Let's talk about investments

[MRBXXXFVVS1]

Love this story!

I've been buying and selling AMD and NVDA, amongst a few other stocks. Wish I'd stayed invested in AMD all along.

+1 on this, I would have made a LOT more money on AMD and NVDA if I had held vs. trying to take advantage of the volatility. I'm considering transitioning most of my brokerage positions to an S&P500 index ETF (IVV) and/or going long only.

I read an interesting article (and was actually thinking along the same lines) that investing in index funds yield much higher results than target date and/or managed funds. This is the case for 2 reasons: 1) greater concentration in stocks 2) lower fees. I'll probably keep my 401K in the targeted date fund though, and my brokerage account in S&P500...

 

[LilAlex]

Curious how you would compare today's market with the dot-com bubble? What about from a fundamentals person?

It feels a lot like that to me. My BIL telling me about all his big winners (just like back then, with not a peep from him in between). Even the shoe-shine boy is buying stocks and bragging about it. Buying on momentum alone; enthusiasm completely decoupled from fundamentals (it will go up because it has gone up). My very sharp BIL can tell me every data point in the stock-price upswing -- but he can not tell me how many shares are outstanding or market cap or what an appropriate market cap is for this stock or even how this company plans to make money in the future. This is speculating and not investing. Speculating (gambling) is fine for entertainment purposes but it is not a way to save for retirement.

More importantly, though, my opinion is meaningless and you should not incorporate it into your decision-making. (In contrast, my opinion about what constitutes a good investment strategy, as outlined in some detail above, is based on a century of objective data and is not meaningless.)

I want to trim our equity allocation; however, our written-in-stone investment plan dictates a pretty narrow range (let's call it 50% stock/50% bonds, but it is not) and we have adhered to this for a decade. (We will only change it in sober moments when we are responding to "us" factors [illness, retirement, etc.] and not market/economy factors.) It protects me from myself. When there is a big shift, we will re-allocate; I will not allow myself to re-allocate based on a strong hunch about what will happen and even though I have a very itchy trigger-finger...

 

[smitcompton]

Hi, \
. MrBXXX--- Is it that you are unhappy with your returns in your portfolio? I ask the question because it does concern me that you think you ought to be making the 50% or 100% return as some stocks have done? Or do you think your style of investing would be better served by having professional management? I have a hard time selling any stock and must force myself to do so. So if you think someone else can do better, it would be a wise move.

This market is not like the dot com era. As you suggested fundamentals do count and sometimes a stock does become a momentum stock while still possessing good fundamentals.

It seems to me that Lil Alex doesn't know much about Nvidia, AMD, and what is happening in the chip world. She only sees 50%, 100% gains, and jumps to a erroneous conclusion, and wants to shut down the thread. Nvidia, is considered the best of breed and an excellent company to own.(one of the best) New technology needs new types of chips and these companies can provide what is needed. There are many other good ones. We will see prices on the stocks fall when interest rates begin to rise.

Phoenix-- Here is another blockage I have-- No matter what the price earnings ratio is and someone calls it cheap, if its 700.00 a share, to my mind it is not cheap. Amazon at 2300 per share is not cheap, although I understand why they say this. So I'm stuck. Lower cost stocks are where I do most of my buying. Ha, ha

Whitewave- A 17 % return on investment is great. Normally its about 8%.

More tidbits-- Apple (you know that speculative stock) has doubled 5 times in the last five years. Could be the fundamental were good,

 

[MRBXXXFVVS1]

@smitcompton I'm happy with my returns as I've consistently outpaced the S&P500 by 5%+. Generally, solid long term investments yield better returns than short term trades, unless you are an active investor. I've made quite a bit with short term trades, but had I held the stocks I would have made more since it's impossible to time the market. Going long would also only subject me to long term cap gains instead of short term cap gains.

I'm just tired and less interested in putting time and effort into investing as I have other priorities. I am not interested in professional management as I don't trust others with my finances and after the fees, I'm better off putting everything in the S&P. For me, it's the perfect balance of diversification, returns, and risk.

Lower priced stocks tend to have an advantage from an appreciation perspective because they are more affordable for retail investors and have a lower starting point. I don't really look at how much the stock price is from an absolute dollar stand point. It's more about the fundamentals, technical analysis, and returns percentage. I just buy however many stocks equal how much I'm looking to invest.

 

[FancyDiamond]

When I was in school, I invested in myself. Worked long hours after school and weekends to save money for college. Did my homework on the bus to school and in the bathroom late at night. Went to free city school for one year, so I could afford state university later. Had multiple jobs in addition to internship/stipend during graduate school.
Since I got my first job, I did not need to stress myself over spending money or saving for whatever. Again I invested in myself, this time for peace of mind. I simply put all my money leftover from living expense into large cap mutual fund, and did not lose any sleep over any downmarket. During the 2008 market crash, my husband and I probably lost a little over $1M. We did not fret much, because we did not need to spend the money. We continued to invest our savings in large cap mutual funds.
Today, we invest in our health and happiness. We do not skim on medical expense, travel, and anything that keeps us happy. We do not worry much about the stock market’s ups and downs, because 1. we Invest for long term, counting on the overall average uptrend of stock market, 2. Our invested money has a long horizon (longer than our life), and 3. We live well within our means and do not need to dip into our investments.
I do not like to invest in real estate, because it is too much headache (both upkeeping and buying/selling). As someone already mentioned, real estate investment makes sense only if there are tax advantages such as home exemption. Still, i do not think my home is a good investment. Rather, it is a necessity (need a roof over my head) and luxury (extra space and amenities).
A good real estate stock to consider is AVB, but the train has left.

