Search found 785 matches

by Ben Mathew
Sun Nov 03, 2019 7:21 pm
Forum: Personal Investments
Topic: Is there a typical age (or years until retirement) where Roth IRA stops making sense vs pre-tax (401k)?
Replies: 17
Views: 2379

Re: Is there a typical age (or years until retirement) where Roth IRA stops making sense vs pre-tax (401k)?

The time horizon does not directly affect the Roth vs traditional calculation in the way you describe. Only the prevailing marginal income tax rates do. If you have $X pre-tax today, you will get: Traditional: X*(1+investment growth)*(1- marginal income tax at withdrawal) Roth: X*(1- marginal income...
by Ben Mathew
Fri Sep 20, 2019 2:40 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

Seems like a complex mathematical model that doesn't take human psychology into account. People don't like to hugely vary their standard of living based on stock market returns. A little splurge, a little cutting back, yes. Huge changes can't or won't be made. If you can't afford to lose it or wait...
by Ben Mathew
Fri Sep 20, 2019 1:24 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

I like the work in this. Shows some interesting analysis. Am I correct in that you are really only playing with unneeded monies. You already set your bottom line expenses so overall there is little risk to your survival. No, unfortunately it's not a floor, just initial planned consumption. But one ...
by Ben Mathew
Fri Sep 20, 2019 1:22 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

The rest of the money goes into a risk portfolio invested 100% in stocks. Each year, you take out the real return of the risk portfolio that year In general, strategies like this fare poorly on just about every metric under the sun. gummi's "sensible withdrawals" -- https://www.financialwisdomforum...
by Ben Mathew
Mon Sep 16, 2019 2:18 pm
Forum: Investing - Theory, News & General
Topic: Are TIPS really a good inflation hedge? Pros and Cons
Replies: 150
Views: 11324

Re: Are TIPS really a good inflation hedge? Pros and Cons

Stocks are claims on the real assets of the business, and so are naturally protected from inflation. In fact, since companies usually take on nominal debt, stocks should in theory be helped by unexpectedly high inflation. So hedging against inflation for stocks could potentially make things worse. ...
by Ben Mathew
Mon Sep 16, 2019 1:55 pm
Forum: Investing - Theory, News & General
Topic: Are TIPS really a good inflation hedge? Pros and Cons
Replies: 150
Views: 11324

Re: Are TIPS really a good inflation hedge? Pros and Cons

Stocks are claims on the real assets of the business, and so are naturally protected from inflation. In fact, since companies usually take on nominal debt, stocks should in theory be helped by unexpectedly high inflation. So hedging against inflation for stocks could potentially make things worse. ...
by Ben Mathew
Sun Sep 15, 2019 1:33 pm
Forum: Investing - Theory, News & General
Topic: Are TIPS really a good inflation hedge? Pros and Cons
Replies: 150
Views: 11324

Re: Are TIPS really a good inflation hedge? Pros and Cons

Stocks are claims on the real assets of the business, and so are naturally protected from inflation. In fact, since companies usually take on nominal debt, stocks should in theory be helped by unexpectedly high inflation. So hedging against inflation for stocks could potentially make things worse. N...
by Ben Mathew
Tue Aug 27, 2019 8:09 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

Are you also spending 50k out of the LMP portfolio? I.e. are you taking 100k out of your 2.75 million dollar portfolio in year 1 or are you only spending 50k? In the first case you are absurdly conservative (even on bogleheads 1.8% is off in crazy land:)). In the second case I would worry about dep...
by Ben Mathew
Tue Aug 27, 2019 12:38 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

I haven't thought about the modifications since the OP too much but I have one question in regards to the original (OP) strategy. If your stock portfolio continues to decrease as you age (until it's zero at 100), doesn't that mean your lifetime wealth was less exposed to the market in later years? ...
by Ben Mathew
Tue Aug 27, 2019 10:47 am
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

Very cool Ben. Consider this bookmarked. I look forward to your follow-up about how to deal with the problem of too much risk at older ages due to the larger dependency on previous years. Thanks 305pelusa! As a time diversification enthusiast, I hope you will find something you like. :happy The ove...
by Ben Mathew
Tue Aug 27, 2019 10:18 am
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

