Personal Finance: Financial Planning & Investing

[BamaNation]

Thanks @4Q Basket Case ! I replaced your links with "gift links" so maybe it will allow our folks to actually get through the paywall with a "free link." Jason Zweig's columns are a great read. I went to the Bogleheads conference in October 2019. He sat at the breakfast table with me.

One concept that resonates with me is the thought about the "value" of gold. I've never owned any and don't plan to. It may be the right purchase for some, but not me. So, in this gold value concept, consider that one ounce of gold a couple thousand years ago would purchase a nice "suit" for a man. Guess what one ounce of gold purchases now? A nice man's suit (unless you're an investment banker on wall st and have to wear something 5x as nice ).

The tax treatment of gold/silver as a collectible certainly is not favorable.

As an aside, I know some folks who have a LOT of gold and silver bars. In their house. As they've gotten older are are in their 80's now, they are paranoid that someone is going to steal it so they never go anywhere or allow anyone to visit! It's hard to store, exchange, etc. But, again, may be right for some in certain circumstances.

PODCASTS

On a totally different topic, for those that listen to podcasts, I'm going to recommend two from the Bogleheads site. Both are available on most pod platforms. Start from episode one in each.

• Bogleheads on Investing hosted by Rick Ferri
• Bogleheads Live hosted by Jon Luskin

These are the most "least-hype" podcasts you'll ever listen to, and that alone makes them refreshing. Mundane material but could be life-changing if you've never applied or heard about the BH approach.

Bogleheads (and I consider myself one) "emphasize regular saving, broad diversification, and sticking to an investment plan regardless of market conditions." Most of these threads in our Personal Finance series are Bogleheads-inspired.

The podcast on the origins of the Bogleheads is quite an amazing story.

Also, for just about any personal finance / investing / retirement questions you have (even the most esoteric), you can usually find details in the Bogleheads Forum or Bogleheads Wiki.

Even if you do not follow the Bogleheads principles, I guarantee you'll learn something you didn't know that could be beneficial.

BOOKS

The three Bogleheads books are also on our list of must-reads. (You can see our full list of recommendations in our investing resources page.)

• The Bogleheads' Guide to Investing
• The Bogleheads' Guide to the Three-Fund Portfolio
• The Bogleheads' Guide to Retirement Planning

If you click on the book links above and purchase, TideFans may receive a small comission. Thanks!

 

[UAH]

I thought some of you might be interested in a Fund of Funds Managers view of the market. It is confidential of course and I deleted specific reference to the funds involved. One additional comment is that a couple of long/Short Health Science funds added in the last five years have been consistent contributors. We have been involved in this for 20 years. I only wish that I had taken as good care of my investments elsewhere.

June Market Commentary

• Equity indices put up another strong month in June with most major indices finishing higher. The S&P500 (+3.5% in June), Nasdaq (+6.2% in June) and the Dow (+1.1% in June) reached all-time highs during the month, with the Russell 2000 (-1.1% in June) and SPX Equal Weight (-0.5% in June) finishing lower for the month.
• In Q2, equity indices without outsized representation from the “Magnificent 7 Stocks” actually showed negative performance: S&P500 Equal Weight (-2.6% in Q2), S&P Midcap 400 (-3.5% in Q2), Dow Jones Industrials (-1.7% in Q2), Russell 2000 (-3.6% in Q2) and Russell Microcap (-5.6% in Q2).
• This limited market breadth could be interpreted as a cautionary sign of an impending equity correction. On the flip side, the first half of 2023 also had narrow breadth and weak relative performance between industries and even had a banking crisis, but by the end of 2023, all major indices were higher. Many conflicting signals present can lead to much anticipation (see quote of the month from one of our managers below).
• In June, the U.S. 10-year Treasury yield fell 2.3%, closing at 4.40%, and the 2-year Treasury yield fell 2.5%, closing at 4.8%, leaving the yield curve inverted.

