So, you got some extra money laying around

Khane · Nov 29, 2014

Soriak_sl said:
However, there's something off more generally. A $219k loan over 5 years at 2.750% is $3,910 per month.

These are 5 year adjustable rate mortgages, not 5 year loan rates. The payoff term is still 30 years, the rate adjusts every 5 years. And I am looking to do that because I have the ability to pay off the loan in full in the next 5 years.

Also, your teaser introduction rate theory sounds illegal and is definitely not the case with these mortgages.

riptorn · Nov 29, 2014

Been with Betterment Since May this year. Looking at 2.2% .. And thats from dividends. In the red in regards to performance. Ill keep throwing money in there every month but not looking to see huge returns.

Soriak_sl · Nov 29, 2014

riptorn_sl said:
Been with Betterment Since May this year. Looking at 2.2% .. And thats from dividends. In the red in regards to performance. Ill keep throwing money in there every month but not looking to see huge returns.

I'm somewhat baffled by their value proposition. They're all about index investing, which is good, but why pay extra and not just go with a Vanguard Target Date fund?

Are they actually providing value, or are they good at making it seem like they provide value? Take, for example, the betterment front page. There, they have investments in VTI (US Total Stock Market), but then also invest separately in US Large cap, US Mid cap, and US Small cap. Not to be Captain Obvious here, but VTI is pretty much a combination of the other three... there's no reason to invest in all those 4 funds.

They are big on their ability to do tax loss harvesting (for which you need to have a decently large minimum deposit)... which I don't understand in a long-term investment portfolio. First, you actually need to have a loss -- which is not that likely over longer periods. But more importantly, suppose you buy stocks at $100k and they lose 10% of their value, so you sell at $90k. Then, you have to wait 30 days before buying the stock again in order to claim the deduction on your taxes. Let's suppose that after 30 days, the value is unchanged at $90k. Now, you make some gains and sell at $110k.

Without tax loss harvesting: bought at $100k, sold at $110k -> pay taxes on $10k
With tax loss harvesting: bought at $100k, sold at $90k, bought at $90k, sold at $110k. -> 20k gains, offset by 10k losses -> pay taxes on $10k.

What am I missing here? You can play around with the timing of when you get taxed. But as long as your income is between 37k and 405k for an individual or 74k and 460k for a married couple, your long-term capital gain tax rate is the same at 15%. If your income is below that, your long-term capital gain rate is 0 so this is a non-issue. So the only way this makes sense is if your income is above this range right now and you expect it to be less down the road, so that you can take a larger deduction than you would pay in taxes in the future. If, however, you think capital gains tax rates would increase in the future, then you would NOT want to do tax loss harvesting -- in fact, you'd want to do the opposite and pay capital gains tax sooner.

Is this like donating to charity for the tax deduction?

Aorin · Nov 30, 2014

Soriak_sl said:
Then, you have to wait 30 days before buying the stock again in order to claim the deduction on your taxes.

This part is not correct. Betterment will buy a different etf that is not "substantially identical" on the same day they sell. It looks like they would swap Vanguard Total Stock Market ETF (VTI) for either Schwab US Broad Market ETF (SCHB) or iShares Core S&P Total US Stock Market (ITOT). VTI tracks the CRSP US Total Market Index and SCHB tracks the Dow Jones U.S. Broad Stock Market Index...

Soriak_sl · Nov 30, 2014

Aorin_sl said:
This part is not correct. Betterment will buy a different etf that is not "substantially identical" on the same day they sell. It looks like they would swap Vanguard Total Stock Market ETF (VTI) for either Schwab US Broad Market ETF (SCHB) or iShares Core S&P Total US Stock Market (ITOT). VTI tracks the CRSP US Total Market Index and SCHB tracks the Dow Jones U.S. Broad Stock Market Index...

That's smart, so at least there's no risk due to the timing. I'm still confused by the idea of tax loss harvesting, though...

riptorn · Dec 2, 2014

Soriak_sl said:
I'm somewhat baffled by their value proposition. They're all about index investing, which is good, but why pay extra and not just go with a Vanguard Target Date fund?

I'm horrible at money. I see it like this: At least I get some percentage better than my savings account and the cost is pretty damn low. I was looking into doing some sharebuilder stuff, but figured I'd just up my 401k deferrals(which actually has the Vanguars Target Date Fund as part of it).

Betterment vs Sharebuilder? Perhaps I should move. I wouldn't mind seeing something better than just dividends being positive. My 401k is doing 13% this year.

