Jump to content


  • Content Count

  • Joined

  • Last visited

Everything posted by EdLaFave

  1. 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".
  2. 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.
  3. One factor to consider is that a disproportionate amount of people live in California.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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%.
  9. 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.
  10. 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.
  11. 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.
  12. 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."
  13. 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.
  14. 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.
  15. 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.
  16. I don't know what the perfect solution is but I'll share my thoughts. At a high level here are the three main points I like to cover right off the bat: 1. Did you know that virtually all of our vendors charge fees so high that they consume the majority and sometimes all of our real investment returns? 2. If they show interest then I'd suggest that advisers are able to do this because we all assume investing is too complicated to understand but all we need is a single all-in-one fund or 3 individual funds (US stock, international stock, and bonds), which is in fact what most advisers own themselves! 3. If there is still interest then I'd explain I use Security Benefit's NEA DirectInvest to implement the 3 Fund approach and the fees are so low that after 30 years they're expected to cost me roughly 3% of my real returns. From there I'm prepared and enjoy getting into all of the dirty details if they push it in that direction. Otherwise we can keep it high level (fees = bad, 1-3 funds = fully diversified, index > active). Either way I volunteer to walk them through anything and everything. I'll go to people's houses, call, text, email, facebook, walk them through the steps to enroll, make 3-way calls to vendors with them, whatever they want, whenever they want. I do make a point to tell them that I don't fully understand the law and I have a vague impression it is illegal for a "normal" person to provide financial advice. So I can't advise anybody but I can tell you exactly what I did, why I think it was the best choice, and what I'd do in hypothetical situations. You don't sound like you suffer from this the way a lot of people do but I'm pretty adamant about shutting down that emotion/thought process. Nobody is an idiot for getting taken advantage of when it comes to investments. Only a very small minority weren't taken advantage of and they probably had somebody more experienced to guide them. We're not idiots, they're immoral financial predators. 7 vendors will take a while to work through, but I encourage you to do it. Start with the ones your coworkers use the most and work your way down the list. Here is some advice, when they explain all of the details ask to see the official documents to verify what they've said is 100% accurate. Don't accept their requests to call you back or to email it to you. Tell them you've got all day and want to work through it right now with them. Otherwise that official information will probably never find its way to you. Remember when you're dealing with reps, it isn't just about honest vs dishonest, it is also about knowledgeable vs poorly trained and ill-informed. It is easy to want to attribute everything to malevolence but incompetence is a highly probable reason for their behavior too. You'll find there are mixed views on Security Benefit. NEA DirectInvest is objectively awesome, no grey area there. However, adding security benefit means you're adding a vendor that will viciously go after employees and try their best to put them into other explo¡tative plans. I spent countless hours on the phone with Security Benefit transferring from one person to the next and nobody would confirm that NEA DirectInvest was a valid option for me to enroll in. I believe only 3 or 4 people in the entire state of Florida are enrolled (include my wife). If I had to pick the single best vendor for a generic school district with generic employees, it would be Vanguard because: 1. They offer the cheapest 1 fund portfolio (and who knows, some day they might offer admiral variants of those funds), which is probably what is best for the vast majority of educators. People like me who prefer the 3 fund portfolio will wind up paying an extra 0.10% than we'd have to pay at Fidelity or Security Benefit's NEA DirectInvest but it is a sacrifice for the common good. 2. Every time I or anybody I've known has spoken to Vanguard they've gotten EXCELLENT financial advice. I know that wouldn't be the case at Security Benefit and I'm not sure about Fidelity but they worry me because they offer a ton of really awful funds in addition to their excellent low cost, total market index funds. 3. I believe in rewarding THE company who has fought for investors. I think that company culture is more likely to take care of educators than not.
