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Re: Easy Money

Devil's Advocate wrote:So since inflation is essentially non existent why do we all complain about the low interest rate environment?


Correct me if I am wrong, when looking at the long term history, we are currently in a very low real interest rate environment.
by kmok
Thu Feb 19, 2015 12:06 am
 
Forum: Investing - Theory, News & General
Topic: Easy Money
Replies: 18
Views: 1880

Re: Savings Rate Methodology

Gross is much more common. So if you are comparing others or recommendation from books or blogs, then use gross. However, for your personal purposes, you can choose to use net. If you have already done your best to minimize taxes, then you can use net to see how you are doing over time, especially i...
by kmok
Sun Feb 15, 2015 3:37 pm
 
Forum: Personal Finance (Not Investing)
Topic: Savings Rate Methodology
Replies: 22
Views: 1945

Re: Effects of early retirement on Social Security benefits?

Social Security benefit is calculating based on the 35 years of earnings. For example, if you only work for 20 years, Social Security will put $0 income on the remaining 15 years, which would significantly lower the Average Indexed Monthly Earnings (AIME). AIME is used to calculate your benefit. How...
by kmok
Sat Jan 31, 2015 3:16 pm
 
Forum: Personal Finance (Not Investing)
Topic: Effects of early retirement on Social Security benefits?
Replies: 8
Views: 953

Re: Stop 401K To Save More Cash

Without providing more details it is hard to provide recommendation. For example, your annual spending, amount of emergency fund, portfolio, income, tax rate, and etc.
by kmok
Thu Jan 29, 2015 9:36 pm
 
Forum: Personal Finance (Not Investing)
Topic: Stop 401K To Save More Cash
Replies: 5
Views: 738

Re: Wiki comments requested: The importance of asset allocat

Maybe these quotes should be considered: "in the late nineteen eighties, Gary Brinson, a noted money manager and financial analyst and his colleagues published two sophisticated statistical studies of eighty two large pension funds, but concluded that asset allocation accounted for over ninety ...
by kmok
Thu Jan 29, 2015 9:29 pm
 
Forum: Investing - Theory, News & General
Topic: Wiki comments requested: The importance of asset allocation
Replies: 208
Views: 10611

Re: Help with increasing employee stock option tax burden

You said you don't want to miss the upside. If there is an upside, there is a downside. Every individual stock does.

If you are going to exercise, you should sell immediately. The risk is too high to have too much of one company's equity tie to your networth.
by kmok
Tue Jan 27, 2015 2:46 pm
 
Forum: Investing - Help with Personal Investments
Topic: Help with increasing employee stock option tax burden
Replies: 9
Views: 816

Re: What counts as "saving"?

Okay, in the same situation you just posted, if that person had instead spent that $3,000 on a Roth IRA, what would you say their savings rate was? Using your logic and example, I have convincingly (at least in my opinion) prove that your logic and analysis is flawed. If you disagreed, please provi...
by kmok
Tue Jan 20, 2015 4:53 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

[...] At the beginning of 2014, Tom has $5,000 in Cash and owns a house valued at $120,000 with a $100,000 mortgage (no other assets or debts). His net worth is $25,000 For 2014, Tom had $50,000 in take home pay after taxes (no retirement contributions). He spent $54,000 , which includes his mortga...
by kmok
Tue Jan 20, 2015 4:30 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

[...] At the beginning of 2014, Tom has $5,000 in Cash and owns a house valued at $120,000 with a $100,000 mortgage (no other assets or debts). His net worth is $25,000 For 2014, Tom had $50,000 in take home pay after taxes (no retirement contributions). He spent $54,000 , which includes his mortga...
by kmok
Tue Jan 20, 2015 4:29 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

It looks like you agree with me that savings in my scenario is $23,000. We would come to the same "savings rate" (assuming a $60,000 gross income, this person would save 38.33% of their gross income). So why argue the semantics of when and how the principal payment was made? I understand ...
by kmok
Tue Jan 20, 2015 4:14 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

Let's use this very simplistic look at an increase in Net Worth (saving?): At the beginning of 2014, Tom has $5,000 in Cash and owns a house valued at $120,000 with a $100,000 mortgage (no other assets or debts). His net worth is $25,000 (if you count the house as an asset or not is another discuss...
by kmok
Tue Jan 20, 2015 3:27 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

Paying off debt reduced both your assets and liabilities , thus have no impact on your net worth, thus it is not saving nor spending. I am not going to get into the debate whether paying off debt is savings or not (It is starting to resemble a political or religious debate of zealots) However, your...
by kmok
Tue Jan 20, 2015 12:56 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

