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Everything posted by EdLaFave

  1. An absolute collective failure of financial education/literacy. If you believe in that silly anecdote about selling stocks when your shoe-shiner begins to talk about stock tips, then I guess you don't need to worry yet?
  2. This mildly irritates me. I'm not currently willing to switch to ETFs, but doing so would save me 2 basis points on international and 1 basis point on domestic. In reality, I'm growing increasingly likely to switch over to Fidelity's ZERO funds (FZROX and FZILX) in order to save 11 basis points on international and 4 basis points on domestic. At the very least, I think I'll make this switch in my tax advantaged accounts because it'll easily let me switch back without tax consequences if the funds are ever eliminated or modified in a way I don't want. I believe the late, great Bogle disapproved of Vanguard's move into actively managed funds, ETFs, and sector funds. I certainly am.
  3. I wish the article would have included the data on the actual current median age for retirement. It wouldn't surprise me if people's expectations are significantly optimistic.
  4. Why yes it can. I’ve been mentally preparing for a crash for a long time now, but we just keep going up and up! When it inevitably hits, I will pay the price for sure. I’m prepared in the sense that I’m counting on losing 50% of my portfolio multiple times before I die. It will be upsetting and if it happens soon then I will continue to work through the recovery. However the pain is all part of the long term plan and expectation that over 20+ years stocks will have higher returns. One thing I will never do is change course due to market conditions, but maybe we can commiserate when the pain hits!
  5. Krow has given you great guidance. I just wanted to throw in one extra bit of information about withdrawing money early from a Traditional 403b or IRA. Yes, if you take out money early, you’re typically charged a 10% fee. However, a lot of the time people ask about that, they’re thinking about how they’d pay the bills if they retired a little (or a lot) early. They wouldn’t want their money locked up. I won’t bore you with the details, but just know, in that situation you can access the money without paying the 10% fee. When I chose between a 457b and a 403b, I did so on the basis of expenses because I personally found the differences in the withdrawal rules to be inconsequential, which isn’t to say that you shouldn’t consider those differences.
  6. I haven’t analyzed these situations yet because they’re just a bit too far in the future for me, but I did want to point out one thing... I assume they define “actuarial neutral” based on the expected returns of the investments underlying the pension and the average employees lifespan. However, if you would use that income to invest in a portfolio with a risk profile that differs from the pension, then what is neutral for them will not be neutral for you. Make sense? I don’t have an answer, just a thought to consider. If it were me, I’d build a spreadsheet that shows how my portfolio would look year-by-year, in inflation adjusted terms, for each scenario I was considering. ...I just realized this is an old post. I think my original reply was better in terms of detail.
  7. I don't believe Vanguard offers a 457b, which is why Fidelity is clearly the best 457b in the nation. I'm not sure how you're defining convenient in this context, but keeping the same allocation in every account is unnecessary and leads to additional complexity and fees. If you were to stop contributing to one account and its allocation falls out of line with your overall desired allocation, then you would simply adjust new contributions to the other accounts accordingly. I have a spreadsheet that keeps track of what I have in all of my accounts and generally tells me "if I contribute an additional $A then $B of it should go to domestic stock and $C of it should go to international stock." It is really easy. This approach is very likely sub-optimal in terms of taxation. You want your assets with the highest expected returns to be in accounts with the lowest tax liability (i.e. your Roth account). Ideally your Roth IRA would have at least 2x what you'd want for an emergency fund. That would allow you to hold stock in a Roth and even in a huge crash (50%) you'd still have the necessary money available in your Roth IRA. In that case you could hold your bonds in another account like a Traditional IRA and if you ever removed stock from your Roth IRA you could simultaneously exchange bonds in the Traditional IRA for stocks, so it is as if you're selling bonds. However, the idea that you should hold bonds for your emergency fund is another game of mental accounting that gets you into trouble. Your portfolio should have an overall percentage of bonds such that you don't do something foolish and you can sleep at night. That percentage should be constant. If you only sold bonds during an emergency then you'd be making your portfolio more risky in a time of emergency. That isn't how asset allocation should be handled. Also, I would be extremely hesitant to give up tax-advantaged space for an emergency fund. I haven't done the math, but I'd be far more inclined to diligently tax loss harvest in my taxable account and later on be able to apply those losses to selling taxable shares to cover an emergency or even sell the most recently purchased taxable shares (i.e. shares with minimal gains or potentially shares with a loss) to cover an emergency. I haven't done the math, but my intuition suggests that is optimal.
