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All Encompassing Investment and Financial Planning Thread for the Surly 99.5%


Dbeasy
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11 minutes ago, FirstTimeCaller said:

Since there's been a bit of CD talk, here are the rates I'm seeing in my TD Ameritrade account:

image.png.8f5cd9c6434036213e698124d5fd4272.png


Versus a the rates shown on NerdWallet:

image.png.7e51e6c47beb5f3cbcab744b9a1340fc.png


Versus UFCU:

image.png.ed557527190562b9e50348a24d8886cd.png

 

So don't just think they are all the same rates. 

 

Of course, then my Dad would have to learn how to do transactions on the internet and wouldn't have an excuse to periodically go into town to chat with the cute bank tellers!

Interest rates aren't everything!

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On 12/18/2022 at 8:23 AM, nineliveslost said:

Really enjoyed this thread. 

So , I have maxed out yearly 401k including catch up(took a beating in 2022). Maxed out yearly contribution to IRA(took a beating in 2022). Can't do a ROTH. Invested in land 60k(no increase in value). Have 50k in emergency funds. Dabble in about 25k in stocks yearly (took a beating in 2022). 

Where do I stash 20k yearly? 10k in I bonds and ????

Buy the neighbor's house? 

 

You can't contribute directly to a Roth, but you can rollover INTO one, right?

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3 hours ago, nineliveslost said:

I was just told I make over the threshold to contribute 

Surly 99.5% humblebrag.  I can dig it.

1 hour ago, After irth said:

Research Back Door Roth IRA. Profit. Thank me later. 

Let's leave South Austin's mom out of this.  She's been denigrated enough,

Edited by Parliament
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On 12/18/2022 at 8:23 AM, nineliveslost said:

Really enjoyed this thread. 

So , I have maxed out yearly 401k including catch up(took a beating in 2022). Maxed out yearly contribution to IRA(took a beating in 2022). Can't do a ROTH. Invested in land 60k(no increase in value). Have 50k in emergency funds. Dabble in about 25k in stocks yearly (took a beating in 2022). 

Where do I stash 20k yearly? 10k in I bonds and ????

Buy the neighbor's house? 

 

Non-market assets.  

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Don't forget to fully fund a HSA if your employer has them as part of your benefits. And preferably don't use the funds to pay for current healthcare unless absolutely necessary. Let the balance grow in an investment account, and then withdrawal as late as possible (after you retire) for healthcare expenses. with that you never pay income tax on it.

Or you can use them for non-healthcare expenses in retirement but you would owe taxes on those expenses.

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If you don't already I recommend listening/watching content from these guys: https://moneyguy.com/resources/  https://www.youtube.com/@MoneyGuyShow

Basically 2 UGA grads who run a podcast and youtube channel in addition to their wealth mgmt firm. They're neither get-rich quick nor Dave Ramsey how to get our of 200K debt with your 30K salary. Brian and Bo are geared towards folks who make a better than average living or will in the future. I would especially recommend them for someone that is expecting to earn good money later in their career.

They can be motivating in terms of demonstrating the benefits of time on growing investments over 20+ years.

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Seven days left in the year. If you are like many others, you have some investments with unrealized losses. If you think you will have positive capital gains from other investments, don't forget to sell the losers and replace them with similar/equivalent investments. That way your losses can offset the positive capital gains and potentially lower your taxes. Hell, even if you don't have a lot of capital gains, you can carry over the losses to future years.

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1 hour ago, Dbeasy said:

Seven days left in the year. If you are like many others, you have some investments with unrealized losses. If you think you will have positive capital gains from other investments, don't forget to sell the losers and replace them with similar/equivalent investments. That way your losses can offset the positive capital gains and potentially lower your taxes. Hell, even if you don't have a lot of capital gains, you can carry over the losses to future years.

wait, capital gains can be positive? why didn't anybody tell me this before?

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On 12/21/2022 at 2:41 PM, Nice Guy Eddie said:

Don't forget to fully fund a HSA if your employer has them as part of your benefits. And preferably don't use the funds to pay for current healthcare unless absolutely necessary. Let the balance grow in an investment account, and then withdrawal as late as possible (after you retire) for healthcare expenses. with that you never pay income tax on it.

Or you can use them for non-healthcare expenses in retirement but you would owe taxes on those expenses.

