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Young people should spend everything and save later: Counting your chickens before they hatch. Low income don't need to save because of SS: you're hosed forever, might as well admit it But the whole thing is: statistics =/= real life Statistically I'm a schmuck for ever buying insurance because by virtue of what the insurance companies do, I am statistically profitable for them which means it's statistically bad for me to buy their product and contribute to their profit. But loving hell if I'm going to go without insurance.
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Oct 11, 2022 20:05
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CmdrRiker posted:Does anyone in here remember beating themselves up with guilt about not being able to ensure you get your employer's retirement match benefits? Or realizing that paying off debt versus maxing a Roth IRA is the only way to ensure a guaranteed ROI for your short term survival? I'm disappointed in you guys. I have all the empathy in the world for people living paycheck to paycheck or facing financial hardship. After my parents divorced, my mom went to college to get a bachelor/master's degree but accrued a mountain of debt along the way. Being a social worker, she is still buried in debt that she will likely take to her grave one day. In a fair and just society, she wouldn't have had to worry about paying for higher education or retirement income, especially given all of the tangible, wonderful things she has done for people as part of her job. But, of course, that's not the way things work. Anyways, since we have to navigate the system as it currently exists, I was just making the point that you should always take the employer match if you can.
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Oct 11, 2022 20:12
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The phrase "if you can" is so good William Bernstein used it as the title of a good little booklet full of good advice, and I think it's a great starting point for these conversations. Some people cannot afford to set aside 6% of their income in order to get a match. That's understandable. Many people can, and if they can, they should, since even a 50% match of that is essentially a free 3% raise they're missing out on otherwise. e. And of course that scales, maybe a person can't afford to set aside 6% but they can afford to set aside 1%. Even if that's only $250 a year that gets a match, and the match is only 50% of that, $125/year of free money is the sort of thing a lot of folks making $25k would find worth not having access to $21/month that goes to savings instead. Some people genuinely cannot afford a $21/month pay cut, though, and that's unfortunate but a reality for plenty of people. Leperflesh fucked around with this message at 20:24 on Oct 11, 2022 |
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Oct 11, 2022 20:21
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CmdrRiker posted:Does anyone in here remember beating themselves up with guilt about not being able to ensure you get your employer's retirement match benefits? Or realizing that paying off debt versus maxing a Roth IRA is the only way to ensure a guaranteed ROI for your short term survival? I'm disappointed in you guys. I knew the advice was "start saving young, the sooner the better" even when I couldn't. I don't remember feeling guilty about that though. I do remember feeling resentment towards my significant other for spending when we could have been saving. Probably one of the reasons that relationship ended. I guess my point is I like the old advice, even if I also lived more in line with what this joker is (maybe, charitably) trying to say
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Oct 11, 2022 20:25
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Muir posted:Is there a reason you want your 529 to be in Illinois in particular? You can sign up for a 529 that's based in any state. I use Vanguard's, which they've technically based in Nevada, but I'm a California resident. It doesn't have to be, I was specifying because a lot of states have different rules on which you can use, and taxation. E.g. I think I would have to use an Illinois 529 to get the state income tax deduction. fourwood posted:I have money in one of the moderate age-based index funds and the fee is 11bps which doesn’t seem too terrible? It looks like mostly a reasonable spread of domestic/int’l equities with some light REIT and bonds and stuff, all Vanguard funds underneath. Thanks, I think I missed the Vanguard funds there. 7 bps isn't awful.
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Oct 11, 2022 20:35
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Fireside Nut posted:After my parents divorced, my mom went to college to get a bachelor/master's degree but accrued a mountain of debt along the way. Being a social worker, she is still buried in debt that she will likely take to her grave one day. Not disagreeing with your broader point, but your mom should look into Public Service Loan Forgiveness. The current administration isn't messing with that program the way the previous one was.
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Oct 11, 2022 20:39
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pseudanonymous posted:Urge to time market intensifies. If he's right: "Dimon tried to warn us! He's so smart! If he's wrong: "Dimon played us all! He's so smart!* If he's wrong in front of us: "What a moron!"
