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Everything posted by EdLaFave

  1. I haven’t followed this thread too closely so I apologize if I’m missing key details, but I’d be willing to pay up to $0 to buy and sell mutual funds 😀
  2. Folks with pensions are well served to consider how the pension income and social security will affect their tax brackets and their Traditional/Roth mix. To the extent that people take that great advice, this article is wonderful. To the extent that people walk away thinking Roths are clearly the way to go, this article isn't so awesome. The strength of this statement isn't in line with the rigor of the article. The article relied on an entirely hypothetical scenario rather than real world data. They presented us with a hypothetical person who spends well under 90k per year (salary is 90k, they're investing money, and they're paying taxes) and we're told they'll earn 80k through their pension and social security. Well of course that person wouldn't see the benefit (and will likely be hurt) of a traditional retirement account! You know what else this hypothetical person was hurt by? Working much longer than they needed to and/or living most of their life with a lower standard of living than they could have afforded...and apparently will afford in retirement (assuming they're healthy enough to). Obviously I care about math as we all should 🙂 . Roth investments are superior when: 1) You are going to have more income in retirement than you did when working. Everybody has different goals, but I think most people who could potentially fall into this scenario would be happy to avoid it by retiring earlier and/or increasing their standard of living during their working years. 2) You are currently in an artificially low tax bracket. Maybe you're a doctor in residency, maybe you worked a couple months of the year before taking a break from working, maybe you're a poor teacher getting ready to marry a CEO, etc. 3) You are willing to bet on or hedge against much higher taxes by the time you hit retirement. I understand there is a psychological effect of paying taxes at the end, but as we both know a Roth doesn't avoid taxes...it saddles you with a likely larger tax bill every year leading up to retirement. Any money you take out of a traditional retirement account will be treated as ordinary income. I'd have to google the ins and outs of a 403b, but I figured I'd point this out... With IRAs at least, you can retire as early as you want and access the money WITHOUT paying the penalty. I can't remember the section of the tax code, but I think you basically start taking RMDs early. So the odds are you don't have to rely on your taxable account to fully fund an early retirement. I think can probably use your 403b in early retirement to fill up the lower tax brackets (and maybe even convert some of it to a Roth). I'd modify that slightly... In an ideal world we'd save exactly the right amount in a traditional account to fill up our future tax brackets that are less than or equal to our current top marginal tax bracket and then we'd put everything else in a Roth account. As much as my Republican friends and the ghost of Reagan would vehemently disagree, I'm with Steve on this one. Nobody wants to pay money and nobody wants to waste money, but In my mind at least, tax day is the true celebration of America (not the 4th). Nothing is more patriotic than getting hundreds of millions of people on the same page to pool our resources for the common good because without it we wouldn't have a nation. I don't like that this part of civic life is viewed as awful.
  3. I don’t think this is fair and I don’t think it is the author’s intent. The article was pretty explicit about two things 1) There is evidence that rebalancing between stocks and bonds reduces returns because it reduces risk. 2) The trade off between risk/returns means the decision to rebalance is appropriate for a subset of investors. They seem to suggest that choosing not to rebalance is appropriate for a subset of people. I’d argue if you have the risk appetite for that then you should choose a higher stock allocation from the beginning. I don’t think allowing asset allocation drift is ideal for anybody. I don’t know how you define harm. I define harm as decreasing the odds my portfolio will sustain my retirement, which is closely tied to decreasing expected returns. Shifting my portfolio to be more conservative would do just that. As I’ve said if I were to reduce the aggressiveness of my portfolio then it would require some combination of: 1) Working much longer to build up a much larger portfolio that can sustain the lower returns a conservative portfolio will generate. 2) Reduce my standard of living to a much lower level to get by with a lower performing portfolio. Both of those are huge harms. If I wasn’t willing to accept one or both of them then I’d have to accept the much greater harm that is the risk of running out of money before I die. That isn’t true. I’m not one of those people and going more conservative would harm me as described above.
  4. Rebalancing between stocks and bonds decreases expected returns. When people say it allows them to sell high and buy low, they are incorrectly perpetuating a falsehood that rebalancing increases returns. It does not.