 

[Phoenix]

+1 on this, I would have made a LOT more money on AMD and NVDA if I had held vs. trying to take advantage of the volatility. I'm considering transitioning most of my brokerage positions to an S&P500 index ETF (IVV) and/or going long only.

I read an interesting article (and was actually thinking along the same lines) that investing in index funds yield much higher results than target date and/or managed funds. This is the case for 2 reasons: 1) greater concentration in stocks 2) lower fees. I'll probably keep my 401K in the targeted date fund though, and my brokerage account in S&P500...

Hi, \
. MrBXXX--- Is it that you are unhappy with your returns in your portfolio? I ask the question because it does concern me that you think you ought to be making the 50% or 100% return as some stocks have done? Or do you think your style of investing would be better served by having professional management? I have a hard time selling any stock and must force myself to do so. So if you think someone else can do better, it would be a wise move.

This market is not like the dot com era. As you suggested fundamentals do count and sometimes a stock does become a momentum stock while still possessing good fundamentals.

It seems to me that Lil Alex doesn't know much about Nvidia, AMD, and what is happening in the chip world. She only sees 50%, 100% gains, and jumps to a erroneous conclusion, and wants to shut down the thread. Nvidia, is considered the best of breed and an excellent company to own.(one of the best) New technology needs new types of chips and these companies can provide what is needed. There are many other good ones. We will see prices on the stocks fall when interest rates begin to rise.

Phoenix-- Here is another blockage I have-- No matter what the price earnings ratio is and someone calls it cheap, if its 700.00 a share, to my mind it is not cheap. Amazon at 2300 per share is not cheap, although I understand why they say this. So I'm stuck. Lower cost stocks are where I do most of my buying. Ha, ha

Whitewave- A 17 % return on investment is great. Normally its about 8%.

More tidbits-- Apple (you know that speculative stock) has doubled 5 times in the last five years. Could be the fundamental were good,

I love the way your brain works!

The bit where you addressed me directly is halarious! I totally get it.

 

[LilAlex]

This market is not like the dot com era. As you suggested fundamentals do count and sometimes a stock does become a momentum stock while still possessing good fundamentals.

It seems to me that Lil Alex doesn't know much about Nvidia, AMD, and what is happening in the chip world. She only sees 50%, 100% gains, and jumps to a erroneous conclusion, and wants to shut down the thread.

Ironically enough, your post is exactly why I have dot-com deja vu. Not since those days have I seen this level of -- for lack of a better word and with apologies to @smitcompton -- arrogance. "Investors" armed only with some blog posts and a share-price graph convinced that they know more than institutional investment managers, hedge fund managers, state pension plans, university endowments, even trillion-dollar sovereign wealth funds, for cryin' out loud!

I am not saying that I am smarter than you about this stuff (although I may be thinking it ), but I know two things for certain: 1) you do not know what is going to happen; and 2) when it does happens, you will be way less well positioned to capitalize on it than the market movers that I listed above and that we all invest with.

And I know that you do not know more than you are letting on because you tell other posters to expect 8% annual returns. That tells me that you are most likely in the age-group that has only been earning and/or investing during the longest bull market in US history.

Despite what you contend, I do know a bit about the tech sector -- but not from Reddit . We can all name stocks that have gone up. $10K invested in the total US stock market for the past 25 years would be up 12X -- and that's a 12-fold increase in all your money, not your toe-in-the-water roulette-wheel spin with one stock. If you invest in single stocks based on internet "recommendations," you kinda deserve what you will get .

And: Not all dogs are "he." Not all PS are "she."

 

[Phoenix]

@smitcompton I'm happy with my returns as I've consistently outpaced the S&P500 by 5%+. Generally, solid long term investments yield better returns than short term trades, unless you are an active investor. I've made quite a bit with short term trades, but had I held the stocks I would have made more since it's impossible to time the market. Going long would also only subject me to long term cap gains instead of short term cap gains.

I'm just tired and less interested in putting time and effort into investing as I have other priorities. I am not interested in professional management as I don't trust others with my finances and after the fees, I'm better off putting everything in the S&P. For me, it's the perfect balance of diversification, returns, and risk.

Lower priced stocks tend to have an advantage from an appreciation perspective because they are more affordable for retail investors and have a lower starting point. I don't really look at how much the stock price is from an absolute dollar stand point. It's more about the fundamentals, technical analysis, and returns percentage. I just buy however many stocks equal how much I'm looking to invest.

