Search found 4855 matches

by ogd
Fri Mar 27, 2020 10:20 pm
Forum: Investing - Theory, News & General
Topic: Understanding Bond ETF Discounts
Replies: 65
Views: 5824

Re: Understanding Bond ETF Discounts

In a nutshell, ETF are pricing bonds correctly. It's the NAV is wrong. So, if you bought Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) on March 16 at the NAV price, you overpaid by about 6%. If you bought Vanguard Total Bond Market ETF (BND), you bought at fair market value. Vice versa, if you sold VBTLX on March 16, you earned an extra 6% more than the market value of the bonds in the fund, and if you sold BND, you got the correct market price. Rick Ferri Hi Rick -- so you no longer hold the opinion in this article? https://www.forbes.com/sites/rickferri/2013/06/27/solving-the-bond-etf-discount-problem/#146252f41724 It's old, I know. It's also how old my interest in the topic is. A little before that article there was some ...
by ogd
Thu Apr 18, 2019 5:31 pm
Forum: Investing - Theory, News & General
Topic: Loans from 401k -- back door investing?
Replies: 57
Views: 6579

Re: Loans from 401k -- back door investing?

The interest rate you are paying yourself is really not relevant because there is no difference between these two scenarios: $50K loan paid back a year later with the same $50K (zero percent interest) followed up by a separate 5K deposit to some other retirement or investment account. $50K loan paid back a year later with $55K (10 percent interest). In both instances you are just paying yourself $55K. You can make the interest rate 0%, 50%, or 100%. There is no free money involved. There is a HUGE difference when it comes to the $5K interest. I think this isn't coming through because it gets muddled by the (valid) arguments about the loan principal being okay wrt taxes. The interest portion is very much not okay . Assume your tax rate is 4...
by ogd
Thu Apr 18, 2019 2:22 pm
Forum: Investing - Theory, News & General
Topic: Loans from 401k -- back door investing?
Replies: 57
Views: 6579

Re: Loans from 401k -- back door investing?

And, a 401k loan has no tax disadvantages versus an equivalent non-deductible loan. (Of course, comparing it to a completely different loan may have different, and irrelevant, results.) This is the basis for my claim that "double-taxation" is a mental illusion. Exactly. Therefore the loan interest isn't double-taxed either. You pay tax on wage income regardless from whom you get the loan. You pay tax on [traditional] 401k earnings regardless from whom the 401k gets its earnings. People don't call paying these two taxes "double-taxed" when you just get a loan from a bank. When you happen to get a loan from the 401k, you still pay the same two taxes and you are in the exact same position financially. The double-taxation i...
by ogd
Wed Apr 17, 2019 3:53 pm
Forum: Investing - Theory, News & General
Topic: How Much in Tax free Bonds
Replies: 6
Views: 1139

Re: How Much in Tax free Bonds

at this point even at a 24% tax rate Muni bond funds come out ahead Do not simply compare yields to understand bond desirability! After all, you wouldn't say Junk Bonds come out way ahead of everything else -- it's clear that there are additional risks involved vs something like Total Bonds and we generally trust the market to set the appropriate yields, and call it a wash. It's the same for munis vs non-munis -- just because one side of the equation needs tax adjustment doesn't mean that we can now simply compare yields as if they were exactly the same risk, now and always . In fact, the risk picture changes all the time and you fill find times when munis were considered much riskier than Treasuries, other times when almost as safe, with ...
by ogd
Wed Apr 17, 2019 3:19 pm
Forum: Investing - Theory, News & General
Topic: Loans from 401k -- back door investing?
Replies: 57
Views: 6579

Re: Loans from 401k -- back door investing?

1.875% > 1.125%, therefore do not take a 401k loan. Equivalently, prepay 401k loan before investing in taxable or prepaying debt. Thanks for the numbers! Instructive as always. I'd personally describe the actual utility of a planned (i.e. non-catastrophic) 401k loan with this sample scenario: 1) You are deciding whether to max a 401k, past the employer match. 2) You can afford it, but are eyeing a home purchase in a few years. 3) You can probably make the downpayment, but are worried that by then it might be higher than you expect. 4) You are considering playing it safe and adding to the downpayment stash instead of the 401k, but don't want to lose the 401k space this year. In this case, the option of the 401k loan is useful in allowing yo...
by ogd
Wed Apr 17, 2019 2:59 pm
Forum: Investing - Theory, News & General
Topic: Loans from 401k -- back door investing?
Replies: 57
Views: 6579

Re: Loans from 401k -- back door investing?

The double taxation you're seeing is simply the fact that the interest paid is non-deductible to the borrower. If you accept that any such loan is repaid with non-deductible dollars, the illusion of double taxation vanishes. But if the interest repaid was itself tax deductible, that would be a MAJOR loophole allowing you to cram additional tax-deferred monies into the account, beyond the annual limit. Agreed, actually: the poster above WAS in fact looking for just such a major loophole and had zero interest in the loan itself (pun initially unintended 8-) ). The loophole doesn't exist. I would also add that the double-taxation-when-viewed-as-a-contribution issue also argues for repaying the loan -- when you actually need a loan -- as quick...
by ogd
Wed Apr 17, 2019 2:43 pm
Forum: Investing - Theory, News & General
Topic: Loans from 401k -- back door investing?
Replies: 57
Views: 6579

Re: Loans from 401k -- back door investing?

