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EdLaFave

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Posts posted by EdLaFave


  1. Aspire is likely the best 403b you listed (unless your district somehow negotiated a special plan with the other  vendors). I documented their plan here. It is one tier below the best plans out there (Vanguard, Fidelity, etc.), but still very much worth using.

    What are your 457b options? New York has a great state sponsored 457b that you can learn about by searching the form. It is better than Aspire.

    I also wrote an Investing 101 page here if you want to read up on the basics. 


  2. 13 minutes ago, ScottO said:

    Increasing regular contributions will have a greater impact on your final balance than choosing between 100/0, 80/20, 70/30, 60/40, 50/50,

    I prefer to avoid qualitative terms and I don't want to diminish the impact asset allocation will have on your final balance.

    So to be clear, if you began in 1987 and made regular annual contributions then a 100/0 portfolio will be 62% larger than a 50/50 portfolio.

    I don't say that to diminish the importance of maximizing contributions, but asset allocation is critical.


  3. 1 hour ago, MNGopher said:

    It's interesting that you have a very aggressive asset allocation, yet you have a very conservative withdrawal rate...Your fears/concerns aren't volatility...Your concerns, I would assume, are more longevity and maybe inflation.

    Exactly right and an aggressive asset allocation and a conservative withdrawal rate are great defenses against this "risk". In my view, that's the number one risk we should all be concerned with. We should only be afraid of volatility in so far as we believe our emotions will trigger us to sell low and buy high and thus maximize the risk of running out of money!

    1 hour ago, MNGopher said:

    My biggest concern with your plan, Ed, would be sequence of return risk.

    Yup. The graph posted earlier was based on historical data and therefore sequence of risk is averaged in. Being that Feb 19th 2020 represented a long bull market peak, your actual odds of success were lower than the graph states. Similarly if you were to retire at the bottom of a bear market, your odds would be higher than the graph states.

    Not that long ago I was thinking about retiring way more seriously/sooner than I currently am. One of the biggest reasons I didn't do it was for this very reason. In fact, when I do eventually "retire" there is a good chance it'll take me some time to really flesh out my retirement lifestyle and during that transition I may pick up part time work until my personal pursuits no longer leave room for work. This'll help guard against sequence of return risk.

    My other safeguard against sequence of returns risk is to modify my lifestyle (at least temporarily). Unlike "lean-fire" people, I plan to leave room for that and I hope to never need it.

    2 hours ago, MNGopher said:

    my pension will keep me housed, fed, and the utilities on

    That is a very valuable pension!


  4. 45 minutes ago, MNGopher said:

    What final asset value are you targeting?  What are you planning for a withdrawal rate?

    I’m planning on using a 3% withdrawal rate. According to that chart, after a 60 year retirement my portfolio’s inflation adjusted value will be greater than or equal to the value it had on day one of retirement.

    As far as the final asset value, I’m not quite sure. I’ve priced out several different lifestyles that require a net worth ranging from 1 million to 1.5 million. Right now I’m at 1.15, but at the moment my energy is focused elsewhere so I’m not rushing to retirement. Maybe I’ll wake up next week and pull the trigger, maybe I’ll wake up two years from now and hit the 1.5 maximum, or maybe I’ll decide I want a slightly more expensive lifestyle (unlikely). So who knows, but I’ll definitely choose a lifestyle that doesn’t require me to exceed 3%. 


  5. 8 minutes ago, ScottO said:

    @EdLaFave Do you plan on staying 100% stock in retirement while you're drawing down? 

    Absolutely. In the context of retirement, the "risk" that I'm afraid of isn't volatility, it's the likelihood of running out of money.

    I like to use this chart (also shown below) from from the early retirement now blog as a rough approximation of that "risk".

    Please feel free to critique or poke holes in my logic!

     

    swr-part2-table1.png


  6. This is maybe a bit philosophical/semantic, but in this context  I prefer to use the word volatility rather than risk. In my mind at least risk has a connotation of irreparable loss that you might suffer from investing in a single stock whereas volatility has a connotation of large/temporary market swings you expect from a total market index fund.

    It’s hard to tell how close it is to 1%, let’s call it 0.8%. I personally view this the same way I view fees and a 0.8% fee is huge! Of course it is easy for me to say that because I don’t mind volatility.


  7. 1 hour ago, MNGopher said:

    The  axis is expected return (although it seems too high) and the Y axis is volatility/risk.  For most people the sweet spot is in the 60-70 stock zone where you get the most return for the risk level.    The main takeaway for me is that anything more than about 75% bonds actually increases risk while reducing return, and as you approach 100% stock, risk increases considerably more than return. 