Agreed!!

I'm putting half of my money in S&P.

And since I enjoy stock-picking, I am doing that with the other half of my money.

 

[smitcompton]

Hi.
LilAlex:
I do agree that your strategy for investing in index funds for the average person is a good one. There are some people who feel more comfortable with managed funds and can do very well.
I am not selling or suggesting in any way that people do what I do. I just state this is what I do. Please, don't follow me because I mention some stocks that I own, and enjoy discussing them. After all the indexes do compose individual stocks and some stocks, clearly can overweight the returns on index funds. Why you need to disparage what I do is what is perplexing. i'M NOT OFFERING ADVISE IN PICKING STOCKS I won't address your other comments.


tidbit-- The S&P 500 index fund made a 25% gain in 2021

In 2020 Cathy Woods fund made 120%
In 2021 Cathy Woods lost 20%

Its such a shame people can't have a decent discussion.

Annette

 

[musicloveranthony]

LilAlex, the condescension in your tone (If it isn't intentional, it's certainly intense) is the kind of tone that scares people away from learning more about investing.

 

[SomethingNew]

Hi guys, when I first created this thread, my intend is really to share what what we learned when we manage our personal finances and investment choices. Everyone's goal and risk tolerance is different, everyone has various financial needs and we are all at different stages in our lives. My intend is to share what worked for you and what didn't. What worked for you certainly doesn't mean it could be applicable to others.

This thread is for those who want to share your experience, good or bad, doesn't matter. Your opinion of future outlook, sure! why not? It's a fun topic, take it with a grain of salt. Because it is YOUR personal financing and investment strategy, not mine, not your friends', nor your neighbors'. I really do value everyone's input and willingness to share, not only the successful stories, but the stories that helped you to make more educated decisions. "Sometimes you win, sometimes you learn" is a great book, btw. Many people regretted their financial decisions (I know I do) and that's COMPLETELY okay. I had bought stocks that I thought supposed to be insider tips, and they turned out to be awful. I had made horrible financial decisions previously as well as many others. Although I do hope I remember the pain when I buy the next stock or next investment of any kind, but I may not. I can't say I will never make the same mistakes again (such as buying into another hype, like my example of Webvan, and e-trade was another bad one for me) , but it's okay, life goes on. There will be another stock that I will buy high and sell low....though I hope not, but so what?

Whether you are an experience investment professional or a novice, I love to hear, but we want to be kind to each other and be open minded. I know this is a forum for diamonds, but we also love making money and want to increase passive income so we can perhaps buy more bling, right?

 

[LilAlex]

Why you need to disparage what I do is what is perplexing.

This is an important distinction. I am not disparaging you. I am disparaging what you do. The OP was looking for investment strategies. Yours is objectively terrible. It can be successful -- maybe you have had good luck over the short term. This is not a finance forum; this is a community of learners and sharers. I would be horrified if people concluded from your posts that this is a "good" way to invest. For most things, I am live-and-let-live. But for how to invest your hard-earned money and whether to get the COVID vaccine, this is high-stakes and I choose to speak my mind. (Talon prongs vs blunt prongs, not so much)

Your "tidbits" (your word) that you offered suggest that those of us who disagree with you (me, specifically) have never heard of AMD and NVDA and are not aware that Apple has gone up a lot over the decades or that ARK funds have had a nice run. (AMD trading volume is 60 million shares a day -- it is not an insider secret.) A grade-schooler can get that information online. I see so many posts (not here) from 30-year-olds with low five-figure portfolios and modest incomes who are wondering how they will manage their inevitable $250 million in a decade or two. It has not been like this since the dot-com days.

And know that for every bull market and every bear market, the prevailing mantra has been the same: this time it's different.

I am not an investment professional and I do not work in finance. I know way more about this than I do about gems or jewelry. I read the paper version of the WSJ 3X/week -- because that is how often it shows up at the bottom of my driveway (for free) despite spouse trying to cancel it. (I will never, ever read their editorial pages -- I literally close my eyes as I turn past -- but the rest is surprisingly neutral and fact-based.) I am on the finance committee of a nonprofit. I am on the investment committee for a corporate pension with a plan balance in the mid ten figures. (I earn zero dollars for these activities -- and maybe that is what I am worth.) This does not make me right. But it does mean that I have heard of any and every stock, fund, ETF, or investment vehicle or strategy you can think of. My disagreement with your strategy is not coming from ignorance.

You (and others) seem to favor whatever has skyrocketed the most. "Investing" is the polar opposite. The old joke about buying low and selling high really means something. The worst thing you can do is buy the stocks (or funds) that have been the biggest gainers. (You are better off buying the biggest losers, but even that is stock-picking.) All of this action is the retail day-traders who do not know better. The best investment professionals -- stock-pickers -- in the world almost never beat their index over the long term (see upthread for the objective data).