The borrower receives post-tax money and repays the 401k account with post-tax principal and interest, exactly the same as on a car loan. No double taxation occurs here. Yes, there is double taxation of the interest. Please read the thread bumping post again: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=160714#p4492155 . The poster isn't actually interested in the loan, if anything the principal will be a burden as they're gonna invest it in taxable. They only care about adding an extra $10k to the taxable account. The argument for double taxation is actually much simpler than the argument you're thinking of (about the principal): that 10k contribution in a 25% bracket costs them $13.3k of pre-tax money, yet it will only gener...
by ogd
Wed Apr 17, 2019 2:11 pm
Forum: Investing - Theory, News & General
Topic: Loans from 401k -- back door investing?
Replies: 57
Views: 6579

Re: Loans from 401k -- back door investing?

The extra 10k is paid with post tax money, so if you have a 25% tax rate, it cost you 13,373 of pre-tax money to add $10k to your 401k. However, it will be treated as pre-tax money at withdrawal and taxed again. You are better off investing in an after-tax 401k, or sticking to the normal channel where 10k pre-tax money translates to 10k 401k money. This is wrong. Explained here: https://thefinancebuff.com/401k-loan-double-taxation-myth.html It's right. TFB (and Suze Orman, wrongly) are talking about the principal of the loan, the $50k in the post I quoted. That I completely agree with TFB, it's not double-taxed. I am talking about the $10k interest in the post I quoted. The poster wasn't interested in the utility of the principal, just mak...
by ogd
Sun Apr 14, 2019 12:46 pm
Forum: Investing - Theory, News & General
Topic: Loans from 401k -- back door investing?
Replies: 57
Views: 6579

Re: Loans from 401k -- back door investing?

A 50k loan at 7.5% interest leads to a total amount paid into the account of $60,030. So, over the course of 5 years, you can get an extra 10k ($10,030) into the account vs. not taking a 401k loan. You do have to subtract out the fact that the asset growth is now being done via a side taxable investment rather than within a 401k though. Thoughts? See my message above -- this is a bad deal. The extra 10k is paid with post tax money, so if you have a 25% tax rate, it cost you 13,373 of pre-tax money to add $10k to your 401k. However, it will be treated as pre-tax money at withdrawal and taxed again. You are better off investing in an after-tax 401k, or sticking to the normal channel where 10k pre-tax money translates to 10k 401k money. The u...
by ogd
Tue Apr 09, 2019 3:13 pm
Forum: Investing - Theory, News & General
Topic: Selling all equities, discuss why I'm wrong. :)
Replies: 374
Views: 76093

Re: Selling all equities, discuss why I'm wrong. :)

I've tried to out-perform the market, but honestly -- it's just too tiring. I'm sure I've spent much more time thinking about investing after selling all my equities than before. I think I may even go back to my target allocation -- just so I can 'set it and forget it.' I've also been thinking about Vanguard's life strategy growth, just to simplify things as much as possible. I still think a drop is likely, but I'm hedging my bets (literally), so I'm probably going to leave the allocations as they currently are. I'd like to give you props on (contemplating) an exit through the right door from this multi-year exercise. There are other doors that are much worse. One is "the stock market is terrible, I'll never invest again", leadin...
by ogd
Tue Apr 09, 2019 12:32 am
Forum: Investing - Theory, News & General
Topic: Indexing's share of trading is 1%, VG White Paper
Replies: 11
Views: 1715

Re: Indexing's share of trading is 1%, VG White Paper

This is indeed several times smaller than I thought (from eyeballing stock index turnover % vs large active funds). There must be other hyper-active players we don't have much insight into that are large enough to push the balance more towards active.

Cap-based indexing is the only passive strategy that can possibly achieve such numbers (that much AUM with that little trading). Anything else that has an actual portfolio (i.e. not dependent on your purchase date like a buy-never-sell basket of whatever) would have crashed and burned long ago.
by ogd
Tue Apr 09, 2019 12:13 am
Forum: Investing - Theory, News & General
Topic: Should I place bonds in my IRA or Roth IRA
Replies: 25
Views: 3628

Re: Should I place bonds in my IRA or Roth IRA

So why would you suggest to put equities in tax-deferred before Roth? In this case, because the poster only has a good equity fund in 401k, and their bond fund choices are high fee. Sometimes, it's worth paying the high fees if the tax situation improves substantially. If the choice was between tax-deferred and taxable , then I would say swallow the bitter pill, get the high fee fund and maybe start advocating for a better 401k. The difference between those two tax treatments is worth the fees. But when the choice is equities or bonds in Roth -- which only comes down to the RMD issue, relatively minor -- then the difference is not enough and the bitter pill of high fees should be left on the table. Theoretically ...[edited]... bonds in Rot...
by ogd
Mon Apr 08, 2019 10:30 pm
Forum: Investing - Theory, News & General
Topic: Should I place bonds in my IRA or Roth IRA
Replies: 25
Views: 3628

