"4 Financial Worries to Cross Off Your List"

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Taylor Larimore
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"4 Financial Worries to Cross Off Your List"

Post by Taylor Larimore » Mon Aug 05, 2019 11:01 am

Bogleheads:

It is difficult for investors to know which risks they should prepare for--and which risks are not worth preparing for.

Morningstar's Christine Benz (who is on the Panel of Experts at our Boglehead Conventions) gives us a look and explanation of what NOT to worry about: Estate Taxes, Gift Taxes, Gold, and Roth IRA Taxes/

4 Financial Worries to Cross Off Your List

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Financial institutions have a large incentive to favor the complex and costly over the simple and cheap."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "4 Financial Worries to Cross Off Your List"

Post by AerialP » Mon Aug 05, 2019 11:09 am

A terse and good read - thank you sir for bringing it to my (and our) attention!

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Re: "4 Financial Worries to Cross Off Your List"

Post by willthrill81 » Mon Aug 05, 2019 11:16 am

Regarding gold, she says the following:
That's not to say it's unreasonable to steer a small allocation of your portfolio to hard assets (though I'm increasingly coming around to investment advisor Rick Ferri's assertion that you shouldn't own anything that can't produce a cash flow). Such an allocation can potentially deliver a positive return in a period when stocks and bonds founder and improve your portfolio's risk/reward profile.
The last statement has largely been the case for the last ~40 years. A small allocation to gold has reduced volatility without sacrificing returns, regardless of what theory says 'should' happen.

Her statement also coincides with what Jack Bogle himself said about gold.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "4 Financial Worries to Cross Off Your List"

Post by Sandtrap » Mon Aug 05, 2019 11:34 am

Excellent points and reminders to keep things in perspective.
Thanks for posting, "Taylor".
j :D
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Re: "4 Financial Worries to Cross Off Your List"

Post by retiredjg » Mon Aug 05, 2019 11:36 am

I always like Christine's take on things. Thanks for posting the link.

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Re: "4 Financial Worries to Cross Off Your List"

Post by megabad » Mon Aug 05, 2019 4:29 pm

willthrill81 wrote:
Mon Aug 05, 2019 11:16 am
Regarding gold, she says the following:
That's not to say it's unreasonable to steer a small allocation of your portfolio to hard assets (though I'm increasingly coming around to investment advisor Rick Ferri's assertion that you shouldn't own anything that can't produce a cash flow). Such an allocation can potentially deliver a positive return in a period when stocks and bonds founder and improve your portfolio's risk/reward profile.
The last statement has largely been the case for the last ~40 years. A small allocation to gold has reduced volatility without sacrificing returns, regardless of what theory says 'should' happen.

Her statement also coincides with what Jack Bogle himself said about gold.
Just to provide context to Jack's commentary. He was giving a specific example about a particular endowment fund. He specifically states that this is not the perfect portfolio and there really isn't one. He, in fact, directly goes against that overall portfolio suggestion only a few minutes later when he admits that he "should not have a sentimental attachment to Wellington". Regarding gold specifically, Jack's commentary below in rough form:
"Commodities, no internal rate of return…silly..including gold...if nobody’s looking...and you have something explosive…that will help you and it probably shouldn’t hurt you too much..."
Not exactly a glowing review. Additionally, he strongly suggests investing in low cost marketable securities (eliminating many ways of investing in commodities).

I am not a very big fan of gold investing, but for the life of me, I could never understand why those that "invest" in gold would not also "invest" in things like bitcoin/cryptocurrency. The premise seems the same to me (a hedge against catastrophe, speculation--in John Bogle's words). .

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Re: "4 Financial Worries to Cross Off Your List"

Post by willthrill81 » Mon Aug 05, 2019 4:32 pm

megabad wrote:
Mon Aug 05, 2019 4:29 pm
willthrill81 wrote:
Mon Aug 05, 2019 11:16 am
Regarding gold, she says the following:
That's not to say it's unreasonable to steer a small allocation of your portfolio to hard assets (though I'm increasingly coming around to investment advisor Rick Ferri's assertion that you shouldn't own anything that can't produce a cash flow). Such an allocation can potentially deliver a positive return in a period when stocks and bonds founder and improve your portfolio's risk/reward profile.
The last statement has largely been the case for the last ~40 years. A small allocation to gold has reduced volatility without sacrificing returns, regardless of what theory says 'should' happen.

Her statement also coincides with what Jack Bogle himself said about gold.
Just to provide context to Jack's commentary. He was giving a specific example about a particular endowment fund. He specifically states that this is not the perfect portfolio and there really isn't one. He, in fact, directly goes against that overall portfolio suggestion only a few minutes later when he admits that he "should not have a sentimental attachment to Wellington". Regarding gold specifically, Jack's commentary below in rough form:
"Commodities, no internal rate of return…silly..including gold...if nobody’s looking...and you have something explosive…that will help you and it probably shouldn’t hurt you too much..."
Not exactly a glowing review. Additionally, he strongly suggests investing in low cost marketable securities (eliminating many ways of investing in commodities).