  17. Well you'd have to take the time to look into each plan to make a definitive statement. I feel more than comfortable making the following declarations about our plans at OCPS... Security Benefit's NEA DirectInvest allows you to build a completely diversified 3 fund portfolio with rock bottom costs. The other plans based on mutual funds are clearly inferior because they charge more and most also offer inferior funds. What about the annuities that offer a guaranteed return, could somebody argue those plans are best for people who are VERY risk averse? Well the guarnateed returns for these annuities are far lower than a 100% bond fund is expected to return. So it doesn't make any sense to accept subpar guaranteed returns with the possibility of surrender fees when you can have a super safe 100% bond portfolio. So yeah, I feel incredibly confident when I say Security Benefit's NEA DirectInvest is hands down the best plan at OCPS, I suspect you'll find the same pattern when/if you dig into all of the details. Imagine a district had Vanguard, Fidelity, and Security Benefit's NEA DirectInvest, it would be quite difficult to definitively claim one is superior to another. Your investment preference (1 fund vs 3 funds) will dictate which vendor is cheapest. Either way the expenses for all of these vendors are so low that picking the "best" vendor based on which company you philosophically align with, who has the better web site, and other personal preferences isn't at all unreasonable. Unfortunately, my district isn't blessed with such excellent vendors and I suspect neither is yours. I'm hoping one day you'll do some investigative reporting and get to the bottom of this one because I simply don't believe this is true. I'm curious to know if people are misunderstanding the plan or if the rep has reached expert levels of immorality and is flat out lying to people. It would be easy, call the rep up or meet with him and push for every detail. Present yourself as a potential customer (if this likely fictitious world of guaranteed 6% returns actually exists then you probably are a potential customer) and you'll get the bottom of it. I imagine every district does things differently. Here at OCPS we have what is called a "fringe committee" that gets together once every five years to decide which vendors will be allowed to participate in the 403(b)/457(b) plans. Our fringe committe has people from the district (head of retirement services, director of risk management, etc), people from the instructional staff union (I'm not even sure they send somebody), and people from the non-instructional staff union (I'm not even sure they send somebody). People speak highly of TIAA around here but I'll just say it, I'm opposed to them. Are they better than AXA? Sure, but that is a low bar. TIAA charges a 0.58% yearly fee. I find that to be unacceptable. There may be nuggets of truth in what the AXA rep has told you, I don't know the gory details. But whatever they are, Vanguard and Fidelity are in many districts in Florida so it is quite possible to add them. I studied all of the districts in Florida and I came up with a Top 5 of Vanguard, Fidelity, Security Benefit (specifically for NEA DirectInvest), ASPIRE (specifically for their self directed option), and PlanMember Services (specifically for their self directed option). I broke down each of these plans on my site: https://educatorsfightingforfairness.wordpress.com/floridas-best-403b-457b-vendors
  18. With regards to not understanding why people fear for their jobs/careers... I talk a lot about the 403b/457b scheme as a sophisticated, clever trap that was designed specifically with educators in mind. At least in Florida, the state has pushed the "model plan", which couldn't be more ironically named. Districts go through a formal process to hand pick a select group of vendors. Principals are the CEOs of their schools with absolute authority to allow or deny the vendors access to campus. So the entire public school system (principal, benefits department, superintendent, school board, and state representatives) is standing behind, endorsing, and helping these vendors. It is entirely reasonable to think that fighting against exploìtative vendors is, by proxy, fighting against the entire power structure of the public school system. Our good friend, Steve Banks from TSA Consulting Group, has already vaguely threatened me with some kind of legal liability associated with teaching people about these retirement plans (I of course told him I'd never stop). Intimidation is alive and well both in implicit and explicit forms. With regards to being polite... It is easy to let anger take over. Very easy. Still, I don't try to stamp out my anger. I intentionally try to keep my anger alive and well, but in a controlled way. Without anger I'd probably walk away from this whole thing because my investments are just fine. However, it is important to keep that anger hidden and internal almost 100% of the time. I don't want people to see my rage, I want them to see the deeper principles that cause my rage. I want them to see how fundamentally unfair it is that educators are being viciously exploìted. I want to appeal to their sense of humanity. I want to appeal to their sense of right and wrong, their sense of morality. These forces have the potential to convert a would be enemy to an ally, but anger/rudeness would only push them further away.
