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EdLaFave

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Posts posted by EdLaFave


  1. 3 hours ago, tony said:

    I know that under no circumstance would I have taken out a loan to fund my education. But so many today do that.  I guess that's where I am different. Maybe things have to be viewed in the context of the times and I just don't get it now. Something has changed.

    The cost of college relative to the income you can earn serving burgers and beer has absolutely skyrocketed since you went to school. 


  2. Without getting dragged into the weeds, we know one thing for sure. Ever since the 70s or 80s income and wealth inequality has been rapidly accelerating.

    Almost by definition, that means the younger you are the worse off you are. So yeah, the younger generations have a lot of legitimate problems to complain about.


  3. 13 hours ago, ScottO said:

    25% of millennials expect to rely on social security or a pension

    I understand that it somehow became trendy to say, without any understanding of the program, that social security won't be there. Interestingly enough the folks I most often hear this from are the same folks who tell me socialism is taking root in America and they're using Roth accounts now to avoid the sky high tax rates of the future.

    Having said all of that, if 75% of millenials are expecting to have saved enough to retire without social security or a pension...well, they'll be sorely disappointed when they have to face reality.


  4. 42 minutes ago, ScottO said:

    people act in ways that aren't proven to provide long term success

    IMO, the idea that most often fails to be understood and internalized is that (in the short term) we cannot predict anything and therefore we have NO control and that’s OK. I wonder if people in the west, with all the ideology inherent in that, struggle with this more than others?

    42 minutes ago, ScottO said:

    the presenter mentioned that we don't experience average returns, we feel real ones

    Is that a fancy way of saying we get emotional when short term volatility hits?

    I think we were around 35% down at one point and I felt nothing. I always doubted the people who told me I couldn’t predict how I’d feel until it actually happened. I’m a bit relieved their concerns were misplaced.

    42 minutes ago, ScottO said:

    Our contributions are made through paycheck salary deductions and on the 6th of each month(for anything remaining above our emergency fund threshold.)

    I’ve got a similar approach. I don’t keep an emergency fund and every paycheck I immediately invest the excess amount after I pay bills. I don’t even give myself the opportunity to be tempted into timing the market. 


  5. It’s amazing how Vanguard came up with so many words just to say, “Keep doing what you were doing in January.”

    I think it’s important to contextualize their comments on a 100% stock portfolio. They’re likely talking about risk-adjusted returns. Unless I have bad data, a 100% stock portfolio is expected to have higher returns. For early retirees this actually gives you a higher chance of success. 


  6. 37 minutes ago, tony said:

    makes me think that you think  I may have made a bad move...I dumped the money immediately into The Total Stock Market Index so I may have come out ahead...Even with the move I still have a 20% allocation to Internationals overall.

    The idea that somebody can eek out superior performance by dynamically changing their asset allocation and/or moving money into and out of the market is the single biggest reason investors under-perform the market, it makes high fees look negligible (they're not).

    Happily for you, by moving the money from international into a domestic fund you've come out ahead this time (although we can't say that for sure until you go back to your original asset allocation). I'm genuinely happy that's the case, but you achieved this gain by moving away from your desired asset allocation, which is suboptimal. Is what you specifically did the biggest sin in the world? Absolutely not, but you can TLH without modifying your asset allocation.

    37 minutes ago, tony said:

    This was in a taxable non retirement account and as a result I was able to claim significantly on my taxes next year

    For anybody reading, TLH (Tax Loss Harvesting) is when you realize a loss in your taxable account by selling, which allows you to apply a $3,000/year deduction to your income taxes. This can be a nice little consolation prize for suffering through a bear market. I've executed TLH sales several times over the last month (as well as recent pullbacks like 2016 and 2018) and I may be able to do it again in a few weeks.

    However, it is highly advisable to immediately move the proceeds of a TLH sale into a comparable fund, but not a "substantially identical" fund as the IRS likes to say. For example, you could exchange shares of VTIAX (Vanguard Total International) for shares of VFWAX, which essentially has the same performance as VTIAX, but lacks emerging markets. However, if you were to exchange from a Vanguard Total Market fund to a Fidelity Total Market fund then you might be breaking IRS rules. Unfortunately they haven't explicitly defined what "substantially identical" even means!

     


  7. On 3/24/2020 at 11:31 AM, tony said:

    I know we should ignore the noise when it comes to investments right now .but I just sold my taxable international fund at a good loss. Seeing I  seem to owe the government money ever year. it was an opportunity I could not pass up.

    Since 3/23/2020 international is up 15.38% and domestic is up 18.68% and it looks like we're set for a strong opening today as well. Absolutely anything can happen in the future, maybe the market drops another 40% from here? Maybe we've seen the worst of it? I don't know.

    If anybody re-reads these threads I hope they can learn from Bogle's words, "Don't do something. Just stand there!" Pick an asset allocation that will prevent you from panic selling when recessions hit (as they certainly will) and all you have to do from then on is just dump every spare dollar into your investments and don't sell until you need money in retirement. Give up on the notion that you can predict the market or you can execute some maneuver that'll save you from temporary pain; you can't.