Also, I have read that there is no time limit on when you can get reimbursed for healthcare expenses from your HSA. Accordingly you can save receipts for unreimbursed medical expenses until you retire and then pull out one lump-sum amount tax-free when you retire.

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11 hours ago, hornmpa96 said:

Also, I have read that there is no time limit on when you can get reimbursed for healthcare expenses from your HSA. Accordingly you can save receipts for unreimbursed medical expenses until you retire and then pull out one lump-sum amount tax-free when you retire.

Interesting twist that I hadn't thought of. Keeping the receipts gives you options to withdrawal at any point. Even in case of emergencies pre-retirement. Note: Hopefully that there are fewer, if not zero, financial emergencies as you approach retirement.

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On 12/20/2022 at 4:20 PM, nineliveslost said:

I was just told I make over the threshold to contribute 

Almost anyone can:

* Contribute to a 401(k) plan while at work (or similar plan - 403(b) plan, etc)
* Convert your 401(k) to an IRA when you leave that job
* Roll the IRA into a Roth, if you are willing to pay the tax to do so

You are deferring income to when you want to take it, with the advantage of it ending up in a Roth where it will grow tax-free.

You can wait until your assets are low and convert at a lower value, or wait until your income is low so you are in a lower bracket.

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One thing to consider is the current tax rates expire at the end of 2025 and unless Congress extends them or passes new rates

we will be going back to the old higher tax rates from 2015/2016. So if you can rollover funds to a Roth now it will probably be taxed at a lower rate

than in four years.

What happens in 2026

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10 hours ago, Texas Jeff said:

Almost anyone can:

* Contribute to a 401(k) plan while at work (or similar plan - 403(b) plan, etc)
* Convert your 401(k) to an IRA when you leave that job
* Roll the IRA into a Roth, if you are willing to pay the tax to do so

You are deferring income to when you want to take it, with the advantage of it ending up in a Roth where it will grow tax-free.

You can wait until your assets are low and convert at a lower value, or wait until your income is low so you are in a lower bracket.

You can also do the Roth conversion systematically so you’re not taking the tax hit all at once 

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4 hours ago, BehoId, The Underminer! said:

how are y'alls 529s doing?

I have two

Maryland (T Rowe Price): -15.65% YTD

Utah: -14.62% YTD

Started DCAing into a 2036 “NH PORTFOLIO (FIDELITY INDEX)” in Dec 2020 … fees at 0.6% are higher than I’d like… -9.42% YTD… -8.29% total… coupled with inflation in those 2 years? -25%? My kids better like loans 

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If you don't need to withdraw now now AND you're still actively buying new investments 2022 will go down as a great opportunity.

And for those, in the savings and CD game, bemoaning how even the new 3-5% rates are not keeping up with inflation, inflation should soon drop but the rates will remain, at least for a while. 

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2 hours ago, Nice Guy Eddie said:

If you don't need to withdraw now now AND you're still actively buying new investments 2022 will go down as a great opportunity.

And for those, in the savings and CD game, bemoaning how even the new 3-5% rates are not keeping up with inflation, inflation should soon drop but the rates will remain, at least for a while. 

smoke-cigarettes.gif

 

(You might be right.  Still though.)

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Sorry if this is already addressed elsewhere, but I have a tax loss harvesting question. I took some profit on AMZN earlier in the year (should have sold all of it), and today just sold an even worse loser to counterbalance most of the profit, but there’s still about a $5,000 difference, and I sure as hell don’t intend to pay taxes I don’t have to.

I have the annual $3,000 loss carryover from wayyyy back… so my question is, do I need to sell $5,000 worth of another losing equity to make up the AMZN profit, or is the number $2,000 due to the carryover? Also, since I believe the carryover can actually offset my typical earnings, do I have the option to sell $5,000 worth of a loser to balance out the profit, and keep the $3,000 carryover for a tax reduction on my yearly earnings? Or is that not possible, or simply stupid? 

I hope this all makes sense to someone, thanks in advance.

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1 minute ago, Vito Andolini said:

Sorry if this is already addressed elsewhere, but I have a tax loss harvesting question. I took some profit on AMZN earlier in the year (should have sold all of it), and today just sold an even worse loser to counterbalance most of the profit, but there’s still about a $5,000 difference, and I sure as hell don’t intend to pay taxes I don’t have to.