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Oct 11, 2022 20:49
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I have friends and family that reason the existence of their very small retirement savings in a similar manner, too. "I don't agree with the system and wont take part in it because it needs to change." I think that is stupid and irresponsible. Maybe I'm too used to fighting my conservative father about poverty and savings in the States. For instance, he'll complain about my brother not being able to afford a new fence for his house and then say "yet he can still go out to a bar for a few beers once a week?" If you truly cannot afford the lifestyle of going out once a week, but do so anyway, then you're spending is irresponsible. But people are not robots, either. There is some balance to saving and spending so you don't hate living your life but save every dollar in a retirement account. That's about as far as I can pursue the argument though because it gets very situational and judgemental from there. But some people go overboard with both directions.
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Oct 11, 2022 20:53
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The system sucks rear end but you not contributing to a 401(k) is not some revolutionary action
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Oct 11, 2022 21:01
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AreWeDrunkYet posted:Not disagreeing with your broader point, but your mom should look into Public Service Loan Forgiveness. The current administration isn't messing with that program the way the previous one was. Thank you! Yes, she is working with someone to see if her loans will apply. I don't have all of the details but I think there are some issues related to how her loans were renegotiated at one point when she went through bankruptcy. They discharged a decent amount of her debt at that point, but there were some education related loans that didn't apply for whatever reason. I appreciate the reminder to review this with her.
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Oct 11, 2022 21:07
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Speaking of 529s, I'm in California and I've been thinking about starting one. I have a small brokerage account that was gifted to me many years ago. Would it be beneficial for me to close the account and start a new 529, or just start a 529 and contribute into it starting fresh? My understanding is, if I close the account, I'll pay capital gains tax on it anyway and from searching through Vanguard, it isn't clear that a transfer of funds would negate the capital gains tax. So in the end it does it even matter?
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Oct 11, 2022 21:37
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totalnewbie posted:Statistically I'm a schmuck for ever buying insurance because by virtue of what the insurance companies do, I am statistically profitable for them which means it's statistically bad for me to buy their product and contribute to their profit. But loving hell if I'm going to go without insurance. This is not necessarily true. What can be valuable about insurance is that you are transferring risk. Take health insurance - you pay a (ridiculous) fee to access health insurance. You have 100% risk of paying that fee. In return, if you get sick or cancer or whatever, you in theory (if they actually cover it) have insurance that then provides health care, including potentially millions in dollars of costs. If you had to pay for all those costs, you'd just go bankrupt and or die (both). The insurance company, in theory, can get a large enough risk pool, do the math, and offer you insurance that means that they earn some profit by transferring that risk. You, as an individual, are worse off if you never use that insurance but way better off if you do. Granted, there's a ton of bullshit that insurance companies do, and they are awful, but the mathematical idea of risk pools and transferring risk does make sense.
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Oct 11, 2022 21:41
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I know that and that's exactly the point I'm trying to make about what the article is saying. Yeah, if all things go according to statistical models, then behaving in a way that conforms to the model makes sense. But life isn't a statistical model so behaving as if it were is bad. It's not a perfect analogy but just as it's stupid to not get insurance, it's also stupid to live life like you're never going to get a curveball in life.
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Oct 11, 2022 22:06
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Yeah it's sorta like: insurance, from an economist who cares only about macroeconomics, is pointless because if you take a hundred million people and calculate their financial outcomes if none of them paid for insurance, they'd have a better net long-term financial outcome across the whole pool. Which is true unless insurance companies are losing money on the balance between premiums and claims. And yet, this ignores the benefit of buying insurance - it greatly reduces a specific type of risk (catastrophic loss) at a cost of a moderate long-term loss instead. Similarly, saving money for retirement reduces the risk of a catastrophic poverty situation in old age, at the cost of not having some of your income to spend now, on today's quality of life. An economist declaring that actually people shouldn't save for retirement until they're already high income earners is making the same category of error.
