Bogleheads.org

The vast majority of the money appears to currently be in PONAX, a bond fund with a high 0.91% ER ($16K/yr for $1.8M) That fund will generate a lot of dividends and taxes, if in a taxable account.

Edit: PONAX also appears to have a 3.75% front load, which already cost your mom $68K. Wonder how much the advisor received? Plus there is a 0.25% 12-b1 load (don’t know if that is yearly or one-time since I don’t do loads). Hopefully your mom has owned this for 20 years and the advisor isn’t churning load fees.

The rest of the portfolio is way too complicated.

Is there a lot of buying/selling in the account? Churning can be a problem with some managed accounts.

See in what your mom is currently invested. The number of investments and their expense ratios. Then determine the asset categories- US and International stocks and bonds, and the types of stocks and bonds, plus cash. Once you know the above, determine your mom’s goals for this money and the level of risk she is willing to take. If it’s for retirement, it should be combined with whatever other retirement money your parents have. As has been said, you wouldn’t want to make large changes to a taxable account, so you would be locked into what the advisor has chosen for a while. There are ways to slowly make changes if necessary. If I was suggesting a $2M portfolio for my mom, there would be 5 or less investments and the ER would be less than 0...

As you say, hindsight is 20/20. I should have invested in Apple when it was $30/sh. It was obvious it was a superior company. I had owned multiple Apple computers.

Why didn’t you see the opportunity 15 years ago?

D. C. Pline wrote: ↑Fri Mar 31, 2023 5:50 pm See, it's terminology like "non-deductible contributions" that is making my head spin. That just means it is all taxable (ultimately), right?

Sounds like I should enter that 1099 for the rollover.

Non deductible means that you did not deduct the contribution on your taxes. If you did not deduct a contribution, you should have filed form 8606 to keep track of it.

If the 403b was all pretax, then so is the IRA, and all you need for the conversion is lines 16, 18 on the 8606 (plus 1040 line 4b as Todd says).

If you did not make any non-deductible contributions to the IRA, the Roth conversion is only recorded on a couple lines in the back of the 8606 (16, 18).

A straightforward non taxed rollover would be added into 1040 line 5a with Rollover written to the left of 5b.

km91 wrote: ↑Fri Mar 31, 2023 4:51 pm

rkhusky wrote: ↑Fri Mar 31, 2023 4:40 pm And would your perception or investing strategy change if the width of the return distributions were +- 20% and +- 25% respectively (ie 10% +- 20% and 12% +- 25%).

Maybe maybe not. At some point you have to draw a line between what is signal and what is noise. Personally, I think the deeper we dive into the statistics, the more noise we're getting. I wouldn't outright dismiss the distribution data but the variance would have to be fairly extreme to overcome the other, non statistical evidence that I believe supports factor investing

Fair enough.

Except where the intuition doesn’t match the mathematical, ie intuition says high degree of certainty and mathematics says low degree of certainty. The expected return of value stocks versus expected return of the market can be in that category. "I expect the market to return 10%", "I expect value stocks to return 12%", "I expect value stocks to have higher returns than growth stocks". I think the intuition holds. Probabilistic expectations are another thing. But I doubt thinking in probabilities makes anyone's understanding clearer, it certainly doesn't for me And would your perception or investing strategy change if the width of the return distributions were +- 20% and +- 25% respectively (ie 10% +- 20% and ...

km91 wrote: ↑Fri Mar 31, 2023 3:42 pm Expected means expected. You don't need a mathematical definition of expected to understand the intuition

Except where the intuition doesn’t match the mathematical, ie intuition says high degree of certainty and mathematics says low degree of certainty. The expected return of value stocks versus expected return of the market can be in that category.

In terms of using a factor model, suppose I apply the 3-factor FF model to a Growth index fund. I might find that beta_mkt is 1, beta_hml is -0.3 and beta_smb is -0.2. That means that if growth stocks do better than value stocks and big stocks do better than small stocks, the Growth index fund should do better than the Market. And vice-versa.

These threads are so frustrating because people just don't even agree on basic terminology or statistical concepts for what factors mean, so I don't know how any discussion is even possible You mean basic terminology like expected return is the integral of return over the return probability distribution? right - mathematical expectation value. Obviously the distribution is unknown, but the factor models force a ~normal distribution for the average factor contribution to total return (since it is a linear regression) I'm not saying that's the god-given return distribution, that's just what the model is. All models are wrong, some are useful. In this case, if discussing factors, we should at least discuss the existing factor models and Since...