Re: Should I place bonds in my IRA or Roth IRA

I see your point. Your scenario reinforces that the Roth is the best place for the assert class with the highest expected retired return. How so? I was showing how placing equities in Roth is no better or worse than dialing up an "equities in Traditional" allocation by the expected withdrawal tax. It's only if someone insists on a specific bond percentage without factoring the effects of taxes in the bad scenarios that Roth looks better for equities. I don't think, though, that anyone here has much fear of equities performing worse than bonds over the long run. So I don't see placing them in Roth as the same type of risk-taking as choosing a certain percentage of equities in the first place. If you expect equities to grow more th...
by ogd
Mon Apr 08, 2019 10:01 pm
Forum: Investing - Theory, News & General
Topic: Should I place bonds in my IRA or Roth IRA
Replies: 25
Views: 3628

Re: Should I place bonds in my IRA or Roth IRA

Thanks for providing an example to work from! I will add to your options scenario 2) Equities HALVE while bonds grow 20%. This is just the truism that a dollar withdrawn from Roth is more valuable than a dollar withdrawn from traditional. But if you put equities in Roth and bonds in traditional, you'll have more available withdrawn dollars than vice versa. So your advice to first put equities in traditional, or that it doesn't matter if one puts bonds in Roth, is harmful. Example. OP has $100k in each. Future tax rate of 25%. OP wants 50% bonds. Equities will double while bonds will grow 20% by withdrawal. A) Roth 100k bonds grows to 120k, 120k available after tax. Traditional 100k equities grows to 200k, 150k available after tax. $270k tot...
by ogd
Mon Apr 08, 2019 9:16 pm
Forum: Investing - Theory, News & General
Topic: Should I place bonds in my IRA or Roth IRA
Replies: 25
Views: 3628

Re: Should I place bonds in my IRA or Roth IRA

Withdrawals are taxed as ordinary income in tax deferred accounts. Generally speaking, without being able to predict the future, wouldn't you want the account that is subject to ordinary income to hold the assets with the lowest expected returns to thereby minimize the amount potentially subject to ordinary income tax? This rationale doesn't quite work. Sure, if you put higher-growth assets into Roth you pay fewer taxes and are left with more money, but you also take more risk because ultimately more money is invested in higher risk equities -- a dollar of Roth is equivalent to more than a dollar of Traditional, say $1.25 depending on your tax rate at retirement. This is the basis of https://www.bogleheads.org/wiki/Tax-adjusted_asset_alloc...
by ogd
Wed Feb 20, 2019 11:39 am
Forum: Investing - Theory, News & General
Topic: Portfolio visualizer says no rebalance bonus
Replies: 38
Views: 4387

Re: Portfolio visualizer says no rebalance bonus

So what has happened to that ratio over time? If someone decided to maintain their holdings of US stocks and bonds at relative total cap-weight, would they ever need to rebalance, and if so, why? Why didn't e.g. 94 years (since 1926) of 10% stock returns and 5% bond returns (intermediate-term government bonds; round numbers) reduce the size of the bond market to nothing but a tiny footnote? The bond market is not the stock market. The market cap of a category of bonds (including the "all" category) depends overwhelmingly on issuance rather than past returns, so bond returns have almost no impact on following market cap. It's for this reason that I personally don't care about market cap weighting of bonds vs stocks, or bonds vs ot...
by ogd
Tue Feb 19, 2019 2:32 pm
Forum: Personal Investments
Topic: Bond funds in 401K
Replies: 4
Views: 844

Re: Bond funds in 401K

Hi Max -- sorry for the late reply, I hadn't noticed yours until just now. Hope this can still help! The one question I have about your response, OGD, is that you call me a 0% taxpayer in this account. Once I take the Gains out of the account, upon my retirement, won't I have to pay taxes on the gains? Therefore, It could be possible for a tax free investment to have a benefit. I take your point that the market prices in the tax free benefit. Thanks! The thing with a tax deferred (that is, non-Roth) 401k is, the government pretty much doesn't care what you invested it in. You will pay the same proportion in taxes whether you had tax-exempt bonds, taxable bonds, stocks or anything else throughout those years. So for you, there is no differen...
by ogd
Wed Jan 30, 2019 7:02 pm
Forum: Personal Investments
Topic: Bond funds in 401K
Replies: 4
Views: 844

Re: Bond funds in 401K

1) Never use tax exempt funds in your tax-advantaged accounts. The market prices the bonds in the funds for tax payers, even high-rate tax payers, and you are a 0% tax payer in this account -- so you're guaranteed a bad deal since you're paying the same price as people for whom tax exempt bonds are far more valuable in relation to taxable bonds. 2) Use the SEC yield to compare funds, not the TTM yield (12-month trailing), which I'm guessing you looked at. Even for this particular purpose, which is measuring the effect on money received as fund dividends. With the SEC yield, the world makes sense again: VCADX 2.23% < VWIUX 2.41% < BND 3.18% The TTM yield is backward-looking: it's a 12-month average, so it includes dividends from early 2018 w...
by ogd
Mon Jan 14, 2019 4:27 pm
Forum: Investing - Theory, News & General
Topic: Buying ETF intraday vs. buying index fund at NAV
Replies: 3
Views: 658

