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EdLaFave

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Posts posted by EdLaFave


  1. 17 minutes ago, krow36 said:

    OP states that the relative is with a charter school

    Got it. 

    18 minutes ago, krow36 said:

    If the relative could max the 403b over 2 years, that might be worth it. I don't think contributing only 2k or 3k/yr would be worth it, and I'd prefer it to into a brokerage account.

    I don’t know how you’re defining “worth it”, but if it makes financial sense to put $1 in the tax advantages account then it makes sense to put the next dollar in too. I can’t think of a mathematical reason it would be worth it for 2k, but not 19k.

    If you’re saying it isn’t worth a person’s time to set up a 403b account and deal with AXA for such a small balance, then I guess that’s a judgement call. 

    21 minutes ago, krow36 said:

    I think your disparagement of a taxable brokerage account is perhaps unjustified. The modest amount of taxable dividends that a fund like Vanguard's Total Stock Market fund generates should not a significant problem for someone likely to be in the 12% bracket while at the charter school.  

    The size of the distributions are relative to the size of the account, which makes the absolute value of the distributions irrelevant. The only thing that’s relevant is the tax drag as a percentage of the principal.

    If the tax drag in a taxable account is just 0.05% of the balance each year then I’d gladly pay an extra 1% fee in year 1 to avoid a lifetime 0.05% fee. The break even point with those figures (and a 7% return before fees/tax drag) is 20 years.

    I don’t presume to know their tax situation. The tax drag will be less for low income folks. Of course an index fund will be more tax efficient than an actively managed fund.

    My primary point was just that a short time horizon with the current employer increases the viability of using their higher fee plan because you don’t have to pay the large fees for very long before you can rollover to a low cost tax advantaged account and avoid the potentially lifelong tax drag associated with a taxable account.

    I use taxable accounts heavily. Roughly 3/4 of my portfolio is in a taxable account. 


  2. 19 hours ago, aninternetuser said:

    Is it worth contributing to this 403b? Or would it be better to mainly focus on the roth instead?

    This is a false choice.

    Your friend can choose between the 403b (roth or traditional), an IRA (roth or traditional), and probably a 457b (roth or traditional). I'm not sure why people seem to only consider Roth IRAs, but please know the Traditional IRA is very much an option and often the preferable option.

    New York State has a very good 457b plan that has been discussed at length on this forums.

    19 hours ago, aninternetuser said:

    a 403b through Equitable...and no other available options like Fidelity or Vanguard

    What district? Most districts do not limit their available options to one plan, so I'll remain skeptical until I see that in writing from an official source.

    19 hours ago, aninternetuser said:

    She plans to stay in New York for only a few years

    Your friend should prioritize maxing out the tax advantaged accounts that allow them to build a fully diversified portfolio at rock bottom prices. The fact that they plan to leave their employer soon means that even a high fee investment account becomes attractive because they only have to pay those fees for a short time before they can roll that account over to a new employer or to a rollover IRA at their preferred institution.

    One thing to research is if surrender fees still apply when doing a rollover after employment is terminated. The surrender fees definitely apply if you rollover to a different vendor while continuing employment.

     

    3 hours ago, aninternetuser said:

    Given the short time she will be in the state it probably isn't worth opening the 403b.

    The opposite is true. Very rarely do you want to give up tax advantaged space and planning to be with your employer for a short amount of time only increases the viability of utilizing those accounts.

    Assuming they're already maxing out their other tax advantaged accounts then using a 403b becomes more attractive because they're only stuck with the high fees for a small amount of time. The alternative is putting the excess money in a taxable account where they won't be paying high fees, but they will be receiving taxable income forever and are therefore highly likely to owe tax on that income every single year in perpetuity.

    3 hours ago, aninternetuser said:

    it is unlikely that she can contribute more than $6,000 per year

    If that's the case then they should invest in the account that allows them to build a fully diversified portfolio at rock bottom costs. From the sounds of things that's the IRA (traditional or roth).


  3. On 9/3/2020 at 7:30 PM, ScottO said:

    Vanguard is one of the few companies that I dig up information on and feel better about 😛

    I felt that way until they opposed the fiduciary rule. I don’t have the data to demonstrate this, but with the plethora of funds they now have (sector funds being the biggest offender), they do seem to be drifting from the founding vision.

    Still, I think their company structure is the best out there, even if there are better funds at other institutions. 