I am not a big fan of LMP, but will make a few observations here. 1) This seems unnecessarily complicated. Complicated, yes. But not unnecessarily so. The end result will be pretty neat if we can get to it--removing sequence of return risk over prior years and reducing risk. 2) With all the moving ...
by Ben Mathew
Tue Aug 27, 2019 2:54 am
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

I think you misunderstood the strategy. You pull out the real return + 1/n principal from the risk portfolio and move it to the LMP, not consume it all that year. The consumption change is being smoothed across all remaining years via contribution to the LMP. Then I definitely don't understand the ...
by Ben Mathew
Tue Aug 27, 2019 12:55 am
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

Very cool Ben. Consider this bookmarked. I look forward to your follow-up about how to deal with the problem of too much risk at older ages due to the larger dependency on previous years. Thanks 305pelusa! As a time diversification enthusiast, I hope you will find something you like. :happy The ove...
by Ben Mathew
Tue Aug 27, 2019 12:19 am
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

Are you also spending 50k out of the LMP portfolio? I.e. are you taking 100k out of your 2.75 million dollar portfolio in year 1 or are you only spending 50k? In the first case you are absurdly conservative (even on bogleheads 1.8% is off in crazy land:)). In the second case I would worry about dep...
by Ben Mathew
Tue Aug 27, 2019 12:06 am
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

The rest of the money goes into a risk portfolio invested 100% in stocks. Each year, you take out the real return of the risk portfolio that year In general, strategies like this fare poorly on just about every metric under the sun. gummi's "sensible withdrawals" -- https://www.financialwisdomforum...
by Ben Mathew
Tue Aug 27, 2019 12:02 am
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

This strategy will eliminate sequence-of-returns risk in the stock portfolio, but at the cost of creating sequence-of-returns risk in the withdrawal rates. (This is an unavoidable trade-off; if you are invested in the stock market, and the stock market declines this year, you must either spend less...
by Ben Mathew
Mon Aug 26, 2019 8:48 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

For example, suppose you are 75 years old, and your stock portfolio is $1 million. If the real return that year turned out to be 10%, you would take out the real growth of 10% of $1 million = $100,000. Plus take out $1 million/(25 years till age 100) = $40,000. So you pull out a total of $140,000 a...
by Ben Mathew
Mon Aug 26, 2019 7:02 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

When we refer to sequence of returns risk (SRR), it is in reference to the impact of a particular sequence of returns and contributions/withdrawals to/from the portfolio on the portfolio balance. Sometimes, people refer to SRR as it impacts the size of one's withdrawals from a portfolio. In this in...
by Ben Mathew
Mon Aug 26, 2019 6:45 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

I mean I suppose I agree that varying withdrawals and rebalancing can reduce sequence of returns risk, but this seems like a rather arbitrary/complex way of doing it. I don't understand what determines your liability matching portfolio size which would be the critical factor. In any case, to me, VP...
by Ben Mathew
Mon Aug 26, 2019 2:42 pm
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

Re: A withdrawal strategy without sequence of return risk (kind of)

Seems complicated. Why not just use the income from the LMP coupled with some spending rule for the risk portfolio (e.g., VPW or something like that)? It can look a bit complicated at first sight. But the basic idea is simply to convert returns plus 1/n of principal from stocks to to bonds each yea...
by Ben Mathew
Mon Aug 26, 2019 11:44 am
Forum: Investing - Theory, News & General
Topic: A withdrawal strategy without sequence of return risk (kind of)
Replies: 47
Views: 3216

A withdrawal strategy without sequence of return risk (kind of)

I've been thinking about a withdrawal strategy that will eliminate sequence of return risk in a certain sense that I will define later. I think it's a useful way to think about things, and with some adjustments can lead to a sensible withdrawal strategy with good a risk/return profile. The usual app...
by Ben Mathew
Sun Aug 25, 2019 12:39 pm
Forum: Personal Investments
Topic: Does anyone use TIPS mutual funds for 100% of their LMP allocation?
Replies: 61
Views: 3562

Re: Does anyone use TIPS mutual funds for 100% of their LMP allocation?

I am considering using TIPS mutual funds for 100% of my LMP allocation. Does anyone out there do this? My hesitation is the volatility in TIPS mutual funds. I am unable to purchase TIPS directly in my 401 accounts. I don't see how you can liability match with a fund. The main idea behind liability ...
by Ben Mathew
Sun Aug 25, 2019 10:01 am
Forum: Personal Investments
Topic: Does anyone use TIPS mutual funds for 100% of their LMP allocation?
Replies: 61
Views: 3562

Re: Does anyone use TIPS mutual funds for 100% of their LMP allocation?

