"Non-optimum" financial actions we take for emotional reasons, convenience, etc.

[samclem]

"Non-optimum" financial actions we take for emotional reasons, convenience, etc.

So--most of us try to do the smart thing with our finances, but there comes a point when squeezing out the maximum return comes in conflict with our emotions (or inherent laziness!) and we deliberately leave money on the table. (This thread is a branch-off of discussions on the virtues and vices of CCs as started on Leonidas's credit card thread)

Sinners confess! High-cost mutual funds you now hate but can't bear the tax hit to sell 'em (though you know it would be best long term)? If we collect some typical transgressions over the next few days we can put them into a poll and see how common your particular foible is.

I'll start: I use the "Average Cost Basis" method for figuring cap gains on non-tax deferred mutual funds. I know I could save a lot on taxes if I identified specific shares instead: I could be doing some great tax-loss harvesting, I could be selling the most appreciated shares right now while I've got a small window of time and available "under next bracket" headroom to sell them at the soon to expire 0% cap gains rate. I could have been selling the least appreciated shares when I was paying a high tax rate. But I just don't--I use the easy "average cost" figure supplied by Vanguard instead. I just don't want to go back and build a spreadsheet to track all the purchases I've made (including reinvested dividends) over the last 20 years, I don't want to write the letters, I don't want to commit to doing this tracking and letter writing in perpetuity once I begin (because there's no going back once you start, even though in a few years it won't make much dfiference which shares I sell) . So, I guess I'm lazy.

There, I said it.

 

[Martha]

We didn't do tax loss harvesting at the end of last year when we should have. Spouse was gone south and we just didn't coordinate.

 

[REWahoo]

DW has a an IRA in a couple of USAA mutual funds that I know she would be better off from an expense standpoint by moving to Vanguard. I've been too lazy to make it happen.

 

[ERD50]

1) I don't micro-analyze my budget. Since we do spend a fair amount each year, there *must* be something to learn by breaking it down in detail. But whenever I attempt it, I go nuts. I've read through the budget threads, and I just don't think it would work for me. I'd have to itemize everything to really understand it. Knowing that I spent $X at Costco each month doesn't do it, I would need to break down food ( and further to snacks, breakfasts, convenience, fruit, veggies, meat, liquor?), and paper goods and soap, and misc stuff to learn anything useful. Just too much work for me, even though there *must* be some advantage to it. I occasionally question - "is this item X the best thing to buy?", but that's it.

2) I have some money sitting in banks earning little interest. I want the accounts so we have a local bank to do business at when we need it, but the few extra dollars I'd get moving the excess money just doesn't get me off my butt to do it.

3) I should sell a bunch of stuff on ebay or craigslist. I find that boring and tedious and I am lazy. But there probably are some significant bucks there.

They say confession is good for the soul, but this is just making feel bad about how lazy I am! Oh well, I'm retired, I can be lazy if I want!

Hmmm, bad decisions due to emotional stuff? I suppose there are, but I can't think of any offhand. But that is probably the nature of them - maybe we don't see our own emotions taking over, it needs to be pointed out to us? If CFB was around, he'd tell me that my Apple computers were an emotional purchase, but I have my reasons.

OK, here's one - I don't eat insects, even though they are said to be a good source of nutrition, and I suppose I could raise a herd of the critters pretty cheaply. No rational reason *not* to, other than a very emotional "yuck!".

WWSD? (What Would Spock Do?)

-ERD50

 

[freebird5825]

...Sinners confess! High-cost mutual funds you now hate but can't bear the tax hit to sell 'em (though you know it would be best long term)?

Aha! You caught me red-handed.
I still own some mutual funds that I...paid...sales loads on back in the late 90s before I knew better. Exp ratio = 0.65%. Stake is approx $11K. I was going to ditch them, but 4Q08 hit them very hard. I already had my TLH for 2008 taken care of. So I sat on them until things improved.
I did take one of them and exchange half of it into an income fund in early 2009, with no sales charge on the exchange within same fund family.
To redeem myself, I did send an email to VG asking them what it would take to consolidate everything under 1 roof. I still hesitate to put all my funds into one fund family...
I hate doing transfer paperw*rk, hence the procrastination.

 

[Lusitan]

I'm also lazy when it comes to tracking my basis in investments. Well, lazy and stupid. Too lazy to do it myself, and too stupid because I just assumed that in this day and age, all that information would always be available at my fingertips online anyway. Apparently, it's not?

 

[Texas Proud]

As someone pointed out... getting rid of old stuff... ie, selling on Ebay...

Seems like to much trouble and effort... I just give it to charity and say the heck with it... and since I could not itemize (not sure now, but think not)... I did not get a tax benefit either...