  4. 7 hours ago, bzribee said:

    I put too much into my 403b7/457 and wish I'd put more into my Roth

    403b and 457b accounts are often available as either Roth or Traditional. 403b and 457b plans are not inherently in conflict with or the opposite of a “Roth.” In fact, there is no such thing as just a “Roth”.

    A tax advantaged account (401k, 403b, 457b, IRA, etc) can be either a Roth or a Traditional. 


  5. 3 hours ago, Cranberry44 said:

    I've read that bonds are good for rebalancing in down-turns, so I figured I was giving myself a little bit of wiggle room to sell bonds when they're high and to buy more equities when they're low.

    Look, I love the bogleheads and I essentially have a two fund portfolio (domestic and international stock), but this is myth the bogleheads push.

    Do you get a perk from selling bonds during a crash to buy some stocks? Sure.

    Is it enough to compensate you for the underperformance of those bonds during the bull market leading up to the crash? No.

    Bonds will reduce your expected returns. They’re there to reduce volatility so you can sleep at night and so you don’t do something foolish like selling all your stocks at the bottom of a crash and buy back in after the recovery.

    If bonds had similar returns to stocks, but went up when stocks went down and vice versa, then you’d get that “rebalance bonus” that actually generates wealth. Unfortunately bonds don’t have enough upside to make this proposition worthwhile.

    Play with one of the portfolio visualizer sites to prove it to yourself. Set up a 20 year window and compare a 100% portfolio against a portfolio with bonds across any number of time frames and you’ll see what I mean.

    3 hours ago, Cranberry44 said:

    I think I'll change my allocation to "tilt" to small cap

    The bogleheads love to tilt, which is ironic because it runs against the ethos of not making bets on sectors of the market.

    Bogle spoke out against this. I agree with Bogle. However, if you’re going to do it, then pick a percentage to tilt and live with it for life. If you change that percentage over time then I fully expect you to underperform.

    3 hours ago, Cranberry44 said:

    And was surprised to see the results (link to portfolio visualizer)! I'll definitely change my plan to something closer to tony's suggestion

    I’m not trying to talk you out of To y’s suggestion. I am however telling you that you’re making a big mistake in your decision making process.

    Past performance doesn’t indicate future performance. That isn’t a disclaimer to cover some low probability event, it’s a reality.

    You should never invest in a portfolio because of past returns. If you want to do that then I can recommend an objectively awful portfolio that blew Tony’s out of the water for a specific time period.

    You should invest in a portfolio because it has rock bottom costs, is fully diversified, meets your desired risk profile, and you agree with philosophical. 


  6. To decide between Roth and Traditional you have to understand the progressive nature of our tax code. Let's use the 2020 tax code for a hypothetical single person who has the most simplistic tax situation imaginable...

    • The first $12,400 they earn is taxed at 0% due to the standard deduction.
    • The next $9,875 they earn is taxed at 10%
    • The next $30,250 they earn is taxed at 12%
    • The next $45,400 they earn is taxed at 22%
    • ...and so on until they reach the 37% tax bracket where every additional dollar is taxed at 37%.
    A lot of people incorrectly believe that if they're in the 22% bracket then all of their income is taxed at 22%. In reality, every dollar you earn has its own tax rate. Your effective tax rate is equal to your total tax paid divided by your total income. Your highest tax bracket is called your marginal tax rate.
     
    Traditional vs Roth Qualitative Explanation
    When you contribute to a Roth account those dollars are taxed first, which is based on your (high) marginal tax rate. When you eventually withdraw that money, no taxes will be owed since they were already paid.
     
    When you contribute to a Traditional account those dollars go into the account tax-free, which means you get to avoid that (high) marginal tax rate. When you eventually withdraw that money, it will be taxed, but it'll fill up your lower tax brackets before you get to your highest tax bracket. This is why the Traditional account is very likely to be superior for most folks in most situations.
     
    Traditional vs Roth Quantitative Explanation
    Just for fun let's put this into mathematical terms. Suppose you invest P dollars in each type of account for N years and you get an annualized 7% return:
     
    Traditional Value = $P * (1.07)^N * (1 - TaxRateInRetirement)
    Roth Value = $P * (1 - TaxRateWhileWorking) * (1.07)^N
     
    You can see there are common terms in those equations so let's get rid of them:
     
    Traditional Value = 1 - TaxRateInRetirement
    Roth Value = 1 - TaxRateWhileWorking
     
    We know the TaxRateWhileWorking is equal to your (high) marginal tax rate while you were working. We know your TaxRateInRetirement will be based on that money filling up the lower tax brackets during retirement. So if TaxRateInRetirement is less than your TaxRateWhileWorking then the traditional account will generate more value.
     
