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Re: Help with a new $5m portfolio for an old lady

The CD solution is not nearly as complicated as apparently perceived. With five heirs, she could get by with four CDs at four banks. Each CD is designated as POD with the five heirs named as beneficiaries. But let's say she has two heirs. She can name the two heirs as beneficiaries on the four CDs, ...
by Kevin M
Tue Jul 29, 2014 10:53 pm
 
Forum: Investing - Help with Personal Investments
Topic: Help with a new $5m portfolio for an old lady
Replies: 32
Views: 1602

Re: Help with a new $5m portfolio for an old lady

I forgot to mention in my post above that I put my money where my mouth is. I am 20 years younger than your Mom, yet I have only 30% of my portfolio in stock funds. Of the 70% that is in fixed income, 70% of that is in direct CDs (bought directly from banks and credit unions), and 5% is in cash (mos...
by Kevin M
Tue Jul 29, 2014 7:23 pm
 
Forum: Investing - Help with Personal Investments
Topic: Help with a new $5m portfolio for an old lady
Replies: 32
Views: 1602

Re: 401k rollover debate..

Rolling over to an IRA would result in taxes on backdoor Roth contributions if those are being used or might be in the future. This is a big reason not to roll 401k to IRA. Both 401k plans have excellent funds. One reason to keep the old fund is to diversify the risk of your new employer changing to...
by Kevin M
Tue Jul 29, 2014 6:13 pm
 
Forum: Investing - Help with Personal Investments
Topic: 401k rollover debate..
Replies: 7
Views: 398

Re: Help with a new $5m portfolio for an old lady

Given her age, spending needs, and portfolio size, I'd say she needs to take no risk. She could put it all into safe, fixed-income investments with yields of 2% or more. Two percent of $5M is $100K, so that more than meets her expenses. I would put a big chunk of it into CDs purchased directly from ...
by Kevin M
Tue Jul 29, 2014 5:47 pm
 
Forum: Investing - Help with Personal Investments
Topic: Help with a new $5m portfolio for an old lady
Replies: 32
Views: 1602

Re: Was ready to pull plug on Janus..until

My understanding is that a regression on the three Fama-French factors typically explains a high percentage of the variation in fund returns. It also helps figure out which funds you should be comparing to. I'll just pick the first fund JANEX. Here are the factor loadings for 1/2/1998 through 6/30/2...
by Kevin M
Tue Jul 29, 2014 4:38 pm
 
Forum: Investing - Help with Personal Investments
Topic: Was ready to pull plug on Janus..until
Replies: 42
Views: 1665

Re: CD interest payments

^I clarified this in the fourth post.

Kevin
by Kevin M
Mon Jul 28, 2014 4:26 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD interest payments
Replies: 19
Views: 1377

Re: How well integrated is a VBS account on the Vanguard pag

The default is that your VBS account will appear right below the mutual fund account that has the associated money market fund used as the "sweep account". So if you open a taxable VBS account, you'll need a MM fund in the existing taxable mutual fund account, and the VBS account will appe...
by Kevin M
Mon Jul 28, 2014 4:09 pm
 
Forum: Personal Finance (Not Investing)
Topic: How well integrated is a VBS account on the Vanguard page?
Replies: 11
Views: 476

Re: If you tax adjust, how has it changed your life?

Maybe one day I'll try to do the calculation and see how much difference it makes. The tIRA accounts should be pretty easy. I have a relatively small amount in Roth, so it won't impact things much anyway. For taxable, I'll have to first net my capital loss carryovers and unrealized gains, then figur...
by Kevin M
Sun Jul 27, 2014 7:22 pm
 
Forum: Investing - Theory, News & General
Topic: If you tax adjust, how has it changed your life?
Replies: 16
Views: 1803

Re: Changing cost basis from Average Cost to Specific ID

Prior to the legislation requiring reporting of basis to the IRS, and the new distinction of covered and noncovered shares, Vanguard did not report cost of individual lots of mutual funds. If you wanted to use specific ID, you had to track it yourself. So when you convert noncovered shares, apparent...
by Kevin M
Sun Jul 27, 2014 6:37 pm
 
Forum: Investing - Theory, News & General
Topic: Changing cost basis from Average Cost to Specific ID
Replies: 6
Views: 465

