MoneyTalk Program Dec. 10, 2017
Honeybee,
hostess of this blog had a conflict today with a hand bell recital that is an
annual event. So, after elaborate preparations to
insure coverage of today’s show, Bob
Brinker pulled the rug out by running a repeat
show. The tip off was the usual lack of giving
out the phone number in the first few minutes of the show. Instead, Bob gave his well-rehearsed
presentation on the importance of getting to the Land of Critical Mass.
The quote of the day from Bob, in
response to the last caller of the day was: “It is not realistic to expect we’re never
again going to have another bear market.”
He
gave a definition for the Land of Critical Mass: “a state of freedom from worry and anxiety
about money,” where you can work if you
want to, like Warren Buffett. Bob reminded us it is an accumulation of
assets that gets us to the LCM. Sure,
what you earn is important, but more important is what you save and invest out
of your earnings.
After
the first commercial break Bob went right to calls.
Garrett, a disabled veteran from Massachusetts, does not qualify to invest in
a Roth-IRA because he does not have earned income. Bob referred him to the VA for any savings
programs he might qualify for.
Alan from Georgia was definitely on an earlier program. He wanted to know if he bought a certain
business how much longer could he declare losses due to depreciation? He and Bob got out into the weeds, I won’t
attempt to dissect the call.
Emily in Seal Beach bought iBonds in 2001 – 2005. Should she pay the taxes on the interest
earned or continue to defer it? Bob
advised to put off paying the taxes on the interest earned until the bonds
mature.
Andy in Corvallis, OR is in the catbird seat with $1.8 million in the
bond part of his portfolio. He wants to
go into Bob’s balanced portfolio 3 but instead of investing in Bob’s
recommended funds, want to establish a bond ladder. Bob gave Andy the green light with the
recommendation that he buy quality bonds, AA or above and buy in lots of
$100K.
Paul in Santa Rosa had a very similar question. Destination for some of his money: portfolio 3, but he wants to use Treasuries
instead of Bob’s bond funds. Bob said,
OK, “but don’t go out far.” The caller said he would switch into bond
funds once normalization of interest rates began. This gave Bob an opportunity to take a swipe
at economists who predicted a more normal GDP growth rate of 3% -- calling them
fools. (The current estimate of the
annual GDP rate is just above 3%, based on third quarter data.)
Beverly in Florida got a nice surprise recently, notification that she
is going to get a windfall of $32,500 (lump sum) or, she can take $282 per month. Bob led her through his normal analysis of
such a situation. Would the monthly
income make a difference to her? Answer: No.
How would it affect your net worth?
Hers is $100-110K so it would increase it by about one-third. It sounded like she was leaning toward
taking the lump sum.
Rick in San Jose had an interesting question: He has been appointed as trustee/executor of
his father-in-law’s trust/estate and wants to do the right thing in terms of
the IRAs and the beneficiaries. Rick
asked for a book recommendation. Bob
didn’t give one, but I will: look at Ed
Slott’s books on IRAs for some good guidance.
Bob
said to find out who the IRA beneficiaries are and confirm that those persons
are who the father-in-law wants. Bob
said it is common for an IRA owner to overlook making the beneficiary
designation. (Editorial comment: There is NO
EXCUSE for this, it is very easy to make the designation using the custodian’s
website. If you use a financial advisor,
this individual should make sure you make the designation(s).)
In
closing, Rick said he wanted to set things up in the most tax efficient way
possible. All the more reason to check out Ed Slott’s writings.
Bob
advised Daniel from Walnut Creek to read “Common Sense on Mutual Funds” by John
Bogle.
Peggy from Hawaii threw Bob a hanging curve ball that he knocked out
of the park: she asked him to recommend
an index fund. All over the US, MoneyTalk trekkies hollered, “the Vanguard
Total Stock Market fund …. Or Fidelity Spartan.”
Bob
confirmed for John in LA that the Vanguard Wellesley fund is a conservative,
low cost, diversified fund and does a good job.
Bill in Denver wanted to talk about fair trade. Bob gave him a short lecture in what happened
after the Smoot – Hawley tariffs were put in place in the 1930’s.
Tim in IL ended up with slightly damaged credit after he applied on-line for a
loan. The on-line place made multiple
inquiries into his credit. He spent
time running back and forth to Office Max making copies. He said his credit monitoring service told
him “Yes, these multiple inquiries HAVE lowered your credit score.” What to do?
Bob told him to withdraw the application.