Paying off debt reduced both your assets and liabilities , thus have no impact on your net worth, thus it is not saving nor spending. I am not going to get into the debate whether paying off debt is savings or not (It is starting to resemble a political or religious debate of zealots) However, your...
by kmok
Tue Jan 20, 2015 12:18 am
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

Fair enough, kmok. If I implied discussing accepted methods is not useful I misspoke. That said, I don't see the unity between discussing them and reading "'We saved 50% every year and now we're multimillionaires' (paraphrasing)." I certainly do not, in any serious sense, suggest buying a...
by kmok
Mon Jan 19, 2015 7:35 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

... I doubt the distinction will affect my own actions at all. But when reading the advice to "save XX% of your income," or when reading of people saying "We saved 50% every year and now we're multimillionaires" (paraphrasing), I get to wondering what exactly people consider to ...
by kmok
Mon Jan 19, 2015 7:06 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

My view is savings is acquiring "new" money and not spending it. So, you get a $2,000 paycheck and put $200 in a 529 plan, you've "saved" $200. It doesn't matter what you saved the money for. You could save it for education, retirement, a trip, a car, or a rainy day. It's still ...
by kmok
Mon Jan 19, 2015 6:48 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: What counts as "saving"?

What types of things count as "saving"? Examples: - Extra mortgage principal payments? In the long term the payments will shorten the mortgage term. You're paying down debt, but I tend to view this as saving, although I can't really give a rationale for it. Paying off debt is spending not...
by kmok
Mon Jan 19, 2015 5:56 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 6956

Re: Size + Value Premium Explained

Can someone explain to me more in depth how the size/value premiums work? I don't understand why Growth stocks and Large Caps underperform small and value long term. 1. Is the value premium only existent because a few undervalued companies really outperform while most fail (so you need a fund to ca...
by kmok
Sun Jan 18, 2015 2:46 pm
 
Forum: Investing - Theory, News & General
Topic: Size + Value Premium Explained
Replies: 5
Views: 518

Re: Question on creating a budget which accounts for taxes.

You can tried to applied the salary with the effective tax rate if you only have salary income. The rest of the income items applied at the marginal tax rate.
by kmok
Fri Jan 02, 2015 5:37 am
 
Forum: Personal Finance (Not Investing)
Topic: Question on creating a budget which accounts for taxes.
Replies: 5
Views: 526

Re: What does large cap add

Not sure if I understand your questions. But large caps makes up most of the market. For example, S&P 500 comprises 75% of the US market capitalization of US stocks, so in order not to have a huge tracking error and you need to have large caps in your portfolio. When most experts talking about t...
by kmok
Fri Jan 02, 2015 5:30 am
 
Forum: Investing - Theory, News & General
Topic: What does large cap add
Replies: 11
Views: 1109

Re: Roth vs. Traditional w/tax savings invested.

First of all, let’s assumed the marginal tax rate for contribution and withdraw are the same. Contribution to a tax deferred and tax free account would be the same, unless you reach the maximum contribution limit. In this case, $5.5k contribution limit for tax deferred and tax free account would not...
by kmok
Wed Dec 31, 2014 2:27 pm
 
Forum: Investing - Help with Personal Investments
Topic: Roth vs. Traditional w/tax savings invested.
Replies: 11
Views: 1172

Re: Square pegs won't go in round holes! Net Worth and Cash

That approach fails to differentiate a 200K home from a 2 million home. and is useless if you have non tinkertoy assets. a house does not reduce your need for income. It produces income in the form of imputed rent which you then spend on housing. You cant analyze your "need" for income wi...
by kmok
Sun Dec 28, 2014 6:09 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

Why don't you explain how, in your view, one can make better portfolio allocation decisions after converting everything to its present value? Your portfolio is one part of your overall assets. it can range from 0% to 100% Your overall assets have to match your overall risk tolerance. If your portfo...
by kmok
Sun Dec 28, 2014 3:49 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Where to hold bond allocation

Just switched employers and having some trouble figuring out how to allocate my bond holdings. I used to keep all my bonds in 401k and filled the remaining space with equities and my Roth IRA was entirely equities. On my new employers plan, the expense ratio for the bond funds is much higher than I...
by kmok
Sat Dec 27, 2014 10:08 pm
 
Forum: Investing - Help with Personal Investments
Topic: Where to hold bond allocation
Replies: 3
Views: 539

Re: Square pegs won't go in round holes! Net Worth and Cash

It is interesting you used legal property definition to talk about finance, especially when the finance definition is much more common. I suggest when you do that, you should define the key terms first, unless you are talking to legal professions only. Otherwise, you create a lot of confusion. the ...
by kmok
Sat Dec 27, 2014 6:08 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

