Personal Finance Financial Planning & Investing

[4Q Basket Case]

Here's a link to the best investing podcast I've listened to this year. It's free from Bogleheads On Investing, and is well worth about an hour of any investor's undivided attention.

Episode 77: Aswath Damodaran, the Dean of Equity Valuation from the Stern School of Business, host Rick Ferri | Bogleheads On Investing Podcast

Aswath Damodaran is one of the great minds in investing, and specializes in valuation of assets. He does a great job of distinguishing between valuation vs. pricing. He also does a great job of reiterating the value of index funds.

At the risk of sounding like an Econ 001 student challenging Warren Buffett's investment allocation, Damodaran did raise one thing I disagreed with: He believes that international exposure deserves a share of an investing portfolio just as Large Cap, Small Cap, Growth, Value, etc. sectors do.

I disagree. Not because of the 20 years of underperformance Global funds have generated, but because the demographics of too many established non-US economies are so bad -- Germany, China and Russia are in deep trouble and not fixable anytime soon, if ever. Britain and France would be except they still have decent immigration from former colonies -- which is causing internal political problems in both countries. If you believe that demography is destiny, all of those are major red flags.

Other less established economies have better demographics, but their political situations are often a mess, and too many of them are effectively governed by a mob boss.

As opposed to the US. Whose demographic problem does exist but is (1) nowhere near as severe as the other countries I named, and (2) is a lot more solvable due to the relationship with Mexico, whose demographics are awesome.

I do believe there will be a fair amount of economic upheaval in the next few years. And I believe that the US is uniquely positioned to benefit....after the dust settles. I also believe that the largest US companies are inherently global, and that there is effective international diversification in holding their stocks -- which you do in a US Index Fund.

All that to say I don't think international stock funds are the place for the Basket Case household.

Regardless of whether you agree or disagree, I truly think you'll find the above podcast time well spent.

 

[B1GTide]

Here's a link to the best investing podcast I've listened to this year. It's free from Bogleheads On Investing, and is well worth about an hour of any investor's undivided attention.

Episode 77: Aswath Damodaran, the Dean of Equity Valuation from the Stern School of Business, host Rick Ferri | Bogleheads On Investing Podcast

Aswath Damodaran is one of the great minds in investing, and specializes in valuation of assets. He does a great job of distinguishing between valuation vs. pricing. He also does a great job of reiterating the value of index funds.

At the risk of sounding like an Econ 001 student challenging Warren Buffett's investment allocation, Damodaran did raise one thing I disagreed with: He believes that international exposure deserves a share of an investing portfolio just as Large Cap, Small Cap, Growth, Value, etc. sectors do.

I disagree. Not because of the 20 years of underperformance Global funds have generated, but because the demographics of too many established non-US economies are so bad -- Germany, China and Russia are in deep trouble and not fixable anytime soon, if ever. Britain and France would be except they still have decent immigration from former colonies -- which is causing internal political problems in both countries. If you believe that demography is destiny, all of those are major red flags.

Other less established economies have better demographics, but their political situations are often a mess, and too many of them are effectively governed by a mob boss.

As opposed to the US. Whose demographic problem does exist but is (1) nowhere near as severe as the other countries I named, and (2) is a lot more solvable due to the relationship with Mexico, whose demographics are awesome.

I do believe there will be a fair amount of economic upheaval in the next few years. And I believe that the US is uniquely positioned to benefit....after the dust settles. I also believe that the largest US companies are inherently global, and that there is effective international diversification in holding their stocks -- which you do in a US Index Fund.

All that to say I don't think international stock funds are the place for the Basket Case household.

Regardless of whether you agree or disagree, I truly think you'll find the above podcast time well spent.

Thanks - I have about 15% of my assets in international funds. I will give it a listen

 

[BamaNation]

Thanks 4Q-

The Bogleheads podcast is pretty much the only podcast I listen to. Rick Ferri is great - as are all of his books.

as for the Morningstar books, I have and have read the Benz, Piper and Pfau books. They are good reads to help you think about developing and executing your own “philosophy” of how to spend what you have saved for retirement.

 

[UAH]

Here's a link to the best investing podcast I've listened to this year. It's free from Bogleheads On Investing, and is well worth about an hour of any investor's undivided attention.

Episode 77: Aswath Damodaran, the Dean of Equity Valuation from the Stern School of Business, host Rick Ferri | Bogleheads On Investing Podcast

Aswath Damodaran is one of the great minds in investing, and specializes in valuation of assets. He does a great job of distinguishing between valuation vs. pricing. He also does a great job of reiterating the value of index funds.

