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Everything posted by EdLaFave

  1. Can you tell me, in specific terms, exactly what you sell to teachers?
  2. Here in Orange County (FL) TIAA offers a mutual fund option, which I documented here. The cheapest 3 fund portfolio still costs 0.63%, that expense consumes 21% of real profits after 1 year and 26.2% of real profits after 30 years (assuming 6% returns and 3% inflation). There aren't surrender fees with this type of account. Unless the TIAA reps failed to mention it, they don't offer a guaranteed 3% annuity in our district. I have nothing to add to the debate between a 3% guaranteed return and a bond fund except to provide the historical returns of the two funds Krow mentioned: 2017 = 3.56% and 3.85% 2016 = 2.60% and 2.83% 2015 = 0.40% and 1.27% 2014 = 5.89% and 6.96% 2013 = -2.15% and -3.45% 2012 = 4.15% and 7.02% 2011 = 7.69% and 10.74% 2010 = 6.54% and 9.49% 2009 = 6.04% and 6.90% 2008 = 5.15% and 5.01% 2007 = 7.02% and 7.70% 2006 = 4.36% and 3.98% 2005 = 2.49% and 1.82% 2004 = 4.33% and 5.30% 2003 = 4.04% and 5.70% 2002 = 8.32% and 10.91%
  3. I rarely make definitive statements, but I’ll double down on that sentiment and say there is exactly no doubt.
  4. allegory, you're welcome. I hope you have success. My entire K-12 education was in Broward County (Hunt Elementary, Forest Glen Middle, and Coral Springs High) so I'd really like to see those teachers get better options. Let me know if I can help. tony, thanks!
  5. Sorry for the really long reply. I didn't have time to make it concise, so you're getting my strėam of conscience. FRS Pension I didn't have time to look this stuff up and my memory is a bit foggy so I may make an error, but the general idea will at least be correct. You have to contribute 3% of your paycheck to the pension. The pension is calculated using a fairly simple formula...your average salary over your highest paid fiscal years * years of creditable service * percentage value. If you enrolled in FRS before July of 2011 then the number of years salary you have to average is 5 years, otherwise it is 8 years. If you're a "special" kind of employee then your percentage value will be higher but "regular" people have a 1.6% percentage value. So if you were hired in 2008, worked 40 years, and your 5 highest fiscal years salaries averaged to exactly $100,000 then $100,000 * 40 * 0.016 means you'd get a $64,000 payout from the pension. I believe the portion of your pension attributable to time served before July of 2011 will receive a cost of living adjustment each year, I think it is 3%. The other portion of the pension will remain constant...so it will be worth less and less each year. If you began before July of 2011 then the pension vests after 6 years of service, otherwise it takes 8 years. I think "regular" employees who began before July of 2011 have to wait until 62 to receive the full benefit, otherwise you have to wait until 65. If you don't wait that long the benefit will be decreased by 5% for each year you came up short. FRS Investment Option Earlier I had the notion that you could contribute to the investment option in a way that is similar to a 403b, but I now think I was wrong. I think the contributions are fixed; you contribute 3% of your salary and the employer adds 3.3% of your salary on top of that. Your contributions are always vested from day 1, but it takes a year for the 3.3% employer contribution to vest...I think. You pick the investments, they're awesome! Beyond that, I think it is pretty straight forward. Pension vs Investment Option I actually can't remember why my wife thought the pension was a better deal for older people than younger people (July of 2011). After thinking about it for a few minutes, I could only come up with the different vesting schedules and the number of years of salary you have to average. I no longer think younger people have a lower "percentage value", which is what I thought at one point (double check me). The big risk with the pension seems to be that the legislature can change things at anytime. For example, I think they have the power to wake up one morning and cut the "percentage value" in half which would cut your pension in half. If you don't expect to be an FRS-eligible employee for very long then a pension really isn't the best thing for you. It takes years to vest and I think even if you transfer it to the investment option, that portion is still held to the longer vesting schedule of the pension. Again, fact check me on this. Here is a link that compares the pension vs the investment option. Roth vs Traditional I really don't think this is a big deal and you'll find opposing arguments, but for most people I argue that a traditional is your best choice. When you earn 5.5k you pay tax based on your highest marginal bracket before it goes into a Roth. However, for a Traditional you don't pay tax up front. Instead when you pull it out you pay tax on it as if it were regular