Re: CD interest payments

PenFed is only one example. Different institutions have different policies, but I think you can usually have interest paid out in one way or another. They all allow reinvestment of interest in the CD at the CD rate (at least all I own, and I own CDs at quite a few different banks and credit unions)....
by Kevin M
Sun Jul 27, 2014 6:29 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD interest payments
Replies: 19
Views: 1377

Re: Factor investing - A parody

<snip>you're data mining. It depends on how you define data mining. If you define it as selecting the longest time period for which the tool I used had data for all three securities, then guilty as charged. I did not go looking for a period that showed anything in particular. It just so happened th...
by Kevin M
Sun Jul 27, 2014 4:58 pm
 
Forum: Investing - Theory, News & General
Topic: Factor investing - A parody
Replies: 22
Views: 1456

Re: In your opinion, who is in a riskier financial position?

Margin interest is callable and the rate can go up at a moment's notice. You can be forced to sell stocks at the worst time, no one calls a margin during a boom! That doesn't make the bank analogy a good one. The risks of lenders and borrowers are completely different. The question was about the ri...
by Kevin M
Sun Jul 27, 2014 4:30 pm
 
Forum: Personal Finance (Not Investing)
Topic: In your opinion, who is in a riskier financial position?
Replies: 36
Views: 2841

Re: Factor investing - A parody

When combining only two assets, the variance (or standard deviation) of each asset contributes significantly to the portfolio variance, although a correlation of less than 1 will mitigate it somewhat. So although correlation of Apple stock to the market may be low, the huge variance swamps out this...
by Kevin M
Sun Jul 27, 2014 3:46 pm
 
Forum: Investing - Theory, News & General
Topic: Factor investing - A parody
Replies: 22
Views: 1456

Re: Factor investing - A parody

Cute, but the parody has some serious flaws. A single stock has huge unsystematic (company-specific) risk. Portfolio theory tells us that there is no risk premium for unsystematic risk, since it can be diversified away by holding enough stocks in the portfolio. A small-cap value index fund has diver...
by Kevin M
Sat Jul 26, 2014 9:17 pm
 
Forum: Investing - Theory, News & General
Topic: Factor investing - A parody
Replies: 22
Views: 1456

Re: Bonds beat stocks over the last 15 years

In a hundred year period, after the first 25 years there are 76 different 25 year periods, each with a different start and end date. One thing I've learned from forum members who have strong statistics backgrounds is that rolling periods, which is what you're discussing, have high correlation to ea...
by Kevin M
Sat Jul 26, 2014 8:17 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: POLL: Do you own corporate bonds?

Let's stipulate that "total market fund" means any fund that invests in both corporate bonds and non-corporate bonds. No, let's not. The Vanguard Investment-Grade bond funds are much more corporate than government. I think the "tilting to corporate" comes largely from John Bogle...
by Kevin M
Sat Jul 26, 2014 8:00 pm
 
Forum: Investing - Theory, News & General
Topic: POLL: Do you own corporate bonds?
Replies: 35
Views: 2082

Re: Bonds beat stocks over the last 15 years

I am skeptical of the Norstrum article as it uses a theoretical model (random walk) and not real data to make its point. Skepticism is good, but the article does much more than just rely on the random walk model. It addresses the issue from several points of view, including discussions of several h...
by Kevin M
Sat Jul 26, 2014 7:39 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: In your opinion, who is in a riskier financial position?

House value drops about 20%, and person a is wiped out. Stocks must drop 50% for person B to be wiped out. From perspective of history, which is more common: 50% drop in stocks or 20% drop in housing values? I don't know, but I personally know several people who had to walk away from their real est...
by Kevin M
Sat Jul 26, 2014 6:33 pm
 
Forum: Personal Finance (Not Investing)
Topic: In your opinion, who is in a riskier financial position?
Replies: 36
Views: 2841

Re: Bonds beat stocks over the last 15 years

Kevin, re: "...uncertainty of return over a long holding period. This is illustrated in this chart that I shared in another recent thread on the long-term risk of stocks..." I might be off-point, but can't you see essentially the effect of increasing risk with time via the monte carlo sim...
by Kevin M
Sat Jul 26, 2014 3:14 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Bonds beat stocks over the last 15 years