Asset allocation is an irrational process. Yes, for a desired risk level, you can do a pretty rational determination of asset mix based on historical volatility, but the decision about risk level is entirely up to the individual investor. Although some asset allocation decisions have measurable fin...
by kmok
Sat Dec 27, 2014 5:33 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

It is interesting you used legal property definition to talk about finance, especially when the finance definition is much more common. I suggest when you do that, you should define the key terms first, unless you are talking to legal professions only. Otherwise, you create a lot of confusion. the ...
by kmok
Sat Dec 27, 2014 5:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

I am using the legal property definition of "liquid". an asset is "liquid" when you have the legal right to turn it into cash Shares of stock (or any other property) that you own but cannot legally sell are not liquid. Social security and pension benefits are not liquid. My shar...
by kmok
Sat Dec 27, 2014 4:16 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

I don’t know how illiquid asset generally cannot be held in portfolios. The definition of portfolio is “a collection of investments held by an investment company, hedge fund, financial institution or individual.” ..... Illiquid is “The state of a security or other asset that cannot easily be sold o...
by kmok
Fri Dec 26, 2014 11:48 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

No, it's not consistent. You do not convert stock to flow when you buy the annuity. As you say, the annuity is an asset. So purchasing the annuity converts an asset to an asset. An annuity, just like any other financial assets, is valued based on the projected cash flows. Do you convert stock to a ...
by kmok
Fri Dec 26, 2014 4:22 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

Of course they are assets. They are not portfolio assets. But they are assets. And what is the value of these assets? Why not include the presumed value of human capital in net worth? Docs accepted at medical school are "worth" a minimum for 10 million, even though they may start actual w...
by kmok
Thu Dec 25, 2014 7:55 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

Liquidity is an attribute of both stocks and flows but it is not particularly important. Social security benefits are not liquid but that does not prevent the right to a benefit from being an asset in a net worth analysis. If social security is not an asset an identical debt payable in monthly inst...
by kmok
Thu Dec 25, 2014 6:23 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

The Wizard wrote:Cashflows for pre-retirees don't yet exist.
Whereas an accumulation of $X00k does exist.


Cashflow is not for retirees only. Anyone with cash inflows and outflows can prepare cashflows for various purposes such as budgeting and forecasting.
by kmok
Thu Dec 25, 2014 4:12 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Square pegs won't go in round holes! Net Worth and Cash

Liquidity is an attribute of both stocks and flows but it is not particularly important. Social security benefits are not liquid but that does not prevent the right to a benefit from being an asset in a net worth analysis. If social security is not an asset an identical debt payable in monthly inst...
by kmok
Thu Dec 25, 2014 4:05 pm
 
Forum: Personal Finance (Not Investing)
Topic: Square pegs won't go in round holes! Net Worth and Cash flow
Replies: 83
Views: 7232

Re: Do Companies Index Their Profits?

I think most companies don't do this, except certain industries such as investment banks of course. Public companies can't take the risk as they don't want to explain to their investors why they have a huge capital lost. Their risk tolerance is too high for this. If a company have a big pile of mone...
by kmok
Mon Dec 22, 2014 2:12 am
 
Forum: Investing - Theory, News & General
Topic: Do Companies Index Their Profits?
Replies: 15
Views: 1273

Re: Using balanced funds to avoid rebalancing

If you have different type of account such as taxable and tax advantage accounts, you may not want to use balance fund because different investments have different tax efficiencies, thus you want to place certain investments in certain types of accounts. Rebalancing generally don't give you a higher...
by kmok
Sun Dec 21, 2014 2:01 am
 
Forum: Investing - Theory, News & General
Topic: Using balanced funds to avoid rebalancing
Replies: 30
Views: 2614

Re: Contribute to rollover IRA?

Agreed with placeholder that your exceptionexception is generally not true. I would not recommend contribution to rollover IRA for asset protection perspective. Each state is different but it is possible that you are not helping your asset protection if you mix direct Roth contribution with rollover...
by kmok
Sun Dec 21, 2014 1:51 am
 
Forum: Investing - Help with Personal Investments
Topic: Contribute to rollover IRA?
Replies: 3
Views: 499

Re: Beta vs Excess Returns

I am no expert, but on I think on average beta can explain around 70% of the returns. However, you cannot applied this 70% to one particular stocks, since for some stocks beta can explain more than 70% while other stocks beta can explain less than 70%.
by kmok
Thu Dec 18, 2014 8:58 pm
 
Forum: Investing - Theory, News & General
Topic: Beta vs Excess Returns
Replies: 3
Views: 485

Re: HSA question

An HSA account is like an IRA on steroids. You take the tax deduction when you contribute money, but when you use the money in your HSA for medical expenses and qualified health insurance premiums, it comes out tax-free as well. Now this is true for federal tax. State tax can be different. It depend...
by kmok
Thu Dec 18, 2014 4:56 pm
 
Forum: Personal Finance (Not Investing)
Topic: HSA question
Replies: 12
Views: 1360

Re: Risk-Adjusted Equity Returns - CAPM vs. Fama-French

The three factor model is an improved and more precise model compared to CAPM.

