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Re: Rick Ferri's 30 year market forecast 2015

Thanks, Kevin M, that is interesting. One question - when you look at the backtest and look at 20 year yields in 1972, why are you then talking about 20 year returns over a 42 year period? If you are looking at the 20-year, I guess what I'd be interested in is returns from 1972-1992, then 1973-1993...
by Kevin M
Mon Mar 30, 2015 2:01 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Rick Ferri's 30 year market forecast 2015

To say he is calling things overly optimistically when his long-term forecast is just over half the historical average seems inappropriate. I thought we had put this to bed, but for anyone who wants to take a closer look at some actual numbers to see why it is appropriate to question these forecast...
by Kevin M
Mon Mar 30, 2015 1:29 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Rick Ferri's 30 year market forecast 2015

Yes, to get higher returns over the long term, yields must increase, which requires some negative returns on the way to the higher yields. Reducing the short-term pain, say by yields rising more slowly, reduces the long-term returns. If I change the model so that yields increase by 25 basis points p...
by Kevin M
Sun Mar 29, 2015 5:37 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Rick Ferri's 30 year market forecast 2015

Modeling individual bonds is easier than modeling bond funds, and a model for an individual bond would be a reasonable starting point for estimating bond fund returns. Since Rick provides estimates for individual bonds, we might as well start there. You could model a rolling bond ladder, say in the ...
by Kevin M
Sun Mar 29, 2015 4:26 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Just completed my taxes... have some questions.

I know nothing about partnerships, but if self-employed, than you pay a self-employment tax that covers social security and Medicare. This is figured on Schedule SE, and is reported on form 1040. I know you said you're linked out, but unless you've read this, you probably should do so: Self-Employme...
by Kevin M
Sun Mar 29, 2015 4:18 pm
 
Forum: Personal Finance (Not Investing)
Topic: Just completed my taxes... have some questions.
Replies: 14
Views: 1274

Re: Rick Ferri's 30 year market forecast 2015

in the piece, Rick states: We show expected US bond returns under the assumption that interest rates will become more normalized over the next five years. So if we interpret "normalized" as returning to historic averages, that would mean a yield of about 6% for the 20-year Treasury. Start ...
by Kevin M
Sun Mar 29, 2015 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Rick Ferri's 30 year market forecast 2015

And, continuing with this thinking, I think the most reasonable assumption is that the bond returns are based on holding the indicated security for one year, then rolling it into a new security of the original maturity. Each year's return then consists of the coupon rate at the start of the year plu...
by Kevin M
Sun Mar 29, 2015 3:28 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Rick Ferri's 30 year market forecast 2015

I took Rick to be imagining a 2045 version of Simba's backtesting spreadsheet, and proposing that such a spreadsheet would have an average value, in the long-term government bond column, for the years 2015-2045, of 4.5%, assuming average inflation of 2%. That's all. He's not making any judgment abo...
by Kevin M
Sun Mar 29, 2015 3:19 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Saving for a Car - investing in ST Muni bond mutual fund

You can earn 3% on up to $10K or $20K in a reward checking account (RCA): Reward Checking Account Rates | High Yield Rewards Checking Accounts . There are some monthly requirements to qualify, but I find them pretty easy to meet. I have two RCAs, so am earning 3% on $45,000. Other than that, I would...
by Kevin M
Sun Mar 29, 2015 2:52 pm
 
Forum: Investing - Theory, News & General
Topic: Saving for a Car - investing in ST Muni bond mutual fund
Replies: 19
Views: 827

Re: 529 CO Stable Value Plus vs. EE Savings Bond

Thanks for the comments. Purchase limits ------------------ For EE bonds, $10K per year per owner, including $10K in account owned by living trust, so for me, $20K per year. Would be $30K/year for a couple with a living trust. For 529, can contribute $14K/year per beneficiary ($28K for married coupl...
by Kevin M
Sun Mar 29, 2015 1:06 pm
 
Forum: Investing - Theory, News & General
Topic: 529 CO Stable Value Plus vs. EE Savings Bond
Replies: 3
Views: 400

529 CO Stable Value Plus vs. EE Savings Bond

Late at night. Hope this makes sense. First draft. 529 CO Stable Value Plus plan provides 3.09% safe yield through 2015, which if used for qualified educational expenses is tax free. If used otherwise there is a 10% penalty and regular income taxes on earnings. So contribute to a plan for your grand...
by Kevin M
Sun Mar 29, 2015 6:38 am
 
Forum: Investing - Theory, News & General
Topic: 529 CO Stable Value Plus vs. EE Savings Bond
Replies: 3
Views: 400

Re: Rick Ferri's 30 year market forecast 2015

Fair enough.