    What if my retirement income is greater than my income while working?
    First of all, if you fall into this case then you've got nothing to worry about in retirement, but it is true that a Roth may become more appealing since you'll find yourself in higher tax brackets in retirement. However, even in this case a 100% Traditional may still be better than 100% Roth because you'll get to fill up the lower tax brackets even if your marginal tax bracket is higher, which may make your effective tax rate lower with a Traditional than it is with a Roth.
     
    The most important thing to say about this case is that you made a big mistake while planning for retirement because you oversaved significantly. You would have been better of retiring earlier or spending more money during your working years.
     
    What if other income fills up my lower brackets during retirement?
    If you have social security income or income from a pension then that'll fill up your lower brackets first, making a Traditional less appealing. Notice that I didn't say it makes a Roth superior. The odds are the effective tax rate associated with your Traditional withdrawals will still be appreciably less than your marginal tax rate while working because you will likely still take advantage of some of the smaller tax brackets and your marginal tax rate in retirement likely won't be higher than your marginal tax rate while working anyways. This scenario just reduces the appeal of Traditional, it doesn't eliminate it.
     
    What about Roth conversions?
    Suppose you saved a bunch of money in a Traditional and when you retire you aren't taking social security or any other forced income like pensions. Well you can convert that traditional money to a Roth account, which means the first group of dollars won't be taxed at all, the next group of dollars will be taxed at the lowest rate, and so on. This is a best of both worlds scenario where you can avoid your (high) marginal tax rate while working and pay rock bottom tax rates to convert it to a Roth later in life. This increases the appeal of using Traditional accounts.
     
    What if tax rates change?
    I commonly see people destroy their portfolios by making decisions based on their personal politics. My advice to you is to simply not engage with this thought pattern at all. Taxes may go up when you retire or they may not. If you indulge in this scenario it is often the Liberals who are most apt to increase tax rates, but remember their philosophy is about raising taxes disproportionately for the wealthy. If you're wealthy you'll be fine regardless. If you're not wealthy, then even in this scenario (which may or may not come to pass) your taxes may not increase too much. Again, just don't even engage in this line of thinking. Nobody knows nothing as they say.
     
    My Thoughts
    I view this Traditional vs Roth discussion as an optimization that ultimately won't have a huge impact on you. If you haven't already figured out how to minimize your spending, maximize your saving, and reduce costs to as close to 0 as possible then you shouldn't even be thinking about Traditional vs Roth. However, if you begin to think about Traditional vs Roth just know that nobody can give you a definitive answer because it depends on future tax rates, market performance, when you'll die, when you'll take SS, if you have a pension, if your pension will be cut due to poor funding, and so on.
     
    Most people in most scenarios are probably better off using a Traditional account for the reasons described above. In an ideal world you'd invest exactly enough in a Traditional account such that every dollar you withdraw is taxed less than or equal to your marginal tax rate while earning that initial investment and every other dollar should go to a Roth account. Again, nobody can tell you that magical number because we can't see the future. Another rule of thumb, if you're in the beginning of your career and making almost nothing, but you'll quickly climb the income tax brackets (like a young doctor for instance) then a Roth is your friend early on...or if you're temporarily in a low income situation (maybe you got fired, maybe you took a couple years off to raise a kid, whatever) then a Roth may also be great for you. But generally, I think Traditional is best. If you want to address these unknowns by investing in both, that sounds reasonable to me too.

  7. On 7/26/2020 at 8:10 PM, eggbread said:

    My realtor's advice is to wait until all the government forbearance programs run out and see how the housing market looks then.

    I've heard it all from Realtors over the years. Just remember that nobody can predict any market. Your agent is telling you to time the housing market. If you want to own a home (and there are lots of reasons not to) then find the home you want and buy it, that's my two cents.

     

    On 7/26/2020 at 8:10 PM, eggbread said:

    Between Fidelity and Vanguard, which is more beginner and user friendly, if there is such a measure?

    I prefer to not have to worry and think about my money too much, but I am also beginning to get interested in investing in stocks and such. Is there an option to satisfy both needs, along with my house purchasing plan?

