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EdLaFave

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Posts posted by EdLaFave


  1. 18 minutes ago, tony said:

    DCA is entirely a risk management issue. Sure, “on average,” lump sum investment yields better results, except when it doesn’t. The problem is that no one knows in advance when that will be. When one dumps in a large sum of money into an investment, not only is the entire amount put “to work,” it is also put at risk.   In this current market when we are just starting to see the beginning of the worst of this situation, who knows how bad it can get. The upward potential is reduced sure , but risk is reduced to a much greater degree.If one has money to “play with” in the market, go ahead and speculate, gamble, and dump in funds as one sees fit. If one has limited means and needs every penny available to survive in retirement, then one needs to stick to traditional rules of asset allocation and systematic investing.   The market is too unpredictable to know which is the better approach

    DCA (as it applies to a pile of cash) mitigates risk in the sense that you aren't invested in the market, but not being invested in the market isn't a valid strategy. Bonds are a valid risk management strategy, sitting on cash is speculative and locking in the erosion of inflation.

    One easy way to see what a poor risk mitigation strategy DCA is, is to imagine somebody who is already fully invested and they're scared of market risk. Nobody in their right mind would ever recommend that this person take a lump sum out of the market and slowly dribble it back into the market. Sure doing so reduces risk, but I think we can all see how foolish that approach would be.

    The reason people can't see how foolish it is if somebody has a windfall is because we're incorrectly anchoring to the value of the portfolio on the day of the windfall and for a reason I can't explain people don't seem to anchor to the value of the portfolio on the day they're fully invested (at least in the context of DCA).

    Investing everything you have in the market isn't speculation or a gamble. Investing in single stocks is a gamble. Investing for the short term is a gamble. Investing in a single sector is a gamble. Putting all of your portfolio into the market is just plain investing. However, pulling money in or out of the market based on short term gyrations...that my friend, that's speculation.


  2. 34 minutes ago, tony said:

    Is that because of time?   How would it be different. ?

    Yes. Time out of the market, on net, hurts returns.

    On average the stock market obviously goes up, otherwise we wouldn't put money in it. So if you sit on a pile of money for a fixed amount of time and slowly drip it into stocks, then statistically speaking you will miss out on gains (not losses). That's why you hear the phrase "time in the market, not timing the market" (or something along those lines). Of course, if you look at any individual time period you either lost or you won, but you're more likely to lose with DCA.

    The only utility of DCA is convincing fearful people stuck in a fallacy to get their money in the market. Of course I'd argue strongly that if they're so fearful then the real problem is their asset allocation.

    Now if you're just putting money in the market each time it becomes available to you (i.e. payday) then I don't really consider that to be a strategy. You're just investing whenever you can, not when you choose to believe it is a "good" time to invest.


  3. 3 minutes ago, ScottO said:

    I forget if you can't buy anything similar in all your accounts(taxable, Roth, 403b, 457).

    I believe the IRS explicitly ruled that you can create a wash sale between your taxable account and your IRA. I don't believe they've explicitly ruled about employer sponsored accounts. I believe the spirit of the wash sale is pretty clear that it should apply to all accounts, but until the IRS makes it explicit then we don't know for sure. I don't play in that grey area.


  4. 22 minutes ago, tony said:

    I  sold my shares in Fidelity years ago at a loss moved to Vanguard Total 31 days later and took the loss on Vanguard's advice

    Without getting into the weeds, the Wash Sale is relevant to 30 days before Tax Loss Harvesting and 30 days after. If you wait 31 days after the sale, you could have bought right back into the fund that you sold from.

    When people tax loss harvest they often want to avoid being out of the market. To accomplish this they will immediately exchange from the fund with a loss to another fund as long as that other fund isn't "substantially identical." This is why whyme talked about exchanging a total market us fund for an S&P 500, they both have extremely similar performance, but you can argue the absence of small and medium size companies in the S&P 500 fund prevents it from being considered "substantially identical."