June Estimates and Performance Drivers

• The BarclayHedge FoF Index: +0.4% (+5.1% YTD)
• funds continued their strong year-to-date performance with positive months. Multi-strategy exposure was the largest contributor to June returns. Equity L/S, specifically Financials, had another good month, compounding on YTD performance, which contributed nicely to returns. We also saw strong performance from our Quant and Credit strategies. Overall, like last month, there was positive contribution across all strategies.

Quote of the Month
“Over the last five years, the markets have weathered numerous significant events, including negative interest rates, wars, an inverted yield curve, recession, a -$37 oil price, a pandemic, supply chain disruptions, elevated inflation, rate hikes, bond market turmoil, and bank failures, to name just a few…The 1975 blockbuster thriller "Jaws" runs for 124 minutes, yet the audience doesn't see the 25-foot great white shark until 1 hour and 21 minutes into the film. The phenomenal success of the movie highlights an intriguing aspect of human behavior: anticipation can be terrifying.”

 

[4Q Basket Case]

Nice article from Morningstar on the advantages and disadvantages of buying a home vs. renting one.

Buying a home isn't for everyone. But if it's for you, there are some pointers on how to get there.

7 Steps to Affording a Home in Today’s Real Estate Market | Morningstar

 

[Bodhisattva]

I know this thread is mainly about investing in equities, and I'm slowly shifting more of my disposable income that way, but the last two months has been hectic (in a good way) for me regarding real estate. Just before we left for vacation to Vietnam last month, I finalized a 1031 exchange by selling six aging 1BR condos in Alabama that I bought around 30 years ago for two new 3BR townhouses in St. Augustine. These new properties have no mortgage and, as of yesterday, they are both rented out.

Also, just before we left town, we bought a house (about 10-years-old but completely renovated) in the town center of my community (Nocatee). It was originally a 3BR, but the former owner knocked down the walls of the third BR to turn it into an open office. While we were gone, we had the third BR rebuilt. That is done and the house is now on the rental market. We put about half down on this house. (One cool thing is that we bought the house at the price of a 2BR. Now that we've converted - at a cost of $10k - the house back to a 3R, we've gained about $25k in equity.)

The day after we got back from Vietnam, we closed on the sale of an investment build. We used the returned principle and a very good profit to put down deposits on two 3BR townhouses that will be completed in the fall. We will use the rest of the money from the sale to close on the rental properties with cash.

We have one more investment build that should sale soon, and we will probably reinvest in more builds.

For many reasons, I love living in Florida. A primary reason is the ease of making money. My wife and I have probably tripled our net worth in the last four years.

 

[BamaNation]

I'm going to once again suggest a couple of bogleheads podcasts. I despise all of the hipster/shyster rah rah investing podcasts/youtubes. These two I suggest are the opposite: very "dry" (meaning they focus on the facts and not the rah), promote bogleheads principles, and introduce you to some legit experts who have performed the empirical evidence or deployed strategies adhering to and underpinning these principles. I've listened to all of the Bogleheads on Investing (typically as they are released each month) and am making my way through the Live ones. All episodes of both are worth a listen and you'll definitely learn something. Both are available on your favorite podcast app.

Bogleheads Live

Bogleheads® Live – Financial Page

Bogleheads on Investing

Bogleheads on Investing Podcast – Financial Page

 

[UAH]

I know this thread is mainly about investing in equities, and I'm slowly shifting more of my disposable income that way, but the last two months has been hectic (in a good way) for me regarding real estate. Just before we left for vacation to Vietnam last month, I finalized a 1031 exchange by selling six aging 1BR condos in Alabama that I bought around 30 years ago for two new 3BR townhouses in St. Augustine. These new properties have no mortgage and, as of yesterday, they are both rented out.

Also, just before we left town, we bought a house (about 10-years-old but completely renovated) in the town center of my community (Nocatee). It was originally a 3BR, but the former owner knocked down the walls of the third BR to turn it into an open office. While we were gone, we had the third BR rebuilt. That is done and the house is now on the rental market. We put about half down on this house. (One cool thing is that we bought the house at the price of a 2BR. Now that we've converted - at a cost of $10k - the house back to a 3R, we've gained about $25k in equity.)

