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EdLaFave

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Everything posted by EdLaFave

  1. That’s really awful news. He is the only person in the investment industry that I admire. I guess all we can do is to keep passing on everything he taught us.
  2. I think Steve got the link right. This page documents the plan, this page documents specifically what I did to enroll, and this page documents the roadblocks people put in my way. Let me know if you have any questions. One thing to consider is that by not contributing to an IRA (at least before maxing the 403b), you’ll more quickly hit the 50k mark, which is when SecurityBenefit waives the $35/year fee. This is a really small optimization, but it gives the added benefit of simplicity and may be worth exploring.
  3. The biggest point to be made about the superiority of Traditional accounts centers on the nature of our progressive tax code... Every dollar you contribute to a Roth is taxed at your highest marginal tax bracket. However, when you pull money out of a Traditional, some of your money isn’t taxed at all (standard deduction) and then you get to fill up the lower tax brackets before you hit that top rate. That means your effective tax rate from Traditional withdrawals is likely to be much lower than the tax rate of Roth contributions (i.e. your highest marginal rate). Most people (or at least most savers that live below their means) have more taxable income when they’re working than they do during retirement because they have expenses they don’t necessarily have in retirement. For example, in retirement you may not be paying for kids, a mortgage on a family home, multiple cars, or income tax on money that you invested in a taxable (or Roth) account. Therefore it isn’t likely that you’ll be in a higher tax bracket during retirement than you were when you were working. Because of all of this, the vast majority of people will pay less in total tax if they invest in a Traditional, which is demonstrated by the following (rough) equations: Roth Value = $1 * (1 - HighestMarginalTaxRate) * (1 + InvestmentReturn) ^ NumberOfYears Traditional Value = $1 * (1 + InvestmentReturn) ^ NumberOfYears * (1 - EffectiveTaxRate) There are cases where a Roth is superior and the argument above assumes no changes to the tax code because I can’t accurately predict how it’ll change. For a more detailed argument: https://thefinancebuff.com/case-against-roth-401k.html
  4. I’ll never embrace a downturn because it means real people will be hurt in very real ways. Suicides, lost homes, lost jobs, lost savings, poverty, lost healthcare, lower economic output, and so forth. I don’t think an economy has to function in the extreme boom/bust fashion that I’ve observed over the past twenty years. I regard this as a societal and political choice we’ve made, not an intrinsic quality of markets. If I were going to work into my mid-40s then I’d personally be more accepting of a downturn, but I still wouldn’t embrace it. I’ve been open to quantitative arguments against FIRE. I’ve been open to arguments about how many years of expenses you need for a safe retirement in perpetuity. The only argument I’ve heard against retiring with 33x annual expenses is, “you never know.” I’ll remain open to arguments, but it has to outweigh the fact that I only have so many years alive and I know I don’t want to spend them in an office grinding away.
  5. Come on, of course I didn’t think markets would go up forever. I’ve felt markets were overpriced for a little while...and still do. Since graduating, I’m not sure I’ve gone a single paycheck without buying stock. I’ll never embrace a downturn; I’ll accept a downturn. I’ll always embrace a bull market. There is a near 0% chance of me working into my mid-40s. Basing retirement on an arbitrary age isn’t sensible. It is a calculation that depends on years of retirement, spending needs, and portfolio size.
  6. Rebalance is one of those overloaded words, but for me it means selling what you have too much of to buy what you have too little of. If you direct new investments towards the asset class that you have too little of, then rebalancing should be very rare. I started investing in 2007 and haven’t had to rebalance a single time. My yearly investments are 13% of my portfolio value. Once my new investments are dwarfed by my portfolio size, then directing new money towards underweight asset classes may not be enough and a true rebalance may be necessary.
  7. I swear somebody hears another person say "social security is a broke ponzi scheme that won't be there when I retire" and then they repeat it with absolutely no knowledge. Now it has become a popular thing to say. I like this article because it dispenses with much of that nonsense. Just a reminder for anybody concerned with policy solutions to social security. Every dollar you earn above $128,400 isn't taxed at all for social security...i.e. rich people pay a lower effective tax rate for social security than working people. If we didn't exempt rich folks income from social security it would significantly extend the "solvency" of social security. If we went further and made rich people pay higher tax rates (as we do for federal tax on ordinary income), then it would do even more. ...the social security "problem" doesn't have to be solved by reducing benefits for working people.
