Bogleheads.org

Thankyou comeinvest for clearing that up. I thought my memory was fading.

iShares iBond muni (IBMM) maturing next year yields 2.82%. Their treasury maturing next year yields 5% (IBTE). The breakeven tax rate would be 44%. This much higher than I've seen in the past. Why?

Thanks for any insight.

Kelly

Very helpful. Thank you.

I'm not investing in either. I'm just trying to understand how they work. My confusion is whether holding a fund for the duration results in the same thing as holding a bond to maturity. Vanguard argues that there's not much difference here https://advisors.vanguard.com/iwe/pdf/FAIBVBF.pdf. If that's the case, what's the value of the iBond product?

Many thanks

Hi All I'm trying to learn more about bond funds. Vanguard short term treasury (VGSH) has a 30 day SEC yield of 4.78% and a duration of 1.9 years. iShares IBond Dec '25 term (IBTF) has 30 day yield of 4.56% and a duration of 2.2 years. iShare describes this fund as "Combines the defined maturity and regular income distribution characteristics of a bond". Is the 0.22% difference in yield attribute to the 0.3 year difference in duration or is attributed to different reporting methods? If rates remain the same and I reinvest the interest payments in those funds, I'd realize an annualized return equal to the current SEC yield by the stated duration. Correct? Would there be a difference in return for the two products if rates change be...

Hi All

I'm trying to learn to take mutual funds apart and beat them based on factor exposure. The fund alpha if this fund is small and not statistically significant. I still can't beat it with a clone. Either I'm not understanding what the regression is doing or I've not selected the optimal clone funds. Any ideas? Here: https://tinyurl.com/5n8s582s

Thanks

Kelly

I apologize if this has already been asked. I can't understand what seems to me an anomaly in money markets. Schwab treasury MM yields 4.27% but their government money market yields less at 4.2%. Not that I'm chasing 0.07%. I just want to understand why. Also Vanguard's muni MM yields 2.84% vs 4.56% for treasury MM. I recall in the past noticing that the breakeven tax rate between the two was somewhere between 28% and low 30%. Why is the safest MM the highest yielding? Follow up: why does a treasury MM fund state "Typically invests in securities backed by the full faith and credit of the U.S. government and repurchase agreements backed by such investments" and also says "may lose value?" Which is it? Thanks Kelly

Thank you all for the help!

Hi All

I have Erie insurance on the house and cars. I switched to them from USAA because of their "guaranteed replacement cost" home coverage. The agent is now recommending a switch to Hanover. He writes:

We believe they’re a better fit at this time based on a review of current coverages and premium savings. Your annual premium savings with Hanover would come to $581 while at the same time providing additional coverage you do not currently have with Erie.

I know nothing about homeowners or auto insurance. All thoughts are welcome.

Thank you

Kelly

Many thanks Stinky. There's no surrender charge.

Follow up. He's had the policy for 3 years. The cash value is $64k and the cost basis is $69k. He "invested" $60k in one lump sum. Will he get the cash value back.

That VUL premium is not a 20 year guarantee. It's a monthly cost of insurance that rises every year. Just one moving part within that type of product. I figured as much but the material I saw was silent on the rate increases. On closer look, the reverse of the rate sheet notes "Your rate will change the first of the month following your birthday". Rates in increase every five years of age. Thanks to all for your help! You might point your coworker to this thread. He/she would likely be able to the $1.6 million of life insurance at less cost by buying an individual term life policy. Yes! That's why I asked. His lifetime GVUL premiums to 65 would be $83k. 15 year term would cost $42k (regular) and $33k preferred plus. I'm thankful ...

Chardo wrote: ↑Tue Jan 24, 2023 3:20 pm That VUL premium is not a 20 year guarantee. It's a monthly cost of insurance that rises every year. Just one moving part within that type of product.

I figured as much but the material I saw was silent on the rate increases. On closer look, the reverse of the rate sheet notes "Your rate will change the first of the month following your birthday". Rates in increase every five years of age.

Thanks to all for your help!

A coworker bought $1.6M in coverage at age 47. The monthly premiums are 0.11/$1000. A 20 year term policy has about the same premium. I would expect the GVUL to have higher premiums since there will be a payoff eventually. I'm missing something.

Thanks for any insight

Kelly

Thanks all for the helpful replies. I'm going to recommend 1) that the all stocks with a loss are sold (the funds all have gains, 2) there are two funds with 1.9% ERs that have trailed their clones markedly-they go next, 2) the remaining losses are used to get rid of the highest beta stocks which are also LCG stocks. As expected the stocks are the typical LCG names. Here are the stocks vs a clone https://tinyurl.com/68rpnxn8

There won't be a tax bill at this point. The remaining stocks/funds with a MV of $240k have a $70k gain. It may be hard to swallow a $14,000 tax hit all at once. But, unless I'm missing something and assuming all will be eventually sold, it's safer to accelerate the tax bill and buy VTI and VXUS.

