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EdLaFave

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Everything posted by EdLaFave

  1. Option 1: Keep all of your available assets invested and add to your portfolio whenever you have surplus income. As a result, your portfolio always reflects your ideal asset allocation. Option 2: Keep a significant portion of your portfolio in cash and slowly invest the cash over a fairly significant time period (a year?). Your portfolio will initially be far more conservative than your desired asset allocation until it gradually falls in line. I’d argue option 1 isn’t employing a scheme, they’re just keeping a constant asset allocation. I’d argue option 2 is employing a risk mitigation scheme, which results in a drastically different and variable asset allocation for a period of time. In my mind these two approaches are sufficiently different that we can’t accurately say they’re both doing the same thing even if they both invest regularly. Sure, they aren’t in 100% direct conflict. I suppose one would have to use leverage to short the market to be in direct conflict, but their philosophies are sufficiently different in my view. If somebody needs to employ an inferior and illogical investment scheme to handle a very rare event (windfall) and if that scheme has a limited duration (a year?)...then I suppose they aren’t committing the worst sin, which is why I’ve never argued strongly that somebody shouldn’t do it. My passionate argument is more reserved for a semantic pet peeve and illogical behavior. However, I worry the need for the mental gymnastics stems from a portfolio that is too risky for them to handle. I use market timing to refer to any investment scheme that causes you to change your portfolio based on your perception of the market or your beliefs/fears/greed regarding the market’s fluctuations. Perhaps other people use a different definition. There are certainly more harmful forms of market timing than DCA. At least DCA has a fixed time window and doesn’t encourage taking risky/concentrated positions. I’ve felt the same way my whole life.
  2. DCA isn’t a method of calculation, it’s an investment technique. Words evolve and eventually mean whatever people use them to describe. In my view people are destroying the meaning of DCA just as they have the word “literally”. In my view, Wikipedia has correctly defined DCA. In my view, we don’t need a special term to describe investing on a regular basis whenever you have surplus income. That is by default, plain old investing. To withhold cash from the market for some future time out of fear the market will decline is called market timing. Within that subcategory there are lots of schemes of which DCA is just one. We really don’t need a term to describe non-market timers just like we don’t really need a term to describe non-diabetics (although perhaps there is one). That risk exists regardless of whether you have new money or existing money. Basing future actions on exactly how you got into a particular situation isn’t logical because you are where you are regardless of how you got there. To think otherwise brings us errors like the sunk cost fallacy. If I spent the last 10 years slowly building up a million dollar portfolio then there is a chance that tomorrow the market will begin a huge decline. If I inherited a windfall, spent the last six months DCAing, and now have a million invested there is an equal chance that tomorrow the market will begin a huge decline. If I inherited a windfall today then there is an equal chance that tomorrow the market will begin a huge decline. ...in each scenario, I have to decide today (and every day) what percentage of my assets should be invested in the market. Each scenario is absolutely identical. People would correctly criticize me as a self-destructive market timer if I moved my portfolio into cash with the intention of spending 6 months DCAing and they’d simultaneously and incorrectly consider me a reasonable investor if I kept an inheritance in cash and slowly dripped it into the market over six months. If people plan to behave differently in functionally identical scenarios, it reflects a misunderstanding of reality on their part. DCAing does provide risk mitigation, but using DCAing to mitigate risk isn’t reasonable. That’s what bonds are for and if the risk profile of your portfolio is too high for you to stomach 100% of your assets being invested then your asset allocation is inappropriate and you need more bonds. You don’t need to keep arbitrary percentages of your portfolio uninvested for arbitrary periods of time. You don’t need a portfolio with an arbitrary asset allocation that changes at arbitrary times to arbitrary degrees.
  3. Alright everyone, as they say, I’ve predicted 30 of the last 2 down markets...so is this the moment we begin our return to more (historically) normal prices for stocks? (purely rhetorical because nobody knows anything, this is just meant to commiserate with anybody feeling the pain of losses) The past couple months have been tough. I hope we’re all riding it out well!
  4. I don’t blame the author too much, but I was repeatedly told I couldn’t access my 401k penalty free until an advanced age and it discouraged the notion of FIRE or the use of a 401k. Luckily the FIRE and investing community provided the correct information.
  5. I wish the authors of these articles would be more knowledgeable. They incorrectly say it isn’t possible to withdraw money from your IRA/401k penalty free if you retire early.
  6. I totally understand why somebody wouldn’t get involved and I wouldn’t try to change their mind. However, for me personally, I think people are guaranteed to act unreasonably in certain circumstances. I don’t like the idea of allowing that improper reaction to stop other people/me from doing the right thing and sharing helpful/accurate information. I prefer to limit the fallout of an unreasonable/illogical reaction to the individual person having that reaction.