    I found that main takeaway to be very counterintuitive. It’s interesting that a 0% stock portfolio is actually more volatile and lower performing than a portfolio with somewhere around 25% stocks. However the other extreme, 100% stocks, still meets my expectations for being the highest performing.


  8. 11 hours ago, Tricia C. said:

    I would love to ask you if these percentages would still work for me at 45

    As I said in the other thread, I don’t see value in tying age to asset allocation. The “fun” part about your question is that the only person who can answer it is you.

    Having 25% bonds means that when stocks have their value cut in half, your portfolio will drop about 37.5% instead of 50%. Of course you lower your long term expected returns in exchange for greater stability.

    11 hours ago, Tricia C. said:

    Some people take the "easy way" and purchase target-date mutual funds that self adjust as you get older. They of course carry a higher expense ratio, so I have tended to shy away from them. 

    Vanguard and other institutions make no secret of exactly how their funds drift towards higher bond allocations. If you’d like to take the “easy way” without paying the higher fees you could copy what they do and manually shift your three fund portfolio towards bonds in the same way they do.

    On average I think target date funds are best for most people. In the specific case though, I think people would be better served if they picked an allocation that works specifically for them. Still, for complex practical reasons, one size fits all is generally beneficial for the group as a whole in this case.

    8 hours ago, krow36 said:

    Ed is convinced that he can weather any stock downturn without giving in and selling (low). And he probably can. He’s an unusually rational guy, and has admitted that he may have some Asperger’s qualities to his personality. That can be a great asset.

    That’s exactly right.

    Full transparency: I’m 100% stocks, but I don’t recommend that for most people because most people allow their emotions to guide their decisions in a way I do not.

    After losing 35% of my portfolio in a pandemic, I slept like an absolute baby (isn’t that a bizarre idiom since babies are notoriously terrible sleepers). I was 99.9% convinced that I was built to handle an all stock portfolio and now I’m 100% sure.

    8 hours ago, krow36 said:

    that might justify an ability for a higher percentage of stocks

    Krow is referencing this need-ability-desire to take risk framework that is very popular with the bogleheads. The bogleheads are great, but this is another framework that makes no sense to me.

    Suppose you’re 55 and you have a long way to go in terms of retirement savings. That means your need to take risk is high, but your ability to weather a 50% drop in your portfolio is low.

    Suppose you’re 55 and you have a billion dollars. Now the inverse is true, your need to take risk is essentially zero and your ability is essentially infinite.

    So need and ability always cancel each other out in this framework and you’re just left with desire.

    8 hours ago, tony said:

    when I call Ed an investment snob I do not say it with any intended animosity

    I’m absolutely an investment snob in the sense that I want everybody (including myself) to have access to fully diversified funds at rock bottom costs and I’d ideally want people to make investment decisions based on cold logic and math.

    In the end though, I don’t have the interest to look down on people who behave differently. In fact, if most everybody went with expensive actively managed funds and sold during crashes only to buy back in after recoveries, I suspect that would benefit me. So to each their own 😈

     

    8 hours ago, tony said:

    Ed  don't like them because they cost  more  but they can prevent you from making investment decisions that you might regret and cost you in other ways.

    I would never use a target date fund, but I think target date funds or fixed allocation funds like Vanguard’s LifeStrategy line up are ideal for the typical investor and I’m very happy they exist.


  9. 2 hours ago, Tricia C. said:

    At what age can you qualify for the 403b catch-up provisions?

    A person over 50 can contribute an extra $1,000 to an IRA and an extra $6,500 to employer based plans (401k, 403b, 457b, etc).

    2 hours ago, Tricia C. said:

    I know as we get older, more of our choices need to turn to more conservative funds.

    This is a rule of thumb that I don’t find any value in. The argument for going more conservative as you approach retirement is an emotional one. If you were stock heavy and had enough money to retire when the market crashed then you’d have to work longer and nobody wants that.

    Well what is enough money to retire? It isn’t a magical fixed number; it is dependent on how aggressive your portfolio is. You can retire with less money using a stock heavy portfolio than you can using a bond heavy portfolio because stocks will provide larger returns.

    So sure if a stock heavy portfolio crashes as you approach retirement, you will have to work longer than if it didn’t crash. However, would you have to work longer than you would if you had a lower performing bond heavy portfolio that required you to save more money to retire?

