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EdLaFave

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Everything posted by EdLaFave

  1. Hey Steve and Tony! I believe Inestopedia has conflated DCA with investing regularly over time as new money arrives. I challenge what they've said. Wikipedia got it right, in my view at least. If you think the market will go down then DCA will save you money. If you think the market will go up then DCA will cost you money. I think the market will go up, which is why I am an investor. I think the market will more often go up, which is why DCA is likely to cost you. I think there is a misunderstanding between us. I think you might be talking about investing regularly over time as you get money instead of what I and Wikipedia (but not Investopedia) are calling DCA. Most people, including me, never have a lump sum unless they close an account. This scenario illustrates the problem with DCA. Suppose we never closed an account, nobody would advocate that one day we randomly move all of our investments to cash and spend the next six months slowly buying back into the market. We'd rightly be called market timers, oh the ridicule! Yet for some reason when we randomly close an account, some people suggest doing just that. I am lucky enough to be "rich" and plan to have enough wealth to retire around 35. I am always amazed by how out of touch my peers are. So many people flat out don't make enough money to save anything and the vast majority certainly can't hit the 18k mark. I recently had somebody complain that their tax bill equals what most people make in a year and then promptly complained about their "average" income...it was stunning. So I hate to hear more stories along those lines, I'll read that link later today.
  2. Click the "quote" button and then when you're replying, click the little switch icon in the upper left. That'll reveal the quote tags that you can manipulate. I'd show you what the text looks like but it would just be displayed as quotes. You don't sound 100% sure that this is your only 457b option. It is conceivable there is a better choice but I know nothing about Hawaii. You definitely don't need to pay Morningstar 35 basis points. I assume you're paying 12.5 basis points per year but the fee is broken up into 4 installments? It would be less than ideal if you were being assessed 12.5 basis points four times per year. It looks like these are your best options in the 457: 1. Vanguard Wellington (VWENX) if it meets your desired asset allocation. 2. Blackrock US Large Cap Index 3. Blackrock US Small/Mid Cap Ind is a good addition to the large cap fund to replicate the total US market. 4. BlackRock Non-US Equity Index Also, if you're able to, you can max a 403b and a 457b. It isn't an either/or choice. You may want to give these two resources a read: https://www.bogleheads.org/wiki/403(b) https://www.bogleheads.org/wiki/457(b) Not really, except to say that both options seem like conveniences that you can do without if you wanted to (I do). At a high level, dollar cost averaging is when you have a lump sum of money but instead of buying into the market all at once, you spread a series of purchases out over a period of time. Some people get a little loose with their terminology and conflate this with making regular purchases when they get paid. They're not the same thing. Mathematically it is inadvisable to dollar cost average. It'll lower your expected returns ever so slightly because on average the stock market goes up over time. Psychologically it may be a good idea. It is just another risk mitigation tool that trades returns for stability. I'm not sure how security benefit implements this, my guess is each recurring purchase has to be at least $25 per fund? Given the magnitude of market fluctuation over the past decade, the size of my portfolio, and the size of my contributions, I haven't had to sell an asset class to bring my asset allocation back into line. So I haven't had to think about "automatic asset reallocation"...when I get to this point I'll probably choose to rebalance through my other accounts because Security Benefit seems to want you to write or call, which seems like an antiquated pain. That is interesting. I can't really explain that. What I can tell you is that my first contribution occurred on 4/13/2017 and the only fee I've been hit with was on 7/7/2017 for $8.75, which is of course one fourth of the $35/year fee you mentioned earlier. It is conceivable that the $20 fee is stale data and nobody updated the document, but look into it and let us know. Getting information out of these people is torture. If that is the complete picture, then your version of AXA may be slightly better than ours. Still bad though. ...also you should feel very happy because it looks like you've got some generally great options and too often that isn't the case. Congrats!