Doing the zero interest CC game... this was 'free' money if you did what you needed to do... but then you got into trouble on some minor rules.. one of my BIL cards required two purchases a month... so they would rent two movies for $1.08... but then the movie company would not charge one for some reason and they were 'out' of compliance and were going to be charged interest... they did get back in... but it happened again and they lost that card.... again, to much trouble even with the money you could make...

 

[Bimmerbill]

I'm a serial car-a-holic. I just can't seem to keep one and drive it into the ground. I mean, I LOVE shopping for cars, test driving them and driving them for 2 to 3 years. Then it gets old and I want another one.

 

[novaman]

My BIL gets his 401k and bonuses all funded with company stock. It is a hassle for him to sell, pay the necessary gains, then rebuy a diversified portfolio, so he just left everything alone for the entire 30 years he's worked at the company.

Because he didn't bother to diversify, he has lost 95% of his retirement. The company he works for is Citibank

 

[Bestwifeever]

Novaman, your poor BIL.

My list of nonoptimum behaviors would doubtless put someone's panties into a twist so no comment .

 

[ERD50]

I still own some mutual funds that I...paid...sales loads on ...

You probably realize this, but if not (or for others), once you have paid an upfront sales load, the damage is done and over with - no reason not to sell it if there are better choices going forward. I'd probably switch to a low cost index fund myself. At this point, it is the expense ratio (pretty predictable) and relative performance (pretty much a guess) that matter.

If there are back-end loads, well, they would be less when the fund is down right? I'd weigh the back-end charge against X years of expense ratios (if the back-end charge diminishes over time). Sooner might be better than later. And the tax loss carries forward, it's not gone. And if the index fund recovers the same as the load fund, you are back to where you would have been, but paid a lower fee all along.

-ERD50

 

[freebird5825]

You probably realize this, but if not (or for others), once you have paid an upfront sales load, the damage is done and over with - no reason not to sell it if there are better choices going forward. I'd probably switch to a low cost index fund myself. At this point, it is the expense ratio (pretty predictable) and relative performance (pretty much a guess) that matter.

If there are back-end loads, well, they would be less when the fund is down right? I'd weigh the back-end charge against X years of expense ratios (if the back-end charge diminishes over time). Sooner might be better than later. And the tax loss carries forward, it's not gone. And if the index fund recovers the same as the load fund, you are back to where you would have been, but paid a lower fee all along.

-ERD50

Good nudge! TY
No back end loads, only front load, which as you said, is water o'er the dam. Damn!
They are destined for the chopping block. The income fund pays pretty good TE dividends, so I'm letting that cook a little until the end of 2009.
Then it's off with their heads.
I have a consolidate into VG plan getting all schemed up here. I am looking at VWITX as the destination for the whole kit-n-kaboodle. VWITX was suggested here and I've been eyeballing it for all of 2009.
Stake = $12K as of today, evenly split across AWSHX, CAIBX, and LTEBX.
AWSHX and ANWPX were the original holdings since end of 1997, built gradually via DCA. I split AWSHX in half in 1Q09, half to LTEBX. ANWPX went to CAIBX at same time.

All suggestions are gracefully accepted and much appreciated.

 

[donheff]

Yup, I still have a couple of load funds that I haven't unloaded. I use cost averaging for cap gains. But I am trying to cut down on my energy waste.

 

[W2R]

2) I have some money sitting in banks earning little interest. I want the accounts so we have a local bank to do business at when we need it, but the few extra dollars I'd get moving the excess money just doesn't get me off my butt to do it.

This is my "sin" as well. I keep a few thousand in checking and then have all my bills automatically deducted from that account to eliminate the possibility of forgetting to pay or paying late. Because of having a few thousand ($3328 this morning) in my checking account, I never have to worry about overdraft.

Now, if I put that $3328 in Vanguard, with my 3.2% planned SWR I could get ($3328)*.032/12 = $8.87/month extra in retirement (before taxes). I suppose that maybe it would be $7/month or so after taxes. That is, assuming that there aren't any low balance fees, account closures, or other problems due to having nothing in checking.

 

[Zathras]

Two big ones.
We pay for a company to check up on, maintain and equip our 250 gallon turtle tank.
Financially it is a very silly thing, but we love the turtles and fish (and sometimes the turtles like the fish TOO much) and are too darn lazy to do it ourselves.
2nd is our solar panel array. Financially it doesn't make a lot of sense the way we did it (Nords did it the right way). Although if the panels last 20-25 years (and I do as well) then it may even out.

 

[73ss454]

When I finally woke up a few years ago and read a few books about investing I made a choice to move everything to Vanguard. I took my hit from AG Edwards and Oppenheimer Funds and the rest. Just didn't care about the taxes, I just wanted to get away from them.

I did take some tax losses last year but maybe not enough. Since I'm still under water I can still do more this year.

 

[audreyh1]

I very much believe in "keep it simple' when it comes to investing. Simple includes keeping it convenient. I'm sure I could optimize here and there if I really wanted to and save $$$, but there is also the chance that if you fiddle too much, you screw up worse than if you just left things alone.

