Bogleheads.org

Apathizer wrote: ↑Wed Mar 29, 2023 6:36 pm Yes, a situation that disproportionately benefited large growth and the MCW TSM. If anything it seems reasonable to expect tilts to do better during more normal times, whatever that might mean.

Or did the end of the pandemic or government bailouts or something else disproportionately help SV recently? Time will tell.

Factor-rookie here, one thing I have a hard time wrapping my head around: Why is a 100% factor invested portfolio (ex: AVUV, AVDV, AVES, 3,433 securities, lower valuations, spread out in different countries, sectors, and not too concentrated on any one security) so much more risky than VOO (500 companies, high valuations, 1 country, top-heavy in 10 securities)? Why is one seen as so much more riskier than the other? Why is one "active" but the other "passive?" Aren't they both making selections in only a fraction of the total global market (VT)? Interesting question. VOO might hold more stable, safer companies, but the Avantis funds collectively are more well-diversified and will very likely have higher long-term return...

Hope for a market downturn.

How much of the FDIC/SVB $20B went to insured depositors versus uninsured? Presumably those with more than the limit would have received their $250K even if the limits were strictly enforced. $20B/$250K = 80k depositors.

Or is there a rule that money from the sale of assets first goes to insured depositors?

Factor-rookie here, one thing I have a hard time wrapping my head around: Why is a 100% factor invested portfolio (ex: AVUV, AVDV, AVES, 3,433 securities, lower valuations, spread out in different countries, sectors, and not too concentrated on any one security) so much more risky than VOO (500 companies, high valuations, 1 country, top-heavy in 10 securities)? Why is one seen as so much more riskier than the other? Why is one "active" but the other "passive?" Aren't they both making selections in only a fraction of the total global market (VT)? Interesting question. VOO might hold more stable, safer companies, but the Avantis funds collectively are more well-diversified and will very likely have higher long-term return...

While we can't know the exact probability, I think the historical data is a reasonable guesstimate/extrapolation. But yes, higher return certainly isn't guaranteed. This doesn't necessarily mean lower return; it could be about the same as the MCW TSM, which I think most factor investors would be OK with. Recent historical data is more applicable in this age of cheap super-computing and AI and quants. And most factor funds are still quite correlated with TSM, so you aren’t going to out-perform by much and you won’t under-perform by much. Especially since most factor investors still hedge their bets by having a substantial chunk of TSM. Two funds can have a high correlation and have drastically different returns. For example, since the begin...

While we can't know the exact probability, I think the historical data is a reasonable guesstimate/extrapolation. But yes, higher return certainly isn't guaranteed. This doesn't necessarily mean lower return; it could be about the same as the MCW TSM, which I think most factor investors would be OK with. Recent historical data is more applicable in this age of cheap super-computing and AI and quants. And most factor funds are still quite correlated with TSM, so you aren’t going to out-perform by much and you won’t under-perform by much. Especially since most factor investors still hedge their bets by having a substantial chunk of TSM. I think that's reasonable, but even an average annual out-performance of 1% is a meaningful and realistic ...

I don’t think that’s right. Factors are individual stock characteristics. If quality is a risk factor, one should be able to explain why the stocks in the quality basket are individually riskier than those in the non-quality basket. The same for momentum. The Fama French factors are risks relative to the opposite side of the factor portfolio, not relative to all non-factor stocks as a whole. Value is a risk relative to growth, profitable is a risk relative to unprofitable, momentum is a risk relative to against the trend. Individual stocks don't have factor characteristics, portfolios of stocks have factor characteristics based on the relative weighting of the long and short side of the factor. Which is why holding value stocks as part of ...

I'd guess there it's probably a combination of risk and behavioral biases that give rise to the factors. If I had to explain momentum as a risk, I'd say the risk is that you end up performance chasing. If you are an investor who buys a hot stock or piles into the market at the peak, you might be paying the market a premium to get exposure to the trend. Investors underestimate the risk of performance chasing, and overestimate the chances the stock goes to the moon. Just look at ARKK. Quality has a similar risk, you could miss out on the next Amazon or Tesla. The premium could arise because investors overestimate the likelihood of finding the next Tesla and value future earnings more than they do current earnings I don’t think that’s right. ...