At the risk of sounding like an Econ 001 student challenging Warren Buffett's investment allocation, Damodaran did raise one thing I disagreed with: He believes that international exposure deserves a share of an investing portfolio just as Large Cap, Small Cap, Growth, Value, etc. sectors do.

I disagree. Not because of the 20 years of underperformance Global funds have generated, but because the demographics of too many established non-US economies are so bad -- Germany, China and Russia are in deep trouble and not fixable anytime soon, if ever. Britain and France would be except they still have decent immigration from former colonies -- which is causing internal political problems in both countries. If you believe that demography is destiny, all of those are major red flags.

Other less established economies have better demographics, but their political situations are often a mess, and too many of them are effectively governed by a mob boss.

As opposed to the US. Whose demographic problem does exist but is (1) nowhere near as severe as the other countries I named, and (2) is a lot more solvable due to the relationship with Mexico, whose demographics are awesome.

I do believe there will be a fair amount of economic upheaval in the next few years. And I believe that the US is uniquely positioned to benefit....after the dust settles. I also believe that the largest US companies are inherently global, and that there is effective international diversification in holding their stocks -- which you do in a US Index Fund.

All that to say I don't think international stock funds are the place for the Basket Case household.

Regardless of whether you agree or disagree, I truly think you'll find the above podcast time well spent.

Thank you for the link. I agree that International stocks have disappointed for decades. I just sold a Matthews Asia fund that I held for over twenty years due to the headwinds it faces from the Chinese economy. It was a five star fund when purchased but the ratings have declined over time. The problem with international investing has been that they are so heavily influenced by the US and Chinese economies. When the large economies sneeze global stock markets catch a cold.

 

[DzynKingRTR]

Fubotv stock shot up yesterday. too bad I don't have it.

 

[BamaNation]

Fubotv stock shot up yesterday. too bad I don't have it.

If you have a total market index, you have it

 

[DzynKingRTR]

If you have a total market index, you have it

then I guess I do have it

 

[Bamaro]

New year so Series I bonds are available again. Currently 3.11%

 

[BamaNation]

Morningstar's Christine Benz ...
Here’s how to figure out how big your emergency fund should be and how you should invest it.
paywall: https://www.morningstar.com/personal-finance/how-set-invest-your-emergency-fund

Summary: Ideally 3-6 months of monthly expenses saved in an accessible account to pay for things in emergencies or when you have a temporary loss of income. But when you're trying to get finances in order, that target may seem impossible. Really do need these savings in emergency to pay for housing, insurance, utilities, and food (and maybe gas/car pmt). [Also, could be used for unexpected expenses (medical, HVAC, car repairs, etc.] So, where to start?

1. Determine monthly expenses. Dont include things you could live without in an emergency situation (cable, clothing purchases, restaurants, etc). Multiply by 3.
2. Determine how much you have right now. sum up all your holdings including checking/savings, investments, CDs. Exclude anything you've already earmarked for other expenses; exclude cash holdings in investments. Remainder is current emergency fund.
3. Set your emergency fund target. Subtract #2 from #1. This is your target EF. Should be at least double monthly expenses or more. Gap is how much you need to save at minimum. Set money aside each month until you hit that target.
4. Where to put it? High-yield savings, CDs, money market accounts. Liquidity matters because you'll want to be able to access it in an emergency.
5. Customize as needed

It is possible that you can pay for most emergencies with a credit card (because getting access to some funds (CDs, High-yield savings, etc.) might take a few days and then use those funds to immediately pay off charges.

The whole idea is to try to not go into debt when emergencies happen. Building up over time takes a disciplined approach and controlling unnecessary spending when an emergency occurs.

 

[BhamToTexas]

Morningstar's Christine Benz ...
Here’s how to figure out how big your emergency fund should be and how you should invest it.
paywall: https://www.morningstar.com/personal-finance/how-set-invest-your-emergency-fund

Summary: Ideally 3-6 months of monthly expenses saved in an accessible account to pay for things in emergencies or when you have a temporary loss of income. But when you're trying to get finances in order, that target may seem impossible. Really do need these savings in emergency to pay for housing, insurance, utilities, and food (and maybe gas/car pmt). [Also, could be used for unexpected expenses (medical, HVAC, car repairs, etc.] So, where to start?

