Financial Update Jan 2018

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • PBS Frontline Report on the impending retirement crisis (link).
    • 55 minutes long, but this video should be required viewing for every American. I showed it to one of my classes this month which led to some great discussion.
    • It’s comical to see how incoherently financial services companies justify their fees. Their arguments are incredibly self serving and nonsensical relative to the cold hard logic presented by Bogle. To paraphrase the Bogle quote from memory “profits are great in most industries, but in this industry [financial services] it’s different.” It is Bogle’s belief (and mine) that investing returns belong to the investors, not the financial services industry. As Bogle explains, it is investors who bear the risk of their investments, so they should reap the rewards.
    • I am forever grateful to have invested dozens of hours in my early-mid 20s reading books from Bogle, Bogleheads, Richest Man in Babylon, Random Walk Down Wall Street. Given how compound interest works, these dozens of hours will have profited me hundreds of thousands of dollars over my lifetime.
      • I honestly have no idea how I found these books other than Google. I remember mymoneyblog.com being a great mentor in the early days.
  • Hour long interview with Charlie Munger, Warren Buffet’s closest business partner (link).
  • Some great one-paragraph biographies from Humans of New York. I love the succinct and varied cross section of humans that the blog captures (link1link2link3).
  • Anna White is best known for her DIY furniture YouTube videos (beds, shelving, etc). However, over the past year they’ve built their dream home in Fairbanks, Alaska from the ground up. It’s about done. Pretty incredible to see them throw that thing up (link).
  • Parents of 4 kids take their kids on 52-week road trip to visit 50 states (link). Rather that pure sightseeing, they usually connect with an interesting family in each state. They shadowed one family who foster parented 17 special needs kids (link), hung out with the Amish (link), etc. Pretty incredible experience.
  • Inspiring minimalist couple who lives almost full time out of a van highlights their past year (link). They did more last year than I’ve done my whole life. They are a fun couple to follow on Instagram.
    • I find it refreshing to learn from contrarians. So many of us plod through 70 years of life as mindless drones without thought as to how to live. Most of us will find the lives of contrarians to be nonsensical, but there are nuggets of wisdom to be learned from breaking out of the status quo.
    • Speaking of contrarian lifestyles, I find this tiny home YouTube channel on tiny homes to be interesting (link).
  • WSJ article on MoviePass (link).
    • Their business model appears to be the following: 1.) Charge users $10/month. 2.) Reimburse theaters full price for every movie their customers see. 3.) Hope that people won’t see more than 1 movie per month or the company goes bankrupt.
    • It seems to me that this is a deplorable business model. The only people who would sign up for the service are those that plan on going to a movie more than once per month.
    • If MoviePass goes belly up midway through our membership I’ll ask Costco for a refund.
    • It will be interesting to see how this thing unwinds. If I were a betting man, I would bet that it goes belly up in < 2Y.
  • Fascinating interview with Michael Dell, founder of Dell Computers:
  • TED radio hour: Can we trust the numbers (link)

 

Life

  • Started weight training with friend.
  • Met goal of climbing regularly.
    • Cleanly climbed first 5.11a in gym. Woot.
    • Need to start lead climbing soon.
  • Took a brief hiatus from bike commuting while temps dropped below 0°F. Resumed when temps rose to a balmy 25°F. I love my bike commute, which is some of my best multitasking (commuting + exercise + listening to podcasts). I love the dedicated bike trails in my city; one of my favorite parts about it.


Pedestrian underpass & drainage under major intersection. Drainage overflows some times and freezes over in winter. Nothing like biking through a foot of water, snow, or ice to get to work. $10 safety vest on Amazon to improve visability.


During the phd, I had a mountain bike with studded snow tires for snow riding (my little bro’s old high school bike). It rusted out after years of winter use so I dumped it during the move across the country. I’m now left with the single-speed fixed gear Craigslist special with 100psi road tires. It did okay on the bike trails, but was slower than I would have liked. $35 Bluetooth speaker is probably my favorite feature of the bike. $100 headlight is pretty useful in winter months.

Beautiful views of sunset along the bike trail.


View of traffic from pedestrian overpass. A daily reminder to me of how great bike commuting is and how miserable driving is. I love going safely over or under major intersections on the bike trail.