    They're both super user friendly and we can guide you. I'd go with Fidelity because they're a little bit cheaper, but don't fret either way.

    I hope you're not talking about individual stocks. What you need is a total market index fund that, as the name implies, purchases all of the stocks. You don't do anything except keep investing money the moment you have disposable income (regardless of what is happening or not happening in the market, see my note on market timing above).

    You may want to read the Investing 101 page I wrote.

    On 7/26/2020 at 10:56 PM, whyme said:

    I think the down payment should be separated from the retirement investments: the house payment is for use in the near future, it's not being invested for your retirement decades from now.  Someone else here may be able to identify an advantage to mingling those funds within a retirement account, but I can't think of any.

    If you can get money out of a retirement account to buy a house without paying some kind of fee then I don't know about it. Even if you can, I wouldn't want the hassle and for what? To avoid paying a few bucks on tax as you hold the money in a high interest savings account or a safe bond fund? I'm trying to simplify my life.

     

    On 7/26/2020 at 10:56 PM, whyme said:

    I should have said don't worry about the 457b YET

    If Fidelity is listed as a 403b provider, there is a very high chance they're an approved 457b provider as well. They're the best 457b in the game.

     

    On 7/26/2020 at 11:17 PM, eggbread said:

    The plan was to borrow that money from myself for the down payment on my house. I think I should be looking into moving the money elsewhere. Where do you suggest the house down payment money be held? Or are you suggesting that I cash it out and hold it in a savings account?

    It sounds like your so called advisor told you to put the money into the tax advantaged account because if you held it outside the account then they wouldn't get commission. Like I said, I don't know the exact rules, but I fully expect you'll pay some kind of fine or fee or interest to take that money out. If it were me, I'd start saving for my house outside of a tax advantaged account and I'd roll that tax advantaged money into a low cost vendor like Vanguard or Fidelity.


  8. On 7/26/2020 at 1:14 AM, eggbread said:

    My main question is, which of the plans offered by my district is the most advantageous to me and my situation? From lurking around the forum, it seems like Vanguard is the way to go? But I would like to understand why, if that is the case.

    Also, how can I tell if the guy that was introduced to me by my district is legit?

     

    I disagree with the advice about CalSTRS Pension. They add on an AUM fee that makes them more expensive than Vanguard and Fidelity, which are your two best options. Both Vanguard and Fidelity let you build a fully diversified portfolio for rock bottom costs. Fidelity is a bit cheaper, but some people like the Vanguard culture better. I'm not going to pick a side myself.

    I documented Vanguard here.

    I documented Fidelity here.

    Well I don't know what you mean by legit, but you can tally up the fees of the plan this person is trying to sell you, compare it to Vanguard or Fidelity, and you'll quickly conclude which is better.


  9. I don't have a definitive answer for this, I'd have to read the rules/regulations. However, I can say two things for sure:

    • If they aren't allowing you to move the money out of Lincoln and into an approved 403b vendor, it violates the spirit of the rules if not the letter.
    • If you terminate employment, you can move the money out of Lincoln, no need to wait for retirement.

  10. To decide between Roth and Traditional you have to understand the progressive nature of our tax code. Let's use the 2020 tax code for a hypothetical single person who has the most simplistic tax situation imaginable...

    • The first $12,400 they earn is taxed at 0% due to the standard deduction.
    • The next $9,875 they earn is taxed at 10%
    • The next $30,250 they earn is taxed at 12%
    • The next $45,400 they earn is taxed at 22%
    • ...and so on until they reach the 37% tax bracket where every additional dollar is taxed at 37%.
    A lot of people incorrectly believe that if they're in the 22% bracket then all of their income is taxed at 22%. In reality, every dollar you earn has its own tax rate. Your effective tax rate is equal to your total tax paid divided by your total income. Your highest tax bracket is called your marginal tax rate.
     
    Traditional vs Roth Qualitative Explanation
    When you contribute to a Roth account those dollars are taxed first, which is based on your (high) marginal tax rate. When you eventually withdraw that money, no taxes will be owed since they were already paid.
     
    When you contribute to a Traditional account those dollars go into the account tax-free, which means you get to avoid that (high) marginal tax rate. When you eventually withdraw that money, that money will be taxed but it'll fill up your lower tax brackets before you get to your highest tax bracket. This is why the Traditional account is very likely to be superior for most folks in most situations.
     
