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Old 11-23-2019, 06:27 PM   #221
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... If you got a dollar for dollar match for 20 years and whatever asset you were invested in made zero gain over that whole 20 year period, your average annualized rate of return on your contributions would still be 6.77% (if I have done the math properly).
Yes, you have done the math properly.... =rate(20,-100,,20*100*2)=6.77%
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Old 11-23-2019, 06:30 PM   #222
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It's not that simple. It's not what you invest in, but how you invest. IOW, if you buy and hold vs. selling frequently. In an after-tax account if you are selling your gains frequently (or even infrequently), your annual capital gains tax bill will decrease your earnings, which will also decrease your compounded interest on those earnings. If you buy and hold until retirement, than it is just a tax rate arbitration play.
True, but taxes on trading gains and losses is more of a second order effect unless you do a lot of trading... in which case it does have an impact.... but in an apples-to-apples comparison it is simply a tax rate arbitration play.
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Old 11-23-2019, 06:37 PM   #223
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True, but taxes on trading gains and losses is more of a second order effect unless you do a lot of trading... in which case it does have an impact.... but in an apples-to-apples comparison it is simply a tax rate arbitration play.
Again, it depends on which apples you're comparing. If you're comparing buy and hold apples, then it is just tax rates. If you're comparing active trading apples, it isn't that simple.
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Old 11-23-2019, 06:39 PM   #224
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I conceded the point where one is actively trading... but I suggest that few people trade so actively that they would get a benefit.
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Old 11-23-2019, 06:50 PM   #225
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I pay about $6500 in tax on $60,000 in short term cap gains from trading. No state income tax in Washington.
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Old 11-23-2019, 07:02 PM   #226
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I conceded the point where one is actively trading... but I suggest that few people trade so actively that they would get a benefit.
Maybe. I have no idea how the number of people who actively trade vs buy and hold stack up.

But let's consider the example of someone who starts out with $100,000, 10% interest compounded annually with no contributions for 30 years, to keep numbers simple. If they and pay taxes on their 10% gain just once in their first year and have to pay 15% taxes (middle of the long term gains tax rate), after 30 years and then hold onto it, they will have $1.81 million. The same person if they were in a tax deferred account and makes only that one sale, but doesn't have to pay taxes on it would have 1.98 million in 30 years. That's a difference of nearly $200k for paying taxes one year on a long term gain at only 15%. Imagine if you did that every year or every couple of years, or even worse, more often than annually and paying short term gains taxes on it. Since I don't know of a calculator that will do that math for me, it's too much work to crunch the numbers for more than just the first year. However, I really think you're underestimating how much of a difference tax deferment makes on compound interest, even for someone that doesn't sell their investments often.
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Old 11-23-2019, 07:24 PM   #227
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...That's a difference of nearly $200k for paying taxes one year on a long term gain at only 15%. ...
^^^ Your numbers are wrong.

Tax-deferred account..... $100,000*(1+10%)^30 = $1,744,940

Taxable account with one sale at end of 1st year:
$100,000*(1+10%)^1 =$110,000
$10,000 gain * 15% tax rate = $1,500
$108,500*(1+10%)^(30-1) = $1,721,146

Difference is only $23,794 or $1,500*(1+10%)^(30-1)... NOT nearly $200k!
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Old 11-23-2019, 07:47 PM   #228
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Yes, there are some valuable nuggets of wisdom in allstock's post, but it took a big turn south when he advocated whole life insurance. I worked in financial management for one of the large mutuals (not MML but one of their mutual competitors) for 12 years and later had many as clients. Whole life is a great product for people and situations where there is a permanent need for life insurance like some family farms and small businesses, estate and succession planning, etc. ... but most families' need for life insurance is only for 20 to 30 years, and for them BTID (buy term and invest the difference) is better in those situations.

That said, the whole life policy that I naively was sold when I was a 21 year old fresh faced college grad hasn't done all that bad... a 5% return ignoring the value of the life insurance coverage and a 7% after-tax .... in both cases based on the IRR of premiums in relation to CSV and the tax-free death benefit, respectively.
I have a paid up whole life policy to make up for the fact that when I go away, my social security goes away. Due to the GPO, my young wife (who will most probably survive me) will not receive a survivor benefit and is not eligible for her own social security. And it has also proven to be a satisfactory investment.
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Old 11-23-2019, 08:02 PM   #229
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I have a paid up whole life policy to make up for the fact that when I go away, my social security goes away. Due to the GPO, my young wife (who will most probably survive me) will not receive a survivor benefit and is not eligible for her own social security. And it has also proven to be a satisfactory investment.
Yet another good example where there is a legitimate need for permanent life insurance... though admittedly the amount that you need to fund replacement income will likely decline as well as you age.
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Old 11-23-2019, 08:02 PM   #230
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I've been paying for Motley Fool Stock Advisor on and off for almost 20 years. Otherwise just me. Help manage various ex's money and retirement also.


