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Everything posted by EdLaFave

  1. Good article, I think about this topic quite a bit these days. I started investing in 2007 so I experienced a crash with nearly no assets. I invested regularly without any mental anguish. Things may be different when I lose hundreds of thousands of dollars in the next crash. I’m expecting to move forward like a cold, logical machine, but it should be interesting. I strongly dislike that this quote is treated as wisdom because it is wrong from start to finish: “It’s going to sound terrible, but I’m actually looking forward to the next downturn,” he said of the opportunity to buy stocks at a lower price. “I know it’s an overbought position right now, and I’m just sitting on my hands saying, ‘I can’t wait.’ Hopefully it will go to half the price, and I can gobble up a lot of it.” First of all nobody should look forward to a downturn, it literally destroys lives even if you’re fortunate enough not to know those who suffer most (hint: it isn’t necessarily investors). Nobody knows if stocks are overvalued and if they did they don’t know if it’ll lead to a crash rather than really slow growth. Nobody knows anything and we’re all awful prognosticators. If you think stocks are overvalued then the only rational thing to do is to hold 100% fixed income, i.e. “sit on your hands.” That’s called market timing and it has lost investors unimaginable sums of money. It is the single biggest mistake investors make, even worse than paying high fees. ...the speaker is a cautionary tale, not a role model.
  2. Link isn’t working for me on my iPhone. Haven’t tried to debug it yet though.
  3. Agreed. The thread became more academic than practical at some point. I still hope it’s helpful though ?
  4. I use a spreadsheet to tell me how to keep my allocations in line. So it makes no difference to me if I enter in 48.51% or 49%, but if folks have an affinity for whole numbers, then I totally agree with you...it makes no practical difference. I'd say my ideological purity comes from the desire for asset allocation to conform to market capitalization, which manifests complexity in the form or more funds rather than the precision of a decimal. Not to criticize, but just for the sake of exposing some non-obvious information... This puts 17% of your domestic investment in small cap funds instead of the 6% dictated by market capitalization. This puts 28.7% of your international investment in emerging markets instead of the 17.4% dictated by market capitalization. This puts 27.7% of your stock investment in international which is also out of line with market capitalization. So this is making bets on certain sectors of the market. I suspect you can get closer to market capitalization without adding more funds. Still, I don't consider these bets to be extreme and I have no way of predicting which portfolio will do better. I basically agree, but I want to caution people about a couple things that might be obvious to us and therefore go unsaid. Even if you have a "good" split between stocks and bonds you can still make big mistakes when constructing a portfolio: Choosing high cost funds. Choosing funds that concentrate their risk in one sector like a Health Care or Tech fund for example. Choosing individual stocks instead of owning them all through a well diversified mutual fund (ideally a total market index fund). I also would like to further emphasize your point: as long as you pick something reasonable (well diversified, low cost, and risk appropriate) you'll do fine if you stick with it. Investors under-perform the very funds they invest in because they convince themselves they can make accurate predictions. Given a reasonable portfolio, behavioral mistakes and high fees are your only real obstacles to success!
  5. Funds For the purposes of this post I'll assume you don't have the funds I prefer (I'm rather skeptical of this assumption) and I'll assume that these are the best funds you have: Bonds When it comes to bond allocation, I recognize that stocks can decline by roughly 50% at any point. So I ask myself, how much of my portfolio (and I also convert that to absolute dollars to make it "real" for me) can I both emotionally and financially afford to lose. Then I pick a bond percentage to ensure I don't lose more than that. Only you can select this value, but for the sake of this post I'll assume you can "afford" to lose 45% of your portfolio. So a quick little calculation (100 – 45 * 2) tells us you need a 10% allocation to bonds. International vs Domestic Nobody can tell you what the optimal split between international and domestic is, but for context: US stocks represent about 55% of the world, international 45%. Vanguard target date funds opt for 60% US and 40% international. Guys like John Bogle have suggested 100% US is fine. So I'll assume you want 30% international and 70% domestic. I came to this figure because diversification is important and I won't abandon it, but I'm never inclined to ignore Bogle's advice and he has some reasonable arguments...so we'll try to "split" the difference. Simplest Portfolio Net expense ratio = 0.0246% 63% Fidelity 500 Index Fund (FUSEX) 27% Fidelity International Index Fund (FSIVX) 10% Fidelity Intermediate Treasure Bond Index Fund (FIBAX) The "shortcomings" of this portfolio: 0 domestic small cap Half the domestic midcap it should have Obviously it overweights domestic large cap 0 international small cap A little more than half the international midcap it should have Obviously it overweights international large cap Essentially 0 emerging markets. Complicated Portfolio Net expense ratio = 0.02832% 48.51% Fidelity 500 Index Fund (FUSEX) 10.08% Fidelity Mid Cap Index Fund (FSCKX) 4.41% Fidelity Small Cap Index Fund (FSSVX) 20.52% Fidelity International Index Fund (FSIVX) 6.48% Fidelity Emerging Markets Index Fund (FPMAX) 10% Fidelity Intermediate Treasure Bond Index Fund (FIBAX) This portfolio "improves" on the previous portfolio's "shortcomings" because given the limitations of the funds listed, we're as close to being in line with market capitalization as is possible (i.e. you aren't under or over investing in any asset class like small cap domestic stocks). However, this improvement will cost you an extra 0.00372% (virtually nothing) and twice the complexity. Nobody can tell you with any certainty which portfolio will perform better, but both are excellent because they're very low cost, well diversified, and (possibly) appropriate for your risk tolerance. Final Word If it were me I'd go with the complicated portfolio because I like to be ideologically pure. I suspect the simplicity of the first portfolio will be better for a strong majority of people because it is easier to manage and it makes it more difficult to performance chase and make bets on specific sectors of the market, which people often do by failing to rebalance into the worst performing fund! If you want to change the bond allocation, take it proportionally from each of the other funds...this requires a little math but you want each stock fund to represent the same percentage of stocks that it previously did.