    22 minutes ago, tony said:

    In terms of a  significant lump sum non retirement account. i certainly would not drop it in the stock market right now under these circumstances. all at once was my point  i guess you could but it would not hurt to park it a while in a money money account instead of leaving it in a checking account collecting no interest on it. Is that marketing timing? I think it's just being cautious.

    This is a mental accounting fallacy. It isn't logical to treat money that is currently in cash differently than money that is currently in the market. We all have a total portfolio (regardless of what assets it is split between) and we all have to make a decision (every day) as to how that money is or isn't invested.

    What your portfolio was invested in yesterday has no bearing on what it should be invested in today. Either you think it is a good to have Y dollars in the market or you don't, it doesn't matter where those dollars were invested yesterday.

    This is absolutely marketing timing and market timing is usually considered cautious/fearful. Decisions you make based on short term market movements and this idea that you can predict the short term future, well that's market timing.

    Market timers often find ways to do the wrong thing twice. During a bad market they won't put their money in because they're being cautious. During a bull market they'll pour it all back in because things are "good". The proverbial sell low and buy high.


  5. 54 minutes ago, tony said:

    Actually you could sell a Vanguard Total Stock Market Fund and Buy a Fidelity Total Stock Market  fund. and claim a loss

    The IRS says that if you buy a "substantially identical" replacement then it'll trigger a wash sale, which you clearly do not want to do. The IRS has not explicitly defined what "substantially identical" means. Somebody could make the proposed exchange and claim a loss. However, in the event of an audit, I sure wouldn't want to be in the position of making the argument that those two funds aren't substantially identical.

    57 minutes ago, tony said:

    I'm not convinced trying to buy into the market right now is a good idea if you happen to have a big lump of cash hiding under your mattress or an inheritance .I would put it in a money market right now and wait this market out because it may not be done  shedding.

    Just a word for anybody reading these comments. This is a form of market timing and is particularly dangerous because this is exactly how people miss the recovery after a crash. If you want to invest successfully accept the reality that nobody can predict the short term future so all you can do is buy and hold (no matter what is or isn't happening).


  6. On 3/14/2020 at 3:39 PM, Diane said:

    With respect to the market being low right now, would you recommend waiting or continue to transfer funds from AXA account to my newly opened Vanguard 403 account.

    Any time you ask yourself a question that begins with “given what the market is doing now” it is almost certainly going to lead you to engage in market timing

    You have to get comfortable with the idea that nobody can accurately predict what the market will do over the short term. Trying to time the market is probably the number one way people lose money.

    To answer your question, it’s always a good time to leave a high cost vendor for a low cost vendor. 


  7. 9 minutes ago, tony said:

    O.K guys but the fact is this statement  above is blatantly wrong. I should not have to spend an hour giving Ed proof for every statement

    You haven't spent even a second providing proof at all. You've just gotten exasperated and said I was blatantly wrong without providing any argument.


  8. 7 hours ago, tony said:

    To be fair I watch all the news channels and all of them have their biases which is unfortunate.

    My personal political views aside, the data is clear that we can’t both sides this. Fox News hosts have consistently and repeatedly reported things that are verifiably untrue. The same cannot be said for other outlets like CNN or the NY Times. 

    Biases are subtle and subconscious and professionals do everything they can to overcome it, sometimes swinging too far in the other direction. Propaganda is something else entirely and for the sake of precision alone we shouldn’t confuse the two.


  9. 57 minutes ago, tony said:

    Trump just banned travel from Europe

    I didn’t know that.

    I’m cheering for an immediate recovery. I don’t enjoy losing money, but I can think of one consolation prize of this well timed downturn 😁 😈 


  10. haha, I’m old enough to remember Q4 of 2018 when we were within a hair of a bear market when the world’s two largest economies were locked in a pointless trade war.

    Nobody knows the future. I hope things get better quickly, but maybe they won’t. The huge market swings have really been something to see though. 


  11. 4 hours ago, ScottO said:

    What are the best ways you've found to keep others calm about their investments and explain why doing nothing is recommended?