I don't see how you can liability match with a fund. The main idea behind liability matching is matching the duration to remove interest rate risk. If you can't match the duration to your expected consumption, then you are just holding a TIPS fund. Which is fine. It still provides inflation protect...
by Ben Mathew
Sat Aug 24, 2019 7:51 pm
Forum: Personal Investments
Topic: Does anyone use TIPS mutual funds for 100% of their LMP allocation?
Replies: 61
Views: 3562

Re: Does anyone use TIPS mutual funds for 100% of their LMP allocation?

I don't see how you can liability match with a fund. The main idea behind liability matching is matching the duration to remove interest rate risk. You can use a mix of short, medium, and long TIPS funds to match the portfolio duration to the duration of liabilities. It is easier to set up with mut...
by Ben Mathew
Sat Aug 24, 2019 7:48 pm
Forum: Personal Investments
Topic: Does anyone use TIPS mutual funds for 100% of their LMP allocation?
Replies: 61
Views: 3562

Re: Does anyone use TIPS mutual funds for 100% of their LMP allocation?

I don't see how you can liability match with a fund. The main idea behind liability matching is matching the duration to remove interest rate risk. If you can't match the duration to your expected consumption, then you are just holding a TIPS fund. Which is fine. It still provides inflation protect...
by Ben Mathew
Sat Aug 24, 2019 4:55 pm
Forum: Personal Investments
Topic: Does anyone use TIPS mutual funds for 100% of their LMP allocation?
Replies: 61
Views: 3562

Re: Does anyone use TIPS mutual funds for 100% of their LMP allocation?

Munir wrote:
Sat Aug 24, 2019 3:44 pm
What is LMP ?
Liability Matching Portfolio
by Ben Mathew
Sat Aug 24, 2019 4:53 pm
Forum: Personal Investments
Topic: Does anyone use TIPS mutual funds for 100% of their LMP allocation?
Replies: 61
Views: 3562

Re: Does anyone use TIPS mutual funds for 100% of their LMP allocation?

I am considering using TIPS mutual funds for 100% of my LMP allocation. Does anyone out there do this? My hesitation is the volatility in TIPS mutual funds. I am unable to purchase TIPS directly in my 401 accounts. I don't see how you can liability match with a fund. The main idea behind liability ...
by Ben Mathew
Sat Aug 24, 2019 8:52 am
Forum: Investing - Theory, News & General
Topic: Meaning of "cross-section" in financial economics?
Replies: 2
Views: 271

Re: Meaning of "cross-section" in financial economics?

Is "the cross-section" the set of the values of the return of a set of assets, as measured over a single, short interval of time? For example, the set of the annual returns of the stocks in the S&P 500 index? As opposed to the set of returns over time for a single security? Yes, except it does not ...
by Ben Mathew
Fri Aug 23, 2019 7:48 pm
Forum: Investing - Theory, News & General
Topic: A theory of one's general investing mindset: 'Good enough' or 'Optimize'
Replies: 297
Views: 13349

Re: A theory of one's general investing mindset: 'Good enough' or 'Optimize'

I am a satisficer, but I would guess that it's at a level closer to optimality than the typical investor will be willing to get to.

At some level, though, everybody is a satisficer. It's impossible for anyone to compute everything.
by Ben Mathew
Fri Aug 23, 2019 7:39 pm
Forum: Personal Finance (Not Investing)
Topic: Getting equity out of home
Replies: 18
Views: 1796

Re: Getting equity out of home

Given the relatively high interest rates on HELOCs and reverse mortgages, it would be best for you to consume the bonds in your portfolio before dipping into home equity at high interest. Consider the home equity as similar to owning bonds in a tax advantaged account. They don't pay interest directl...
by Ben Mathew
Fri Aug 23, 2019 2:33 pm
Forum: Personal Investments
Topic: Trying to help a relative "see the light"
Replies: 36
Views: 2242

Re: Trying to help a relative "see the light"

Some people really do need advice from a financial professional. Just keep that in mind. Definitely not this guy and preferably one that charges hourly or has a low (under 50 basis points) fee and does good professional work aligned to the client’s philosophy. But I think there can be too much bias...
by Ben Mathew
Fri Aug 23, 2019 12:03 pm
Forum: Personal Investments
Topic: Trying to help a relative "see the light"
Replies: 36
Views: 2242