Re: Buying ETF intraday vs. buying index fund at NAV

Does this line of reasoning check out, or am I missing an obvious consideration? You are missing one obvious meta-consideration: if your intraday buying, after fees and bid/ask spreads, offered you even a minuscule advantage, then you should become a day-trader and leave all of us in the dust. This follows inescapably from the premise that you can consistently find a better time to buy than the end of the day. Assume your advantage averages to a very small 0.1% per trade -- something most of us would simply not worry about for our long term investment. Compounded over 250 trading days, this is a 28.3% yearly return that dwarfs the expected stock returns from simply "time in the market". It would make you one of the most successfu...
by ogd
Thu Jan 10, 2019 4:34 pm
Forum: Investing - Theory, News & General
Topic: Using TSM for Essential Liabilities- TSM's worst rolling averages
Replies: 18
Views: 2214

Re: Using TSM for Essential Liabilities- TSM's worst rolling averages

In the end, when you really want to know the money will be there there's no substitute over the short and medium term for individual bonds and CDs held to maturity. I don't think this conclusion is warranted. Individual bonds do not reduce risk by virtue of holding to maturity and "not taking losses", they do so by having the proper duration at all times vs a known liability date. You could in fact sell at a loss every month as long as you buy a bond with the same maturity date and liquidity is not a significant issue -- the higher coupons will precisely make you good for the capital loss. The scenario when TBM really loses is when a yield-increase event or period happens just before the liability date, and I think if you dive de...
by ogd
Wed Jan 09, 2019 1:30 pm
Forum: Personal Investments
Topic: Bond fund question - relationship between duration, yield, and actual return.
Replies: 9
Views: 753

Re: Bond fund question - relationship between duration, yield, and actual return.

Now, I look at Vanguard Total Bond Market VBTLX and Vanguard Intermediate-Term Treasury Index VSIGX and this is what I see. VBTLX 30-day SEC yield 3.19 (as of 1/4/2019) and duration 6.0 years VSIGX 30-day SEC yield 2.60 (as of 1/4/2019) and duration 5.2 years The treasuries fund VSIGX has considerably lower 30-day yield. However, but over time these two have almost the same returns, with VSIGX having slightly lower return and slightly lower standard deviation. Most of your conundrum is due to mixing timelines. SEC yield is a forward-looking figure (the average of the computed future yields of the bonds held in the fund), while "have almost the same returns" is a backward-looking statement. With only a little exaggeration, imagine...
by ogd
Tue Jan 08, 2019 7:40 pm
Forum: Investing - Theory, News & General
Topic: Embarrassed to ask... dividends and Total Return
Replies: 43
Views: 7794

Re: Embarrassed to ask... dividends and Total Return

They don't. Dividends don't make you wealthier at all. They do just the opposite: reduce your return. How do dividends "reduce your return?" Taxes Any time you sell shares or receive a dividend taxes are involved. Assuming at some point you want to use your assets for some tangible purpose, taxes will be involved. If you simply want to see assets grow but have no intention of ever using them then I suppose having a dividend payout is harmful. Otherwise it’s just paying some taxes now rather than later. No, now rather than later is a big deal . It's even worse than JustinR's reply below yours. If you are deferring capital gains until you actually need the money, you continue to earn returns on the unpaid taxes, which then compound...
by ogd
Thu May 10, 2018 7:21 pm
Forum: Investing - Theory, News & General
Topic: How does stock buyback benefit investors?
Replies: 78
Views: 9551

Re: How does stock buyback benefit investors?

About time I answer the OP in this thread as well. Occasionally I hear companies return their extra cash to their share holders by stock buybacks. Recently there was a report that Apple will return $100 billion to its share holders by stock buybacks. A typical argument goes like this: A company reduces the number of outstanding shares in the market by buying back and retiring some stocks from the market. Since there will be a smaller number of shares, stocks will be more valuable proportionally. However, the company will be worth less by the same amount of the cost of stock buyback because it spent its cash. Net result should be neutral. For example, if a company spends 5% of its net worth to buy back stocks, 5% of the market cap in the eff...
by ogd
Thu May 10, 2018 6:55 pm
Forum: Personal Investments
Topic: move out of bonds into money market and online savings
Replies: 19
Views: 3478

Re: move out of bonds into money market and online savings

Jimsad wrote: Thu May 10, 2018 6:11 pm Hi . I am about 70:30 in stock and bond funds .
In the present environment with bond returns not that impressive and also with the online savings , money market and cd rates keep going up ,
I am thinking of pulling out of bonds into these .
What do you think ?
The recent bad returns are the price to pay for future higher yields. Safe bonds only drop in value when they increase in yield with the market.

You took the pain, but are about to refuse the gain. In yield terms, you were okay holding bonds at, say, 2% yield and below for something like Total Bond Market, but now at 3% you think they're a bad deal. What does that say about your abilities to do bond market timing?
by ogd
Thu May 10, 2018 3:39 pm
Forum: Investing - Theory, News & General
Topic: How does stock buyback benefit investors?
Replies: 78
Views: 9551

Re: How does stock buyback benefit investors?