This month’s finances

  • The good:
    • Cashed out $500 credit card sign up bonus for BOA premium rewards.
      • BOA’s website sucks. Least friendly CC bill pay interface I’ve ever used. Still need to get autopay set up properly so I never have to visit the site again.
      • Successfully transferred $50k of VTSAX to Merrill Edge.
        • It turns out that you can hold (but not purchase) VTSAX outside of Vanguard, which is great (pic below). The caveat is that you can’t purchase VTSAX at Merrill Edge.
        • This gets me to “Platinum” status and halfway to “Platinum Honors” status at BOA.
          • This gets you juiced CC rewards + free trades if you’re into that sort of thing.
    • No mortgage payment this month since I prepaid in Dec 2017 due to tax hacking!!!!!
      • This was of the most liberating feelings I’ve ever experienced. We spent close to nothing this month as a result.
      • I can definitely see the merits to prepaying a mortgage. It is a huge stress relief to not have to worry about that.
        • Going forward, I still believe I’m going to prioritize taxable brokerage above mortgage repayment. Why? I think I can beat 2.875% in the market.
        • Further, keeping mortgage on the books and spreading equity purchases more smoothly over time is a way of mitigating “sequence of returns risk”.
    • Total spending of $2.8k was the lowest monthly spending in the past 1.5Y.
    • Successfully contested the $300 additional rental driver charge during car repair fiasco (hence negative net car expenditures this month).

  • The bad:
    • $150 asthma medication
    • Not much else.

Full version is downloadable here (link).

Footnotes:

  1. Don’t lend money to friends/family.
  2. I lazily approximate home value as my historical purchase price.
  3. I have a 15Y mortgage; which results in a faster rate of repayment. The true cost of the mortgage should exclude repayment of principal, which I show above.
  4. $20 internet and $0 cell phones as described here.
  5. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, etc).
  6. I prefer Vanguard funds but my employer offers Fidelity instead.
  7. Nobody knows the perfect asset allocation. Just pick one and run with it. Use a target date retirement fund as a benchmark if you want some guidance (link).
  8. My low portfolio expense ratio is the primary reason why I don’t hold target-date funds, which have expense ratios anywhere from 0.16% to 1%. I can achieve a much lower expense ratio on my own due to Admiral shares, etc. And it’s not hard. Plus, a DIY portfolio allows one to tax-loss-harvest more easily.
  9. ETF’s are a pain to own relative to holding index funds directly. You have to deal with bid-ask spreads as well as the inability to buy partial shares. With a simple index fund, you don’t have to deal with either of these issues. I am currently invested in VTI b/c it’s $10/year cheaper than VTSAX in my Saturna HSA.
  10. The one blight in my expense ratio analysis is my 529 plan. The underlying Vanguard fund is almost free to hold (0.02%), but the high administrative fees bring the total cost of holding the fund to 0.30%. I abhor fees and would likely avoid 529 plans if I didn’t get to deduct up to $10k of contributions per year on my state return, saving myself $700/year in state income taxes.
  11. The only other administrative cost not captured by my expense ratios is a $19/year administrative fee for my HSA at Saturna Capital ($15 per transaction + 4*$1/dividend reinvestment).

Disclaimer:
This site is for entertainment purposes only, as disclosed here: https://www.frugalprofessor.com/disclaimers/

4 thoughts on “Financial Update Jan 2018

  1. Great month Prof! I noticed you commented on GCC’s post on 529 plans. I was curious about your thoughts and plans for college. Do you get tuition benefits for your kids at your employer? Doesn’t prepaying mortgage benefit on the FAFSA vs. taxable brokerage? Finally, do you know any posts or resources on hacking the FAFSA? My oldest is almost 5 so I have time, but never really thought about FAFSA implications before.

    • Jim, thanks for the comment.

      My employer does indeed offer tuition benefits but they are frankly not very attractive. I believe the current plan is to have enough saved to support my kids at a decent in-state school. If they care to go to a better school than that they can finance it with debt/scholarships. My oldest is almost 11 so we’re still a little ways out. I’ll eventually figure out the precise formula of how much to subsidize and how much not to.

      Given our projected net worth in 7 years, I’m not sure how much help our kids will get from the gov’t. The one good thing we have going for us is that most of it is parked in retirement accounts which I believe are treated more favorably for the FAFSA. But I believe you’re entirely correct on prepaying mortgage as a way of “hacking the FAFSA.”

      ChooseFI linked to the following post which is probably worth a read: http://www.fiby40.com/2017/04/29/how-a-millionaire-retiree-could-have-an-expected-family-contribution-of-zero-for-college/.

      The reality is that I’ll probably start contributing to the CA state 529 in excess of my $10k/year that I currently do in my home state.

      Once IRAs and 401k’s are filled up, it is indeed a bit of a crapshoot as to how to proceed next (taxable brokerage, 529, prepay mortgage).

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