income, which means you get to fill up the lower tax brackets first. So if you imagine a contrived example where your real (inflation adjusted) income remains constant throughout your working years and retirement...then putting money into a Roth would be a mistake because your "effective" tax would be exactly equal to your highest tax bracket, but with a Traditional your "effective" tax would be lower because you got to fill up the lower brackets before you hit the higher bracket. Pushing for Reform I am not an expert, but this is what I've learned (we can always chat more if you go down this road) in my experience... Spend the time to fully understand your district's plans. That's what I did here. Spend the time to fully understand some of the best plans in the state. That's what I did here. Spend the time to clearly layout what improvements you'd like to see and what constitutes a win for you. That's what I did here. In my view, there is nothing more ineffective than a lobbyist/activist who simply complains about the problem and has no solution. Here at OCPS we have a "Retirement Services" department, whatever the equivalent of that is for your district, reach out to them. Get an in person meeting if possible and explain why the current plans are so bad and explain why other plans are great. Tell them about the nearby districts that are using those plans. Offer to connect them to people at those companies to get things setup. It is highly likely that these people don't understand investing, so teach it to them in the nicest, non-condescending way possible. It is also highly likely that these people don't want to do work, so do everything you can to shoulder the load yourself. Go to your school board members and make the same arguments. I've got a blog where I've documented some of the speeches I've given at our school board meetings. Reach out to the union and try to convince them to lobby with you or let you reach out to their membership in one way or another. Lots of unions are corrupt, operating with conflicts of interest. Lots of unions have huge turnover so they're fairly ineffective. Our union has a seat at the table in selecting the vendors so if you can get them to do their job, it is powerful. Reach out to media outlets to see if anybody will do a story on how badly teachers are being hurt. Your district has 100% of the decision making power. However, it is likely that your district simply does whatever their Third Party Administrator (TPA) tells them to do. It is a weird relationship where technically the TPA has none of the power, but the district is incompetent/afraid (which the TPA leverages), so the district relies on them to make decisions. The TPA is almost certainly operating with egregious conflicts of interests...they're generally not your friend. Organize all of the teachers in your school and schools throughout your districts to do the same thing you're doing. If you guys overload Retirement Services with phone calls and the school board meetings and do it respectfully, they'll want to cave just so they can go back to peace and quite.
  6. I understand. I ultimately agree with your decision to go with the lower expenses. I also agree with Krow’s suggestion to lobby for a better vendor.
  7. I’m thoroughly confused by what you’re saying your two options are. It sounded like you could choose a self-directed account with access to vanguard’s admiral shares or you could pay some adviser 1% to manage your account. If that’s correct then you’d obviously go with the self-directed account. So I think I’m misunderstanding something here.
  8. Again, I haven’t had time to dive into any details, but a taxable account should absolutely be considered. However, that’s a relatively complex calculation with several unknowable variables. My gut tells me the tax advantaged account is, more likely than not, still the best option (but I’m far from certain). I vaguely recall a person from bogleheads (user name starts with a g) who supposedly did the math to see if an expensive 401k was worth it...same basic premise here. allegory, are you participating in the pension? I believe the alternative to the pension is something called FRS Investment Option (google it), which is effectively just like a 403b or 457b and has amazing investments at rock bottom costs. You’re a few years younger than my wife and I’m told she was right at the cut off where they made the pension far less attractive. It may be in your best interest to use the FRS Investment Option in favor of the pension. Determining if this is true depends on how long you plan to remain an employee of the state, what your career path will look like (i.e. how much money you’ll earn), and so on. If this is something you’ll consider then I can help you try to figure this out, my wife and I made a spreadsheet to help her figure it out a few years ago. Also, since you said you weren’t a financial expert, you may find the Investing 101 page I wrote for teachers to be helpful.
