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Breaking Glass posted:Assuming you're holding bond ETFs or funds, and the interest rates change significantly, how does that impact the value and dividends paid by the fund/ETF? Well, judging by my BND that has absolutely reamed me in the rear end the last 12 months harder than I knew was possible with bonds, it appears to have a negative correlation. Here is a chart from JP Morgan guide to the markets that I found when I started getting scared about my bonds. The longer the term, the harder it gets hurt. You can find the average term length of bonds in the fund on Morningstar I think. 
lwoodio fucked around with this message at 17:18 on Apr 14, 2022 |
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Apr 14, 2022 17:07
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zaurg posted:Getting a 10k series i bond in mid 2021 was a good decision. Was 3.54% rate when purchased, now 7.12%, and will be going up to 9.6% as noted above. Absolutely crushing a 0.50% savings account, which is where the 10k used to reside. Best thread on SA. No the best thread on SA is yours and Cornholio's that I read when I was 17 and scared me straight.
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Apr 14, 2022 21:52
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Hawkperson posted:Hello I'm here with a stupid newbie question. I am a teacher and will get a nice pension, I have a Roth IRA I throw $6k in every year. I'm good right? Should I be saving more for retirement? I'm curious as to what your pension is. Have you ever figured it out based on the current salary scale now? I'm in Illinois and my wife was very frustrated to learn that the average teacher pension was something stupid low like $4,000 a year. And when I actually looked into it, that's the AVERAGE pension because so many teachers bring down the average because they work for 1 to 2 years and then quit, essentially giving them almost nothing. Her actual pension is something like 75% of her salary of the last 5 years she is teaching. And since those last 5 years under the current scale would average out to around 100K, that means her pension would be 75K a year. And as the pay scale goes up, she'll get a larger pension based on those last 5 years. So look into that, figure out how many years you have to put in to get your full benefits, and how much that potentially is if you reached that level today. You may be surprised at how much it is, honestly.... my Mother-in-Law was a teacher and retired at 58 and is fully capable of living just on her teacher pension. If you're in California I assume that you DO NOT pay into Social Security, correct? Usually this is because you get a much better pension, and the backlash from taking away your pension, not giving you social security, and essentially leaving teachers with nothing is just not something I see happening. Not sure if that makes you feel any better. Anyway, I'd continue to max out your Roth just because that's a good tax free investment avenue that will leave you with more in retirement.
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Apr 14, 2022 22:24
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Teacher pensions vary greatly by location. My mother and aunt were both teachers for roughly the same duration at the same time but in different states. My mother's general pay and benefits were better, with the pension being about half of my aunt's. My aunt currently brings in $8500/mo in pension alone. That's just enough to cover all her assisted living care and other expenses. My mother is reliant on savings and investments to supplement. Read the plan documentation to understand how it will work for your specific situation and plan around that. In general, there's little reason not to toss the max amount into an IRA if you can afford it, in addition to other general savings. Worst case, you have something else to lean on when you're old.
Magicaljesus fucked around with this message at 01:46 on Apr 15, 2022 |
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Apr 15, 2022 01:43
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Astro7x posted:I'm curious as to what your pension is. Have you ever figured it out based on the current salary scale now? CalSTRS has a calculator: https://resources.calstrs.com/CalSTRSComResourcesWebUI/Calculators/Pages/RetirementBenefit.aspx filling in a rough estimate based on my current behavior and the salary sched I'm on legit comes out to a $10k/month pension. We'll see if I keep it up though. quote:If you're in California I assume that you DO NOT pay into Social Security, correct? Usually this is because you get a much better pension, and the backlash from taking away your pension, not giving you social security, and essentially leaving teachers with nothing is just not something I see happening. Not sure if that makes you feel any better. That's correct, and agreed. Like worst case they'll try to gently caress over younger teachers that aren't paying into the system yet, but seeing as there's a teacher shortage literally everywhere I doubt that's happening anytime soon either.
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Apr 15, 2022 02:07
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10K a month is a pretty good pension! But I do believe that California taxes the hell out of it as well if you decide to stay there in retirement. Guess that's why many people move to states that do not tax pension income.Hawkperson posted:That's correct, and agreed. Like worst case they'll try to gently caress over younger teachers that aren't paying into the system yet, but seeing as there's a teacher shortage literally everywhere I doubt that's happening anytime soon either. Yeah, kind of my thoughts... FWIW, my wife was an teacher's aid that paid into a pension fund for 2-3 years. When they dissolved the pension fund they did give everyone back the money that they paid into it plus some sort or earnings. So we got a nice surprise check at the time and dumped it into her ROTH. We didn't anticipate getting anything from that at all.
