PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
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PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Hi,
I came here while researching PSLDX and FIRE (early retirement) aspects. There is a wealth of information here, and I hope to understand two things.
1. I know PSLDX is not recommended in a taxable account. But how would it look like in taxable if want to do early retirement? Since there will be no other significant income, does the tax treatment improve, such that it can be viable?
2. What if you also become an ex-part in the near future. Does anyone know how that scenario should be evaluated in terms of taxes?
I believe there is ~$107 k of foreign income exemption, but instead, here the main income is from PSLDX. I'm not sure how to understand this.
Thanks for any guidance on this.
I came here while researching PSLDX and FIRE (early retirement) aspects. There is a wealth of information here, and I hope to understand two things.
1. I know PSLDX is not recommended in a taxable account. But how would it look like in taxable if want to do early retirement? Since there will be no other significant income, does the tax treatment improve, such that it can be viable?
2. What if you also become an ex-part in the near future. Does anyone know how that scenario should be evaluated in terms of taxes?
I believe there is ~$107 k of foreign income exemption, but instead, here the main income is from PSLDX. I'm not sure how to understand this.
Thanks for any guidance on this.
- kilowattcorn
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Re: PSLDX during FIRE and/or ex-pat status
In a taxable account, PSLDX's distributions are are taxed as income or capital gains, so your marginal tax rates would apply (https://www.bogleheads.org/wiki/Marginal_tax_rate).sigma_frq1 wrote: ↑Thu Oct 14, 2021 6:33 am 1. I know PSLDX is not recommended in a taxable account. But how would it look like in taxable if want to do early retirement? Since there will be no other significant income, does the tax treatment improve, such that it can be viable?
PSLDX is fun but it is expensive. See the long-running thread at viewtopic.php?t=305950 for more discussion. There are many income-producing options out there and some of them may be a better fit for you. If you provide additional details about your situation (such as: state, other income, goals, timeline, and other assets), you will get higher quality answers. viewtopic.php?t=6212 has a template you could use.
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Re: PSLDX during FIRE and/or ex-pat status
Thanks.kilowattcorn wrote: ↑Thu Oct 14, 2021 11:39 amIn a taxable account, PSLDX's distributions are are taxed as income or capital gains, so your marginal tax rates would apply (https://www.bogleheads.org/wiki/Marginal_tax_rate).sigma_frq1 wrote: ↑Thu Oct 14, 2021 6:33 am 1. I know PSLDX is not recommended in a taxable account. But how would it look like in taxable if want to do early retirement? Since there will be no other significant income, does the tax treatment improve, such that it can be viable?
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
The Foreign Earned Income Exemption (FEIE) is for earned income - all dividends etc from funds, ETFs etc are passive income so are not included in that.
As a non-US resident you are not allowed to buy US mutual funds (like PSLDX), but can continue to hold whatever you have before becoming an expat. But you can buy US ETFs as an expat, though if you are resident in the EU it is very difficult. Unfortunately PSLDX does not have any direct ETF equivalent.
As a non-US resident you are not allowed to buy US mutual funds (like PSLDX), but can continue to hold whatever you have before becoming an expat. But you can buy US ETFs as an expat, though if you are resident in the EU it is very difficult. Unfortunately PSLDX does not have any direct ETF equivalent.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Valuable feedback. I was thinking of buying PSLDX before relocating and then just holding it. I think that would work.occambogle wrote: ↑Sat Oct 16, 2021 3:33 am The Foreign Earned Income Exemption (FEIE) is for earned income - all dividends etc from funds, ETFs etc are passive income so are not included in that.
As a non-US resident you are not allowed to buy US mutual funds (like PSLDX), but can continue to hold whatever you have before becoming an expat. But you can buy US ETFs as an expat, though if you are resident in the EU it is very difficult. Unfortunately PSLDX does not have any direct ETF equivalent.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
I don't think NTSX would be suitable to generate income for FIRE.Booogle wrote: ↑Sat Oct 16, 2021 12:15 pm This is what you want in a taxable account:
NTSX
https://www.optimizedportfolio.com/ntsx/
PSLDX also has more leverage.
- cflannagan
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Re: PSLDX during FIRE and/or ex-pat status
Yep - a bit better now. Used to be over 1% expense ratio, but it's now knocked down to 0.59%-0.61%. Effective 7/30/2021. https://www.pimco.com/en-us/investments ... -fund/inst
- whodidntante
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Chasing dividends has been debunked a million times.sigma_frq1 wrote: ↑Sun Oct 17, 2021 9:13 amI don't think NTSX would be suitable to generate income for FIRE.Booogle wrote: ↑Sat Oct 16, 2021 12:15 pm This is what you want in a taxable account:
NTSX
https://www.optimizedportfolio.com/ntsx/
PSLDX also has more leverage.