  8. It is a complicated answer because it depends on when you made contributions throughout the year and when/if you rebalanced throughout the year. My suggestion is that you don't bother...one of the magnificent things about index funds is that you already know you got your fair share of returns. I focus most on how much I contribute each year because it is the only thing I can control...and I'll calculate the start/end value each year just to track my overall progress. XIRR/Spreadsheet If you have all of the following information: Value of portfolio at the beginning and end of the year. The date, amount, and total portfolio value of every sale/purchase. Then you can enter that data into a spreadsheet and use the XIRR function to calculate an "internal rate of return". PortfolioVisualizer If you want a lower effort and less precise approximation then you can use Back Test Portfolio feature of PortfolioVisualizer to help. If your stated portfolio had $100,000 at the beginning of the year, you added $1,000 each month, and you rebalanced each month then you would have ended the year with $104,309, which would have represented a -6.85% return. If your stated portfolio had $100,000 at the beginning of the year and you did nothing then you would have ended the year with $93,050, which would have represented a -6.95% return. ...or so PortfolioVisualizer tells me.
  9. Every surrender fee schedule I’ve studied has been worth paying. This is because the annual fees associated with the account outweighs the surrender fee. One potential exception is that it might be worth waiting a bit if you’re close to a surrender fee reduction. For example, I’d wait a month or so if the surrender fee was dropped by 1% as a result. I documented Security Benefit’s NEA DirectInvest plan here if it is useful to anybody. ...also I’d argue strongly that a Roth is a likely mistake for most people. If that decision is up for debate, I could provide some data.
  10. I hope we all have a better 2019, this is what 2018 looked like: US Stock Market (VTSAX) was down 5.17% for 2018. International Stock Market (VTIAX) was down 14.43% for 2018. 70% of my stocks are domestic and 30% are international. 92% of my portfolio are stocks and 8% are fixed income. I invested 93k in 2018 and my portfolio is only 33k larger than it was when I started...roughly 60k up in smoke!
  11. In physics we’ve long been in search of a model that unifies what we see on a small scale (quantum) with what we see on a large scale (cosmos). A theory of everything as it is often called. I argue King provided the theory of everything for humanity and customized it for America. It works in personal relationships, domestic policy, and international relations. He saw the interrelated nature of the world, which helped lead him to the conclusion that bigotry, economic exploítation, and militarism were interrelated triple evils and that these systems hurt everybody, not just the obvious losers. Then he imported Gandhi’s satyagraha as the mechanism for handling conflict and unifying people. It was about making fundamental/radical changes to civilization; it wasn’t limited to segregation and voting rights. Sadly America has done its best to ignore his message and we’ve stagnated as a result. Every year like clockwork on MLK day, we’ve got famous/powerful people praising King as they actively opperate against his philosophy and vilify those who are still alive and working towards King’s ideals. It’s wild. If you’re interested in a good read I can recommend two books that compiled King’s own words in a way that tell his life story and get at the heart of his philosophy. That way you don’t have to read thousands and thousands of pages of primary source documents all on your own. ...I wish teachers did a better job on this topic. I went through twelve years, 12 black history months, and every single one of my teachers failed me.
  12. You may be right in line with Dr. King’s economic thesis. So again, when’s your name going to be on the ballot? "The good and just society is neither the thesis of capitalism nor the antithesis of Communism, but a socially conscious democracy which reconciles the truths of individualism and collectivism." "Communism forgets that life is individual. Capitalism forgets that life is social. The kingdom of brotherhood is found in...a higher synthesis that combines both." "We must ask the question, 'Why are there forty million poor people in America?' And when you begin to ask that question, you are raising a question about the economic system, about a broader distribution of wealth. When you ask that question you begin to question the capitalistic economy." "I am much more socialistic in my economic theory than capitalistic." "There must be a better distribution of wealth and maybe America must move toward democratic socialism." "We must honestly admit that capitalism has often led to a gulf between superfluous wealth and abject poverty, has created conditions permitting necessities to be taken from the many to give luxuries to the few, and has encouraged small hearted men to become cold and conscienceless so that they are unmoved by suffering, poverty-stricken humanity. " "True compassion is more than flinging a coin to a beggar; it understands that an edifice which produces beggars needs restructuring."