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Apr 15, 2022 20:11
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On the subject of I-Bonds, is there any reason to wait until May to purchase them? Basically it seems like a given the floating inflation rate will go up (even more than it is today), but is the fixed rate component expected to change as well? I see that recently the fixed rate has been 0.0%, but it would be nice over the life of the bond if it was increased to a few tenths of a percent.
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Apr 16, 2022 16:09
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FPS_Sage posted:On the subject of I-Bonds, is there any reason to wait until May to purchase them? Basically it seems like a given the floating inflation rate will go up (even more than it is today), but is the fixed rate component expected to change as well? I see that recently the fixed rate has been 0.0%, but it would be nice over the life of the bond if it was increased to a few tenths of a percent. I wouldn’t wait. The fixed rate likely won’t rise until 10-year TIPS start having a substantially positive real yield. It is still negative. Anything can happen but if you wait until May, you miss 7.12% yield for 6 months and go directly to 9.62%. If you buy before May, you get 7.12% for 6 months and 9.62% for six months after that. I think the odds are good that you are better off buying before end of month.
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Apr 16, 2022 16:19
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Rates have been dancing around 0.00% since 2008 with the stretches of being exactly 0.00% becoming more frequent. I wouldn’t hold my breath for May. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
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Apr 16, 2022 17:32
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doingitwrong posted:Rates have been dancing around 0.00% since 2008 with the stretches of being exactly 0.00% becoming more frequent. I wouldn’t hold my breath for May. The composite rate historical chart on that page says the composite rate has been 7% or higher since 1998. That's a web site error right? (USER WAS PUT ON PROBATION FOR THIS POST)
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Apr 16, 2022 18:27
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zaurg posted:The composite rate historical chart on that page says the composite rate has been 7% or higher since 1998. That's a web site error right?
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Apr 16, 2022 18:38
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I'm trying to grasp the mechanics of a backdoor IRA, can goons confirm if this is the gist of how it works? 1. Open a traditional IRA, put the contribution cap into it 2. Open a Roth IRA 3. Rollover the amount of the traditional IRA into the Roth, and keep the traditional open 4. Repeat the contribute to the traditional, rollover to roth yearly And assuming I'm not deducting anything on my taxes for step 1, is there no extra tax step I have to worry about?
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Apr 16, 2022 23:16
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Was planning on buying 10k of I-bonds this January and plum forgot, went through their absolute relic of a website yesterday and got hit with the FS form 5444. Was really hoping i would be lucky enough not to have to snail mail something in.
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Apr 16, 2022 23:57
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It really seems random. I set up TD accounts for both my parents last year, who aren't even US citizens, and it went completely smoothly. They also have credit freezes on the big three agencies, but I'm not sure if that matters.
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Apr 17, 2022 00:03
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Mykroft posted:I'm trying to grasp the mechanics of a backdoor IRA, can goons confirm if this is the gist of how it works? I believe you report this on your return since it's reported to the IRS. But there is no tax liability if you're doing this correctly. Be aware of the pro rata rule if you have ANY pre tax money in a traditional IRA. This can immediately generate a surprisingly large tax bill (like, your marginal rate multiplied by the amount of the backdoor contribution) as you are forced to pay a proportion of the deferred taxes.
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Apr 17, 2022 00:07
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Mykroft posted:I'm trying to grasp the mechanics of a backdoor IRA, can goons confirm if this is the gist of how it works? The exact name of the transaction is a conversion, not a rollover. At tax time, you report the traditional IRA contribution, and you get a 1099 for the conversion that's reported separately, so there's definitely an extra step.
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Apr 17, 2022 00:18
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YanniRotten posted:Be aware of the pro rata rule if you have ANY pre tax money in a traditional IRA. This can immediately generate a surprisingly large tax bill (like, your marginal rate multiplied by the amount of the backdoor contribution) as you are forced to pay a proportion of the deferred taxes. In this case the traditional IRA should exclusively have post-tax money from a bank account. KcDohl posted:The exact name of the transaction is a conversion, not a rollover. At tax time, you report the traditional IRA contribution, and you get a 1099 for the conversion that's reported separately, so there's definitely an extra step. This is the part that scares me - looking at Fidelity's documentation as an example (https://www.fidelity.com/retirement-ira/roth-conversion-checklists), it says "convert online", but when going to the actual link it describes it as a transfer (whereas "convert" to me implies - the account is changing and money isn't really moving). Am I just getting hung up on semantics there? And similar to the other reply, since the traditional is fully funded by post tax money and was more or less just set up, so there shouldn't be any gains, is there an extra tax step I need to keep an eye out for or will it all just balance out?