Apathizer wrote: ↑Wed Mar 29, 2023 11:02 am While we can't know the exact probability, I think the historical data is a reasonable guesstimate/extrapolation. But yes, higher return certainly isn't guaranteed. This doesn't necessarily mean lower return; it could be about the same as the MCW TSM, which I think most factor investors would be OK with.

Recent historical data is more applicable in this age of cheap super-computing and AI and quants.

And most factor funds are still quite correlated with TSM, so you aren’t going to out-perform by much and you won’t under-perform by much. Especially since most factor investors still hedge their bets by having a substantial chunk of TSM.

km91 wrote: ↑Wed Mar 29, 2023 9:37 am Factor investors are necessarily taking more risk than a TSM investor, and they expect to earn a higher return over the long-term for doing so.

Investors might expect higher return for taking more risk, but they might not actually get it. If the higher return were guaranteed, there would be no risk. In fact, stock investors don’t even know the probability of getting a higher return versus getting a lower return.

And speaking of risk, do the quality and momentum factors add risk?

And value stocks are not all about risk. There are a number of value stocks that are labeled such because, while they have steady earnings, they have little growth prospects. So, instead of growing, they return their profits to investors as dividends.

A stock's price is based on it's future earnings, which are unknowable. It's also based on many other factors, most of which are unknowable as well. Value is the the price of current earnings, this is something we can easily calculate. Interestingly, price for a cap weighted fund is irrelevant. Prices can go up and down and the cap weighted index is agnostic. Instead the fund buys shares in proportion to the shares each company has issued in relation to the total shares in the market. That's not true. Market cap is outstanding shares multiplied by share price, not just number of shares. Price is completely relevant. To create a market cap fund, you buy shares of each company in proportion to the number of shares it has issued in relation t...

Suppose the market consisted of those two companies. To create a market cap index fund, all you need is an equal number of shares of each, since the market has an equal number of shares. I don't think it works all the time. If the number of shares for each company is equal, cap weight will equal price weight, it's true. But it doesn't work when companies have different amounts of shares outstanding It works all the time. Here is a more complex example. Market has 3 companies with 1B, 2B, 3B shares outstanding. Share prices are $10, $5, $25, respectively. My index has 1M, 2M, 3M shares, respectively, and is cap weighted. Joe’s index has 15, 30, 45 shares, respectively, and is cap weighted. If the share prices were $7, $13, and $11, the two ...

km91 wrote: ↑Tue Mar 28, 2023 2:40 pm

rkhusky wrote: ↑Tue Mar 28, 2023 2:26 pm To create a market cap fund, you buy shares of each company in proportion to the number of shares it has issued in relation to the total shares in the market. Price does not matter. You also do not need to buy/sell shares when prices change.

You need price. Two company's with 1B shares outstanding but prices of $5 and $250 have very different market caps and very different weights in the index.

Suppose the market consisted of those two companies. To create a market cap index fund, all you need is an equal number of shares of each, since the market has an equal number of shares. It doesn’t matter what the share prices are. Try it out.

First, the wash sale window ends on Jan 20, but that is immaterial for your case.

I would not consider the Fidelity funds as substantially identical because they follow different indices and have significantly different number of stocks. You can check on that if you want.

To make a correspondence between two funds that use different price scales, just divide one by the other over multiple days and take the average to find the conversion factor.

Wash sales work on a share by share basis. Determine the number of shares sold for a loss and subtract off the number of shares purchased in the wash sale period. The value of the losses on those shares is the loss you can claim.

Adjustments to cap gain transactions are recorded on Form 8949.