  13. I will evaluate Fidelity’s ZERO funds in September of 2019. I’m currently inclined to abandon Vanguard for my tax advantaged accounts and direct all new money to Fidelity in my tax advantaged accounts. I move slowly on purpose. I am curious about how tax efficient Fidelity is and I’m always paranoid about them doing something that would make me want to sell (like raise fees), which might leave me stuck as far as my taxable account is concerned. I wish Vanguard would respond because I have so much more trust in them...maybe misplaced, who knows?
  14. Tony, when will I see your name on a ballot? Healthcare is a constant concern in the back of my mind and I’m a healthy 34 year old. It’s scary.
  15. Wealth inequality is approaching levels we haven’t seen since just before the Great Depression. I view that as a moral emergency, but intellectually I wonder at what point does: 1. An economic system built on consumerism collapse because nobody has money. 2. People with nothing get pushed too far and we start seeing literal blood in the streets. It sounds dramatic and ridiculous to say, but I’ve seen the stats and they’re no less extreme. Tens of millions face a lifetime of hopeless poverty and I’m surprised by how tame their reactions have been. Gandhi led people away from an exploítative economic system and they lived minimalistically in a commune, farmed, and spun cloth to survive. When I think about the lives of low wage workers, I wonder if such an extreme step wouldn’t be a better alternative. It is scary, but I suspect I’d fundamentally reject the entire system if I were in their place.
  16. I thought 2011 to 2016 was a reasonably sane time. Shiller PE ratio was low to mid 20s. I feel really comfortable in that valuation range, yes swings happen, but the prices remain reasonable (to me at least). I thought September 2018 was unreasonable with the Shiller PE in the mid 30s and around 2000 things were absurd with a Shiller PE in the low 40s. In the other direction I think we hit the low teens during the financial crisis. If we get below 20, I can only conclude we’re collectively behaving in an irrational fashion. If we approach single digits, we’ve all lost our minds....and even I’ll be tempted to market time (leverage, take out loans on the house, get a second job, and buy everything I possibly can).
  17. We are officially past correction (10% decline) and into bear market (20% decline) territory. lol, I like that the article essentially argues, “don’t worry everybody, if it was really bad news then the market wouldn’t be falling with such speed and force!” As they say, nobody knows nothin...but I sure hope the article is right! If we had irrational exuberance, I’d prefer a return to sanity rather than an over-correction.
  18. My rule of thumb: 1. Stocks have a higher expected return in the long term. 2. Assume your stocks will drop 50% in a significant crash. Determine how much of your overall portfolio you can afford to lose. Pick a bond percentage based on that. A 15% bond allocation gives you a 42.5% loss when stocks drop by half. It seems DK is a tiny bit of a market timer and heading closer to my 100% stock allocation 😈. Whenever I sort out this renovation fund...I’ll be 100% stock for life!
  19. Why’d you move to 85/15? Were you previously 100% stock?
  20. This is my first bear market with significant assets. Cold logic is winning over emotion and it isn’t even close. So I am happy that I properly assessed my psychology before the crash. However, this is absolutely painful...I cringe thinking about the possibility of losing another year or two worth of wealth. I began my career in early 2007 and I basically just hit the financial ceiling, which means my salary tracked the stock market those years. Therefore, most of my money was invested during the back half of the bull market. I cringe thinking about the possibility of losing every penny of profit and eventually going negative overall. But such is the stock market and whenever the next bull market comes, I’ll have a large enough portfolio to truly benefit (something I didn’t really have last time). I basically hit my FIRE number earlier this year. I considered retiring in mid-September (when I was switching jobs), but the new job offer was too good and I felt foolish contemplating retirement at the tail end of a record setting bull market without having experienced a single bear with significant assets. Plus the FIRE movement tells you sequence of returns is critical and starting retirement in a bear market is really bad news. So I’m still a firm believer in FIRE, but it gives me real heartburn to see how my true FIRE date is getting pushed back each time the market opens. I want independence and I no longer believe I have it. Had I retired at the actual peak...I’d either be losing my mind or I’d be back at work already. Overall I feel good about the economy. Sure we have stupid self inflicted headwinds like the trade war (which hopefully ends in 2020 with a new President), but I haven’t read of anything structural like the dot com crash or the housing bubble. So as things stand now I consider this to be nothing more than a return to sane prices, but I guess we will see. Who knows?
