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by NiceUnparticularMan
Sun Jan 28, 2024 9:11 pm
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

abc132 wrote: Sun Jan 28, 2024 11:06 am I can tell you that the people that measure risk for a living (pandemic, outbreak, etc) modelling don't use point estimates. It must be a probability-based model if it is going to measure risk. You must look at the range of outcomes if you are truly analyzing risk instead of central estimates or conservative central estimates.
Completely agree.
by NiceUnparticularMan
Sat Jan 27, 2024 3:39 pm
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

The LMP should be built by those with the luxury to do so (with portfolio in excess of needed spending) precisely because the forward predictions have been and are expected to be wildly inaccurate. Backtesting tells us this. So for sure any decent forward predictions should include error bars indicating the wide range of possible outcomes around the central estimate. You of course do not need backtesting to see why, just any plain chart indicating the variability of real returns for risky assets will do. Backtesting, in my view, just adds a layer of highly misleading analysis on top of all this. Backtesting basically takes the historic distribution of real return outcomes and just implicitly assumes that is a good prediction of the future ...
by NiceUnparticularMan
Sat Jan 27, 2024 3:29 pm
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

yolointopants wrote: Wed Jan 24, 2024 7:57 pm That's clever. Are there any other TDF funds that are non gated (e.g. don't require RIA to buy) doing something similar, or do you know of a suitable screener I could use to find them?
None of the big fund companies, and in fact no others I have seen at all, seem to have a similarly simple approach using roughly liability-matched TIPS in their target funds.

I note the big fund companies really can't--their target funds collectively are so large at this point there simply is not a big enough TIPS market. Indeed, Vanguard alone is arguably too big.
by NiceUnparticularMan
Sat Jan 27, 2024 3:21 pm
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

Anyway, I am basically repeating myself, but this sequence of thoughts has come up before in those LMP conversations, and other places too. Like, for example, any time people are looking at what DFA does in their Target funds, it turns out they are pretty much doing a version of this. So in fact is the Thrift Savings Plan. If you read their literature, they talk about their models, explain how they account for Social Security, all that stuff. DFA's 2025 Target Date Fund, DRIUX, is 70% TIPS or similar: Liability-Driven Investment 70.85% Inflation-Protected Securities Portfolio (I) 50.02% LTIP Portfolio 20.83% https://www.dimensional.com/us-en/funds/driux/dimensional-2025-target-date-retirement-income-fund Even their 2030 fund is still 52% T...
by NiceUnparticularMan
Wed Jan 24, 2024 4:07 pm
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

abc132 wrote: Tue Jan 23, 2024 11:42 am Why does someone at 40x 50/50 AA need inflation protection? They probably don't
I would also add another question. Why do you need a 40X portfolio to provide a certain amount of real retirement income such that the portfolio size is 40 times that amount annualized?

The answer is you almost surely don't. Very likely you can take some of that wealth, possibly a lot of that wealth, and do something else with it besides that.
by NiceUnparticularMan
Wed Jan 24, 2024 4:02 pm
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

I agree with everything you say until you get to your methodology. I don't see any risks being quantified or that their magnitudes being compared. I am modelling portfolio size, AA, and magnitude of social security in this thread: https://www.bogleheads.org/forum/viewtopic.php?t=419511 Right, so basically I don't believe in backtesting like that. I believe in forward-looking asset models. If you have an estimated budget defined in real terms and make some realistic assumptions about taxation, you can see how much of that budget your Social Security will cover. You can then do what I called simulating Social Security to cover the rest. You don't need to backtest that, but you do need some forward-looking real income estimates. Again, this i...
by NiceUnparticularMan
Tue Jan 23, 2024 7:59 am
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

2pedals wrote: Mon Jan 22, 2024 9:21 pm In my case I continued to work until about 60 to increase my fixed pension income. I wouldn’t have been better off retiring earlier. This practically eliminated my risk to out live my savings. SS and pension income should have us covered after I start taking SS at 70 in 5 years. Unless we get some very serious inflation spurts.
To sort of keep going with the conceptual framework I was sketching, things like a work pension can indeed really help supplement Social Security, particularly if you are "buying" it at a cheap price relative to the crediting rate. Of course ideally it would be inflation adjusted, but even if not you can then mix in relatively mild allocations of other stuff to simulate inflation adjustments.
by NiceUnparticularMan
Tue Jan 23, 2024 7:23 am
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