The day after we got back from Vietnam, we closed on the sale of an investment build. We used the returned principle and a very good profit to put down deposits on two 3BR townhouses that will be completed in the fall. We will use the rest of the money from the sale to close on the rental properties with cash.

We have one more investment build that should sale soon, and we will probably reinvest in more builds.

For many reasons, I love living in Florida. A primary reason is the ease of making money. My wife and I have probably tripled our net worth in the last four years.

That is really a very nice summary of your real estate investment efforts. I appreciate that. It is encouraging and likely opens up the window a bit on several of us who have differening levels of investments in real estate.

 

[4Q Basket Case]

I know this thread is mainly about investing in equities, and I'm slowly shifting more of my disposable income that way, but the last two months has been hectic (in a good way) for me regarding real estate. Just before we left for vacation to Vietnam last month, I finalized a 1031 exchange by selling six aging 1BR condos in Alabama that I bought around 30 years ago for two new 3BR townhouses in St. Augustine. These new properties have no mortgage and, as of yesterday, they are both rented out.

Also, just before we left town, we bought a house (about 10-years-old but completely renovated) in the town center of my community (Nocatee). It was originally a 3BR, but the former owner knocked down the walls of the third BR to turn it into an open office. While we were gone, we had the third BR rebuilt. That is done and the house is now on the rental market. We put about half down on this house. (One cool thing is that we bought the house at the price of a 2BR. Now that we've converted - at a cost of $10k - the house back to a 3R, we've gained about $25k in equity.)

The day after we got back from Vietnam, we closed on the sale of an investment build. We used the returned principle and a very good profit to put down deposits on two 3BR townhouses that will be completed in the fall. We will use the rest of the money from the sale to close on the rental properties with cash.

We have one more investment build that should sale soon, and we will probably reinvest in more builds.

For many reasons, I love living in Florida. A primary reason is the ease of making money. My wife and I have probably tripled our net worth in the last four years.

I'm curious, Bodhi -- do you manage the properties yourself or have a property manager?

Also, do you maintain the properties yourself or hire that out?

 

[Bodhisattva]

I'm curious, Bodhi -- do you manage the properties yourself or have a property manager?

Also, do you maintain the properties yourself or hire that out?

I have a property manage do all that. I'm planning on retiring in a few years and have thought about doing all that myself. (I used to back in my early days of investing.) But my wife and I are traveling a lot more now. And once I retire, we've talked about living abroad at least three months out to the year. So, I don't think I'll have the time (or desire, quite frankly) of being my own property manager again. I'm liking the idea of not working after I stop working.

 

[4Q Basket Case]

Just a note on recent market movements being a great case study on the benefits of diversification.

For the last couple of years, a lot of the gains have been in the tech and tech-related sectors. AI has gotten a lot of publicity this year. Still, the criticism from many has been that it's a narrow market. IOW, the lion's share of the gains has come from only a very few companies.

But in the last couple of weeks or so, we've seen a strengthening of the Industrial sectors. The notable thing is that while the techs are no longer rising like they were, they're largely holding on to their 2024 gains. Not 100%, but mostly.

Point being, if you have broad diversification in your equity portfolio -- preferably via low-cost funds -- you participated in both.

Due to the way it's figured (market-cap weighted), the S&P is getting increasingly tech-driven. So if you were heavier in NASDAQ or to a lesser extent the S&P, and lighter in industrials, you participated in the tech runup, but are missing out on the industrial recovery.

Trying to predict exactly when a given sector or sectors will get hot is a fool's errand. Even the best minds with the most extensive resources can't do it anywhere near consistently. They might get lucky for a while, but it always turns.

If you have your money spread out amongst all the sectors, you get the benefit of all the movements. Yeah, they'll go down or lag sometimes, but the trend is always a sawtooth up.

Rule #1A: Invest as much as you can every single paycheck, no matter what the talking heads are saying.

Rule #1B: In determining what exactly "as much as you can" is, distinguish prudently and honestly between needs and wants.

Rule #2: Diversify, diversify, diversify.