  3. My apologies. I found AXA to be one of the more deceitful vendors and I wrote about them here. Don't beat yourself up at all! This whole thing is a cleverly rigged trap, they're the ones that should be ashamed of themselves...I wrote about that here. I found this confusing, usually the 403b offerings are very similar to the 457b offerings. I may not be fully knowledgeable though. What vendor? What plan? Here in OCPS (FL) the surrender schedule for AXA looks like this: 6% in first five years 5% in sixth year 4% in seventh year 3% in eighth year 2% in ninth year 1% in tenth year But given that AXA hits a typical OCPS employee with 1.75% fees, it is always worth it to pay the surrender fees and leave (assuming you have a good alternative, which you do). I'm not familiar with every vendor on your list and their offerings may be slightly different than here at OCPS. However, this is how I'd rank your vendors without having looked into it further (you can basically ignore every annuity only vendor): 1. Security Benefit's NEA Direct Invest. I use this plan and I love it. I wrote about it here. 2. ASPIRE. I wrote about them (among Florida's other top vendors) here. 3. PlanMember Direct. I wrote about them here. I believe this to be accurate. I wrote about these fees in the link above. You're right about the $35/year. I'm unaware of $20/year or $25/year fees. Their fees are listed here.
  4. I don't spend too much time on Bogleheads anymore but I remember being amazed by some of the bond threads that popped up there. It sounded like people were convincing themselves they needed to sell out of their risky bonds and move into the safety of stocks! It feels like in the short term the market is always irrational but somehow manages to be bound to reality in the long term. I don't fully understand how that duality exists. Good news, you can! People would do better listening to your "inside information".
  5. I love that he puts the time and effort into tracking this stuff. It has been a pet peeve of mine that "experts" (not just financial) are allowed to make inaccurate prediction after inaccurate prediction without losing credibility. I'm guessing Larry Swedroe concurs.
  6. I wrote a quick little blog on a few techniques I use to keep my motivation up. https://educatorsfightingforfairness.wordpress.com/2017/07/06/staying-motivated/
  7. I am so fascinated by the defects of the human brain that produce illogical/sub-optimal behavior. I find these biases to be particularly common and destructive: anchoring bias availability heuristic bandwagon effect confirmation bias conservatism bias salience selective perception stereotyping
  8. I find their suggested savings goals to be inadequate at every age. I know the median savings rate is far worse and maybe setting the bar higher would just scare people off, but I really think we should be aiming for better. If my net-worth were just 2x my salary by age 40 then I'd be freaking out. A net-worth of 6x my salary by age 60 means that after selling my house I'd have just 24% of my salary to live on (assuming a 4% withdrawal rate and not accounting for social programs). No thanks! I cringe when people are told to think of their home as an asset. Sure, after 8+ years of living there you might start to do better than renting but short of a miracle you're going to lose money and probably lots of it! Telling people that this liability "grows exponentially, as the home value increases" is, in my view, irresponsible. I owned my first house for 3 years and sold it for roughly $60k more than I bought it for...I still lost a TON of money after accounting for interest, insurance, HOA, maintenance, taxes, and on and on. Am I in the minority on this one? Have I goofed on my math?
  9. That makes sense. In that case, using that rough formula gives me a 9.5% year to date return (I recognize I have no predictive power, still these kind of numbers in the context of the last decade have me bracing for a bear market every day). My portfolio has been roughly 89% stocks, 11% bonds. Of the stocks, roughly 70% are domestic and 30% are international.
  10. Communicating in text is tough so please read this in a positive light. Assuming we're all invested in index funds, why make this calculation? Are we just looking forward to a hit of dopamine that comes from knowing exactly how much we've made? If so I totally understand that, but I prefer other metrics. I still harbor such negative emotions from my days of owning active funds and managed accounts. I remember the stress of calculating performance and comparing it to the index. The thought of going through that exercise (even with a simple formula) just puts a bad taste in my mouth. Hopefully others haven't been traumatized, this is just my personal experience.