Oh my. I need to fess up. Iíve been a subscriber to Bob Brinkerís Moneytimer monthly news letter off and on for many years. I no longer subscribe. Itís the most inappropriately named newsletter ever. At $185/yr its pretty low on an AUM scale. I canít recall any price increases ever.
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Old 11-23-2019, 08:45 PM   #231
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I wish my grandparents ever had enough to understand such things, much less be concerned about what I might do.
My grandparents were subsistence farmers before the Depression.

When the banks locked their doors and froze all bank accounts, my grandparents learned to hate bankers.

When their farms were foreclosed on, my grandparents learned to hate lawyers.

Fifty years later, my father was around a bunch of people talking about the stock market. He decided that it could not be as bad as his parents warned him. So my father withdrew all of my 'college fund' and he invested it in stocks when I was 17.

Fortunately for me, I enlisted in the navy at 18.

When I was 25, I owned my first apartment complex, and that was when my father decided to give to me my 'college fund' that he had invested on the market. My father lost 50% of my college fund by day trading.

I have done pretty good with rental real estate. For one property I agreed to hire a manager, just while I was serving in a combat zone, that was a costly mistake. Regardless of how much money was lost, we lost our tax sheltering. Suddenly I was subject to paying income taxes on my salary income. I got rid on that property manager, and I will never hire one of those ever again.

Hiring anyone to manage my properties costs me the loss of my tax sheltering. So I can never have anyone manage my investments for me.
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Old 11-24-2019, 04:21 AM   #232
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^^^ Your numbers are wrong.

Tax-deferred account..... $100,000*(1+10%)^30 = $1,744,940

Taxable account with one sale at end of 1st year:
$100,000*(1+10%)^1 =$110,000
$10,000 gain * 15% tax rate = $1,500
$108,500*(1+10%)^(30-1) = $1,721,146

Difference is only $23,794 or $1,500*(1+10%)^(30-1)... NOT nearly $200k!
My mistake. Bad math. I missed something somewhere. But I still maintain that if stocks are bought and sold rather frequently, then this can be a big issue over many years of missing out on compounded interest. The plus side, however, is that at the end, very little of that money will need taxes paid on it.
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Old 11-24-2019, 05:59 AM   #233
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My mistake. Bad math. I missed something somewhere. But I still maintain that if stocks are bought and sold rather frequently, then this can be a big issue over many years of missing out on compounded interest. The plus side, however, is that at the end, very little of that money will need taxes paid on it.
I conceded that point 10 posts ago, but you keep harping on it. Get over it dude.
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Old 11-24-2019, 06:35 AM   #234
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I Rely On The Person I Can Trust the Most

Namely myself. Have always done all the investing myself, and have always done my own taxes. Tax software today has made the process extremely easy, and the latest tax changes even moreso with the high standard deduction for married couples.
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I let "my Chase guy" manage some of my cash and I already hate it
Old 11-24-2019, 09:46 AM   #235
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I let "my Chase guy" manage some of my cash and I already hate it

I've never needed FA and I just FIREd (ok, not that early, I'm 56 because I relied on myself when saving and investing. So the obvious thinking would be: "I got here on my own, why would I need anyone to help me spend money"? I had my stash divided into buckets, one of them being just cash in high yield saving accounts. I planned to live off it and use it to pay taxes on ROTH conversions.

But Chase keeps offering me bonuses for moving money to them and I like free money. Last year I gave them around 100k and since they don't offer decent savings accounts (Marcus was paying 2% at the time) I let them invest it. They bought bonds and a year later made me 3.5%. That was unmanaged so all I paid were transaction fees.

