Various Financial Questions | Page 3 | TigerDroppings.com

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BennyAndTheInkJets
Arkansas Fan
NYC / Orange County
Member since Nov 2010
3995 posts

re: Various Financial Questions


quote:

Not that Benny is somehow "wrong", it's more that if you ask ten financial advisers their opinions you will get over a dozen valid answers in addition to the invalid ones.

I'd hope that everyone had different allocation suggestions. Otherwise that would mean everyone had the same market expectations as I did and I would have no room to make money. I would be very interested in your allocation suggestion though, it's always great to see how others see what's going on.
quote:

The usual result is that you will do reasonably well initially, then get overconfident and bet way too large and lose the shirt off your back.

And thus is the life of the average retail investor.






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Lsut81
USA Fan
Member since Jun 2005
64953 posts

re: Various Financial Questions


quote:

The only thing I will say about this is to keep in my mind the commissions/fees. Sharbuilder, as an example, charges $9.95 per transaction


Thats why I was asking about putting my IRA with my Scottrade, because their $7 fees are perfect for how little I really do in stocks.






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Lsut81
USA Fan
Member since Jun 2005
64953 posts

re: Various Financial Questions


quote:

The $300 for metals can be looked at essentially the same as $300 for baseball cards, stamps, or any other sort of collectible you either place some sort of sentimental value on or have an expectation that it will increase in value


You don't believe physical gold or silver to be a good investment?






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BennyAndTheInkJets
Arkansas Fan
NYC / Orange County
Member since Nov 2010
3995 posts

re: Various Financial Questions


quote:

You don't believe physical gold or silver to be a good investment?

I do, but I hesitate to advise in terms of an investment as it has no income. They are also volatile and have risks associated with them outside of just inflationary or deflationary forces.

Saying they're the same as baseball cards or stamps isn't saying it's a bad investment. Stamps and baseball cards can be fantastic investments. I was more speaking to the structure.



This post was edited on 1/4 at 12:45 pm


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Lsut81
USA Fan
Member since Jun 2005
64953 posts

re: Various Financial Questions


quote:

I do, but I hesitate to advise in terms of an investment as it has no income. They are also volatile and have risks associated with them outside of just inflationary or deflationary forces.



I thought PMs would be a good long term investment Shows you how much I know


Plus they are pretty and shiny!






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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
30166 posts

re: Various Financial Questions


quote:

You don't believe physical gold or silver to be a good investment?


I will have more to say on this over the weekend when I post something more detailed. I have a fair amount in a commodities ETF (not the physical stuff) myself, but it's a diversification play to smooth out volatility. I went with the ETF over physical ownership b/c I want exposure to commodities generally and I think my HOA would complain if I tried to store a tankful of crude oil in my basement or a railcar of corn in the back yard.






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Lsut81
USA Fan
Member since Jun 2005
64953 posts

re: Various Financial Questions


quote:

I will have more to say on this over the weekend when I post something more detailed.


I look forward to it

quote:

I went with the ETF over physical ownership b/c I want exposure to commodities generally and I think my HOA would complain if I tried to store a tankful of crude oil in my basement or a railcar of corn in the back yard.




Move to the country






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BennyAndTheInkJets
Arkansas Fan
NYC / Orange County
Member since Nov 2010
3995 posts

re: Various Financial Questions


quote:

I thought PMs would be a good long term investment Shows you how much I know

I mean I believe they are and they very well could be. You just have to understand that I wouldn't be giving you good advice if I told you to invest all your money in something that is risky, volatile, and pays no income.
quote:

I went with the ETF over physical ownership b/c I want exposure to commodities generally and I think my HOA would complain if I tried to store a tankful of crude oil in my basement or a railcar of corn in the back yard.

At least the bright side of this is you could pick up 100-200 basis points from the financial traders by being on the physical side before delivery. That should definitely calm down your significant other..... right?



This post was edited on 1/4 at 1:22 pm


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tirebiter
LSU Fan
ATL
Member since Oct 2006
5191 posts

re: Various Financial Questions


quote:

Security A = Goes up 60% then down 40%
Security B = Goes up 6% then down 4%.

Security B is worth more than your initial investment while Security A is worth less. The key to growing capital over the long-term is to avoid large losses. The longer your time horizon, the higher chances the turtle will always beat the hare.

