Who is beating the market YTD (2014) and how?

[target2019]

Investment grow has been something like 4.0-4.5% for the year so far.
Trailing the S&P500 at this time, as expected.

[aja8888]

Quote:

Originally Posted by Ed_The_Gypsy FYI, after more study of the tax issues, it turns out that I do not have to convert everything to Roth to be tax-free after 70. Income (w/d from t-IRA plus SS can still be at zero taxes below a certain w/d rate). If I die before everything is converted, DW should convert all the balance ASAP for simplicity. Cheers from Baku

Hey Ed, can you expand on this plan? For me (70 1/2 now), RMDs and most of SS is taxable, and any amount of IRA funds I convert to ROTH will be taxable?

[Fermion]

I calculated everything now.

401K 90% stock 10% bond, up 8.17% YTD (stock is VIIIX and VIVIX)

DW IRA 100% stock (VSIAX 8.37% VTIAX 5.89%)

My IRA #1 (trading account, currently all cash) 55.23% YTD

My IRA #2 (trading account, 50% cash 50% Gilead stock) 34.88% YTD

HSA 100% stock (VTI, 7.32% YTD)

Taxable account #1 (mix of ETFs, MSFT, AAPL, GLW) 17.32% YTD

Taxable account #2 (mix of ETFs, FCX, INTC, CSCO) 14.04% YTD

Blended return .5 x 8.17 + .025 x 8.37 + .025 x 5.89 + .04 x 55.23% + .05 * 34.88 + .01 x 7.32 + .15 x 17.32 + .1 x 14.04 + .1 x cash (0%)

Blended return 12.47% YTD

[Ed_The_Gypsy]

Quote:

Originally Posted by aja8888 Hey Ed, can you expand on this plan? For me (70 1/2 now), RMDs and most of SS is taxable, and any amount of IRA funds I convert to ROTH will be taxable?

Hi, aj,
Yes, any amount you convert from 401K or pre-tax traditional IRA to a Roth is taxable. Sorry to say, I think you are stuck. Just take the MRDs and pay the taxes. Forget about conversions at this point.

Thanks to a member of this board, I woke up to the Tax Torpedo, which hits a surviving spouse with a high tax rate after the spouse's death: 1/3 less SS and 1 less standard deduction and the MRDs keep getting higher. I have to be realistic. One of us will die first, probably me, and she will outlive me by many years. Our situation is simple: a very small pension, SS (mine is pretty high--it will be the most of our retirement income), a traditional IRA and a small but old (important!) Roth.

I am delaying SS until 70. DW started hers early which was small, but when I turned 66, I filed-and-suspended so that she could get her spousal SS (~50% of mine). I figure on retiring next year and so will have about 3 years to convert IRA to Roth before I start SS and then start MRDs at 70.5 (the following year).

By playing with the on-line TurboTax estimator and the www.taxbrain.com estimator (they gave the same results), if we do nothing and simply take my SS at 70 and the MRDs starting at 70.5, and I die somewhere in there (losing her 1/3 of our SS and one deduction as well), she could wind up paying over $300k in taxes up to age 100. If we hurry up and convert all of it to a Roth before 70.5 and therefore eliminate MRDs altogether, we pay half that or less in taxes up front and never have to pay taxes ever again or even file again (nice, when old and not on the top of our game). That money that does not go to taxes is money we can invest and live off.

If we don't convert it all by 70.5, leaving a small amount ($10k to roughly $90k, depending on how many years we/she wants to deal with the t-IRA withdrawals), in the t-IRA, she can withdraw about $8k to $10k per year from the t-IRA (well above the now much smaller MRD) and stay within the zero-tax limit. If I stay above ground, it gets better. With 2 deductions, we could withdraw a little more tax-free from the t-IRA every year after 70.5. We/she of course can take out of the Roth whenever she wants without any tax consequences.

The key is converting before 70, when I take my SS. I have only three years to to that. The marginal tax rate will be high, but if we do nothing and just take MRDs it will be higher, and even worse for a surviving spouse.

After you both start taking SS, and the MRDs kick in after 70.5, you are permanently in a high tax bracket. And the surviving spouse is even worse off. (This applies to a single person, too.) No way around it.

Sorry to bring bad news.

[BTravlin]

4.9% YTD on 30/70 AA

[aja8888]

Quote:

Originally Posted by Ed_The_Gypsy Hi, aj, After you both start taking SS, and the MRDs kick in after 70.5, you are permanently in a high tax bracket. And the surviving spouse is even worse off. (This applies to a single person, too.) No way around it. Sorry to bring bad news.