  8. Thanks everybody. This market has been insane! Now that I hit this milestone, I think I'll go back to not peeking for the next year or so...I don't even want to know how many times I'll have to recross this threshold. Not so fast my friend! I got taken to the cleaners by Schwab, Merrill Lynch, and then individually selected actively managed funds. I touched the proverbial stove three times before I did my own research. I hope others learn from that lesson. I can just imagine that pain. Absolutely brutal. No kidding. I got into the housing market at the bottom of the crash. My entire investing career has been one giant bull market. I managed to graduate with degree that is highly valuable nowadays and wasn't affected by the financial crisis. Lots of luck went into this and as always, I'm mentally bracing for the inevitable crash.
  9. Hey Steve, I think you'd benefit from reading my Investing 101 page here. Your goal is to own the entire stock market (international and domestic), that gives you diversification. Your goal is to own enough bonds so that when stocks crash, as they inevitably will, your portfolio doesn't drop to a level so low that you can't sleep or you do something foolish, that gives your protection from yourself. Your goal is for your portfolio to have rock bottom costs, that gives you maximum returns. To achieve those goals you have three options: Build a 3 fund portfolio (VTSAX, VTIAX, and VBTLX). Buy a target date fund (contains those same funds under the covers, but increases your bond holdings over time). Buy a life strategy fund (contains those same funds under the covers, but keeps the bond holdings constant over time). Here are the rules: If you didn't spend your entire paycheck on living expenses, immediately invest the rest. When you make a new investment, buy the funds that move you back to your desired asset allocation. Notice: Neither of these rules require you to know what the market is doing or what your funds are doing (hint: they're performing exactly in line with the market). Bonus: If you went with a LifeStrategy or TargetDate fund then you don't even have to concern yourself with Rule #2 because the fund will do that for you! Subtext: Give up the wildly incorrect belief that you can use past performance data or current events to predict the market. Stop it! See rule #1 above. Buy stock every paycheck, no exceptions. They're managing the fees they extract from you to fund their lifestyle. Nobody can predict the market. Fund managers sell people on the notion that they can pick the best stocks. Advisors sell people on the notion that they can pick the best fund managers and pick the best time to switch back and forth between stocks and bonds. Nobody can predict the market. Nobody is looking after your account. The "advisor" really serves two purposes, to give you the illusion that somebody smart is protecting you and to give you somebody to blame when you lose money in the next bear market. Neither purpose leaves you with more money. You can handle it. Own the entire market, own enough bonds so you don't do something foolish, and stick with your plan until you retire (no exceptions for market conditions or the latest BitCoin fad). You should not use an advisor because of fees and their proclivity for market timing. There are vendors other than Vanguard that offer really low fees (Fidelity for instance), but unless you go with a self-directed account (i.e. no advisor) then you're going to get killed on fees. ...in this post I've really only given you the conclusions, but I'm happy to give you the underlying data, logic, and philosophy behind these conclusions.
  10. My portfolio exceeded a million dollars for the first time today! Combine that with the equity I have in my house and I should be able to rely on a 3% withdrawal rate to safely live out the rest of my days without having to earn another dollar or be directly dependent on anybody else. Thirteen years ago when this all began, I imagined I'd be joyful and celebratory, but I'm far more ambivalent. I'm just really tired; the grind has absolutely taken its toll. It has cost me relationships and in many ways it has done its very best to disconnect me from the things that make me human. On the happier side, I recognize how lucky I am to have the opportunities I have in front of me. I suppose I'll spend the rest of the night reflecting on just how awesome that is. I almost can't believe this is real. ...I'll largely keep this story to myself, but posting it on the internet is a really nice release.
  11. That admin fee places the state run 457b behind elite plans like Vanguard and Fidelity 403b/457b, but ahead of mid-tier plans like Aspire and miles ahead of bad actors like AXA, PlanMember, etc.