Now I don't think there is much of an argument that small premium is due to higher risk.

There is a lot of debate whether the value premium is due to higher risk, or whether it is a free lunch.
by kmok
Thu Dec 18, 2014 2:07 am
 
Forum: Investing - Theory, News & General
Topic: Risk-Adjusted Equity Returns - CAPM vs. Fama-French
Replies: 15
Views: 1041

Re: Why a Boglehead doesn't invest in individual companies?

Diversification is one of the few free lunch in investing. It allows lower risk based on an given expected return. Even if you own 50 stocks, you won't take full advantage of diversification. In a given year, only a small portion of the companies beat the market, the marjority trailed the market. Yo...
by kmok
Wed Dec 17, 2014 12:40 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why a Boglehead doesn't invest in individual companies?
Replies: 142
Views: 16287

Re: Could it be worth using Roth even in a high tax bracket?

Sure, there are uncertainty of future taxes, and even your future income, returns, withdraw rates, retirement age, and etc. Since all of these factors are not certain at the moment, even if you are expecting to be slightly worse off by contributing to Roth, it may make sense to diversifying your con...
by kmok
Tue Dec 16, 2014 7:16 pm
 
Forum: Investing - Theory, News & General
Topic: Could it be worth using Roth even in a high tax bracket?
Replies: 37
Views: 2513

Re: Invest in One Lump Sum or Spread Out?

Lump sum has higher risk but higher expected return. Spreading out has lower risk but lower expected return.
by kmok
Tue Dec 16, 2014 4:41 pm
 
Forum: Investing - Help with Personal Investments
Topic: Invest in One Lump Sum or Spread Out?
Replies: 9
Views: 678

Re: Stronger protection against personal lawsuits

It is different from state to state. If you are doing it, make sure it is a separate account, not an account with direct Roth ira contribution.
by kmok
Sun Dec 14, 2014 9:24 pm
 
Forum: Personal Finance (Not Investing)
Topic: Stronger protection against personal lawsuits
Replies: 12
Views: 1839

Re: Rebalancing Question

I think the standard answer is that expected returns from stocks are higher than bonds. Since Roth is tax-free, that is where you should hold stocks. Bonds (to the extent your AA allows) should be in Traditional Tax-Deferred accounts, tIRA and 401k. This is true if you do tax-adjust. Huh? Precisely...
by kmok
Sun Dec 14, 2014 12:51 pm
 
Forum: Investing - Help with Personal Investments
Topic: Rebalancing Question
Replies: 5
Views: 682

Re: Rebalancing Question

Leeraar wrote:I think the standard answer is that expected returns from stocks are higher than bonds.

Since Roth is tax-free, that is where you should hold stocks. Bonds (to the extent your AA allows) should be in Traditional Tax-Deferred accounts, tIRA and 401k.

L.


This is true if you do tax-adjust.
by kmok
Sat Dec 13, 2014 10:51 pm
 
Forum: Investing - Help with Personal Investments
Topic: Rebalancing Question
Replies: 5
Views: 682

Re: Building a new Excel spreadsheet

Dividends and capital gains distributions increase the total share count and add to the cost basis of the original investment - so they don't come in at zero cost, they are added to the most recent cost basis. They however are not part of any XIRR calculation, so they don't get treated the same as ...
by kmok
Thu Dec 11, 2014 5:21 pm
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 3166

Re: Building a new Excel spreadsheet

So the entry for a dividend or cap gain would only record the # of shares and the current value (today's NAV)? And the gain would be equal to the current value and would fluctuate with the NAV? Similarly, any fees or redemptions would only record the # of shares and the NAV on that date? And the lo...
by kmok
Thu Dec 11, 2014 2:59 pm
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 3166

Re: Building a new Excel spreadsheet

Assuming all dividends are reinvested, you can treat this as a purchase of shares with $0.
by kmok
Thu Dec 11, 2014 1:13 pm
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 3166

Re: How to Split 3 Fund Portfolio Across Taxable, Roth, & 40

Some would argue that you should put the high growth-style assets in your ROTH, because that's the only account of the three that won't have to pay taxes on your profit at the end of the road (when you sell/withdraw). So, in the case of the 3 Fund Portfolio, the highest growth (well, what's going t...
by kmok
Wed Dec 10, 2014 6:43 pm
 
Forum: Investing - Theory, News & General
Topic: How to Split 3 Fund Portfolio Across Taxable, Roth, & 401K?
Replies: 9
Views: 535
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