These threads are so frustrating because people just don't even agree on basic terminology or statistical concepts for what factors mean, so I don't know how any discussion is even possible You mean basic terminology like expected return is the integral of return over the return probability distribution? But this is why a lot of investors find factor investing to be a bunch of academic hocus pocus. Leaning too heavily into the statistical conceptualization of the factors just confuses the issue more than anything. You don't need to have a Phd in stats to understand the intuition underpinning the factors. Yes, the statistics tell us a relationship exists in the data, we need to rely on other evidence to prove out that the relationship exist...

In other words. The modeling process uses actual returns of the factors and of a portfolio (or single investment) to train a model for that portfolio, i.e.determine the free parameters associated with the portfolio. Once the model is determined, it accepts values for the factors as input and outputs the return of the portfolio associated with those factor values. One can input the training data to the model to determine the quality of the model. Or you can input computed values of future factor returns to predict future returns for the portfolio. I think that's right. I guess if you're inputting your own computed values for future factor returns into the model the question is where did those values come from, if not from the model itself a...

muffins14 wrote: ↑Fri Mar 31, 2023 1:21 pm These threads are so frustrating because people just don't even agree on basic terminology or statistical concepts for what factors mean, so I don't know how any discussion is even possible

You mean basic terminology like expected return is the integral of return over the return probability distribution?

muffins14 wrote: ↑Fri Mar 31, 2023 1:12 pm

rkhusky wrote: ↑Fri Mar 31, 2023 10:38 am

muffins14 wrote: ↑Fri Mar 31, 2023 9:12 am
value and growth are two ends of the same variable, so if value has positive expectation value, growth has negative expectation value.

That’s not true.

Yes, it is. That is how the model is constructed

The model factor is constructed as H minus L, but knowing H-L doesn’t tell you anything about H and L separately. 102-100 = 36-34 = 2347-2345 = 2.

What exactly do you mean own all of them? If you believe nothing is correlated and owning everything is beneficial, that would seem to me in equal weight index rather than market cap weights. You don't really get the benefit of imperfect correlation by only owning a modicum of stocks that are not large caps, and large growth especially. Getting diversification benefits from small value stocks means owning them in weights higher than they exist in the market. Equal weights for the four sectors is certainly reasonable. You realize owning everything in equal weight with regular re-balancing would essentially mean 0% long term returns? No, can you show the math for that? Sure. There's an article below. Basically, a small portion of stocks have...

Computing expected returns is performed outside the model and then input to the model. The model uses actual returns as an input and the output tells us about a historical relationship that existed in the past. From this we make an inference about the future In other words. The modeling process uses actual returns of the factors and of a portfolio (or single investment) to train a model for that portfolio, i.e.determine the free parameters associated with the portfolio. Once the model is determined, it accepts values for the factors as input and outputs the return of the portfolio associated with those factor values. One can input the training data to the model to determine the quality of the model. Or you can input computed values of futu...

km91 wrote: ↑Fri Mar 31, 2023 10:57 am

rkhusky wrote: ↑Fri Mar 31, 2023 10:42 am Or expected return of growth stocks could be 10% and the expected return of value stocks could be 5%, resulting in a value premium of -5%.

If the data and factor models are to be believed the expected value premium should be positive over the long-term. The realized value premium over any holding period could be positive or negative though

The factor model is agnostic as to whether premiums are positive or negative. Computing expected returns is performed outside the model and then input to the model.

Determining which market or market segment was better in the past is relatively easy. Determining which will do better in the future is more difficult.

km91 wrote: ↑Fri Mar 31, 2023 10:37 am

muffins14 wrote: ↑Fri Mar 31, 2023 9:12 am
value and growth are two ends of the same variable, so if value has positive expectation value, growth has negative expectation value.

I don't think this part is right. HmL is high minus low. The value premium is the performance spread of value over growth. Both could have positive expected returns and still produce a positive value premium. Value could have an expected return of 11% and growth could have an expected return of 9% for example. The value premium would be 2% and both value and growth would be expected to have positive returns

Or expected return of growth stocks could be 10% and the expected return of value stocks could be 5%, resulting in a value premium of -5%.

muffins14 wrote: ↑Fri Mar 31, 2023 9:12 am
value and growth are two ends of the same variable, so if value has positive expectation value, growth has negative expectation value.

