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Intermediate and long term bonds @ 5% nominal hasnt changed my asset allocation, though I am certainly happy to be getting more yield out new bond purchases. That said, TIPS at >2.5% real certainly has me thinking about shifting some of my longer term fixed income allocation from nominal to TIPS.
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Oct 7, 2023 17:08
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I'm still wondering what 30 year bonds are for. Ok how about this. You buy 30 year bonds that pay your mortgage bill (which is a lower percent than the bond)
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Oct 8, 2023 05:02
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Epitope posted:I'm still wondering what 30 year bonds are for. Ok how about this. You buy 30 year bonds that pay your mortgage bill (which is a lower percent than the bond) I-bonds can be tax-deferred, too, which can help if you're riding your career high in your 30s or 40s and want to set aside a little cash for retirement years when presumably you'll be in a lower bracket. The returns won't be as good as something like your 401k or IRA, but the flexibility for cashing out early has value of its own.
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Oct 8, 2023 05:12
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Epitope posted:I'm still wondering what 30 year bonds are for. Can be pretty useful for insurers or pension funds.
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Oct 8, 2023 15:40
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30 yr bonds are really great for entities that are on longer horizons: large funds, banks, pensions, etc. And if you have longer term bonds during a period of falling rates you’ll be able to sell those at a huge premium. That is, of course, market timing but I’m just saying there are reasons to have long-term bonds. Also foreign entities absolutely love them, since they can bring down your volatility statistics significantly at a reasonable rate. I’d imagine massive foreign wealth funds like the Rothschilds love long-term treasuries
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Oct 8, 2023 18:30
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Epitope posted:I'm still wondering what 30 year bonds are for. I saw an interesting use of long TIPS proposed recently: a reverse extension of social security. Take your estimated payment at retirement (or delayed retirement), and buy that much worth of long TIPS maturing each year before your SS retirement date. So, for example, if you anticipate social security starting in 2050 with a $3000/month payment, you would buy $36,000 of TIPS maturing in 2049, then $36k maturing in 2048, etc, etc. The main downside being that on that really long time scale, one would expect stocks to significantly outperform TIPS, even at the relatively high current real rate for TIPS.
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Oct 8, 2023 18:55
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jokes posted:30 yr bonds are really great for entities that are on longer horizons: large funds, banks, pensions, etc. And if you have longer term bonds during a period of falling rates you’ll be able to sell those at a huge premium. That is, of course, market timing but I’m just saying there are reasons to have long-term bonds.
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Oct 8, 2023 19:11
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I think what I'm hearing is treasury bonds (20 or 30 years) are not really for individuals, unless you just use them as metaphorical envelopes, but that's seems not often wanted. Of course asset allocation depends on the individual and their needs/style Mortgages still stick out as possible way it comes into play. Like, rebalancing- if you find yourself overweight in something, you rebalance. I know mortgages aren't investments, but they kinda tie in, ya? They are like a fixed income asset with a negative coupon. And those of us who got mortgages a few years ago now see them big in the green. So, should we rebalance away from the mortgage? Would buying a treasury bond effectively counterbalance a mortgage? Or maybe it's going further in the wrong direction. I dunno, this is probably not a useful thought exercise. Rebalancing is still mysterious to me. Cubical sucrose do you have a spreadsheet with estimated expenses and income for every year of your future?