Hi All I friend asked me to look at his holdings. In his taxable account he holds both actively managed funds and stocks. There's 20 stocks. We'd like to net gains and losses and get rid of both in favor of index funds. Here's the issue: we can't get rid of all of them without accelerating a large tax bill. He'll retire in a couple of years so both the stocks and actively managed funds will be sold first. In the meantime, for example, should he sell this fund with a 0.99% ER and a beta of 1.16. It's slightly bettered its clone (less after tax) https://tinyurl.com/wfyvcvd4. Or should a high beta (1.4) stock go. We know the fund starts with a 0.99% loss but the stock is likely to loose more in a down market. Of course the stock can go to zer...

retired@50 wrote: ↑Fri Jan 20, 2023 10:07 am What's the most important goal?

1. Risk reduction.
2. Fee reduction.
3. Minimizing income taxes.

Regards,

Excellent! I like to think I've thought of these things but haven't prioritized them.

Hi All I friend asked me to look at his holdings. In his taxable account he holds both actively managed funds and stocks. There's 20 stocks. We'd like to net gains and losses and get rid of both in favor of index funds. Here's the issue: we can't get rid of all of them without accelerating a large tax bill. He'll retire in a couple of years so both the stocks and actively managed funds will be sold first. In the meantime, for example, should he sell this fund with a 0.99% ER and a beta of 1.16. It's slightly bettered its clone (less after tax) https://tinyurl.com/wfyvcvd4. Or should a high beta (1.4) stock go. We know the fund starts with a 0.99% loss but the stock is likely to loose more in a down market. Of course the stock can go to zero...

How much different is this 10/27 TIP than holding FLEXSHARES IBOXX 5-YEAR TARGET DURATION TIPS INDEX FUND (TDTF). While I don't understand their SEC yields, wouldn't this fund return approximately the same buying TIPS and holding for 5 years? Would there be differences other than expense and reinvestment risk?

Thank you

Kelly

I found this 2013 paper interesting. https://www.financialplanningassociation.org/article/all-cash-emergency-fund-strategy-appropriate-all-investors However, I'm having trouble understanding table 1. For example, at 80% equities, holding 6 months in cash resulted in a 23% reduction in wealth at the 25th percentile and 15% at the 5th. I'm assuming it's less at the 5th because stocks did poorly and holding cash wasn't as bad. Why then does the worst case result in 134% reduction in wealth for simulations holding 6 months in cash? I'm assuming the worst case would be the 1st percentile. In table 1, it looks like they are reporting "worst-case" as representing the biggest deficit of cash relative to the investment allocation. In othe...

Hi All

I found this 2013 paper interesting. https://www.financialplanningassociatio ... -investors


However, I'm having trouble understanding table 1. For example, at 80% equities, holding 6 months in cash resulted in a 23% reduction in wealth at the 25th percentile and 15% at the 5th. I'm assuming it's less at the 5th because stocks did poorly and holding cash wasn't as bad. Why then does the worst case result in 134% reduction in wealth for simulations holding 6 months in cash? I'm assuming the worst case would be the 1st percentile.

Thanks for any insight!

Kelly

Hi All

I'm trying to compare what I believe are called par treasury bills with zero coupon. Am I looking at the right pages?

A five year par bond yields 4.27% https://home.treasury.gov/resource-cent ... nth=202211

A five year zero yields 4.19% https://fred.stlouisfed.org/series/THREEFY5

Is this correct?

Thanks

Kelly

VTIP has an SEC yield of 0.24% and a duration of 2.7. My understanding is that in 2.7 years it should have returned inflation plus 0.24%. Is that correct? That is the expected return, but realized returns on a risk asset can be different. Exactly, and the reason a bond fund has risk is that bond prices change when interest rates change and interest rates constantly vary and are not predictable. The translation of an instant change in interest rate to an instant change in price is multiplication by the modified duration. One might say the SEC yield estimates the return in the absence of fluctuations in interest rates, I think. That is what estimating the expected return means. This is where I get hung up. According to this article a fund an...

VTIP has an SEC yield of 0.24% and a duration of 2.7. My understanding is that in 2.7 years it should have returned inflation plus 0.24%. Is that correct?