A stock's price is based on it's future earnings, which are unknowable. It's also based on many other factors, most of which are unknowable as well. Value is the the price of current earnings, this is something we can easily calculate. Interestingly, price for a cap weighted fund is irrelevant. Prices can go up and down and the cap weighted index is agnostic. Instead the fund buys shares in proportion to the shares each company has issued in relation to the total shares in the market. That's not true. Market cap is outstanding shares multiplied by share price, not just number of shares. Price is completely relevant. To create a market cap fund, you buy shares of each company in proportion to the number of shares it has issued in relation t...

A value company would be something like SVB in January. It looks profitable now, but if analysts can look at the details, they see future problems and lower the current price. Hence you get a seemingly cheap stock - low P/E. If you invest in value, you are hoping stocks like SVB can turn things around and then you make money. If too many go bankrupt, you lose money. If a company is profitable and looks to be profitable in the future , it’s not going to have a low price. Notice how both these points refer to some future unknowable event. I want to build a portfolio of productive and profitable companies. The only way I know how to do that is to buy companies that are profitable and productive today. Anything else is just speculation If a co...

You are making a gamble that those companies will continue to be profitable and productive in the future, while missing out on the companies that may not be profitable today but could be the frontrunners of tomorrow. I call that stock picking, and it doesn't really fit with the Boglehead approach and is more of the WallStreetBets type of approach. But to each his own. No, you keep reframing my decision in terms of a future outcome but I keep saying I did not look to the future to make my decision. I want a portfolio of profitable and productive companies today. I buy profitable and productive companies today. In the future I will also probably want a portfolio of profitable and productive companies. I will probably buy profitable and produ...

km91 wrote: ↑Tue Mar 28, 2023 9:52 am A stock's price is based on it's future earnings, which are unknowable. It's also based on many other factors, most of which are unknowable as well. Value is the the price of current earnings, this is something we can easily calculate.

Interestingly, price for a cap weighted fund is irrelevant. Prices can go up and down and the cap weighted index is agnostic. Instead the fund buys shares in proportion to the shares each company has issued in relation to the total shares in the market.

burritoLover wrote: ↑Tue Mar 28, 2023 9:08 am So the fund receives the dividends and what do they typically do with it? Sits in cash until it is distributed at the end of the year?

Funds hold varying amounts of cash. For those that want every dollar invested in the market, cash holdings among funds might be something to monitor and use as a fund differentiator.

For stocks, you don’t know whether something is cheap or expensive until after the fact. I remember when Apple’s stock was $30/sh. Was that cheap or expensive? How about Amazon’s price before they started dominating the online market and weren’t making any money? Was SVB’s share price in January cheap or expensive? Sure we do. You're just framing it as cheap or expensive relative to the future price, which is unknowable. We can easily look at a stock's price history or valuation metrics and decide if the stock is cheap or expensive relative to other stocks currently for sale in the market, or relative to it's historical price. TSLA trades at 50 p/e. Is it expensive compared to it's future price? Who knows. We do know it's more expensive th...

I prefer to send a check with the return. When I see the cleared check, I know the IRS received the return.

It’s interesting that there are millions of people scouring the stock market for cheap stocks that will increase in price and make them money. Yet there are simple metrics right under their noses, like P/E and P/B, that will do the job for them for a fraction of the effort. I'm saving for retirement. I want to buy a portfolio of assets that will deliver a stream of earnings in the future. It doesn't take a Phd from University of Chicago to guess that spending less per $1 of earnings is probably better than spending more. The stock market is exactly that, a market, it offers us many prices to choose from. For almost any item I buy on a monthly basis, I would never even consider buying the most expensive version. I'm sure my grocery store se...

km91 wrote: ↑Mon Mar 27, 2023 5:41 pm Personally, I find that the strongest evidence in favor of value is simple intuition, buying diversified portfolios of assets at relatively cheap prices is probably better than buying diversified portfolios with more expensive prices. When I go to the store I typically don't buy the most expensive product, it seems to make sense to tilt my portfolio away from the most expensive stocks in the market

It’s interesting that there are millions of people scouring the stock market for cheap stocks that will increase in price and make them money. Yet there are simple metrics right under their noses, like P/E and P/B, that will do the job for them for a fraction of the effort.

