Bogleheads.org

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.

You could also put the proceeds into the national intermediate TE fund which probably correlates with the CA funds.

Doctor Rhythm wrote: ↑Wed Mar 22, 2023 5:15 pm Unless they feel it is likely that Company X will grow faster than the total market in the future, they should sell X and buy total stock.

Feelings caused the OP to lose 70% Don’t trust your feelings when investing.

If the money that you have in crypto right now was in cash, would you buy crypto now or would you buy something else, like Total Stock Market? If something else, sell the crypto, get the cash, and buy the something else.

Waiting to get back to even is an example of a cognitive bias called Anchoring. You want to avoid cognitive biases as much as possible. They are a fascinating subject however: https://en.m.wikipedia.org/wiki/List_of ... ive_biases

It would be nice to be able to set the minimum loss to harvest and acceptable TLH partners so as to avoid wash sales with other accounts. I assume this would be using ETF’s that can trade any time of day. You are asking for a lot. My guess is they will do something simple like VTI with VOO or VV, and VXUS with VEU and maybe not much more. I'd be very surprised if they will TLH between VBR and VIOV, for example, since they really don't acknowledge VIOV exists and likely don't want to channel assets into an ETF that has S&P licensing fees. Hell will freeze over before they use a non-Vanguard ETF. Plus SCV isn't in their advisory strategy. Once you have the automated TLH system set up with ETF’s, it doesn’t seem like a big leap to allow s...

Can one buy insurance to cover FDIC shortfalls? If so, not sure why the government has to provide more than $250K.

My bank has implemented accelerated deposit access. Sometimes I see the transfer from Vanguard to bank in 1 business day. It’s not guaranteed and when it happens it’s late in the day. Same for some direct deposits.

If you have a portfolio that has a lot of built in capital gains, it might not make sense to switch except for incrementally, ie sell shares with losses or low cap gains and directing dividends and cap gain distributions to other funds.

It would be nice to be able to set the minimum loss to harvest and acceptable TLH partners so as to avoid wash sales with other accounts. I assume this would be using ETF’s that can trade any time of day.

Regarding breaking the transaction into multiple transactions, consider a simplified situation where there is a 51% probability of the market rising by 1% and a 49% probability of dropping by 1%. If you have $1000 out of the market, the expected return is missing out on a $0.20 gain.

If instead you break the transaction into two $500 transactions and assuming the statistics remains the same, the expected return on each transaction is missing out on two $0.10 gains. The total expected return is therefore -$0.20, the same as before.

Realize that our brains trick us into worrying about losses more than gains. And you are very nearly as likely to win as lose in being out of the market for a few days.

I would reduce the time out of the market as much as possible, adjust other holdings to compensate if feasible, pull the trigger and don’t worry about it.

Edit: I’ve had to transfer 6 figures that had to go by mail in one transaction, which took about a week. If it is sufficiently important, you won’t worry about time out of the market.

Interesting to know why the former risk officer left in April 2022 and what the new one saw in January 2023 when she hired on.

Bonus point: Much has been made of the fact that SVB had no official chief risk officer for 8 months prior to the meltdown. Again, from a professional career perspective this makes perfect sense. Like a rat leaving a sinking ship, the prior CRO saw the writing on the wall and bolted rather than be around when things hit the fan. And once SVB had become technically insolvent, what risk officer would be dumb enough to take the job? Anyone who took a look at the books would see exactly what the problem was. Who wants to destroy their career by becoming the poster child for bank mismanagement? Do people typically get to look at the company books before they take a job? C-roles at huge companies? I can't imagine they wouldn't. I wouldn’t know. ...