  6. All of my observational evidence suggests the opposite relationship exists. Just a public reminder to all: teachers have all the power they need to change this, so get involved folks!
  7. 403b and 457b plans have slightly different rules that you can read about here and other places if you Google it. Tony also has a great point to consider about stability and your district dropping good 403b plans. If those rule differences aren't particularly important to you then you should choose whichever account type is the cheapest. If you care about the rules difference but there is a large expense delta between your 403b and 457b then you still may want to choose the cheapest one (its a judgement call that's up to you). Otherwise you should choose the account type with the rules that you prefer. Aside from fees I don't expect this to impact returns, so I see no reason to split between the two of them. Also know that you can max both accounts if you have the money to do so. After a very quick review, it seems the New York State Deferred Compensation Plan (457b): Charges a 0.035% fee for accounts above $20,000 and the fee is only applied to the first $200,000. Charges a $20/year fee. Charges a $15/year fee and transaction fees for the self directed brokerage account (not sure what funds are available through this option). A 0.38% fee for a target date fund. A 0.15% fee for Vanguard's Wellington fund. A 0.0084% fee for NYSDCB Equity Index Unitized Account...which might be an S&P 500/Large Cap fund? A 0.0225% fee for NYSDCB Russell 2500 Index Unitized Account...which is a mid/small cap fund. A 0.2% fee for International Equity Fund - Index Portfolio...which is international but maybe not emerging markets? A 0.0198% fee for NYSDCB U.S. Debt Index Unitized Account...which is probably a bond fund? So you can do the math: If you build a 3 fund portfolio with the NYS 457b it'll be cheaper than the 0.208% it costs at Aspire. If you want a target date fund with the NYS 457b it'll be more expensive than the 0.26% - 0.3% it costs at Aspire. If you want the wellington fund with NYS 457b it'll be cheaper than Aspire. I got all of this information about the NYS 457b from: https://www.nysdcp.com/tcm/nysdcp/static/fee_transparency.pdf?r=1 https://www.nysdcp.com/tcm/nysdcp/static/investment_options_guide.pdf?r=1 I'm not sure what the "self directed account" with NYS 457b, which seems to be tied to Schwab, is...so my comments pretend it doesn't exist. You should look into it. ...I'd have to do more definitive research, but my intuition after the initial inspection is to go with the 457b if you can handle managing a few funds. The US stocks and the Bond fund is crazy cheap. You have to pay a bit of a premium for the international fund and it may not even come with emerging market...so I may try to satisfy my international allocation through an IRA or another account, but even buying that fund in the 457b isn't outrageously expensive. ...if you want the target date fund, I'd probably go with Aspire in order to save a few basis points. ...to be extra clear, this only compares the NYS 457b with Aspire, you ought to do a little leg work on Lincoln and the rest.
  8. Are you sure the department of health didn't team up with a company to offer the 403b? It is my expectation that they would have teamed up with one of the regulars (AXA, SecurityBenefit, Voya, etc) to offer the 403b. You don't have any documentation whatsoever? I have heard of states setting up 457bs...folks have recently talking about New Yorks 457b. I haven't heard of that happening in a 403b though (who knows though).
  9. I'll echo what Tony said for the most part... Lincoln Financial has a self directed plan that is apparently very cheap and has access to the index funds needed to build a fully diversified portfolio. However, the plan is only available in certain regions (I think NJ is one and Chicago might be another) so you may want to find out if it is available for you. Search the form and you'll find a bunch of threads on it. Aspire is the 4th best plan I've studied. Yes, they give you access to Vanguard Target Date funds at a fair price, but they also charge a 0.15% AUM fee. Assuming 3% real returns that eats up 5% of your real profits every year. I documented the Aspire plan here. I'm not familiar with every vendor on that list but I'd start my research with Aspire and Lincoln. I'd also look into the NYS Deferred Compensation 457b plan. I haven't studied it yet, but people seem to have good things to say. In fact, it was just discussed here. I'd strongly encourage you to lobby your school district to add Fidelity and Vanguard. I was successful here in Orange County Florida and I'd be happy to help you.