I also see time as a very precious commodity. More precious than money in some cases. So I am very reluctant to invest a lot of time to save money unless the result is tremendously in favor of saving $$$ and it's not keeping me from something else I'd rather do.

Audrey

 

[Nords]

We're serial mortgage refinancers.

In the last nine years as interest rates have plunged, we've refinanced our residence five times and our rental home twice. Each refi has paid for itself, although the latest one (on our residence) will need a few more years. All but one of them were zero-points refis, and a couple of them were zero-closing-costs refis. All we had to do was go through the bureaucratic hassles.

I don't think our 4.5% 30-year fixed rate on our primary residence can possibly go any lower, and this time I really mean it. However on a whim we asked our mortgage agent from the last refi if we could refinance our rental's mortgage from 5.5%. (Small regional bank, just had its IPO a few months ago, getting hungry for mortgage fees.) She thinks she can do it for 4.625%, admittedly with a couple of points.

So today we're going to apply for our eighth refi in nine years. We're probably going to take out a big chunk of equity from the rental home, so I have to sharpen up a cashflow estimate and figure out how much of a payment we can handle. We don't have any particular place to put the excess cash (not Berkshire Hathaway!), but I think that over the next five years interest rates (and monthly rents) will go higher instead of lower. We'll probably be able to beat a 4.625% mortgage rate with CDs.

We have no compelling reason to dart around in front of the steam roller picking up nickels. But it seems impossible to pass up the temptation of exploiting the lowest interest rates in 45 years by borrowing very long and investing shorter. This latest mortgage won't be paid off until I'm 79 years old.

I don't think we'll ever show a profit on Schedule E...

 

[Jay_Gatsby]

I'm one of those guys who prefers to buy my lunch instead of bringing it from home. Does that count?

 

[ERD50]

Most of us are posting about things that we decided might be a savings, but we were too lazy (un-motivated, if you prefer) to go after it. That's not necessarily a "non-optimum" decision. Maybe our time is worth more to us than the savings involved. Perfectly reasonable.

But I bet that I spend more time trying to save even less money somewhere else. But I also probably can't see the forest for the trees. Those are very likely sub-optimal activities.

Sometimes I get frustrated when I realize I just spent 20 minutes trying to find the best deal on some item, and the price deltas from the first search were minimal. Maybe I'm rationalizing this, but I kind of chalk that up to the idea that, in the long run, those searches help me find good places to deal with, and sometimes end up with big savings in a short time.

Mostly though, I spend time on-line researching to make sure I'm getting the product/features that I really want. I prefer spending $100 for the product I really will use, over spending $80 for something I'll be frustrated with. That's a better value to me.

-ERD50

 

[deserat]

From Nords "We have no compelling reason to dart around in front of the steam roller picking up nickels."

So THAT's what you do all day when you are retired

Umm, my sins are just laziness, although I did finally close a credit union account I'd had sitting around since I last lived in AZ (1995!) and put the $$$ in Wellesley. I've also fallen off the 'track every nickel' bandwagon...changing computers and updating software just frosts my a$$ that re-importing Quicken to another computer just made me shudder - I really liked the old DOS version the first time I tracked. I do have a spreadsheet I could track with - but I like to start at the beginning of the year - SO, 2010 it is. HOWEVER, we've saved more this year than in many years and I'm not earning as much as before - just spending a lot less....and not even tracking it! I think the fact that I'm self-employed except for the Reserve time, I'm much more careful regarding discretionary spending - I also minimize my expenses in my business to the point of almost miserliness.

 

[harley]

Still got a big chunk of a non-traded private REIT I got when I was first investing on the advice of my CFA. I can't really get out of it, except in dribs and drabs once a year. As it pays a nice dividend that accounts for ~1/3 of my retirement cash flow, I haven't looked to hard into getting out. But now that I've got most of my money either in my AA or in cash for DCAing into said AA, I guess it's time to figure out what to do about the REIT.

 

[ronin]

I buy wine at Costco because I have a big cart and I am in the aisle looking at tequila anyway. I know the 2 buck upchuck is all the rage, but do optimize by trying the Kirkland brand.

 

[Martha]

Two big ones.
We pay for a company to check up on, maintain and equip our 250 gallon turtle tank.

Cool. What kind of turtles? Pictures?

 

[mickeyd]

DW has a an IRA in a couple of USAA mutual funds that I know she would be better off from an expense standpoint by moving to Vanguard. I've been too lazy to make it happen.

Ditto for me. She has her 2 funds both in USAA S&P 500 (.25 ER) but would be better in VG TSM (.18 ER) IMHO. I annually suggest a transfer to VG and show her the math (account value vs .25 vs .18) but get no ok on her part. Could she just be messin' with my mind? Yea, probably so.