What about the impact on the shareholder of an index (in whatever form)? If they choose to reinvest dividends, they in essence take the dividend paid by one company in the index & use it to buy parts of all companies in the index. When a stock in the index does a buyback, the index holder doesn't have that option & instead, in a way, takes on what they might say otherwise is 'single stock risk'. Not really the same, but hopefully the idea comes across....certainly makes it hard to sustain that dividends & buybacks are the same. I've wondered before why that doesn't get more discussion Not so - after the buyback, the market cap shrinks despite individual shares staying the same (all other things equal). This is completely reason...
by ogd
Thu May 10, 2018 2:02 pm
Forum: Investing - Theory, News & General
Topic: How does stock buyback benefit investors?
Replies: 78
Views: 9551

Re: How does stock buyback benefit investors?

Let me put your position to you in the form of its logical extension: should management be entirely agnostic about the share price at which it issues shares? PS I realized I haven't answered your question about issuance. I'd argue that this is a considerably more complicated proposal, for two related reasons: 1) is that it creates a link between shares and cash that shareholders cannot easily undo (whereas they can easily hold shares and more cash in the buyback case); hopefully that doesn't last too long but it's there at least temporarily. 2) that shareholders might not be able to "reject" the dilution of their ownership by buying more stock (the corresponding transaction to selling the buyback) because they might not have the ...
by ogd
Thu May 10, 2018 1:31 pm
Forum: Investing - Theory, News & General
Topic: How does stock buyback benefit investors?
Replies: 78
Views: 9551

Re: How does stock buyback benefit investors?

Let me put your positions back to you in a form of a question. How exactly do you propose that managements decide between (1) retaining their earnings, (2) issuing a dividend, or (3) buying back their shares, if as you suggest, management must be entirely agnostic about the current market price? I've already answered this - they should decide to do 1) if there are good uses for the money from an operational perspective. Maybe it's expansion into a new locality where good prospects, or efficient trucks, or saving interest on future operational debt. The management is well equipped to do those decisions and you as a shareholder cannot replicate them. Barring that (and ignoring for a moment issues with overseas money like Apple's), they shoul...
by ogd
Thu May 10, 2018 3:23 am
Forum: Investing - Theory, News & General
Topic: Total Bond - SEC yield breaks 3%
Replies: 104
Views: 17052

Re: Total Bond - SEC yield breaks 3%

Thanks ogd for your reply. I was thinking about brokered CD's all wrong. These do have principle fluctuation One of my points, probably not the best expressed, is that the principal fluctuation is not the issue - it's only a symptom. It's the market telling you "if you want to get out of your old instrument with a subpar yield ahead of term, you'll have to reimburse me for the difference in yield vs what I can get in new instruments, prorated", quite reasonably. The real nature of interest risk is being stuck at X% yield for Y years. An instrument that never has a market price (a price at which you can get out of it) after issuance until redemption, such as a direct CD without the early withdrawal option, has the same problem onl...
by ogd
Thu May 10, 2018 2:50 am
Forum: Investing - Theory, News & General
Topic: How does stock buyback benefit investors?
Replies: 78
Views: 9551

Re: How does stock buyback benefit investors?

The simplest way is to think about this like a business owner. Say you owned a highly lucrative business with a partner - 50%-50% split. I reckon there would be a price at which you would JUMP at the chance to retire his share in the business, and then there would be a price where you would be willing to SELL your share in the business to him. Stock buybacks are about retiring equity ownership in the business - therefore, price matters. PS to my post above: this example, and a related one on the thread, are not good for reasoning about public companies because here a single person is both shareholder and manager. In public companies, these duties should be viewed separately. If a shareholder thinks the market price far too high, they know ...
by ogd
Thu May 10, 2018 2:36 am
Forum: Investing - Theory, News & General
Topic: How does stock buyback benefit investors?
Replies: 78
Views: 9551

Re: How does stock buyback benefit investors?

This is why the answer to whether stock buybacks benefit investors is this: it depends on the price per share at which the buyback occurs. I couldn't resist answering because I actually think the complete opposite of what you just said: Knowing what we know now (at the time of the buyback), the price of the stock should not be a factor at all in the decision to buy back. Here's why: all the shareholders of the company must like the current price of the stock, or they should simply sell it immediately and stop complaining about the high price. It isn't the job of company management to be analysts of their own stock - that would be a terrible idea for many reasons. That decision belongs to the shareholders and management should simply assume...
by ogd
Tue May 08, 2018 4:07 pm
Forum: Investing - Theory, News & General
Topic: Total Bond - SEC yield breaks 3%
Replies: 104
Views: 17052

Re: Total Bond - SEC yield breaks 3%

jalbert wrote: Tue May 08, 2018 3:47 pm An opposing view
jalbert -- worth noting that in this article that generally argues that bond ladders can work well, there is no mention of interest rate risk as an advantage for ladders, and the same goes for other articles from Larry's firm. They know what they are talking about and they're quite honest, so despite the fact that they'd get paid for managing your bonds they will not make an argument that they know is not true.
by ogd
Tue May 08, 2018 3:47 pm
Forum: Investing - Theory, News & General
Topic: Total Bond - SEC yield breaks 3%
Replies: 104
Views: 17052