Re: Trying to help a relative "see the light"

Some people really do need advice from a financial professional. Just keep that in mind. Definitely not this guy and preferably one that charges hourly or has a low (under 50 basis points) fee and does good professional work aligned to the client’s philosophy. But I think there can be too much bias...
by Ben Mathew
Fri Aug 23, 2019 11:56 am
Forum: Personal Investments
Topic: Trying to help a relative "see the light"
Replies: 36
Views: 2242

Re: Trying to help a relative "see the light"

Some people really do need advice from a financial professional. Just keep that in mind. Definitely not this guy and preferably one that charges hourly or has a low (under 50 basis points) fee and does good professional work aligned to the client’s philosophy. But I think there can be too much bias...
by Ben Mathew
Fri Aug 23, 2019 10:20 am
Forum: Personal Investments
Topic: Trying to help a relative "see the light"
Replies: 36
Views: 2242

Re: Trying to help a relative "see the light"

Some people really do need advice from a financial professional. Just keep that in mind. Definitely not this guy and preferably one that charges hourly or has a low (under 50 basis points) fee and does good professional work aligned to the client’s philosophy. But I think there can be too much bias...
by Ben Mathew
Wed Aug 21, 2019 9:15 am
Forum: Personal Finance (Not Investing)
Topic: Selective Colleges
Replies: 339
Views: 19441

Re: Selective Colleges

The three/two dual degree programs affiliated with many selective schools are a guaranteed admission for anyone who meets the gpa standard. Our son was unable to gain admission into one of the most selective private schools in the country straight out of high school. He spent two years at a three/t...
by Ben Mathew
Mon Aug 19, 2019 8:55 pm
Forum: Personal Investments
Topic: 529s: One for family vs. One per kid
Replies: 35
Views: 2477

Re: 529s: One for family vs. One per kid

We have one 529 per kid (ages 3 and 5). We started them at the same time and contribute identical amounts for now (each gets 5K per year so we hit the 10K max eligible for state/local tax savings). Why two accounts? They only allow one adult's name to be on the account - no option to name both pare...
by Ben Mathew
Mon Aug 19, 2019 6:25 pm
Forum: Personal Investments
Topic: 529s: One for family vs. One per kid
Replies: 35
Views: 2477

Re: 529s: One for family vs. One per kid

https://www.bogleheads.org/forum/viewtopic.php?f=2&t=288518&p=4706331#p4706326 On that post, you stated: There are no tax consequences if the change in beneficiary is to a member of the beneficiary's family: For these purposes, the beneficiary's family includes the beneficiary's spouse and the foll...
by Ben Mathew
Mon Aug 19, 2019 5:57 pm
Forum: Personal Investments
Topic: 529s: One for family vs. One per kid
Replies: 35
Views: 2477

Re: 529s: One for family vs. One per kid

https://www.bogleheads.org/forum/viewtopic.php?f=2&t=288518&p=4706331#p4706326 On that post, you stated: There are no tax consequences if the change in beneficiary is to a member of the beneficiary's family: For these purposes, the beneficiary's family includes the beneficiary's spouse and the foll...
by Ben Mathew
Mon Aug 19, 2019 3:42 pm
Forum: Personal Investments
Topic: 529s: One for family vs. One per kid
Replies: 35
Views: 2477

Re: 529s: One for family vs. One per kid

And those rules say that changing 529 beneficiaries to the next generation is a gift. I believe you are incorrect. I posted this on that other thread. Changing to the next generation has zero tax ramifications. Can you link to your post on that thread? I couldn't find it. This is what Spirit Rider ...
by Ben Mathew
Mon Aug 19, 2019 3:23 pm
Forum: Personal Investments
Topic: 529s: One for family vs. One per kid
Replies: 35
Views: 2477

Re: 529s: One for family vs. One per kid

We have three 529s but none have our kids as beneficiaries. One is for my wife and two are for me. Eventually, will will change the beneficiaries to the kids and rebalance so the balances are the same. That day is not today. Note that changing the beneficiary to the next generation (i.e. parent to ...
by Ben Mathew
Mon Aug 19, 2019 12:53 pm
Forum: Personal Finance (Not Investing)
Topic: Selective Colleges
Replies: 339
Views: 19441

Re: Selective Colleges

most importantly (IMO) his recommendations were stellar. Aren't everyone's though?;) I am curious how you were able to see them? Did the recommenders share them with you directly, or did you not opt out of FERPA? Not everyone's recommendations are stellar. We had the good fortune to have the kids i...
by Ben Mathew
Mon Aug 19, 2019 12:07 pm
Forum: Personal Investments
Topic: Invest or pay off student loans?
Replies: 41
Views: 1841

Re: Invest or pay off student loans?