    If so how much longer would you have to work? Is it worth it to give up the probable outcome that the stock heavy portfolio will let you retire earlier in order to protect against the improbable outcome that it might require you to work a bit longer? Remember, crashes are way less frequent than rallies, after all we invest in the market because on average it goes up.

    In my view bonds are only useful to prevent behavioral errors. If you know that losing half your portfolio would cause you massive psychological stress such that you sell low and buy high then you need bonds in your portfolio. Therefore, I don’t see any logical/mathematical reason bonds should increase with age. I could be swayed if somebody made a quantitative argument, but I’m yet to hear one. 


  10. This product being sold to you is so bad that I’m not going to spend my energy addressing it.

    It isn’t clear what investment accounts you currently have or if you have a spouse who also has access to employer based plans.

    So in the absence of information I’ll tell you this:

    1. Omni is your school district’s third party administrator (TPA). They’re responsible for administering the school’s 403b and 457b. You can view the list of vendors your school has approved here.

    2. I documented the foundational knowledge you need in my Investing 101 page here. As others have said, you need total market index funds that essentially allow you to own a sliver of every publicly traded company in the world. If you can’t clearly explain it then don’t buy it.

    3. You can contribute $6,000/year to an IRA that you open directly with somebody like Vanguard or Fidelity. This will be your cheapest option.

    4. You can contribute $19,500 through your employer’s 403b. Security Benefit’s NEA DirectInvest is your best option (it’s an elite plan) and barely more expensive than the IRA. I documented that plan here.

    5. You can contribute $19,500 through your employer’s 457b. Aspire is your best option (it’s more expensive than your 403b option, but still absolutely worth using). I documented that plan here.

    6. If you have even more money to invest then post and we will chat about taxable accounts.

    7. If you want to have a more detailed discussion about types of accounts (taxable, 403b, 457b, HSA, IRA, etc) or tax treatment of certain accounts (Roth vs Traditional) then post and we’ll get into it. 


  11. Regarding the original topic of discussion. Fidelity is the best option. I documented the plan, fees, and suggested funds to invest in here.

    Regarding the spin off discussion of Fidelity OTC Portfolio vs Total Market Index: it is obvious that you should be investing in the total market index fund and it isn't event close:

    1. OTC isn't diversified; it is essentially a tech sector fund. Ask people on this board how well it worked out for them when they concentrated their investments in specific sectors of the market.
    2. OTC has very high costs, which you can overlook in years when the sector outperforms, but cost is the single best predictor of future performance.
    3. You should never be looking at previous performance to pick your investments. In fact, that's the best way to under-perform in the future!
    4. In any given year I can pick roughly 1/3 of funds that outperformed the total market, but when you look at 20 or 30 year windows that number dwindles to the single digits. Good luck forecasting, which funds will fall into that very slim category.

    Total market index fund all day long!


  12. 1 hour ago, Rhaegar said:

    if I spend 5 minutes talking about investments with a client or prospect it is a lot. Investments are the easy part of the job.

    Haha, mind if I save this quote to show how useless advisors are?


  13. 1 hour ago, Rhaegar said:

    to lump all advisors into one group is dumb.

    Honestly, I’m enjoying this.

    Even the most ethical and well intentioned advisor can not justify their fee. The worst advisor is a crook. Don’t worry, I see the full spectrum of your entire profession and none of it is pretty or useful 


  14. 44 minutes ago, Rhaegar said:

    But I also disagree and believe there are advisors worth it. There are few of us but to say there is none does not seem logical.

    Knowing that you are apparently an advisor makes total sense. I can see how it would be difficult for you to grapple with the fact that you're hurting people (especially if you're in the 403b/457b world).


  15. 1 hour ago, Rhaegar said:

    some advisors bring no value and others bring massive value.

    this community should be helping teachers that do want an advisor to better ones.

    for example asking an advisor to sign a fiduciary pledge is a huge first step. I’ve heard axa and other will still sign these

    🤣 Quantify this massive value they’re bringing because I can certainly quantify their fees and how long it takes me to learn the information they’re providing. Advisors do NOT bring massive value. Saint Bogle brought massive value.

    I’ll politely decline your suggestion for this community to promote advisors. This form, the bogleheads, and me personally...we will provide all the guidance anybody needs and we do it for free. Absolutely no reason to pay an advisor.

    AXA, you really brought up AXA 😂. The last time I checked their management fee was 0.90% and their cheapest fund was around 0.60%. Explain to me how anybody acting in my best financial interest would charge me 1.5% or higher for a portfolio that Vanguard or Fidelity could give me for 0.08% or less and tens of dollars per year?