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Oct 8, 2023 22:16
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Epitope posted:I think what I'm hearing is treasury bonds (20 or 30 years) are not really for individuals, unless you just use them as metaphorical envelopes, but that's seems not often wanted. Of course asset allocation depends on the individual and their needs/style If what you want is a fixed coupon for 30 years then 30-yr, then even for an individual, they are fine. You expose yourself a tremendous interest rate risk in the bonds price, but that is irrelevant if it's the 30-yr fixed coupon that you wanted. For individuals with a 30-year time horizon, however, you're likely to get better returns in something else (e.g. stocks), for an acceptable amount of risk. Insurers and pensions like them, it's for asset/liability matching - they know they owe xyz in 30 years, and they can lock it in for a known price today. Your mortgage is a liability to you, not an asset. Your budget isn't changing as interest rates change since your mortgage is fixed. People don't manage their finances like insurers or banks. For fun though, we can go down your line of reasoning. You're not completely off base. A mortgage is a fixed income asset to the issuer. If rates go up, the value of the mortgage asset goes down (like a bond). So if the issuer has a target portfolio that includes 20% mortgages and rates go up, holding everything else constant, they'd need to issue more mortgages ("buy more bonds") to rebalance to 5%. Put another way, if you had a target liability portfolio, rates going up reduces your mortgage liability, freeing up budget to take on more mortgage! See what I mean about individuals and financial organizations not really being manages the same? Banks, insurers, pensions, and others are typically trying to match their assets to their liabilities, at least to some degree. Say a pension knows it can expect to need to pay out $1million in 30 years. If they bought a zero-coupon bond with face $1M, no matter what happens to interest rates, the pension will be owed exactly what it owes, in 30-yrs. If you tried the same thing with 10 year bonds, youd take on interest rate risk at yr ten and twenty when they mature - who knows what rates will be then!? Ok, so interest rates going up reduce their liability. For "reasons", they're also unlikely to be perfectly matched - they need to cover some of the changes out of pocket. In this case it's a gain, since the liability is going down, so that gain goes to their pocket, to be put to more productive use. Wer rates going down, the liability would be moving up, and they'd need to be finding more assets to cover the liabilities!! Alas, you are not a bank or insurer or pension with liabilities and capital requirements and significant accounting and valuation regulation to make any of that meaningful.
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Oct 8, 2023 23:18
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Im 33 years old, make about 95-100k a year. Just started being able to max out my 401k and IRA each year and im looking for guidance on where to put the rest as ive let it build up in a regular bank account paying poo poo interest. Ive got it spread across 3 different 401k accounts right now, some with grossly higher yearly expenses than others. T ROWE PRICE RETIRE 2055 TR F $38,106.36 (0.37% Expense ratio) Vanguard Target Retirement 2055 Inv Fund $32,259.35 (0.08 Expense ratio) RETIREMENTDATEFUND RDF2055 5,779.76 (0.21% Expense ratio) In addition i have 12k in a vanguard 2055 roth IRA and 34k in the bank. The last fund is a kroger 401k and where i currently am, i might not be able to cap it this year as i only started a couple months ago but i should get drat close. First, Am i correct in assuming i should probably transfer the T rowe 401k over to the vanguard? Im not sure how much the lower expense ratio would save but i imagine over many years it would be a considerable sum. Second, i want to reduce what i have in my bank account at a almost zero percent interest and put it somewhere. I have no major purchases like a car or house planned for the next decade at least, my expenses are quite low and reducing it to 10k is my current plan, my questions are should i put the whole of the emergency fund in something like SGOV that ive seen mentioned? For the rest of it i was thinking of opening another vanguard account and dumping it all in an index fund there. However i have no idea what kind of a mix to target
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Oct 9, 2023 01:59
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Mr.Fuzzywig posted:Im 33 years old, make about 95-100k a year. Just started being able to max out my 401k and IRA each year and im looking for guidance on where to put the rest as ive let it build up in a regular bank account paying poo poo interest. So, generally I would try and consolidate the 401k accounts into a single 401k. That having been said going from a 0.08% ER to a 0.21% ER isn't great. That having been said, rolling them all over in to a single account means that you'll be able to do the Backdoor Roth IRA down the road, which is valuable. For the cash you can just move it to a high yield savings accounts, and you can look at Marcus, Ally, or Discover (no particular recommendation, I have Marcus, its fine. My Mom uses Ally, its also fine). Since you only mentioned $12k in a Roth IRA have you maxed that out for 2023? If not I would definitely do that with some of your excess cash, the limit for 2023 contributions is $6,500 at 33 years old. I'd also consider earmarking a similar sized contribution for next year if you haven't already.
