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EdLaFave

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Everything posted by EdLaFave

  1. I’m currently preoccupied with another task right now, but Google may turn up something. The research referenced in the article linked in this thread concluded that rebalancing lowered returns. I encourage everybody to fact check everything. However, I take this conclusion at face value because it seems so “obvious” to me. Stocks rise faster than bonds, which means most rebalancing events will reduce your stock allocation, which reduces expected future returns. Now for some asset allocations, it would not surprise me if rebalancing increases “risk adjusted returns” and for folks who already prefer those allocations, that is an awesome free lunch. However, even in the cases when/if risk adjusted returns are increased, I still expect total returns to be reduced. ...again fact check me, I’m basically 100% stock so I have no reason to be an expert on this issue.
  2. For reference, the US stock market as a whole was up 8.6% in January. The S&P500 had its best January since 1987. I was surprised by the rebound and I continue to be concerned about high valuations. The Schiller PE is back up to 29.75, which means stocks are rather expensive. ...of course that doesn’t impact my actions, I still dump every paycheck into stocks.
  3. For any readers confused by all the technical terms: 1. People will tell you rebalancing between stocks and bonds allows you to buy stocks at their low points and enjoy larger returns. On top of misunderstanding the purpose of rebalancing, those folks are also incorrect about generating larger returns. 2. The purpose of rebalancing is to keep the riskiness of your portfolio in line with your risk tolerance. 3. If you don’t rebalance then your portfolio will become more stock heavy over time because stocks increase in value more quickly than bonds. As a result your portfolio generates larger returns because you’ve taken on more risk. ...so this article is telling us what we already know, stocks have a higher expected return and more volatility than bonds do.
  4. I just wanted to tell the OP that I agree with Krow’s analysis. ...also, for what it’s worth, I haven’t taken Krow’s posts to be negative. To me at least, they’ve come across “matter of fact”. I think we’re all just trying to get to the truth and prevent people from getting ripped off and text is a tough medium to communicate through.
  5. If I’m reading that 457b document correctly, it looks like it has domestic funds for 0.01%, international funds for 0.08%, bond funds for 0.04%, and target date funds for 0.15%. If all they add on is a 0.0075% administration fee, then this is the lowest cost option. I’m enrolled in Security Benefit’s NEA DirectInvest and it is a fantastic plan. I documented it here. However, if I’m reading the 457b information correctly then it only makes sense to use Security Benefit if you’re already maxing the 457b. ...also if you’re looking for some reading material to get up to speed then check out the Investing 101 page I wrote. IMO it gives you most of the information you’ll need in a 5 minute read.
  6. These funds in your 401k would allow you to build a fully diversified portfolio for a very low price.
  7. Security Benefit’s NEA DirectInvest plan offers Vanguard Admiral shares, even when you don’t have the $3,000 minimum Admiral shares usually require. I documented the plan here, which has links to source material from Security Benefit.
  8. Just my two cents, but people don’t like to read and they’re not trying to take on extra tasks (especially when everything is working fine in their minds). Maybe referencing official sounding things like books, NYT, and experts like Bogle/Buffet can influence people through an appeal to authority, but I think the most likely outcome is that they won’t do homework on their own. Expect to be the person that has to be responsible for educating them, defining the scope of the current problem, identifying the solution, planning the solution, and maybe even doing part of the work to implement the solution.
  9. Krow, you often have knowledge I can’t keep track of. It’s great that you post here.
  10. I would need more information to give a proper response. You may want to read my Reforms page to help solidify your goals. 1. You may need to teach them an Investing 101 course before they understand a word you say. 2. You’ll need to explain why the current options are problematic, perhaps by using one of their popular vendors as an example. 3. You’ll need to explain that other districts have chosen high quality vendors, perhaps by using Vanguard or Fidelity as an example (hopefully a nearby district or your district has them). 4. You’ll need to propose policy changes. The holy grail is to have a single elite 403b and 457b vendor that only has target date, fixed allocation, and total market index funds...even better is to have a policy of auto-enrolling employees in the plans with a default contribution rate directed towards a target date fund based on the employee’s age. If you offer more information, I’ll probably have a lot more to say.