Kevin
by Kevin M
Sun Mar 29, 2015 6:05 am
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Does a Fixed Income 529 Make Sense Even if Overfunded?

If one planned that, then I hope they would not invest their 529 plan predominantly in a fixed income fund. Why not? I don't have any other alternatives to earn a safe 3.09% tax free in 2015 (or 2.65% or whatever tax-equivalent return after taxes and penalty if used per the OP). Also consider an al...
by Kevin M
Sat Mar 28, 2015 9:53 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does a Fixed Income 529 Make Sense Even if Overfunded?
Replies: 20
Views: 967

Re: Does a Fixed Income 529 Make Sense Even if Overfunded?

Don't want to steal the thread, but add a wrinkle to spur even more dialogue over the same topic. What if owner A (you or me) overfunds for beneficiary B and C (their kids). Fast forward 20 years and their is still considerable monies in the accounts and the kids have been done with schooling for a...
by Kevin M
Sat Mar 28, 2015 9:40 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does a Fixed Income 529 Make Sense Even if Overfunded?
Replies: 20
Views: 967

Re: Rick Ferri's 30 year market forecast 2015

555 , this is why I said we would need to see Rick's assumptions about future yield curves if the strategy is to roll 30-year and 10-year Treasuries, say annually or monthly (he did not specify zeros, but you can get a similar effect with coupon bonds). Again, without a specification of the bond st...
by Kevin M
Sat Mar 28, 2015 8:55 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Suggest a good passive allocation 4 hi-tax-bracket inves

The truth is, I've read what you've written several times and I'm still not sure I entirely understand exactly what you are concluding. In fact, I've spend about 40 minutes typing and retyping this response. When you say "sometimes taking the extra risk" pays off, I believe you are referr...
by Kevin M
Sat Mar 28, 2015 4:15 pm
 
Forum: Investing - Help with Personal Investments
Topic: Suggest a good passive allocation 4 hi-tax-bracket investor
Replies: 43
Views: 3695

Re: Rick Ferri's 30 year market forecast 2015

The estimated expected returns for the longer-term bonds are meaningless unless Rick explains the assumed investment strategies. Here are two possibilities: ⋅ Buy the bond, hold it, and reinvest dividends in bond with same original maturity. Rinse and repeat with additional coupon payments...
by Kevin M
Sat Mar 28, 2015 3:19 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri's 30 year market forecast 2015
Replies: 107
Views: 9070

Re: Does a Fixed Income 529 Make Sense Even if Overfunded?

In a comment in his blog post on this ( Colorado Stable Value Plus 529 Plan: 3.09% Return Guaranteed In 2015 ), tfb posts this formula for the after-tax, after-penalty tax-equivalent yield: gross return * (1 – tax bracket – 0.1) / (1 – tax bracket) So for a combined marginal tax rate of 30% and gros...
by Kevin M
Sat Mar 28, 2015 2:14 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does a Fixed Income 529 Make Sense Even if Overfunded?
Replies: 20
Views: 967

Re: Does a Fixed Income 529 Make Sense Even if Overfunded?

If I put in money into Colorado stable value fund now and later if they change the rate, will the rate only apply to the new deposits or also to the existing deposits? If the new (lower) rate is applied to existing money too, then it cannot be compared to a CD right? The rate changes annually, and ...
by Kevin M
Sat Mar 28, 2015 1:43 pm
 
Forum: Investing - Help with Personal Investments
Topic: Does a Fixed Income 529 Make Sense Even if Overfunded?
Replies: 20
Views: 967

Re: Vanguard HealthCare Fund

I think health care is a stable industry overall, however, as a physician, I feel holding the fund puts me at higher risk as health care is where I make my money as well. One of the most rational observations so far. I may slowly move away from it and purchase individual stocks which interest me wi...
by Kevin M
Fri Mar 27, 2015 9:51 pm
 
Forum: Investing - Theory, News & General
Topic: Vanguard HealthCare Fund
Replies: 61
Views: 5133

Re: Suggest a good passive allocation 4 hi-tax-bracket inves

Let's try to nail this one down: To be clear, you can only use $3,000 in harvest loss to deduct from earned income, but harvesting more loss could be used to offset capital gains dividend gains, right? Yes, capital losses can be used to offset ordinary income up to $3,000 per year. Losses beyond tha...
by Kevin M
Fri Mar 27, 2015 9:43 pm
 
Forum: Investing - Help with Personal Investments
Topic: Suggest a good passive allocation 4 hi-tax-bracket investor
Replies: 43
Views: 3695