  7. EdLaFave

    Perspective

    I agree with the sentiment, but it has problems. People don’t have control over a declining market, declining markets are an ongoing event without a known end, stock market declines give you nothing in return aside from the fear of rising unemployment, invested assets are required for security/retirement, and invested assets are usually much larger than some of these items like purchases/sales tax. ...but maybe this framing is more effective than focusing on the temporary nature, inevitably recovery, and higher expected returns than the alternatives.
  8. I’m fighting a lost fight here, but this is one definition of literally per google: ”used for emphasis or to express strong feeling while not being literally true.” 🤷‍♂️ If DCA is investing regularly then I’m not sure what plain old regular investing would be.
  9. Dollar cost averaging is when you take a sum of money and instead of investing it all at once you invest it chunk by chunk over a period of time. Generally people begin to consider dollar cost averaging when they receive what they consider to be a large sum of money. Taking the surplus from each paycheck and investing it is NOT dollar cost averaging because at any given moment in time you’re fully invested. You’re not leaving money on the sidelines based on your fear that the market may decline. Many people frequently and erroneously use the term dollar cost averaging to refer to investing on a regular basis because you earn money on a regular basis. So the term is beginning to lose its meaning, like people using the word “literally” when the word they literally should be using is “metaphorically”. At any rate, DCA is statistically inferior, but it isn’t a terrible thing to do. However, if somebody is too afraid to put their assets in the market all at once then I question the appropriateness of their portfolio’s risk profile and/or their understanding of what they’re invested in and how markets function.
  10. Investing a sum of money into the market over a period of time has a lower expected return than putting it all in at once. Spreading the investment out over time is a mental fallacy. Every day we all decide what percentage of our assets should be in the market. Nobody ever chooses to take out a percentage and drip it right back into the market, which is exactly what you’re doing if you don’t invest it all at once. Market timing is bad for your financial health no matter what form it takes.
  11. If I were betting, I’d bet that the funds-of-funds will remain unchanged for now. However, I imagine they’ll be lowered at some point.
  12. I gotcha. It’s tough for the individual. In my experience, the generally agreed on wisdom is often terrible. So I understand the desire to turn to a pro. However, my experience also tells me the median pro is also terrible. Seems you have to become an expert in everything, which is why the internet is amazing!
  13. In 2016 the median household income was 59k. Whether it is done through roommates, family, or significant others...IMO, the best thing we can do for our finances is to fill as many rooms as possible with people who contribute to housing expenses. That actually reminds me of my childhood when that opinion was first formed. I grew up in Coral Springs (Ft Lauderdale area) and I lived one street away from a good sized community of black/Haitian folks. I remember white people would always look down on them and make snide/racist comments referencing the number of people that occupied each residence. I was amazed by the pride/racism that prevented these white folks from shutting up, listening, and learning because the blueprint was right in front of them (even though the residents probably didn’t have much choice).
  14. I’m still waiting for funds-of-funds to be reduced as well. No reason to add on so many basis points given that everything is Admiral now.
  15. https://educatorsfightingforfairness.wordpress.com/ I don’t do much to advertise. I rarely post on Facebook and Twitter. My site is indexed by the search engines. Almost all of my traffic comes from links I post on Bogleheads and here.
  16. In most cases, nothing is stopping the individual teacher from investing in low cost funds in their 403b/457b. I got Vanguard and Fidelity added to our vendor list and lots of other districts have one of the top 5 vendors or a quality state sponsored 457b on their list already. The obstacle here is getting the individual to care. A legislative solution for the collective has a lot of obstacles. Moe, I encourage you to get to work! I think Steve is right about the value of face-to-face organizing/communicating. I’m a software engineer and not being able to do that the way a teacher can is my biggest roadblock.
  17. My spreadsheet takes into account the tax advantages of a Roth account, which provides year over year tax free growth. Although I have always advocated for Traditional over Roth, I’ve heard many (including posters on this board) tell people to invest in a Roth instead of a Traditional. I view this decision to be an optimization, but I agree with what seems to be the general sentiment in this thread that Traditional is superior to Roth. I did not model a Traditional account for the same reason I didn’t model a taxable account: the calculations would have been far more complex and the spreadsheet already took a bit of time to create. ...I encourage anybody to model the effects of using a Traditional account. More than that, I encourage you to model the effects of using a taxable account when you surpass the Traditional limits. ...I also gave the hypothetical investor the advantage of investing in funds that charge 0% expense ratios. I really tried to give the hypothetical investor lots of tailwinds with my model...I just refused to do that when it added complexity to the model.