Soriak_sl · Dec 2, 2014

riptorn_sl said:
I'm horrible at money. I see it like this: At least I get some percentage better than my savings account and the cost is pretty damn low. I was looking into doing some sharebuilder stuff, but figured I'd just up my 401k deferrals(which actually has the Vanguars Target Date Fund as part of it).

If you invest in the Target Date Fund and other funds, you may just want to dump everything into the Target Date Fund. That's a single investment that diversifies already and will become less risky as you get closer to retirement. If you want a slightly more aggressive investment portfolio, just pick a fund 5-10 years after you plan to retire. Diversification on top of a diversified fund doesn't actually decrease your risk exposure... the opposite is likelier to be the case.

Betterment vs Sharebuilder? Perhaps I should move. I wouldn't mind seeing something better than just dividends being positive. My 401k is doing 13% this year.

If you haven't been making any gains this year, outside of dividends, then there's definitely something wrong with that particular account. Since this is savings outside of your retirement savings, you can probably take on slightly higher risk there. Depending on your age, you may even want to go all stocks -- e.g. something along the lines of 50% VTSMX and 50% VGTSX (total US and International stock market indices).

riptorn · Dec 2, 2014

Soriak_sl said:
If you invest in the Target Date Fund and other funds, you may just want to dump everything into the Target Date Fund. That's a single investment that diversifies already and will become less risky as you get closer to retirement. If you want a slightly more aggressive investment portfolio, just pick a fund 5-10 years after you plan to retire. Diversification on top of a diversified fund doesn't actually decrease your risk exposure... the opposite is likelier to be the case.

If you haven't been making any gains this year, outside of dividends, then there's definitely something wrong with that particular account. Since this is savings outside of your retirement savings, you can probably take on slightly higher risk there. Depending on your age, you may even want to go all stocks -- e.g. something along the lines of 50% VTSMX and 50% VGTSX (total US and International stock market indices).

Fuck betterment. Just closed that shit. Down again today with the market up 100 points.

Khane · Dec 3, 2014

Not sure how you were invested but the bond funds are the culprit in my Betterment account as far as why it's down. Why pull out so fast from a long term investment account?

Blazin · Dec 3, 2014

For what it's worth I just want to beat the "pay off all debt" drum one more time. I'm 37, I came from a poor family my net worth coming out of college like all of us was negative as I borrowed to pay for my education. I have a degree in Finance and I completely understand the issues of opportunity cost of investing vs paying debt. However, life has taught me about human nature that those calculations ignore. It is difficult to place a value on being debt free, it is such an amazing wealth builder, people don't do it because for the first 10 yrs you feel poorer than the neighbor who is borrowing to support his/her life style. I have been debt free for a good number of years now and my net worth keeps climbing at a rate far beyond what I had planned out. I am a financially independent millionaire at the age of 37. I have around $300,000 in cash at any given time, I own commercial property, i have no debt, I have ample retirement and non retirement savings. I don't say that to brag but to tell you that I would unequivocally tell anyone (and I'm often asked by friends and family for financial advice) that living a debt free life style is the #1 most important thing I did.

It helps you redirect your energy towards wealth building and make better financial decisions in all aspects of your life. Have you ever met someone debt free who tells you that it sucks, and regrets having done it? I haven't.

Deathwing · Dec 3, 2014

To be fair, meeting debt free people is quite the rarity. More than likely you meet people that would like to be debt free. Paying off a 30 year mortgage early is really hard, even if you are actively doing it.

300k in cash at any moment? Why?

BrutulTM · Dec 3, 2014

I think you make a good point. There's more to being debt free than just your interest rate vs. the expected rate of return on your 401k. Buying on time distorts the value of things. If you think of a new car as $35,000 rather than just $50 a month more than your current car payment, you are a lot more likely to keep driving your old car. I payed off my last loan in about 2005. Granted it's tough to buy a house without going into debt, but for anything else pay that shit off.

Blazin · Dec 3, 2014

Deathwing_sl said:
To be fair, meeting debt free people is quite the rarity. More than likely you meet people that would like to be debt free. Paying off a 30 year mortgage early is really hard, even if you are actively doing it.

300k in cash at any moment? Why?

I'm way too conservative would be the answer. I'm making maybe 1-1.5% on that in short term AAA debt. Few years back that was an easy 3.5%. I haven't adjusted behavior at this point even with rates this low. I like to keep cash reserves because I am constantly scouring for real estate opportunities so like to keep a good chunk ready to go at a moments notice. When I do find a building I like I make a down and dirty offer with settlement as quick as humanly possible, pretty much as fast as a proper title search can be completed. People willing to sell cheaper when you dangle the money in front of them quickly with no contingency besides clear title.