I like what you said in the blue highlighted portion. I do think the meaning of "bond" changed once the fiat currency regime took hold in 1934. What once had been a promise to pay back the same money you put in (gold), deteriorated into a vague promise to, "Fer sher, we'll pay you back something that looks like what you put in, but its worth will be whatever." Conversely, serious deflation is only possible under a gold standard. Not gonna happen again. That's sort of the general way I think about all this as well. People like to talk about these financial asset classes as having a fixed nature, which would be nice for planning purposes to be sure. But in fact their nature is determined by the legal, financial, and econo...
by NiceUnparticularMan
Tue Jan 23, 2024 7:12 am
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

In my case I am building up only 5-10% of the portfolio in long bonds and I'm perfectly happen to rebalance them away if stocks drop in a non-inflationary recession. Yeah, I think long nominals do make sense for such a plan, at something like that level of allocation in an otherwise stock-heavy long-term portfolio. I will note too that at current interests rates there is both less opportunity cost and more upside potential for this strategy. This is a controversial topic since to some people it sounds like market-timing (although I would disagree), but when long bond nominal rates were much lower and real rates actually negative, I thought this sort of strategy was obviously much riskier. Most models don't include social security or consid...
by NiceUnparticularMan
Mon Jan 22, 2024 10:38 am
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

I agree. I currently have about 75% of my fixed income invested in intermediate TIPS funds. I might increase my percentage. Yeah, when you do not really have much idea of when you might want to spend, if at all, a suitable rolling ladder of TIPS--which is basically the structure of most TIPS funds--can make a lot of practical sense. I also think there is often a case for mixing in things like stable value funds, the G Fund, cash balance pensions, sometimes CDs--anything with a crediting rate better than market rate for similarly liquid assets. And if you can't get any of that, maybe just some cash or really short bonds to provide such liquidity. So I am personally not at all a TIPS purist. Somewhat ironically, I do think the high quality i...
by NiceUnparticularMan
Mon Jan 22, 2024 10:18 am
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

what is wrong with purchasing bond funds when those positions are not intended to be used for wealth building or wealth-liquidation? What actually is the purpose of those funds? I don’t know, things happen, I don’t know if it will be wanted or needed. Maybe the plan fails. It’s always good to have a plan B or even plan C for “things that go bump in the night”. I use long nominal bonds for the case where the economy is faltering (stocks perform poorly) and interest rates will be cut to stimulate the economy. That is what I would call a deflationary recession. Recessions can also be inflationary. Long nominals will typically help what would otherwise be a stock-only portfolio in an extended deflationary recession, and hurt in an extended inf...
by NiceUnparticularMan
Mon Jan 22, 2024 10:06 am
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

what is wrong with purchasing bond funds when those positions are not intended to be used for wealth building or wealth-liquidation? What actually is the purpose of those funds? I don’t know, things happen, I don’t know if it will be wanted or needed. Maybe the plan fails. It’s always good to have a plan B or even plan C for “things that go bump in the night”. That sounds to me like a contingent personal expense fund with an indefinite horizon. Usually with such things, unexpected inflation is a significant risk, meaning you could experience a coincident need to spend out of these funds and unexpectedly high inflation. There are various possible ways of addressing that risk, but usually nominal market-rate fixed-income funds are not good c...
by NiceUnparticularMan
Mon Jan 22, 2024 6:12 am
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

2pedals wrote: Sun Jan 21, 2024 11:36 pm what is wrong with purchasing bond funds when those positions are not intended to be used for wealth building or wealth-liquidation?
What actually is the purpose of those funds?
by NiceUnparticularMan
Sun Jan 21, 2024 9:01 pm
Forum: Investing - Theory, News & General
Topic: "Which Investments to Keep Out of Your Taxable Account"
Replies: 27
Views: 5399

Re: "Which Investments to Keep Out of Your Taxable Account"

I'm always discontent with the analysis of income returns versus unrealized capital gains in articles like this because I think that is obviously very contextual. In particular, one obvious question is the actual marginal tax rate you will pay on the income, including possible state and local taxes. A second is then what you will do with the income. For example, if you plan to spend the income instead of reinvest it, what then would happen in the hypothetical where that income took the form of an unrealized capital gain? Would you sell some securities to realize the same post-tax income? Use income from another source? What would be the tax consequences of that? Thinking about these things seriously, I realized once our taxable account was ...
by NiceUnparticularMan
Sun Jan 21, 2024 3:47 pm
Forum: Investing - Theory, News & General
Topic: Do Bond Funds Really Make Sense for the Long Run?
Replies: 399
Views: 39288

Re: Do Bond Funds Really Make Sense for the Long Run?