  8. I suspect virtually nobody actually reads papers. They're told that the trinity study demonstrated that 4% is the safe withdrawal rate for retirement then they repeat it. Then you have entire FIRE communities repeating it until it becomes gospel.

    There's a subset of the FIRE community that I'm interested by. Most (all?) of these folks are in very high paying jobs, which often means they face two choices:

    1. Retire now, cut expenses to the bone, and if things don't go great then maybe pick up a part time "barista" like gig.
    2. Work another year or two at your current job and really solidify your nest egg.

    I'm intrigued by the folks who pick Option 1. Personally I'd hate the "barista" job in and of itself and I'd hate it even more due to the significant pay disparity between my career job and I'd hate the degree of uncertainty that my future rests on even more. I understand that people don't want to work more than they have to and they want to find a way out of their current less than enjoyable situation. I REALLY get that, but the risk-reward just doesn't add up to me. Sometimes I wonder if these high paying professionals have romanticized the so called unskilled jobs.


  9. 8 hours ago, sschullo said:

    As I have said before I love the movement to move to a less stressful life with less material crap, reasonable size houses, small cars, or no car and replace that unhealthy stress with a less materialistic value system with a more holistic value system. 

    You’re speaking to my soul with that one Steve. Why have we made living so stressful!


  10. 8 hours ago, ScottO said:

    It's interesting to get Scott and Dan's take on the 4% rule and the FIRE movement. I've really wondered how CFPs would structure accounts to align with the idea of just quitting work early.

    I’ve looked at the math and even with all equities, I wouldn’t feel comfortable with only 25x annual expenses (what a 4% withdrawal rate requires) and a 60 year retirement window. I would however feel comfortable with 33x annual expenses (what a 3% withdrawal rate requires), that’s especially true if you get there during a bear market or early into a bull market.

    I fear that people who FIRE with 25x may not fully understand the risk because they may believe that the authoritative “trinity study” applies to them and it doesn’t. Still they’re more likely than not to be fine, but I personally want a 99%+ chance of success before I pull the trigger. 


  11. 18 minutes ago, tony said:

    DCA is entirely a risk management issue. Sure, “on average,” lump sum investment yields better results, except when it doesn’t. The problem is that no one knows in advance when that will be. When one dumps in a large sum of money into an investment, not only is the entire amount put “to work,” it is also put at risk.   In this current market when we are just starting to see the beginning of the worst of this situation, who knows how bad it can get. The upward potential is reduced sure , but risk is reduced to a much greater degree.If one has money to “play with” in the market, go ahead and speculate, gamble, and dump in funds as one sees fit. If one has limited means and needs every penny available to survive in retirement, then one needs to stick to traditional rules of asset allocation and systematic investing.   The market is too unpredictable to know which is the better approach

    DCA (as it applies to a pile of cash) mitigates risk in the sense that you aren't invested in the market, but not being invested in the market isn't a valid strategy. Bonds are a valid risk management strategy, sitting on cash is speculative and locking in the erosion of inflation.

    One easy way to see what a poor risk mitigation strategy DCA is, is to imagine somebody who is already fully invested and they're scared of market risk. Nobody in their right mind would ever recommend that this person take a lump sum out of the market and slowly dribble it back into the market. Sure doing so reduces risk, but I think we can all see how foolish that approach would be.

    The reason people can't see how foolish it is if somebody has a windfall is because we're incorrectly anchoring to the value of the portfolio on the day of the windfall and for a reason I can't explain people don't seem to anchor to the value of the portfolio on the day they're fully invested (at least in the context of DCA).

    Investing everything you have in the market isn't speculation or a gamble. Investing in single stocks is a gamble. Investing for the short term is a gamble. Investing in a single sector is a gamble. Putting all of your portfolio into the market is just plain investing. However, pulling money in or out of the market based on short term gyrations...that my friend, that's speculation.


  12. 34 minutes ago, tony said:

    Is that because of time?   How would it be different. ?

    Yes. Time out of the market, on net, hurts returns.

    On average the stock market obviously goes up, otherwise we wouldn't put money in it. So if you sit on a pile of money for a fixed amount of time and slowly drip it into stocks, then statistically speaking you will miss out on gains (not losses). That's why you hear the phrase "time in the market, not timing the market" (or something along those lines). Of course, if you look at any individual time period you either lost or you won, but you're more likely to lose with DCA.

    The only utility of DCA is convincing fearful people stuck in a fallacy to get their money in the market. Of course I'd argue strongly that if they're so fearful then the real problem is their asset allocation.

    Now if you're just putting money in the market each time it becomes available to you (i.e. payday) then I don't really consider that to be a strategy. You're just investing whenever you can, not when you choose to believe it is a "good" time to invest.


  13. 3 minutes ago, ScottO said:

    I forget if you can't buy anything similar in all your accounts(taxable, Roth, 403b, 457).