As a young investor who currently subscribes to the mantra of being aggressive in equity when I am young...this is quite concerning. Should I change my IPS and dramatically reduce my equity??? I want to add that I advise my adult children in their late 20s to be 80% in stocks, and they are. My equi...
by Kevin M
Sat Jul 26, 2014 2:53 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Bonds beat stocks over the last 15 years

If that is actually a fallacy, as Norstad argues. Then what is the practical, real-world decision that would impact actual real world portfolios? Should we go 50/50 then? <snip> As a young investor who currently subscribes to the mantra of being aggressive in equity when I am young...this is quite ...
by Kevin M
Sat Jul 26, 2014 2:44 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Bonds beat stocks over the last 15 years

Here's the table from the Fama-French paper that shows their calculated values for the probability of the three risk premiums underperforming bills. The fourth row for each premium (e.g., Prob < 0, E(RM-RF) uncertain) includes the estimate of the uncertainty of the true expected value, as well as th...
by Kevin M
Sat Jul 26, 2014 1:47 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Bonds beat stocks over the last 15 years

My claim was that most of the extra volatility over long time periods comes from upward volatility. I'm sure there's still downward volatility, but I'm not convinced that it's less than the volatility for nominal bonds. Maybe inflation adjusted bonds. I wanted to get back to this point. My concern ...
by Kevin M
Sat Jul 26, 2014 1:12 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Bonds beat stocks over the last 15 years

The earlier linked Fama-French paper indicates that a 15 year period of underperformance of bonds over stocks should not be too surprising - as there is a non-zero probability that this can happen,even over longer time horizons. And as we have seen from history it has happened in the US three times...
by Kevin M
Fri Jul 25, 2014 11:28 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Treasury Direct--just blowing off steam

TIPS are probably close enough. Not for me. Real yield on TIPS is negative beyond 5-year maturities, and that comes with significant interest-rate risk. I Bonds have essentially no term risk. And between us, is the purchase or lack or purchase of I bonds going to materially affect the financial wel...
by Kevin M
Fri Jul 25, 2014 9:20 pm
 
Forum: Personal Finance (Not Investing)
Topic: Treasury Direct--just blowing off steam
Replies: 58
Views: 4068

Re: SEC Adopts Money Market Fund Reform Rules

Anyone care to comment on how this would play out in a state 529 plan? I would never choose to put money in a money market fund, given any other option. But my childrens' 529 funds have no other "safe" cash choices whatsoever. No FDIC insured savings accounts or CDs. My allocation glide p...
by Kevin M
Fri Jul 25, 2014 9:11 pm
 
Forum: Investing - Theory, News & General
Topic: SEC Adopts Money Market Fund Reform Rules
Replies: 52
Views: 2750

Re: Bonds beat stocks over the last 15 years

Given that there were two world wars, a cold war, and a global depression, the last century would seem to have had its fair share of tail risk. And long-term equity investors (with reasonable diversification) did fine. It depends on what you mean by reasonable diversification. True for a globally d...
by Kevin M
Fri Jul 25, 2014 9:03 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Treasury Direct--just blowing off steam

This is easy for me. Although I do not buy treasuries, if I did, I would be more than happy to pay Vanguard the 10 basis points or so and use a fund. As already pointed out, you cannot buy I Bonds (or EE Bonds) from Vanguard. You may happily not buy I Bonds from TD, but Vanguard won't take your mon...
by Kevin M
Fri Jul 25, 2014 8:54 pm
 
Forum: Personal Finance (Not Investing)
Topic: Treasury Direct--just blowing off steam
Replies: 58
Views: 4068

Re: SEC Adopts Money Market Fund Reform Rules

Doesn't money from selling any fund (bond or equity) have to go into a money market fund, from which it can then be withdrawn? Or can one have a mutual fund sold and get the proceeds directly, without first having the proceeds land in a money market fund? (This would be in tax-deferred accounts at ...
by Kevin M
Fri Jul 25, 2014 8:45 pm
 
Forum: Investing - Theory, News & General
Topic: SEC Adopts Money Market Fund Reform Rules
Replies: 52
Views: 2750