    Also, I’d be absolutely shocked if AXA advisors were signing fiduciary agreements requiring them to act in the investor’s best interest. If they are then I’d like to start a class action lawsuit and collect on that. 


  16. This has nothing to do with me. It has everything to do with how little advisors bring to the table and how much they take from people’s life savings.

    You can talk up advisors all you want, but I will voice my disagreements and I’ll be happy to point anybody to the resources they’ll need to easily bypass expensive advisors. 


  17. 1 hour ago, Rhaegar said:

    I’m sure the clients that had an advisor help them get over $100k in student loans forgiven think that an advisor was well worth it.

    I'm sure the people who spent 10 minutes googling the rules for debt forgiveness are quite happy they're not funding the lifestyle and retirement of an advisor.

    1 hour ago, Rhaegar said:

    You seem to think an advisor only does investing and we keep agreeing that an advisor adds little to no value in this area.

    What I'm saying generally is that the value an advisor brings in any arena is almost certainly outweighed by the cost of the advisor. This is the most charitable statement I can make with ethical advisors in mind. The vast majority of advisors are very much unethical and I can promise you they're hurting people full stop.

    The delivery driver provides value that is easily outweighed by their cost, but at least they're improving the quality of my life. An advisor, on net, just sucks away your money with nothing in return.


  18. I certainly have my opinions, but I'm not interested in getting into moral judgments of good and bad. I'm interested in getting into objective assessments of whether or not an advisor is worth their fee. They're not.

    The best advisor recognizes that they have no predictive power over the market and therefore invests you in total market index funds or a fund-of-funds (target date, fixed allocation, etc.) that contains total market index funds. I've taught countless people to do this on their own in about 10 minutes. So who here wants to pay for an advisor's salary just so you can avoid spending 10 minutes to learn that you need to put your money into a low cost target date fund or 3 individual total market index funds?

    The worst advisor will put you into high cost actively managed funds, churn the accounts so you consistently pay a bunch of sales charges (i.e. loads), and significantly trail the overall market return over the long term.

    It is impossible for an advisor to be worth their salary because:

    1. Investing is supremely simplistic; even a child could do it.
    2. Nobody can predict the market in the short term, which means you can't beat total market index funds in the long term.

    Since advisors can't, by definition, bring skill to the table, all they can do is bring minimal knowledge and a hefty price tag. They're not worth it, even the ethical ones.


  19. 13 minutes ago, Rhaegar said:

    if you are a DIYer there is no reason to pay

    I'm going to fix this for you by quoting THE hero to every investor everywhere, "in investing, you get what you don't pay for."

    I also want everybody reading this thread to understand that the usage of the term "DIYer" is misleading because kind of implies that you need to spend lots of time gaining expertise and at the end of the day maybe you'll botch the job. If you spend 10 minutes reading my Investing 101 page, you'll know 90% of everything you'll ever need to know and the other 10% are essentially simplistic optimizations, which are worth far less than the bill of a CFP.

    So I hope everybody walks away secure in the knowledge that there is no reason for anybody to pay. Please, keep your hard earned money in your pocket!


  20. Only 1.25% 😂

    If anybody is reading this thread and trying to understand investing then please understand that is outrageously expensive.

    The individual mutual funds you invest in will have a fee. Anything over 0.16% is considered expensive. Fidelity even has index funds that charge 0%.

    The 403b/457b account itself will charge you fees just to own the account. The best vendors charge you tens of dollars per year. In general if you’re being charged an annual fee that’s a percentage of your account then you’re likely being taken advantage of; if that fee is more than 0.15% then you’re definitely being taken advantage of.

    So to summarize, the best accounts charge you a total of between 0-0.08% and if you’re paying more than about 0.30% then it’s time to make some moves. If you’re paying above 1% it is robbery.

    If the stock market returns 6% in the year and 3% of it is eaten up due to inflation then paying somebody 1% actually consumes 33% of the real return!

    Also be aware that nobody knows what the market will do in the short term so you’re not getting any value from paying an advisor. They’re just as blind as you even though they work really hard to hide that fact. 


  21. 48 minutes ago, tony said:

    But hasn't that always been the case to some degree?

    Let me phrase it more precisely...

    The younger generations are worse off than older generations were when they were young due to steadily increasing wealth and income inequality.

    If you came of age in the 70s or preceding decades, then you and your family had a greater share of this nation’s income/wealth than somebody coming of age today.

    So yes, Millennials and Gen Zers face massive structural problems that simply didn’t exist for Boomers.

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