Alex in NYC has more than three accounts and wants to
consolidate them at one brokerage. But
will there be enough SIPC coverage? Bob
told him to check with the brokerage to see if they offer additional coverage
over and above the SIPC limit.
John in WI bought double E savings bonds 30 years ago on Bob’s
recommendation. He called to tell Bob
that he invested $15K and recently redeemed them at $69K…. and, they are free
of state taxes. Bob called it a home
run.
Steven from Portland, OR said a financial advisor told him that 80% of the
QE money went to investment banks and this resulted in the run up in the market
since 2008. Bob disabused him of this
notion.
Alex, listening on KKOH in Reno is in the Land of Critical Mass and wanted Bob’s
recommendation for vacation spots. New
Zealand was mentioned but the caller has been there already. Bob hopes to go someday. I’ve
been there and it is a great place to visit.
Shirley in CA is worth $1.3 million, has already given a bunch of
money to her children who are in their 50’s and 60’s and wants to give
more. She has $8000 available to give to
each of her 4 children. Bob said use the
Vanguard Total Stock Market and dollar cost average it in.
A caller from Fairbanks who is approaching age 64 and is semi-retired wants
to know if he should keep contributing to his Roth-IRA account. Bob asked if what he was contributing was
“earned income.” The caller said
yes. This call was humorous because
every time Bob thought he had the guy pinned down that it was indeed, earned
income, the caller would say something implying it might not be. They finally got past this stumbling block
and Bob told him to go ahead and keep contributing.
Madeline listening on KKOH in
Reno has grandchildren aged 15 and 17. The children’s mother (her daughter) passed
away passed away and there is some money invested in Franklin – Templeton’s
Global Bond fund that she wants to invest for the grandchildren. It sounded like this was in an inherited
IRA. Bob confirmed that it is not needed
for college and therefore recommended the Vanguard Total Stock market fund or
Fidelity Spartan.
Bernie in CA is hot to buy a condo priced at $350K that he says
is worth $450K. It will be “non owner
occupied” and he can get a 4% loan. He
wanted to know if he should put down about 25%.
This got into a discussion of where the money would come from since he
told Bob he didn’t have this amount in cash laying around. Bernie was ready to take it out of his
personal account and tax sheltered account.
Bob waved the yellow caution flag and said not to take it out of the tax
sheltered account. Nor was he crazy
about Bernie invading the personal account and incurring capital gains taxes on
the withdrawal for the down payment.
Sharon in Chicago had a question about Universal Life Insurance and
investing. I couldn’t follow it.
Bob
gushed all over two questions asked by John in Park Ridge. One had to do with how Bob calculated the
Year over Year CPI in the newsletter.
The other had to do with how inflation affects valuations of stocks. The value of a stock is the discounted value
of future earnings so if inflation is low, the current value of a stock is
higher than if inflation is higher.
Oops
– There were a few minutes of last week’s interview with Dan Ariely before the
audio switched to a caller from West Palm Beach.
More
gremlins popped up in the middle of a call from Mike in Des Moines asking
whether he could take out some of what HE contributed to his Roth 401K account,
i.e., leave his employer’s contributions untouched. My audio cut out and when I got back Bob was
‘splaining the difference between Vanguard’s VTI ETF and their 500 index fund
to a woman caller.
Marcus in VA is invested in an interesting real estate
venture. It is not a publicly traded
REIT, nor a non-publicly traded REIT.
He has $300K invested in this outfit that owns properties all across the
US. He gets about a 5% return each year,
and has also received about $250K over 25 years. These proceeds come from the turnover of
properties. His question was should he
consider this as part of his fixed income portfolio. Answer: Yes.
James in Chicago who is 60 was advised to draw from his Personal
account first, then the Roth-IRA, and finally from the Traditional IRA at age
70, when the Required Minimum Distributions dictate that he must withdraw.
Finally,
Mike in Glendora, CA is 62 and has about $130K in assets. He wanted to know if Bob thought it was
possible for him to grow this to about $ 1 million in 8 – 10 years. Bob gave a fairly careful answer: “It is not realistic to expect we’re never
again going to have another bear market.”
If Mike invests nothing more, his
$130K would have to grow at 29% each year for the next 8 years to get to $ 1
million. Contributions would make it
possible at a lower growth rate.
Radio station:
710KNUS Denver
Honey here: Thank you FrankJ, for that fabulous summary of Moneytalk today. I was in this room this afternoon, ringing bells along with a choral group. We did an old-fashioned Christmas music program:
56 comments:
Don't believe he is live today.