Re: Bonds beat stocks over the last 15 years

The return of a stock portfolio are more uncertain over long time periods mostly because there is more upside uncertainty, i.e. there is a huge range of possibilities for how much stocks will (say) beat the risk-free rate. Although it's true that historically the right tail has been fatter than the...
by Kevin M
Fri Jul 25, 2014 8:03 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: SEC Adopts Money Market Fund Reform Rules

Money market funds have never been guaranteed. Where a better alternative exists, one should use it. In a 401k/403b plan, a MM fund may still be the least risky alternative. You can use a combination of bond fund and MM fund to adjust fixed-income risk and overall portfolio risk to your preference, ...
by Kevin M
Fri Jul 25, 2014 7:33 pm
 
Forum: Investing - Theory, News & General
Topic: SEC Adopts Money Market Fund Reform Rules
Replies: 52
Views: 2750

Re: Living on Dividends

Hi David--welcome to the forum! I'm investing in small-cap value stock indices at the moment, but I may diversify in the future. Can you be more specific? You can't invest in an index, but you can invest in an index fund. Which funds are you investing in? What should I do with any extra funds after ...
by Kevin M
Fri Jul 25, 2014 7:03 pm
 
Forum: Investing - Help with Personal Investments
Topic: Living on Dividends
Replies: 18
Views: 4421

Re: SEC Adopts Money Market Fund Reform Rules

For those who didn't read the Vanguard article: The Securities and Exchange Commission (SEC) recently approved rules that will allow money market funds catering to individual investors to maintain a stable $1 share price. <snip> The vast majority of investors in Vanguard money market funds will not ...
by Kevin M
Fri Jul 25, 2014 6:26 pm
 
Forum: Investing - Theory, News & General
Topic: SEC Adopts Money Market Fund Reform Rules
Replies: 52
Views: 2750

Re: Bonds beat stocks over the last 15 years

Thanks Kevin for your thoughts. I understand using bonds to smooth out short-term volatility. Bonds are good for emergency funds and for investors who need to draw a stream of income from their portfolios. They're also good for delivering a smoother ride for investors. What I don't understand is ho...
by Kevin M
Fri Jul 25, 2014 6:14 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Bonds beat stocks over the last 15 years

I've always been puzzled by the idea that investors should invest in bonds because they "might" beat stocks over a long period of time. I'm puzzled by framing it this way. I don't have a high allocation to bonds (well, really a lot more CDs) because they might beat stocks. I do so because...
by Kevin M
Fri Jul 25, 2014 5:00 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: Treasury Direct--just blowing off steam

I've long since given up the idea of buying individual Treasuries, but if I needed to, I'd just buy them out of the brokers inventory at Schwab at no cost. It's amazing to me TD has any customers at all, given how ridiculous the whole setup seems to be. You can't buy savings bonds (I Bonds, EE Bond...
by Kevin M
Fri Jul 25, 2014 4:45 pm
 
Forum: Personal Finance (Not Investing)
Topic: Treasury Direct--just blowing off steam
Replies: 58
Views: 4068

Re: Bonds beat stocks over the last 15 years

. A related article by Fama-French on Volatility and Premiums in US Equity Returns. http://us.dimensional.com/pdf/Volatility_And_Premiums.pdf This is one of the most enlightening things I've read about the long-term equity risk premium and SmB and HmL premiums. One really nice thing about this piec...
by Kevin M
Fri Jul 25, 2014 3:53 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: The article on tax efficient placement needs to be rewri

It might be better for the Wiki to explain systematically how taxation of assets in different locations works rather than try to formulate a blanket statement about what anyone and everyone "should" do under all conditions. :thumbsup :thumbsup If the Wiki simply summarizes the information...
by Kevin M
Fri Jul 25, 2014 2:28 pm
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 75
Views: 4026

Re: In your opinion, who is in a riskier financial position?

This is what got the banks in trouble partly. All debt is not equal to each other; neither are assets. I don't think this reasoning applies here. Banks are lenders, and here we're talking about borrowers. The quality of debt matters from a lender's (owners) perspective. As an owner of a bond fund, ...
by Kevin M
Fri Jul 25, 2014 2:05 pm
 
Forum: Personal Finance (Not Investing)
Topic: In your opinion, who is in a riskier financial position?
Replies: 36
Views: 2841

Re: In your opinion, who is in a riskier financial position?