Re: Total Bond - SEC yield breaks 3%

This is a minor point, but with brokered CDs aren't coupons reinvested in the same CD so that the yield held until maturity matches what one expected. There is no guarantee with bonds, since coupons must be reinvested in other bonds. Thanks triceratop! I would classify the inability to invest at same yield as reinvestment risk , it hurts in the opposite situation than interest rate risk, i.e. when yields fall. The same reason why it might be preferable to invest in 5 years vs 3 years when your horizon is longer than 5 years, even when yields are not significantly larger -- 3 years from now you might not be able to find 2 year investments for the rest of the period that are as good as the old 5 year instrument. In fact, if reinvestment is n...
by ogd
Tue May 08, 2018 3:40 pm
Forum: Investing - Theory, News & General
Topic: Total Bond - SEC yield breaks 3%
Replies: 104
Views: 17052

Re: Total Bond - SEC yield breaks 3%

...a brokered CD has the same interest rate risk as a similar duration bond fund (say, Treasuries, to keep the guarantees similar). But, at least currently, the brokered CD has a higher yield. Same risk, higher return so the CD = free lunch? Is this because most invested money is in taxable accounts of people in high tax states? It would require about a 9-13% state income tax rate* to account for the difference between CD and treasury with 2 year or longer maturities. (Meanwhile on the short end, treasuries have higher yields than brokered CDs :?: ) There are a couple of reasons. State tax is definitely a thing and your rates are realistic in California among others. State tax is more of a thing than it was last year, when it was Fed tax d...
by ogd
Tue May 08, 2018 2:27 pm
Forum: Investing - Theory, News & General
Topic: Total Bond - SEC yield breaks 3%
Replies: 104
Views: 17052

Re: Total Bond - SEC yield breaks 3%

Kevin's post, demonstrates that a single issue direct CD with low EWP is vastly superior (if you can get these in tax deferred accounts, like an IRA). I think a ladder of brokered CD's would have a similar behavior (with the difference of being better in rising interest rate env, and worse in falling interest rate env). No, no, no. The two type of CDs are fundamentally different, and it's the early withdrawal option (EW) that makes all the difference. The EW takes away your interest rate risk, while a brokered CD has the same interest rate risk as a similar duration bond fund (say, Treasuries, to keep the guarantees similar). Switching mid-sentence between the two, or saying like others above that somehow the defined maturity date reduces ...
by ogd
Mon Apr 23, 2018 4:55 pm
Forum: Personal Finance (Not Investing)
Topic: Strategy for Use of Restricted Stock Units
Replies: 18
Views: 2808

Re: Strategy for Use of Restricted Stock Units

Just to add what others have said, think of RSUs this way. When an RSU vests, your company gives you a cash salary bonus. They then immediately turn around and buy company stock with that cash bonus. If you received a cash bonus instead of RSUs, would you also buy company stock? Both are taxed the same way at vesting time. This is why most boggleheads immediately sell RSUs when they can. There is no long term capital gains tax rate advantage, and there is no cost basis advantage. It just feels like there should be because they show you the cost basis from the grant date usually. Yes. This is the gist of RSUs. Once you understand the above, the path with RSUs becomes crystal clear: sell as soon as they vest. Then , if you've convinced yours...
by ogd
Thu Apr 05, 2018 6:44 pm
Forum: Personal Investments
Topic: Bond fund vs. CD
Replies: 26
Views: 7106

Re: Bond fund vs. CD

Something caught my eye Kevin, sorry for rewinding a bit. Five-year return of the VG intermediate-term Treasury funds as of 3/31 was 0.86% and 0.85% (all figures here are for Admiral shares), while a 5-year CD of mine that matured in late March returned 2.47% (as I knew it would). So in this case term risk was not rewarded. So the SEC yield of the fund on 3/31/2013 was 0.87% , which is within a hairpin of the actual 5 year return. What's really remarkable about this is that March 31st 2013 was a lousy time to buy bonds . You had some of the lowest yields ever, andf there was a quick and steep bond crash a few months later. Then, March 31st 2018 is, as we know, a lousy time to sell bonds , right after the crash which is why all these threads...
by ogd
Sat Mar 31, 2018 2:20 pm
Forum: Personal Investments
Topic: Explain one more time how balance funds work
Replies: 37
Views: 7853

Re: Explain one more time how balance funds work

Portfolio A = 60% Total US stock fund, 40% Total US Bond rebalanced once a year Portfolio B = 60/40 Total US Stock and Bond fund rebalanced daily (or however frequently the Vanguard 60/40 Balanced fund rebalances) Would it be true that if one of the assets (say stocks) steadily outperformed the other over the course of the year that Portfolio A would outperform Portfolio B, Yes. Portfolio A achieved this by having more stocks on average, i.e. taking more risk for more reward (in this case). It's the usual tradeoff and not a problem with rebalancing. Like in my email above, if you say that a larger stock allocation is appropriate after stocks have gone up , you have to justify it and it rather looks like market timing. whereas if instead th...
by ogd
Sat Mar 31, 2018 1:25 pm
Forum: Personal Investments
Topic: Explain one more time how balance funds work
Replies: 37
Views: 7853