Why can't we have a simple, balanced discussion about vaccine denial or storming the Capitol? Because there is no equipoise. It is not "Cornflower vs Royal -- battle of the century!" It is actual lives and there are actual data. It's triggering like that to me -- and this is one of the worst industries in the country. Everyone involved gets a piece of your action and they love for you to day-trade. If you want to do this with 10% of your money and are willing and able to lose it all, then by all mean, have at it. Buy Rivian or bitcoin or Beanie Babies or vintage Porsches.

I have done my best and my conscience is clear! I have been there and made every mistake in the book.

Happy investing! Happy speculating (gambling)! And: please educate yourselves at least to the extent that you know the difference!

 

[LilAlex]

Beating this poor dead horse one last time. No one will see this but the following is pretty striking, imo.

Financial columnist and author Jason Zweig just did a piece on someone who may be the greatest (most consistent) investor ever. Wilmot Kidd - whom almost no one has heard of -- runs a billion-dollar "closed-end" fund. (Half the assets are his own and his family's). His track record is perhaps even better than Warren Buffett's. Over the course of 50 years, he has beaten the total US stock market by less than one percentage point per year. (He has lagged the market for the past decade.) This is what it means to be perhaps the best US stock-picker of the last half-century. So if you are counting on consistently besting the US market by a whole lot, know that you almost certainly will not. Anybody can win for a year or three but it evens out mighty fast.

 

[bling_dream19]

This is a very helpful thread. Thank you to everyone for contributing. This is like learning a new language for me. So, is it best to move away from a Morgan Stanley with fees and move everything into Fidelity?

 

[MRBXXXFVVS1]

This is a very helpful thread. Thank you to everyone for contributing. This is like learning a new language for me. So, is it best to move away from a Morgan Stanley with fees and move everything into Fidelity?

Both Morgan Stanley and Fidelity are fine, and offer lots of options that come with or without fees. Professionally managed accounts, mutual funds, etc. have fees. You'll have to decide what's best for your situation, returns, risk, and fees to decide. Fidelity IMO has great research and a user friendly interface for those who want to DIY.

 

[MRBXXXFVVS1]

I'm less familiar with bonds, but currently the initial interest rate on new Series I savings bonds is 7.12 percent. You can buy I bonds at that rate through April 2022.

 

[LilAlex]

So, is it best to move away from a Morgan Stanley with fees and move everything into Fidelity?

This is a great first step -- getting informed. There is no emergency -- where you are may be a bad place for the next fifty years but it's OK for the next half-year or so -- so no need to make a hasty move.

Add up what you are wasting. You need to know the advisor fee (wrap fee, relationship fee, whatever euphemism they are using) that you are paying. (If you do not know this number off the top of your head -- meaning it is not front and center in their communications -- then this is a concerning relationship, imo.) You also need to know the expense ratio of each of your funds. A second way that advisors cheat you out of money is by kickbacks from high-fee mutual funds that they put your money in. Sounds too awful to be true but this is standard industry practice. These two fees will tell you how much you are wasting. You may be paying 1 - 2% all-in for advisor fees plus expense ratios. Again, this is fine for a year or so but terrible over a lifetime. (For comparison, with good, big indexed ETFs and mutual funds, you could be paying 0.1% annually or even lower.) You don't need to be at the absolute bottom -- as long as you are 0.1 - 0.2% annually, you are pretty good. Maybe you are wasting very little -- maybe there is no advisor fee and your weighted expense ratio is already only 0.25%. I really, really doubt it -- but it's possible.

How much will it cost to move? There is often a tiny fee for closing an account -- maybe $50. Not a big deal but annoying. But there is a lot more to the story...and it depends upon...

Is this a retirement account or a taxable account? If the former, like an IRA, there will be no tax consequences for changing to another brokerage. But if it is an account that you have placed "post-tax" dollars in -- a non-retirement brokerage account -- you may owe capital gains tax on whatever gets sold. The way around this is to sell NOTHING and ask for it all to be "transferred in kind" to the new brokerage. This works for all stocks and all ETFs and most mutual funds. But sleazy advisors are crafty and they try to "lock you in" by putting you in investments that are not very portable. These could be proprietary mutual funds that can only be held at Morgan Stanley, say. (Even "good" custodians try to do this -- Fidelity has some funds with 0% expense ratio [what could ever be better?!?] -- but you can never move them "in kind." OK for a retirement account but terrible for a taxable account.) So for these types of non-portable funds, to leave you must sell and risk incurring capital gains taxes. If you have and make a lot of money, CG tax can be 15 or 20% of the gain. If you don't have a ton of money, they may be zero (easy to look up the threshold). Look at your online account at Morgan Stanley and find the page that shows you unrealized capital gains in your non-retirement accounts -- this will tell you how much is potentially taxable if it has to be sold to transfer. Again, this is only relevant if this is not a retirement account. Capital gains are especially important now because they have skyrocketed over the past few years -- and almost all of the growth in your account balance that is conferred by tech stocks is in the form of capital gains.