Sounds like a replay. Bob is not talking about current news.
rasputin here - Not seeming live.
Is the show live today?
On December 9 2017 Mr Cooper Reno Nv posted;
"Remember 2008? Bond fund values dropped as well."
Bnd US total bond etf was up 5.18% for the year 2008.
Bob had to travel to Los Angeles to attend the Philadelphia Eagles vs. L.A. Rams game at the Coliseum. Once a Philly fan, always a Philly fan.
Phil, Phila. PA
Couldn't tell whether Bob was live. A few calls in the second and third hours sounded familiar, including the one from a woman whose daughter had passed away and inquired about investment strategy for monies for the daughter's kids; and one from a guy who wanted to buy a condominium. Then around 23 minutes past the top of the third hour, after a period of dead air, a guest segment began, but immediately got crashed by Bob taking calls again. So! Maybe it was a glitch. Maybe it was something else. I still enjoy hearing Bob so there is that. Be well, everybody!
Certainly it was a glitch. If it's unsteady, unstable or unexpected, it's a glitch. In fact, that may be the actual definition of the term.
Took Electronics 101 in the 1990's and the text book said a glitch was a term coined by NASA engineers during the 1960's space race to describe "the incomplete voltage change within an electronic circuit".
In the computer era, we all know that the magic working voltage of electronic control circuits is the +5v and back to 0v in the stepped wave pattern for charging or un-charging the transistor "switches" in the IC (integrated circuit).
Seems like Brinker's advice is similar, but with a long period of 0 volt dullness that is occasionally spiked with +5 volt excitement.
If I was an airline pilot, I'd like that. No excitement is a good thing. Unexpected news is not fun.
Juan T., Miami
From Juan again,
To solidify the reference about "glitch", a Merriam-Webster pocket dictionary circa 1974, page 306 , lists "glitch" as "an unwanted brief surge of electrical power : a false or spurious electronic signal".
Moneytalk radio engineers who cobble together a re-run show for low pay would probably agree. But no big deal, it's all great entertainment. In Russia, and some U.S. cities, they don't have it.
Yeah, as an analogy, a person could say that Brinker's "market timing" advice is loaded with glitches. His 2 good calls (year 2000 and 2003) are offset by the glitches of bad calls in 2001 and 2009.
Walt, Lake Havasu
Yet again Bobby showed his anti-Schwab bias, as Honey and myself have noted before.
The call about which (total stock market) index fund to buy, Bobby of course recommended VG or Fidelity (I believe he mentioned those two on a later occasion also today).
Vanguard . . . . VTSMX, ER .15%, 10 yr. +7.57%
Fid Spartan . . FSTMX, ER .09%, 10 yr. +7.58%
Schwab . . . . . SWTSX, ER .03%, 10 yr. +7.71%
(Returns all annualized)
They all hold the vast majority of the US market -- so no surprise -- the returns are nearly identical.
Schwab's has the lowest ER, but doesn't even get a mention. I wonder what Bobby's ongoing problem with Schwab is? I've been with Charlie for 20 years and I think it is a superbly-run company. Overall, as a brokerage, I like it better than VG.
Bluce, Schwab SWSX has a .1% audited expense ratio. What's going on? Also, when I chart against VTSMX only the year to date does Schwab rise above. Other than the present, VTSMX does better. I do see Admiral shares such as FVIAX drop to .04 or about same as their ETFs. Vanguard has a wide choice of free trade ETFs and funds.
John WI double E savings bond 30 year success- A good real life personal comparison of rental real estate. In '79 I bought my first house. The Realtor was frustrated with my lack of action. I was young and naive and am sure the Realtor was showing only the dogs. We came to less friendly terms. I just said let me look at your MLS listing binder for a change. Didn't take 15 minutes. A small HUD home on city outskirts. Looked to me in the path of future growth. Well, It's not a home run, but typical of what good decision making can benefit. Thirty eight years of 6% annual appreciation. The investment financed my first CNC machine for self employment and greatly helped lean income periods of life. Now, a great annuity type return with low maintenance for retirement with no loss of capital and reward of continued 6% base growth. Real estate is one of few such investments that you can improve with sweat equity and improved management skills. It is low volatility. Rents have never decreased. Overall a tax benefit device. If you really wanted max return tap equity to leverage in bull stock market. Oh, John received 5.2% annual return for low risk investment.