Ed, thanks for the explanation. Getting the IRA to Roth conversions done is the way to go. I didn't do that, but maybe I should have and now it's maybe too late. I need to run some tests on Turbo Tax and see where we can do small conversions and stay just under a 15% tax bracket (if possible). One thing we have done, which is not a favored tactic here, is purchased $250K level term life insurance policies on both of us a while back with us being beneficiaries of each others policy. If one passes within the policy period, the insurance payout funds will cover a lot of taxes and maybe some other expenses. Fortunately, we bought the policies at a good fixed price.

Another problem we have is that I still consult part time (that has to stop soon) and we have no tax deductions.

[Ed_The_Gypsy]

Quote:

Originally Posted by aja8888 Ed, thanks for the explanation. Getting the IRA to Roth conversions done is the way to go. I didn't do that, but maybe I should have and now it's maybe too late. I need to run some tests on Turbo Tax and see where we can do small conversions and stay just under a 15% tax bracket (if possible). One thing we have done, which is not a favored tactic here, is purchased $250K level term life insurance policies on both of us a while back with us being beneficiaries of each others policy. If one passes within the policy period, the insurance payout funds will cover a lot of taxes and maybe some other expenses. Fortunately, we bought the policies at a good fixed price. Another problem we have is that I still consult part time (that has to stop soon) and we have no tax deductions.

Glad to have helped--I think .

I bought TurboTax to try to make a plan, but it was too complicated to get quick results. Try the on-line tax estimator in my post. (The TurboTax on-line estimator is good, but it recognizes you and after a while refuses to run your cases. The other one keeps going.)

[Ed_The_Gypsy]

We have small term life policies, too. They will help, of course, but I was trying to evaluate the core problem, which is simple in our case. I wanted a best-worst case. Anything besides that will be a welcome improvement.

[aja8888]

Quote:

Originally Posted by Ed_The_Gypsy We have small term life policies, too. They will help, of course, but I was trying to evaluate the core problem, which is simple in our case. I wanted a best-worst case. Anything besides that will be a welcome improvement.

I think we will be OK, tax paying wise. once I quit working part time. It's been so much fun working in the oil & gas industry now that things have gone ballistic! Clients are just so great to work with. I feel like I spent the best years of my working career working in a depression before this. I do need to stop even though I am contributing the max to a Solo 401K (strange to put in and have to take out a RMD the same year!)

The Solo 401K contribution lowers my net business income a lot. I think I will look real close at ROTH conversion later this year when I have a better handle on the business income I have to pay tax on. Next year I am looking to just quit part time work, though.

[Rdub]

Quote:

Originally Posted by Lsbcal Somehow I suspect we are not all calculating this in the same way.

I agree. I keep an eye on my returns a couple different ways:

Per PersonalCapital YTD:
S&P 500 7.99%
You Index 5.8%

Increases per my NW Spreadsheet (Jan 1-June 30):
Investment Accts: 9.6%
Overall NW: 8.7%

In my NW Spreadsheet, I include a forecast of my spend (budget), savings and est returns on all accounts/assets. I have this forecasted out through 100 years old. I update my actuals each month after I receive my statements and update my forecast every January.

I look at a couple benchmarks:
1) Personal Capital: Target Allocation v. Current Allocation (is it reasonably close)
2) Personal Capital: Efficient Frontier Analysis- to see if my target returns and risk are in line.
3) PersonalCapital: You Index v. S&P 500 (mostly for volatility, since I know my balanced portfolio should not keep up with the S&P)
4) My personal NW Spreadsheet:
a) Spend Budget v. Actual (pulled from Quicken)
b) Forecast Account Balances v. Actual
c) Forecast NW Balance v. Actuals

I maintain a lot of information in my spreadsheet such as:
Asset Location, Allocation, Historical returns on my funds, my Top 10 for my investment plan, list of retirement calculators and results, etc...

So for me, I don't try to beat the market, I just try to stick to my plan.

I mentioned my Top 10 above, so I figured I would share that as well:
1) Spend less than you make
2) Stick to the Investment Plan (review 2x per year)
3) Diversification / Asset Allocation (non-correlated assets, a piece of all markets)
4) Keep turnover low (reduces costs, taxes and bad mistakes)
5) Invest primarily in low cost index funds (Vanguard Admiral where avail)
6) Keep taxes low (Index funds are fairly tax efficient, low turnover keeps them low, rebalance 1x per year +1 day for LT cap gains)
7) Discipline (see #2) think long term when the market goes south and stick with the plan.
8) Don't look at the portfolio daily.
9) Keep it simple, don't get exotic, don't chase trends and don't be greedy.
10) Harvest RSU/ESPP 2x per year- keep this below 10% of NW.