I am lazy and use funds, but never a normal nominal bond fund. I like the combination of 2 or 3 different duration TIPS funds and something like the G Fund, stable value fund, and/or cash-balance pension to sort of simulate an inflation-protected ladder. Among other things, I like the fact if I become unavailable to manage our investments, it will be more or less self-managing and easy to liquidate. Generally, I agree that is basically a liquidation plan, and that's how we are using them, although I did think it was fine to start accumulating my liquidation portfolio in the years in advance of retirement to reduce SO(real)RR. We are sort of mid-retirement now--my wife retired, but I am still working. Because I did not love the long term rea...
by NiceUnparticularMan
Tue Jun 27, 2023 5:58 pm
Forum: Personal Investments
Topic: Bonds in taxable to cover early retirement in high-tax state
Replies: 22
Views: 2202

Re: Bonds in taxable to cover early retirement in high-tax state

We are using TIPS in similar circumstances. I personally think if you are going to be taking some form of taxable income out of your taxable account to spend anyway, TIPS can make perfect sense for the state and local tax break. I think this can be true even if you are comparing them to income from long-term capital gains, depending on the state and local taxation of capital gains. I also don't love realizing long-term capital gains that are taxed at a decent overall rate, as to me that is giving up various possible ways that capital gains tax could be eliminated in the future (including a stepped-up basis). As addendum, we are also withdrawing stock dividends to spend. Not as a result of an intentional dividend strategy, but if you are goi...
by NiceUnparticularMan
Wed Jun 14, 2023 4:17 pm
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

I can certainly understand that owning all the same TIPS in the same proportions as the TIPS index fund is the same as owning the fund. But that both of those are basically the same as owning a pile of nothing but TIPS maturing in 2030 (approx 7 year duration, same as the fund), is difficult to see. So I think it is important to keep in mind you need to have a plan to keep tracking the duration path even as you match the income withdrawals. OK, so you lay out a 10-year TIPS ladder with a weighted average duration of 5 years. You think, OK, I will buy a single TIPS with a duration of 5 years instead. OK, now you want to take out a year's worth of income (including the maturation of the shortest rungs), and you want it to end up with a durat...
by NiceUnparticularMan
Wed Jun 14, 2023 3:48 pm
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

Why do I care when 1) TIPS allocation is not sufficient when stocks do not deliver 2) returns are dictated by stocks Well, I can't tell you in abstract whether you should or should not care. Nor can I tell you in advance whether it will or will not help. However, what we can say is given a reasonable forward-looking probabilistic asset model as applied to a retirement income portfolio, and given certain standard longevity probability distributions, using some fixed income is likely to improve what are sometimes called the modeled "safe" withdrawal rates (defined as something like the maximum real withdrawal rate that the model predicts will have less than some defined chance of causing plan failure prior to death, and which could...
by NiceUnparticularMan
Wed Jun 14, 2023 2:42 pm
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

2) I experienced more social and economic diversity in HS then I did in all the years leading up to it. I agree it's good for people to experience I note I think this is one of those things which really depends on how districts in your area are structured. In my area, a lot of the "good" districts have very little ethnic or class diversity. There is no formal discrimination, it is just that the people who want to and can afford to buy in those districts tend to be broadly similar people on these dimensions. And although there are some exceptions, in many cases these "good" districts are mostly in relatively new areas where there is rather restrictive zoning such that there is not much in terms of affordable family housi...
by NiceUnparticularMan
Wed Jun 14, 2023 2:21 pm
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

This is a strange argument with inflation targeted at 2%. You should conclude the opposite, that we are most likely to see lower rates from here yet again and that every 10 or 20 or 50 years we might have economic situations where inflation spikes. My baseline assumption is whatever inflation expectations are priced into Treasuries by the bond markets are about the best inflation expectations available. Similarly, my baseline assumption is that whatever interest rate expectations are priced into the Treasury yield curve are about the best interest rate expectations available. Given those assumptions, I do not assume that it is more likely rolling nominal Treasuries either will or will not exceed current real return expectations. I assume e...
by NiceUnparticularMan
Wed Jun 14, 2023 2:05 pm
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