1. Determine monthly expenses. Dont include things you could live without in an emergency situation (cable, clothing purchases, restaurants, etc). Multiply by 3.
2. Determine how much you have right now. sum up all your holdings including checking/savings, investments, CDs. Exclude anything you've already earmarked for other expenses; exclude cash holdings in investments. Remainder is current emergency fund.
3. Set your emergency fund target. Subtract #2 from #1. This is your target EF. Should be at least double monthly expenses or more. Gap is how much you need to save at minimum. Set money aside each month until you hit that target.
4. Where to put it? High-yield savings, CDs, money market accounts. Liquidity matters because you'll want to be able to access it in an emergency.
5. Customize as needed

It is possible that you can pay for most emergencies with a credit card (because getting access to some funds (CDs, High-yield savings, etc.) might take a few days and then use those funds to immediately pay off charges.

The whole idea is to try to not go into debt when emergencies happen. Building up over time takes a disciplined approach and controlling unnecessary spending when an emergency occurs.

I was adamant that my wife and I do this early in our marriage even when we didn't have much at all. That emergency fund (at different values) has been there now for 20+ years. The math is one thing, but I do not think you can put into words the financial peace that it brings to you and your spouse, your marriage, the decisions you make, etc.

 

[Bazza]

I realize that there are many who are opposed to having extra cash on hand for emergencies, as mentioned above, due to no return/interest. And it will be different for everyone.

The next most available place that still works for quick access - high yield savings account ?

Thanks!

 

[Bazza]

New year so Series I bonds are available again. Currently 3.11%

Why not a T-bill instead? Aren't they north of 4%?

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_bill_rates&field_tdr_date_value=2025

 

[BamaNation]

I realize that there are many who are opposed to having extra cash on hand for emergencies, as mentioned above, due to no return/interest. And it will be different for everyone.

The next most available place that still works for quick access - high yield savings account ?

Thanks!

Ally savings is 3.8% now. CIT bank is 4.35% . There are others in this range of 3.5-4.4. Most are online-only. Many have gimmicks so pay attention.

We use Ally exclusively for HY savings because, IMHO, it's the easiest to work with and most reliable (again, IMHO).
Can transfer funds from / to in 1 business day.

T-bills don't have the same inflation-protection as iBonds. iBonds are limited to $10K/ year per person. So there are some differences. Also, the treasury website was built in 1855 and still looks/acts like it

There are also differing tax treatments for interest and when it is paid for different treasury options, so again, pay attention. That 4.5% may actually be a 3.2% tax equivalent after you pay taxes. iBonds can pay interest when you withdraw which - if you do so when you retire or have lower income - will probably have lower tax.

Finally, Vanguard's Federal Money Market (VMFXX) is 5.23% yield today. So, if you have vanguard, extra cash there is earning at a high rate right now. It will have a monthly interest payment that you'll pay taxes on and is a money market fund so like all money market accts, there is that kind of risk that is not protected by the good faith and credit of the good ol' USA gov't and there could be limits on how much you can withdraw in a 2008-like crisis.

All of these are good options depending on your hold time, access needs, tax bracket, etc. Also pay attention to expense ratios, too.

 

[BamaNation]

I'll also extend my remarks on the emergency fund.

Everybody has to figure out what your own risk and risk tolerance is.

If you have a stable, gov't type job, you're less likely to be laid off or fired tomorrow so your need for, say, saving "six months of expenses in liquid assets" might be less than a software developer or salesperson with a high salary but s/he's in a high-risk-for-getting-laid-off career. Gauge that and save appropriately. Emergency savings shouldn't mean no return. Plenty of safe, available, easily accessible, decent return options out there.

One guideline that isn't a bad idea for salaries under, say, 120K ... for every 10K of salary, expect it will take you 1 month to find an equivalent job if you're laid off, and, thus, need 1 month of expenses for every 10K in salary, saved in an emergency fund. YMMV on this, but it's a starting point (and maybe a corollary to Benz's suggestions).

Also... Three things to avoid: guaranteed returns, get rich quick schemes, and variable universal life insurance

 

[Bamaro]

I'll also extend my remarks on the emergency fund.

Everybody has to figure out what your own risk and risk tolerance is.

Also... Three things to avoid: guaranteed returns, get rich quick schemes, and variable universal life insurance

Are you referring to CDs? Right now 3 & 4 month CDs are paying in the 3.5 - 5% range and govt. insured for.

 

[BamaNation]

Are you referring to CDs? Right now 3 & 4 month CDs are paying in the 3.5 - 5% range and govt. insured for.

No - I'm referring to get-rich-quick schemes and the like where the "broker" guarantees you a return.

Also, as an aside one can check https://www.bankrate.com/ for the latest daily rates on HYSA, checking, CDs, HELOCs, Loans, etc. I advise staying away from financial institutions you''ve not ever heard of and away from chasing returns. It's usually not worth the hassle to switch accounts for less than 0.5% and maybe even 1% differences because if there's that much difference between that rate and, say, Ally, CIT Bank, or Marcus, there's usually a gimmick (or obscure requirement) that makes it a hassle.

