Money - nolanhergert/notes GitHub Wiki

Good Contacts

Numbers

  • Fidelity Brokeragelink: 866-956-3193.., 401k (planning somewhat): 1(866) 630-9722.
  • Merrill Edge: (not good for hangout) 1.877.653.4732, maybe try their other number? 1 (888) 637-3343
  • Citi: 1-800-846-5200, press 0 for immediate access since you don't have a registered checking account.

Links: Pick Automatic Investments

Should I continue to do a Traditional ?

Fairly high tax bracket now (22%), so I get good tax deductions going in. However by 60 that will grow to a lot of taxable income money! However, if you have a low income ("FI") phase at some point, then you can do Traditional->Roth conversions in a lower tax bracket and access your contributions after 5 years. And if you don't retire early, then can donate the excess income that would go to RMDs.

Also, I'm still going to be contributing a lot to taxable and roth. Bets are fairly hedged tax-wise.

Estate Taxes

Turns out ultra high net worth people can avoid estate tax via trusts and shenanigans, but it costs money and I'm not sure how often it is used in practice. https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/

Zero Sum

  • Profit is zero sum
  • Investing can be considered zero sum
  • Technological progress is not zero sum

Might be interesting to read Kochland and his own book Good Profit

Kelly Criterion

More useful than you might think! For when you want to optimize long term outcomes with geometric returns.

https://entropicthoughts.com/the-misunderstood-kelly-criterion

Intro philosophy

I assume you are talking about picking individual stocks, just with a sprinkling of modern AI magic dust on top of it. I (and many others here) are in the camp that there is no "free lunch" service out there that will multiply your money 10X in a year, for example, because a) that's surprisingly hard to do and b) that would be worth a lot of money and they don't have an incentive to reveal that information!

One intuitive principle that I've found helpful is that the current price of a stock reflects the equilibrium (or "best guess") of all buyers and sellers in the market, regardless of how they arrived at their decision (fundamentals, market manipulation, technical analysis, or AI). If it was too low, there would be net buying occurring, and vice-versa. What makes you confident that you know better than those other actively-trading market participants? Simply deferring to an AI bot or newsletter guru that you paid $50/mo or worse, .5-2% of your portfolio value for is not a guarantee, like I mentioned above. What is their real track record, not just their wins, and what confidence do you have that they will persist in the future?

I like the idea of continuing to buy the best guess of the market every paycheck, because I don't particularly enjoy doing market analysis and would rather spend my time doing other things where I can more easily add value. This is the essence of following a passive market-cap-weighted low-cost index investing strategy, which comes with a host of other benefits too. It turns out to consistently outperform active investing options (that benchmark to the same index) over the long run as well, because of management fees and the losses from needing to trade with other active participants in the market.

Hope this helps!

EDIT:

Of course there are people that do enjoy putting in the work and can find "alpha" (Yedu Jathavedan comes to mind, who founded a stock investing club here a while back), but my point was more that you don't have to go this route. You can get most of the benefit with minimal time invested. Even Warren Buffett agrees most people should go the route of a index investing. A good intro on the Bogleheads wiki: https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy

If you do want to go the active investing route (as your question hints at on second reading), I don't have any stock screeners or equivalent to recommend for you, sorry.

Housing

https://news.ycombinator.com/item?id=35043478, https://goodreason.substack.com/p/maybe-treating-housing-as-an-investment

Monetary Sequence of Events

Date Description
Early 2022 Following advice of Ray Dalio and putting more investments (10%) into VXUS (total stock market ex-US)
June 2021 After contributions of most of paycheck other than $1K/mo into stocks, NW is a lot. Too much? IDK
Jan 2020 Got out of bonds too early for Corona crash. See https://nolanhergert.github.io/notes_old/money/timing.html
?? FI (for a late 20s dude living like a college student, not so hard)
Jan 2017 First talked with Jeff Eischen. NW = ~20K all in bonds, soon transitioned to stocks
Jan 1 2016 Paid off all loans! (~$10K to G&G I think)
July 2015 Started work at Intel!

Indexing

I have some more notes on notes_old. Downsides: https://web.archive.org/web/20210129002936/https://seekingalpha.com/article/4401831-consequences-of-passive-investing

  • Most of his points are rebuttable. More volatility for active investors because of limited volume? Means less can stay in the biz. Up until 99% passive that's probably fine, as long as a bunch of people don't head for the exits.
  • A true downside though is biasing stocks towards ones where market cap derivations for the S&P 500 (and other indices) were changed to use float-adjusted (number of shares available on the open market) market cap at some point. This biases towards companies that sell all their shares to the detriment of closely held public companies

Quantitative Easing

Why does QE lead to "everything bubble"? People have to take out loans in order to take advantage of QE, right? So lots of ppl are leveraged?

Financial Advisor

From: https://adviceonlyfinancial.com/advice-action-interview-allan-roth

My goal is to put them in the driver’s seat and fire myself, since I know I don’t know what the stock market will do next year, what the hot companies or sectors will be, even whether intermediate-term rates will rise or fall.

While every my model has conflicts, I wanted to be free to:

  • Recommend paying down a mortgage since it’s the inverse of a bond.
  • Recommending any product I saw anywhere such as CDs with early withdrawal penalties directly with banks or credit unions.
  • Recommend high quality fixed income as an AUM advisor might not recommend a bond fund yielding 2.3% if they were charging the client nearly half at 1%.
  • Not have a conflict in a pension analysis and be more objective in whether a client should roll over their 401K to an IRA, as many 401Ks have great options such as Vanguard Institutional class funds or the TSP with the G fund (I wish I had access to).
  • Most importantly, to be able to work toward simplicity since a client might not want to pay AUM for a simple portfolio.