I know some overlap, but this is what I use to keep me focused.
Have a great weekend!
Rdub

[LOL!]

Yep, no one calculates these things the same way. I have several positions that have not changed since early 2009. They are Vanguard products, so they have the exact same return YTD as the numbers on the Vanguard web site. I calculate the performance using MS Money, so I believe it is reasonably legit.

That said, I am about 0.5% YTD behind one of my benchmarks, but about 0.3% ahead of another. Now why is that? Some tinkering suggests it is drag from cash and short-term bonds.

Benchmarks that I like to use are the Vanguard Target Retirement funds, LifeStrategy funds and some DFA balanced funds like DGSIX (a 60/40 global fund). The Vanguard LifeStrategy Moderate Growth fund has a 60/40 asset allocation, too. My portfolio has fewer equities than that and more short-term fixed income, so it is not an exact match.

And yes, I can pull out the account with the 20% annualized IRR which is a completely valid number, but it isn't the full portfolio nor is it a YTD number. (Actually I think Quicken makes it difficult to do a YTD number, so the IRR always looks better. I think they do this on purpose so that folks think they are doing better than reality and thus have a warm feeling for Quicken.)

[Ed_The_Gypsy]

Quote:

It's been so much fun working in the oil & gas industry now that things have gone ballistic! Clients are just so great to work with. I feel like I spent the best years of my working career working in a depression before this.

Yeah, ain't it great?

I could keep going for a while myself, but I have had irrational premonitions of death and there are some things I would like to do yet on my own time. I don't want to die at my desk or a hotel lobby as has happened.

[aja8888]

Quote:

Originally Posted by Ed_The_Gypsy Yeah, ain't it great? I could keep going for a while myself, but I have had irrational premonitions of death and there are some things I would like to do yet on my own time. I don't want to die at my desk or a hotel lobby as has happened.

I hear you, Ed. Last night DW and I were visiting her older brother (Shell retiree) who is in the hospital with a severely failing heart. He is 4 years older than me and I think the light came on for me. My portfolio is up for the year and we have "enough" as our needs are not great. This is my last year at working, even part time.

[REWahoo]

Quote:

Originally Posted by aja8888 I hear you, Ed. Last night DW and I were visiting her older brother (Shell retiree) who is in the hospital with a severely failing heart. He is 4 years older than me and I think the light came on for me. My portfolio is up for the year and we have "enough" as our needs are not great. This is my last year at working, even part time.

Why wait until the end of the year? Or are you suffering from TMQ*?


*Two more quarters

[aja8888]

Quote:

Originally Posted by REWahoo Why wait until the end of the year? Or are you suffering from TMQ*? *Two more quarters

I think I am suffering from the "not being able to convince yourself to hang it up syndrome" (or something like that)

[BTravlin]

Quote:

Originally Posted by Ed_The_Gypsy Glad to have helped--I think . I bought TurboTax to try to make a plan, but it was too complicated to get quick results. Try the on-line tax estimator in my post. (The TurboTax on-line estimator is good, but it recognizes you and after a while refuses to run your cases. The other one keeps going.)

Try deleting any TurboTax cookies from your computer and it should work again.

[robnplunder]

OP here. This is the 1st year that I am tracking my investment return closely. Before, I tracked total asset increase (savings from work, equity increase, investment return). Based on investment return so far, I believe I've got more work to do before RE. Market YTD has done well but my YTD investment return barely would cover my RE expense. If market has not done well, I am sure the return would not cover my expense. I need to continue with OMY and/or rethink my investment strategy.

[pb4uski]

Quote:

Originally Posted by LOL! ..... (Actually I think Quicken makes it difficult to do a YTD number, so the IRR always looks better. I think they do this on purpose so that folks think they are doing better than reality and thus have a warm feeling for Quicken.)

You can calc a YTD number by [(1+irr)^n] -1 where irr is the Quicken YTD irr and n is a decimal for the portion of the year to date.

[Rustward]

Quote:

Originally Posted by Lsbcal Somehow I suspect we are not all calculating this in the same way.

Yep, guys standing around the campfire comparing . . .

[Brat]

I have a bit of cash to invest. When I look at the ETFs and mutual funds that I am considering they track the S&P, have lower dividends and are higher risk (so says Vanguard and Morningstar.) They don't seem to me to have the potential for a home run.

Sigh....