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EdLaFave

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Everything posted by EdLaFave

  1. I don’t know. I’m not sure that when a downturn happens is particularly relevant because aren’t we going to experience multiple downturns before retirement? The article suggests starting off with a bear market followed by a bull market is superior to the reverse, but that analysis stops calculating right before the next impending bear. I suppose if you wanted to maximize your results you’d have a bear market during your highest earning years? I suppose that may or may not require that you start with a bear market? If you’re cheering for a pullback because you think returns have been based on speculation, I guess that’s one thing. However, aren’t some pullbacks caused by a poorly structured economy that causes real economic damage to parts of the economy that were well structured (2008 crash for instance)? That doesn’t just return us to sane levels, it actively hurts us. Nobody should be cheering for that because it depresses profits, not just speculative returns, right?
  2. The plague is a really interesting example. I wonder how the European economy was structured then. If the goods/services the laborers produced were consumed by those same laborers, then I wouldn’t expect a change in wages because although you lost a third of laborers, you also lost a third of consumers. Suppose the laborers weren’t also the consumers, then maybe consumption wouldn’t fall in proportion to the deaths of laborers. In this scenario I can imagine laborers benefiting because the labor supply shrunk faster than the labor demand. I’m really interested. Where are the economic/history teachers who can lay this out for an ignorant person like myself?
  3. You’re suggesting that population growth has had a negative impact on wages. It isn’t clear why you’re drawing that conclusion. Your last comment seems to suggest you’re saying that not enough jobs were created to accommodate the new population? The fact that we have historically low levels of unemployment suggest that job creation isn’t the problem. That conforms to my view that when people are added to our population, they create jobs because they buy things. Or maybe you’re saying not enough “good” jobs were created? I’d argue there is no such thing as an inherently good job. The issue is that companies have found ways to pay less for “good” jobs, which converted them to “bad” jobs. ...if companies paid employees based on the profit their labor generated rather than the degree to which they can be exploíted, then I think the problem would largely be solved. Getting them to do that is where the real work begins. Every company wants poor employees and rich customers, hard to have both.
  4. I don’t believe that wage stagnation over the past several decades is a result of increasing population. I believe wage stagnation is the result of exploíting dirt cheap labor abroad, permitting monopolies and mega-mergers, automation, and political and judicial decisions that have decimated unions.
  5. Capitalism pays labor as little as possible and that is largely determined by how scarce your skill set is and how organized workers are relative to companies. Here’s a personal anecdote: In a previous well paying job, I told my boss that the company would love to pay me minimum wage, but the scarcity of my skill set made that impossible. I said the company determined my salary by estimating how little they could pay me before I stopped showing up. He adamantly disagreed and claimed they “wanted” to pay me exactly what I was “worth”. Some time later I asked that same boss for a raise based on the fact that other local/equivalent companies were paying more for my skill set and therefore the market had decided I was “worth” more. He denied the raise and insisted I was incorrect in believing I could make more (I had written job offers before having this discussion). I believe companies bet on you being willing to accept lower income because switching jobs is uncomfortable. In my case, that’s a bad bet. This series of exchanges stood out to me because my boss was so desperate to maintain the charade that he continued to make claims that he knew I knew were false. He pressed on against all logic and evidence. Power dynamics and lying have always fascinated me.
  6. Pure free market advocates tell us that when unemployment plummets wages are forced upward due to competition for labor. I’m told it is supply and demand 101, elementary really. Well, we’ve got unbelievably low unemployment and apparently this industry can still capitalize on the financial trouble seniors are in. I struggle to imagine that seniors in the future won’t be in the very same spot. I’m not in the predictions game, but I worry that a consumer based economy is going to have a real problem when so many people lack the money to participate. Over the coming decades I wonder what will come of that.
  7. Aspire is the 4th best plan I've documented, you can read about it here. They allow you to build a fully diversified 3 fund portfolio for a 0.208% annual fee or a fully diversified 1 fund portfolio for a 0.26%-0.3% annual fee. Plus a $40/year fee. I'd prioritize maxing out an IRA. I'd push hard to add Vangaurd (documented here) and Fidelity (documented here) to your 403b/457b list. I didn't bother to look into the state 457b, but from the sounds of it that would be the next be choice. After that I'd opt for Aspire. However, it is worth pointing out that all of these options are superior to investing through a taxable account.