  9. ...I forgot to mention that you can always push the district to add quality vendors. I’m in the middle of doing this in Orange County Public Schools and I’d be happy to share information and help if you wanted to go down the same road.
  10. I documented Florida’s best plans, but Broward doesn’t use any of them. You’re in the position of having to pick the least bad option. I don’t currently have the time to look closely enough at the data to provide my opinion. With these options, I’d first make sure I was maxing out my IRA (where you’ll have access to the best investments at the lowest costs). Another consideration, if you have a spouse, is to maybe max out their retirement account (assuming it is a better option)...but of course that hits on personal marital/trust issues. If you think you’ll be moving to another school district or retiring relatively soon then investing in a “bad” plan is more manageable because when you leave you can roll it over into a “great” IRA.
  11. I never tried to email Security Benefit. I used DocuSign to open the account, OCPS (FL) did whatever they did to begin funding the DirectInvest account, and I used securityretirement.com to manage the account (forgot how I got the login credentials). My obstacle was OCPS, not Security Benefit. OCPS insisted that DirectInvest wasn’t an option. I documented our struggle, in all of its detail, here.
  12. When dealing with the reps at Security Benefit you should expect a mixture of incompetence, ignorance, and malevolence. They couldn’t/wouldn’t even confirm that the DirectInvest program exists! I suggest everybody figure out, on their own, the exact steps to accomplish what they want and execute those steps. Do not rely on them if you can help it. I documented the exact steps you have to go through to open a DirectInvest account here in OCPS (FL). If I ever walk somebody through a transfer then I’ll document those steps too.
  13. What are the mutual fund symbols that have outperformed the market and over what time period have they outperformed? A great way to pick a loser is to buy the fund that performed the best the previous year. I suggest buying funds that you agree with philosophically...diversification is critical, minimizing costs keeps money in your pocket, and nobody can predict the market and if they could why would they use that knowledge to help you?
  14. In John Bogle's book Common Sense on Mutual Funds. Bogle compared mutual fund returns to the overall market beginning in 1970 and ending in 2005. At the beginning there were 355 funds. 223 funds, 62.8%, were closed before 2005 rolled around. 60 funds, 16.9%, lagged the market by 1% or more. 48 funds, 13.5%, were within + or - 1% of the market (slightly more on the losing side of that coin). 15 funds, 4.2%, beat the market by 1%. 9 funds, 2.5%, beat the market by 2% or more. A fun fact about the 9 big winners, the majority have lagged the market significantly in the past 15+ years and attribute their performance to a period of early dominance (perhaps lucky dominance).
  15. Hey Jrhorns, I may not clearly understand what you've said, but the first red flag is that you're talking to a rep. As a general rule you should never trust a rep. I assume the rep you're talking to is from Security Benefit, in my experience their reps have an awful mixture of ignorance and exploìtative tendencies. Security Benefit's NEA DirectInvest does not require a rep. I have a page that describes how we enrolled in Direct Invest, some of it is specific to OCPS (FL), but you'll probably find it useful. The fees for Direct Invest are a $35/year fee (waived when you hit 50k balance) and the rock bottom expense ratios of the funds (which I believe include a 0.01% 12b-1 fee). Under no circumstances should you ever pay a sales charge (aka, a load) and paying more than roughly 0.16% via an expense ratio is also unnecessary. In my view, paying 0.35% for the pleasure of having an account is absurd because (assuming 6% returns and 3% inflation) it consumes 11.67% of real profits after 1 year and 14.96% of real profits after 30 years. In my view, advisors wouldn't be worth it if they were free and they're very far from free and you're right, Direct Invest is the way to go. I’ll leave you with my favorite quote on investing from William Bernstein, “act as if every broker, insurance salesman, mutual fund salesman and financial adviser you encounter is a hardened criminal.”