Re: Suggest a good passive allocation 4 hi-tax-bracket inves

A lot going on here, so let's just focus on one thing at a time. Usually in order to make these kinds of decisions, my approach would be to look at historical returns instead of just the current SEC yields. Is this a flawed approach? I take a buy and hold strategy and I'm mostly oblivious to the lar...
by Kevin M
Fri Mar 27, 2015 9:14 pm
 
Forum: Investing - Help with Personal Investments
Topic: Suggest a good passive allocation 4 hi-tax-bracket investor
Replies: 43
Views: 3695

Re: Newbie.. 401k & investment advice please

I personally would lean toward using more of the stable value fund in the 401k @ 3% over using TBM in IRA @ about 2% with more interest-rate risk. So closer to the latter suggestion. Just make sure you understand the restrictions on withdrawals from the SV fund. Typically you can't transfer directly...
by Kevin M
Fri Mar 27, 2015 4:33 pm
 
Forum: Investing - Help with Personal Investments
Topic: Newbie.. 401k & investment advice please
Replies: 40
Views: 2766

Re: Placing brokerage account into a living trust

In the above comment, I'm assuming your brokerage account is a taxable account. If an IRA, then the answer is "no". You cannot really put your IRA in your living trust, and there is no need to do so, since IRA assets do not go through probate, but are passed directly to named beneficiaries...
by Kevin M
Fri Mar 27, 2015 4:03 pm
 
Forum: Personal Finance (Not Investing)
Topic: Placing brokerage account into a living trust
Replies: 7
Views: 489

Re: Placing brokerage account into a living trust

The main benefit of living trust is avoiding probate. I assume that's why you have your living trust, and why you put your house in it. For the same reason, you want to put your brokerage account in your living trust. Transfer on death is an alternative, if your estate plans are simple. It is easy t...
by Kevin M
Fri Mar 27, 2015 3:48 pm
 
Forum: Personal Finance (Not Investing)
Topic: Placing brokerage account into a living trust
Replies: 7
Views: 489

Re: Suggest a good passive allocation 4 hi-tax-bracket inves

For example, when comparing Intermediate-term TE with Long term PA TE bond fund, I would save 3.06% in taxes on all gains from the LT PA fund. However, if in one year there's 1% change in interest rates, your rule of thumb say I'd lose 5.5% from the Interm TE fund but I'd lose 8% from the LT PA fun...
by Kevin M
Fri Mar 27, 2015 3:39 pm
 
Forum: Investing - Help with Personal Investments
Topic: Suggest a good passive allocation 4 hi-tax-bracket investor
Replies: 43
Views: 3695

Re: Wise move to move some $ to cash before bear market?

Based on your posts in this thread, it sounds like your willingness to take risk may be too low to justify a 70/30 portfolio. The comment about bailing out in 2008 supports this. Perhaps you would be better off with something like 50/50, with the intention of increasing your allocation to stocks if ...
by Kevin M
Thu Mar 26, 2015 9:10 pm
 
Forum: Investing - Theory, News & General
Topic: Wise move to move some $ to cash before bear market?
Replies: 79
Views: 6938

Re: Google voice

toofache32 wrote:You can't send/receive photos through text either, at least last time I tried maybe a year ago.

What I've been seeing recently is pictures attached to texts being sent to my Gmail; I see a text like "MMS received" in Google voice text.

Kevin
by Kevin M
Thu Mar 26, 2015 8:34 pm
 
Forum: Personal Consumer Issues
Topic: Google voice
Replies: 57
Views: 4360

Re: Suggest a good passive allocation 4 hi-tax-bracket inves

I guess I'll just follow what Vanguard does. I've had international stock target at 40% of equities for several years now, so Vanguard is finally catching up with me ;-) Of course their timing probably will work out better, since international has under-performed in recent years. I'm still having a...
by Kevin M
Thu Mar 26, 2015 2:33 pm
 
Forum: Investing - Help with Personal Investments
Topic: Suggest a good passive allocation 4 hi-tax-bracket investor
Replies: 43
Views: 3695

Re: Hedging interest rate risk

Thank you Kevin. The formula I found for a perpetual's duration was D = (1 + R)/R, based on the coupon rate R. Perhaps there should be an adjustment if the bond isn't trading at par, I'm not sure. Maybe you use the yield instead (= R * par / price)? The value of 16.67 was modified duration for a 6%...
by Kevin M
Thu Mar 26, 2015 1:03 pm
 
Forum: Investing - Help with Personal Investments
Topic: Hedging interest rate risk
Replies: 6
Views: 711

Re: Removing an asset from a living trust: Taxable event ??