  11. I don’t have much time to post, but here are five quick thoughts: 1. Don’t dwell on the past. I wrote a blog about how the advisors are the ones to blame. Just move on and devote your energy to the future and what you can control. 2. I documented the best plans offered in Florida (proxy for the nation) here. You’ll find a link to information about Security Benefit’s NEA DirectInvest there. 3. There was some ambiguity in your posts. I don’t know the transfer rules between a 401k and 403b, but if a transfer is possible, I’m not sure why it would be a taxable event. That may be something worth googling. 4. It is worth your time to study all of your options. 5. It seems lots of people who use Traditional retirement accounts through their employer also use Roth IRAs. Unless you’re ineligible for a Traditional IRA, I think that is likely a mistake. This blog articulates most of the reasons I hold that view.
  12. It is my understanding that Security Benefit offers DirectInvest in all of their plans. You can read on my site about how I was told I wasn’t allowed to enroll...they were either lying or misinformed. So don’t take no for an answer.
  13. Just wanted to add emphasis... Not only do you not need them, but they’re bad for your financial health. Even in the rare case where they aren’t exploíting you, it still costs a lot of money to pay for a professional. On top of that, we could teach you everything you need to know in an afternoon.
  14. That’s exactly what I meant, thanks for the clarification. Just how high the expenses could be before you’re better off contributing to a taxable account is a complicated question. That depends on the number of years you expect to remain in the plan, current tax bracket, expected tax bracket in retirement, possible tax code changes, and a bunch of other factors. Others have done the calculations and made spreadsheets for it. Personally, I feel comfortable paying around 1% before I feel compelled to perform the calculations. Thankfully, I’m paying around 0.06% instead 😀
  15. Rough rule of thumb for how to evaluate your plans: it better have low cost total market index funds and as far as costs: Elite Plans 0.06% for a three fund portfolio. 0.15% for a one fund portfolio. Acceptable Plan 0.2% for a three fund portfolio. 0.3% for a one fund portfolio. Unacceptable Plan Anything more costly. Other Comments You might want to read my Investing 101 page to get a basic understanding. You might want to read about the best plans I’ve studied that are offered in Florida (proxy for the nation). I’m enrolled in Security Benefit’s NEA DirectInvest; it is an elite plan and I love it I documented it here. I can answer any questions you have and help you through it. I agree you should identify all of your 403b and 457b options.
  16. Knowing the investment options at each vendor is a must. If there is a plan that only charges a 5% load (sales fee) and has access to low cost, total market index funds then it would be something to consider if you’re planning on having a long career at this school district. If voya has low cost, total market index funds then the 0.8% fee is your lowest cost option. It is still high and I encourage you to get your district to add Vanguard and Fidelity, but it looks like the best option you have.
  17. Let me acknowledge that lots of people don’t have the skills to earn enough to invest and still others prefer consumerism over investing. Speaking to the minority of people who aren’t in those two groups... It really is as simple as I described. Everything you need to know can be written on an index card and explained to you in an afternoon. From there it just boils down to having the self control to execute. The solution isn’t complicated. Aside from being born rich, there are no shortcuts. You will likely need to at least partially embrace the notion that the value of a human being is entirely unrelated to the things they own and the things they own can at best bring fleeting happiness.
  18. There isn’t any remarkable advice to give. 1. Do everything in your power to make as much money as you can (earn a valuable degree, ask for promotions, interview for new companies yearly, etc). 2. Stop spending money (get roommates, reject consumerism, drive a used/cheap car until it is scrap metal or better yet ride a bike, live in a safe but modest space, cook healthy food at home, keep physically active, etc). 3. Invest every dime in total market index funds and max out tax advantaged accounts before you put the rest in a taxable account. It isn’t complicated, but it does require a highly paid skill set and/or a radically different set of values than most Americans have.