It hasn't kept up with inflation over the last 9 years https://tinyurl.com/mwpyvrby (click on inflation adjusted). I realize that much has to do with rising rates but would think it would have tracked inflation better. What am I missing?

Thank you

Kelly

I think it's the spot rate. 4.2% for one year followed by 3.15% for year two doesn't equate to 2.79% annualized in year three. For some reason I tend to realize these things after posting the question!

Hi All

I'm trying to understand expected inflation term structure https://www.clevelandfed.org/our-resear ... tions.aspx

Click on "term structure". The one year expectation is 4.2%. The two year is 3.15%. Does this mean 3.15% annualized over two years or is it 4.2% for one year followed by 3.15% the second for a compound 7.5%?

Thanks for any help

Kelly

Hi All This is more an academic question. I've always looked to the feds breakeven inflation charts for future inflation. Here's the 20 year with a BE of 2.86% https://fred.stlouisfed.org/series/T20YIEM I recently learned they also publish expected inflation. As of this month the 20 year expectation is 2.39%: https://www.clevelandfed.org/our-research/indicators-and-data/inflation-expectations.aspx In an article the Cleveland fed argues that expected inflation takes the inflation risk premium out of the equation since that premium has historically overstated inflation. OK. Now, I just listed to a pod cast with Wade Pfau in which he's using the breakeven rate as the go to number. Which is better for planning. Again, this is an academic questi...

Thank you! The piece I was missing is that, unlike a mutual fund, this portfolio isn't diversified enough.

Kelly

Yes, there'll always be something that beats it. However, I'm trying to find a mix of a few ETFs that replicate the Fama French risk factors of that portfolio and better the portfolio over the same time period. Kelly: I believe that trying to "beat" the market or another portfolio is more than likely to result in underperformance and more risk than necessary. May I suggest you read what experts say: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=156579 Best wishes Taylor Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk. -- "Never think you know more than the market. Nobody does." --...

Yes, there'll always be something that beats it. However, I'm trying to find a mix of a few ETFs that replicate the Fama French risk factors of that portfolio and better the portfolio over the same time period.

Hi All

I'm trying to beat a friends portfolio using Portfolio Visualizer match factor exposure and I can't. There may be ETFs that I'm not aware of or I'm not using PV correctly. https://tinyurl.com/3abst69n

The M* style box is

LV 40
L core 17
LG 40
MV 3...and that's it.

I owe you a beer at Bogleheads if you can beat it!

Thanks

Kelly

An acquaintance invested in this and gets "preferred dividend units" equal to an 18% yield. Not sure what a unit is. Anytime I see 18% I think massive risk, return of capital or fraud. https://www.retailecommerceventures.com ... id=FS-7114. Anyone familiar?

Thanks

Kelly

Apologizes if this has already been asked. I'm trying to determine how much, if any, TIPS investors are willing to lose for the inflation insurance.

A TIP maturing in '27 has a YTM of -0.27%. A nominal treasury with same maturity has a YTM of 3%. The Feds 5 year b/e inflation rate is 3.21. So, this makes sense.

Vanguard's short term TIPS fund (VTIP) has a yield of -2%. Their short term treasury fund (VFISX) has a yield of 1.7%. 30 day yield is not YTM. Is it correct to say that the b/e inflation rate for these funds is 3.7%? Or does the TIPS -2% yield say that you'll underperform inflation by 2% and that's the going rate for this protection?

Thanks for any insight

Kelly

Hi All I'm helping expecting parents determine term life needs. There are large expected future cash inflows which will reduce the need for insurance if they ultimately occur. How common are policies that allow a reduction in face value? Or, is it more cost effective to layer polices: $x for 10 years plus $z for 20? Thanks Kelly I believe that you can request a decrease in the face amount of a life insurance policy. There would be no refund of premiums for the prior "unneeded" insurance. But I expect that it will be more cost-effective to purchase two policies for differing periods of time, as you suggest. The reason is that a person is relatively "overpaying" in the early years of a level term policy so that they can &...

You should find a fee-only (no product sales) CFP who charges by the hour. There aren't many of them. The CFP will come up with an optimal repayment plan based on your assets and cash flow.

Hi All

I'm helping expecting parents determine term life needs. There are large expected future cash inflows which will reduce the need for insurance if they ultimately occur. How common are policies that allow a reduction in face value? Or, is it more cost effective to layer polices: $x for 10 years plus $z for 20?

Thanks

Kelly

Hi All

The Vanguard Treasury MM summary prospectus says the fund invests solely in instruments backed by full faith and credit of US. It lists two principal risks of income and manager. It doesn't list credit risk as it does in other MM funds. Then is goes on to say that it can't guarantee that it won't break a dollar. How would it? I'm not asking the probability of such an event but how it could happen with short term US obligations and t bills?