With that in mind we go to allocation drivers. Developed economies are looking at 0-2% real growth over the next 3-5 years while emerging nations are looking at 4-5% real growth. From a technical perspective, the realm of "safe" assets (treasuries, mortgages, agency debentures) is decreasing, pushing prices up and yields down. Investors are starved for yield which pushes them out the risk spectrum, in this case investment grade credit bonds would be the logical next step.

The equity market is highly volatile and if you believe that we'll only see 0-2% real growth than that is not good reason to own equities over the long term in large amounts. You should still have exposure, but "playing stocks" should be left to your personal brokerage account rather than retirement. With all this in mind this is roughly the personal allocation that I have and what I have allocated for friends and family.


There are numerous papers by competent parties which have studied equity returns over long periods of time which point to slower growing economies exhibiting stronger equity returns than faster growing economies. What you have written regarding projected/estimated future real returns would seem to make rational sense, but often it has not.

The future is unknown. I am still a fan of the Ben Graham's 25/75 guideline, it might dampen gains in some years, but does provide a cushion in avoiding large losses when market valuations are high. During a period of above average market valuations one could also choose investments in funds or ETFs which have captured significant upside and experienced lower downside risk compared to investments in market cap indexes. Some people's personalities and skill set tilt them to trading, that's not my investing method. Personally, I would not buy domestic REITs at current yields (which include ROC in most distributions) and valuations. International, maybe.

I have 20% of my portfolio in TIPS, primarily in individual bonds that were bought when real yields were much higher. Today, I couldn't advocate buying short or other duration TIPS as one is either buying negative yielding securities or accepting the volatility of long bonds for very inconsequential real yield. I bonds are a maybe, at least one is guaranteed stability of principal and maintains the option to sell with a very minimal ding to accrued interest after Yr1, through Yr5, then no penalty.






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Lsut81
USA Fan
Member since Jun 2005
64953 posts

re: Various Financial Questions


A few clarrification questions.... btw, thanks for all the help guys

So I looked up vanguard IRAs and I think that is whom I will be going with. Still trying to decide between rolling my 401k into a Roth or Conventional IRA

1) If I roll it into a Roth, will I automatically meet my 5k a year investment cap for the first year? Its currently $25k
2) If I roll it into a conventional, can I then open a Roth on my own and fund that with 5k out of my checking account? (Im assuming that under law you can only have one Roth?)
3) I'm I correct in thinking that with the Roth, ANY gains I earn in it will not be taxed, ever?
4) If I do roll my 401k to a roth, will I just claim another 25k in income on my 2013 tax returns?

TIA

btw, still waiting on foshizzles PM's insight






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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
30166 posts

re: Various Financial Questions


quote:

still waiting on foshizzles PM's insight


Came on here to post my allocation thoughts (which I will shortly) but when it comes to PM's like I said I just go with an ETF or index and be done with it. My goal is to simply reduce correlation with other financial assets. For example, if oil skyrockets tomorrow then I don't mind the higher gas prices and it helps cushion the blow to sectors that are sensitive to oil.






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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
30166 posts

re: Various Financial Questions


OK, now a tl;dr on how I approach my investments. Mostly my approach is based on the idea that unless you are obscenely wealthy (or running a large fund) it isn’t worth it to spend a lot of time doing the kind of careful research it takes to get a small (and questionable) edge over the market. So I don’t.

I start by developing a baseline that is based on a very rough estimate of how large each sector is (this is classic MPT of course). For lack of a demonstrably better method, I divide the world into domestic, European, non-European developed markets, and “other”. Each group gets roughly equal shares, or about 25% apiece. The first three I split more or less evenly into stock and bond funds. The last (“other”) is a mix of a commodities fund and emerging markets debt, and I’m defining an emerging market as a part of the world that can’t reasonably be called “developed” regardless of geographic location.

So my “baseline” allocation is simply 1/8 each into the following:
US Equities, US Debt, European Equities, European Debt, non-European Equities, Non-European Debt,
Commodities fund, Emerging markets.