  8. asdf Renting out rooms in your house is a fantastic financial decision. However, with that partial income I remain skeptical that it can be considered an investment when the S&P 500 is historically delivering 7% real returns. A few considerations about renting rooms in your primary residence: It is a decision very few will make. I've found that living alone is literally the first "luxury" my college friends/acquaintances purchased and they purchased it with glee. They seemed to view it as a measure of their success and/or "adulthood". I believe many of them feel bringing in roommates would represent a failure akin to having to move back in with their parents. Living with roommates is also possible when renting. Having roommates creates a steady of work for you because it almost guarantees high turnover and therefore a constant search for roommates. It introduces risk. I don't fully understand the law, but I'm under the impression it takes a while to remove somebody from a property once they've stopped paying for it. There is also the risk of a spoiled relationship and all that it entails. It is a decision that complicates your taxes. I couldn't support that decision more strongly. I have used real estate agents up until this point, but if I'm involved in any further transactions then I will take this advice. I suspect some folks aren't really aware that this is an option. I suspect some folks feel incapable and I suspect some may very well be. I couldn't agree more strongly and coincidentally I believe they have the same minimum required time frame. If you don't intend to own stocks for a decade(s) then don't buy them. If you don't intend to own a home for a decade(s) then don't buy one. I suspect after 10 years of home ownership most people will at least break even relative to renting. I'm not suggesting that ignorance/misunderstanding make home ownership a mistake. I'm not suggesting that owning a home is a mistake. I'm saying that an unacceptably large percentage of people don't understand: How much they'll pay to buy and then sell the home. How much they'll pay in interest. The fact that they'll pay most of the interest in the earlier years of the loan, which means their principal won't change much. How much they'll pay in taxes or that it'll increase over time. How much they'll pay in insurance or that it'll increase over time. How much they'll pay to maintain the home. I'm saying that perhaps because of that ignorance, lots of people buy and sell homes within 5 years and have no idea that they just spent more during that time window than they would have if they remained renters. In fact, most of these people likely believe they actually made money because the sale price was greater than the purchase price. If anybody wants to buy a home and live in for a decade(s) then I say go for it, you'll probably save money relative to renting. However, understand you may still end up at a net loss. Home ownership isn't a cash machine and simply reducing your expenses relative to the alternative is a win. My understanding of the data may be incorrect. I've read somewhere, maybe multiple places, that a good chunk of people sell their home before a decade has passed. Anecdotally I've observed that behavior as well. Remember, I'm 34 so a lot of the folks buying homes that I know are young. They get into a home either realize it isn't right for them or their life changes. I suspect if we're talking about folks in their 40s and 50s you see more long term thinking/behavior. I believe the best financial decision is to buy the cheapest/smallest house in an area that you'll want to live for the rest of your life. Then stay there. I'd advise renting for people who aren't ready to make a decade(s) commitment.
  9. I could easily get side tracked arguing that there are free ways to improve/change yourself, that there are free ways to de-stress, and that promotions often beget vacations rather than the other way around. But my point is that owning a house for less than a decade is often an inferior financial decision relative to renting. Even when you own a home long enough to beat the alternative of renting, you're most likely still going to have a net loss, just not as big of a loss as renting would produce. The collective wisdom that buying a home is an "investment" and is obviously superior because you gain equity and you avoid wasting money on rent...well it is a superficial analysis that ignores math and ignores the reality that a huge percentage of people don't live in their house long enough to offset the large cost of front loaded interest and the costs associated with the purchase and subsequent sale of a home. ...my secondary point is simply that if somebody understands the finances and wants to buy a house for whatever quality of life reasons they may have, fine. However, I bet most people completely misunderstand the financial aspect; I certainly did when I bought my first house.
  10. Keep in mind a dollar 30 years ago is now worth approximately $2.11. The expenses associated with investments are smaller and the gains are larger. There are many valid non-financial reasons to buy a house, but we shouldn’t trick ourselves. Taking a vacation makes no financial sense, but it doesn’t mean we shouldn’t do it, but we should be aware of the price we’re paying and not just assume we’re coming out ahead. You should all forgive yourself for lacking the ability to time the market. It’s like kicking yourself for not successfully going all in on each day’s winningest stock. You’re comparing your actions against an impossible standard with 20/20 hindsight.