It also requires a more maintenance and many worry about an unsophisticated spouse having to to the maintenance. Personally, I am more worried about not being available to contingently extend my TIPS ladder as we survive each additional year. To me, one nice thing about a simulated TIPS ladder is that if you suddenly turn off all activity, it just becomes a rolling ladder with whatever duration it had when activity ceased. This may not be perfectly optimal, but in a lot of scenarios I think it would remain good enough. In contrast, if you turn off all activity on an actual TIPS ladder, then at some point it is going to go to zero and that will be the end of it. I also note in taxable accounts, I find it convenient that TIPS funds actually ...
by NiceUnparticularMan
Wed Jun 14, 2023 1:54 pm
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

Can a blend of funds do all that? For example, how much would it cost to generate $100,000/year inflation adjusted for 30 years? I can compute that easily with #cruncher's spreadsheet or https://www.tipsladder.com/. Yep, and you can start it the same way, actually. Interestingly, this is how the "alchemy" of duration matching works. At a given time, you can start by figuring out what sort of TIPS ladder you would need to buy at today's prices to generate your target income stream, using tools like the ones you mentioned. You can then also figure out that target ladder's duration path, both to start and how it will evolve over time. Finally, you can figure out a combination of TIPS funds that will start out at the same duration, a...
by NiceUnparticularMan
Wed Jun 14, 2023 1:35 pm
Forum: Investing - Theory, News & General
Topic: Percentage of Total Wealth in Real Estate
Replies: 85
Views: 7924

Re: Percentage of Total Wealth in Real Estate

For me, the home is nothing more than a possession but I am not an economist. I don't really care about the worth all that much since I'm not selling it now and I no longer have a mortgage (although the mortgage didn't factor into my asset allocation); the only time I really have tried to monetize it is for estate planning purposes. It's the same concept as a car, art, wine, furniture, etc. However, it can make up such a large % of some people's net worth that it's hard to discount it altogether--which is probably why there are so many twists and turns to include somehow and somewhere. Yeah, to me this is illustrating how mostly all this is an attempt to solve a "problem" that isn't actually a problem. Without ever coding your ho...
by NiceUnparticularMan
Wed Jun 14, 2023 1:19 pm
Forum: Investing - Theory, News & General
Topic: Tell me again, why dividends are not useful ?
Replies: 1156
Views: 91982

Re: Tell me again, why dividends are not useful ?

Dividend is good for long term investor. Non-dividend stock are for short term gamblers or day traders. This is adjacent to something that actually makes some sense. Roughly speaking, earnings are to stocks as interest payments are to bonds. It is very important to understand that this is earnings, not dividends. OK, but unlike with (most) bond interest payments, stock earnings are not contractually-specified. You get what you get, including after the bond holders get paid. Hence they are riskier. OK, and sometimes stocks are valued based not so much on what they are earning today, but based on what people think they might be earning in the future, possibly quite a bit into the future. I wouldn't say that makes them only suitable for gambl...
by NiceUnparticularMan
Wed Jun 14, 2023 1:07 pm
Forum: Investing - Theory, News & General
Topic: Percentage of Total Wealth in Real Estate
Replies: 85
Views: 7924

Re: Percentage of Total Wealth in Real Estate

For investment purposes, your home is probably excluded from the tally although some describe a mortgage as a negative bond. As an aside, I have never been all that fond of that idea either. First, from the lender's perspective, an amortized mortgage actually has the form of a nominal bond ladder where the borrower typically has the option to sell back the bonds at their original price . . . not an individual bond with no such option. I think in terms of evaluating it financially, that is not a trivial distinction. Second, I think properly speaking the mortgage is a cost of ownership, and what it does is substitute for cost of capital. Meaning the cost of your net home equity is your cost of capital, but the cost of your mortgage is . . . ...
by NiceUnparticularMan
Wed Jun 14, 2023 12:54 pm
Forum: Investing - Theory, News & General
Topic: Percentage of Total Wealth in Real Estate
Replies: 85
Views: 7924