    Traditional vs Roth Quantitative Explanation
    Just for fun let's put this into mathematical terms. Suppose you invest $P dollars in each type of account for N years and you get an annualized 7% return:
     
    Traditional Value = $P * (1.07)^N * (1 - TaxRateInRetirement)
    Roth Value = $P * (1 - TaxRateWhileWorking) * (1.07)^N
     
    You can see there are common terms in those equations so let's get rid of them:
     
    Traditional Value = 1 - TaxRateInRetirement
    Roth Value = 1 - TaxRateWhileWorking
     
    We know the TaxRateWhileWorking is equal to your (high) marginal tax rate while you were working. We know your TaxRateInRetirement will be based on that money filling up the lower tax brackets during retirement. So if TaxRateInRetirement is less than your TaxRateWhileWorking then the traditional account will generate more value.
     
    What if my retirement income is greater than my income while working?
    First of all, if you fall into this case then you've got nothing to worry about in retirement, but it is true that a Roth may become more appealing since you'll find yourself in higher tax brackets in retirement. However, even in this case a 100% Traditional may still be better than 100% Roth because you'll get to fill up the lower tax brackets even if your marginal tax bracket is higher.
     
    The most important thing to say about this case is that you made a big mistake while planning for retirement because you oversaved significantly. You would have been better of retiring earlier or spending more money during your working years.
     
    What if other income fills up my lower brackets during retirement?
    If you have social security income or income from a pension then that'll fill up your lower brackets first, making a Traditional less appealing. Notice that I didn't say it makes a Roth superior. The odds are the effective tax rate associated with your Traditional withdrawals will still be appreciably less than your marginal tax rate while working because you will likely still take advantage of some of the smaller tax brackets and your marginal tax rate in retirement likely won't be higher than your marginal tax rate while working anyways. This scenario just reduces the appeal of Traditional, it doesn't eliminate it.
     
    What about Roth conversions?
    Suppose you saved a bunch of money in a Traditional and when you retire you aren't taking social security or any other forced income like pensions. Well you can convert that traditional money to a Roth account, which means the first group of dollars won't be taxed at all, the next group of dollars will be taxed at the lowest rate, and so on. This is a best of both worlds scenario, where you can avoid your (high) marginal tax rate while working and pay rock bottom tax rates to convert it to a Roth later in life. This increases the appeal of using Traditional accounts.
     
    What if tax rates change?
    I commonly see people destroy their portfolios by making decisions based on their personal politics. My advice to you is to simply not engage with this thought pattern at all. Taxes may go up when you retire or they may not. If you indulge in this scenario it is often the Liberals who are most apt to increase tax rates, but remember their philosophy is about raising taxes disproportionately for the wealthy. If you're wealthy you'll be fine regardless. If you're not wealthy, then even in this scenario (which may or may not come to pass) your taxes may not increase too much. Again, just don't even engage in this line of thinking. Nobody knows nothing as they say.
     
    My Thoughts
    I view this Traditional vs Roth discussion as an optimization that ultimately won't have a huge impact on you. If you haven't already figured out how to minimize your spending, maximize your saving, and reduce costs to as close to 0 as possible then you shouldn't even be thinking about Traditional vs Roth. However, if you begin to think about Traditional vs Roth just know that nobody can give you a definitive answer because it depends on future tax rates, market performance, when you'll die, when you'll take SS, if you have a pension, if your pension will be cut due to poor funding, and so on.
     
    Most people in most scenarios are probably better off using a Traditional account for the reasons described above. In an ideal world you'd invest exactly enough in a Traditional account such that every dollar you withdraw is taxed less than or equal to your marginal tax rate while earning that initial investment and every other dollar should go to a Roth account. Again, nobody can tell you that magical number because we can't see the future. Another rule of thumb, if you're in the beginning of your career and making almost nothing, but you'll quickly climb the income tax brackets (like a young doctor for instance) then a Roth is your friend early on...or if you're temporarily in a low income situation (maybe you got fired, maybe you took a couple years off to raise a kid, whatever) then a Roth may also be great for you. But generally, I think Traditional is best. If you want to address these unknowns by investing in both, that sounds reasonable to me too.

  11. On 7/23/2020 at 1:21 AM, Amelia said:

    approved vendors are: AIG/Valic, Ameriprise, American Funds, Aspire, AXA, Foresters, Great American, MetLife, Reliastar, Security Benefit, and Voya.