  5. Owning just three stocks (all in the same industry no less!) is giving me anxiety just reading about it. As a general rule of thumb, total market index funds are the objectively superior option. You’re in an interesting moral dilemma. On one hand this money belongs to your relative and they ought to have autonomy over their money. On the other hand their mental illness apparently prevents them from making sound decisions, you’re charged with making the best decisions for them, and I don’t know about the rules, but maybe you’re even financially responsible for your relative if their wealth is exhausted. In my opinion, the responsibility you’ve assumed outweighs respecting your relative’s preference (if it even was a preference, it may have been sheer ignorance) for an unnecessarily dangerous investment strategy. In my opinion, you’d be acting in their best interest by transitioning to a fully diversified, low cost portfolio. If your relative’s mental illness didn’t deprive them of their ability to make sound decisions, then my opinion would be different. From a practical standpoint, I’ve never owned individual stocks. My first question is, what are the tax consequences from getting two million in cash due to an aqusition? Are there ways to mitigate what would appear to be a massive tax bill? When it comes to the remaining investments, are the capital gains so substantial that it would be prohibitively expensive to exchange those shares for a total market fund? I assume it is in a taxable account, but maybe not? At the very least the dividends could be redirected to total market funds. ...I’m sure there is a lot more to say, consider, and learn, but these were my first thoughts.
  6. My taxable account represents more than three quarters of my portfolio and keeping my asset allocation in line has been a breeze. I’ve never had to sell anything in my taxable account for the purposes of rebalancing. Using new money to purchase what I have too little of has been the main reason I’ve never had to sell and buy to rebalance. When my taxable account has too much of something, I’ll turn off dividend reinvestment and use that income to buy what I have too little of. When my portfolio becomes too large for these moderate adjustments to be 100% effective, I can do all of my rebalancing in my tax advantaged accounts (where unlike a taxable account selling doesn’t produce a tax bill). As a result neither my taxable account or my tax advantaged accounts will meet my asset allocation on their own, but collectively they will. That’s one of the reasons people shouldn’t think of each account as a mini-standalone portfolio, think of your portfolio as the cumulative result of each account you have.
  7. Rebalancing is absolutely the right thing to do. I want to be very clear about that. The two are related. Rebalancing returns you to your desired stock-bond split. I might agree with the first part, but there is some nuance worth noting. I argue that it isn’t possible to develop a strategy that allows you to buy low and sell high. Doing so would require short term predictive power and I argue that none of us have that. The only antidote to buying high and selling low is to embrace long term investing and try to adopt Buffett’s ideal holding period, which is forever. Some folks require a less risky portfolio to prevent them from making foolish decisions in a crash. To the extent that rebalancing returns an investor’s portfolio to their personal risk tolerance, rebalancing will help people avoid market timing and panic-selling and thus increase returns relative to the disastrous decisions they might have made. However, rebalancing does not help somebody buy low and sell high and it decreases expected returns if you’re rebalancing between stocks and bonds. This is exactly the correct way to view rebalancing. My views on this are more complicated. Let’s assume somebody is a cold blooded machine and they’ll never panic-sell in a crash. If that person is going to rely on a conservative portfolio to sustain them then they’ll require a much larger portfolio than they otherwise would have. That means they’ll have to work longer or accept a lower standard of living. I believe that would be a terrible decision for this hypothetical person. Let’s assume somebody is prone to panic-selling. The damage that person would do with a risky portfolio is orders of magnitude greater than the damage that a conservative portfolio does to their returns and the additional required years of working. Bonds are awesome for this person. In my view, bonds are purely a hedge against behavioral issues. An insurance policy against you burning your own house down. And bonds also buy somebody peace of mind if they’re the type to get anxious with volatility.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. These funds in your 401k would allow you to build a fully diversified portfolio for a very low price.
  14. 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.
  15. 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.
  16. Krow, you often have knowledge I can’t keep track of. It’s great that you post here.
  17. 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.
  18. 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.
  19. 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.
  20. 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.
  21. 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 😀
  22. 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.
  23. 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.
  24. 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.
  25. 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.
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