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Oct 11, 2022 22:10
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I have a Vanguard brokerage account where I've been contributing as much as I can every month since the beginning of the year (average ~$3000). My plan was to keep investing for the next ~4-5 years then pull out the money to buy a second house. So far deposited $29,500 but the portfolio is worth only $25,500 (all in VTSAX). Normally I wouldn't be worried (I have ~$165k in retirement funds, $140k equity in my current home, $20k liquid and $6k saved for 2023 Roth IRA), but due to the supposed impending recession I'm thinking if it's stupid of me to not pull out the $25,500 and put it into a HYSA? Or maybe start contributing half towards HYSA and half towards investments? I don't need the money for at least the next two years. But I don't know what to think of this recession that may or may not happen, and if I might be shooting myself in the foot.
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Oct 12, 2022 00:24
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Definitely be sure to lock in your losses now
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Oct 12, 2022 00:28
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Dangerous Mind posted:I have a Vanguard brokerage account where I've been contributing as much as I can every month since the beginning of the year (average ~$3000). My plan was to keep investing for the next ~4-5 years then pull out the money to buy a second house. So far deposited $29,500 but the portfolio is worth only $25,500 (all in VTSAX). Well 2 things: 1. Any money that got need within 5 years (or so, but short term) should not be in a brokerage account. So if it’s for something short term, doing so is a big risk for what you are now fearful of. 2. You can’t time the market. No one knows how long the recession will go , etc. So the question is more: do you need to add to your short term / emergency savings ? Which I would recommend augmenting through temporarily changing your current contributions, versus taking money out that is in a down market and you pay whatever short and long term gains. I guess it’s possible there is tax lost harvesting ? But I know nothing on that. To emphasize: you can’t time the market. It’s extremely tempting , but can’t be done.
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Oct 12, 2022 00:31
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How old are you? Because this: Dangerous Mind posted:I have ~$165k in retirement funds, $140k equity in my current home, $20k liquid and $6k saved could be fine or terrifying. And either way timing the market isn't going to help.
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Oct 12, 2022 00:33
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Duckman2008 posted:1. Any money that got need within 5 years (or so, but short term) should not be in a brokerage account. So if it’s for something short term, doing so is a big risk for what you are now fearful of. I think we could be a little more precise about that statement. For example, a brokerage account could be used to hold $IBTG: https://www.ishares.com/us/products/312457/ishares-ibonds-dec-2026-term-treasury-etf That's a guaranteed >4% annualized return until end of 2026 at which point the fund liquidates and you get face value of the bonds back. If either the fund manager (Blackrock) or its contents (US Treasuries) go belly up before that date, your savings account won't matter either because the entire US financial system has collapsed. And it's probably (though not guaranteed!) a better interest rate than you'll get in a HYSA over that period. Bond ladders are a thing with a purpose and those (or components thereof) can be created in brokerage accounts.
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Oct 12, 2022 00:40
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how is that $IBTG providing a guaranteed return when it shows this? NAV Total Return as of Oct 10, 2022 YTD: -9.51%
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Oct 12, 2022 01:55
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Man_of_Teflon posted:how is that $IBTG providing a guaranteed return when it shows this? you're looking at NAV based return, as if you were trading the bonds. their one weird trick is that you have to hold them to their target date to get the returns I'm talking about. read the details here or in the prospectus: https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders right now, IBTG has Average Yield to Maturity as of Oct 10, 2022 4.30% (from fund facts at the etf site linked prior) so if you bought it at today's nav, you'd get that average return until the fund matured. but the catch is you can't trade in/out of it to get that return.
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Oct 12, 2022 02:15
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if there's one thing i can take away from 2022, it's the full meaning of "interest rate risk". i remember reading about it in "the four pillars of investing" when bernstein was recommending short term us bills only (something in retrospect i don't agree with, always duration match as much as you can), and hearing terms like "convexity", and kind of vacantly nodding along, but boy nothing drives home comprehension of nebulous theory like losing a bunch of money (and maybe earning it back slowly over time, fingers crossed)
GhostofJohnMuir fucked around with this message at 05:23 on Oct 12, 2022 |
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Oct 12, 2022 05:18
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GhostofJohnMuir posted:if there's one thing i can take away from 2022, it's the full meaning of "interest rate risk". i remember reading about it in "the four pillars of investing" when bernstein was recommending short term us bills only (something in retrospect i don't agree with, always duration match as much as you can), and hearing terms like "convexity", and kind of vacantly nodding along, but boy nothing drives home comprehension of nebulous theory like losing a bunch of money (and maybe earning it back slowly over time, fingers crossed) I tried to warn about this in 2021 in this very thread but I was about 6 months early pmchem posted:I realize bonds are generally viewed as more conservative than stocks and that this discussion is for a long-term horizon, but, just going with conventional wisdom of "bonds aren't risky" is REALLY not a great idea sometimes, like say in an inflationary environment after long bond yields plummeted to near zero. pmchem posted:over the very long term, bonds and stocks both have positive expected value, yes.