I've mentioned before the ever so powerful wealth advice of lowering cost of living expenses. Brinker indirectly talks of this via the advice to save money for investments. An interesting blog for petrol interests in RRapier. I've read his stuff for many years. Check out his most valuable wealth advice post. One percent spending can make a big difference. If you overspend 1% vs underspend. The ramifications of wealth in lifetime of investing 1% in the S&P or not $400k. But, since the average household with a credit card balance is $16k at 15.2% the divide widens to $1.1m.
Also, it may be good to read some of the blog to bone up on how much natural resources the country now has. This time the countries wealth is different as we are the new Saudi Arbia of energy.
I read another caller interested in condo for investment. I don't understand the value other than controlled and regulated community. But, that's the problem. Lack of control. So many stories of the association management incompetence. Monthly fee increase or voting to inflict sales charge. Poor maintenance or lack of good control of spending or future plans. I don't like the density of most communities or the price tag value. Salesmen can easily hype the value as in all your concerns for maintaining premise gone. In reality I see most owners will become frustrated and haven't read the legal docs well. All are lacking in flexibility to improve value given some unforeseen problem. You sink or float based on volunteer committee decision making. They waste money on replacing roofs way to early or have poor landscape ability/value thoughts. They fail to act when needed with lawyer in hand and instead vote to let the community suffer.
Realtors can play customers on overblown value of appreciation and tax write off. This is one reason I'm all for removing interest and property tax deduction. It works to distort the market and true value. People spend a buck to save a penny. About half of the public should not own homes per their financial interests. Retirement folks think a condo is their best solution to control costs. Don't think so. My MIL is getting hit with association fee increases and she thinks the price tag is wonderful value given the lawn care and snow removal. Really? She has 15 foot of driveway and 10 foot of sidewalk. Most of the grass is gone per lack of good care. Some lawns are marvelous. The ones that owners take over maintenance. Most decent landscaping the same. And this is high tier condo and very large.
Meanwhile my retiree widow tenants get special rates for loyalty. They can maintain all their capital. Enjoy 100% of both inside and outside maintenance. They are mobile and free to move. They can easily adjust living costs. The investment value of their capital is way above any condo appreciation.
If the governments truly worked to affordable housing they would once again empower the rental business and quit with the central control wisdom that everyone should own a house. They would achieve more for consumers by deregulating and informing public of the tabloid mischief of misrepresenting the facts. To reduce liability instead of letting the sector hemorrhage with trial lawyer wealth per politics. Just saying.
I don't care for Vanguard brokerage even though I get it mostly for free. I use it sometimes but I like Etrade much better and use it a good bit.
Some on the comments will offer BB kudos for educating the pubic. O.K. that he does other than his political bias pollution. But, I will offer this thought, Dave Ramsey has advice that really is of top shelf stuff for the majority of public looking to increase wealth. His daily shows and volume of calls and workshops play a huge impact, especially to folks who find themselves in trouble.
I do like BB posts and reviews provided here and will listen to a few minutes of the air time. Also, my thoughts and concerns were Dave Ramsey even before he had a show. So, I'm not a regular listener of his. DR is one to simplify investment advice to higher savings and invest within index fund. To stay this course with lower cost of living expenses. He has special topics with financial experts that drill down on specific topics such as retirement, IRAs, rental property, Roths, and how to budget or form best plan of action for success. He cut his teeth on rental property and a big believer on the value of this investment.
We do have a new classification of income property that is shaking things up. Airbnb is a great way to push extra income to home owners. So far the special interests folks in DC haven't been able to lasso the sector to advantage the corporations. This is the true value of capitalism. Just when the power brokers are able to hammer away at Mom and Pop rental competition, up pops AirBnb that is even a bigger problem to control wealth. They would prefer a deluge of regulations on this competition as corporations are very adept to keep these costs down. They also can instill fear into small time business.
Bluce, good to point out the omission of Schwab. I thought he should have mentioned it too.
Bob has mentioned Schwab's funds occasionally(although not as often as Vanguard). He has also mentioned that he knows Charles Schwab personally and highly recommends his funds.
AFP reports: the Fed is expected to raise rate this week.
Source: http://www.my-formosa.com/KM/M_10.htm
Hi Bluce. I have accounts at both Schwab and Vanguard. There are lower-priced funds than what you listed. I use the Vanguard TSM Admiral shares (10K minimum investment). Personally I feel the difference in expense ratios on total stock market index funds is negligible.