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Oct 9, 2023 04:09
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tumblr hype man posted:So, generally I would try and consolidate the 401k accounts into a single 401k. That having been said going from a 0.08% ER to a 0.21% ER isn't great. That having been said, rolling them all over in to a single account means that you'll be able to do the Backdoor Roth IRA down the road, which is valuable. 401k details have no bearing on backdoor Roth.
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Oct 9, 2023 04:17
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Right but if they move them into a trad IRA then they can't backdoor. Pretty sure that Vanguard account won't accept a rollover after they've left service at the sponsoring company, which would mean opening a trad IRA, or paying the taxes on the conversion to their Roth IRA at Vanguard.
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Oct 9, 2023 04:28
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tumblr hype man posted:So, generally I would try and consolidate the 401k accounts into a single 401k. That having been said going from a 0.08% ER to a 0.21% ER isn't great. That having been said, rolling them all over in to a single account means that you'll be able to do the Backdoor Roth IRA down the road, which is valuable. I have put in the 6.5 for this year and do have another 6.5k set aside for next year. Ill look into ally bank to hold onto the emergency fund. For the other ~25k or so is there a general guideline aside from putting it all into a three fund portfolio or a target date fund?
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Oct 9, 2023 08:26
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Epitope posted:Cubical sucrose do you have a spreadsheet with estimated expenses and income for every year of your future? I've got 5+ years of categorized "every dollar I spent" expense documentation, so I have my "current lifestyle run-rate" and also a big list of "expected big CapEx lumps" (i.e. new roof in x years, next car in y years). Healthcare coverage is one thing I haven't reviewed in like 3ish years so I'll need to check into that again soonish. Some expenses will go away (life insurance, long-term disability insurance) and partly offset that. Income-wise I should be done working in like 3ish years so yeah I have that mapped out as well (baking in expected raises, equity compensation variability, "one more year" syndrome, etc). I've also reviewed my social security benefits and it's not super relevant for me given my timeline, but could be very very relevant for certain folks. I've had an "investor policy statement" written up for a long time now, haven't tweaked it much in a few years. Well, it's more like a "personal finance policy statement" since I have sections on credit cards, refinancing, mortgage pay down, real estate investing, scams I could fall for and need to guard myself against, etc.
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Oct 9, 2023 17:29
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Awkward Davies posted:Non tax advantaged, yeah. Already called and closed the account and I’ll be investing in a three fund portfolio in my individual investment account. So now I'm trying to put together a basic 3 fund portfolio in my Schwab brokerage account. I'm wondering how much exposure to bonds I need. Should I be treating the 3 fund portfolio as independent of all of my other investments, or consider it in the broader scheme of things? My current allocations across all my accounts (IRA, managed, robo*, individual brokerage, 401k, checking, savings) from Personal Capital: Cash 7.49% Intl bonds 1.03% U.S. bonds 12.92% Intl stocks 12.85% U.S. stocks 55.75% Alternatives 1.28% Unclassified 8.68% Unclassified is made up of half my current job 401k (currently in a target date fund, in the process of reallocating that into a 3 fund also), and half of treasury bonds that Personal Capital refused to recognize for no reason at all. Also, I assume that exposure to the "Total bond market" (As bogleheads puts it) is not the same thing as owning individual bonds? Info: 37/married/no kids but working on it. *Obviously the robo is in the process of being closed, but that hasnt happened yet.
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Oct 9, 2023 21:00
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Hello goons, I sold my house and would like to invest the proceeds with the intent of generating as much return as possible over a 25 year timeframe while still diversifying to a reasonable extent. I'll probably buy another house within the next five years but I am not planning to factor that into my investment plans because that down payment will be a relatively small fraction (call it 25%) of this investment and therefore not particularly at risk if the stock market takes a downturn. I would like a simple portfolio that is composed of 4 investments, with the usual breakdown of aggressive stocks, bonds, and international. In addition, I would like some money in the ESG Vanguard fund unless someone tells me it's actually a scam and they're using it to torture people or something. This is a post-tax investment that is not in a retirement account. My age is 33 and I am planning to retire in ~25 years. I'm thinking: 30% ESGV Vanguard ESG US Stock ETF 30% VTI Vanguard Total Stock Market Index Fund ETF 20% VEU Vanguard FTSE All World ex US ETF 20% [insert bond recommendation from goons here] I'm sure I'm missing some inputs here, so please ask. If above sounds good or you have a question like "why are you putting anything into VEU, 20% in an international index fund is outdated diversification strategy you IDIOT" I wanna know.