    I don’t try to convince anybody to do anything because in my experience 90% of the time it is wasted energy. However, when people ask me how I feel, I tell them how much I’ve lost (usually quite a bit more than them) and how calm I am about dumping my next paycheck into the market. I think people find that level of confidence and emotional stability to be reassuring.

    2 hours ago, tony said:

    But the cause of these loses this time is somewhat unique or at least it feels that way to me. But we will have to see what happens next. 

    I know nothing and I don’t think anybody else does either.

    For all I know the virus was just the spark that triggered the selling process on an already overvalued market rather than being the main driver behind the selling.

    Let’s assume the sell off is 100% because of the virus. Financially speaking, it seems like a virus with a low mortality rate is less scary than a fundamentally and structurally unsound financial system where every institution is on the brink of collapse.

    It wouldn’t surprise me at all if we bounce back from this within the next 12 months.


  12. If you save less than the IRA contribution limit (6k for those under 50, 7k for those over 50) the just stop the 403b and only use an IRA.

    If you save more than the IRA contribution limit then figure out what 403b and 457b vendors you have access to, stop National Life group, and fund some combination of an IRA and a better vendor (we need more information to be more specific on that split).

    NOTE: Your IRA doesn't have to be a Roth, it can also be a traditional. The same can be said for most 403b and 457b plans. The choice between Roth and Traditional should be made intentionally, you shouldn't simply default to a Roth IRA and a Traditional 403b.


  13. 2 hours ago, sschullo said:

    It is eerie that only a few of us are posting during this MAJOR crash. 

    Maybe when the market closes today we will have officially crossed into bear market territory.

    I haven't looked, but I can do rough math and I know I'm down over 200k. I was/am considering early retirement, my current job is highly insecure, and I'm getting my roof replaced tomorrow. I'm told this is a recipe for emotional disaster, but I feel nothing. I get paid on Friday and I'll be buying stock with whatever is left after I pay my mortgage.

    If anybody needs a pep-talk to stay the course, let me know. Everybody knew this would happen, we just didn't know when. This changes nothing.


  14. 10 minutes ago, profinGA said:

    Actually, you can submit the limit to the three of them independently. I know because when my husband had a really high-paying job about 3 years ago we did that (max his 401k; my 401a, 403b, 457b). 

    I believe you were able to do this because he owned the 401k and you owned the 403b. I suspect if one of you had both accounts then you would have been in trouble.


  15. So your current 401k charges 0.50% plus whatever the expense ratios on the funds are. That's a lot and you're right, the three 403b vendors you listed would have lower fees.

    If I were in your shoes, I'd be generally advocating for lower fees. Moving to a Vanguard 403b is certainly one possible way to get there, but so is moving to a low cost 401k (presumably Vanguard offers that too). I wouldn't limit my focus to one of the many solutions to the overall objective.

    2 hours ago, 403bquestioning said:

    In addition, our 401k plan only allows investing into 29 different funds (bond, equity, money mkt), 22 of which are Vanguard funds.  

    Don't confuse complexity with effectiveness. All you really need are three funds:

    1. Total Market Index Fund for domestic stock.
    2. Total International Market Index Fund for international stock.
    3. Total Bond Fund for bonds.

    For those that don't want to manage 3 funds you could throw in all-in-one funds too (they contain those individual funds under the hood):

    • A fixed asset allocation fund like Vanguard's LifeStrategy funds.
    • A target date fund that gets more conservative as you approach the target date like Vanguard's Target Retirement funds.

    So 29 funds is actually a lot more than you need (provided those 29 funds include the things I mentioned above).

    2 hours ago, 403bquestioning said:

    Are there other things I should be thinking about besides fees in deciding whether to advocate for a 403(b)?  

    The number one thing I'd concern myself with is what tax deferred (401k, 403b, 457b, etc) plans will allow you to build a fully diversified portfolio at rock bottom costs.