Also highly highly recommend Vanguard to anyone.

Blazin · Dec 3, 2014

BrutulTM_sl said:
I think you make a good point. There's more to being debt free than just your interest rate vs. the expected rate of return on your 401k. Buying on time distorts the value of things. If you think of a new car as $35,000 rather than just $50 a month more than your current car payment, you are a lot more likely to keep driving your old car. I payed off my last loan in about 2005.

Yes that's what I was getting at. I live in a house worth maybe $275-300,000 if I was borrowing money would have likely been inclined to buy something much bigger but I'm so goal driven by being debt free that I wouldn't want the big house to screw up my plans. I love my house and no interest in a McMansion with crazy taxes that can't be paid off.

My first home was a Condo and I did a 15 yr mortgage instead of a 30 even though at the time it really hurt to do that. I paid it off in 7 yrs, took t he money from condo and some additional savings and bought my house.

Khane · Dec 3, 2014

Paying off your mortgage early shouldn't be difficult if you didn't borrow more than you should have. I have $219k left on my loan. I really wish at this point I hadn't gone with an FHA. The big saving grace for me is that it's a duplex and almost the entirety of the mortgage payment is covered by my tenants. I plan on having the loan paid off completely in 5 years. I just refinanced to a 7/1 ARM which dropped my payment over $300/mo to help facilitate that. It creates a reason for me to also pay it off early as well, since I could potentially be screwing myself if I don't pay it off.

Blazin · Dec 3, 2014

Borrowing for a house is a necessary evil not really viable option to never have a mortgage when you are first starting out. I just think too many people trust their bank when the bank tells them "you can afford X amount" . That amount is often significantly more than a person should be spending and won't leave enough wiggle room to get out from underneath the mortgage in a reasonable time frame. I don't think people should borrow money for a car though, cars are incredible wealth destroyers and I absolutely love cars but they are probably the number one bad financial choice I see people making. I use the rule of thumb of 5-10% of your current net worth in vehicles, but there are lots of people who are at 70-100% of their net worth in vehicles which is financially insane.

edit.. and to add I have made some horrible choices with cars overs the years, spending way more than I should have at the time. I get the urge to do it.

BrutulTM · Dec 3, 2014

Bankers can give you good advice, but you need to keep in mind that their incentive is to get you as far in debt as they can without breaking you. My banker for my business calls me from time to time saying "Do you need some operating money? You remember that you have that line of credit right?" and I know that a lot of farmers and ranchers run their business 100% on credit and then basically sign over their entire check over to the bank every year when they sell their crops. As a banker that is what you would like everyone to do but that doesn't mean it's what is best for them.

Blazin · Dec 3, 2014

BrutulTM_sl said:
Bankers can give you good advice, but you need to keep in mind that their incentive is to get you as far in debt as they can without breaking you. My banker for my business calls me from time to time saying "Do you need some operating money? You remember that you have that line of credit right?" and I know that a lot of farmers and ranchers run their business 100% on credit and then basically sign over their entire check over to the bank every year when they sell their crops. As a banker that is what you would like everyone to do but that doesn't mean it's what is best for them.

I let my banker a few years back convince me to borrow a few hundred grand on a commercial property, the rate was low property fully leased so I figured what the hell and did it but at the end of year I'm staring at a $7,000 paid interest on the note and said fuck that, yes I can invest the money and maybe make more or I can get a guaranteed $7k in my pocket and just pay it off. There is a property I really like that I'm looking at but it's $1.3MM and I don't have the cash to pay for it outright without selling other things and I still struggle with the decision on whether to just borrow what I need to make it happen. I doubt I will to me that just means I can't afford it right now and gives me incentive to keep saving and I'd rather do that then trying to figure out how to pay off new debt while the bank cashes my checks.

Khane · Dec 3, 2014

My betterment account rebounded pretty strong today.

By the way, if anyone is interested in trying it out you can use my referral link to get 90 free days instead of the 30 free days you'd normally get.

PM me if interested

Frenzied Wombat · Dec 4, 2014

Khane_sl said:
My betterment account rebounded pretty strong today.

By the way, if anyone is interested in trying it out you can use my referral link to get 90 free days instead of the 30 free days you'd normally get.

PM me if interested

If you don't mind me asking, what's been your 2014 YTD % return and risk profile? I've got my savings split between a managed Windhaven account at Schwab, and a managed account at Personal Capital-- both with a "medium" risk profile. The Personal Capital account has done alright with a 6% return this year, but my Windhaven account has been a dog (3% YTD, and 5% last year), so I'm looking for something else.

So, you got some extra money laying around

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