Now I tweak based on my personal prejudices (which is exactly what they are – this is not hard-core research). I boost US holdings a bit because as weird as our regulatory environment can be it is often still better than anywhere else. However, a wide-ranging US equities fund has a fair amount of correlation with other developed nations due to the multinationals, so I also increased emerging market holdings to reduce the correlation.

So my final targets are more like this:
Emerging markets: 20%
Euro debt and Euro equities: 10% each for a total of 20%
Non-Euro developed market debt and equity: 10% each for a total of 20%
US equity and debt: 15% each for a total of 30%
Commodity: 10%

Compared with Benny’s divisions, I have a little less EM and Domestic Debt. For “real assets” I’m also slightly less, and using a pure commodities index fund since I have enough real estate as it is. On the other hand I have a good bit more developed world international equities and debt.

But the biggest difference is philosophical. Notice that I haven’t really thought that much about having a reason why I believe a particular sector might be strong because I don’t think I know enough to beat market expectations. Not that I think it’s impossible to do, but I don’t have the time to worry about it or a big enough portfolio for any resulting edge to matter much. Nonetheless, our divisions aren’t that far apart. That said, I largely agree with what Benny says about each sector although I prefer a shorter term corporate bond fund instead of long term. My reasoning is that if rates do rise I’ll do better and I’m willing to give up a little yield in order to do so. Just a personal opinion though.

With these guidelines in place, then I start picking actual holdings, focusing on low expense-ratio index funds and ETF’s. Here is where reading the prospectus is absolutely mandatory and it’s where I spend the most time. For example, what one fund may call “Emerging Markets” may be what I call a non-European developed market. Many “Asian” funds are really just Japan funds. Also, many funds (regardless of sector) park uninvested cash in US Treasuries. So for each fund I actually assign a weight across my own categories. For example, I might find that some fund calling itself an “Emeriging Markets Equity Index Fund” invests 60% in the Nikkei average (yes, they will sometimes call themselves an emerging market fund anyway but I digress), 20% in other random Asian indexes, and 20% in US Treasuries. Depending on the details, I might rate this fund as 70% non-European developed, 10% emerging market equity (not bond), and 20% US bonds. This case highlights why I don’t make much of a distinction between emerging markets debt and equity – I agree that debt is better due to government backing but it’s just too hard to insist on it using this approach.

With the job done, I completely ignore what’s going on for another year or so, when I do it all over again. I review fund prospectuses (prospectii?) to see if anything has changed much about their holdings/strategy, and then rebalance.






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Dead Mike
LSU Fan
Cell Block 4
Member since Mar 2010
1790 posts

re: Various Financial Questions


I have another IRA-related question. I can re-characterize a portion of my 2012 Roth contributions to Traditional IRA contributions and gain a Retirement Contribution Credit for 2012. From there, I suppose I could either keep up with the new Traditional IRA or (if possible) somehow roll it back into my Roth.

Is there any reason that I can't or shouldn't do this, and if I can convert the Traditional IRA back into my existing Roth IRA for the 2013 tax year (and pay the tax on that amount), would it make sense to do so? I wouldn't be opposed to having a new Traditional IRA account for the long-term, but I'm just trying to get a sense of my options.






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saving$
LSU Fan
Member since Nov 2012
34 posts

re: Various Financial Questions


You're asking the right questions.

I think you would benefit immensely by reading "The Bogleheads' Guide to Investing".

Good luck!







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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
30166 posts

re: Various Financial Questions


Sorry, but I don't know anything about this kind of transaction. My reading of this indicates that provided you fall under the stated income limits it makes sense that you could qualify. But I am not particularly knowledgeable about this. I suspect that your idea of converting it back wouldn't pass an audit but I have no clue how likely that would happen or what the penalties might be, if any at all. Good luck.





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Dead Mike
LSU Fan
Cell Block 4
Member since Mar 2010
1790 posts

re: Various Financial Questions


quote:

So I looked up vanguard IRAs and I think that is whom I will be going with. Still trying to decide between rolling my 401k into a Roth or Conventional IRA

1) If I roll it into a Roth, will I automatically meet my 5k a year investment cap for the first year? Its currently $25k
2) If I roll it into a conventional, can I then open a Roth on my own and fund that with 5k out of my checking account? (Im assuming that under law you can only have one Roth?)
3) I'm I correct in thinking that with the Roth, ANY gains I earn in it will not be taxed, ever?
4) If I do roll my 401k to a roth, will I just claim another 25k in income on my 2013 tax returns?