So perhaps a CA estate attorney can weigh in here. In a community property state, individual assets of Spouse A and Spouse B are, for all practical purposes, co-mingled regardless of the title. Of course, the dates of marriage and/or co-habitation can play a role, and pre-nups are entities unto the...
by Kevin M
Thu Mar 26, 2015 11:41 am
 
Forum: Personal Finance (Not Investing)
Topic: Removing an asset from a living trust: Taxable event ??
Replies: 12
Views: 1046

Re: Hedging interest rate risk

Chan_va wrote:I am probably missing something basic, but if the interest rate is fixed, what is there to hedge? You are unaffected by rising rates right?

I think the idea is that the share price will fall as a function of rising rates.

Kevin
by Kevin M
Wed Mar 25, 2015 10:01 pm
 
Forum: Investing - Help with Personal Investments
Topic: Hedging interest rate risk
Replies: 6
Views: 711

Re: Vanguard HealthCare Fund

It seems that high growth expectations are priced in--at least to some extent. P/E ratio is 37.4, vs. P/E of 21.4 for Total Stock. Earnings growth rate is only 3.5% vs. 13.9% for Total Stock. Source: Stock Fund Attributes

Kevin
by Kevin M
Wed Mar 25, 2015 10:00 pm
 
Forum: Investing - Theory, News & General
Topic: Vanguard HealthCare Fund
Replies: 61
Views: 5133

Re: Suggest a good passive allocation 4 hi-tax-bracket inves

If I load up his 50K with TBM, what's left of the million outside the retirement accounts is more like 84/16 than 80/20. I would view retirement and taxable accounts as one portfolio if intended for the same goal (bequests, other long-term). So TBM is part of the 20%. So you put 150K of the million...
by Kevin M
Wed Mar 25, 2015 9:22 pm
 
Forum: Investing - Help with Personal Investments
Topic: Suggest a good passive allocation 4 hi-tax-bracket investor
Replies: 43
Views: 3695

Re: Hedging interest rate risk

Duration depends on the assumption you make about (or how you calculate) YTM. With coupon = YTM = 6%, duration is 16.67 years. If instead you assume YTM of 3%, duration is 33 years. I'm plugging in term to maturity of 300 years to get these values--plugging in longer terms doesn't change the duratio...
by Kevin M
Wed Mar 25, 2015 8:14 pm
 
Forum: Investing - Help with Personal Investments
Topic: Hedging interest rate risk
Replies: 6
Views: 711

Re: Vanguard HealthCare Fund

^Thank you! Now that we know it will drop in value, I vow to also invest a small part of my portfolio in VGHCX or the HC index ETF--but only after a significant decline; I'm thinking -30% or so. Or maybe just lag VTSMX by 30% between now and ... Someone please bump this thread when that happens. ;-)...
by Kevin M
Wed Mar 25, 2015 7:47 pm
 
Forum: Investing - Theory, News & General
Topic: Vanguard HealthCare Fund
Replies: 61
Views: 5133

Re: Vanguard HealthCare Fund

Although envious of its past performance, my only justification for adding it to my portfolio now would be ... past performance. This would simply be succumbing to hindsight bias. The only reasons I've seen here for justifying over-weighting healthcare seem to be based on the belief in some special ...
by Kevin M
Wed Mar 25, 2015 7:24 pm
 
Forum: Investing - Theory, News & General
Topic: Vanguard HealthCare Fund
Replies: 61
Views: 5133

Re: Suggest a good passive allocation 4 hi-tax-bracket inves

It's hard not to get into risk tolerance discussions when suggesting an 80/20 portfolio for someone described as "risk averse". From the description, it sounds like the friend is experiencing regret about not being in the market during the last few years of big returns. If I were helping a...
by Kevin M
Wed Mar 25, 2015 5:35 pm
 
Forum: Investing - Help with Personal Investments
Topic: Suggest a good passive allocation 4 hi-tax-bracket investor
Replies: 43
Views: 3695

Re: Newbie.. 401k & investment advice please

If you follow all of the steps in tfb's blog post, TurboTax will generate form 8606 for you, properly filled out. Do the Roth conversion first, then answer all of the TurboTax questions accurately (per tfb's blog post). Then, if you have the desktop version of TT, you can go into forms mode to view ...
by Kevin M
Wed Mar 25, 2015 4:02 pm
 
Forum: Investing - Help with Personal Investments
Topic: Newbie.. 401k & investment advice please
Replies: 40
Views: 2766

Re: Diversification question

My answer for REITs is the same as for small and value: if you have to ask, don't do it, although again, I personally have an allocation to the Vanguard REIT fund, and am happy to keep it. I did shift my rebalancing band down some after all the talk about high REIT valuations about a year ago, and t...
by Kevin M
Wed Mar 25, 2015 1:55 pm
 