Re: Explain one more time how balance funds work

My explaining is subpar for sure - which leads to confusion by the reader. It shows I too am confused. Let say you have two portfolios - 1. A Balanced Fund (BF) of 60-40 and 2. A 3 Fund Portfolio (3FP) of 60-40 which is currently at exactly 60-40 (no rebalncing needed) RMD comes along and you must take $1000. With the BF you sell $1000 worth of shares. But with the 3FP you sell $600 worth of eqyity and $400 bonds. Easy enough. But now lets say the stock market has drop considerably. And RMD comes along. Repeat the above for the BF (but in doing so you have sold equity and bonds). But on the 3FP side you would probable sell just bonds for the RMD to get back to 60-40 (thus rebalancing). Does this mean that with the BF you are selling stocks...
by ogd
Thu Mar 29, 2018 2:45 am
Forum: Personal Investments
Topic: Tax-exempt muni bond mix vs. CA intermediate-term tax-exempt muni-bond fund
Replies: 20
Views: 3745

Re: Tax-exempt muni bond mix vs. CA intermediate-term tax-exempt muni-bond fund

But this is purely because of interest rate hikes, which reduces the bond values (negative YTD). This is not timing, it is just that I was already at capital loss in muni bonds, so I sold them, and bought treasuries with guaranteed gains. For my tax bracket, muni bonds return better returns than treasuries in overall performance, but not right now. You seem to be doing it wrong, focusing on the past rather than the future returns. The loss on your munis has already happened and there's nothing you can do about it. Going forward it's their yield that matters, and that has gone up and likely bests Treasuries easily.in a high tax bracket. Once again, YTD is completely irrelevant for what you want to buy or sell now . What matter is the YtW or...
by ogd
Thu Mar 29, 2018 2:33 am
Forum: Personal Investments
Topic: Total return vs dividends
Replies: 54
Views: 12432

Re: Total return vs dividends

I understand that in theory, focusing on total return and selling shares to generate cash is just as good as or perhaps better than relying on dividends for cash flow in retirement. However, I’m having a mental block on what this means in practice. If my portfolio will generate enough dividends and interest to fund my day-to-day living expenses without having to sell any shares, isn’t it an easier way to generate cash than to have to sell securities periodically to generate the cash needed? The part that you're missing (and the one I know I was missing) is that total return is with dividends reinvested . So selling shares or spending dividends leads to the same thing vs the person not selling anything - fewer shares. My other question is t...
by ogd
Thu Mar 29, 2018 2:00 am
Forum: Personal Investments
Topic: bid-ask spread for limit orders
Replies: 24
Views: 2575

Re: bid-ask spread for limit orders

My question is, if you place a limit order, does bid-ask spread matter? It doesn't have to execute immediately. Yes, it does. If a large spread is happening throughout the period, the limit order will probably execute at an unfair price - even if it's a price you were previously okay with. This might sound strange at first, but not if you think about it for a bit. I might be okay with buing for $11 when the fair price is right about $11, but not if the fair price (that someone who didn't have to deal with spreads would be paying) is $10.50. It's the same price, same shares, but the circumstances have changed. Moreover, there are a bunch of scenarios where the fair price was below $11 but less than the spread before taking off, where my $11...
by ogd
Thu Mar 29, 2018 12:33 am
Forum: Personal Investments
Topic: Explain one more time how balance funds work
Replies: 37
Views: 7853

Re: Explain one more time how balance funds work

There are circumstances when taking RMDs from a balanced fund would have resulted in lower portfolio balances versus using an initially equivalent portfolio of separate stock and bond funds, without necessarily rebalancing to the target stock:bond allocation of the balanced fund. Yes, but this is entirely due to having rebalanced rather than to the fund specifically. Or even RMDs specifically. The non-rebalancing owner was the winner in this case. Over a period when stocks declined, they had a safer allocation than their normal 60/40, before the RMDs or even after. Did they have an a priori reason for being below allocation? I can think of some, like trend following, or being scared of the economy, or wanting constant safety from the bonds...
by ogd
Tue Mar 27, 2018 10:53 am
Forum: Personal Investments
Topic: Explain one more time how balance funds work
Replies: 37
Views: 7853

Re: Explain one more time how balance funds work

But with this balanced fund you are "forced" to sell, at least in part, that worse porforming holding. How do you reconcile this? It's not a big deal. The fund has been buying stocks after they started dropping and selling bonds, so compared to the beginning of that period you have indeed sold more bonds than proportional. More importantly, the balance is still 60/40 after you sell, which is what you want. If you now think you want 65/35 because "stocks are cheap" (this smacks of market timing, btw), you can simply sell a bit more and buy a pure stock fund to get that balance. With liquid stocks, this should cost you very little in terms of friction costs. It's just taxes that are an issue. It's inefficient to sell what...
by ogd
Sun Mar 25, 2018 8:20 pm
Forum: Personal Investments
Topic: Wrapping my head around bond funds
Replies: 57
Views: 9157

Re: Wrapping my head around bond funds

I took a small loss on Fidelity's short term bond fund (FSBAX 1-3 year bonds) last year. If I had parked the same amount of money in a CD that came to maturity, obviously things would have been different. Ok, let's analyze this a bit. The CD that came to maturity would have been a very short-term instrument (under 6 months) over this bad bond period. Your instrument FSBAX had 2.65 year duration. You are beating yourself up over holding a longer term instrument at a time when longer term instruments were penalized. Whoopty-doo. Would it have been the right decision to hold something like a money market (to which your maturing CD was close in duration) over this period? Yes, but only with the benefit of hindsight. Might as well say that it w...
by ogd
Fri Mar 16, 2018 6:37 pm
Forum: Personal Investments
Topic: Wrapping my head around bond funds
Replies: 57
Views: 9157