Dividends are a simply a forced sale of your shares.
Selling shares of NTSX would be the same thing as PSLDX's distributions.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
whodidntante wrote: ↑Sun Oct 17, 2021 10:01 am It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
That is illuminating for me; thank you.
Is there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
NTSX is the closest thing to PSLDX, and is good in a taxable account.sigma_frq1 wrote: ↑Sun Oct 17, 2021 11:28 amIs there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Is there a way to understand historically, if you did NTSX vs. PSLDX in taxable, which would come out better?Booogle wrote: ↑Sun Oct 17, 2021 11:31 amNTSX is the closest thing to PSLDX, and is good in a taxable account.sigma_frq1 wrote: ↑Sun Oct 17, 2021 11:28 amIs there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
That would be hugely dependent on your tax situation.sigma_frq1 wrote: ↑Mon Oct 18, 2021 3:29 pmIs there a way to understand historically, if you did NTSX vs. PSLDX in taxable, which would come out better?Booogle wrote: ↑Sun Oct 17, 2021 11:31 amNTSX is the closest thing to PSLDX, and is good in a taxable account.sigma_frq1 wrote: ↑Sun Oct 17, 2021 11:28 amIs there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
If we assume 22% tax bracket, can we do a rough comparison?jarjarM wrote: ↑Mon Oct 18, 2021 3:31 pmThat would be hugely dependent on your tax situation.sigma_frq1 wrote: ↑Mon Oct 18, 2021 3:29 pmIs there a way to understand historically, if you did NTSX vs. PSLDX in taxable, which would come out better?Booogle wrote: ↑Sun Oct 17, 2021 11:31 amNTSX is the closest thing to PSLDX, and is good in a taxable account.sigma_frq1 wrote: ↑Sun Oct 17, 2021 11:28 amIs there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
- cflannagan
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
sigma_frq1 wrote: ↑Mon Oct 18, 2021 3:41 pm If we assume 22% tax bracket, can we do a rough comparison?
Wouldn't matter considering no brokerage is going to let you buy/sell PSLDX in taxable anyway. You could however try to simulate PSLDX in taxable using individual LETFs
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
I think they do, at least one that I called confirmed that you can do so.cflannagan wrote: ↑Mon Oct 18, 2021 4:46 pmWouldn't matter considering no brokerage is going to let you buy/sell PSLDX in taxable anyway.sigma_frq1 wrote: ↑Mon Oct 18, 2021 3:41 pm If we assume 22% tax bracket, can we do a rough comparison?
- cflannagan
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Oh, which one is it? That would be news to me, considering most of the comments I've read have said no brokerage would let you trade PSLDX in taxable. PSLDX is also considered an "institutional" fund.sigma_frq1 wrote: ↑Mon Oct 18, 2021 4:58 pm
I think they do, at least one that I called confirmed that you can do so.
Still, if you wanted to mirror what PSLDX is doing, check this thread out. viewtopic.php?t=305950
There were some good suggestions on how to replicate what PSLDX is doing. Do it that way via ETFs to give yourself better tax savings compared to going with PSLDX in taxable. The con however is you'd have to rebalance, while you wouldn't have to just putting money into PSLDX alone.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Firstrade is the one I checked with.cflannagan wrote: ↑Mon Oct 18, 2021 5:02 pmOh, which one is it? That would be news to me, considering most of the comments I've read have said no brokerage would let you trade PSLDX in taxable. PSLDX is also considered an "institutional" fund.sigma_frq1 wrote: ↑Mon Oct 18, 2021 4:58 pm
I think they do, at least one that I called confirmed that you can do so.
Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
"Lastly, just to reiterate, this thing is horribly tax-inefficient in all sorts of ways. Don’t hold it in taxable. Just don’t."
https://www.optimizedportfolio.com/psldx/
https://www.optimizedportfolio.com/psldx/
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Equity held for a year is going to be nearly 100% long-term gains with no more tax than needed for spending; this will be marked-to-market at 60/40 long/short. A sustainable withdrawal rate will often be far lower than the distribution yield of this fund. Terrible idea, if you can even find a broker that'll let you buy it in taxable.
NTSX is the best bet if you want this type of exposure. Much lower expense ratio, way more tax-efficient.