Vanguard . . . . VTSAX, ER .04%, 10 yr. +8.54%
Fidelity . . . . FSTVX, ER .035%, 10 yr. +8.47%
Schwab . . . . . SWTSX, ER .03%, 10 yr. +8.54%
The 0.01% difference on a 10K investment is $1/yr or $10 over 10 yrs. Lost in the noise.
10 yr returns are as of 11/30/17 as reported on the Vanguard website.
.
Joseph, Brinker has RARELY mentioned Schwab. I only remember a couple of times - and once on re-run program.
Yes, he claims that Charles Schwab has been a guest on Moneytalk. But I think that was over a decade ago.
He REGULARLY praises Vanguard and Fidelity, without mentioning Schwab.
Wow, I just got a call from a shark attack.
Be on the lookout if you get this robocall from caller id'd as Smith Tech (347)892-xxxx). The message is something about Microsoft Windows and someone trying to hijack my computer.
It's a scam just block the number.
smile
It must be December. My nephew called over the weekend that a fund I had recommended (Fidelity Contrafund) dropped almost five percent in value on Friday. I assured him that it was a matter of year end cap gains and the $6.87 per share distribution would be reinvested into his account.
FCNTX has outperformed the market YTD due to about 25% of its holdings in Facebook, Apple, Amazon, and Google along with Berkshire Hathaway. Will stay with it as long as the FAANG stocks continue their run.
Kudos to Frankj for his thorough summary. I predict a bright future for you in financial journalism. Wait, I think you are close to my age, if not older. Never mind.
Merry Christmas, all.
I use "NOMOROBO" and it stops 99% of those robo calls. It is free and you can get it on line.
It works really great.
If any of you are investing in mutual funds be sure to read the Forbes investing article from Kenneth Kim, "How Much Do Mutual Funds Really Cost?". In fact read it several times. It is sickening.
I've been complaining of Contra Fund from Fidelity. One would think very fortunate to beat the S&P by such a wide margin. Fortunately we have after load returns that run 10% below published returns. Note that this fund has increased their load to .68% gross load. That is a far cry from 10%. Since being in this fund for decades I've often been suspicious on how the actual money in the fund account will be altered to just above index even though the fund is doing super good. When the fund is doing average or subpar the after loads return is about even given the burden of high expense.
My suspicion given the inside info from Kim, is Fidelity is pulling capital underhandedly from Contra and bucking up their loser funds. To improve the average and improve their stats. No harm as the return on Contra is suburb unless one vets the returns per after load real money. Most don't bother with that. Even if they did the fund is beating the benchmark. So, I'm sure something is dishonest operating within Fidelity. Friday, the Nasdaq did quite well as did all stocks. Even the stocks in Contra. Yes, we had newsbreaker phony news of CNN and the Contra fund dropped 5%, but I can see that none of their stocks dropped. In fact they gained. This is typical conflation of data and performance of Contra fund. May management miscalculated the opportunity to pull an extra big portion of fund money for their need? To be disguised within a bad news cycle. I am suspicious and think this is what exactly occurred and this is an example what Bogle describes as an inside rigged game on Wall Street.
Since a couple years within Vanguard, I see no such dishonesty. This business is investor owned. Just saying.
At this stage of investor knowledge, I would be in no mutual funds, if not for Vanguard, as it would be less risky to just purchase individual stocks and bonds. However, the indexes are less corrupt and the EFT the least.
Thank you president Trump!! My retirement account is looking great now!
The stock market anticipates. It does not reflect.
When the market decided Obama would win in 2008, it crashed.
When it was suprised by the Trump victory, it boomed.
Signed Yom from Grass Valley.
Biker: Don't read more into my post than what was there.
I was just pointing out Bobby's ongoing bias against Schwab. Charlie's total market index is every bit as good as the others, and cheaper to boot, yet doesn't even get a mention.
But as long as you brought it up, where is there a cheaper total stock index than Schwabbie's SWTSX at .03%? (A side note, it has a $1.00 minimum purchase).
Appreciate Frank's summary.
.
IMPORTANT NOTE TO STAN IN VA:
Thank you so much for the amazing Christmas gift.
What a delightful surprise!
My very best wishes to you and yours for a Merry Christmas and Happy New Year...Honey
Bluce: I'm not disagreeing with the point of your post. Schwab is the cheapest, but not by much. I just thought it would be fair to the rest of the readers of this blog to mention that other options are quite comparable.
No one needs a fund with lower ER than SWTSX, but since you asked, there are also VITPX & FSKAX. I doubt if anyone reading this blog has the assets needed for the minimum purchase.