  10. That's more than ok; I appreciate it.
  11. It sounds like jglove is already maxing out the 457b, but it makes sense to verify they’re utilizing the best option. Just out of my own curiosity what are the fees and available investments for the NY State 457? What is its official name?
  12. I'm really happy we could help you and I appreciate the gratitude, but I'd really love it if you could pay it forward to your coworkers by helping them avoid the predatory plans on your list or if you feel ambitious, by pushing for 403b/457b reform within your district. Best of luck to you and let us know if you have any issues/questions.
  13. Yes, I think you'll ultimately want NEA DirectInvest, but let me provide a little nuance: I am not familiar with every single vendor on your list, so I'm not speaking from a place of absolute knowledge. I haven't fully documented every Security Benefit alternative to NEA DirectInvest. So it is theoretically possible that one of the links you provided is actually better. However, I'm 99.99999999999999% sure they're exceedingly worse and when I have more spare time I'll document them on my site here. I can imagine what a "perfect" plan looks like and I can tell you there is very little difference between "perfect" and NEA DirectInvest. However, that space isn't zero as evidenced by Vanguard and Fidelity offering better plans. So it is theoretically possible (but unlikely) that you have access to a better plan and if you do it is guaranteed to be almost imperceptibly better. So I encourage you to put in as much legwork to investigate every option as you're willing/able. However, given the items listed above, if I were in your position (and I was), I'd feel entirely comfortable investing with NEA DirectInvest and moving on with my life (as I did).
  14. Aspire is the 4th best 403b/457b vendor that I've evaluated, but Security Benefit is 3rd (and clearly better). The problem with Aspire is that they charge a 0.15% Assets Under Management fee. Assuming 3% real returns that eats up 5% of your real profits every year. No need to give up those returns if you don't have to! I documented the Aspire plan here.
  15. I don't know what that is. I googled "403c BASP" and didn't turn up anything useful.
  16. Security Benefit has an elite 403b option called "NEA DirectInvest." I documented that plan here. I documented the exact steps it took to enroll in the plan here, although it contains some OCPS (FL) specific steps. I documented the overall process and context of the enrollment process and the difficulties we had here. We are extraordinarily happy in this plan, but be warned Security Benefit is a financial predator so be careful. Make sure you enroll in the plan you're intending to enroll in because they will likely try to direct you to expensive alternatives. Let me know if you have any questions.
  17. SophyV, you may want to check in with @whyme about this. They've got a Fidelity account and can probably offer better information. I was under the impression that Fidelity offers a generic 403b/457b to every district. If you go their 403b page and click Investment Options, you'll see the 3 funds I listed. This is why I thought they'd be available in your district and every other district. I may be wrong. Your Funds If you wanted one domestic fund from the ones you selected, I'd go with the S&P 500. If you wanted a more complete domestic portfolio, I'd probably add the Mid Cap and Small Cap funds you selected. The international fund you selected combined with the emerging markets can roughly approximate the total international market. The bond fund you picked is fine.
  18. These are the funds you listed, but none of them have 0% expense ratios: The only funds I'm aware of with 0% expense ratios aren't available in the 403b/457b, at least not yet: Of the funds you listed there is quite a bit of overlap: All 3 of your large cap domestic funds contain quite a bit of Large Blend companies. It seems you want to own the entire domestic market since you're covering large, mid, and small. You don't need 5 funds to do that because Fidelity Total Market Index Fund (FSTVX) has you covered on all fronts with a 0.015% expense ratio...which you'll note is cheaper or equal to every domestic fund you listed! The international index fund you selected doesn't cover emerging markets, which is why, I presume, you've added an emerging markets fund. There is no reason to hassle with two funds when Fidelity Global ex US Index Fund (FSGDX) has both developed and emerging markets for a 0.06% expense ratio. I won't preach too much about the bond funds, but I do like Fidelity U.S. Bond Index Fund (FSITX) better because it is 0.01% cheaper and takes a tiny bit more risk, while still being invested in high quality bonds, which presumably is why it has outperformed. You'll be fine either way. I don't have much to say about the REIT fund you picked except to say, I wonder if the Fidelity Total Market Index Fund (FSTVX) I mentioned also includes real estate. In my view, unless you're wanting to make bets on certain sectors of the economy, you can't do better than this in a Fidelity 403b/457b (which isn't to say you can't do just as well...or if you're lucky, even better...with other options): Fidelity Total Market Index Fund (FSTVX) = 0.015% Fidelity Global ex US Index Fund (FSGDX) = 0.06% Fidelity U.S. Bond Index Fund (FSITX) = 0.025%
  19. EdLaFave


    I think this portfolio has excellent diversification, really low expenses, and an appropriate level of risk for your personal taste. If you make changes, make them because your circumstances have changed or your investing philosophy has changed (this probably shouldn’t happen). You’ll maximize your profits by not changing over time. Whatever you do, don’t make changes because of market performance, specifically: 1. Emerging markets begins to do well and you decide you want exposure. 2. Small cap lags and you want to minimize your bet on small. 3. Either stocks or bonds are doing better and you switch more heavily to the other.