  11. I know domestic is up about 8% and international about 14%, but one of my favorite parts about investing in index funds is not having to calculate YTD returns :) I know it is fun for most and that is awesome but for me it is quite the hassle to break out the XIRR formula and account for the date and amount of every contribution. Personally, it is just nice to know I got exactly what I "deserved".
  12. A lack of financial literacy is a big deal but based on the first 10 questions of that quiz, I'm not sure this is a terribly great metric.
  13. One factor to consider is that a disproportionate amount of people live in California.
  14. It doesn't look like this accounts for taxation, or does it? California is massively appealing but the cost is too much, we will visit instead. Orlando has a pretty good rating, no state taxes, reasonably modern/progressive, and I don't own winter clothes. Sounds good to me.
  15. Jeb here is my quick response without thinking too much... That table isn't about a Roth IRA and 403b. It is about a Traditional IRA and a work retirement plan, which I'm sure a 403b is one of many plans that qualify. My understanding is that if your MAGI is more than 118k then you can't deduct your Traditional IRA contributions, which is of course the whole point. In this case you could still do a Roth IRA but if your income exceeded the next limit then you'd be forced into considering a backdoor Roth. Yes this is relevant to the discussion because you have to calculate your alternatives to know the best path. If you didn't participate in your work plan then an IRA would be the next obvious consideration and if a Traditional isn't available to you then that generally isn't a good thing.
  16. Certainly the cost of each 401k plan matters but so too does the duration the fee is applied. If you maxed out your expensive 401k every year for 40 years then every year 100% of your portfolio would be subjected to the expensive fee. Consider the other extreme, you switch jobs every year and roll each 401k over to a low cost IRA. This allows you to mitigate the impact of an expensive 401k fee because: Year 1: Roughly 100% of your portfolio is subjected to high fees. Year 2: Roughly 50% of your portfolio is subjected to high fees. Year 3: Roughly 33% of your portfolio is subjected to high fees. Year N: Rough 100/N% of your portfolio is subjected to high fees. If the math justifies a 2% fee, that is a scenario where we'd do it and then fight like hell for the principle. That is true of most people. Those in a low enough bracket pay 0%, which is why "tax gain harvesting" is appropriate for them. Those in a high enough bracket pay 20%. ...although the way this healthcare law is heading (or wealthcare as some like to say) that 20% capital gains rate will be a thing of the past. I've heard people talk about one type of account being better for passing on to heirs. I won't be doing this so it doesn't concern me. Still, I can imagine a scenario where paying higher fees now to get it into the "right" account may be worthwhile because it will ultimately reduce taxes to a greater degree for your heirs later on. ...honestly, if I won't live to benefit from investing then it doesn't concern me much so take what I say as a suggestion for a google search rather than anything more serious. I cannot currently conceive of a reason teachers would benefit from anything other than low cost, total market, index funds for their retirement accounts. Seems quite simple to me.
  17. I dislike terms like "middle class" because they don't mean anything because everybody has their own definition. I know couples making $200,000 per year who think of themselves as "average" or even "struggling". You hit on an issue that is near and dear to my heart... Some people never make enough to meet their basic needs. Some people never make enough to save. They either work until they die or until they can't at which point they join group #1. Some people never make enough to save adequately. They either work until they die or they spend their last few years retired but worrying about joining group #1. Some people make enough to save for a secure retirement but not enough for a "fancy" lifestyle. This covers almost the entire population, virtually everybody is just trying to live a modest life. You're right, from group #1's perspective group #4 seems rich because a 4% safe withdrawal rate requires a 'large' portfolio. However, in reality people in group #4 are often one bad event away from joining group #1 (medical emergency, disability, predatory financial 'professional', etc). I'm deeply saddened when groups 1-4 are coaxed into fighting each other over pennies. It is shameful.