That’s not true.

Stillwater1971 wrote: ↑Thu Mar 30, 2023 1:53 pm
My time horizon is about 10 years.

Is the money earmarked for a purchase or are you planning to die in 10 years?

muffins14 wrote: ↑Fri Mar 31, 2023 8:28 am Growth absolutely has a negative expected return, because value has a positive expected return. It is the same variable in the model.

The stock market is not a zero sum game. Growth and value stocks have both had positive returns over the years.

How are you calculating the expected return?

Note that expected returns of growth, value, etc are inputs to the factor model, not outputs.

There is a less than perfect correlation between LV, LG, SV, and SG. So, for maximum diversity one should own all of them. TSM is the easy way to do that. Although one could also use four funds at various proportions. What exactly do you mean own all of them? If you believe nothing is correlated and owning everything is beneficial, that would seem to me in equal weight index rather than market cap weights. You don't really get the benefit of imperfect correlation by only owning a modicum of stocks that are not large caps, and large growth especially. Getting diversification benefits from small value stocks means owning them in weights higher than they exist in the market. Equal weights for the four sectors is certainly reasonable. You real...

So...I'm wondering if it might be better for me to withdraw some of the IRA income to cover the $26K gap. This would allow me to hold onto my taxable cash for other things we might want to do beyond basic expenses. I realize there is a tax impact but it's not that much. So, why did you invest in an IRA in the first place, rather than a taxable account? The same reasoning says you should generally withdraw from taxable first before tapping your IRA. You are both over 59.5, so there is no problem withdrawing from your IRA for other things beyond basic expenses once the taxable account is used up. An exception to the above is if you can prove to yourself with your specific numbers that you would actually save money through the reduction of RM...

Apathizer wrote: ↑Thu Mar 30, 2023 5:55 pm

rkhusky wrote: ↑Thu Mar 30, 2023 9:23 am There is a less than perfect correlation between LV, LG, SV, and SG. So, for maximum diversity one should own all of them. TSM is the easy way to do that. Although one could also use four funds at various proportions.

What exactly do you mean own all of them? If you believe nothing is correlated and owning everything is beneficial, that would seem to me in equal weight index rather than market cap weights.

You don't really get the benefit of imperfect correlation by only owning a modicum of stocks that are not large caps, and large growth especially. Getting diversification benefits from small value stocks means owning them in weights higher than they exist in the market.

Equal weights for the four sectors is certainly reasonable.

Calvert wrote: ↑Thu Mar 30, 2023 4:33 pm Any more examples ?

So, you are putting $15k into the tIRA and $11.7k into the Roth per year, which is tax equivalent because you are fully in the 22% tax bracket. If you were to end up withdrawing fully in the 22% tax bracket in retirement (eg pension or other income fills the lower brackets), tIRA and Roth would give exactly the same results. Because your average tax bracket is lower than 22% in the example, tIRA is the better choice. Roth would be better if your average bracket was higher than 22%.

Incidentally, using the 2023 brackets, I find that your Roth take-home for $135k income is $120,779, lowering the tIRA advantage. But then the numbers don’t match the above.

Gaston wrote: ↑Thu Mar 30, 2023 6:02 pm

thenextguy wrote: ↑Thu Mar 30, 2023 1:00 pm

New information is not reflected in a stock’s price until trades take place.

This is not true. A stock price can gap up/down based on new information.

If a stock price can move without a trade occurring, what is the mechanism by which the market acquires the signal to move a price upwards or downwards?

Is the stock price at the start of the day exactly the same as it ended the previous day?

The market price is the correct price at a particular instant of time. It doesn’t say anything about what the price will be in the future. It is incorrect to say that the market was wrong if a stock price goes down.

Apathizer wrote: ↑Thu Mar 30, 2023 3:55 pm Over the course of the entire period bonds returned about 6% annually, the MCW TSM returned about 1%, and small value/value returned about 7%.

All we can do is use available information. Yes, we should be modest with our predictions, but why not use the information we have in an effort to construct when constructing a portfolio?

Or one could say that stocks underperformed bonds for 2009, but outperformed for the rest of the period.

One should make sure that information is still relevant and applicable before using it, otherwise you can end up with erroneous conclusions.