  20. You won't be choosing stocks; you'll be choosing mutual funds. If you go with Fidelity, I documented the plan and the funds I'd invest with here. I wouldn't say anything above 0 is a bad deal. I'd say anything above the ranges I listed above are a bad deal:
  21. There are just a multitude of fees: Assets Under Management fee = every year you pay the vendor a percentage of your account balance just to have the account Expense Ratio = every year you pay the mutual fund a percentage of the amount you have invested in the fund Surrender Fees = you pay the vendor a percentage of your account balance just to leave Sales Loads = Either when you buy or sell a mutual fund you pay a percentage of the sale to the mutual fund company Account Maintenance = every year you pay the vendor a flat fee ...and on and on the list goes, but these are the main fees to be concerned with. I've seen it reported that Fidelity charges $40/year to have an account, but when I called them a week or two ago they said it was reduced to $20. With Fidelity (and everybody else), you also pay the expense ratio on the funds you purchase. TIAA may have misspoken, but I don't know what arrangement they worked out with your district. Here in OCPS (FL) they charge a 0.58% Assets Under Management Fee plus whatever the expense ratios are for the funds you invest in. Expense Ratio Ranges Fidelity just released a total international stock fund and a total domestic stock fund that charges 0% for the expense ratio. Beyond this recent development these are reasonable ranges for funds: Total Domestic Stock = 0.015% - 0.04% Total International Stock = 0.06% - 0.11% Total Bond Fund = 0.025% - 0.05% Target Date Fund = 0.13% - 0.15% Fixed Allocation Fund = 0.11% - 0.14% Anything higher than those ranges and you're getting a "bad" deal.
  22. EdLaFave


    I hate qualitative statements and I just wanted to quantify "a little more." If you build a 3 fund portfolio with Vanguard it'll cost roughly 0.058% per year. Assuming 6% returns and 3% inflation, over 30 years that fee consumes 2.55% of real returns. If you buy a LifeStrategy fund (which contains the same funds I just mentioned) it costs between 0.11% - 0.14% per year. Making the same assumptions, over 30 years that fee consumes between 4.82% – 6.54% of real returns. It is a personal decision as to whether or not giving up a few percent of real returns is worth the convenience of having Vanguard keep your asset allocation in line for you.
  23. EdLaFave


    You may want to layout why you made those selections because it may influence my response, but here goes... Bonds I think you’ll be fine with just the intermediate bond fund. The other fund won’t hurt, but it isn’t really going to help. Some folks prefer the total bond fund (VBTLX), but intermediate is great and has slightly higher returns/risk. You could consider adding an international bond fund, but again I believe this is unnecessary. Domestic Stock I see what you’re doing in selecting a large, mid, and small cap fund. It is smart and makes total sense. However, if you buy the total market fund (VTSAX), it has small mid and large for you. So going that route is less complex! Some folks like to hold the three funds you picked (and others) because they want to invest disproportionately in one in the hopes it’ll outperform. International Stock That is a great fund; I actually own it. However, it doesn’t invest in emerging markets. If you want that exposure then the total international fund (VTIAX) is the way to go. All In One Just wanted to reiterate that a target date or LifeStrategy (fixed allocation) fund may be ideal too. It just costs a little more. I wouldn't pick it for me but it is best for many/most.
  24. Something I've always wondered about: how much poverty and income inequality can you inflict on a nation before they refuse to accept it? If I answered this question in a vacuum I certainly would have underestimated the answer. I don't think we're necessarily there yet. I think a diverse nation who has woven personal and institutional bigotry into their DNA is more likely to accept awful conditions (relative to a more homogeneous nation). So I think we're more willing to accept this, but it is starting to feel like the limit may be within sight. Wow. However, it does seem odd that we're comparing February 2013 - November 2016 to 1991. Anytime I see something like this (especially with respect to money), I wonder if the data is being cherry picked.
  25. EdLaFave


    If you rollover a traditional 403b to a traditional ira then you will not pay taxes as a result. If you withdraw money from the traditional 403b or the traditional ira then you will pay taxes as if you earned the income through labor. If you rollover a traditional 403b to a roth ira then you will absolutely pay taxes.
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