  16. I've interpreted what you've posted to mean that you previously owned American Funds mutual funds in an AXA 403b and you've essentially transferred those shares to an ASPire 403b. I've never transferred one 403b account to another and I don't know exactly what you mean by "co-mingled". However, it is my expectation that the assets you now hold in the ASPire account will be indistinguishable from the assets you once held in the AXA account. So I would expect them to be "co-mingled". Class A shares imply you paid a sales charge (aka a load) when you purchased them and that there won't be a sales charge to sell them. Based on my understanding of the self-directed ASPire program, you have total control. You can and should sell them and buy low cost, total market, index funds....and Vanguard is a great choice. I'm told ASPire has a web interface that lets you do this all on your own. I'd be extremely wary of being referred to an "expert" because "experts" love to take money out of your pocket. You should be able to do this by yourself.
  17. EdLaFave


    You only need one to three funds and there is really no value in buying from multiple fund families. An index fund is a commodity, it doesn’t really matter who you buy it from if the expense ratio is low. Your post didn’t explicitly say what you’d do with all of the options available to you, but using a set of options beyond the minimal subset you need is a great way for investors to sabotage themselves. Simplicity is King. Don’t do something, just stand there!
  18. On my Investing 101 page you'll find a link to a spreadsheet to do these calculations for you. The spreadsheet isn't as intuitive as it could be, I've been meaning to improve it for months, but you should be able to figure out how to use it. The first thing to point out is that we want to think in terms of real returns for two reasons: Most of us are investing to grow our wealth, not to tread water, and real returns indicate actual growth. A 7% return combined with 7% inflation isn't growth. By using real returns in our calculations we see the value of our portfolio (decades in the future) in "today's dollars", which allows us to make sense of it. If you told me my portfolio would be worth $5,000,000 in 2050 then I'd have a hard time understanding what that really meant, but if you told me in 2050 my portfolio would be worth $1,200,000 in today's dollars then I wouldn't miss a beat. So to perform this calculation manually, start by estimating a real return for your portfolio. Depending on how many bonds you hold, a 6% yearly return and 3% inflation (its worth noting that recently inflation has been closer to 2%) would be reasonable estimates that would result in a 3% real return. The first step is to calculate what your portfolio would be worth, in today's dollars, if there weren't any fees assessed: Year 1 = YearlyInvestment * (1 + RealReturnRate) Year 2 = (ValueAfterYearOne + YearlyInvestment) * (1 + RealReturnRate) Year N = (ValueAfterPreviousYear + YearlyInvestment) * (1 + RealReturnRate) Then do the same thing for a portfolio being assessed fees: Year 1 = YearlyInvestment * (1 + RealReturnRate - ExpenseRatio) Year 2 = (ValueAfterYearOne + YearlyInvestment) * (1 + RealReturnRate - ExpenseRatio) Year N = (ValueAfterPreviousYear + YearlyInvestment) * (1 + RealReturnRate - ExpenseRatio) Then you can calculate how much profit exists in both scenarios and use those values to determine how much profit was lost to fees: RealProfitWithoutFees = FinalPortfolioValueWithoutFees - (YearlyInvestment * N) RealProfitWithFees = FinalPortfolioValueWithFees - (YearlyInvestment * N) ProfitLostToFees = RealProfitWithoutFees - RealProfitWithFees Then when it comes to expressing that loss as a percentage, you have a couple options: ProfitLostToFees / RealProfitWithoutFees tells you what percentage of the profits generated by your portfolio were consumed by fees. If this value is greater than 100% it means you actually lost wealth. ProfitLostToFees / RealProfitWithFees tells you how the value you lost to fees compares to the value you were allowed to keep. If this value is greater than 100% it doesn't necessarily mean you lost wealth but it does mean you lost more to fees than you were allowed to keep! I'm not sure what the "right" way to think about this is, but I think people find the first fraction to be more intuitive. FYI, when I quoted the 26.2% figure that was done using the first fraction...using the second fraction you'd get 35.5%.