  12. What district are you in? Your state run 457b is here apparently you can call 877-644-6457 for help. The funds and fees are listed here. You can build a fully diversified portfolio with these three funds: Vanguard Institutional Index (0.02% net expense ratio) Vanguard Total Bond Market Index (0.03% net expense ratio) Vanguard International Index (0.07% net expense ratio) Or you can use their target date funds ("LifePath"), which have the exceptionally low expense ratio of 0.06%. I couldn't find any other fees and if there aren't any then this is an exceptionally great plan to invest in.
  13. As long as the receiving 403b vendor is on your district’s list of approved vendors, then you can absolutely transfer money from another 403b into it. Doing so is common, so I’m surprised by the reaction you got.
  14. I believe this is what you need https://www.aspireonline.com/docs/default-source/form-library/403(b)(7)-application-and-agreement.pdf, but I'm not sure if a different form is needed for the self-directed because this paperwork talks about an advisor. Let us know when you figure it out.
  15. If you were in OCPS then the worst case scenario (which you probably aren't in) would cost you 6%, which equates to $4,200. However, I'd have to know more about how they assess surrender fees and the particulars of your specific account. I believe in Orange County (FL) AXA will charge a 6% fee in you pull money out in the first five years, 5% for the sixth year, 4% for the seventh year, and so on. However, I don't know exactly how they apply that time measurement, there are a few possibilities: It could be based on when the account was opened. So regardless of when each contribution was made, when the account exceeds the 10 year threshold the surrender fee drops to 0%. It could be based on when each contribution was made. So a contribution you made 11 years ago would be subject to a 0% fee whereas a contribution you made today would be subject to a 6% fee. ...but even if it is on a per-contribution basis it is further complicated: Do they let you specify which contribution you're cashing out? Do they force you to withdraw the most recent contribution first (and therefore pay the highest fees)? If you own mutual funds in the account then there is something called a "distribution", in most cases that distribution is automatically reinvested by purchasing more shares. Would those reinvestments be treated as a brand new contribution and start at the beginning of the fee schedule, year 0, 6% fee? How is profit/appreciation treated? Could you pull out the profit and pay 0% fees because you haven't touched the original balance? There are just so many possibilities for how they've specifically implemented this fee schedule and because of that I can't give you a definitive answer. Personally this is what I would do: Immediately redirect new contributions to a low cost plan. Understand that the annual fees of AXA are so high (the management fee alone is 0.9% and the fund fees range from 0.61% – 1.45%) relative to what you get if you average the 6% surrender fee over the full ten year window (it comes to 0.6%/year if you don't account for the opportunity cost of not having that upfront fee invested in the market). So the back of the envelope calculation suggests it may be in my interest to pay the surrender fees because they're low relative to the annual fees (again the opportunity cost of being invested in the market is an unknown). However, perhaps there is room for optimization. For example, if your surrender fee would drop from 1% to 0% tomorrow then you would clearly wait to rollover those funds, but if it wouldn't drop to 0% until Dec 1, 2020, then you would roll it over now. Spend a minimal amount of time trying to figure out the exact details of the AXA surrender fee schedule so I could optimize my withdraw strategy and spend a little bit of time with the more accurate detailed equations I laid out above. If I can't get a clear picture, then just pull everything out and be done with it. If I can get a clear picture, then optimize my withdrawal strategy.
  16. Well this is my opinion: It is worth explicitly stating that this back of the envelope calculation is an oversimplification. I pretended as if you "owe" AXA 1% every year after the rollover and I picked that number because every year the AXA surrender fees drop by 1%. However, as we all know you wouldn't be paying AXA that 1% each year, you'd have to pay in full up front. Let's try to bit a more accurate and look at the worst case. Pretend you literally just dumped all your money into AXA and all of it faces a 10% withdraw penalty. Staying at AXA Forever 1 year = Principal * (1 + market return - 1.75%) 2 year = 1 year * (1 + market return - 1.75%) ... N year = N-1 year * (1 + market return - 1.75%) Leaving AXA Now 1 year = Principal * (90%) * (1 + market return - 0.063%) 2 year = 1 year * (1 + market return - 0.063%) ... N Year = N-1 year * (1 + market return - 0.063%) Leaving AXA After 1 year 1 year = Principal * (1 + market return - 1.75%) 2 year = 1 year * (90%) * (1 + market return - 0.063%) 3 year = 2 year * (1 + market return - 0.063%) ... N Year = N-1 year * (1 + market return - 0.063%) Leaving AXA After 2 years 1 year = Principal * (1 + market return - 1.75%) 2 year = 1 year * (1 + market return - 1.75%) 3 year = 2 year * (90%) * (1 + market return - 0.063%) 4 year = 3 year * (1 + market return - 0.063%) ... N Year = N-1 year * (1 + market return - 0.063%) ...and on and on the pattern goes, you could do the same math to see what things look like each year for "Leaving AXA After N Years". This kind of thing is what spreadsheets were built for. Somebody should make a spreadsheet and report back the results, I'm going to predict leaving right away is the superior option.