Although my current interest rate is fairly high, I will likely be able to refinance in the next year (if I so choose) for a much more favorable interest rate. What is the rate you could refinance it to? At 6% I would pay it off. But if you can refinance it to a low enough rate, it can make sense t...
by Ben Mathew
Mon Aug 19, 2019 9:05 am
Forum: Personal Investments
Topic: Invest or pay off student loans?
Replies: 41
Views: 1841

Re: Invest or pay off student loans?

Although my current interest rate is fairly high, I will likely be able to refinance in the next year (if I so choose) for a much more favorable interest rate. What is the rate you could refinance it to? At 6% I would pay it off. But if you can refinance it to a low enough rate, it can make sense t...
by Ben Mathew
Mon Aug 19, 2019 8:59 am
Forum: Personal Investments
Topic: 529s: One for family vs. One per kid
Replies: 35
Views: 2477

Re: 529s: One for family vs. One per kid

We have three 529s but none have our kids as beneficiaries. One is for my wife and two are for me. Eventually, will will change the beneficiaries to the kids and rebalance so the balances are the same. That day is not today. Note that changing the beneficiary to the next generation (i.e. parent to ...
by Ben Mathew
Mon Aug 19, 2019 8:26 am
Forum: Personal Investments
Topic: 529s: One for family vs. One per kid
Replies: 35
Views: 2477

Re: 529s: One for family vs. One per kid

My question relates to potential disadvantages of having just one 529 plan for the oldest and transferring leftover assets vice establishing a plan for each kid. This seems like a case of 6 one way, half a dozen the other, but perhaps I'm missing something. Thoughts? This would be a problem: You mi...
by Ben Mathew
Mon Aug 19, 2019 8:14 am
Forum: Personal Finance (Not Investing)
Topic: Help confirm the best mortgage options
Replies: 8
Views: 759

Re: Help confirm the best mortgage options

Total payment to lender is not a good way of comparing loans, because it does not adjust for time value of money. All 3 options are not adjusted for time value of money. Does it still matter? Yes, it will still matter. You would be underestimating the cost of mortgages whose payments come early (hi...
by Ben Mathew
Sun Aug 18, 2019 4:01 pm
Forum: Investing - Theory, News & General
Topic: Past Performance
Replies: 74
Views: 4145

Re: Past Performance

Five and ten year horizons are short enough to be mostly noise. Value underperformance over these horizons are still quite small compared to its long term outperformance. I'm tilted to small value, and remain optimistic. If you don't mind sharing, when did you start tilting to small-cap value? I ha...
by Ben Mathew
Sun Aug 18, 2019 3:54 pm
Forum: Personal Finance (Not Investing)
Topic: Help confirm the best mortgage options
Replies: 8
Views: 759

Re: Help confirm the best mortgage options

Total payment to lender is not a good way of comparing loans, because it does not adjust for time value of money. I suggest you model all the payments in a spreadsheet as follows First column: month 0: $X (all points, fees etc. you pay now) month 1: $Y (first monthly payment) month 2: $Y (second mon...
by Ben Mathew
Sun Aug 18, 2019 3:31 pm
Forum: Investing - Theory, News & General
Topic: Past Performance
Replies: 74
Views: 4145

Re: Past Performance

Five and ten year horizons are short enough to be mostly noise. Value underperformance over these horizons are still quite small compared to its long term outperformance. I'm tilted to small value, and remain optimistic.
by Ben Mathew
Sun Aug 18, 2019 11:22 am
Forum: Personal Finance (Not Investing)
Topic: Kids education planning
Replies: 21
Views: 1504

Re: Kids education planning

My daughter graduated from a top private elite university. While she took many AP classes during the normal course of high school, she did not ... get perfect grades, ace standardized tests, become a virtuoso pianist -- jazz or otherwise, found a startup, end world hunger, captain any sports team n...