Re: Percentage of Total Wealth in Real Estate

It's very difficult then to say it's RE exposure to be a renter who has 25% of assets in rental properties, but it's not RE exposure to be a homeowner who has 25% in their house and no rental properties. I don't find it difficult at all. The standard definition of an investment is: https://www.investopedia.com/terms/i/investment.asp Again long post I think goes off track right at the beginning so I'll focus there. Standard free internet sources are not dispositive in general. That's fair. But your argument was in part basically that you had a hard time imagining people consistently talking about rental properties versus owner-occupied homes like I do. My point was in part that I just talk using standard definitions, so I find it quite easy...
by NiceUnparticularMan
Wed Jun 14, 2023 12:09 pm
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

True. Since they have more than one kid including daycare for the younger kids, let’s say at minimum for the next 15 years it will be no net income. So then the question is will she want to work full-time after the kids have all graduated from high school? if so, for how many years and of course at a 50% tax rate. Definitely something to consider. I’m not sure I have the capability of doing homeschooling. It depends on that also. Yeah, I think the good news is that in the OP's situation, they can basically play it how they want to play it, and that will likely work out fine financially. Not necessarily the best financially, but there is more to life than doing the best you can financially. So if the other spouse actually wants to stop work...
by NiceUnparticularMan
Wed Jun 14, 2023 11:52 am
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

More generally, the article isn't meant to be a referendum on investing in TIPS. Personally, I think they can be quite useful if employed in a sensible way, i.e., suitable time horizon; no trading in and out; etc. Unfortunately, it appears that many investors in TIPS funds have chased performance to their detriment and that was the point we were trying to make in the article, fwiw. I would politely suggest that while the article may eventually explain all that in substance, it starts with a title and introductory section that very much reads as alarmist. I understand that popular financial writing is under pressure to have sensationalistic titles and introductions. But I personally think it is likely a lot of readers will only end up being...
by NiceUnparticularMan
Wed Jun 14, 2023 11:45 am
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

This is the reason I decided on building a ladder of individual TIPS matched to my expected needs over 20+ future years (in retirement). Avoids the "down just when you need it" issue, IF each bond is held to maturity. I do not sell them before maturity. Each year there is a certain amount of money available, which has gone up to keep pace with inflation in the meantime. Building the ladder requires some work, but is definitely doable for most. Once built, requires no maintenance. For the record, if you synthesize a TIPS ladder with 2-3 TIPS funds, it will perform pretty much exactly the same. There is a lot more buying and selling going on, but if you do the synthesis in a reasonable way, all that buying and selling ends up basic...
by NiceUnparticularMan
Wed Jun 14, 2023 11:40 am
Forum: Investing - Theory, News & General
Topic: Tell me again, why dividends are not useful ?
Replies: 1156
Views: 91982

Re: Tell me again, why dividends are not useful ?

Is it really so hard to admit that dividend funds have experienced somewhat lesser max drawdowns during market downturns while in withdrawal (for whatever reason) but still ended up with about the same total return in the long run as total stock market funds? And that it's not a harmful strategy to pursue in tax-advantaged accounts, since there are no tax consequences? I don't find that hard to admit, but then my next observation is that usually a somewhat different value-factor model will do an even better job fitting that data than a pure dividend-yield model. Which leads to the observation that if you are interested in pursuing this effect, you can likely do it more efficiently through an appropriate value fund as opposed to a high-divi...
by NiceUnparticularMan
Wed Jun 14, 2023 11:25 am
Forum: Investing - Theory, News & General
Topic: Percentage of Total Wealth in Real Estate
Replies: 85
Views: 7924

Re: Percentage of Total Wealth in Real Estate

It's very difficult then to say it's RE exposure to be a renter who has 25% of assets in rental properties, but it's not RE exposure to be a homeowner who has 25% in their house and no rental properties. I don't find it difficult at all. The standard definition of an investment is: https://www.investopedia.com/terms/i/investment.asp An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth. This immediately explains the distinction you cited. If I buy a house in order to rent it out for incom...
by NiceUnparticularMan
Wed Jun 14, 2023 10:34 am
Forum: Investing - Theory, News & General
Topic: Is adding REITs not hypocrisy?
Replies: 94
Views: 10808