Choose one of the LifeStrategy all in one funds. Consists of Total Stock Market, Total International, Total US Bond and Total International Bond. You just pick the stock/bond ratio from 20/80, 40/60, 60/40 and 80/20 and let Vanguard do the rest of the work.

HeavyChevy wrote: ↑Mon Mar 27, 2023 7:05 am I think it is hard to discuss cognitive bias when evaluating a situation where there is no underlying "correct" answer.

There often is a correct or incorrect answer. Waiting to sell an underwater investment, which you now know you shouldn’t have bought, until you are back to even, is the result of the Anchoring cognitive basis. The correct answer is to sell the investment as soon as you know it’s inappropriate, taking into account taxes and other costs.

There are only two cost basis methods for mutual funds: actual cost and average cost. Actual cost is what you actually paid for the shares and average cost is the average price for all shares purchased.

The other terms, like FIFO, LIFO, HIFO, SpecID, are share selection methods. With SpecID, you choose the shares. FIFO sells the earliest shares first, HIFO sells the highest cost first, etc. There are even more methods that take long term and short term holdings into account.

Average cost and FIFO are usually paired together.

OrangeKiwi wrote: ↑Sun Mar 26, 2023 8:07 pm

alvinsch wrote: ↑Sun Mar 26, 2023 6:39 pm efforts to get around the state constitution forbidding an income tax,

FYI, Article 7 section 1, which prohibits marginal income taxes, but allows uniform income tax (because WA supreme court has previously ruled income is property):

All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word "property" as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.

http://leg.wa.gov/CodeReviser/Pages/WAConstitution.aspx

So Washington could levy a flat income tax with no exemptions?

HeavyChevy wrote: ↑Sun Mar 26, 2023 9:46 am I find accusations of cognitive bias in other posters as less than helpful in fostering honest and open discussion on the forum. We can all benefit from the knowledge that biases exist in everyone. Calling out biases in strangers seems going a bit far to me.

Cognitive bias is not a pejorative. It’s the result of how all of our brains are wired. Sometimes the bias is to our advantage and sometimes to our disadvantage. We can make better decisions if we can recognize when we are being misled by our brain’s architecture.

It will be interesting to see how much of the expected $500M shows up in the state’s coffers by 4/18, considering the court ruling that it’s an excise tax and not an unconstitutional income tax just came down on Friday.

If you knew you were to choose the 4400 day, then sure. But you don’t know, so it becomes a matter of probability. For sure, all problems are not purely probabilistic, how much you have at stake also matters. Are we talking your life savings or 1% of your portfolio being at risk. Oh yes, I agree the amount matters. My recent rollovers were in the low-mid six digit range so significant to me. My earlier transfers were much smaller, when I actually lost money, but that was 40-ish years ago, so the small losses had a lot of time to compound. So it's probably a function of size of the rollover and maybe to some extent the time until you'll be spending the money. I’ve done a couple low six digits that took about a week to transfer. The first I ...

I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA. By increasing the number of transactions, you are increasing the probability of hitting a bad day. However, you are putting less money at risk each time. The two offset and the overall probability of losing money remains the same. But the probability of a significant outlier event (significant rise in the market, that then can't be offset by a subsequent drop with another transaction) is less. Suppose there are 250 trading days in the year and on one of them the market increases much higher than on any other day. If you are out of the market on that day you lose a lot of money. If you choose one day to be out of the market, you ...

I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA. By increasing the number of transactions, you are increasing the probability of hitting a bad day. However, you are putting less money at risk each time. The two offset and the overall probability of losing money remains the same. But the probability of a significant outlier event (significant rise in the market, that then can't be offset by a subsequent drop with another transaction) is less. Suppose there are 250 trading days in the year and on one of them the market increases much higher than on any other day. If you are out of the market on that day you lose a lot of money. If you choose one day to be out of the market, you ...

tibbitts wrote: ↑Sat Mar 25, 2023 9:58 am I'm not sure how you are not minimizing the risk of a worse-case outcome by multiple transfer, just as with DCA.