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Oct 10, 2023 00:02
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Keep in mind that larger American stocks are largely global stocks, so you're probably overweighting international exposure as-is but I'm sure everyone has different ideas of what 'international exposure' means. For me, it's access to consumers in foreign markets but some people would argue it's more of a focus on infrastructure development and identifying key developing markets or something. I prefer to let Coca-Cola figure that poo poo out for me. I'm also weirdly supportive of domestic stocks, though, and personally put almost all my money into VTI and equivalents. As far as bond recommendations go, what's wrong with treasuries? You can find a nice treasury-oriented bond etf like SGOV, etc., or a bond ETF like BND, but I would never sneer at someone looking to invest in bonds as a concept and ending up investing in treasuries directly, cutting out the middleman. 5% risk-free ain't bad, and it's not a bad place to park your 5-year drawdown cash for the down payment on your house. Corporate bonds are loving weird and if you don't understand a thing you probably shouldn't invest in them. On all of that, I'd recommend absolutely maxing out 100% any possible tax advantaged account you can with your normal taxable income this tax year, using proceeds from the sale of your house for normal living expenses. I know this money isn't in a retirement account-- but you should put it in there as much as legally possible. In addition, keep in mind that you can pull $10k out of your IRA for a home purchase without penalty, so there's absolutely no reason to not put at least that money into an IRA/401k. jokes fucked around with this message at 00:14 on Oct 10, 2023 |
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Oct 10, 2023 00:09
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Cretin90 posted:[insert bond recommendation from goons here] My long term portfolio has a combination of VGIT+VCIT because CA makes taking the state tax exemption on treasury income annoying, so it is easier to have one fund ~100% exempt and another ~0% exempt instead of holding something like BND. If you want to hold some short term treasuries as well, I like XHLF.
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Oct 10, 2023 00:31
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Mr.Fuzzywig posted:I have put in the 6.5 for this year and do have another 6.5k set aside for next year. Ill look into ally bank to hold onto the emergency fund. For the other ~25k or so is there a general guideline aside from putting it all into a three fund portfolio or a target date fund? This doesn’t answer your question, but the Roth IRA limit for 2024 is $7k, just as a heads up
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Oct 10, 2023 00:45
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Under what conditions might it make sense to make extra mortgage payments (with interest -- not principal reduction)? I have a 3.375% 7/1 ARM that started in 2020, and I had a large cash event at the start of this year that I'll owe a significant amount of tax on next year (I made 110% of my 2022 tax payments this year + withholding, so I've left most of it cash for this year and have paid nothing for estimated payments). I have cash sitting in FZDXX making ~5% without doing anything. I think it basically comes down to running the numbers on that versus what my mortgage interest deduction would be, right? Which should be (?) highest-marginal-tax-bracket * total mortgage interest paid = deduction amount? My Schedule A shows the full mortgage interest amount as the deduction amount. Example using $10K: $10,000 at 5% for a year nets me $500. $10,000 put towards mortgage payments (currently ~$3500/mo., so rounding up to 3 payments) would net about $6K in deductions and about $4500 in principal reduction. Emotionally, I would like to pay down my principal, but mathematically / logically, it makes no sense considering the money market rates. I need to spreadsheet this more (effort... need to put my mortgage interest/principal table in there for the past few years), but am I thinking about this correctly?