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Oct 12, 2022 12:13
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pmchem posted:I tried to warn about this in 2021 in this very thread but I was about 6 months early pmchem I appreciate you posting in this thread and am glad you are back to add in a good level of nuance to what some of us say. That might read a little ambiguous, so for clarity it is not sarcastic.
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Oct 12, 2022 13:57
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Motronic posted:How old are you? I turn 29 next month.
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Oct 12, 2022 15:10
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I'm glad I was somewhat heavily in bonds before this year. Bonds have lost money at the same time as stocks, but crucially, not as much - which means that when I did a rebalance of my asset allocation in July, I was essentially selling bonds and buying stocks. In the long run I'll have a marginally better recovery when both stocks and bonds recover because I just followed my plan and stuck to my target allocation. I'm 20 years from retirement so I don't care that my whole portfolio is down right now, I'm accumulating shares.
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Oct 12, 2022 17:19
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Leperflesh posted:I'm glad I was somewhat heavily in bonds before this year. Bonds have lost money at the same time as stocks, but crucially, not as much - which means that when I did a rebalance of my asset allocation in July, I was essentially selling bonds and buying stocks. In the long run I'll have a marginally better recovery when both stocks and bonds recover because I just followed my plan and stuck to my target allocation. That was my plan, but it seems like my bond ETFs were down comparably, if not more so, than the actual stock ETFs. Which honestly didn't make much sense to me; sure, I understand how interest rates going up make old bonds worth less, but how can a bond ETF be down 20% for a year without mass bankruptcies? It's not like interest rates are up 20%. At times like this I just sigh and admit I don't actually understand how the market works.
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Oct 12, 2022 18:33
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Bremen posted:That was my plan, but it seems like my bond ETFs were down comparably, if not more so, than the actual stock ETFs. Which honestly didn't make much sense to me; sure, I understand how interest rates going up make old bonds worth less, but how can a bond ETF be down 20% for a year without mass bankruptcies? It's not like interest rates are up 20%. bond math is not for the faint of heart, but the root of your question lies in bond convexity and explanations can be found here: https://www.blackrock.com/fp/documents/understanding_duration.pdf or here for some math https://en.m.wikipedia.org/wiki/Bond_convexity it’s why in my older post I specifically called out long (duration) bonds after their yield had went to near zero as being a particular risk.
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Oct 12, 2022 19:02
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CubicalSucrose posted:pmchem I appreciate you posting in this thread and am glad you are back to add in a good level of nuance to what some of us say. That might read a little ambiguous, so for clarity it is not sarcastic. aw heck, thanks
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Oct 12, 2022 19:05
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my current hot take is that you should hold bonds to maturity rather than loving around with bond funds
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Oct 12, 2022 19:24
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Dangerous Mind posted:I turn 29 next month. I'd say you're doing well. Better than me when I was 29, that's for sure. But don't try and time the market still.
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Oct 12, 2022 19:54
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Muir posted:Is there a reason you want your 529 to be in Illinois in particular? You can sign up for a 529 that's based in any state. I use Vanguard's, which they've technically based in Nevada, but I'm a California resident. e: And I have (a lot of) money in the Illinois 529. Not the absolute cheapest, but pretty competitive to me given the tax deduction. gvibes fucked around with this message at 20:45 on Oct 12, 2022 |
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Oct 12, 2022 20:13
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KYOON GRIFFEY JR posted:my current hot take is that you should hold bonds to maturity rather than loving around with bond funds I wish I'd read this a year ago. It seemed like a great idea at the time, mix bond funds and stock funds, and if stocks went down I could sell some of the bond ETFs to buy low. I just wasn't expecting them to both plunge nearly 20%.