 

[4Q Basket Case]

On a day when the stock market is getting hammered, a word from one bearing scars of mistakes in earlier years -- me.

Don't just do something -- stand there!

Yeah, it's scary to watch the Dow down 1,000 points and the S&P down 150 in a day. As I'm writing this, it's not quite noon, so we don't know where the day will end.

If you've got a time horizon longer than 5-7 years, the answer today or any other single day doesn't matter. What matters is that you keep on keeping on.

The market was too much bought into AI hype. It's one thing to have the technological capability. It's another thing to make it profitable. AI will get there, but losing money in early stages of a new technology isn't unusual, and a correction (or even more) in the sector isn't a disaster.

Now, the market is too bought into world threats, a tick up in unemployment and softening of the labor market.

Well, there are always world threats. And honestly the unemployment rate was so low and the labor market so tight that it was unsustainable. Viewed against history, the numbers are still much lower than normal.

The stock markets are a sawtooth up, and sometimes the down times really, really hurt. But you can't truly call yourself an investor until you come out the other end of a downturn. As Warren Buffett says, "Buy when there is blood in the streets, even if some of the blood is yours."

IOW, even though some people are running around like headless chickens, if you haven't crossed the line between investing and gambling, the sky is not falling.

Keep on investing as much as you can, each and every paycheck, in a diversified portfolio of low-cost mutual funds. When you're at the end of your working life, you'll look back on times like this as when you really made a killing buying cheap and reaping the rewards later.

Keep calm and keep on keeping on!

 

[DzynKingRTR]

On a day when the stock market is getting hammered, a word from one bearing scars of mistakes in earlier years -- me.

Don't just do something -- stand there!

Yeah, it's scary to watch the Dow down 1,000 points and the S&P down 150 in a day. As I'm writing this, it's not quite noon, so we don't know where the day will end.

If you've got a time horizon longer than 5-7 years, the answer today or any other single day doesn't matter. What matters is that you keep on keeping on.

The market was too much bought into AI hype. It's one thing to have the technological capability. It's another thing to make it profitable. AI will get there, but losing money in early stages of a new technology isn't unusual, and a correction (or even more) in the sector isn't a disaster.

Now, the market is too bought into world threats, a tick up in unemployment and softening of the labor market.

Well, there are always world threats. And honestly the unemployment rate was so low and the labor market so tight that it was unsustainable. Viewed against history, the numbers are still much lower than normal.

The stock markets are a sawtooth up, and sometimes the down times really, really hurt. But you can't truly call yourself an investor until you come out the other end of a downturn. As Warren Buffett says, "Buy when there is blood in the streets, even if some of the blood is yours."

IOW, even though some people are running around like headless chickens, if you haven't crossed the line between investing and gambling, the sky is not falling.

Keep on investing as much as you can, each and every paycheck, in a diversified portfolio of low-cost mutual funds. When you're at the end of your working life, you'll look back on times like this as when you really made a killing buying cheap and reaping the rewards later.

Keep calm and keep on keeping on!

I should not have looked to see how much I have lost today. Yikes!

 

[Bamaro]

On a day when the stock market is getting hammered, a word from one bearing scars of mistakes in earlier years -- me.

Don't just do something -- stand there!

Yeah, it's scary to watch the Dow down 1,000 points and the S&P down 150 in a day. As I'm writing this, it's not quite noon, so we don't know where the day will end.

If you've got a time horizon longer than 5-7 years, the answer today or any other single day doesn't matter. What matters is that you keep on keeping on.

The market was too much bought into AI hype. It's one thing to have the technological capability. It's another thing to make it profitable. AI will get there, but losing money in early stages of a new technology isn't unusual, and a correction (or even more) in the sector isn't a disaster.

Now, the market is too bought into world threats, a tick up in unemployment and softening of the labor market.

Well, there are always world threats. And honestly the unemployment rate was so low and the labor market so tight that it was unsustainable. Viewed against history, the numbers are still much lower than normal.

The stock markets are a sawtooth up, and sometimes the down times really, really hurt. But you can't truly call yourself an investor until you come out the other end of a downturn. As Warren Buffett says, "Buy when there is blood in the streets, even if some of the blood is yours."