From a leverage perspective, person A has more risk. Person A has asset/debt = 340/270 = 1.3, and net equity/debt = 70/270 = 0.26 Person B has asset/debt = 200K/100K = 2 and net equity/debt = 100/100 = 1. House value drops about 20%, and person a is wiped out. Stocks must drop 50% for person B to be...
by Kevin M
Thu Jul 24, 2014 7:56 pm
 
Forum: Personal Finance (Not Investing)
Topic: In your opinion, who is in a riskier financial position?
Replies: 36
Views: 2841

Re: Bonds beat stocks over the last 15 years

This is a good post to remind us not to confuse outcome with strategy, and that stocks are risky regardless of investment horizon. Thanks Robert.

Kevin
by Kevin M
Thu Jul 24, 2014 7:25 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7571

Re: The article on tax efficient placement needs to be rewri

learning_head, I don't know if you realize it, but you have provided a simplified summary of the Reichenstein paper. EDIT: Except one of your conclusions is somewhat different. Reichenstein concludes that bonds in taxable makes sense at low rates for investors with above average risk aversion, not i...
by Kevin M
Thu Jul 24, 2014 5:12 pm
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 75
Views: 4026

Re: The article on tax efficient placement needs to be rewri

I took a longer look at the Reichenstein paper. It looks like they used a bond return of 5%. That's not a reasonable assumption in today's fixed income environment. Doc, if you look further down in the paper, you'll see that he does address the current low interest-rate environment. One of his scen...
by Kevin M
Thu Jul 24, 2014 5:08 pm
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 75
Views: 4026

Re: Need Help and totally confused!!

As a banker, it's amusing how people obsess about making sure every last dollar of their cash is FDIC insured by spreading funds among multiple banks. Careful here. Perhaps all bankers don't understand the FDIC resolution process for failed banks. From FDIC: Resolutions Handbook (Chapter 2): Deposi...
by Kevin M
Thu Jul 24, 2014 4:59 pm
 
Forum: Investing - Help with Personal Investments
Topic: Need Help and totally confused!!
Replies: 28
Views: 1785

Re: "Asset Location Revisited"

This paper concludes by indicating that except in rare cases, investors should hold stocks in taxable accounts and bonds in retirement accounts . (underline mine) Thanks Taylor. For those still confused, here's a simple proof anyone should be able to follow/reproduce: Assumptions: Stock divs: 2%. S...
by Kevin M
Thu Jul 24, 2014 3:39 pm
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 75
Views: 4026

Estate planning

I don't want to presume anything, so perhaps you could tell us whether or not you have an updated will, trust, advanced medical directive, etc. How about a special needs trust for your child (may or may not be appropriate)? Do you already have an attorney to help you with these things? Perhaps you u...
by Kevin M
Thu Jul 24, 2014 2:26 pm
 
Forum: Investing - Help with Personal Investments
Topic: Need Help and totally confused!!
Replies: 28
Views: 1785

401k

It's probably a little early to dig into your 401k. It's a relatively small portion of your "portfolio", and right now you probably want to pay attention to the forest and not get distracted too much by a few trees. I asked about it just to get a sense of how it is invested. It is spread a...
by Kevin M
Thu Jul 24, 2014 2:04 pm
 
Forum: Investing - Help with Personal Investments
Topic: Need Help and totally confused!!
Replies: 28
Views: 1785

Re: The article on tax efficient placement needs to be rewri

Nice post, stlutz. One of Taylor's often shared sayings comes to mind: "When experts disagree it is often because it doesn't matter". I like to share the blog posts of Bogleheads like tfb (TheFinanceBuff) and EmergDoc (WhiteCoatInvestor), as well as BH posts of folks like Doc, because they...
by Kevin M
Wed Jul 23, 2014 10:55 pm
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 75
Views: 4026

Re: Need Help and totally confused!!

Sorry for your loss. You have come to a good place for some coaching on the financial aspects. let's see in my 401K I have 163,000 dollars. I am contributing 16% and my company matches dollar for dollar the first 7% What funds is this invested in? How much in each? What we'll eventually want to know...
by Kevin M
Wed Jul 23, 2014 10:38 pm
 
Forum: Investing - Help with Personal Investments
Topic: Need Help and totally confused!!
Replies: 28
Views: 1785
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