  18. Thanks Tony! I'll have to spend a few minutes stomping out my ego :) Steve, the computer I'm using won't let me open spreadsheets and I can't remember exactly how my spreadsheet was built. It sounds like I'm showing the "real returns" and "total real value" but you'd also like to see the "total real contributions"? On Bogleheads I read that it was either 1% or 2% when the tax advantage accounts generally aren't worth it...I think they said 2% but I'm not sure. This may also be incorrect but I think "grabiner" or something close to that is the Boglehead poster who has seemed to claim the title of "math guy" so he may have something to say on this topic as well. Off the top of my head this seems like a fairly complicated calculation that also requires assumptions about the future that we can't possibly be 100% sure about: How long do you expect to stay at your current job before you can roll the tax advantaged account over to a low cost IRA? How many years will the tax advantaged account benefit you before you withdraw the money? Assuming we're talking about a traditional account, just how "valuable" is your tax advantaged space? For example, the fact that my wife will have a pension that fills up some of our lower income tax brackets makes my traditional tax advantaged space less "valuable". How "expensive" is your taxable space? For example, are you paying 0%, 15%, or 20% on capital gains? How do we expect tax brackets/rates to change over time? I won't be in this case but I assume if you have a huge account and you're trying to leave it to heirs then that may also influence your decision. Luckily for me I've been able to go off of intuition for this question because I haven't stayed in 1 job for more than 5 years and my current 401k charges me 0.31%.
  19. Security Benefit is an awful company with an elite plan in NEA DirectInvest. Security Benefit wouldn't even confirm I was allowed to enroll in it. I created a spreadsheet to put fees in context. You can download it from the Investing 101 page on my web site. The idea is that I assume 6% market returns and 3% inflation (the exact values here can be debated). That represents a 3% real return. I imagine two portfolios, one with no fees (3% real returns) and one with fees (3% real returns - Fees%). I calculate how much each portfolio returns over a 30 year period. This tells me how much I've lost to fees and you can do the fraction two ways depending on what makes the most sense to you... Money lost to fees / real profit of portfolio with 0 fees....this tells you what percentage of profit the fees consumed. Money lost to fees / real profit you actually kept...this tells you how big the fees are relative to the profit you were allowed to keep. If 75% (75/100) of profit is consumed by fees then the fees represent 300% (75/25) of the profit you were allowed to keep. ...I also built in sales loads to the spreadsheet and maybe in the future I'll build in annual fees that are in absolute dollars rather than percentages. ...I've gotten feedback that the spreadsheet should be simplified and I agree. I'd like to know your feedback if you experiment with it.
  20. Overall I think it is great that you're sharing information and that you put in some serious legwork for your coworkers. Great job. Text over the internet can come across super harsh so please take what I'm saying as constructive criticism or the rantings of a mad man, either way :) 1. I suspect "Vanguard Admiral Funds" will mean nothing to them. I personally try to talk about "low cost, total market, index funds", which I hope is easier to understand and generally more useful than a specific product name, but even that has its problems like "what is an index fund?" 2. You mention Security Benefit in the beginning but never again...I can't remember the exact fees for Lincoln but Security Benefit may be even better. 3. It looks like you may have omitted some fees. I don't think you mentioned assets under management fees or sales loads. You definitely talked about the fees for the individual funds but that isn't the whole picture. 4. I don't think the vendors will be upfront about the fees; OCPS' vendors weren't. I also don't think people should be led to believe that an agent will help them understand...an agent will try to sell you something and it is your job to leave them no choice but to explain the product and even then you have to use Google to research it further. 5. I disagree with the low/high rankings of fees. There is no reason to pay more than about 0.07% for a 3 fund portfolio or about 0.16% for a one fund portfolio. 6. I personally like to list fees as a percentage of the real returns it is expected to consume over a 30 year period. After all why are we investing if not to get real returns? 7. I'm not sure if you're in California or not but the 403bcompare site is specific to California right? It is a good quick gauge but may not be accurate for other states.
  21. I actually had this argument a couple weeks ago. A million dollars and a 4% withdrawal rate gives you $40,000 per year. Maybe I'm living in bubble but I can't imagine retiring on less than that. I don't think the ability to retire should qualify you as being rich.