I have the annual $3,000 loss carryover from wayyyy back… so my question is, do I need to sell $5,000 worth of another losing equity to make up the AMZN profit, or is the number $2,000 due to the carryover? Also, since I believe the carryover can actually offset my typical earnings, do I have the option to sell $5,000 worth of a loser to balance out the profit, and keep the $3,000 carryover for a tax reduction on my yearly earnings? Or is that not possible, or simply stupid? 

I hope this all makes sense to someone, thanks in advance.

Carryover will only offset long term cap gains or short term cap gains, however they are defined.  It will not offset wage earnings, unless those earnings are long term/short term cap gains, and only in that arena.    It all depends on the hold time for the assets mentioned.  IF they have been held for >1 yr, then you can harvest losses for LTCG.  If <1yr, those are STCG.     If you need to harvest more losses to offset that gain, then sell something at the open tomorrow that is in the same category as the loss you need to offset.   At worst, the $5k differential will cost you $2k (not really) in STCG, or $750 in LTCG.     IS that worth exiting?  

 

 

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25 minutes ago, Trey3216 said:

Carryover will only offset long term cap gains or short term cap gains, however they are defined.  It will not offset wage earnings, unless those earnings are long term/short term cap gains, and only in that arena.    It all depends on the hold time for the assets mentioned.  IF they have been held for >1 yr, then you can harvest losses for LTCG.  If <1yr, those are STCG.     If you need to harvest more losses to offset that gain, then sell something at the open tomorrow that is in the same category as the loss you need to offset.   At worst, the $5k differential will cost you $2k (not really) in STCG, or $750 in LTCG.     IS that worth exiting?  

 

 

Thank you, Trey. I suspect the equity I’d be selling will be at a similar point in 30 days (or lower). All long term, maybe more Amazon. But I’ll give it some thought. I appreciate the insight. 

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5 minutes ago, Vito Andolini said:

Thank you, Trey. I suspect the equity I’d be selling will be at a similar point in 30 days (or lower). All long term, maybe more Amazon. But I’ll give it some thought. I appreciate the insight. 

And if it’s a conviction buy/hold, sell what you need to cancel out the gains and buy the shit back on Jan31.  Avoid the wash sale rules and stay in the same boat.   

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5 minutes ago, Trey3216 said:

And if it’s a conviction buy/hold, sell what you need to cancel out the gains and buy the shit back on Jan31.  Avoid the wash sale rules and stay in the same boat.   

Yes sir, loyal to a fault. I somewhat surprised myself when I took profit 🤣. Thankfully, I have a long horizon, even though I’m an old fuck. Thanks.

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As we close out the year, another little data point on bond funds. One of the most common total market bond ETF's is BND from Vanguard.  Here is the performance of this ETF over the years.

image.thumb.png.4d34a27c8d5a6ca85bc7f0a037501155.png

This is performance over a decade of flat to declining interest rates until just recently. The 10-Yr fund performance is very weak. If you owned BND, you sacrificed your money for 10 years to earn a grand total of 1% annually.  The big question is where are interest rates headed over the next year or two. There are very different views by various folks. Some believe the Fed will pivot and drop rates due to a looming recession. Some believe once they stop hiking early next year, rates will stay flat for the foreseeable future. Others believe inflation will re-ignite in a second round, forcing more rate hikes. Regardless of what happens with rates, investing in bond funds has just become very tricky for the foreseeable future, i.e. 60/40, 50/50, 40/60, etc. Stock/Bond allocations.

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1 hour ago, Dbeasy said:

As we close out the year, another little data point on bond funds. One of the most common total market bond ETF's is BND from Vanguard.  Here is the performance of this ETF over the years.

image.thumb.png.4d34a27c8d5a6ca85bc7f0a037501155.png

This is performance over a decade of flat to declining interest rates until just recently. The 10-Yr fund performance is very weak. If you owned BND, you sacrificed your money for 10 years to earn a grand total of 1% annually.  The big question is where are interest rates headed over the next year or two. There are very different views by various folks. Some believe the Fed will pivot and drop rates due to a looming recession. Some believe once they stop hiking early next year, rates will stay flat for the foreseeable future. Others believe inflation will re-ignite in a second round, forcing more rate hikes. Regardless of what happens with rates, investing in bond funds has just become very tricky for the foreseeable future, i.e. 60/40, 50/50, 40/60, etc. Stock/Bond allocations.

Stupid question amnesty here-  Does this include the bond distributions?

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2 minutes ago, Dbeasy said:

Yes this is total returns. 