Forum: Investing - Help with Personal Investments
Topic: Diversification question
Replies: 24
Views: 1602

Re: "Looming Crisis" in Corporate Bond Fund Liquidity

My own view is that investors are not being compensated for either the credit or liquidity risks of corporate debt right now. Why? The Baa/10-year CMT spread was lower 10 years ago (about 160 basis points) than it is now (about 250 basis points), yet the 10-year return of Vanguard Intermediate-Term...
by Kevin M
Wed Mar 25, 2015 1:37 pm
 
Forum: Investing - Theory, News & General
Topic: "Looming Crisis" in Corporate Bond Fund Liquidity
Replies: 16
Views: 2593

Re: Why Bonds With 20 Year Horizon?

I think OP has thought this through pretty thoroughly, and apparently has both the ability and willingness to be 100% in stocks for a few more years. I personally don't have the willingness to take that much risk, but risk aversion is a very individual thing. With respect to expected returns, I happ...
by Kevin M
Wed Mar 25, 2015 12:41 pm
 
Forum: Investing - Theory, News & General
Topic: Why Bonds With 20 Year Horizon?
Replies: 72
Views: 5146

Re: Developed & Emgerging vs Total International?

What was your original reasoning for the Developed/Emerging allocation? Other than simplification, do you have a well thought-out reason to change it so drastically now? You would be going from about 40% of international in EM to about 20%. If I did that, I would rather do it after an extended perio...
by Kevin M
Tue Mar 24, 2015 7:38 pm
 
Forum: Investing - Help with Personal Investments
Topic: Developed & Emgerging vs Total International?
Replies: 7
Views: 742

Re: Removing an asset from a living trust: Taxable event ??

No, moving assets into or out of a living trust are not taxable events.

Kevin
by Kevin M
Tue Mar 24, 2015 7:33 pm
 
Forum: Personal Finance (Not Investing)
Topic: Removing an asset from a living trust: Taxable event ??
Replies: 12
Views: 1046

Re: Diversification question

I would say that if you have to ask, you should not tilt. Although many forum members, including myself, feel that tilting to small and value makes sense for us, it is a hotly debated subject, and the "total market" crowd has some strong arguments in their favor. You will never find consen...
by Kevin M
Tue Mar 24, 2015 7:32 pm
 
Forum: Investing - Help with Personal Investments
Topic: Diversification question
Replies: 24
Views: 1602

Re: TIRA income limit because of pension plan

I already filed my taxes. Does that mean I can't recharacterize or is it the same as conversions? You can recharacterize and file an amended return; that's what I would do. Since you didn't get a deduction on the tIRA contribution, it won't change your taxes, but it will allow you to accurately rep...
by Kevin M
Tue Mar 24, 2015 7:11 pm
 
Forum: Personal Finance (Not Investing)
Topic: TIRA income limit because of pension plan
Replies: 6
Views: 255

Re: Vanguard HealthCare Fund

I don't, but I wish I had. It's more than just recently. According to M*, since 5/1984, $10K in VGHCX has grown to 1,542,859.75, while $10K in 500 Index (VFINX) has grown to 274,238.05. Also of note is that it held up better in 2008/2009. But since I can't invest in the past, and can't predict the f...
by Kevin M
Tue Mar 24, 2015 7:03 pm
 
Forum: Investing - Theory, News & General
Topic: Vanguard HealthCare Fund
Replies: 61
Views: 5133

Re: "Looming Crisis" in Corporate Bond Fund Liquidity

Interesting. I would expect this to show up as an illiquidity premium in corporate bond prices. I haven't seen any discussion of corporate/Treasury credit spreads widening. Let's look: http://s26.postimg.org/yn7b91r21/Credit_Spread.png So although it does look like a gradual increase in the last yea...
by Kevin M
Tue Mar 24, 2015 6:53 pm
 
Forum: Investing - Theory, News & General
Topic: "Looming Crisis" in Corporate Bond Fund Liquidity
Replies: 16
Views: 2593

Re: TIRA income limit because of pension plan

Note that you have until October 15, 2015 to recharacterize 2014 IRA contributions, but it's easier to do it before you file your tax return (you could file as late as October 15 if you file for an extension). Recharacterizing is is easier than converting, since the contribution is treated as if it ...
by Kevin M
Tue Mar 24, 2015 6:36 pm
 
Forum: Personal Finance (Not Investing)
Topic: TIRA income limit because of pension plan
Replies: 6
Views: 255
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