  11. Sure I’d love to be able to predict when a crash is coming, followed by another crash just a few years later. Since market timing is a loser’s game, I’ll plan based on the expected 30 year returns of stocks compared to the known 30 year cost of a mortgage. I just think it is important to be clear about this issue, if you’re going to own your home for decades (and probably even a single decade), especially if your interest rate is near inflation, then paying off the mortgage is very likely an inferior choice. The argument for that path is based on emotion, which may be reason enough to do it, but people should be clear about that. People should also be clear that you’re most likely going to lose money on your house even if the price rises. Interest, property tax, HOA, maintenance, real estate agent fees, government fees for selling/buying, and so forth kill you. Maybe you’ll break even when compared to renting after ten years or so. Most people don’t understand this.
  12. Quick thoughts on carrying a mortgage: Mortgage rates over the last few years have been only a bit higher than inflation. Obviously stocks over a 30 year window do much better than that. People seem to like paying off their mortgage because it gives them the feeling of not having expenses. However, property taxes, insurance, HOA, etc are still significant. It’s a wealth tax that never disappears, mortgage or not. Unless you’re going to be buying and selling houses every few years, then it is hard to financially justify paying off the mortgage instead of investing. ...the best justification I’ve read is that emotions aren’t logical and people are paying to rid themselves of the emotional weight a mortgage places on them.
  13. A teacher here in Orlando might make 40k. Let’s tabulate some rough expenses: Housing- 13.2k Rough Tax Estimate- 6k Transportation- 3.6k Food- 3.6k Basic Utilities- 2.7k That leaves us with 10.9k and we haven’t even budgeted anything for kids, pets, healthcare, clothes, vacations, entertainment, mundane expenses like toilet paper, mandatory pension contributions, and so forth. So I don’t see how this 40k hypothetical teacher could possibly max out their 403b. My wife can max her 403b because I pay the majority share of our shared expenses. Plus she is an assistant principal.
  14. I control spending without a budget. I just naturally make reasonable choices and the areas where I spend money, I’m not willing to stop because it brings me happiness. I advocate tracking expenses closely because in order to know how much you need to retire, you must know how much you spend. I advocate tracking spending closely in retirement, especially early retirement, because overspending by a small amount can significantly impact your odds of running out of money. I personally don’t view a budget as a way to force myself to act responsibly.
  15. ...I thought this video was particularly interesting regarding wealth in America.
  16. I'm always interested in these types of things, but I wish the article had better defined their terms. Is the top 1% measured by wealth? Is it measured by income? If so, is it measured by ordinary income, investment income, or both? Is a savings account used literally to refer to a savings account? Does it refer to any taxable account? Does it refer to any account where you have assets?
  17. People who retire, whether it is early or not, need to accurately project their spending. I suspect most folks working towards FIRE are closely tracking expenditures. I think FIRE folks should have a plan in place for growing expenditures: 1) Closely track spending, particularly in the first few years of retirement. If spending grows, then go back to work until you can build up a portfolio to support your higher spending. 2) Before you retire, develop a fallback plan. Maybe that means you'll pick up part time work when you're up for it. Maybe it means getting a roommate. Maybe it means moving to a cheaper house/location. I like the idea of having a fallback plan that can reduce spending by roughly 10k without pushing you into a lifestyle you don't want. When I estimate my yearly spending, I account for everything I can imagine. I amortize the irregular expenses (roof, appliances, cabinets, sinks, lawn equipment, car repairs, etc) and I merely account for the regular expenses (lawn maintenance, property taxes, insurance, electricity, pool chemicals, etc). So the majority of years I come in a good bit under budget, but when I come in over budget it is usually significant. In the end, if I didn't forget potential expenses, it ought to even out. ...additionally, not only would I use a low withdrawal rate (say 3%), but I would also add a buffer to my estimated expenses (say $500/month) for things I'm probably forgetting (mundane expenses like toothbrush heads, sprinkler nozzles, bicycle chain, paper towels, etc are easy to forget in your budget). Can you expand on that? The FIRE folks I know or have read, are just trying to maximize their happiness or reduce their unhppiness depending on your perspective. Morals or right vs wrong don't even enter into the equation. In fact, the only "puritanical moralizing" I've seemed to encounter is that working hard at a career somehow makes you a "good" person and the person who wants to retire to sit at home and relax for decades is somehow "bad".