Even if there are no tax consequences, it is way better to move your assets in kind and then you can sell them any day in the new brokerage. When assets are sold in the two-week black-box lost-in-space window between brokerages (why is that even still a thing?), funny things happen. I have done this and magically "sold" on the worst possible day of the two-week period. Twice. Much better to have your own finger on the trigger, imo.

Where should I move it? You will probably not want to manage this yourself initially. Vanguard has a "PAS" that will manage this for 0.3% annually -- and no one will beat that rate unless you have an eight-figure portfolio. Vanguard will screen you with questions and place you in generally dirt-cheap index mutual funds. Their customer service is terrible now -- with their mammoth influx of assets over the past few years. Schwab and Fidelity are also fine. Remember, you are not limited to Schwab or Fido or Vanguard investments -- the brokerage account is just a container. There are some nuances. Vanguard does not pay-to-play with a lot of other brokerages so they may charge a fee on transactions for Vanguard funds, etc. I like Schwab best -- I like the clean interface and I like that I can execute a buy and sell in a combined ticket with one click (at the same nanosecond; I only ever do this with tax-loss harvesting but that is for another day and i do not otherwise buy and sell except to re-balance semi-annually).

If you are not sure, I strongly recommend a one-time flat-fee review with a CFP who is acting as your fiduciary (use those words). It will be ~ $1,000.

 

[DorotheaBrooke]

Vanguard Total Market Index Funds

 

[bling_dream19]

This is a great first step -- getting informed. There is no emergency -- where you are may be a bad place for the next fifty years but it's OK for the next half-year or so -- so no need to make a hasty move.

Add up what you are wasting. You need to know the advisor fee (wrap fee, relationship fee, whatever euphemism they are using) that you are paying. (If you do not know this number off the top of your head -- meaning it is not front and center in their communications -- then this is a concerning relationship, imo.) You also need to know the expense ratio of each of your funds. A second way that advisors cheat you out of money is by kickbacks from high-fee mutual funds that they put your money in. Sounds too awful to be true but this is standard industry practice. These two fees will tell you how much you are wasting. You may be paying 1 - 2% all-in for advisor fees plus expense ratios. Again, this is fine for a year or so but terrible over a lifetime. (For comparison, with good, big indexed ETFs and mutual funds, you could be paying 0.1% annually or even lower.) You don't need to be at the absolute bottom -- as long as you are 0.1 - 0.2% annually, you are pretty good. Maybe you are wasting very little -- maybe there is no advisor fee and your weighted expense ratio is already only 0.25%. I really, really doubt it -- but it's possible.

How much will it cost to move? There is often a tiny fee for closing an account -- maybe $50. Not a big deal but annoying. But there is a lot more to the story...and it depends upon...

Is this a retirement account or a taxable account? If the former, like an IRA, there will be no tax consequences for changing to another brokerage. But if it is an account that you have placed "post-tax" dollars in -- a non-retirement brokerage account -- you may owe capital gains tax on whatever gets sold. The way around this is to sell NOTHING and ask for it all to be "transferred in kind" to the new brokerage. This works for all stocks and all ETFs and most mutual funds. But sleazy advisors are crafty and they try to "lock you in" by putting you in investments that are not very portable. These could be proprietary mutual funds that can only be held at Morgan Stanley, say. (Even "good" custodians try to do this -- Fidelity has some funds with 0% expense ratio [what could ever be better?!?] -- but you can never move them "in kind." OK for a retirement account but terrible for a taxable account.) So for these types of non-portable funds, to leave you must sell and risk incurring capital gains taxes. If you have and make a lot of money, CG tax can be 15 or 20% of the gain. If you don't have a ton of money, they may be zero (easy to look up the threshold). Look at your online account at Morgan Stanley and find the page that shows you unrealized capital gains in your non-retirement accounts -- this will tell you how much is potentially taxable if it has to be sold to transfer. Again, this is only relevant if this is not a retirement account. Capital gains are especially important now because they have skyrocketed over the past few years -- and almost all of the growth in your account balance that is conferred by tech stocks is in the form of capital gains.

Even if there are no tax consequences, it is way better to move your assets in kind and then you can sell them any day in the new brokerage. When assets are sold in the two-week black-box lost-in-space window between brokerages (why is that even still a thing?), funny things happen. I have done this and magically "sold" on the worst possible day of the two-week period. Twice. Much better to have your own finger on the trigger, imo.

Where should I move it? You will probably not want to manage this yourself initially. Vanguard has a "PAS" that will manage this for 0.3% annually -- and no one will beat that rate unless you have an eight-figure portfolio. Vanguard will screen you with questions and place you in generally dirt-cheap index mutual funds. Their customer service is terrible now -- with their mammoth influx of assets over the past few years. Schwab and Fidelity are also fine. Remember, you are not limited to Schwab or Fido or Vanguard investments -- the brokerage account is just a container. There are some nuances. Vanguard does not pay-to-play with a lot of other brokerages so they may charge a fee on transactions for Vanguard funds, etc. I like Schwab best -- I like the clean interface and I like that I can execute a buy and sell in a combined ticket with one click (at the same nanosecond; I only ever do this with tax-loss harvesting but that is for another day and i do not otherwise buy and sell except to re-balance semi-annually).