NTSX is the best bet if you want this type of exposure. Much lower expense ratio, way more tax-efficient.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
BINGO!!! Yikes if they are assuming they can safely spend the entire distribution of this fund, then I don't think they should be using any leveraged products (or managing their own retirement, without a lot more knowledge growth).whodidntante wrote: ↑Sun Oct 17, 2021 10:01 am It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
MotoTrojan wrote: ↑Tue Oct 19, 2021 8:58 amBINGO!!! Yikes if they are assuming they can safely spend the entire distribution of this fund, then I don't think they should be using any leveraged products (or managing their own retirement, without a lot more knowledge growth).whodidntante wrote: ↑Sun Oct 17, 2021 10:01 am It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
I am not assuming anything, hence this threadBooogle wrote: ↑Tue Oct 19, 2021 8:53 am "Lastly, just to reiterate, this thing is horribly tax-inefficient in all sorts of ways. Don’t hold it in taxable. Just don’t."
https://www.optimizedportfolio.com/psldx/
Is it possible to show a hypothetical example using PSLDX and NTSX, that would illustrate a comparison of what it would look like? That would help me visualize it. We can assume two people, one has PSLDX and the other has NTSX (let's say 22% tax bucket).
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
That would be a meaningful amount of work but put simply, I can say with near certainty you'd come out meaningfully ahead using NTSX. PSLDX in taxable is like burning money in the fireplace.sigma_frq1 wrote: ↑Tue Oct 19, 2021 3:08 pmMotoTrojan wrote: ↑Tue Oct 19, 2021 8:58 amBINGO!!! Yikes if they are assuming they can safely spend the entire distribution of this fund, then I don't think they should be using any leveraged products (or managing their own retirement, without a lot more knowledge growth).whodidntante wrote: ↑Sun Oct 17, 2021 10:01 am It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.I am not assuming anything, hence this threadBooogle wrote: ↑Tue Oct 19, 2021 8:53 am "Lastly, just to reiterate, this thing is horribly tax-inefficient in all sorts of ways. Don’t hold it in taxable. Just don’t."
https://www.optimizedportfolio.com/psldx/
Is it possible to show a hypothetical example using PSLDX and NTSX, that would illustrate a comparison of what it would look like? That would help me visualize it. We can assume two people, one has PSLDX and the other has NTSX (let's say 22% tax bucket).
To be clear, you cannot safely spend the entire distribution yield of PSLDX. That is not a safe withdrawal rate.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Okay, I didn't realize it would be a lot of work to show an example - never mind then, and thanks anyway.MotoTrojan wrote: ↑Tue Oct 19, 2021 6:57 pm That would be a meaningful amount of work but put simply, I can say with near certainty you'd come out meaningfully ahead using NTSX. PSLDX in taxable is like burning money in the fireplace.
To be clear, you cannot safely spend the entire distribution yield of PSLDX. That is not a safe withdrawal rate.
In my mind, it's difficult for me to visualize the issue in using PSLDX in taxable if that's the main source of US income, and the rest is foreign earned income (which would be tax-exempt). But I'll try to research this some more in order to understand better.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
I can show this quite readily, it is just hard to model the actual returns but if we simplify it to a single year I can give you an example. Step one is to start with your withdrawal strategy, do you have one? 4% withdrawal rate is a classic, although it is only really suitable for a retirement of 30 years or so, much longer (perpetual) and you'll want to be closer to 3-3.5%. But let's just call it 4% for now.sigma_frq1 wrote: ↑Thu Oct 21, 2021 9:11 am
In my mind, it's difficult for me to visualize the issue in using PSLDX in taxable if that's the main source of US income, and the rest is foreign earned income (which would be tax-exempt). But I'll try to research this some more in order to understand better.
PSLDX will distribute it's entire annual return. Let's simplify and say it is 8% a year. Let's also simplify the 60%/40% long/short tax on futures returns and just call it a flat 25% tax in all cases to make this example more simple (of course in reality taxes aren't that clean, but you get the idea).
If you invest in PSLDX and utilize a 4% pre-tax withdrawal rate, in a year you get an 8% return, you'll be given an 8% distribution, pay 2% of it in taxes, keep 2% for your spending, and re-invest the remaining 4%. Key-takeaway here? You only get to spend 2% a year after-tax.
Now let's assume instead you used a tax-efficient fund and it also got an 8% return, while only distributing 2% of that as a dividend. You can take that 2% dividend, sell an additional 2% (to get you to your 4% withdrawal rate) and then pay 1% of the overall value (25% of 4%) on taxes. You now get to spend 3% a year after-tax.
I hope this helps clarify why a distribution larger than your sustainable withdrawal rate is crippling for the amount of money you actually get to spend in retirement. With something like PSLDX in many years you'll literally owe more tax than you should be withdrawing (4%).
Now if you hold such a small amount of PSLDX that you do intend to spend the entire distribution, that is less bad, but you are still paying 40% income tax instead of 100% in long-term capital gains like other equity products.