    The number two thing I'd concern myself with is that it would be nice to have a 457b in addition to a 401k/403b because (and fact check me on this) the 19.5k limit is shared between 401k and 403b contributions but the 19.5k limit on 457b plans is in addition to the 401k/403b limit. So I'd be trying to maximize the amount of tax free space my employer provides me.

    The number three thing I'd concern myself with is the various differences between each type of account. For example the 457b has slightly different withdraw rules than the 403b does. However, this concern would be a distant 3rd.


  16. 23 hours ago, Tom F said:

    I thought the fiduciary standard was driving advisors away from commission based structure and to more transparent fee based model.  Is this not the case?

     

    12 hours ago, sschullo said:

    I am not happy with this development in recent years. Like you, I thought that the hour fee would solve all of the high-cost problems and conflicts of interest in one fell swoop. For the most part, it did solve the conflicts of interest part of the problem with selling commission-based products,  but the AUM is WAY too high and merely replaced those hideous commissions.

    The Trump administration killed the Obama-era fiduciary rule. I won't comment on the effects surrounding the buzz/speculation related to the fiduciary standard. However, for anybody reading this thread I wanted to make a clear point:

    Either you're paying an ethical advisor on the front end or you're getting a "free" advisor who is selling you conflicted/expensive investments. In both cases it is very much against your interest to hire the advisor because of three things:

    • You're working with small margins because the stock market is a get rich slow scheme; you're not pulling in huge amounts of money in any given year.
    • It costs a lot of money to pay for a "professional's" salary.
    • The professionals cannot beat the total market index funds so they're not bringing anything to the table. You're paying for nothing.

    You don't need the advisor because:

    • You're clearly smart enough and capable enough to buy 3 total market index funds (bonds, us stocks, and international stocks) and keep them in proportion to each other over the years.
    • Even if you're lazy and don't want to spend the 2 hours a year to keep them in proportion to each other, you can spend an extra 0.10%, buy an all-in-one fund like a target date fund, and literally do nothing (this is your "advisor").
    • You already know that you should be trying to max out your tax advantaged accounts (IRA, 401k, 403b, etc.)
    • Folks at sites like this one or bogleheads or any number of others will give you free, unconflicted advice!

    ...the advisor isn't giving you anything, his job should go the way of the travel agent.


  17. 2 hours ago, JC. said:

    Ed thinks IPX is unethical.

    Just to be clear, what I said is that I have every reason to believe they’re unethical because they don’t list any useful information on their website. I reserve my actual judgment until I have the necessary information.

    I followed the link you sent. I see a $50/year custodial fee and I see a $121 annual cost fee listed at the top. I’m not sure what is what there.

    I also see you have access to:

    Fidelity 500 - 0.02%

    Fidelity Mid Cap - 0.03%

    Fidelity International - 0.04%

    Fidelity Emerging Markets - 0.08%

    Fidelity Intermediate Treasuries - 0.03%

    So if you only have to pay $50 on top of those expense ratios and there aren’t any other fees then this is a really good plan. 


  18. 21 minutes ago, JC. said:

    Does anyone have experience with IPX? It seems like Aspire, but less expensive. $50 a year for Fidelity funds.

    I don't know why you're phrasing the expenses this way and I'm deeply skeptical of the "$50 a year for Fidelity funds" phrasing because:

    • Vendors typically charge a flat rate to have the account (like Vanguard's $60/year) and/or an AUM to have the account (like Aspire's 0.15%/year).
    • Furthermore, vendors at least to my knowledge, don't give different fees for a family of funds (like say Fidelity funds in your example)...they may inflate a fund's expense ratios.

    Additionally, I went to their website and it doesn't provide any useful information despite having pages and pages of "content." This is the same approach used by vendors looking to rip-off investors because they want you to call or they want to send a rep to you so they can apply high pressure tactics to get you to sign up for something you don't understand. They certainly don't want you to understand the product in the comfort of your home and then count on you signing up because it is so awesome.

    So although I don't have any experience with IPX, I have every reason to believe they're unethical.

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