If you are not sure, I strongly recommend a one-time flat-fee review with a CFP who is acting as your fiduciary (use those words). It will be ~ $1,000.

@LilAlex You are amazing. Thank you so much. This is so helpful. This has been on my mind for a while and I'm so grateful for the wisdom of you and others. You have brought up so many good points. I've been digging today trying to make sense of it all. I know for sure my advisor fees are too high. I've just got to figure out when and where. I'll be glued to this thread. Grateful for anything I can learn. Thank you soo much for taking the time to write and share your knowledge and help me.

 

[FancyDiamond]

Some of the comments/insights here are smart and enlightening. Glad that the younger people nowadays are knowledgeable about or at least show an interest in investments. While we desire best return from our investments, we definitely do not want to pay high taxes on the gains unnecessarily. Wonder what the US taxpayers think about the proposed tax law changes to eliminate or limit eligibility for Roth conversion? I am not referring to the elimination of Backdoor Roth IRA or Roth conversion from post-tax retirement money. Instead, I am referring to Roth conversion from pre-tax retirement money.

 

[LilAlex]

Wonder what the US taxpayers think about the proposed tax law changes to eliminate or limit eligibility for Roth conversion?

Not an expert on this proposed legislation.

A yes/no eligibility threshold seems silly (i.e., "disallowed above x dollars of income") as opposed to a sliding scale.

You would still have ten years to do it (by 2031) -- but many of us would not have planned to start doing this for 5 or 10 years -- like after our income drops to (almost) nothing.

Like so many things, it started out as a benefit for the middle class that is now almost exclusively being used by the wealthy (analogous to 529 plans) -- so these things are erroneously criticized as "tax breaks for the rich."

Not much to say -- it will either become law or it won't.

 

[MRBXXXFVVS1]

Some of the comments/insights here are smart and enlightening. Glad that the younger people nowadays are knowledgeable about or at least show an interest in investments. While we desire best return from our investments, we definitely do not want to pay high taxes on the gains unnecessarily. Wonder what the US taxpayers think about the proposed tax law changes to eliminate or limit eligibility for Roth conversion? I am not referring to the elimination of Backdoor Roth IRA or Roth conversion from post-tax retirement money. Instead, I am referring to Roth conversion from pre-tax retirement money.

While I am a little disappointed in potentially not having the Roth conversion and having to pay more taxes, I'm OK with it. Our country needs the investments that the Build Back Better framework has planned. Plus at some point down the road, they could potentially reverse some of the decisions as it relates to Roth conversion and taxes. I do think that the Build Back Better framework could have a more positive (vs. penalizing) tone in regards to those who will have to pay more taxes, but I suppose it's positioned to generate mass support.

 

[FancyDiamond]

Not an expert on this proposed legislation.

A yes/no eligibility threshold seems silly (i.e., "disallowed above x dollars of income") as opposed to a sliding scale.

You would still have ten years to do it (by 2031) -- but many of us would not have planned to start doing this for 5 or 10 years -- like after our income drops to (almost) nothing.

Like so many things, it started out as a benefit for the middle class that is now almost exclusively being used by the wealthy (analogous to 529 plans) -- so these things are erroneously criticized as "tax breaks for the rich."

Not much to say -- it will either become law or it won't.

You are so smart! Indeed, a sliding scale is better than yes/no income limit for eligibility. I want to be able to do some amount of Roth conversion annually over my lifetime, so I can spread out distribution to avoid being bumped up to next tax bracket when Required Minimum Distribution starts.
Yes, it is nice to know that I still have 10 more years to do Roth conversion. Do not despair about not being able to take advantage of Roth conversion when it is your time to do so. At least, you have had since 2012 (or earlier?) to contribute to Roth IRA and Roth 401K. Roth contribution was not available to me when I was working, so I end up having a large pre-tax balance. Although I do not have any wages now, I have other income that most retirees have, such as social security, pension, and passive income from savings/investments. Every year, I have to watch out for my AGI and taxable ordinary income, so that both my tax bracket and Medicare Premium/Drug Plan premium do not get bumped up to next bracket/level. The fact that Required Minimum Distribution kicks in at age 72 and that investment income increases (from mutual fund distributions and dividends) will make managing income very challenging.
Hindsight is always 20/20. Advice for young people is to keep IRA balance low. Contribute as much as possible to Roth instead of deferred retirement plan early on, and switch to 100% deferred retirement plan until you reach your peak compensation (your highest tax rate).
Roth conversion is not just a privilege to “rich” or high income people. Rather, it is a basic benefit to lower income people and middle class, especially if the arbitrary eligibility limit does not get adjusted yearly for inflation, like the previous case of AMT.