  19. My thoughts on assessing risk without having been through a crash with skin in the game: Really try to imagine what it is like. Imagine half of your life savings disappears over a short period of time. Maybe that represents 10-15 years worth of contributions? How will you feel when you look back at all of the years of blood, sweat, and tears only to realize that you have nothing to show for it? How will you feel when you project into the future and realize your retirement just got pushed back a decade, perhaps with a lower standard of living? How will you feel every pay period when you dump money into the stock market only to watch it plummet in value almost immediately? Now imagine all of the articles and tv shows you'll see with "experts" yelling about financial armageddon and how the very fabric of our economy has been destroyed. How much will that add to your fear? Then think about the worst "experts" of all who will present all of these fancy plans that "prove" you can avoid the financial crises if you just follow their advice. Then think about your friends, family, and coworkers some of which will inevitably sell out of the market and save themselves from the most recent drop...and they'll tell you about it. How much fear will this stoke? Will you abandon your plan? Will you be able to sleep at night? Then imagine you lose your job because of the economic downturn. Now you're burning through your emergency fund and may wind up living with the bitter taste that comes with selling stocks at a low point just to pay the bills. Every recruiter tells you there are no jobs. Every company ignores your application. How will you feel then? Will you still stick to your plan? Go through that exercise and honestly reflect on who you are. Remember it isn't just about coming out ahead financially...what is the emotional toll worth? Super aggressive portfolios are great if you've got ice in your veins and cold logic in your mind (I like to think I do) but they're disastrous if you're wrong. A subset of people claim the "bonus" you get from selling bonds to buy stocks at a low point outweigh the drag associated with owning bonds (a lower performing asset). They claim a stock/bond split isn't just about risk mitigation but it is about "buying low and selling high", a myth we should generally dispel and reject because it leads to behavioral errors. I may be 100% wrong but I think adding 10% increases risk adjusted returns, not absolute returns. I also think you can find relatively short periods in history where holding some portion of bonds increased absolute returns...but I think those period are in the minority and disappear entirely with sufficiently long time horizons (15-20 years?).
  20. For several years I've asked but nobody has been able to show me the math that supports the much talked about "rebalance bonus". Every time I've done the math the "bonus" from buying stock during a crash is outweighed by the drag from holding bonds when stocks aren't crashing. From what I can tell these two assets aren't perfectly miscorrelated (?) in terms of magnitude or timing. If I invented two assets where one went up at the same time and degree as the other went down then I see a "rebalance" bonus that generates profit. I believe this is a story people like to tell themselves as they talk themselves into holding more bonds (which may be exactly what they need).
  21. That is a completely reasonable portfolio and asset allocation, congrats! A 50% drop in stocks will result in a roughly 40% loss.
  22. With regards to international stock vs US stock, sticking to your decision is far more important than what you choose. To give some context: US represents about 55% of the world market. Vanguard Target Date funds have 60% US and 40% international. I believe Buffett and Bogle have suggested 100% US is fine. I personally prefer diversification but I am susceptible to the argument that so many US companies are global and the US fund is nearly a third as expensive to own.
  23. With regards to bonds it is a really personal question that only you can answer. This is what I said on my site https://educatorsfightingforfairness.wordpress.com/investing-101 The most important choice you'll make is deciding what percentage of your portfolio should be allocated to bonds. Bonds will reduce your expected returns but they'll buy you stability, peace of mind, and lower the likelihood of behavioral errors like selling during a crash only to reenter the market after the recovery. These mistakes can be far more disastrous than paying high fees. Our personal approach is to recognize that stocks can lose half their value over night and take many years to recover. After serious introspection, ask yourself how much you can emotionally and financially "afford" to lose in that scenario. If your answer were 37.5% then you'd use the formula (100 - 37.5 * 2) to calculate that 25% of your portfolio should be allocated to bonds.
  24. I'll make it even simpler! Choose a category and move on with your life... 3 Fund Portfolio Vanguard Total Stock Market Index (VTSAX) Vanguard Total International Stock Index (VTIAX) Vanguard Total Bond Market Index (VBTLX) 1 Fund That Automatically Buys More Bonds As You Approach Retirement Vanguard Target Retirement 2020 Fund (VTWNX) Vanguard Target Retirement 2035 Fund (VTTHX) Vanguard Target Retirement 2060 Fund (VTTSX) 1 Fund That Keeps The Stock/Bond Mix Constant Vanguard LifeStrategy Growth Fund (VASGX) Vanguard LifeStrategy Moderate Growth Fund (VSMGX) Vanguard LifeStrategy Conservative Growth Fund (VSCGX) Vanguard LifeStrategy Income Fund (VASIX)
  25. I tried to get information from Valic but they literally told me they aren't able to provide any information for the OCPS plan. It ended awkwardly with me telling them to call me back if they decide they want to tell me about their plan(s). I found this to be shocking, they obviously worked to be a vendor but they wouldn't tell a potential customer about their products. How does this make any business sense? On 403bcompare it looks like there are 7+ plans for Valic. I've found that here in OCPS, vendors often only offer a limited set of the plans they offer nationally. What vendors are available in your district?
  • Create New...