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Oct 10, 2023 01:45
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Cretin90 posted:Hello goons, I sold my house and would like to invest the proceeds with the intent of generating as much return as possible over a 25 year timeframe while still diversifying to a reasonable extent. I'll probably buy another house within the next five years but I am not planning to factor that into my investment plans because that down payment will be a relatively small fraction (call it 25%) of this investment and therefore not particularly at risk if the stock market takes a downturn. 25 years is long enough that 100% VTI is probably better. No issues with your plan that haven't been pointed out already. Consider a target date fund, maybe. With another 25 years of contributions, anything that goes awry with this chunk should be fixable by just shoving new contributions elsewhere (unless this is like, some weird fuckoff money like $10M but if you're working for another 25 years I kinda doubt that).
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Oct 10, 2023 03:55
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Cretin90 posted:I would like a simple portfolio that is composed of 4 investments, with the usual breakdown of aggressive stocks, bonds, and international. In addition, I would like some money in the ESG Vanguard fund unless someone tells me it's actually a scam and they're using it to torture people or something. A 60/20/20 US/international/bond split is perfectly reasonable, although I think many would argue that 20% in bonds is fairly conservative for 25 years out. People tend to start with 0-10% bonds and increase that allocation over time, as retirement draws closer. But if you want to be a bit conservative, that's also fine. I'm not gonna argue for or against ESG, but you should know what stocks the fund owns before you invest. Here are the top 10 holdings: pre:Stock % Apple Inc 7.73 Microsoft Corp 6.73 Amazon.com Inc 3.43 NVIDIA Corp 3.23 Alphabet Inc Class C 2.09 Alphabet Inc Class A 2.09 Tesla Inc 1.96 Meta Platforms Inc Class A 1.80 Eli Lilly and Co 1.29 UnitedHealth Group Inc 1.22
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Oct 10, 2023 03:57
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movax posted:Under what conditions might it make sense to make extra mortgage payments (with interest -- not principal reduction)? I have a 3.375% 7/1 ARM that started in 2020, and I had a large cash event at the start of this year that I'll owe a significant amount of tax on next year (I made 110% of my 2022 tax payments this year + withholding, so I've left most of it cash for this year and have paid nothing for estimated payments). I'm not quite following, are you saying that you are trying to reduce your taxes for the 2023 tax year by prepaying some 2024 mortgage payments? Because I think you can't do that, to prevent the types of tax games you are trying to play. https://www.irs.gov/publications/p936 quote:Publication 936 (2022), Home Mortgage Interest Deduction
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Oct 10, 2023 04:01
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runawayturtles posted:I'm not gonna argue for or against ESG, but you should know what stocks the fund owns before you invest. Here are the top 10 holdings: Isnt every total market US stock fund going to look pretty similar to that? VTI has the same top holdings with only one difference. Of course the top holdings are going to be large cap and currently they are also tech-heavy, but thats a reflection of the market, not an investment decision by the fund managers. (not defending ESGV here, I wouldnt personally invest in it)
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Oct 10, 2023 05:05
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esquilax posted:I'm not quite following, are you saying that you are trying to reduce your taxes for the 2023 tax year by prepaying some 2024 mortgage payments? Because I think you can't do that, to prevent the types of tax games you are trying to play. Ahh, I think I misunderstood then. I was going to ask my bank, "hey, can I make 2-3 extra mortgage payments this year?" So, then, the only thing I can do is a micro-optimization of paying my January statement in December. And paying down principal comes down to the math of earning 5% in MMF vs. accruing interest at 3.375%, no tax benefits.
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Oct 10, 2023 05:58
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movax posted:Example using $10K: $10,000 at 5% for a year nets me $500. Only if you are in a 0% tax bracket somehow. Assuming you do pay income taxes, the actual net on 5% may actually be pretty close to the 3.375% interest on your mortgage.
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Oct 10, 2023 17:00
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You'll also likely have a mortgage interest deduction on your taxes that you'd want to factor into that equivocation.