 

[FancyDiamond]

While I am a little disappointed in potentially not having the Roth conversion and having to pay more taxes, I'm OK with it. Our country needs the investments that the Build Back Better framework has planned. Plus at some point down the road, they could potentially reverse some of the decisions as it relates to Roth conversion and taxes. I do think that the Build Back Better framework could have a more positive (vs. penalizing) tone in regards to those who will have to pay more taxes, but I suppose it's positioned to generate mass support.

Just hope that the government invests smartly in Built Back Better, and also has a good oversight For misuse/mid allocation of funds, loopholes, and corruption.

 

[RunningwithScissors]

I'd like to know people's opinions on whether ETFs or index mutual funds are better for the average person. I go back and forth on which one I think is better for me personally and I'm torn.

Perhaps @diamondseeker2006 and @LilAlex could chime in because I think your general strategy aligns with my own financial thinking. Which one do you prefer and why? Or do you balance by doing both?

 

[diamondseeker2006]

I'd like to know people's opinions on whether ETFs or index mutual funds are better for the average person. I go back and forth on which one I think is better for me personally and I'm torn.

Perhaps @diamondseeker2006 and @LilAlex could chime in because I think your general strategy aligns with my own financial thinking. Which one do you prefer and why? Or do you balance by doing both?

We use mostly index funds (Fidelity) and a couple of old favorite funds that we just hang onto. I have liked the Nasdaq index primarily because it is a little more heavily weighted in tech stocks, and over time, my experience has been that those will do well. S&P 500 is a little more diversified, so maybe less volatile, but over many periods of time, NASDAQ will outperform the S&P 500. Because we are retired, we also have a couple of intermediate bond index funds. Our advice to our kids in their 20's and 30's is to go with ROTH NASDAQ or S&P 500 index funds and just ride those waves for 30+ years. They say very few fund mangers or stock advisors do better than those. And I have read that Warren Buffett said this is how his wife's money should be invested if she outlives him, "My advice to the trustee [for my wife] could not be more simple: Put 10 percent of the cash in short-term government bonds and 90 percent in very low-cost S&P 500 index fund.”

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Right now the stock market is a little rocky, but the best method is dollar cost averaging by putting in an amount each month regardless of what the market is doing and the highs and lows will balance each other out. The bond fund(s) are really to have some available funds in a safer investment once you are nearing the time to withdraw some. We really do not have to use these funds, so technically we could just leave it all in the index growth funds.

Just catching up on some of the posts and agree with @FancyDiamond : "We do not worry much about the stock market’s ups and downs, because 1. we Invest for long term, counting on the overall average uptrend of stock market, 2. Our invested money has a long horizon (longer than our life), and 3. We live well within our means and do not need to dip into our investments."

 

[LilAlex]

I'd like to know people's opinions on whether ETFs or index mutual funds are better for the average person. I go back and forth on which one I think is better for me personally and I'm torn.

They are very similar, as you imply.

I was irrationally afraid of ETFs when they were new. I do not fully understand them. I also do not fully understand mutual funds (MFs), though -- or even how a $5 bill is actually worth $5, for that matter. ETFs have finally been "stress-tested" (e.g., March 2020) so they are not quite the black box that they were. They are safe and widely used -- but there can be some wacky pricing for minutes or even hours during an insane market. Savvy investors generally do not trade during those hours anyway.

All our old investments and our employer-plan assets are in MFs. For the last four years or so, all of our new taxable investments have been ETFs. I am comfortable with ETFs and prefer them now.

MFs are priced at the end of the trading day for a single day price -- whether you are buying or selling. ETFs trade like stocks all day, with a bid-ask spread (see below).

There is (in theory) a slight tax advantage to ETFs. I do not know if this will apply in practice. (I forget why but you can Google it.)

If you want to do programmed investing -- like every month, automatically, or from every paycheck, you must use MFs. Plus, that's all you have access to in most employer plans (unless you use a "BrokerageLink"-type window and day-trade with your retirement but that is not a good idea. Understatement.)

ETFs are very portable so, unlike an MF, you will not get forced to liquidate your holding at an inopportune market-time when you leave a brokerage account because you have learned that they are evil or you have been wooed by an attractive transfer bonus elsewhere (keep your eyes open). I really like this feature -- especially as the brokerage market consolidates and customer service deteriorates. And because I hope to pass down some our biggest "gainers" to the next generation rather than take the capital gains hit.

ETFs and MFs can have low or not-so low expense ratios. Always look them up. You can find them on Morningstar or just Google the fund name and go straight to the fund-family site. You can poke around SPDR or iShares and see what their offerings are. For Vanguard and others, they can have near-identical ETFs and MFs with near-identical expense ratios. I use the factors above and below to decide on which to use, but I skew toward ETFs almost exclusively now.