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Apr 17, 2022 00:49
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spf3million posted:The chart at the bottom shows what your bond will earn during this 6 mo period based on the date purchased. For example a bond purchased between May 2010 and Oct 2010 will get 7.33% this period. To see the historical composite, you need to download the PDF from the link at the very bottom. Understood, thanks. Would be interesting to see 5yr, 10yr, 20yr average rates for those bonds to compare with other investment vehicles. I looked at that PDF and looks pretty decent over the years with occasional 0% periods.
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Apr 17, 2022 02:00
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Quick check in on I bonds. Is there a compelling reason to buy them for a retirement horizon if you still have 401k space?
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Apr 17, 2022 05:56
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Xenoborg posted:Quick check in on I bonds. Is there a compelling reason to buy them for a retirement horizon if you still have 401k space? If you want them as a part of your emergency fund or as an extra emergency fund. One year from deposit you can cash out at any point (loses the last 3 months interest but whatever), so it’s more liquid for sure than any 401k, and slightly less liquid than a savings in that it won’t function where you can add / subtract month to month based on expenses.
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Apr 17, 2022 12:32
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I know nothing about retirement accounts and I just have a Vanguard account that I put 401k fund from my previous employer into and a current 401k with Principal. About a decade ago when my wife was working she had a 401k with Merrill with only about $2k in it. Since then it's just been sitting in something called a BofA RASP which seems like a cash account. I got a statement from then yesterday (made 6 cents interest!) so I want to move this somewhere, either just cash it out and put it in savings or dump it into my Vanguard account. Can I move this out or are there some tax penalties since it was a 401k previously.
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Apr 17, 2022 16:11
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Mykroft posted:In this case the traditional IRA should exclusively have post-tax money from a bank account. Just so we're being clear, the pro-rata rule applies if you have pre-tax money in ANY Traditional IRA, so you can't get around it just by opening a new IRA with another broker. A conversion involves removing the money from the Traditional IRA and putting it into the Roth IRA. So there are separate accounts involved and not just changing the tax treatment of the account itself. EDIT: Depending on how quickly they make the conversion, you could find a few cents worth of interest accumulated, but if it's less than 50 cents, the numbers should round down to the nearest dollar and not change anything come tax time. Ancillary Character fucked around with this message at 16:56 on Apr 17, 2022 |
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Apr 17, 2022 16:52
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Related pro-rata questions: I have a rollover IRA from a previous employers 403b with about $20k in it. I contributed $6000 to a traditional IRA and then converted it to a Roth. 6000/26000 = 0.23, so of the money I converted, $1380 is "tax free" and I have to pay tax on the remaining $4620. 1) Do I understand correctly that my rollover IRA now contains $4620 of after-tax basis? 2) How does this work moving forward - does that $4620 remain a flat amount, or does it grow in proportion to everything else in the account? 3) What should I do next year, can I simplify my life by rolling this rollover IRA into my current employer's 403b? Is that a thing? 4) Am I actually losing money doing this (from the pro rata) or is it just "sticker shock" of having to pay the taxes now?
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Apr 17, 2022 19:47
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YanniRotten posted:I believe you report this on your return since it's reported to the IRS. But there is no tax liability if you're doing this correctly. This is definitely the case since I just did it. Basically, the backdoor counts as a "distribution" and while it's not incredibly difficult, the wild mood swings it causes on my refund counter makes my rear end pucker every time I have to go through it.
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Apr 18, 2022 04:29
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Xenoborg posted:Quick check in on I bonds. Is there a compelling reason to buy them for a retirement horizon if you still have 401k space? without knowing specifics about your 401(k) plan and assuming it is a good one with good fund access and relatively low fees and expense ratios, it is not a compelling idea to buy I-Bonds instead of funding your 401(k) for the specific purpose of retirement planning. I-Bonds are designed to protect principal. That means that if you put $10K in now, it'll be worth $10K in 2022 dollars in the future. You will have nonexistent gains in real terms. It is a good vehicle to protect principal in an inflationary environment for money you might intend to use short/midterm, but it's a lousy way to invest for retirement.