I am not a very big fan of gold investing, but for the life of me, I could never understand why those that "invest" in gold would not also "invest" in things like bitcoin/cryptocurrency. The premise seems the same to me (a hedge against catastrophe, speculation--in John Bogle's words). (I invest in neither of these things directly).
It wasn't the first time that Bogle seemed to contradict himself. He regularly bashed gold, but in this instance, he clearly recommended a small allocation to gold (and that's not just my take on it; read the thread I linked to to find many others reaching the same conclusion). He's known as the father of index investing, yet he wasn't against active investing if the costs were low. He eschewed market timing but did it himself on occasion.

Maybe Bogle wasn't a Boglehead. Or maybe he really was.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "4 Financial Worries to Cross Off Your List"

Post by Vanguard Fan 1367 » Tue Aug 06, 2019 10:03 am

willthrill81 wrote:
Mon Aug 05, 2019 4:32 pm
me to me (a hedge against catastrophe, speculation--in John Bogle's words). (I invest in neither of these things directly).

It wasn't the first time that Bogle seemed to contradict himself. He regularly bashed gold, but in this instance, he clearly recommended a small allocation to gold (and that's not just my take on it; read the thread I linked to to find many others reaching the same conclusion). He's known as the father of index investing, yet he wasn't against active investing if the costs were low. He eschewed market timing but did it himself on occasion.
Given the incredible amount of material that Jack left us I think it is pretty amazing the overall consistency of his works. I am very grateful for his gifts to the investment world including Vanguard, the S& P 500 and other index funds, and his many books and videotaped interviews.

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Re: "4 Financial Worries to Cross Off Your List"

Post by willthrill81 » Tue Aug 06, 2019 10:21 am

Vanguard Fan 1367 wrote:
Tue Aug 06, 2019 10:03 am
willthrill81 wrote:
Mon Aug 05, 2019 4:32 pm
me to me (a hedge against catastrophe, speculation--in John Bogle's words). (I invest in neither of these things directly).

It wasn't the first time that Bogle seemed to contradict himself. He regularly bashed gold, but in this instance, he clearly recommended a small allocation to gold (and that's not just my take on it; read the thread I linked to to find many others reaching the same conclusion). He's known as the father of index investing, yet he wasn't against active investing if the costs were low. He eschewed market timing but did it himself on occasion.
Given the incredible amount of material that Jack left us I think it is pretty amazing the overall consistency of his works. I am very grateful for his gifts to the investment world including Vanguard, the S& P 500 and other index funds, and his many books and videotaped interviews.
I'm not disputing that at all. The man was a saint and deserves our praise. However, he wasn't always as consistent as we often purport him to be. Personally, I believe that makes him all the more interesting.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "4 Financial Worries to Cross Off Your List"

Post by MichCPA » Tue Aug 06, 2019 10:27 am

Whenever Roth taxation gets mentioned, I just roll my eyes. It would essentially break a huge part of the retirement system and result in a net reduction of revenue over decades after it was introduced.

People would adapt and put more money into 401k's, tIRA's, and HSA's and suck up near and intermediate term revenue. It would affect the high income, high saving boglehead crowd, but only about 13% of 401k plans are maxed out.

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Re: "4 Financial Worries to Cross Off Your List"

Post by MichCPA » Tue Aug 06, 2019 10:33 am

willthrill81 wrote:
Tue Aug 06, 2019 10:21 am

I'm not disputing that at all. The man was a saint and deserves our praise. However, he wasn't always as consistent as we often purport him to be. Personally, I believe that makes him all the more interesting.
He also wasn't necessarily saying what many try to portray him as saying. He was less rigid than poster here often seem to think. For example:

Low cost was a massive emphasis and he (rightly, I think) looked at indexing as the best way to get costs down, but VG has always been big in low cost active.

He wasn't a fan of large amounts of gold, but did support a small amount of gold that wasn't a drag on returns when it could reduce risk.

It took him too long, but he finally came around on ETFs.

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Re: "4 Financial Worries to Cross Off Your List"

Post by Katie » Tue Aug 06, 2019 10:37 am

Good article, but I'd add one caution regarding estate taxes. Some states still have thresholds that are significantly lower, so while it may not be as big of an issue, it's still something residents of applicable states may want to consider in their planning.

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Re: "4 Financial Worries to Cross Off Your List"

Post by Whakamole » Tue Aug 06, 2019 11:49 am

MichCPA wrote:
Tue Aug 06, 2019 10:27 am
Whenever Roth taxation gets mentioned, I just roll my eyes. It would essentially break a huge part of the retirement system and result in a net reduction of revenue over decades after it was introduced.

People would adapt and put more money into 401k's, tIRA's, and HSA's and suck up near and intermediate term revenue. It would affect the high income, high saving boglehead crowd, but only about 13% of 401k plans are maxed out.
RMDs may be a lot more likely. I would be surprised if there weren't RMDs on Roth IRAs at some point.