Got it. One caveat here though is that this was the worst year for bonds in history. So, all the returns for the periods in the chart are in reference to the largest loss ever. I wonder what they would've looked like one year ago.

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Is it really the worst year for bonds ever (asking for real, not trying to be an ass)? The rates on treasuries were hiked up to like 18% in the late 70s/80s when we were combatting stagflation.  Hans Gruber earning 20% on his bonds could have actually been a real thing back then, and I’m sure there were plenty of poor bastards stuck with 4% bonds they bought right before the Fed started taking action.

We started at a ridiculously low point on interest rates when the Fed first started hiking, so I guess the increase could be the most in a single year.  But we’re still only at rate levels that were pretty common until the mid 2000s, and nobody is holding the bag with instruments that yield like 12% less than the current going rate.   

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9 hours ago, longhornmatt said:

Is it really the worst year for bonds ever (asking for real, not trying to be an ass)? The rates on treasuries were hiked up to like 18% in the late 70s/80s when we were combatting stagflation.  Hans Gruber earning 20% on his bonds could have actually been a real thing back then, and I’m sure there were plenty of poor bastards stuck with 4% bonds they bought right before the Fed started taking action.

We started at a ridiculously low point on interest rates when the Fed first started hiking, so I guess the increase could be the most in a single year.  But we’re still only at rate levels that were pretty common until the mid 2000s, and nobody is holding the bag with instruments that yield like 12% less than the current going rate.   

According to Forbes

https://www.forbes.com/sites/qai/2022/09/22/is-this-the-worst-year-ever-for-bonds/

https://www.forbes.com/sites/lawrencelight/2022/12/28/finally-good-news-why-bonds-should-do-well-in-2023/

 

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If I understand correctly, you could have bought $10k of i bonds at any point in 2022, and now that the calendar year has reset, you can buy $10k more this January. You do not need to wait 12 months from your last purchase. Anything I’m missing? Just seems like a pretty great spot to park an emergency fund.

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The annual inflation factors applied to iBonds should be coming down pretty quickly, making them a little less of a slam dunk. However, it’s good to have those in the portfolio anyway for the future in case inflation runs a little hot, or reignites again. 

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On 12/30/2022 at 10:28 PM, Dbeasy said:

As we close out the year, another little data point on bond funds. One of the most common total market bond ETF's is BND from Vanguard.  Here is the performance of this ETF over the years.

image.thumb.png.4d34a27c8d5a6ca85bc7f0a037501155.png

This is performance over a decade of flat to declining interest rates until just recently. The 10-Yr fund performance is very weak. If you owned BND, you sacrificed your money for 10 years to earn a grand total of 1% annually.  The big question is where are interest rates headed over the next year or two. There are very different views by various folks. Some believe the Fed will pivot and drop rates due to a looming recession. Some believe once they stop hiking early next year, rates will stay flat for the foreseeable future. Others believe inflation will re-ignite in a second round, forcing more rate hikes. Regardless of what happens with rates, investing in bond funds has just become very tricky for the foreseeable future, i.e. 60/40, 50/50, 40/60, etc. Stock/Bond allocations.

Last year was historically bad for the risk-parity portfolio, i.e. the long bond+stock blend where 1 is supposed to ballast the other 

0AC4FC37-FCF1-49D1-AB2B-12B8A469E51A.thumb.jpeg.c7d4b465d460e32b4624ccb63c259a1e.jpeg

history is no guarantee blah blah blah but it is a good northstar. 
 

if i was invested in such a scheme (and i am), i wouldnt balance out in favor of one or the other, because the probability of both continuing to go bust simultaneously is historically low

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On 12/31/2022 at 10:36 AM, Nice Guy Eddie said:

Dec 31st. Shitty end of year net worth statement from what I would want but here’s to a better 2023.

does everyone create an annual if not monthly personal net worth calculation? 

I do it quarterly.  -5% from a year ago.  Probably closer to -7%, as I think my home valuation is high. 

For that, I just take an average $/sf of the past 6-9 months sales for our area, but that's obviously trending lower and fewer comps recently.  5 years, 9 months and that bitch is paid off.  2.65% rate or we'd knock it out sooner.

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Fidelity trying to pitch me on an "SMA". which I guess just means... homebrew mutual fund with of 150-200 single stocks with Fidelity assistance on the tax harvesting and probably stock selection. And of course a fee, somewhere in the range of .5%. I'm almost certain that that's a no for me and if anything I'm going to go more towards boring ass no/low fee index funds but curious if y'all who pay more attention have thoughts.