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Apr 18, 2022 14:36
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So I started a new job recently and I'm setting up my 401k with them. I generally prefer a "set it and forget it" investment strategy so things like target date funds are great, but barring that, I try to pick index funds that mimic something like a VFIFX. The new company has an RFKTX available, which is another target fund with similar performance over time to VFIFX, but the expense ratio is much higher (0.37% vs 0.08%). I know I'm probably spoiled since Vanguard funds tend to have very low expense ratios but is this worth considering, or is that ratio really bad? EDIT: There are other funds I can choose from to try to build a VFIFX-like portfolio, but few of these have Vanguard-level expense ratios, so my thinking is "if I'm going to have to pay higher admin costs anyway, maybe the target fund is worth it." GFBeach fucked around with this message at 15:12 on Apr 18, 2022 |
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Apr 18, 2022 15:00
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You can always just plow all your money into the cheapest option and then make it up in your other holdings outside your 401k. That .37 is probably actively managed vs index which is why it's higher.
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Apr 18, 2022 15:35
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GFBeach posted:So I started a new job recently and I'm setting up my 401k with them. I generally prefer a "set it and forget it" investment strategy so things like target date funds are great, but barring that, I try to pick index funds that mimic something like a VFIFX. The new company has an RFKTX available, which is another target fund with similar performance over time to VFIFX, but the expense ratio is much higher (0.37% vs 0.08%). I know I'm probably spoiled since Vanguard funds tend to have very low expense ratios but is this worth considering, or is that ratio really bad? This is going to be dependent on what your overall investment options look like. You're right in that 0.37% isn't great, but it's not incredibly bad. You're probably going to be better off using that tax-advantaged space than not using it, but I probably wouldn't rollover my old 401k in to the new jobs' it if the fund options/choices were better there. If there's a chance you might switch jobs down the road, you will likely have the chance to take the money from your job's (now) new 401k and roll it over to one with better options.
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Apr 18, 2022 15:37
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KYOON GRIFFEY JR posted:I-Bonds are designed to protect principal. That means that if you put $10K in now, it'll be worth $10K in 2022 dollars in the future. You will have nonexistent gains in real terms. It is a good vehicle to protect principal in an inflationary environment for money you might intend to use short/midterm, but it's a lousy way to invest for retirement. The implication here is that if equities don't perform at inflation + 4% that's going to be a loss. For people like me who haven't even seen 5% inflation in their adult lives, going into a period where nominal equity returns have to be like 13-15% sounds like a wild ride.
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Apr 18, 2022 15:45
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Protecting principal from: The Market, which can crash hard and take a long time to recover, so it's good to have backup money that earns a healthy rate over time; Yourself, who throws money at The Market, which generally works out but also might not depending on the timing
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Apr 18, 2022 16:14
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AreWeDrunkYet posted:The implication here is that if equities don't perform at inflation + 4% that's going to be a loss. For people like me who haven't even seen 5% inflation in their adult lives, going into a period where nominal equity returns have to be like 13-15% sounds like a wild ride. I think it'll largely be a one-time thing. It's not really linked to underlying increases in commodities prices, which is the "natural" driver of inflation. In reality, a bunch of corporations realized they could claim that inflation was high and jack up their prices. Since the Fed largely exists to protect rich people who own those companies, they are not really calling out the reality that, the "inflation" is largely bullshit price gouging. The same companies claiming that they are forced to raise prices are posting record profits. Inflation was also negative last year, and deflation is really unusual, and actually kind of dangerous in modern capitalism. Yes, the situation in Russia/Ukraine is going to drive up oil prices for a while, but it'll also probably hasten moves towards renewables as countries do not want to let dangerous autocrats have power over energy.
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Apr 18, 2022 17:37
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AreWeDrunkYet posted:The implication here is that if equities don't perform at inflation + 4% that's going to be a loss. For people like me who haven't even seen 5% inflation in their adult lives, going into a period where nominal equity returns have to be like 13-15% sounds like a wild ride. Equities just need to perform equal to inflation to perform equally to I-Bonds. Where are you getting the other 4% from?
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Apr 18, 2022 20:35
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KYOON GRIFFEY JR posted:Equities just need to perform equal to inflation to perform equally to I-Bonds. Where are you getting the other 4% from? Bonds are much less risky than even a properly diversified portfolio, especially if you have a need of funds over a more specific horizon.