Re: S

Either way, it sounds to me like MSCI concluded that equity REITs are a sector of stocks. I mean...it's in the name... "equity" REITs. Personally, I'd rather base my analysis on substance and not labels. But for the record--the contrast class for "equity" REITs is "mortgage" REITs and "hybrid" REITs. Mortgage REITS are not mutual funds of income-producing real estate, they are mutual funds of mortgages and similar real estate financings. Hybrid REITS are mutual funds of both. OK, so the term "equity" in "equity REITs" is just indicating they are only mutual funds of income-producing real estate, not mortgages or a combination of both. By the way, this is not an unusual use of the ...
by NiceUnparticularMan
Wed Jun 14, 2023 9:59 am
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

I never understood the obsession with TIPS. I know very successful people who have extensive knowledge of investments, corporate finance, and econometrics who never felt the need to invest in TIPS. They're sitting pretty and pay no mind. So in the roughly 30-year period from around 1982 to 2012 or so, generally speaking inflation averaged lower than expected, and generally speaking bond rates went down. This is sometimes called the "Golden Age" of bonds, and what it meant is the total real returns on rolling nominal bonds were unusually high, including higher than expected at the time of purchase. Since 2012, we went through a moderate-length period where bond rates/inflation were pretty stable, then a briefly sharp deflationary ...
by NiceUnparticularMan
Wed Jun 14, 2023 9:44 am
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

I think some maybe expect "inflation protected" to mean inflation hedge. As in something that will go up a lot when there is high inflation...by even more than the inflation rate. Yeah, all the recent confusion about TIPS funds' total returns really underscored that. Vanguard published a nice study in late 2019 about unexpected inflation hedges, and (not unexpectedly) found that among major retail asset classes, only collateralized commodity futures (and I recognize this is pushing the boundaries of what counts a major retail asset class) actually served as an unexpected inflation hedge. Liability matched TIPS will do what they promise, which is provide the same real income no matter what happens with inflation. But that is not n...
by NiceUnparticularMan
Wed Jun 14, 2023 9:33 am
Forum: Investing - Theory, News & General
Topic: Tell me again, why dividends are not useful ?
Replies: 1156
Views: 91982

Re: Tell me again, why dividends are not useful ?

The premise in the OP was that owning dividend payers somehow helps you weather down markets. Unless you believe they add to total return in someway, that is simply a false belief. Maybe they matter to someone, but they aren't of any measurable benefit. In some cases, they may actually be detrimental, if some of the dividends are non-qualified and end up being taxed at higher rates than capital gains would be if the same amount was extracted from the portfolio by selling the holdings. I am.not condemning anyone, just trying to clear up a common misconception. If knowing that it does not matter, someone still prefers dividends for some reason, that is fine. But, it seems claiming that it improves outcomes in down markets is more than that. ...
by NiceUnparticularMan
Wed Jun 14, 2023 9:09 am
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

That is I think the definition of a vanity job. It doesn’t actually bring any money into the family and the family does not need the money. It is because the spouse wants to have a job. And, perhaps, the spouse doesn’t want to be entirely dependent on the other partner. Divorces, death, and disability do happen. Right, there are many reasons why an individual in a marriage with a highly-compensated spouse might still want to develop their own human capital. I am not sure it is helping to call all those possible motives a species of "vanity". Many, I would suggest, are really more a matter of robust planning for contingencies that very much do happen to many families. To state it again explicitly I am not making up that phrase. It...
by NiceUnparticularMan
Wed Jun 14, 2023 9:03 am
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

Private school will end up costing at best nearly every nickel that the second spouse brings in Again, I think that is by no means a safe assumption if you do this on a lifecycle basis. It may be true there are some individual years where the post-tax income from the one spouse is less than the cost of private school tuition. However, when you look out across that spouses's entire career, her post-tax income might still be significantly above the cost of private school tuition. I note that given these observations, one might be tempted to just pick and choose your years. As I believe many women would be happy to explain (and some men now too), in many cases taking off extended periods to raise children rather than develop your career will ...
by NiceUnparticularMan
Wed Jun 14, 2023 8:52 am
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

I will say it is a characteristic Boglehead attitude to treat a six-figure career with growth potential as working for "peanuts". That is already enough on its own to put a household in something like the top third of US households by income. If you subtract the cost of private school for two kids from the wife’s salary, she would be working for peanuts. I think your "peanuts" analysis is failing to account for the stated "growth" potential, and also the fact that generally careers last longer than 13 years. We'd need a lot more information to model this properly, but I definitely do not think it is safe to assume that if you looked at the alternatives on an entire lifecycle basis, that the financial differenc...
by NiceUnparticularMan
Wed Jun 14, 2023 8:52 am
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