Friend is looking for place to hold $1.6M for few months without multiple FDIC accounts and banks.

Thank for any help

Kelly

BernardShakey wrote: ↑Thu Dec 30, 2021 8:24 pm

mas wrote: ↑Thu Dec 30, 2021 8:18 pm Vanguard periodically updates this forecast: https://advisors.vanguard.com/insights/ ... cember2021

Don't take it too seriously.

Anyone go back and see how close Vanguard's predictions are year-to-year ?

Their latest Outlook has this comparison

Starting with 50/50 VTI and VXUS, the RoR has been almost the same with monthly rebalancing.

VT is not my choice but it's useful for someone who knows little about investing and doesn't want to deal with rebalancing.

As far as I can tell Vanguard's world stock index (VT) is a combination of 60% VTI and 40% VXUS. However, according to portfolio visualizer, over the last nine years VT had returned 11.7% vs 12.5% for the VTI/VXUS mix. I would have expected them to be closer. Could it be attributed to the annual rebalancing of VTI and VXUS?

Thanks for any insight

Kelly

They were both 81 at the end of 2020. It looks as if she never told Vanguard that she'd take his IRA as her own. Their RMD service calculated her RMD but nothing for his IRA.

If both same age, then whether beneficiary or owner, the RMD would be the same. Regardless, after reading through a tax guide, it appears that she has to take an RMD based on his 12/31 account value. The RMD would be based on her age (as owner) or his age (with her as beneficiary). Both ages the same in this case. Do I have this correct?

Many thanks!

Kelly

Hi All

Father in law died 12/26/2020 with wife as IRA beneficiary. Vanguard has calculated her RMD based on her 12/31/2020 account balance not including his. Wouldn't his account have legally transferred to her on 12/26? Shouldn't the RMD be based on the value of that inherited account on 12/31/2020?

Thanks for any insight

Kelly

Hey! Ask the rep to calculate the internal rate of return (IRR in excel) using the account value (the one they can cash out, not the fictional "protected value" or some other name) as the investment and the guaranteed withdrawal benefit (or min income benefit or annuitization payments, etc) as the cash flow. That should be entertaining!!

The IRR is what this thing is worth; nothing else. You'll see 2%, to maybe 4%, by mid 90's. The upper amount is likely closer to 3%.

Kelly

Thanks for all the helpful replies. There are no other assets other than the house. I've looked into probate loans and the rates are higher than a cash out refi.

MrMadoff wrote: ↑Thu Aug 05, 2021 1:46 pm

Kelly wrote: ↑Thu Aug 05, 2021 1:06 pm A relative and her sister inherited their father's house 50/50. One sister wants to buy it. The lender says that they can only do a cash out refinance which has a higher rate than traditional loan. I've read that there are probate or estate loans. Is anyone familiar?

Is the house still owned by the estate? If so, is there some reason that sister couldn't just buy it from the estate with a traditional loan?

Lender says it can only be done with a cash out refi.

A relative and her sister inherited their father's house 50/50. One sister wants to buy it. The lender says that they can only do a cash out refinance which has a higher rate than traditional loan. I've read that there are probate or estate loans. Is anyone familiar?

Stinky is correct. These things are only as good as the guaranteed payments which only require that the annuity value earn about 2% to 3% annually. And that is the rate of return realized only if someone where to live to age 95 or so. As an investment it will never work with fees that high. Heck, according to Vanguard and Morningstar, the expected return for a moderate portfolio is only 4.5%

pkcrafter wrote: ↑Sat Jul 10, 2021 10:29 am

Kelly wrote: ↑Sat Jul 10, 2021 9:44 am Hi All

The Miller Opportunity fund has a market loading of 1.48. Most equity funds are around 1. What's causing 1.48? Maybe I don't understand what it's measuring. Here https://tinyurl.com/3uk8hdsu

Thanks

Kelly

I noticed the recent run-up in Miller Opportunity fund, LGOAX, which I assume caught your attention. I also see that the fund carries a front end load of 5.75% and an ER of 1.28%.

Paul

Thanks! I have no intention of buying it. Someone mentioned it and I ran it through PV to see what it's made of.

Hi All

The Miller Opportunity fund has a market loading of 1.48. Most equity funds are around 1. What's causing 1.48? Maybe I don't understand what it's measuring. Here https://tinyurl.com/3uk8hdsu

Thanks

Kelly

Question for Stinky: what do you think of placing the policies on reduced paid up status?