Because ETFs are stock-like and have a bid-ask spread (i.e., the price you get for selling them is slightly lower than the price you get when buying them), you must only use heavily-traded ETFs. I use an assets-under-management threshold of $1 billion. (And that is not super-high for a heavily-subscribed indexed ETF.) For the hot, new (= small), sector-focused ETFs, the bid-ask spread can be huge so you can actually lose a percent or even two when you buy or sell in a volatile market (ask me how I know). For the large index ETFs, the "spread" is a negligible fraction of a percent. You can log on to your account and start a pretend trade with an ETF and you will see how tiny the spread is and watch it widen and narrow slightly depending on which way the market is heading -- and you will see the ETF price fluctuate just like for a stock trade. I did this a few times before making an actual buy -- just don't click "BUY" or whatever. (Do not do this after market hours because you will see an "after-hours" quote that can have a spread of like 10% and is virtually meaningless.) There are great, cheap index ETFs from iShares, SPDR, Schwab, Vanguard, and others and you should be able to buy them in any brokerage.

There are third-party ETF databases that will let you screen for market segment (total US stock market), assets under management, expense ratio, etc. Google the bolded words in this paragraph and you will get to one. It is ad-heavy and annoying but you can quickly rank the biggest/cheapest US large-cap index ETFs, for example. In any one category, there are a handful of obvious great (huge, dirt-cheap) choices and tens of bad ones.

If you must sell at the intraday high or buy at the intraday low (rather than just an end-of-day price for an MF), you will need ETFs. The only reasons we ever trade are: 1) tax-loss harvesting (look it up if you care; it is not essential); and 2) re-balancing if our stock:bond ratio drifts off course by 5%, say (like after a big stock-market run-up; this is essential). For these two purposes, I like to know where I am in the day's range so I love ETFs for this. But for programmed buying (monthly, biweekly) which is essentially "dollar-cost averaging," MFs are fine.

Summary: both are fine, with a few subtle distinctions that are situation-specific.

 

[RunningwithScissors]

Thank you so much @LilAlex @ @diamondseeker2006 . I really appreciate the time, thought and care your responses took to write. Very, very helpful.

 

[LilAlex]

Just to follow up, it's been a pretty rough month for the high-flying stocks and funds touted above. If you had followed that advice, you may have gotten killed. Yes, they have all done well in the past -- but that has zero predictive ability.

You can not see this figure below (the percents are shown in red after the symbols) but as of market close today the total US stock market is down nearly 10% over the past month. ARKK (Cathie Wood's "fabulous" ARK Innovation Fund), Nvidia, AMD, and Xilinx (whatever that one is) are all down 22% to nearly 30% over the same timeframe. That's a big hit if you have not been along for the ride for a long time. (The y-axis is the value by date if you had invested $10,000 exactly one month ago.)

To be fair (Letterkenny accent), over three months most of these are on par with the total US stock market -- they have gone up and then plummeted. They may continue to drop; they may not. But they are not a "sure thing." Worse, people tend to miss the run-up and invest at the top (when there is a lot of buzz) so they arrive just in time for the bad news.

This is not (entirely) schadenfreude; I think it's a great real-world example of the risks of: a) relying on speculative assets; and b) buying high.

 

[smitcompton]

Hi,

Oh. lilAlex, its so nice to see that you relish that we stock pickers have loses that you can crow about and prove you are right. Love people like that.
Let me make a statement first. Earlier in the thread Missy told us about her theory of investing. It is to have a balanced portfolio. I agree with this. My stock picker portfolio is a balanced portfolio. It is a far cry from what you describe. I have been doing it for 16 years. I am not a daytrader. I live off of my investments. Phoneix(SP), and MrBxx and myself all have funds invested elsewhere. We enjoy "investing" ourselves. Sometimes we make a trade to make money fast.(Yes we do)(. However we hold core positions in stocks that have good fundamentals and/or momentum. I have already stated my largest position is BAC. I have owned it 13 yrs. I also buy for the dividends.

The SP 500 went down 2x more than my portfolio. I was a buyer during the downturn. I'm not overloaded with Tech. I am still up 50% on AMD. I am only up 20 % on Zilinx. Apple I'm up 45%. I am down 4 stocks, 2 will come back, the other two probably not, but you can't get them all right. I'm down from the high, but I;m OK. I hope the others are too.
I did want to discuss one buy with Phoenix, but I thought of you and decided against it.

Yes, I did think you were a woman. And when you went on your rant about reddit and Robinhood and Rivian ect. I just told myself I would keep away from this woman as she sounded a bit off. then you announced you were a man and I understood your attitude. Of course a man would sound that way. So sure in his criticism of stock pickers. Only a man would do that.

Which brings me to your comments on what the S&P has returned since it formed. From 1926-1957 the S&P had 90 stocks. The return was 10%. From 1957 to 2020 the return was 8%, and with dividends 10%. The last 3 years have been great., but the norm has been 8 %. I rechecked my memory from the last post and I found the same thing. So Whitewave, with a 17% return is doing well, not as well as the S&P these last three years, but good nontheless.

So again, I think I'll piss you off by telling you I bought Rivian at 57.00. I think its 63 now. Should I sell. lilAlex? What decisions we must make to earn our daily bread.

Annette
Kenny. I read that more billionaires made their money in Real Estate. So you were right. The big money is made in Real estate.