  21. The S&P500 is officially in bear market territory, VTSAX (Vanguard Total Stock Market) is down approximately 20.15% since 9/21/2018, and the Schiller PE ratio is now at 26.02. For context, from 2011 to 2016 the Shiller PE ratio was usually pretty close to the 22-24 range. From the close on 12/3 to closing today, VTSAX is down roughly 15%! This rapid December decline is unsettingling and makes me wonder if the market is entering an overly negative emotional state and will therefore keep declining well past a "reasonable" price. I guess we'll see what happens. Good luck to everyone out there!
  22. As is usual, I have contrarian thoughts. I don’t think we need to spin the truth to argue that things aren’t bad. We should embrace the reality that the market, just like life itself, sometimes sucks! Let’s accept that reality and commit ourselves to not making it worse than it needs to be. 1. Whether or not you sold stock, the loss is 100% real. It’s good to acknowledge and live with that pain, but it doesn’t mean you can or should do something about it. Lick your wounds, they hurt...I know mine do. 2. I don’t think we need to spin a loss as a buying opportunity any more than we’d spin a gain as a selling opportunity. I suspect a boom-bust economy may be inferior to a hypothetical steady as she goes economy. I think we simply accept the pain that a decline brings in the same way we accept the joy a boom brings.
  23. The total US stock market is down 18% since it peaked on September 21st. We’re 2% away from official bear market territory. The Shiller P/E has fallen to a more reasonable 26.75, I’m not sure where it peaked, maybe 35-ish. I’m somewhat arbitrarily looking for it to get below 25. Either way I’m feeling better about stock valuations now...I think most folks (like Vanguard) acknowledged that stocks were pretty expensive. So how’s everybody feeling? Personally... I’ve lost roughly 130k from the peak. For me, that is worth roughly 1.3 years of savings. So if you account for growth during a normal/calm market, I’ve been set back roughly a year by this downturn. I’ve continued to buy stock with every paycheck. I don’t feel too much negative emotion and I think I’ll have the same disposition if I lose another 130k-250k. However, this feeling isn’t great, waking up each morning and basically expecting another 1% - 2% decline, and then having those expectations met! It isn’t great to have invested roughly 4K yesterday only to lose roughly double that in the market that day. I tend to cope using dark humor among my friends/coworkers. So far I’m proving to be worthy of an extremely aggressive portfolio and that is quite a relief. A couple years ago I allocated roughly 9% of my portfolio to bonds so I could pay for a home renovation we never did. Each day I’ve shifted closer and closer to abandoning the idea of a renovation altogether. If I haven’t fully abandoned the renovation when/if we hit negative 20%-25% then the temptation to swap bonds for stocks will likely be too great. A two fund portfolio is on the horizon!
  24. “What goes up must come down, and that might finally be happening now” We may have a crash soon/now, but the implication that we’re guaranteed one is ridiculous. The market could remain flat (or have very little growth) for a period of time. That would bring the price of stocks in line with companys’ earnings. Today’s high valuations do not guarantee a crash, there is more than one way to get to a reasonable valuations.
  25. People walked Greenspan through the broken incentive structure and the Wild West of credit default obligations and credit default swaps. He recognized the danger and had full authority to regulate the derivative market, but chose to nothing because he was an ideologue who ignored facts/data. We all paid the price when the financial/housing crisis hit. He later explained his inaction by saying, “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms." I’ll tell you one thing about the rich/powerful...often enough, they’re addicts who are willing to burn the world down for an extra dollar even though their wealth already surpasses any functional purpose. So it is laughable that Greenspan couldn’t conceive of people being willing to profit off the destruction of their own firms. Now we’ve got Greenspan telling us he knows what the market will do as he advocates market timing...”Former Fed Chair Alan Greenspan said in an interview with CNN aired Tuesday that it would be a “surprise” to see the market stabilize here and take off, but even if it did, the outlook would be bleak. “At the end of that run, run for cover,” he said.” I can’t roll my eyes hard enough at this man and I hope his god-like reputation as the Fed Chairman who could do no wrong doesn’t prevent others from doing the same.
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