IOW, even though some people are running around like headless chickens, if you haven't crossed the line between investing and gambling, the sky is not falling.

Keep on investing as much as you can, each and every paycheck, in a diversified portfolio of low-cost mutual funds. When you're at the end of your working life, you'll look back on times like this as when you really made a killing buying cheap and reaping the rewards later.

Keep calm and keep on keeping on!

Probably a buying opportunity to move money from money market funds into s&p 500 indexed funds.

Edit: just checked and S&P is at currently 5206, down 2.62%. Not really a big deal yet.

 

[UAH]

Probably a buying opportunity to move money from money market funds into s&p 500 indexed funds.

Edit: just checked and S&P is at currently 5206, down 2.62%. Not really a big deal yet.

I know this goes against index investing but I have been putting small amounts into areas that offer positive opportunities such as pharmaceuticals a couple of years ago. Today I dipped my toe into the chip sector. There have been precious few entry points during this bull run but one has to start down the road in order to stay focused.

 

[BamaNation]

I know this goes against index investing but I have been putting small amounts into areas that offer positive opportunities such as pharmaceuticals a couple of years ago. Today I dipped my toe into the chip sector. There have been precious few entry points during this bull run but one has to start down the road in order to stay focused.

Not a criticism, but if you've read my thoughts on this over the years, you know my suggestion would be to limit "alternate plays / individual stocks" to 5% of NW or less. My wife and I are totally violating this right now due to her company's stock going up about 30% in last few weeks and part of her total comp is from restricted shares. She's also prevented in her role from selling at the moment. SO, we basically count this line as a value of zero when looking at our overall NW.

Also, I sent the following bogleheads post to a family member who was about to do some panic selling. It's a post by a guy on Oct 9, 2008 who was on the proverbial ledge about to sell at the crash and follows the thought processes of him and other posters who talked him off that ledge and how that helped him and others even as late as 2022. Today is a good day to look at this again.

I can't believe I am thinking this [Panic and Survival 2008-09] - Bogleheads.org

One other thing to think about is if one has a 50/50 asset allocation, that's only down 1.5% today. 75/25 is down 2.25%. Bonds barely moved today and larger than "normal" equity down days are a big reason to hold them.

Don't just do something -- stand there!

 

[UAH]

Not a criticism, but if you've read my thoughts on this over the years, you know my suggestion would be to limit "alternate plays / individual stocks" to 5% of NW or less. My wife and I are totally violating this right now due to her company's stock going up about 30% in last few weeks and part of her total comp is from restricted shares. She's also prevented in her role from selling at the moment. SO, we basically count this line as a value of zero when looking at our overall NW.

Also, I sent the following bogleheads post to a family member who was about to do some panic selling. It's a post by a guy on Oct 9, 2008 who was on the proverbial ledge about to sell at the crash and follows the thought processes of him and other posters who talked him off that ledge and how that helped him and others even as late as 2022. Today is a good day to look at this again.

I can't believe I am thinking this [Panic and Survival 2008-09] - Bogleheads.org

One other thing to think about is if one has a 50/50 asset allocation, that's only down 1.5% today. 75/25 is down 2.25%. Bonds barely moved today and larger than "normal" equity down days are a big reason to hold them.

We were investors in 1987, the 2000 .com crash, the days after 9/11, 2005 and in 2008. Lot of room for mistakes and I made many of them. We do understand diversification and lowering our Beta versus chasing Alpha. Everyday is another opportunity.

 

[BamaNation]

I should not have looked to see how much I have lost today. Yikes!

To quote one US senator back in the day in a different context … “a billion here and a billion there and soon you’ve got real money!”

 

[4Q Basket Case]

An article from Morningstar.

Toward the end, under the topic heading of, "What's an Investor To Do Today," the first words are "Steady as she goes."

IOW, Don't just do something, stand there. Also some good fundamental analysis on why this isn't 2022.