TomatoTomahto wrote: Wed Jun 14, 2023 8:52 am
TacoLover wrote: Wed Jun 14, 2023 8:46 am That is I think the definition of a vanity job. It doesn’t actually bring any money into the family and the family does not need the money. It is because the spouse wants to have a job.
And, perhaps, the spouse doesn’t want to be entirely dependent on the other partner. Divorces, death, and disability do happen.
Right, there are many reasons why an individual in a marriage with a highly-compensated spouse might still want to develop their own human capital. I am not sure it is helping to call all those possible motives a species of "vanity". Many, I would suggest, are really more a matter of robust planning for contingencies that very much do happen to many families.
by NiceUnparticularMan
Wed Jun 14, 2023 8:48 am
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

I recognize this is purely anecdotal, but for what it is worth--I have recently been comparing notes with my friends and colleagues who recently had, or currently have, a kid going through the college application process (as we do). One thing that has become quite clear is that the most selective colleges, which are disproportionately private colleges at the very top of the selectivity scale, still go far deeper into the typical graduating class at our private HS (percentage-wise) than they do for the top local public HSs. Maybe not as deep as they used to, but still far deeper than they are currently going at public HS schools. Of course all these schools have very good college placement overall, but I would say as a general rule it is far...
by NiceUnparticularMan
Wed Jun 14, 2023 8:13 am
Forum: Investing - Theory, News & General
Topic: Is adding REITs not hypocrisy?
Replies: 94
Views: 10808

Re: S

If they are not stocks, why are they included in total stock market? There is no good justification for that, just an historical explanation. In 1999, S&P and MSCI developed what they called the Global Industry Classification Standard (GICS). This is a four-tier system for classifying stocks (Sector, Industry Group, Industry, and Sub-Industry). In the 1999 version, "real estate" was included in the Financial top-tier sector, and both mortgage REITs and equity REITs were included in that classification. This was a fairly obvious mistake, and a lot of people over time pointed out it was a mistake. OK, so finally in 2016, they modified the GICS system and as I discussed above, several relevant changes happened. Among other thing...
by NiceUnparticularMan
Wed Jun 14, 2023 6:42 am
Forum: Investing - Theory, News & General
Topic: Is adding REITs not hypocrisy?
Replies: 94
Views: 10808

Re: S

The "wrong" part of over-weighting REITs is the academic literature hasn't found it improved risk adjusted returns relative to a mix of stocks and bonds. I again caution about not overstating what that one study found. Many studies have found that over given periods, an allocation to REITs would have helped achieve portfolio goals relative to what they took to be a standard, baseline stock/bond mix. What that study claimed is that for any given period, they could replicate at least most of those benefits of using REITs in that period, at least if you ignore taxation, with some other mix of assets that they could determine with the benefit of hindsight. However, that asset mix was not robust, meaning to replicate those effects in ...
by NiceUnparticularMan
Tue Jun 13, 2023 11:17 pm
Forum: Investing - Theory, News & General
Topic: Tell me again, why dividends are not useful ?
Replies: 1156
Views: 91982

Re: Tell me again, why dividends are not useful ?

High yield ETFs are notably less volatile So assuming that premise is true, likely you are looking at different pools of underlying companies, such that the companies in the "high yield" pool are lower volatility in terms of total returns. That is plausible because lower volatility earnings could potentially make it easier for company management to set higher dividend policies, and lower volatility earnings could also lead to lower volatility total returns. However, at least after controlling for "value" factors, you typically should also assign lower expected returns to lower volatility stock pools. Accordingly, it might be more efficient to lower your overall portfolio's total return volatility by using a different mi...
by NiceUnparticularMan
Tue Jun 13, 2023 11:04 pm
Forum: Investing - Theory, News & General
Topic: Tell me again, why dividends are not useful ?
Replies: 1156
Views: 91982

Re: Tell me again, why dividends are not useful ?