At the same time I started realizing that spending efficiently is a bit more complicated than accumulating so I started looking into financial planning: can I do it myself or do I need help? Lo and behold, "my guy" at Chase says he's a financial planner and that's exactly what he does: plans retirement finances! Great! Plus this year Chase offers a 2k bonus for becoming a Private Client. So I give them another 150k to play with (it would have stayed in Marcus otherwise at current 1.7% rate). Except that this time around "my guy" who is going to do all that planning and managing asks for 1%. So I'm thinking: if after his fees I get 1.7% (2k bonus is a bit of an insurance here) it's a wash and I'll learn how he operates and whether hiring someone like that long term makes sense. Plus Private Banking has its perks. It'll be a learning experience while I'm doing some reading, educating myself and figuring how to use financial planning software (I'm looking at IncomeStrategy, eMoney and RightCapital)

Right off the bat I realize he knows nothing about planning. He basically runs a quick simulation on his screen and tells me that I have close to 100% chances of success in achieving my goals. And when I go into structuring my income streams in a such way that I have my health insurance cost under control (currently on Medicaid - weird but I qualify) he gets lost and is clearly clueless. Not one meaningful comment about ROTH conversions and when I get into tax planning he recommends a CPA. So that's already a waste of time - no "planning" to speak of, just managing the investments - which I specifically told him I'm not interested in.

Then I look at his investments and I really don't like what I see: tons of trades (I have yet to see a statement so no clue what the commissions are), including funds when I specifically told him to stay away from them, dividends re-invested when I made very clear I wanted them pushed to checking account (I can't set it up myself since it's a managed account)... I have no control over these accounts and I have to call/email him with every question. I get a response 3 days later and it's usually something to the tune of "let the experts do what they do best" or " I thought we decided on something completely different".

The proof is in the pudding and if I can stomach dealing with him for a year and he'll actually make me money I may give him a better review. For now I went on Morningstar and set up two test portfolios with $250k each. Let's see which one performs the best.
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Old 11-24-2019, 09:58 AM   #236
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^^^ It might be fun to let him know that he is on a short leash and the benchmarks that he needs to exceed, after fees, to retain your money.
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Old 11-24-2019, 10:15 AM   #237
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^^^ It might be fun to let him know that he is on a short leash and the benchmarks that he needs to exceed, after fees, to retain your money.
I doubt he's retaining anything - I don't enjoy this relationship and see no point in continuing it beyond what it needs to accomplish: give me an insight into how a financial advisor operates.
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Old 11-24-2019, 10:23 AM   #238
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... Then I look at his investments and I really don't like what I see: tons of trades (I have yet to see a statement so no clue what the commissions are), including funds when I specifically told him to stay away from them, dividends re-invested when I made very clear I wanted them pushed to checking account (I can't set it up myself since it's a managed account)... I have no control over these accounts and I have to call/email him with every question. I get a response 3 days later and it's usually something to the tune of "let the experts do what they do best" or " I thought we decided on something completely different". ...
The brutal truth here is that you have given him trivial money, which at a place like Chase is going to get you trivial attention. Your guy's sales manager is almost certainly asking why Chase even has the account. Your guy's answer is probably "Well he has more money and my plan is to capture it."

More, your guy is probably not even making those trades. Chase will have a few "standard" portfolios and whichever of those buckets you fall into, that's what will happen in your account -- all done by a computer. It cannot be otherwise; customizing trading in a pipsqueek account is a guaranteed money loser for Chase. And your FA is busy, out prospecting for customers who have portfolios large enough to be worthwhile for him. (Which yours is not.)

Chase, Morgan Stanley, JP Morgan, RBC etc. are IMO not places suitable for retail investors. They are best suited for customers with serious seven figures who believe that leaving their money with "experts" is the safe path and who never try to benchmark the results that the experts are giving them. I have a friend whose husband died, leaving her with a very profitable Dairy Queen. She has sold it and given the money to some kind of advisor and is adamant that she has no interest in keeping track of what is going on. That's how Morgan Stanley built a "wealth management" business that delivers 25%+ profits to the bottom line.

If you want an FA to pay attention, go with a million bucks and start interviewing small shops/independent advisors. I am partial to DFA; I think they have a good story. Their web site may be a good place to hunt for candidate advisors. https://www.dimensional.com/ Also https://www.napfa.org/ and https://www.xyplanningnetwork.com/. I have heard good things about both but have never actually used either one.
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Old 11-24-2019, 10:45 AM   #239
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I manage my own, but try to never or only very slightly recommend that approach to others with an FA. When my cousin was worrying about her FA's horses on his ranch in CA
during wildfires, I think I did murmur something about her paying for them...oops.
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Old 11-24-2019, 11:03 AM   #240
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Just checked 2 portfolios I set up on M*, so that I could track an actual portfolio set up by friend's FA. At the time (June 2018) I recommended 3 Vanguard funds that came very close to emulating the 9 fund approach of FA (Oppenheimer funds with > 1% e/r).

At 16 months, the INDEX is $8K ahead of the FA, then add the 1% FA fee. Someone could be $14K further along...
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