 

[Bamaro]

No - I'm referring to get-rich-quick schemes and the like where the "broker" guarantees you a return.

Also, as an aside one can check https://www.bankrate.com/ for the latest daily rates on HYSA, checking, CDs, HELOCs, Loans, etc. I advise staying away from financial institutions you''ve not ever heard of and away from chasing returns. It's usually not worth the hassle to switch accounts for less than 0.5% and maybe even 1% differences because if there's that much difference between that rate and, say, Ally, CIT Bank, or Marcus, there's usually a gimmick (or obscure requirement) that makes it a hassle.

I would add Synchrony and Discover Bank (the CC company) to that list of reliable financial organizations continually paying (not intro offers) good rates and being government insurred.

 

[4Q Basket Case]

BamaNation is absolutely right. Just one example of what he's talking about: A lot of high-yielding CDs are now callable.

That means the issuer can pay you back at any time up to maturity -- and the only circumstances under which they'd do that are if rates fall materially.

They still have to pay you all your principal, plus the promised interest rate up to the date they call the CD. Then you're left to reinvest the money at the now-lower prevailing interest rates.

IOW, they shift the burden of interest rate risk to you.

Here's how that works: If rates go up, they have your money for cheap and won't call the CD. At maturity you get your principal back, plus the originally-promised interest.

But if rates go down, you get the principal back plus the promised interest rate. However, that promised interest rate is paid only through the date the CD is called. Note that as a practical matter, the decline has to be steep enough to make the administrative hassle of calling worth their time and effort.

Greatly Simplified Example: You buy a $10,000 callable CD paying 5%. Maturity is a year from now.

Scenario 1: Subsequent to your purchase, rates go to 8%. The issuer has your money for 5%, but the new market rate is 8%. They're not calling that CD. They'll pay you your principal, plus the originally promised $500 interest at maturity, thank you very much.

Scenario 2: Six months after your original purchase, rates go to 2.5%. The issuer can pay you 5% or pay the new market of 2.5%. So they call your CD. They pay you your $10,000 principal, plus $250 in interest (5% per annum, pro-rated for 6 months). You now have to invest your $10,250 at the new lower interest rates.

Doesn't necessarily mean that callable CDs are a bad deal. Just that you need to understand what you're buying and be aware of what could happen. Caveat emptor.

 

[Bamaro]

BamaNation is absolutely right. Just one example of what he's talking about: A lot of high-yielding CDs are now callable.

That means the issuer can pay you back at any time up to maturity -- and the only circumstances under which they'd do that are if rates fall materially.

They still have to pay you all your principal, plus the promised interest rate up to the date they call the CD. Then you're left to reinvest the money at the now-lower prevailing interest rates.

IOW, they shift the burden of interest rate risk to you.

Here's how that works: If rates go up, they have your money for cheap and won't call the CD. At maturity you get your principal back, plus the originally-promised interest.

But if rates go down, you get the principal back plus the promised interest rate. However, that promised interest rate is paid only through the date the CD is called. Note that as a practical matter, the decline has to be steep enough to make the administrative hassle of calling worth their time and effort.

Greatly Simplified Example: You buy a $10,000 callable CD paying 5%. Maturity is a year from now.

Scenario 1: Subsequent to your purchase, rates go to 8%. The issuer has your money for 5%, but the new market rate is 8%. They're not calling that CD. They'll pay you your principal, plus the originally promised $500 interest at maturity, thank you very much.

Scenario 2: Six months after your original purchase, rates go to 2.5%. The issuer can pay you 5% or pay the new market of 2.5%. So they call your CD. They pay you your $10,000 principal, plus $250 in interest (5% per annum, pro-rated for 6 months). You now have to invest your $10,250 at the new lower interest rates.

Doesn't necessarily mean that callable CDs are a bad deal. Just that you need to understand what you're buying and be aware of what could happen. Caveat emptor.

AKA, bait and switch

 

[4Q Basket Case]

AKA, bait and switch

Not really. Callable CDs typically pay a higher initial rate than non-callable ones. And the terms are fully disclosed. So the buyer does get something in exchange for shouldering the interest rate risk, and should be (key words) fully informed of that.

IOW, buyers get paid for the risk and have everything they need to assess whether the higher rate offsets the risk of callability.

It's just that, to paraphrase Simon & Garfunkel, too many people hear what they want to hear (the higher rate) and disregard the rest (the callable feature).