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18 minutes ago, Celery Man said:

Fidelity trying to pitch me on an "SMA". which I guess just means... homebrew mutual fund with of 150-200 single stocks with Fidelity assistance on the tax harvesting and probably stock selection. And of course a fee, somewhere in the range of .5%. I'm almost certain that that's a no for me and if anything I'm going to go more towards boring ass no/low fee index funds but curious if y'all who pay more attention have thoughts.

My default answer would be no because my experience is that Fidelity's specialized stuff sucks ass.  I have 401k with them and just took the ordinary default thing they put my money in.  It's called Freedom Index 2045 Commingled Pool Class T.  After a few years of that, I looked at the performance and it was consistently worse than the S&P, but then when things fell apart over the last year, I had the same size drop as the S&P.  They offered a session where we could Q&A and I said "If I don't get the upside of the market, I assumed there must be some protection against the downside.  Why not? What is this mix?"  The answer was "we are very disciplined.  The people that do this have a lot of discipline.  So much discipline."  I said "waking up every day at 5 a.m. and burning a $100 bill takes a lot of discipline.  I'm not sure that's the same thing as good investing."

Anyway, I'm sure all plans are different, but mine has the ability to just select a SPY tracking one, so I did that after the above conversation.

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6 hours ago, Celery Man said:

Fidelity trying to pitch me on an "SMA". which I guess just means... homebrew mutual fund with of 150-200 single stocks with Fidelity assistance on the tax harvesting and probably stock selection. And of course a fee, somewhere in the range of .5%. I'm almost certain that that's a no for me and if anything I'm going to go more towards boring ass no/low fee index funds but curious if y'all who pay more attention have thoughts.

Always go with the lowest fee option. No one beats the market, and if they can, it’s not for long. 

If they’re trying to sell it, it’s because there are higher fees. 

Edited by Neonmoon
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On 12/30/2022 at 4:57 PM, KYHorn said:

Got it. One caveat here though is that this was the worst year for bonds in history. So, all the returns for the periods in the chart are in reference to the largest loss ever. I wonder what they would've looked like one year ago.

I was interested as well. I looked at the 9 year period from 2011 to 2020, which would have been the best period before the rise in rates in 21/22 distorted the performance. The returns were 3.8% annually. This surprised me a bit. The BND fund is a diversified portfolio of corporate and govt bonds, yet the performance vs. govt bonds over that time frame wasn't that much better (small spreads I guess).

The conclusions I take away from my multi-week bond vs. bond fund rabbit hole analysis?

1. Over a long period of time where no withdrawals are required to meet living expenses, holding a bond fund vs bonds is probably fine.

2. Given that typical intermediate bond fund durations are 7-10 years, if I were within ~5+ years of needing a certain amount of money per year in retirement, or for a house purchase or other major purchase, I would start changing the mix from 100% bond funds to some percent bonds, eliminating the interest rate risk. For example, say you need $50k per year in living expenses, and those would come from selling bond fund funds.  I would start replacing bond funds with ladders of bonds to deliver up to that $50k annually. However, that's a fair amount of work, requires you to pick good bonds, and you lose diversification of bonds. It would be better if you could find that $50k from other places in your portfolio, like dividends, interest, and ETF/MF capital gains. That way you can just leave the money in bond funds until you near end of life. In reality, probably a mix of these ideas is best. Keep some in bond funds, but also have some individual bonds to lower the interest rate risk.

3. Historically in the last decade not having a lot in bonds was a good move because of the anemic returns of bonds. They didn't really buffer portfolios all that much anyway because of the weak returns. However, going forward, 4.7% treasury rates, etc. changes the equation. Of course, who knows how long these rates will last before the Fed has to lower rates.

4. Locking in bond rates right now is still a very tricky decision.  There are three arguments right now. One view is that the looming recession will force the Fed to cut rates again within the next 12-24 months.  The second view is that to really stamp out inflation, rates must hold through 2023/2024.  The third view is that inflation won't slow down, or will re-ignite once we enter a recession and have to lower rates. Each of these scenarios implies a different bond purchase strategy and timing.

Because none of us can accurately forecast the future of interest rates and inflation, having and contributing some money to bonds and bond funds right now makese sense. Once there is a clear top/pause by the Fed, more investment in bonds/funds is warranted. If you are near retirement, start thinking about individual bonds.

 

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