Biker: $100-million minimum? No prob, let me check my wallet . . .
Bluce, I guess you missed my prior comment. Check up on the gross expense ratio of SWTSXC. Morning Star picks this info up from the funds audited annual report. Schwab's .03% load is from the funds prospectus and doesn't cover all the expenses included in Gross expense. I'm only trying to give you information and have no dog. Schwab is good and my second choice. My daughter loves the firm, especially the benefit of funds living overseas. Vanguard has no discrepancy of audited load. I don't know what to think? Audited load of SWTSX equals .1%. I will put this discrepancy on the suspicious list until proven otherwise. That info potentially will put Schwab back on the list of being less honest than Vanguard, if so. We have to watch the integrity of these financial firms. I wouldn't trust anything they publish. My oldest sister is past the age of managing investments, but she was the best that I knew within success. She said to never invest in funds. I may be getting to the point of understanding. A lot of investors posting on this site do likewise. I wish more would post alternative viewpoint.
Thank you birdbrain, and thank you Alltimehigh.
To Trees, I recommend you read birdbrain's post about Fidelity Contrafund which came in above yours.
Here is an interesting article analyzing the potential fallout from quantitative tightening:
http://www.schroders.com/en/us/professional-investor/insights/multi-asset/how-frightening-is-quantitative-tightening/
A few excerpts:
"you will see that the numbers we are talking about here are hardly trivial. Assuming the programme gets underway in October [2017], the Fed stands to retire $300bn in FY2018 and $600bn in FY2019. For reference, $600 billion is roughly equivalent to the federal budget deficit last year."
"We expect the Fed will have three basic objectives when it comes to unwinding its balance sheet:
1. Don’t crash the bond market
2. Don’t crash the stockmarket
3. Don’t crash the economy"
"For all of these vulnerabilities, it is easy to see why many believe the Fed won’t make much progress with unwinding QE. The economy and the markets simply won’t permit it."
"To the extent that watching paint dry really is rather boring, we’re going to have to disagree with Janet Yellen on this one. We expect the next few years to be rather more interesting."
Trees: If index mutual funds are dishonest, how do you explain the following tracking vs. the indices?
Schwab . . . . . SWTSX, ER .03%, 10 yr. return +8.54%/yr as of 11/30/2017
Spiced Total Market Index* ....... 10 yr. return +8.54%/yr as of 11/30/2017
DJ US Total Stock Market Index.....10 yr. return +8.49%/yr as of 11/30/2017
*Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005; MSCI US Broad Market Index through June 2, 2013; and CRSP US Total Market Index thereafter.
I do read all posts. Contra has updated info on the dividend pay out. Must have been some concern as they posted on the concern https://fidelitytrends.wordpress.com/2013/12/14/fidelity-contrafund-price-drops-due-to-capital-gains-distribution/
6.69% drop on a bad news day with a few days wait to find out why. Investors in this fund may not realise that the 1 year return is 32.57%. Problem is the load adjusted return is 23.21% or close to VOO S&P 500 index fund. I notice the overview summary misses the importance of real money in your account rating. Same for the charting performance that omits the after load (real) returns.
I never look aT ER unless they have both gross and net. Same with returns before load adjusted. Load adjusted returns includes the sales commission pay outs for buying or redeeming and stocks within fund. Same for the vetting the real ER 12-b load is assessed and charged annually. The 12-b is highly scrutinized suffering from increased regulation as result from abuses. It's now 1% max by law. Also, .25% and under funds can advertise the fund as no load. Problem is the cost from appreciating funds through out the year suffer the same percentage. So, overall you costs will increase. Front load funds from Investopedia rated better choice for long term. The ER rating best info from the audited annual report. This is real data and includes more costs to ER that does impact your real pocket money. Also, it looks like waivers are utilized by financial houses to make some funds look better. Probably a marketing gimmick. The low ER funds may be subsidized and in the future suffer corrected costs.
Investopedia had a good read on me-to fund costs and impact costs. Large funds like Contra, due to their large trades will temporarily lower share cost when selling and increase cost when buying. It's significant cost to funds. Also, the market gets polluted with false trading data because of large moves. Same for index funds continually injecting automatic purchases within market place. These trades distort our financial benchmarks.
Kenneth Kim article mentions these problems as mentioned early. Disclosed cost include front, back, loads, purchase and redemption fees, exchange fees, and account fees. Then we get to expense ratio which includes, operatings costs, management fees, 12b-1 costs, and administrative costs. How much per a financial analysis study? 1.19% is the average.