OP, if you sell those small lots that came from dividends before you do anything else, then they won't be there to cause a wash sale anymore. since they are small, you can sell them without caring much if they have a short term loss of gain. just get them out of the way and do the bigger sale and loss recognition tomorrow without having to consider these shares anymore. I spoke with a trade specialist from Vanguard today and asked about selling the recent dividend shares first and waiting a day later after those shares are sold to then follow up with the larger sale (including shares sold for loss) in order to a avoid a wash sale. He told me this would not avoid a wash sale. Any others wish to weigh in on this? Vanguard personnel are not s...

The funds aren't too dissimilar from DFA, which has a 30+ year track record. That's fairly well tested. Yes, and their results show sometimes TSM does better and sometimes SV does better. How close Avantis and DFA are remains to be seen. SV does better most of the time. Just like TSM does better than bonds most of the time, but not always Higher risk generally commands higher returns, but not always. That’s “risk” I thought in recent years that TSM did better most of the time, with SV having short bursts of outperformance. If one asset class out-performs another about 80% of the time, occasionally there can be long-periods when it doesn't. As Nathan said, historically stocks out-perform bonds most of the time, but there have been long peri...

Calvert wrote: ↑Thu Mar 30, 2023 10:48 am Interesting .... maybe my math is wrong ...

In your tIRA portion, the deductions drop you $7K into the 12% bracket, whereas the Roth is in the 22% bracket. So, not an apples to apples comparison. Try using $145K as income. Or put $15K into the IRA.

Nathan Drake wrote: ↑Thu Mar 30, 2023 9:41 am

rkhusky wrote: ↑Thu Mar 30, 2023 8:02 am

Nathan Drake wrote: ↑Wed Mar 29, 2023 9:49 pm The funds aren't too dissimilar from DFA, which has a 30+ year track record. That's fairly well tested.

Yes, and their results show sometimes TSM does better and sometimes SV does better. How close Avantis and DFA are remains to be seen.

SV does better most of the time. Just like TSM does better than bonds most of the time, but not always

Higher risk generally commands higher returns, but not always. That’s “risk”

I thought in recent years that TSM did better most of the time, with SV having short bursts of outperformance.

There is a less than perfect correlation between LV, LG, SV, and SG. So, for maximum diversity one should own all of them. TSM is the easy way to do that. Although one could also use four funds at various proportions.

Let's say we lost $6k on 12/21/2022 by selling 300 VTI shares in our fidelity brokerage (assume all these shares were bought on same day). Then, we reinvested $1k in dividends in our 401k from VTI into VTI on 12/28/2022 by buying 50 shares. Also, we bought $500/ 2.5 shares of VTI in our HSA account on 12/01/2022 and 1/10/2023. Lastly, we bought 20 FSKAX shares in our 401k worth $2k on 12/19/2022 1 --> Total disallowed loss for 12/21/2022 sale transaction = (50+2.5)/300*$6k = $1.05k 2 --> Total tax loss harvest allowed = $4.95k 3 --> The 52.5 shares of VTI that triggered wash sale will NOT have any impact on the cost basis of those shares in our HSA or 401k as a) everything coming out of 401k is taxed regardless of cost basis and b) nothing...

Nathan Drake wrote: ↑Wed Mar 29, 2023 9:49 pm The funds aren't too dissimilar from DFA, which has a 30+ year track record. That's fairly well tested.

Yes, and their results show sometimes TSM does better and sometimes SV does better. How close Avantis and DFA are remains to be seen.

Apathizer wrote: ↑Thu Mar 30, 2023 12:20 am

rkhusky wrote: ↑Wed Mar 29, 2023 7:52 pm

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.

So in other words when factors out perform it's due to special circumstances, but normally they won't?

That seems like special pleading. Isn't it at least plausible factors have some credibility?

Or when TSM outperforms it’s due to special circumstances?

I think there is an an ebb and flow to both. The results depend on which part of the cycle you buy and sell.

Yes our taxable income will be below the 83k ish limit for mfj so we can tax gain harvest at 0% up to that limit. We have carryover losses of around 14k from 22 so I guess my question is, can we use those losses from 22 towards ordinary income if we harvest no more gains this year? I’ve been trying to wrap my head around the 0% tax on capital gains and carry forward losses situation too. I’m in this situation this year as well. My understanding is in your case, if you had $20k of capital gain space that could be at 0% tax, you would need to generate $14k+$20k=$34k of gains this year to take advantage of 0% tax on the $20k. Anyone who has a better understanding of taxes, please correct me if this is incorrect. You are correct. I would not i...

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...