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Oct 10, 2023 17:12
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drk posted:Only if you are in a 0% tax bracket somehow. Assuming you do pay income taxes, the actual net on 5% may actually be pretty close to the 3.375% interest on your mortgage. Yeah, was pre-tax. Looking at the brackets I will hit for 2023, it will fall below the mortgage interest rate... but just for this year, as next year that lump sum / cash event won't happen. jokes posted:You'll also likely have a mortgage interest deduction on your taxes that you'd want to factor into that equivocation. I'll run my amortization schedule to see what that effect is; still very early (Payment 40), so nearly 60% of my monthly payment is Interest.
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Oct 10, 2023 17:15
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jokes posted:You'll also likely have a mortgage interest deduction on your taxes that you'd want to factor into that equivocation. the mortgage interest deduction is usually dwarfed by the standard deduction nowadays, so you have to discount that deduction by the amount you're actually saving over taking the standard deduction, if any.
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Oct 10, 2023 17:18
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Yeah unless OP is in a mansion or something I would be pretty shocked if the interest on the mortgage was high enough to be worth taking over the standard deduction.
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Oct 10, 2023 18:01
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Antillie posted:Yeah unless OP is in a mansion or something I would be pretty shocked if the interest on the mortgage was high enough to be worth taking over the standard deduction. It's pretty easy for itemizing deductions to make sense in a high cost of living area. Between mortgage interest and state income taxes you can get there for sure.
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Oct 10, 2023 18:08
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Muir posted:It's pretty easy for itemizing deductions to make sense in a high cost of living area. Between mortgage interest and state income taxes you can get there for sure. I'm in a high cost of living area (california). The standard deduction for married filing jointly is now $27,700. My wife and I still aren't there yet. Even if you are, you need to take your current itemizations and subtract them from the calculation. Here's a reasonable example: you currently have $10k in itemizable deductions. Your new mortgage will add $25k of mortgage interest in the first full year, for a total of $35k. You should itemize. Your actual savings is $35k - 27,700 = 7,300 * your top marginal rate. Let's say your rate is 25%, your tax savings over the standard deduction is $1825. You paid $25k of interest on this loan but subtract $1875 from that for your actual interest paid. Is this significant? The first year of a $420k loan at 5% interest is around $24k of interest. The first year of the same loan at 3.375% is around $16k. No, it is not nearly enough to bridge that gap. Basically you need a very large loan and probably a lot of other itemizable expenses for the mortgage interest deduction to bridge the gap. e. how about a $1M loan? At 5% interest that's $58k in mortgage interest the first year (yikes), at 3.375% it's about 39k. Let's say you're already itemizing so all of the interest is itemizable, and your top marginal rate is the maximum of 37%. You save $21,460 of that tax from deductions, for a net of around $37, juuust about breaking even, except that I forgot to also count what you'd be deducting from the 3.375 rate - your 39k there is actually reduced by $14,430 in deduction to $24,570. I'm struggling to find any scenario where the mortgage interest deduction makes a 5% loan bridges the gap. Leperflesh fucked around with this message at 18:46 on Oct 10, 2023 |
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Oct 10, 2023 18:39
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Muir posted:It's pretty easy for itemizing deductions to make sense in a high cost of living area. Between mortgage interest and state income taxes you can get there for sure.
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Oct 10, 2023 18:43
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I wonder if the IRS has begins their yearly audit quest by selecting only those that itemize. 
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Oct 10, 2023 18:47
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The SALT deduction cap was such a piece of poo poo move from the Trump administration.
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Oct 10, 2023 18:56
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Leperflesh posted:
The TCJA limits the deduction to the interest on $750k of principal
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Oct 10, 2023 18:58
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SlapActionJackson posted:The TCJA limits the deduction to the interest on $750k of principal Say his name. 
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Oct 10, 2023 18:58
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SlapActionJackson posted:The TCJA limits the deduction to the interest on $750k of principal Ah right, OK that makes it even worse.
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Oct 10, 2023 19:11
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Look on the bright side, most provisions of the TCJA will expire at the end of 2025, I'm sure the debates on whether to renew which parts will be delightful.
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Oct 10, 2023 19:26
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