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Oct 12, 2022 20:13
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To be honest I haven't done the math exactly, and I'm not sure when the last time was that I rebalanced - I intended to do it annually but I genuinely can't recall doing it in 2021 or 2020... my target allocation is about 20% bonds and when I checked things in July I was closer to 28%. Now I look at the charts, you guys are right that year over year, bond funds like vbtlx aren't exactly outperforming stocks.
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Oct 12, 2022 20:26
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gvibes posted:I think you can only deduct on state income taxes if you use the Illinois 529 Ah, got it. Here in California, contributions aren't tax deductible anyway, so there was no reason to care about what state the plan was based in.
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Oct 12, 2022 20:36
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Dangerous Mind posted:I have a Vanguard brokerage account where I've been contributing as much as I can every month since the beginning of the year (average ~$3000). My plan was to keep investing for the next ~4-5 years then pull out the money to buy a second house. So far deposited $29,500 but the portfolio is worth only $25,500 (all in VTSAX). Oh, one other thing on this: I am sure you would like to buy a second house etc but you don't NEED to buy a second house. I would treat second home buying as something with a very elastic timeline, which means you can wait for the market to recover, or choose to not use the money you have in the market for this purpose. If you decide that based on your desired uses for the money that it makes sense to have it in something less volatile, you can move to contributing to HYSA, bond ladder, whatever in place of equities. But don't lock in losses on index funds.
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Oct 12, 2022 22:00
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Makes sense. Another thing I’ve been wondering is what are your thoughts on me opening a Roth IRA for my mom? She lives with me and pays me $700/mo rent that I’ve been putting towards the mortgage and buying her groceries. She makes $1000/mo at 54yo and has no retirement savings. My strategy would be to instead of collecting rent then I’d set up automatic monthly contributions to her Roth IRA to max it out. And if I act now then I can max out her 2022 contribution with what I had saved myself already. Or is there a better strategy/use of money?
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Oct 12, 2022 22:24
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Leperflesh posted:To be honest I haven't done the math exactly, and I'm not sure when the last time was that I rebalanced - I intended to do it annually but I genuinely can't recall doing it in 2021 or 2020... my target allocation is about 20% bonds and when I checked things in July I was closer to 28%. Now I look at the charts, you guys are right that year over year, bond funds like vbtlx aren't exactly outperforming stocks. Yeah, both stock and bond funds are down double-digits so far, which if I recall will be unprecedented if it remains the case at the end of the year. Fun times...
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Oct 12, 2022 22:31
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Leperflesh posted:To be honest I haven't done the math exactly, and I'm not sure when the last time was that I rebalanced - I intended to do it annually but I genuinely can't recall doing it in 2021 or 2020... my target allocation is about 20% bonds and when I checked things in July I was closer to 28%. Now I look at the charts, you guys are right that year over year, bond funds like vbtlx aren't exactly outperforming stocks. yeah here's total return of the s&p 500 (red) vs 3 of the most popular bond funds in the world (blue line is basically what's in 3-fund or target date portfolios, like VBTLX) since the date of my post that I quoted a bit above.  bonds have provided no protection since inflation entered popular discussion (edit: unless, of course, you bought inflation-protected bonds!). a lot of people are hoping that pain ends soon. safe to say it's unlikely their next 410 days will be as bad as their last 410 days pmchem fucked around with this message at 23:53 on Oct 12, 2022 |
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Oct 12, 2022 23:50
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Yeah Like, some folks I guess were hoping bonds would be anticorrelated with stocks, which they aren't, but they only have to not do as badly as stocks over a period that spans at least one rebalancing (e.g. if you rebalance annually, then through that period) for you to benefit from holding bonds by being able to rebalance by selling bonds to buy stocks while stocks are cheap. Right now that isn't the case, clearly. I am not going to do an out-of-phase rebalance if it suddenly becomes the case in six months or something, though, because that'd be trying to time the market.
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Oct 13, 2022 00:04
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