Hidden costs- brokerage commissions which are shared by all investors. Dealer profits for enacting trades. High turnover will increase the cost to fund. Price impact from the before mention trades. Analysis estimate 1.44% loss to investor.
Tax inefficiency of funds we all know of about 1.1% loss. No problem for tax free accounts.
Sneaky behavior just the normal shenanigans that are being employed to make like easier for the financial house or fund. About 2.49% loss on average.
The author gave an example of investor $100k real money if the market increased 8%. You would think a nice $8,000 in the bank. After all is said and done $1,780. Now, as I understand the ETFs suffer the least from these costs.
Oh, I wouldn't want anyone to think my posts are to impress or gloat. My attitude is to post for discussion as in a comment environment to mutually learn. I'm thinking the community of small investors if they pool info and knowledge will be beneficial to everyone. Right or wrong it is good to post in public forum to vet the info. I'm not afraid to be wrong.
Trees: I appreciate the information. Always informative.
My thoughts on your comments: I greatly fear the glory years of indexing are close to ending. We haven't seen this for 30 years in this bull market of a lifetime, or "everything bubble", where all boats lift if you just hang on. This environment is great for index funds. The reversal is pure torture.
If the tide goes out for 10-20 years, Japan-style? The public will dump stocks and exacerbate the pain, as the boomers exit and millennials just quit. Then the real money is going to be in value investing, where holding stocks you know make money and pay dividends will have real value for their own sake no matter what the market says. Indexes, which hold all the garbarge, will get crushed in comparison.
In a sense, this is the Brinker Era, where moderate wages and dumb luck can make one millions. I doubt the next 30 years will be so favorable to Brinker types. Hope I'm wrong; I would love to jump back in the TSM for the sheer ease of it all.
Poor Bobby and his simplistic math exercises. "If rates go up bond funds will go down."
Didn't work out that way today, did it?
MK, Thanks. You approach to investing took some time to understand. I've learned much over just over a few years. Of all people Suze Orman made a comment on one of the fund raiser shows of PBS. She said to stay out of bond index funds and simply buy your bonds direct. Makes sense to keep until maturity for safe value and guarantee of return. The bond ladder approach I think handles this nicely.
I do think you may have a possible take on the mega trend financials. I see ever more screwy thoughts of more people within the country. If we do have a wave election, how far could this take the country off the tracks? Bernie? One mega trend is the Baby Boomers wealth generation as you say. Every asset class has over priced valuations, that can't be good. Debt at all levels way past any historical norms. If as you say is a viable concern, I can understand your investment approach. It may just be the safest approach. An approach that will provide some good return as well. Sitting in low return portfolio is no guarantee of safety either.
I read the long analysis of Vanguard for '18. Very interesting. Short term bonds may be an over play. Interest rate in short term higher, but long term same as now. Inflation the same, but it variable upon wage growth. If wages go up, you will see companies investing in automation. GDP at 2.5% most likely. The best bet for stay and hold investments 60/40 with international exposure. Bonds have less risk than stocks, still. Emerging markets over priced. Adjusted P/E per low interest rate will put stocks at high value, but not dangerously high (dotcom). Risk is high with lower returns. Next decade will be but a fraction of returns.
Federal Reserve thinks the inflation rate will remain stable next year. It is estimated that the rate hike will still be three times at 25 basis points each time.
China News Service
Gabe where are you? Is this mkt going up for ever? What a great country.
Rufus: Yes, it's going up forever. "This time it's different."
With the proposed tax bill as of 12/16, will itemizers still be given the personal exemption deduction? What about the double deduction for seniors? Or, is the personal exemption deduction totally repealed for itemizers & standard deduction filers?
The personal exemption is gone.
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Frankj....I'm confused: What about the EIC? Is it the same? What about the $1400 child credit?
Formerly, the child tax credit was $1000 per child, and there was no limit on how many children. As a credit, it is used to reduce the taxes owed. Sometimes the person filing may owe so little in taxes (or have several children) that the amount of the credit wipes out any tax liability and there is still some left over.
This left over amount is called the Additional Child Tax Credit and it shows up on the back of the 1040, toward the bottom. This is the refundable part.
OK, that was history.
From reading how they tweaked the Child Tax Credit, both the House and Senate plans raised it. The Senate plan doubled it to $2000 and made $1100 of that refundable. Marco Rubio stamped his foot and demanded the Senate increase the refundable amount to $1400 or he would vote against the bill. (A bluff in my opinion, but it worked).