  18. Your $19,000 1984 salary was worth $38,882.95 in 2008 dollars. So in 24 years your real salary more than doubled...congrats! Even with an infinite number of years, that is impossible for teachers in Florida. I can't remember the exact figures, but I think Floridian teachers have gotten crazy low maybe even 0% nominal increases for years.
  19. You probably looked at the spreadsheet after I increased growth to 4.5% and increased starting salary to 40k. Yup. I generally tried to make optimistic assumptions for this hypothetical person. No state taxes. No health issues. No entertainment expenses. No vacations. No children. Although I did make one pessimistic assumption, no spouse or roommates to offset the biggest cost which is housing. Feel free to copy the google spreadsheet and play with your own assumptions if you want.
  20. Remember, I'm using real dollars so the number of years I'm projecting into the future doesn't affect the validity of my calculations. If you say the salary is too low, I updated it to the 40k-74k range that OCPS uses and it still takes 40 years to reach millionaire status. If you say the investment returns are too low, I changed it from 3% to 4.5%...and after having increased the salary, it still takes 35 years to reach millionaire status. Historically stocks have a real return of 7% and I'm not entirely sure what it is for bonds, probably around 2%. I'm not willing to go any higher than 4.5% real returns because I've talked to lots of folks (you and Tony for instance) and people seem to need conservative portfolios to stop themselves from "buying high and selling low". The original post was about all workers, not just teachers. The US Bureau of the Census has the individual median income at $31,099...which is WAY less than starting at $40,000 with a 1% real raise every year. The numbers suggest that even with IDEAL spending habits, the millionaire label is impossible for a HUGE percentage of people. If you're suggesting you call yourself a millionaire based on the future growth that you hope arrives, then you aren't a millionaire. If you're saying you have a million in assets before taxation then it is reasonable enough to say you're a millionaire (at least hoping you do things in a tax efficient way).
  21. All right, I'm sure everybody was on pins and needles, you can view my spreadsheet here. The end result is that my hypothetical teacher has to work a full 48 years before achieving millionaire status. A few notes on those calculations: It assumes every dollar is invested in a Roth account. It assumes they remain single, healthy, roommate-less, and child-less. It assumes yearly expenses of $26,058.50 (rent, utilities, transportation, food, clothes, cell phone, and a $250/monthly misc budget). It assumes a real investment return of 3%. It assumes the tax code is adjusted for inflation each year. It assumes they begin at $35,000 and receive a 1% real raise per year. It assumes there aren't any forced contributions to a pension and just routes that money to the Roth account. All of the calculations are done in real dollars because a million nominal dollars in 50 years isn't meaningful. I can modify any of the parameters in the spreadsheet if anybody is curious what affect that would have. I think this makes it clear that a huge percentage of Americans will never become millionaires because this hypothetical person didn't spend their money foolishly and a large percentage of people don't make as much as this hypothetical person.
  22. I’m not kidding... You tell me where the rally is and I’ll bring my pitchfork ✊ Later today I am going to roughly quantify what it takes to become a millionaire so we are no longer speaking in the abstract.
  23. I do think you can tell a comeplling story though... Teachers (almost everybody likes them) are paid so litttle to education our children (our future), they have to buy supplies for the kids, they have to take their work home with them each night...and to thank them for their service we’re letting Wall Street types stroll into the schools and sign teachers up for retirement plans that rob them of up to 100% of real returns. So once the teachers hit retirement age they have little to show for it. ...I think that is a sympathetic story.
  24. I encourage you to try to build a group of teachers to push for reform. But this is what my experience has taught me... The vast majority of teachers will not take a single step to help themselves much less to reform the system to help everybody else. They were happy to provide encouragement (presumably genuine), but not action. Almost everybody that I was able to help found me through my website. However, none of the folks nearby were willing to go beyond fixing their individual situation. The real solution is to get the government to pass legislation that replaces the current 403b/457b with the TSP (or TSP-like system) and to auto-enroll teachers into a target date fund. Otherwise you have to fix the issue at every single district. It would be great if you could get teachers’ unions to back this effort, but my experience there has been pretty dismal. On the other side of the coin, perhaps if I were a teacher and therefore able to pitch more teachers then I would have found more people willing to help. Also, I don’t think you need many people to trigger reform. I got Vanguard and Fidelity added to OCPS (FL) all by myself. However, my prediction is that this problem will continue until one of two things happens: 1) The people being exploíted begin to care about their own exploítation...maybe you can help with that. 2) A group of politicians decide it is politically beneficial to be seen as supporting teachers and they reform the system with the stroke of a pen. ...as things stand right now teachers are happy to be a part of this system.
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