  22. Direct quote from the article "According to a 2016 study by Pew Research Center, the number of Americans considered to be in the middle income bracket in 2000 stood at 55 percent, but by 2014 this number had shrunk to 55 percent."
  23. If you went to work in a neighboring district, would that be considered a separation from service? If so I wonder how feasible it is for educators with bad options to bounce between a couple neighboring districts every 5 years or so. Repeatedly funneling that money to a low cost IRA would really cut down on the amount paid in fees.
  24. The connotation of "inferior" may simply be too strong for your liking? I'm simply saying it costs roughly this much (per year) to own a fully diversified portfolio: Security Benefit's NEA DirectInvest = 0.07% Fidelity = 0.06% Vanguard = 0.14% ASPire = 0.21% PlanMember Services Direct = 0.41% TIAA = 0.63% So at OCPS your best 403b is NEA DirectInvest and your best 457b is PlanMember Services Direct so by definition every other plan is "inferior"...some far more inferior than others. Agreed. Over 30 years I'm not thrilled about giving Vanguard roughly 3% of my real profits either. I want that number as low as possible and each year they keep making it so! But if we're talking about giving away a quarter of my real profits then I personally would expect them to do some tax loss harvesting for me, handle my re-balancing automatically, provide some kind of guaranteed risk mitigation, and do some light house work on the weekends :) Nope. I haven't been able to get enough info on National Life Group to write up a full analysis. Remember, my list of inferior vendors is ordered alphabetically. Despite having an opinion, I haven't made any claims about which "inferior" vendor is more "inferior" than another. My view is that if you aren't the "best" then it isn't worth my time to rank how good/bad you are. However, in my discussions with the district I haven't targeted TIAA as a vendor who needs to be dropped. AXA certainly has been in that discussion :) This isn't an option available to OCPS employees. As my TIAA review states, "TIAA deserves credit for conveying all relevant information quickly and in a way that was relatively easy to understand." So I don't doubt what you've said. As I've said in another post, I think some of the 403b/457b veterans (justifiably) roll their eyes at me when I complain about 1/2 a percentage point because they've seen and continue to see far worse. I imagine I might even annoy some of the veterans (hope not). I some times get the impression that the veterans are happy to accept "mediocre" because they've seen "horrific"...who knows I may quickly wear down and join them. My view is, take "mediocre" in the mid-term and temporarily celebrate it, but lets not act like it is "good". We need to call a spade a spade and keep pushing until every 403b/457b is equivalent to taxable and ira accounts in terms of fees. I share that fear, which is why I've documented exactly how I enrolled and make myself available to help people through it. As I've said earlier, I'd recommend Vanguard as a sole provider in part because of their helpful/ethical behavior...even though it would personally cost me an extra 0.10%. ...bottom line, I like you and value what you've done quite a bit. You put in more work and have done more good for people than I ever expect to. We're both pushing for low costs. We're on the same team but with slightly different perspectives.
  25. That is too strong of a statement, they're the 6th best vendor I've analyzed and on my site I've credited them for being direct, honest, and easy to work with. The problem is the fees. I agree but allow me to quantify it. If I followed AXA's advice, I'd be paying 1.75%, which would consume 65.37% of my real profits over 30 years. If I built a 3 fund portfolio at TIAA, I'd be paying 0.63%, which would consume 26.20% of my real profits over 30 years. ...assumes 6% returns and 3% inflation. ...obviously much better than AXA but it is flat out unacceptable that I'd give up a quarter of my real investment returns to somebody taking on 0% of the risk and offering me absolutely nothing. Their funds are actually priced perfectly, 0.04% - 0.08% for Vanguard's total market index funds. The problem is the 0.58% fee is an annual fee for the pleasure of having a TIAA account! Ugh! From reading your excellent book I now know that but I don't know how they square it with a 0.58% annual charge. Their rep claimed it was OCPS' fault, maybe the rep was right. I don't know the details of how they got where they are.
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