Don’t Panic: It’s Not 2022 All Over Again | Morningstar

 

[4Q Basket Case]

We were investors in 1987, the 2000 .com crash, the days after 9/11, 2005 and in 2008. Lot of room for mistakes and I made many of them. We do understand diversification and lowering our Beta versus chasing Alpha. Everyday is another opportunity.

Every mistake I've made has been a function of getting scared. When it comes to investing, fear is the devil. Did it twice. Will not do it a third time.

 

[UAH]

July Market Commentary and "Quote of the month"

July Market Commentary


On the surface, equity indices had a relatively mild month with the S&P500 +1.2% in July and Nasdaq -1.6%. However, beneath the headline returns, there were undercurrents that provided a challenging environment for some fundamental hedge fund strategies and opportunities for others.

In the month, a few specific dynamics emerged:

Spurred by the increased expectations of a rate cut in September, there was a large rotation from large cap technology stocks to small/mid-cap equities, as evidenced by the 11.7% outperformance of the Russell 2000 (up +10.1% in July) vs. the Nasdaq-100 index; the largest relative outperformance since April 2002 and the 6th largest going back to 1985.

Second, we witnessed the largest “de-grossing” from hedge funds since the "meme craze" in January 2021 (according to both Goldman Sachs and JP Morgan).

These forces caused indiscriminate buying and selling from investors in certain corners of the market that presented a challenge to relative value, fundamental strategies but also fertile trading opportunities for more tactical trading strategies.

Given the August fireworks, we will summarize the last few weeks quickly – markets have been volatile to say the least – on August 5th, the VIX Index had its largest intraday spike in history going back to 1992, which was greater than March 2020. While impossible to summarize all market behavior in a few bullets, some drivers of the volatility have been:

A weaker July ISM manufacturing report, and then an increase of 114,000 jobs versus expectations of 175,000 and the U.S. unemployment rate rising to 4.3% in July (highest level since October 2021).

The BOJ’s second rate hike in 17 years, led to an 11% appreciation of the yen since its low vs. the USD in mid-July; the recovery in the yen has been exacerbated by the unwinding of popular carry trades, when investors borrow in yen to fund purchases of higher-yielding currencies or risk assets. As market participants mitigate losses from this carry trade, there is evidence of forced selling, particularly in global tech and AI equities, which have also released mixed earnings.

All eyes are on the Fed and the outcome of their September 17-18 meeting; the markets have, again, moved aggressively in pricing in up to four Fed rate cuts over the final three meetings in 2024, beginning with expectations of a 25 to 50 basis point cut in September.

We continue to believe that market volatility is here to stay as we approach the Fed meeting next month, the U.S. election in November and a tremendous amount of geopolitical uncertainty around the globe (see our favorite quote below). With market volatility and human emotion elevated, we believe every data point will be exaggerated in how it affects the Fed’s path forward and the election. Fortunately, many of our strategies here can take advantage of this volatility and potential dislocation.

Quote of the Month
“The next three months could be one of the wildest and most volatile market periods in memory. Keep in mind, France still has a hung parliament, the UK’s new Labour government isn’t exactly off to a great start, missiles are flying in the Middle East and Ukraine is attacking inside Russia. The exhausting news flow seems certain to continue, one way or another.”

 

[BamaNation]

If there was ever a "case in point" of "don't just do something, stand there" it would be this past 10 trading days. Doesn't mean market(s) will keep shooting to the moon, but it does mean don't make rash/emotional decisions in the middle of the storm. Have an investment plan, execute the plan, and stick with the plan. Come what may. Had to talk a family member out of doing crazy things to their portfolio last Monday. Their portfolio is moderately conservative. Maybe their "sleep number" is even more conservative, but the time to modify the allocation was not last Monday.

I always find time provides perspective. Here's some charts of VTI... the further you get from these down/up spikes the smaller they become. Two lessons: (1) Keep investing even during the downs and that will superpower the ups and (2) Things are never as good or bad as they seem at the moment of inflexion!

Here's the VTI (Total Stock Market Index EFT) chart for August (Month-to-date)


VTI chart for the last 5 weeks.



VTI chart for the last 5 years.


VTI chart for the last 16 years