  19. EdLaFave


    It is a happy day when our immediate personal interests align with the best way to affect collective, long term, positive change and that's the opportunity we have with Security Benefit's NEA DirectInvest. Whatever sins NEA and Security Benefit have committed and whatever blowback was generated (and few people would attack such behavior with more scorn than I have and continue to), the end result was the creation of an objectively elite, arguably the best, 403(b) plan. For obvious reasons it is in the interest of the individual to take advantage of such a great product, but it is also in the collective interest to reward companies for turning around and delivering a superior product. If we don't reward companies for (eventually) doing the right thing then public pressure becomes an entirely useless tool for reform, it is a self-destructive proposition. If we don't support the best product then we destroy the alleged benefit of the free market because the best product will end up losing.
  20. EdLaFave


    Security Benefit's NEA DirectInvest allows you to build a fully diversified portfolio for roughly 0.07% and a yearly fee of $35, which is waived when your balance hits $50,000. ASPire allows you to build a fully diversified portfolio for roughly 0.21% and a yearly fee of $40, which I don't think is ever waived. TIAA allows you to build a fully diversified portfolio for roughly 0.63% and no yearly fee. I documented both NEA DirectInvest and ASPire on this page, I specifically documented NEA DirectInvest on this page, and I documented TIAA on this page. The numbers speak for themselves. NEA DirectInvest is your best option, ASPire isn't as great but isn't egregiously expensive, and TIAA is very expensive relative to the other 2 options.
  21. An expense ratio is the fee a mutual fund charges you to own the fund. You don't explicitly pay this fee and the fee doesn't show up in your transaction history or anything like that. The mutual fund silently takes that money from you automatically throughout the year. The expense ratio is a percentage of the amount you have invested in the fund, which is why a seemingly "small" expense ratio is a big deal. It is a mistake for investors to think of the fee in this way, instead we should think of the fee as a percentage of our post-inflation returns and luckily this calculation can be quickly approximated without pen and paper. Let's assume our portfolio returns 6% a year and inflation is 3%. That leaves a 3% real return, so if your expense ratio is 1% then the you're giving up 1/3 of your post-inflation returns. If you're invested in 3 funds that have a 1% expense ratio then it is the same as if you were invested in 1 fund that has a 1% expense ratio, assuming all funds perform identically. Quick math... TotalBalance = BalanceOne + BalanceTwo + BalanceThree TotalBalance * 1% = FeeFromSingleFund TotalBalance * 1% = (BalanceOne + BalanceTwo + BalanceThree) * 1% = BalanceOne*1% + BalanceTwo*1% + BalanceThree*1% = FeeFromThreeFunds FreeFromSingleFund = FeeFromThreeFunds
  22. As a general rule a fund-of-funds (target date or fixed allocation) should cost roughly 0.15%. SB charges 0.8-1.0%, which is way too expensive to settle for. As a general rule a domestic stock or bond fund should cost about 0.05% and an international fund should cost about 0.10%. Luckily for you SB has: 1. Vanguard Total Stock Market for domestic stock. 2. Vanguard Total International Stock Market for foreign stock. 3. Vanguard Intermediate Term Bond for US bonds. The “total market” indicates you own the entire market, complete diversification. Vanguard does have a total market bond fund, but SB doesn’t offer it...so the Intermediate Term fund is a good substitute. It is slightly, and I emphasize slightly, more risky, but it is still cheap and high quality. These are the three funds I’d choose if I were building my entire portfolio at SB. ...however, you may find that your spouse only has access to cheap domestic funds in their 401k (which is the case for us). In that case it might be wise to let them load up on domestic while you load up on international. These are the reasons why you must consider your portfolio as a summation of all accounts. ...also just an FYI, the S&P 500 represents the biggest 500 companies in the US. These companies make up a massive portion of the US market and the mid/small size companies perform similarly to the big companies. So if you were ever forced to (as I am), the S&P 500 fund is a fine replacement for a total market fund. If you look at a graph of total returns over a decade or so, it is basically impossible to tell them apart.