By increasing the number of transactions, you are increasing the probability of hitting a bad day. However, you are putting less money at risk each time. The two offset and the overall probability of losing money remains the same.

AlwaysLearningMore wrote: ↑Sat Mar 25, 2023 3:24 pm

rkhusky wrote: ↑Sat Mar 25, 2023 3:17 pm

AlwaysLearningMore wrote: ↑Sat Mar 25, 2023 3:02 pm Taxed differently when withdrawn from a qualified account?

Taxed differently in a taxable account.

Sure, but your statement was something of a blanket regarding taxation. For most investors, the majority of their investments are in qualified accounts.

If by qualified you mean tax-advantaged, then taxation of distributions doesn’t matter in those accounts. Taxation of distributions only matters in taxable accounts.

AlwaysLearningMore wrote: ↑Sat Mar 25, 2023 3:02 pm Taxed differently when withdrawn from a qualified account?

Taxed differently in a taxable account.

AlwaysLearningMore wrote: ↑Sat Mar 25, 2023 1:25 pm
Out of curiosity, what is the theoretical objection to including capital gains in a fund's distributions, if an investor such as the OP is counting on such distributions to fund their retirement lifestyle? (I would imagine they spend just like a real dollars )

Income and cap gains are taxed differently. Income is cash-like, such as interest and dividends, and is usually (always?) positive.
One can easily have both capital gains and losses.
Money from selling shares also spends just like savings interest, but they are considered different things.

the_wiki wrote: ↑Thu Mar 23, 2023 5:25 pm I had to do this recently with a 4-5 day window out of the market, and I just did 25% per week for 4 weeks to hedge my bets. I think I ended up about .5% ahead. But if I would have picked the wrong window in that month with 100% out I would have lost close to $10k.

And if you had picked the right window, would you have gained more than $10K?

tibbitts wrote: ↑Thu Mar 23, 2023 4:32 pm Usually you can at least break large transactions apart to minimize the risk, and if not there's usually some other way to minimize the risk.

Using multiple transactions doesn’t really minimize the risk. It’s just a trick to make you more comfortable. The same as dollar cost averaging versus lump sum investing.

You can also withdraw contributions to a Roth tax and penalty free.

You can also do a Roth conversion at the same time as withdrawing Roth contributions, which effectively allows penalty-free tIRA withdrawals before 59.5.

I chose to put stocks in taxable and rebalance stocks/bonds in tax-advantaged. In the event of a big downturn, your rebalancing will be larger than spending requirements.

FactualFran wrote: ↑Fri Mar 24, 2023 2:30 pm

rkhusky wrote: ↑Fri Mar 24, 2023 11:00 am Why is having the same number of shares important enough to go through the hassle of an in-kind transfer from an IRA?

It can be important to some, such as to those who want to avoid the possibility of a loss in value if the price of the investment increases while temporarily having fewer shares. To some, doing an in-kind transfer transaction is not more of a hassle than doing a combination of sell and buy transactions. Those who consider an in-kind transfer to be a hassle can chose not to do it.

Yes, even though one is almost as likely to gain as lose for being out of the market for a day, loss aversion can be difficult to overcome.

Trusts are included in wash sale rules.

Also look at the related party transaction law that is also described in Pub 550. The taxpayer and the grantor of the trust are related parties in your hypothetical.

Edit: also the grantor and the fiduciary are considered related parties.