At this point I am most interested in figuring out why so many people struggle to really understand dividend irrelevance (holding aside taxes). Recently it has become clear to me a lot of it seems to be implicitly based on the idea that if a company's market valuation changes due to broader market conditions, this means how the market values retained cash will also change. That, of course, makes no sense, and the empirical evidence understandably suggests otherwise. Market events may affect how the company's other sorts of operating assets are valued, but not retained cash. And hopefully once you grasp that, you can grasp why dividend irrelevance is maintained regardless of what happens with market valuations. Your choices remain taking the...
by NiceUnparticularMan
Tue Jun 13, 2023 10:49 pm
Forum: Investing - Theory, News & General
Topic: TIPS Funds "Just when I needed you most"
Replies: 135
Views: 16699

Re: TIPS Funds "Just when I needed you most"

I can believe a lot of TIPS funds investors were ill-informed about how TIPS funds' short-term returns would respond to increases in real rates, and some of them may now be making poor decisions because they were ill-informed.

But I am not sure that article is well-calculated to help investors make better-informed decisions.
by NiceUnparticularMan
Tue Jun 13, 2023 10:43 pm
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

Everyone has different ideas of proper. We view it as a lifestyle choice and we prefer spending time with our kids. That is totally valid. I was just pointing out that depending on the overall context, it might be more and not less costly, once you factor in opportunity costs. Or not. It really depends. But even if it was more costly in that sense, I agree there is much more to life than maximizing earnings. So if your family preferred that overall balance, that of course is fine. I certainly wouldn't want to work for peanuts in order to send my kids to private school I will say it is a characteristic Boglehead attitude to treat a six-figure career with growth potential as working for "peanuts". That is already enough on its own ...
by NiceUnparticularMan
Tue Jun 13, 2023 10:28 pm
Forum: Investing - Theory, News & General
Topic: Total Bond has now underperformed Munis pre-tax since 2001
Replies: 52
Views: 5489

Re: Total Bond has now underperformed Munis pre-tax since 2001

Put another way, the fact that Munis are currently outperforming total bonds is really nothing but a reflection of the current market conditions with significant interest rate increases over a relatively short period of time. There may or may not be anything of value to take away from this observation. I'd say it is generally good to understand what constitutes total returns for bond funds, and what that can mean for muni funds versus otherwise comparable bond funds in different interest rate scenarios. That's not going to tell you whether munis are better/worse than comparable nominal bonds, but hopefully it will help people understand that the tax equivalence only applies to the taxable income, which I believe is a good thing to really g...
by NiceUnparticularMan
Tue Jun 13, 2023 4:00 pm
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

8301 wrote: Tue Jun 13, 2023 3:46 pm
lazybones18 wrote: Mon Jun 12, 2023 10:17 am Option #2: buy a $1.5-$2.50M house in a good public school district and pay zero tuition. However, we will end up paying higher property taxes, insurance, maintantence and interest.
However? Good things come at a cost, never for free. :wink:
Around the time when everyone seems to believe the universe will actually compensate you for living in a more expensive house, I begin wondering when the next downcycle in real house prices is going to be starting.
by NiceUnparticularMan
Tue Jun 13, 2023 3:53 pm
Forum: Investing - Theory, News & General
Topic: Is the bond market efficient?
Replies: 27
Views: 1908

Re: Is the bond market efficient?

Yes. But bonds are also special-purpose tools. So, a given type of bond will typically be efficiently priced in light of the financial context and purposes of the main sellers/buyers of that type of bond. So, bond market efficiency does not rule out that it could be a bad idea for you to buy a certain type of bond, if you are not in fact the sort of buyer that typically would be purchasing that type of bond. So I agree with secondopinion that the issue when longer nominal USD bonds were priced so high, and the rates so low, was not that those were inefficient prices. The issue was that if you were trying to serve purposes like moderate sequence of real returns risk around retirement, those were the wrong sorts of bonds to be buying. Precis...
by NiceUnparticularMan
Tue Jun 13, 2023 3:25 pm
Forum: Personal Finance (Not Investing)
Topic: Should we pay $70-$90k private school tuition for next 12 years
Replies: 183
Views: 19637

Re: Should we pay $70-$90k private school tuition for next 12 years

HomerJ wrote: Tue Jun 13, 2023 2:59 pm He was responding to the OP's situation (where the wife makes far less, not enough to even pay for private school).
Maybe I missed an amendment, but the OP stated:
Her income: $100k and will grow in the future
It is possible the current post-tax income from that is not quite enough to cover the stated private school costs, but it wouldn't take much growth to get there.

And school only lasts so long. A consistently-developed career could last significantly longer.