Re: Wrapping my head around bond funds

I have also researched and found that bond fund correlation with equities increases in a severely down market. Not sure where you read this, but I'm pretty sure it's wrong. It might be referring to certain types of higher-risk bonds that behave more equity like, but the safe bonds we typically recommend for balancing out equities do not behave that way. In the last couple of recessions they even went up a little (3-5%) while the equity markets were way down, but that [very welcome] increase is not something you can necessarily count on. However, what is quite reliable is that movements in either direction of safe bonds are downright tiny compared to equities, so they will do the job of balancing out the equity allocation very well. Safe bo...
by ogd
Thu Mar 15, 2018 7:58 pm
Forum: Investing - Theory, News & General
Topic: What % of the stock market volume are (primary) tx from index funds
Replies: 4
Views: 1419

Re: What % of the stock market volume are (primary) tx from index funds

Thanks for this. That the transactions triggered by indexfonds really only make up 5% of the total volume is lower then I expected. Understandable when you look at the turnover numbers. For index funds, it's 5% and below. For active funds, it can exceed 100% a year! If it's too low, they're accused of being "closet indexers" in that world. So glad I'm no longer living in it. Swimming with the market has big advantages. Lower fees, lower (often zero) capital gains distributions, but importantly for your concern it [cap-weighted indexing] is the one strategy that can sustain large % of assets being managed that way, because even then the percentage of volume will be small. Even other passive strategies that deviate significantly fr...
by ogd
Mon Mar 12, 2018 1:47 pm
Forum: Personal Investments
Topic: Municipal Bond Fund NAV and interest rates
Replies: 19
Views: 2554

Re: Municipal Bond Fund NAV and interest rates

Beware that for munis held less than 6 months there is a rule about the tax free dividends received in the interim -- when selling at a loss, the dividends have to be discounted from the loss to prevent gaming the dividend payment dates. Let's say that one owned the OP's VWITX (Vanguard Intermediate-Term Tax-Exempt Fund). Some of the Spec-IDs were more than 6 months, some were less. The owner sold them to TLH, exchanging for say Vanguard Short-Term Tax-Exempt Fund Investor Shares (VWSTX)...for 31 days...then exchanged back to VWITX. Would that cause problems with the dividends? The part of the sale that was shorter than 6 months would trigger the rule about disqualified loss. The exchanging back is not an issue, it's all about the sale. Ho...
by ogd
Sun Mar 11, 2018 8:39 pm
Forum: Personal Investments
Topic: Municipal Bond Fund NAV and interest rates
Replies: 19
Views: 2554

Re: Municipal Bond Fund NAV and interest rates

1) Please explain what happens if I hold this fund long term. Does the principal loss get wiped out or reset? I am failing to grasp this concept. Since it's very unlikely that any of the bonds have actually defaulted (have not checked, but you'd hear about such things), the principal loss should be entirely recouped through higher yields over time. Indeed, you can think of it as the cost of adjusting to higher yields, with a formula that goes a bit like: $X at 1.61% yield for duration = $(X - L) at 2.25% yield for duration, if we compare with the yield lows of 1.6% of last year for example That's where the loss $L comes from. It's a bit more complicated in reality, with pricing applied to each individual bond in the fund, but that's the ex...
by ogd
Fri Feb 23, 2018 5:57 pm
Forum: Personal Investments
Topic: Still lose with bonds even at duration
Replies: 41
Views: 6128

Re: Still lose with bonds even at duration

The point is, unless someone has a crystal ball that tell them exactly when rates are going to rise and when they will stop rising, there is no way to stay out of bonds and into stable value / CDs without risking either losing additional bond returns, or accepting lower returns in a rising rate environment. You are either too early to get out of bond market and into stable value / CDs, in which case you lose additional bond returns, or you are late which means rates have already began to rise and you already have lost principal and getting out now would mean locking in those losses, and instead it is better to stay and get the extra income to offset the losses. The third option is to accept that stable value / CD rates are acceptable even ...
by ogd
Thu Feb 22, 2018 10:28 am
Forum: Personal Investments
Topic: Still lose with bonds even at duration
Replies: 41
Views: 6128

Re: Still lose with bonds even at duration

Current: $115,995 @ 2.91% compounded over 6 years: $138,094, interest paid: $18,678, taxes: $6,164, Net: $131,930 Net loss: $1,225 over 6 years Hi stocknoob4111 -- as I was mentioning in another thread, you need to be a little patient when it comes to SEC yield. Since it's a 30-day average, it's incorporating late January bond yields which were significantly lower. Even absent any market yield increases (/ price declines), it should continue to steadily climb for a couple of weeks, as the "last 30 days" match the present more and more. This effect can be clearly seen in the stable period before yesterday's decline -- yield climbing without price declines. 02/14/2018 $10.47 2.84% 02/15/2018 $10.48 2.86% 02/16/2018 $10.49 2.87% 02/...