The credit will apply to children under the age of 17, no change there.
I haven't heard much talk about changes to the Earned Income Credit, another Sacred Cow. I will see what I can dredge up. It does go up a little each year to adjust for inflation.
Both the Child Tax Credit and the EIC are taken advantage of by fraudsters, as I've said before.
Conversation heard at the tax preparation desk:
"I see that this year you have an additional child you're claiming as a dependent who wasn't on last year's return ... can you tell me why they are on your return this year?"
"Yeah, my sister (cousin, niece, whatever) was having a real hard time with her life so I volunteered to take care of her child last year while she got her life together"
"I see, so that explains why the child has a different last name from yours"
"Yes."
"And you can prove, if you need to that you provided the majority of support for the child for the year?"
"Oh, Yes."
OK, so it is not illegal to actually take care of and support a relatives child, but people will "lend" or "borrow" kids from relatives as needed where one tax filer could use the extra cash a child tax credit (and EIC) would bring in. And the borrower of the child does not actually support the child as claimed.
More common is when someone "steals" a kid. Say Grandma has taken over raising the child because the mother is a flake. The mother is first out of the box with her return and claims the child. Grandma comes in later and files her return claiming the child. Hers is rejected immediately because the IRS computer sees the child's SSN has already shown up on the mother's return. Grandma has to take the kid off her return and re-file. After April 15th they can start the process to straighten things out... which takes months.
Way more info than you wanted but I thought you and your readers would find it interesting. I'll add this: I'll bet our favorite tax expert, Barbara Weltman hasn't dealt with any of this in a long, long time!
On the EIC. No changes other than to increase the amount of the credit for inflation.
Oct 21, 2017 - "The current Trump proposal did not outline any changes to the EITC, which has historically enjoyed bipartisan support. With no changes, our hypothetical family making $18,000 would receive the full $5,572 credit."
The above is not very informative because the credit depends on if you have children and how many. For example, in the 2018 reform I read that the maximum for 3 or more children is $6444. And the maximum income a MFJ can have is $54,998.
However. It is more useful to see a graph of this credit, how the credit is zero for zero income and then it ramps up to it's maximum amount at a certain income. Then it "plateaus" and stays at that maximum out to another income point before beginning to ramp down at the $54,998. At either end of the income range you actually get very little credit.
This credit is where the big refund bucks lie.
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Thanks for all that info, Frankj.
I know firsthand that there is enormous cheating and lying to take advantage of the EIC. My sister-in-law used to work for HR Block.
She would get so mad she couldn't see straight, but was not allowed to let it show or say anything.
You can read the details on the entire tax reform bill here:
http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf
It is a searchable pdf document so you can easily find any particular verbiage that is important to your particular tax situation.
One thing interesting to me (but not reported in the news media, as far as I know) is that they are totally eliminating the possibility of a re-characterization to unwind a Roth Conversion, starting with the 2018 tax year. Re-characterization of ordinary contributions to a traditional or Roth IRA (not conversions between) are retained.
I have not yet seen an interpretation as to whether or not Roth Conversions made in 2017 (for the 2017 tax year) can still be re-characterized in calendar year 2018. Once this passes, people will need to start making sure their Roth Conversions (which must be made by Dec. 31 of each year) are appropriate for their tax situation (which is often not known until months later in the following year), because the "undo" button will have been taken away.
Frankj: Thank you for the good explanation on the EIC. This is the first year in my life I will be claiming this refundable credit. (No, I'm not cheating or lying to take advantage.)
Thank you to all who contribute so much to this site, especially Honeybee for her time & talent. While I don't have much to add, I am still learning, even in my middle 60's. Merry Christmas--dj
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Note to Kooter, Hazard County:
I have repeatedly made it clear that fundamental respect for President Trump will be shown on this blog or comments will not be published.
You made some good comments until you just had to deliberately demean the president by misspelling his name - too bad.
If you want to send them again without that, I will publish them.
I have very strong opinions about the former occupant of the White House, but I never demeaned his name on this blog - so I practice what I preach.
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Thank you for the encouraging words, DJ....
Merry Christmas to you and everyone!
In regard to the new tax plan, are the personal exemptions repealed for those who itemize?
For those of us over 65: The tax plan also maintains the extra standard deduction for those 65 and older, currently $1,250 for individuals, $1,550 for heads of households and $2,500 for couples who are both 65 and older.
American Radio: Answered above -- personal exemptions are gone.
Thank you, FrankJ.
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