  18. I enjoyed the read. I keep reading on the topic and I’m becoming more convinced that I’m well suited to FIRE. This subculture is so interesting to me. Just my two cents on the author’s five points (reasonable people will disagree): 1) You will suffer an identity crisis for an unknown period of time. As the author says, this varies based on how much you identify with your job title, which thankfully is 0% for me. I’m always puzzled by people who attach identity to a job that they want to leave. 2) You will be stuck in your head. The author talks a lot about being upset that you’re not “productive,” I never did understand why people derived happiness from productivity and I’ve always enjoyed being “stuck” in thought. 3) People will treat you like a weird misfit. I’ve always felt like an alien in this world where I’ve had to study the behavior of normal people because they frequently behaved in ways that were unexpected. My wife, having worked with autistic kids in school, is now convinced I’m autistic, but very highly functioning. I believe she is correct. Either way, I’ve always embraced the misfit title. 4) You’ll be disappointed that you aren’t much happier. I don’t think it is reasonable to expect retirement to generate happiness. It is reasonable to think retirement will remove a source of unhappiness from your life and then you’ll be left with whatever else you have. 5) You constantly wonder whether this is all there is to life. There is no point to life except for maximizing enjoyment. I’ve never understood the angst around searching for life’s purpose beyond that simple statement; there is no purpose. I’ve also never understood being fulfilled by earning a salary and by making your boss wealthy through your labor. I don’t get it.
  19. One thing I’d like everybody to know about index fund investing (target date or otherwise)... You’ll hear people preach about simplicity. If you’re anything like me, you’ll think they’re saying that you should accept lower/mediocre performance because you can’t handle the complexity. However, it is the low costs associated with this type of investing that will deliver superior performance and it is just a happy perk that it is also incredibly simple! This initial argument of simplicity turned me off to the idea almost immediately and caused my conversion to index funds to be delayed by multiple years while I searched for superior performance. Learn from my mistake.
  20. Can you make the case as to why I personally should not FIRE? I truly want to hear the argument. I won’t take exception to anything you might say, but it may take time to fully set aside my bias and truly hear you. I’m quite looking forward to seeing the documentary. Based on the math I’ve seen, my concern for FIRE folks is that they don’t understand just how aggressive their portfolio needs to be and just how low their withdrawal rate needs to be in order to be “safe” (i.e. not get into a race between a dwindling portfolio and a dwindling, or not so dwindling lifespan). I’ve frequently read some FIRE comments talking about a 4% withdrawal rate from a portfolio with 30-70% bonds...and I worry. In a lot of ways the conventional wisdom of “safe” investing is very dangerous to FIRE folks.
  21. I believe the most useful way to analyze fees is to calculate (after adjusting for inflation) what percentage of your real profits were lost due to the fees. My Investing 101 page has a link to a spreadsheet (could be more user friendly, sorry) that will let you do just that for a variety of parameters (number of investing years, inflation rate, nominal return rate, investment per year, expense ratio, management fee, and sales load). Let's assume a 3% annual real return and a 30 year investing time frame: 5.75% sales load and a 1.25% expense ratio = losing 60.97% of real returns. 5.75% sales load and a 1% expense ratio = losing 52.64% of real returns. 0% sales load and a 0.07% expense ratio = losing 3.08% of real returns. Let's switch the real return to a more aggressive 5%: 5.75% sales load and a 1.25% expense ratio = losing 43.14% of real returns. 5.75% sales load and a 1% expense ratio = losing 37.19% of real returns. 0% sales load and a 0.07% expense ratio = losing 2.21% of real returns. Let's keep the 5% real return and switch the time frame to a shorter 10 year window: 5.75% sales load and a 1.25% expense ratio = losing 49.95% of real returns. 5.75% sales load and a 1% expense ratio = losing 44.85% of real returns. 0% sales load and a 0.07% expense ratio = losing 1.62% of real returns. So the fees you're describing will absolutely devastate a portfolio. I've found that it is easier to get people to understand the impact of fees like this: A 1.5% yearly expense sounds like nothing right? Well lets say you get a typical return of 6% on the year. Guess what? A typical 3% inflation just took away half your return, now you're at a 3% real return. Now the 1.5% yearly expense took away half of your real return. So the 1.5% of your portfolio fee just took way 50% of your returns....it is a big deal!
  22. The idea of getting Fidelity to pay you money to hold your account while you invest in their ZERO expense ratio index funds is attractive. People do similar things with savings accounts and credit cards. In my younger days I would have been all over it, but I’m old and lazy now ??‍♂️
  23. Ask and you shall receive. It wouldn’t surprise me if Vanguard would refuse such a request, but I’d like to hear the results if somebody gives it a go.
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