No, you can transfer shares in-kind to a taxable account to satisfy your RMD. You don’t have to sell them within the IRA first. But you will owe taxes on the RMD even if you do the in-kind transfer. What’s the point of in-kind in that case? Edit: Does Vanguard even keep track of share info in an IRA (basis, date)? A point is to have the same number of shares in the taxable account as were in the tax-advantaged account. During the time it takes for the cash to be transferred and to become available in the taxable account to rebuy the shares, the price could change, and for the same dollar amount the number of shares would be different in the taxable account than it was in the tax-advantage account. Why is having the same number of shares im...

I did not realize I could transfer shares to the taxable account to satisfy RMD, that is extremely helpful. Thank you! It’s not really a transfer. You sell shares in the IRA (and owe taxes) and use the cash to buy in taxable. No, you can transfer shares in-kind to a taxable account to satisfy your RMD. You don’t have to sell them within the IRA first. But you will owe taxes on the RMD even if you do the in-kind transfer. What’s the point of in-kind in that case? Edit: Does Vanguard even keep track of share info in an IRA (basis, date)? If you want to keep the investment, you don’t have sell and then re-buy. You just transfer. The cost basis for the transferred shares is set on the date of the transfer (or maybe the date they show up in the...

No, you can transfer shares in-kind to a taxable account to satisfy your RMD. You don’t have to sell them within the IRA first. But you will owe taxes on the RMD even if you do the in-kind transfer. What’s the point of in-kind in that case? Edit: Does Vanguard even keep track of share info in an IRA (basis, date)? A point is to have the same number of shares in the taxable account as were in the tax-advantaged account. During the time it takes for the cash to be transferred and to become available in the taxable account to rebuy the shares, the price could change, and for the same dollar amount the number of shares would be different in the taxable account than it was in the tax-advantage account. Why is having the same number of shares im...

Consider the diversification within each of the largest companies versus the diversification within the smallest companies.

You don’t have to sell shares to meet your RMD requirements. You can simply take the RMD amount in kind, by transferring the shares from the IRA to a regular taxable brokerage account. The funds don't have to be sold, but that’s your choice either way. I did not realize I could transfer shares to the taxable account to satisfy RMD, that is extremely helpful. Thank you! It’s not really a transfer. You sell shares in the IRA (and owe taxes) and use the cash to buy in taxable. No, you can transfer shares in-kind to a taxable account to satisfy your RMD. You don’t have to sell them within the IRA first. But you will owe taxes on the RMD even if you do the in-kind transfer. What’s the point of in-kind in that case? Edit: Does Vanguard even keep...

rosemary11 wrote: ↑Thu Mar 23, 2023 4:53 pm The simplest AA to achive constant 60 percent stocks 40 percent fixed G
Now
60 percent. L2065
40 percent G fund

Sometime after 10 yrs
60 percent L 2075 or 2080
40 percent G fund

+1

ray.james wrote: ↑Wed Mar 22, 2023 3:14 pm It is just surprising, how quiet media and people are on debt ceiling limit. In 2011, I remember watching some news every week about some senators etc., discussing across party aisles to reach an agreement. Considering what is going on in news cycle right now, it is just crazy, there is no thought being wasted on debt ceiling!

Because it is not going to get serious until June. Once national parks start closing, people will pay attention.

msaffer wrote: ↑Thu Mar 23, 2023 12:38 pm

chickadee wrote: ↑Wed Mar 22, 2023 5:49 pm You don’t have to sell shares to meet your RMD requirements. You can simply take the RMD amount in kind, by transferring the shares from the IRA to a regular taxable brokerage account. The funds don't have to be sold, but that’s your choice either way.

I did not realize I could transfer shares to the taxable account to satisfy RMD, that is extremely helpful. Thank you!

It’s not really a transfer. You sell shares in the IRA (and owe taxes) and use the cash to buy in taxable.

You can transfer RMD’s to charity via QCD’s: https://www.bogleheads.org/wiki/Qualifi ... tributions

Note that when stock dividends are paid the stock price goes down, such that you have the same amount after the dividend as before. Stock funds are the same. I would not call that income.

Bond dividends are different. They are real income.

Wellington has both. Wellesley has more bond income.