    Security Benefit's NEA DirectInvest is clearly your best plan. I documented the fees and how to build a fully diversified portfolio with the funds they offer, check that out here

    On 7/23/2020 at 1:21 AM, Amelia said:

    asking for details about Aspire specifically

    Although Aspire is a plan worth using for those without better options, you clearly have better options. I documented the Aspire plan here.

    On 7/23/2020 at 1:21 AM, Amelia said:

    I also have an IRA with Fidelity that is invested in a target date fund: Fidelity Freedom 2045 (FFFGX)

    That is an actively managed fund that charges 0.75% per year, which is expensive. You can get the index variant of the 2045 target date fund for 0.12% per year, which is an 84% reduction in fees.

    Alternatively you could use the following three funds to build an equivalent portfolio and pay even less in fees:

    1. FZROX (total domestic stock) = 0.00% fee per year
    2. FZILX (total international stock) = 0.00% fee per year
    3. FXNAX (us bonds) = 0.025% fee per year
    On 7/23/2020 at 1:21 AM, Amelia said:

    Moving forward, this will definitely be my funding priority, although I still won't be able to max out for the foreseeable future. 

    In IRA has a $6,000 yearly contribution limit, $7,000 if you're 50 or above. Depending on what funds you buy in your IRA it'll be cheaper than the funds you buy in Security Benefit's NEA DirectInvest so putting all of your money into the IRA could make sense. On the other hand, Security Benefit's NEA DirectInvest waives their annual $35 fee if you exceed $50,000. Just a few minor details to be aware of.

    On 7/23/2020 at 1:21 AM, Amelia said:

    does anyone have suggestions for how best to use my 403B funds? 

    I'd recommend you read the Investing 101 page I wrote here. Then I'd recommend you:

    1. Identify your desired asset allocation.
    2. Rollover your expensive 403b into the lowest cost vendor available to you (Security Benefit's NEA DirectInvest).
    3. Buy the funds in the cheapest possible way across all of your accounts such that together they meet your desired asset allocation.
    4. Stick to your plan and invest every spare dollar the moment it becomes available regardless of any other factors (particularly whether the market is up, down, or sideways).
    On 7/23/2020 at 9:46 AM, tony said:

    check if you qualify for your state 457b plan

    I agree with this in general. However, I'd put this at the bottom of your priority list because:

    1. You presumably don't have money in a bad 457b at you current employer.
    2. You need to get the money out of your high fee 403b to a low cost 403b.
    3. You're not even maxing your IRA so you're a long way from needing another 19k in tax-advantaged investment space.
    On 7/23/2020 at 2:18 PM, tony said:

    Often this happens because districts themselves are financially illiterate

    Yup, incompetence and ignorance are more frequently the culprits compared to malevolence.


  12. 1 hour ago, Tricia C. said:

    I think that may not all be the case now..  My husband (inspired by my own financial legwork) went looking into his Robinhood account and said that the company has begun rolling out fractional share purchases (which includes its ETF offerings). 

    You’re right. It looks like some companies have begun to allow it and others haven’t. Here is a fairly recent article about Fidelity moving in the right direction:

    https://www.cnbc.com/2020/01/31/fidelity-now-offers-fractional-investing-to-all-investors.html

    1 hour ago, ScottO said:

    I appreciate Bogle's work too much to jump ship(I'm such a Vanguard supporter that I'm using nautical references.)

    😆 I suspect Vanguard would look a bit different today if somehow Bogle never left the helm.


  13. 9 hours ago, Tricia C. said:

    I read about them but would like to know what you guys think of ETFs vs. Mutual Funds.

    ETFs are so similar to mutual funds that the differences are irrelevant for the long term investor:

    • ETFs can sometimes be a little cheaper. For example the Vanguard Total Market ETF (VTI) costs 0.03% which is slightly less than the equivalent mutual fund (VTSAX) at 0.04%. I don't use the word equivalent lightly, they literally hold the same investments.
    • ETFs don't allow you to buy fractional shares like mutual funds do. So if the ETF costs $100 a share and you've got $199 then you'll be buying one share and sitting on the $99.
    • When shares of an ETF are sold you have to deal with what is called the bid/ask spread. I won't explain it because I've never had to deal with this personally, but it is a slight complication relative to mutual funds.
    • You can sell shares of an ETF in the middle of a trading session and get the current price whereas mutual fund sales always get the end of day price. This feature is meant to appeal to speculators/day-traders. If you're excited by this feature then you're probably doing things that are bad for your financial health.

