crap out
it feels a you know crappy [Young girl playing craps at a casino]
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