  19. 5 million is roughly 167 years of expenses for me. Better keep working 🙄
  20. That’s really awful news. He is the only person in the investment industry that I admire. I guess all we can do is to keep passing on everything he taught us.
  21. I think Steve got the link right. This page documents the plan, this page documents specifically what I did to enroll, and this page documents the roadblocks people put in my way. Let me know if you have any questions. One thing to consider is that by not contributing to an IRA (at least before maxing the 403b), you’ll more quickly hit the 50k mark, which is when SecurityBenefit waives the $35/year fee. This is a really small optimization, but it gives the added benefit of simplicity and may be worth exploring.
  22. The biggest point to be made about the superiority of Traditional accounts centers on the nature of our progressive tax code... Every dollar you contribute to a Roth is taxed at your highest marginal tax bracket. However, when you pull money out of a Traditional, some of your money isn’t taxed at all (standard deduction) and then you get to fill up the lower tax brackets before you hit that top rate. That means your effective tax rate from Traditional withdrawals is likely to be much lower than the tax rate of Roth contributions (i.e. your highest marginal rate). Most people (or at least most savers that live below their means) have more taxable income when they’re working than they do during retirement because they have expenses they don’t necessarily have in retirement. For example, in retirement you may not be paying for kids, a mortgage on a family home, multiple cars, or income tax on money that you invested in a taxable (or Roth) account. Therefore it isn’t likely that you’ll be in a higher tax bracket during retirement than you were when you were working. Because of all of this, the vast majority of people will pay less in total tax if they invest in a Traditional, which is demonstrated by the following (rough) equations: Roth Value = $1 * (1 - HighestMarginalTaxRate) * (1 + InvestmentReturn) ^ NumberOfYears Traditional Value = $1 * (1 + InvestmentReturn) ^ NumberOfYears * (1 - EffectiveTaxRate) There are cases where a Roth is superior and the argument above assumes no changes to the tax code because I can’t accurately predict how it’ll change. For a more detailed argument: https://thefinancebuff.com/case-against-roth-401k.html
  23. I’ll never embrace a downturn because it means real people will be hurt in very real ways. Suicides, lost homes, lost jobs, lost savings, poverty, lost healthcare, lower economic output, and so forth. I don’t think an economy has to function in the extreme boom/bust fashion that I’ve observed over the past twenty years. I regard this as a societal and political choice we’ve made, not an intrinsic quality of markets. If I were going to work into my mid-40s then I’d personally be more accepting of a downturn, but I still wouldn’t embrace it. I’ve been open to quantitative arguments against FIRE. I’ve been open to arguments about how many years of expenses you need for a safe retirement in perpetuity. The only argument I’ve heard against retiring with 33x annual expenses is, “you never know.” I’ll remain open to arguments, but it has to outweigh the fact that I only have so many years alive and I know I don’t want to spend them in an office grinding away.
  24. Come on, of course I didn’t think markets would go up forever. I’ve felt markets were overpriced for a little while...and still do. Since graduating, I’m not sure I’ve gone a single paycheck without buying stock. I’ll never embrace a downturn; I’ll accept a downturn. I’ll always embrace a bull market. There is a near 0% chance of me working into my mid-40s. Basing retirement on an arbitrary age isn’t sensible. It is a calculation that depends on years of retirement, spending needs, and portfolio size.
  25. Rebalance is one of those overloaded words, but for me it means selling what you have too much of to buy what you have too little of. If you direct new investments towards the asset class that you have too little of, then rebalancing should be very rare. I started investing in 2007 and haven’t had to rebalance a single time. My yearly investments are 13% of my portfolio value. Once my new investments are dwarfed by my portfolio size, then directing new money towards underweight asset classes may not be enough and a true rebalance may be necessary.
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