    As long as you invest disposable money every time you get it and you don't sell until you need spending money in retirement, then it really doesn't matter whether you use ETFs or Mutual Funds. I'm personally 100% mutual funds because there are so many things I need to learn in life and I didn't feel like throwing the bid/ask spread onto that pile.


  14. 3 hours ago, Tricia C. said:

    using the Dogs of the Dow approach for some years now. I do the Pups of the Dow and not all 10 of the dogs.  I'm sure you've read about this approach to equity investing,  
    https://www.dogsofthedow.com/. Would love to hear your thoughts about it if any!

    I may not know all of the details of this approach, but I'm against it, somewhere between strongly against it and moderately against it. I hold this view for many reasons.

    1. I believe in diversification. This approach asks that people make concentrated bets on a handful of companies. We could get into technical and academic discussions about how many companies you need to own in order to capture most/all of the diversification benefit? Is there a point of diminishing returns in terms of diversification? We could go on and on. I believe that number is much higher than 10, but I also believe it is a moot point because it is essentially free to diversify across thousands of companies.

    2. Lots of people think dividends are "free" money. That isn't at all how it works, your total return from owning stocks is Company Growth + Dividends. If a company is issuing dividends it's because they don't see a way to efficiently use those funds to grow the business, so they just give it to shareholders instead. When a company issues a dividend, the stock price immediately drops to reflect the fact that the company is literally less valuable than the day before. When a company issues a dividend, they aren't reinvesting in the business, which obviously limits growth. From an investor's point of view, dividends in a taxable account generate uncontrollable tax bills for you every single year!

    If theoretical Company A had a 10% return based entirely on growth and 0 dividends and Company B had a 10% return based entirely on dividends and no growth, I'd prefer to own Company A because I'd have the same return, but no tax bill.

    As a corollary, my biggest pet peeve about people specifically wanting high paying dividend stocks is this weird belief that using the dividends to pay bills is somehow different than owning stocks that don't pay dividends and selling off a few shares to pay bills. They're virtually identical, but depending on your tax situation, the latter may actually be superior because you can sell shares in a way that guarantees it is taxed at 15%, but some of your dividends will likely be unqualified and taxed as ordinary income.

    3. I fundamentally reject the notion that anybody can consistently beat the market. This approach is claiming to do just that.


  15. 17 minutes ago, Tricia C. said:

    Currently deciding on which company to open my taxable account with--Vanguard or Fidelity. I was wondering if any of you may have strong opinions on one over the other.

    No strong opinions, but I definitely have opinions.

    Fidelity is the best in the game in terms of expense ratios:

    • FZROX (domestic stock): 0%
    • FZILX (international stock): 0%
    • FXNAX (us bonds): 0.025%

    Compare that to Vanguard:

    • VTSAX (domestic stock): 0.04%
    • VTIAX (international stock): 0.11%
    • VBTLX (us bonds): 0.05%

    Fidelity announced the Zero funds in August of 2018, so almost two years ago. One of the ways they save money is by creating their own index instead of paying to use the CRSP US Total Market Index for instance. That means their funds are likely to have slightly different performance than a comparable Vanguard fund:

    • Since 8/2/2018 FZROX returned 16.38% vs VTSAX at 16.32%
    • Since 8/2/2018 FZILX returned 0.40% vs VTIAX at -0.49% (I've never been very happy with the performance from Vanguard's international fund)

    I'm not pointing out this data to predict that Fidelity will continue to outperform. I'm trying to highlight the fact that you should expect slightly different performance in small (and possibly large) time windows because the indices differ slightly. On the international side that over-performance can't be attributed to just 0% fees, but on the domestic side you can essentially attribute that over-performance to 0% fees.

    One thing to consider, if Fidelity somehow decides the ZERO funds (or even the low cost index funds) are a failed experiment, they can close the fund or raise the expense ratios. If they close the fund and you own shares in a Taxable account, then you're going to owe some tax. If they raise the expense ratio, well now you get to choose between selling out and paying taxes or paying higher expenses. I don't know how to assess the probability of something like that happening, but I can see why some people take comfort in Vanguard since they were born out of helping the investor and Vanguard is essentially owned by the people who buy the fund...Fidelity on the other hand is in it for profit.