  23. I haven't read this whole thread so I apologize if I'm repeating information. FYI, it sounds like your family has at least 4 options for accounts that give you a tax benefit: IRA, 403b, 457b, and 401k. With regards to 403b vs 457b, if you could exceed the $18,000/year cap ($18,500 in 2018) then I'd suggest contributing to both. However, it sounds like you can't, which means the question isn't if you should contribute to both; the question is which you should contribute to. I'm not familiar with your state's 457 so I can't answer that question but I know you can build a fully diversified portfolio at Security Benefit for about 0.07% and a $35/year fee (waived when your balance hits $50,000). It is possible the state plan is better but there isn't too much room for improvement. When you invest, your eggs never go in one basket, but the baskets we're talking about when we say that are specific stocks or specific market sectors...for the most part, we're not talking about types of accounts. Personally, we invest all of our money in the account that gives us the lowest costs, best tax situation, and a diversified portfolio. If we have more money then we invest it all in the 2nd best account, and then in the 3rd, and so on. It was a red flag for me when you talked about making decisions based on past performance because it indicates that you may be missing some foundational principles of investing that'll save you lots of money. I could probably write at length on this topic but here are the cliff notes (ask questions and I'm happy to get into more detail): 1. Past performance does not predict future performance. If anything the best way to pick a future loser is to pick last year's top performer. 2. The single best way to pick a future winner is to pick the fund with the lowest cost. 3. Nobody can predict how markets will behave. Not me, not you, and not the super smart PhDs with tons of money and complex models. So any time you contemplate making a decision based on the idea that you know something about the future...STOP! 4. Diversification is key. That means a few things. You should own total market index funds because they consist of thousands of stocks spread across every industry. You should have foreign stocks and domestic stocks and you should hold enough bonds so that when stocks crash by 50% (as they regularly do), you can handle it both financially and psychologically. 5. A 3 fund portfolio (domestic total market index fund, international total market index fund, bond total market index fund) is the cheapest option and requires a litle bit of maintenance on your part. 6. A single fund-of-funds internally holds the individual total market index funds but it does the maintenance for you and costs a little extra. ...this isn't a complete run down, my Investing 101 page might be useful to you though. ...also if you list the 401k options I'd be happy to provide my opinion. Remember, it is important to think of your portfolio as the summation of every account. Thinking of each account as a stand-alone portfolio can lead to higher costs and additional complexity.
  24. I wrote a quick blog post about the untenable middle ground school districts find themselves in with regard to 403b and 457b plans.
  25. TIAA is a significantly inferior choice relative to Fidelity and Security Benefit's NEA Direct Invest and I will quantify that claim. My website has a page for TIAA. The cheapest portfolio you can build with TIAA (at least in OCPS Florida) will cost you about 0.63% per year. If you assume a 6% annual return and 3% inflation then after 1 year that fee will consume 21% of your real returns and after 30 years it'll consume 26.2% of your real returns. My website has a page for Fidelity. The cheapest portfolio you can build with Fidelity (at least in OCPS Florida) will cost you about 0.06% per year. If you assume a 6% annual return and 3% inflation then after 1 year that fee will consume 2% of your real returns and after 30 years it'll consume 2.64% of your real returns. Fidelity also has a $24/year fee which isn't included in these calculations. My website has a page for NEA DirectInvest. The cheapest portfolio you can build with them (at least in OCPS Florida) will cost you about 0.07% per year. If you assume a 6% annual return and 3% inflation then after 1 year that fee will consume 2.3% of your real returns and after 30 years it'll consume 3.1% of your real returns. This plan has a $35/year fee which isn't included in these calculations and is waived when your balance hits $50,000. So TIAA is clearly an inferior choice. Under the assumptions listed above and in terms of yearly expenses and the percentage of real returns they consume, TIAA is approximately 10x worse than your alternatives. Also, it is worth noting that TIAA is in the middle of a conflict of interest scandal.
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