Lawsuits / Insurance / Umbrella

Someone can't sue for IRA / 401k assets, but they can garnish future wages.

Trying to decide if I want an umbrella policy or not...

Umbrella seems useful, but some MMM lawyers didn't think it necessary.

Aunt Sandi

  • Show portfolio visualizer of short term dips and stuff for different asset classes. 4 Different Asset Classes
  • She is welcome to ask questions at any point in the future. Increase risk too (although not really necessary for her), or try a little bit of risk with some of the money
  • She can definitely understand it. Just keep asking questions. Thankfully it's pretty simple too. I really like portfolio visualizer, and you can test out the performance of funds there too if you want.
  • Try "hacking" her account from your phone or laptop? (try copying cookie too?) Might want to set up one-time passcode to phone too
  • Pretty easy access to Merrill from B of A, good and bad
  • How does Merrill make money?
    • Advisory fees of 1% AUM = $3K/year
    • Mutual funds, but can't find any
    • Lending out shares, pretty small

Todo

  • Double check investment choices with Levi and maybe investment club

What Helped

  • Do little steps at a time. No need to put everything in at once

Interesting Points

Leverage

If you can handle 100% in stocks, why not 101%?

Matt uses IBKR , at prime (currently 0.3%) plus 1.5%. IBKR lite is +2.5%. No monthly payment required. Just margin call opportunity.

  • However, IBKR PRO seems to be basically $10 maintenance fee monthly. However, at loans not much more than $10K it makes sense to go with IBKR pro, at least with current interest rates.

Still want to read a little bit on proper amount of leverage more before jumping in.

RIPC Rollover

Now can do it through the Bank of America app! Leaving it installed. Soon can do it through the Merrill Edge app directly. Pretty straightforward!

If it doesn't work out, you can stop by a Merrill Lynch branch with an in-person cashier. Otherwise mail to the address "Darrell Member" sent to you in email

Risk-Adjusted Return

Sharpe ratio considers upside volatility the same as downside volatility, and calls them both risk! Weird. I would use a different measure of risk entirely, but if you just want to measure downside volatility, the Sortino Ratio can help you out.

Just Starting Resources

Oregon IDA

If you donate to this program, 90% of your contribution will be given back to you as an Oregon tax credit, and the remaining 10% still counts for a Federal tax deduction. Additionally, if you contribute appreciated shares, you don't have to pay capital gains taxes either! One more thing, it doesn't all have to count in the same year, it can roll over up to 3 years.

Additionally, on the receiver side, they get a 3 to 1 match on their savings + educational classes on budgeting. https://oregonidainitiative.org/applicant-faqs/

https://oregonidainitiative.org/overview/

Trying to look into it myself. Wonder what will happen if it gets popular...

Nice 2019 review of the program: https://www.oregon.gov/ohcs/housing-assistance/Documents/IDA...

Reddix had finished her college degree from Portland State University and was working to transition off Section 8 housing assistance. The transition would be significant: once off Section 8, she would essentially not be able to obtain housing assistance again. Reddix’s Section 8 caseworker through Home Forward, an IDA partner of CASA of Oregon, helped her to develop a roadmap for how she would manage without Section 8. To support Reddix in taking the next steps, the caseworker encouraged her to start an IDA. “The education through [the IDA] was the most beneficial. What truly changed me at the end of the day, was the education and the experience of applying it,” states Reddix. Saving in an IDA required her to change her spending habits and develop a budget. She had debt to manage and student loans that were coming due. “It was hard, having people look at your spending habits,” she explains. “It was like surgery—how they go in and find something. And you don’t see it until someone else shows it to you. That was my awakening point. It’s hard at first but once you accept it and change it, you benefit.”

Classes and curriculum

Merrill Edge transfer form? https://olui2.fs.ml.com/publish/content/application/pdf/GWMOL/Partial_Asset_Transfer_Authorization_Letter.pdf

Financial Planning

Optimal "Glidepath" Calculation

Really interested in running optimization for optimal path for accumulation and retirement scenarios

Monte carlo to get more data, but problem is monte carlo is uncorrelated, whereas stock market tends to follow known patterns. Maybe do a sine wave instead? https://earlyretirementnow.com/2019/07/10/monte-carlo-plan-for-retirement-guest-post-gasem/

I would expect the optimal strategy to come out something like a lead-in and lead-out path, but hard to say ahead of time!

Variable Knowns:

  • 30 years of working, putting $10K in a year?
  • 30 years of retirement, pulling out $40K a year? Seems off compared to contributions...
  • Available buckets are cash/TIPS, corporate bonds, and US TSM.

Unknowns:

  • Returns. Monte carlo? Pick a number each time and index into real returns from ERN's spreadsheet?

What is the grading criteria?

  • Highest minimum 10 balances?
  • Don't want to do average of all balances as we don't care too much about the high returns

How to run efficiently?

  • Lots of potential paths and scenarios.
  • Try in discrete increments of 10% for each year.
  • Probably want to use ERN's formula, it will handle this case. Try to preserve the monte carlo generated data.

Python, use the online Google notebook thing? CoLab.

Spending

Excellent video: The Overspent American, Why We Want What We Don't Need: https://www.youtube.com/watch?v=YdaQnGgWoPg&t=4s

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