1. If you roll it over into a Roth, it won't be factored into your annual contribution limit.
2. I don't see why not. The rollover will not affect your $5000 overall IRA contribution limit.
3. So long as you start withdrawals after age 59.5, and the government doesn't change the rules, then yes.
4. Should be about that simple, but I know at least back in 2010 they were letting people spread the tax liability over two years.






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Lsut81
USA Fan
Member since Jun 2005
64953 posts

re: Various Financial Questions


quote:

You're asking the right questions.




I'm trying to learn as much as I can... I'm good with managing my money, just don't know how to invest what I have saved.






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Lsut81
USA Fan
Member since Jun 2005
64953 posts

re: Various Financial Questions


frick, I've been reading for the past 30 min on doing na IRA vs Roth IRA for the $25k in my old employer 401k and I cant make a decision

I think any way that I go, I will end up regretting it






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BennyAndTheInkJets
Arkansas Fan
NYC / Orange County
Member since Nov 2010
3995 posts

re: Various Financial Questions


quote:

There are numerous papers by competent parties which have studied equity returns over long periods of time which point to slower growing economies exhibiting stronger equity returns than faster growing economies. What you have written regarding projected/estimated future real returns would seem to make rational sense, but often it has not.

I understand these papers, you may have read a few that I haven't and vice versa but the common main arguement was that the 50's and 90's had the best stock market returns in a slowing growth environment. As you say the future is unknown, but all you can really do is look at the pre-existing conditions for each. In the 50's you were coming off the post-war recession and you had massive capacity to use with new labor. The 90's were a period of disinflation, falling interest rates, and broad outsourcing for cheaper expenses. Those same pre-existing conditions aren't around except for low interest rates.

The big theme I've ran into with these papers is that valuations trumps growth. If you believe stocks are still undervalued right now I completely understand your view, I just think they're slightly overvalued and slowing growth will cause people to sell if they believe equities are overvalued. Regardless, hopefully we both live to see 12/31/2017 so see which one of us is right.
quote:

During a period of above average market valuations one could also choose investments in funds or ETFs which have captured significant upside and experienced lower downside risk compared to investments in market cap indexes. Some people's personalities and skill set tilt them to trading, that's not my investing method.

I can never invest in ETFs, only trade them. The decay in ETFs is bad as it is, but those vehicles are so much more complicated than what meets the eye. I posted this in another thread but in Fall of 2011 there was a treasury ETF collateralized with 30% Italian BTPs.
quote:

Today, I couldn't advocate buying short or other duration TIPS as one is either buying negative yielding securities or accepting the volatility of long bonds for very inconsequential real yield. I bonds are a maybe, at least one is guaranteed stability of principal and maintains the option to sell with a very minimal ding to accrued interest after Yr1, through Yr5, then no penalty.

We agree on this, I wouldn't touch TIPS until past the 10-year mark.






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gatorsimz
Florida Fan
cafe risque
Member since Feb 2009
5449 posts

re: Various Financial Questions


quote:

frick, I've been reading for the past 30 min on doing na IRA vs Roth IRA for the $25k in my old employer 401k and I cant make a decision

I think any way that I go, I will end up regretting it


It's pay now, or pay later.

I'll give you a time value of money example:

Pay now- Roth (ex. 25% tax):
-Pay $6,250 in taxes.
-$18,750 leftover
-Assumed 8% return over 30 years gives you $188,674 tax free.
[ 188674= 18750 x (1.08)^30 ]

Pay later- Traditional (ex. 25% tax):
-No taxes now
-Invest 25k at 8% return over 30 years gives you $251k
[ 251,566 = 25000 x (1.08)^30 ]
-Gives you $188,674 after 25% tax

As you can see you end up with the same amount, $188,674. So it comes down to whether you believe taxes will be higher or lower when you retire. With $16.5 trillion of debt and counting and our unfunded liabilities, I'd bet on taxes being higher. Additionally, the ability to withdrawal contributions in the Roth IRA is a big plus.



This post was edited on 1/7 at 5:59 pm


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