- firebirdparts
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
What is being chased here, to a sane person, is not dividends, but the performance itself. The fund distributes it all. Always has. it's not preferable. The performance is preferable.Booogle wrote: ↑Sun Oct 17, 2021 10:58 amChasing dividends has been debunked a million times.sigma_frq1 wrote: ↑Sun Oct 17, 2021 9:13 amI don't think NTSX would be suitable to generate income for FIRE.Booogle wrote: ↑Sat Oct 16, 2021 12:15 pm This is what you want in a taxable account:
NTSX
https://www.optimizedportfolio.com/ntsx/
PSLDX also has more leverage.
Dividends are a simply a forced sale of your shares.
Selling shares of NTSX would be the same thing as PSLDX's distributions.
A person could easily use something like UPRO/TMF/Cash or you pick and have about the same thing with different tax consequences if they wanted to. That doesn't have anything to do with "chasing dividends" or any other dull platitudes. That's just for someone who wants simliar performance and maybe having some shot at capital gains tax treatment.
To the OP, what they are distributing is mostly the total performance of the S&P500. I don't know if you knew that. If the S&P500 doesn't produce any money, then there wouldn't be much distribution. FWIW. You shouldn't view that as particularly stable. In a bull market, everybody's a genius, but they really have done a nice job with it. So far.
This time is the same
Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
What are you going to do when the market crashes and you have zero income and large losses?sigma_frq1 wrote: ↑Sun Oct 17, 2021 11:28 am Is there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Very good information, makes it much clearer! It's what I was looking for, i.e. make some assumptions to simplify just to get an idea.MotoTrojan wrote: ↑Thu Oct 21, 2021 6:08 pmI can show this quite readily, it is just hard to model the actual returns but if we simplify it to a single year I can give you an example. Step one is to start with your withdrawal strategy, do you have one? 4% withdrawal rate is a classic, although it is only really suitable for a retirement of 30 years or so, much longer (perpetual) and you'll want to be closer to 3-3.5%. But let's just call it 4% for now.sigma_frq1 wrote: ↑Thu Oct 21, 2021 9:11 am
In my mind, it's difficult for me to visualize the issue in using PSLDX in taxable if that's the main source of US income, and the rest is foreign earned income (which would be tax-exempt). But I'll try to research this some more in order to understand better.
PSLDX will distribute it's entire annual return. Let's simplify and say it is 8% a year. Let's also simplify the 60%/40% long/short tax on futures returns and just call it a flat 25% tax in all cases to make this example more simple (of course in reality taxes aren't that clean, but you get the idea).
If you invest in PSLDX and utilize a 4% pre-tax withdrawal rate, in a year you get an 8% return, you'll be given an 8% distribution, pay 2% of it in taxes, keep 2% for your spending, and re-invest the remaining 4%. Key-takeaway here? You only get to spend 2% a year after-tax.
Now let's assume instead you used a tax-efficient fund and it also got an 8% return, while only distributing 2% of that as a dividend. You can take that 2% dividend, sell an additional 2% (to get you to your 4% withdrawal rate) and then pay 1% of the overall value (25% of 4%) on taxes. You now get to spend 3% a year after-tax.
I hope this helps clarify why a distribution larger than your sustainable withdrawal rate is crippling for the amount of money you actually get to spend in retirement. With something like PSLDX in many years you'll literally owe more tax than you should be withdrawing (4%).
Now if you hold such a small amount of PSLDX that you do intend to spend the entire distribution, that is less bad, but you are still paying 40% income tax instead of 100% in long-term capital gains like other equity products.
Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
There is a Youtube channel called PensionCraft that has a good video called Early Retirement-Perpetual Portfolio Investment Strategies.
They do a good job explaining the pros and cons between your proposed strategy of living on dividends and the alternate strategy that is being suggested in the comments here of perceptual/safe withdrawal rates.
They do a good job explaining the pros and cons between your proposed strategy of living on dividends and the alternate strategy that is being suggested in the comments here of perceptual/safe withdrawal rates.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]
Glad it helped! To frame it all nicely, with my given assumptions of 8% returns and 4% pre-tax withdrawal rate (decent ones), your after-tax cash available to spend was 50% greater! That is a HUGE difference. So even if you think PSLDX will beat 100% S&P500 (I would bet it has a great chance to, pre-tax), it is all but impossible that it outperforms by the 50% necessary to make-up for that tax impact.sigma_frq1 wrote: ↑Fri Oct 22, 2021 7:07 am
Very good information, makes it much clearer! It's what I was looking for, i.e. make some assumptions to simplify just to get an idea.
Now in an IRA it is a very interesting fund, but I still personally prefer something like NTSX which has much lower fees, no active management, only treasuries, etc...