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Re: "4 Financial Worries to Cross Off Your List"

Post by Dottie57 » Tue Aug 06, 2019 12:01 pm

retiredjg wrote:
Mon Aug 05, 2019 11:36 am
I always like Christine's take on things. Thanks for posting the link.
+1

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Re: "4 Financial Worries to Cross Off Your List"

Post by Dottie57 » Tue Aug 06, 2019 12:04 pm

Whakamole wrote:
Tue Aug 06, 2019 11:49 am
MichCPA wrote:
Tue Aug 06, 2019 10:27 am
Whenever Roth taxation gets mentioned, I just roll my eyes. It would essentially break a huge part of the retirement system and result in a net reduction of revenue over decades after it was introduced.

People would adapt and put more money into 401k's, tIRA's, and HSA's and suck up near and intermediate term revenue. It would affect the high income, high saving boglehead crowd, but only about 13% of 401k plans are maxed out.
RMDs may be a lot more likely. I would be surprised if there weren't RMDs on Roth IRAs at some point.
+1

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Re: "4 Financial Worries to Cross Off Your List"

Post by aspirit » Tue Aug 06, 2019 1:09 pm

Dottie57 wrote:
Tue Aug 06, 2019 12:04 pm
Whakamole wrote:
Tue Aug 06, 2019 11:49 am
MichCPA wrote:
Tue Aug 06, 2019 10:27 am
Whenever Roth taxation gets mentioned, I just roll my eyes. It would essentially break a huge part of the retirement system and result in a net reduction of revenue over decades after it was introduced.

People would adapt and put more money into 401k's, tIRA's, and HSA's and suck up near and intermediate term revenue. It would affect the high income, high saving boglehead crowd, but only about 13% of 401k plans are maxed out.
RMDs may be a lot more likely. I would be surprised if there weren't RMDs on Roth IRAs at some point.
+1
:oops: The more people roll over, as they so often do, being the herd creatures most are, the more likely things like this are to be considered on a legislative level.

You started your ROTHS to prepare for what?
To let legislators do what they please?

As always TL's posts are insightful.
A hats-off to TL for standing up to .gov whims and winning on the level he did!
C'mon people. :annoyed
Time & tides wait for no one. A man has to know his limitations. | "Give me control of a nation's money and I care not who makes it's laws" | — Mayer Amschel Bauer Rothschild ~

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Re: "4 Financial Worries to Cross Off Your List"

Post by Fallible » Tue Aug 06, 2019 6:44 pm

Benz is so right that "Some worries belong in the "unlikely to happen/deal with it when it actually does" bin. It's not always easy to know which worries are "unlikely," but her column shows ways to approach this.

Thanks for posting, Taylor.
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

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Re: "4 Financial Worries to Cross Off Your List"

Post by Dottie57 » Tue Aug 06, 2019 7:56 pm

aspirit wrote:
Tue Aug 06, 2019 1:09 pm
Dottie57 wrote:
Tue Aug 06, 2019 12:04 pm
Whakamole wrote:
Tue Aug 06, 2019 11:49 am
MichCPA wrote:
Tue Aug 06, 2019 10:27 am
Whenever Roth taxation gets mentioned, I just roll my eyes. It would essentially break a huge part of the retirement system and result in a net reduction of revenue over decades after it was introduced.

People would adapt and put more money into 401k's, tIRA's, and HSA's and suck up near and intermediate term revenue. It would affect the high income, high saving boglehead crowd, but only about 13% of 401k plans are maxed out.
RMDs may be a lot more likely. I would be surprised if there weren't RMDs on Roth IRAs at some point.
+1
:oops: The more people roll over, as they so often do, being the herd creatures most are, the more likely things like this are to be considered on a legislative level.

You started your ROTHS to prepare for what?
To let legislators do what they please?

As always TL's posts are insightful.
A hats-off to TL for standing up to .gov whims and winning on the level he did!
C'mon people. :annoyed
My congress critters will hear loudly from me if they think about taxing Roth.

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Re: "4 Financial Worries to Cross Off Your List"

Post by HawkeyePierce » Tue Aug 06, 2019 8:57 pm

Excellent list.

Now, what should be on an opposite list of financial concerns people should worry about but don't?

I'll kick it off with disability insurance. For young high earners, disability is more likely than premature death. Fortunately a product exists to address that risk: private long-term disability insurance.

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Re: "4 Financial Worries to Cross Off Your List"

Post by oldcomputerguy » Wed Aug 07, 2019 4:40 am

Several posts discussing the pending SECURE act were removed. As a reminder, discussion of pending legislation is against forum policy. See Unacceptable Topics:
In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed laws or regulations are prohibited.
The current status of the SECURE act may be seen on the congress.gov web site. As of now, it is still in the Senate. When it is signed into law, it may be discussed here.
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Re: "4 Financial Worries to Cross Off Your List"

Post by RadAudit » Wed Aug 07, 2019 8:51 am

Dottie57 wrote:
Tue Aug 06, 2019 7:56 pm
My congress critters will hear loudly from me if they think about taxing ...
Not to worry. Remember a lot of tax legislation is based on the general philosophy - "Don't tax you. Don't tax me. Tax the guy behind that tree."
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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Re: "4 Financial Worries to Cross Off Your List"

Post by abuss368 » Thu Aug 08, 2019 8:39 pm

Thanks Taylor.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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