    Another thing people have pointed out is that Vanguard has some kind of patented/proprietary scheme that make their fund more tax efficient. I'm not sure when that patent runs out and I'm not sure how much more tax efficient Vanguard funds are relative to Fidelity (or even if they are). You should look that up...how big are the distributions from each fund and what is the split between qualified/unqualified.

    If I were starting from scratch I'd probably use Fidelity. I was already heavily invested in Vanguard and I move slowly in terms of investments so I wanted to let them build up a few years of data before I decide to switch or not.

    Even though I've typed a novel, I don't think this is a terribly important decision.

    44 minutes ago, Tricia C. said:

    For investment purposes, should I account for emergency fund, CDs, HYS when re-balancing my portfolio?

    Yes! Your portfolio represents everything you own. As a human being you have some "ideal" asset allocation that best fits your personality. Therefore, I account for all of my assets when determining if I meet my asset allocation.

    As a general rule of thumb, you should never think of your assets in "buckets" that have to each meet their own individual asset allocation. I won't get into the details, but "buckets" leads to poor decision making, higher fees, higher taxes, and all kinds of silly problems.


  16. It's a bit annoying that Schwab appears to charge transaction fees for non-Schwab funds, but that's fine.

    I didn't look closely, but quickly browsing what appears to be the only funds they don't charge fees to buy/sell:

    1. You've got all of the Schwab Target Date Index funds at 0.13%
    2. The three fund portfolio we talk so much about (SWTSX at 0.03%, SWISX, at 0.06% and SWAGX at 0.04%)

    I'm too lazy to read through this thread, but if there aren't any other fees then these options will give you better diversification with lower costs. The only fund directly available at Valic worth your attention was the Vanguard S&P500 fund at 0.04%....but the domestic Schwab fund is better diversified and only costs 0.03%. Valic didn't give you good options for bonds or international stocks, Schwab does.

    ...I didn't see where Schwab would charge you $1 to purchase their funds. I'd double check that.


  17. Ultimately I believe this is going to be the superior option. I'm too lazy to read through all 5 pages of this thread, but is the $50 account maintenance fee charged by Valic regardless of whether or not you use Schwab?

    You're going to want to have a look at the NTF (no transaction fee) funds...my guess is you'll have access to a wide array of low cost index funds.

    You'll never use a broker to execute a trade.

    You won't be day trading so their 90 day comment should be irrelevant to you.


  18. Probably an unpopular take, but Amazon is a dumpster fire from a user experience perspective. When I search for products:

    • I consistently get results that in no way match my query; this is a well solved problem in computer science.
    • I consistently get results that I'm not allowed to buy because I don't have Prime or Pantry or whatever other package they sell.
    • I don't believe they allow you to sort on a price/unit basis.
    • They also don't show you the all in cost of buying something....some include shipping while others hide the cost of shipping until checkout.

    I understand the barrier to entry is extremely high, but what a weakness in their system. It's shocking.

    ...also, no human being could ever need more than a couple million and no human being has ever done something that is "worth" billions and those who have come closest were definitely not paid billions.


  19. I’m struggling to think of a lie bigger than the economy awards hard work with money. I promise you every time I got a higher paying job, it requires less work.

    The wealth distribution in America is a result of political choices we started making in the 70s that hurt working people. It isn’t complicated.

    ...and somebody with 2.8M who doesn’t consider themselves to be rich and thinks by consolidating even more wealth they’ll be helping everyday people, do we really need to hear anything that person has to say on wealth? Completely out of touch. 


  20. 1 hour ago, GA teacher said:

    Is it safe to list all those here?  I want to share with you all but with general public I feel hesitant

    You have to do what is comfortable for you. I'll show you how safe I think it is. With this information folks could give me pretty specific answers to financial questions:

    Basics

    Status: Single

    Emergency funds: 2 months in cash.

    Tax Bracket: 22% federal, 0% state

    State of Residence: Florida

    Age: 36

    Current Retirement Assets

    Portfolio Size: $1,025,000

    Asset Allocation: 70% Total Domestic, 30% Total International, 0% Bonds

    Taxable: 75% of portfolio

    Traditional Accounts: 20% of portfolio

    Roth/HSA Accounts: 5% of portfolio

    Funds Available

    Taxable/IRA/HSA: Anything

    Employer 401k: Vanguard index funds for small, mid, and large cap domestic stocks. Everything else is expensive.

    Contributions = $105,000/year

    Taxable: $71,450

    Traditional 401k: $24,000

    Roth IRA: $6,000

    HSA: $3,550

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