    I believe the IRS explicitly ruled that you can create a wash sale between your taxable account and your IRA. I don't believe they've explicitly ruled about employer sponsored accounts. I believe the spirit of the wash sale is pretty clear that it should apply to all accounts, but until the IRS makes it explicit then we don't know for sure. I don't play in that grey area.


  14. 22 minutes ago, tony said:

    I  sold my shares in Fidelity years ago at a loss moved to Vanguard Total 31 days later and took the loss on Vanguard's advice

    Without getting into the weeds, the Wash Sale is relevant to 30 days before Tax Loss Harvesting and 30 days after. If you wait 31 days after the sale, you could have bought right back into the fund that you sold from.

    When people tax loss harvest they often want to avoid being out of the market. To accomplish this they will immediately exchange from the fund with a loss to another fund as long as that other fund isn't "substantially identical." This is why whyme talked about exchanging a total market us fund for an S&P 500, they both have extremely similar performance, but you can argue the absence of small and medium size companies in the S&P 500 fund prevents it from being considered "substantially identical."

    22 minutes ago, tony said:

    In terms of a  significant lump sum non retirement account. i certainly would not drop it in the stock market right now under these circumstances. all at once was my point  i guess you could but it would not hurt to park it a while in a money money account instead of leaving it in a checking account collecting no interest on it. Is that marketing timing? I think it's just being cautious.

    This is a mental accounting fallacy. It isn't logical to treat money that is currently in cash differently than money that is currently in the market. We all have a total portfolio (regardless of what assets it is split between) and we all have to make a decision (every day) as to how that money is or isn't invested.

    What your portfolio was invested in yesterday has no bearing on what it should be invested in today. Either you think it is a good to have Y dollars in the market or you don't, it doesn't matter where those dollars were invested yesterday.

    This is absolutely marketing timing and market timing is usually considered cautious/fearful. Decisions you make based on short term market movements and this idea that you can predict the short term future, well that's market timing.

    Market timers often find ways to do the wrong thing twice. During a bad market they won't put their money in because they're being cautious. During a bull market they'll pour it all back in because things are "good". The proverbial sell low and buy high.


  15. 54 minutes ago, tony said:

    Actually you could sell a Vanguard Total Stock Market Fund and Buy a Fidelity Total Stock Market  fund. and claim a loss

    The IRS says that if you buy a "substantially identical" replacement then it'll trigger a wash sale, which you clearly do not want to do. The IRS has not explicitly defined what "substantially identical" means. Somebody could make the proposed exchange and claim a loss. However, in the event of an audit, I sure wouldn't want to be in the position of making the argument that those two funds aren't substantially identical.

    57 minutes ago, tony said:

    I'm not convinced trying to buy into the market right now is a good idea if you happen to have a big lump of cash hiding under your mattress or an inheritance .I would put it in a money market right now and wait this market out because it may not be done  shedding.

    Just a word for anybody reading these comments. This is a form of market timing and is particularly dangerous because this is exactly how people miss the recovery after a crash. If you want to invest successfully accept the reality that nobody can predict the short term future so all you can do is buy and hold (no matter what is or isn't happening).


  16. On 3/14/2020 at 3:39 PM, Diane said:

    With respect to the market being low right now, would you recommend waiting or continue to transfer funds from AXA account to my newly opened Vanguard 403 account.

    Any time you ask yourself a question that begins with “given what the market is doing now” it is almost certainly going to lead you to engage in market timing

    You have to get comfortable with the idea that nobody can accurately predict what the market will do over the short term. Trying to time the market is probably the number one way people lose money.

    To answer your question, it’s always a good time to leave a high cost vendor for a low cost vendor. 


  17. 9 minutes ago, tony said:

    O.K guys but the fact is this statement  above is blatantly wrong. I should not have to spend an hour giving Ed proof for every statement

    You haven't spent even a second providing proof at all. You've just gotten exasperated and said I was blatantly wrong without providing any argument.


  18. 7 hours ago, tony said:

    To be fair I watch all the news channels and all of them have their biases which is unfortunate.

    My personal political views aside, the data is clear that we can’t both sides this. Fox News hosts have consistently and repeatedly reported things that are verifiably untrue. The same cannot be said for other outlets like CNN or the NY Times. 

    Biases are subtle and subconscious and professionals do everything they can to overcome it, sometimes swinging too far in the other direction. Propaganda is something else entirely and for the sake of precision alone we shouldn’t confuse the two.


  19. 57 minutes ago, tony said:

    Trump just banned travel from Europe

    I didn’t know that.

    I’m cheering for an immediate recovery. I don’t enjoy losing money, but I can think of one consolation prize of this well timed downturn 😁 😈 


  20. haha, I’m old enough to remember Q4 of 2018 when we were within a hair of a bear market when the world’s two largest economies were locked in a pointless trade war.

    Nobody knows the future. I hope things get better quickly, but maybe they won’t. The huge market swings have really been something to see though. 

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