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Apr 18, 2022 21:11
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pseudanonymous posted:Bonds are much less risky than even a properly diversified portfolio, especially if you have a need of funds over a more specific horizon. correct which is why I said that I bonds are very good if you need funds over a specific horizon, but saving for retirement is like, the exact opposite of that
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Apr 18, 2022 21:27
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pseudanonymous posted:Inflation was also negative last year, and deflation is really unusual, and actually kind of dangerous in modern capitalism. Inflation was not negative last year, by any measure. But start with this one: https://fred.stlouisfed.org/series/PCETRIM12M159SFRBDAL pseudanonymous posted:Bonds are much less risky than even a properly diversified portfolio, especially if you have a need of funds over a more specific horizon. That statement is far too broad to be useful. Which bonds (or bond funds)? And "risky" as in less volatile? Or in better risk-adjusted returns? Or as in lower likelihood of drawdown? By any of those measures, you can just look at, say, the total return of the most popular treasury bond ETF in the world (TLT) vs. the performance of the world stock market (VT) from Jan. 2021 onward and stocks were less "risky": https://www.portfoliovisualizer.com...location2_2=100 code:
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Apr 18, 2022 22:46
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KYOON GRIFFEY JR posted:Equities just need to perform equal to inflation to perform equally to I-Bonds. Where are you getting the other 4% from? The real growth you would expect from an investment that carries a level of risk.
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Apr 18, 2022 22:48
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AreWeDrunkYet posted:The real growth you would expect from an investment that carries a level of risk. arbitrary risk premium? sure why not
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Apr 18, 2022 22:55
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KYOON GRIFFEY JR posted:arbitrary risk premium? sure why not Are you saying it's unreasonable to expect real growth from equity investments?
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Apr 18, 2022 23:03
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KYOON GRIFFEY JR posted:arbitrary risk premium? sure why not Wasn't the whole 4% rule: 7% return, 2-3% inflation. So 4% is the the real return. So AreWeDrunk Yet is saying 7% inflation means you need to have 11% return to hold that line. spwrozek fucked around with this message at 23:40 on Apr 18, 2022 |
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Apr 18, 2022 23:37
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pmchem posted:Inflation was not negative last year, by any measure. But start with this one: I'm not sure a two-year pandemic comparison of a treasuries-only bond fund is super informative of the general risk of bonds? Here's VT vs. BND, since 1985: https://www.portfoliovisualizer.com...location2_2=100  The sharpe and sortino ratios are more or less identical. On a risk-adjusted basis, "bonds" across the board are "the same" as "stocks" across the board. But, of course, since they are far less volatile (and that's all sharpe and sortino are really measuring) they also offer much worse real returns. I think it's generally been fair, historically, to call "bonds" less risky than "stocks" if we add no qualifiers at all to that statement. I agree with you that for the sake of evaluating one's portfolio choices, it's such a vague and broad statement as to be useless. I think you know all this so I'm sorta just commenting for the gallery. AreWeDrunkYet posted:Are you saying it's unreasonable to expect real growth from equity investments? I'm not KYOON but I would say that in the long term, yes, it'd be unreasonable to expect people to take on risk without being paid a risk premium for it. The problem is that it's fairly easy to calculate risk in the past (see the above post and response), but difficult to estimate risk in the future. Stocks are often priced by estimating a Price to Earning multiple based on discounted future returns, but estimating future returns and setting the appropriate discount is... well, let's say it's quite the magic trick! Market sentiment with equities broadly translates as investors adjusting what they think is a fair price for equities today based on a moving target of P/E multiples, future returns, and discounting. Here's an interesting paper: https://www.hartfordfunds.com/insights/market-perspectives/equity/which-equity-sectors-can-combat-higher-inflation.html Leaving aside the central thesis of the paper (identifying inflation-proof sectors), check out the first couple of sections that discuss historical performance of equities at different levels of inflation. Low inflation has corresponded to a wide open map of good or poor performance, but during periods of high inflation, future returns get heavily discounted and P/Es fall. That implies falling stock prices compared to an earlier, lower-inflation period: it also implies cheaper stocks to buy, if inflation subsequently falls and P/Es rise. IMO this is all a fancy way of saying, high inflation implies economic stress, and stocks tend to do poorly when investors are worried about the future. High inflation also implies that future returns in real dollars are worth comparatively less than money in your hand today. If you want to put your money in i-bonds to avoid that, fine, but you'll run into the exact same age-old problem of all other market-timing strategies for long-term investment: identifying the bottom and when to buy back into stocks. Alternatively, for long-term holdings, you can just buy right through the dip and come out great. For medium term holdings, as KYOON said, i-bonds offer cash preservation at no risk. For short-term horizons, the minimum holding period is an obstacle. The maximum buy-in per year for i-bonds makes them less attractive to deep-pockets investors anyway: if you decided in 2021 that you wanted to set aside $100k of your portfolio in inflation-resistant zero-return safety, iBonds are not your solution because you could, at best, put $20k in them over 2021-2022 (plus as much as $10k more from your tax refund if you contrived to have one). What are you going to do with the other $70-80k?
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Apr 18, 2022 23:41
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