  17. I'm not sure about 403b to 457b rollovers, it wouldn't surprise me if that isn't allowed, but I don't have the time to google it. If not she could rollover the 403b to either NEA DirectInvest or Aspire. Then for new contributions she could choose between those two 403b plans and the state 457b. She is lucky she has good options 🙂
  18. Adrienne, I documented Aspire here and I documented Security Benefit's NEA DirectInvest here. Using NEA DirectInvest you can build the same diversified portfolio but you'll save roughly 0.145% per year in fees. If you assume a 6% return and 3% inflation, then that fee is enough to pilfer away 4.83% of your inflation adjusted profit after one year. As time compounds to 30 years it strips you of 6.33% of your inflation adjusted profits. You'd do fine with Aspire, but I would never voluntarily give up 5-6% of my inflation adjusted profits. Aspire has self-directed plans, which don't have advisors and they have managed plans which do have advisors. The only Aspire plan anybody should use is the self-directed plan. Really, the only plan anybody should use (Aspire or otherwise) is a self-directed plan. Again, I would recommend against Aspire because you have lower cost options. I documented the AXA plan here (that should help you get a grasp of the plan). I can't remember exactly how they handle their surrender fees. If you've had the account for a full 10 years then is all of it free of surrender fees, does the fee schedule apply to each contribution, does the fee schedule apply to each dividend reinvestment too? So the details are a bit fuzzy, but generally speaking, if I had a block (or all) of money whose surrender fee was set to drop by 1% in a couple months then I'd probably hold on until that happens. I'd gladly pay a 1%/year surrender fee to stop AXA from charging me 1.75%/year in order to get into Security Benefit NEA DirectInvest because they charge me 0.063%. The math is easy, if you stay with AXA you pay 1.75% and if you leave then you pay 1.063% (0.063% from NEA DirectInvest and 1% due to the AXA surrender fee). Since 1.063% < 1.75%, it is best to leave. I agree with Krow. I didn't do the work to see the additional fees the NY State 457b charges, but it is going to be quite similar to Security Benefit's NEA DirectInvest. A good tie-breaker is that the state 457b is ethical while SecurityBenefit (despite NEA DirectInvest being great) is an ethical nightmare. In 2020 you can contribute 19.5k to a 403b, another 19.5k to a 457b, and yet another 6k to an IRA. This is true regardless of who (Aspire for instance) these accounts are with.
  19. Vanguard is the easy choice, I documented their plan here. If you eventually max out your IRA and your Vanguard 403b then you'll have to start looking at 457b plans, but that is probably an issue for another day. I don't know the fee structure of Kades-Margolis, but I can safely assume it is more expensive than Vanguard. So I'd be VERY surprised if it wasn't in your best interest to roll it over to Vanguard. A load is just a sales fee that goes to the marketers that sold you that product. It is not indicitive of a better product. In fact, the best products (total market index funds) do not have loads. I discuss this and other fundamental concepts in my Investing 101 page here.
  20. I'll save the discussion on Roth vs Traditional (you're right that having a pre-tax pension is one factor that favors Roth investing). However, one thing a lot of fans of Roth IRAs seem to overlook is the fact that you're often able to contribute to 403b and 457b plans with a Roth as well. Just wanted to throw that out there. I'm assuming this pension prediction (91% of your salary) is based on the current state of the pension fund? A lot can change in 30+ years, but let's assume his assumption is gospel. In retirement the typical person is free of several expenses (kids, large house, retirement savings, etc) and then you can add SS income on top of that savings (although some teachers don't get SS). If I were guaranteed those savings and that income , I'd feel entirely comfortable living on just that. Therefore, my ability to take risk in my other accounts would skyrocket, but the advisor is acting as if the opposite is true. The logic just doesn't add up. Yes you should open a 403b or 457b with Fidelity or Vanguard. I documented the Vanguard plan here and the Fidelity plan here. You should pick an asset allocation (split between stocks and bonds) that you can live with, you should max out all of your tax advantaged accounts if possible (IRA, 403b, 457b, HSA, etc), and then you should invest in a taxable account. You don't need to do anything fancy, in fact doing so will probably hurt you. You can read my Investing 101 page here. If the market crashes when you go to retire then that's fine (clearly suboptimal, but fine) because you shouldn't be retiring until you have enough money to sustain such an event. Depending on how soon you retire and your preferred asset allocation, I'd personally feel comfortable with somewhere around 25x-33x annual expenses (and I won't be getting a pension). Of course people will tell you that by the time you're getting ready to retire you should shift to hold more bonds, which would offset a potential stock market drop...of course the other side of that coin is that switching to more bonds decreases your expected returns, which means you'll have to save up a larger portfolio before retiring, which means you'll have to work longer (the exact thing you're afraid of if the market crashes with a stock heavy portfolio right before retirement). Krow addressed this well already, but let me add a couple points: People fall into a logical fallacy where they imagine their money in boxes (IRA vs 403b) and then they treat those boxes differently. In reality, you should think of your entire portfolio as a single unit. Do all of the pieces add up to match your risk tolerance? If the target date fund matches your risk tolerance then great, you're good to go in both accounts. People often confuse complexity with effectiveness/diversification. The target date fund basically owns all of the publicly traded stocks and bonds (minor exceptions of course). Don't let the fact that it is a single fund obscure the fact that a target date fund is fully diversified. Don't let the fact that there are all of these exotic investments that you/everybody probably can't fully understand obscure the fact that a target date fund is incredibly effective. Advisers like to make you believe they can save you from the down side and capture the up side. It is pure fantasy. When the stock market crashes, we all suffer. When the stock market soars, we all celebrate. An adviser will however use your fear to put money into their pockets. Pick a bond allocation that will allow you to live through (sleep well, not make foolish decisions like selling or stopping contributions, etc) the several stock market crashes you'll face in life.
  21. Mike, if you can provide this info krow will have you covered.
  22. SS will still be there and the solutions to increase its solvency are so simple. Did you know wealthy people only pay SS tax on their first $132,900 of income? Complete solvency can be obtained by doing things like eliminating the absurdity of rich people paying a lower effective rate than regular folks and perhaps asking rich people to pay a higher effective rate like we do for federal income taxes. I hate the conventional “wisdom” that you should save % of your income. Often times is way too low and it gives people an excuse to not save as much as they can. You never know what life will throw at you, save as much as you can, reject materialism, and maximize your earning capability. How’s that for conventional wisdom?
  23. Just to restate the obvious, there are actually two questions at play: What types of accounts can 403b accounts be rolled into? We all know you can roll 403b accounts over when employment is terminated, but are there loopholes associated with simultaneously having multiple employers or simultaneously running your own business? The answers for #1 are obtained very easily. I'm not sure about #2. My gut tells me that you have to terminate employment regardless of whether you're working another job or running your own business. Please report back if you find a definitive answer. I suspect the answer may depend on the plans the district negotiated with the vendors...but I also think those agreements are pretty uniform across the country.
  24. I feel comfortable emphasizing fees because: I think everybody understands that the amount of money they save (or don't save) is critical. I think most people perceive excessive fees to be small because 2% isn't a "big" number, when in reality we know it steals more than half of your real investment returns. Fees are the #1 predictor of returns. The formula is simple: Invest in total market index funds with fees somewhere between 0% - 0.17% (roughly). Invest in international and domestic stocks (pick a split and stick with it). Invest in enough bonds so that when stocks go down you don't do something stupid. Reject consumerism and materialism. Take the excess money from each paycheck and buy more investments regardless of what the market is doing. Never sell until you need money in retirement. Reject the fantasy that you can predict anything in the short to medium term when it comes to the stock market.
  25. whyme is 100% correct. If you want to read just a little bit more about those very topics then check out the Investing 101 page I wrote.
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