Investment discussion

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Re: Investment discussion

Postby cmsellers » Fri Aug 07, 2020 4:06 pm

The stock market is incredibly volatile right now. I'm invested solely in stock index funds in my IRA and diversified internationally yet I've gone from being up as much as you are, to down about the same amount, to up again, to down again, to up again. I've watched as my Indian ETFs went from losing me money, to being one of the only ETFs that hadn't lost money, to being middle-of-the pack.

I haven't been watching my 401k, which is less diversified due to fewer options, but I imagine it's a similar story, except that I started that a few months earlier, near the trough of the crash, and consequently I don't think I've ever been in the red there.
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Re: Investment discussion

Postby jbobsully11 » Sun Aug 09, 2020 4:34 am

A question of debt reduction vs. retirement savings:

To get rid of my student loans faster, I’ve been putting ~$220 extra per month toward one loan (based on what started as a mix of the weighted averages of the interest rate and principal, and trying to figure out how much more I’d need to pay to get rid of each loan by December of next year; it then evolved a bit when I started factoring in how much greater each minimum payment was than the monthly accrued interest) (no, you’re obsessive).

For anyone who cares, here's the most current information about the loan I'm attacking:
Spoiler: show
Principal: $3300.17 (originally $5,000)
Interest rate: 7% variable (formerly higher)
Minimum payment: $50 (originally much higher)
Current "expected" payoff date: March 2029 (I figure it's between August and December 2021 with my current plan)


I was putting $130/month in my Roth IRA, but as I've mentioned, I suspended those contributions a little while ago.

The reason why I bring all of this up: Should I cut down on the extra money I’ve been paying toward debt in favor of investing for retirement, or not (or do some kind of hybrid thing)? I know the benefits of compounded returns over decades, but I also know the more immediate ass-kicking of paying interest, and I would like some more breathing room in my budget. Especially since (in the short term) the money saved by not paying a loan is less volatile than the stock market.
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Crimson847 wrote:In other words, transgender-friendly privacy laws don't molest people, people molest people.

(Presumably, the only way to stop a bad guy with a transgender-friendly privacy law is a good guy with a transgender-friendly privacy law, and thus transgender-friendly privacy law rights need to be enshrined in the Constitution as well)
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Re: Investment discussion

Postby cmsellers » Sun Aug 09, 2020 7:39 am

I've heard that generally the rule-of-thumb is that if your debt has an interest rate greater than about 4%, you want to pay it off. The stock market averages about 7%, but I'm guessing 3% of that is the price of the risk you're taking on, so the risk-adjusted returns of paying of debt above that is greater. Your interests rates are on the high end for student loans, so I would absolutely focus on paying that off.

Now, Roth IRA contributions are capped at $6k/yr and you can't make them up, so, and a Roth IRA gives you a lot of flexibility, so if you'd max out your contributions when you've paid off your loans, I'd say to take that into account. But it doesn't sound like you'll come close to hitting the cap for awhile anyways.

Either way, $130/mo is low, especially for an engineer. I don't know what your financial situation is, or if you're saving in emergency funds and such (I've been good about saving for retirement but less good about not touching money sitting in my bank account, so I'm one to talk), but if you have somewhat flexible discretionary spending, I'd mention that a good rule of thumb is to budget for savings.
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Re: Investment discussion

Postby jbobsully11 » Sun Aug 09, 2020 11:21 am

cmsellers wrote:Either way, $130/mo is low, especially for an engineer. I don't know what your financial situation is, or if you're saving in emergency funds and such (I've been good about saving for retirement but less good about not touching money sitting in my bank account, so I'm one to talk), but if you have somewhat flexible discretionary spending, I'd mention that a good rule of thumb is to budget for savings.

How about for an overqualified temporary glue/wax monkey ("general production worker") making $15/hour with no OT (which could go up if I stay a few more months) and overpaying taxes because the new W-4 is really weird about federal withholding? (Speaking of which, I've been making plans for what I'll do with my refund next January.)

*pulls out budget spreadsheet, runs some depressing numbers* Anyway, $130/month is just over 6.8% of my monthly net pay, assuming 160 hours per month (four 40-hour weeks). My private student loans are over 35%, my federal loans will be almost 26% when they restart (actually less, because I think I'll be permanent by then), and my car payments/insurance are around 21.5% (after refinancing). I live at home and hardly ever go anywhere or do anything (true even pre-COVID), so my other expenses are close to $0, and I have a few hundred dollars in the bank. Pretty much all conventional wisdom would have been screaming at me to make better financial decisions since the late '00s me either save more money in the bank or pay down the debt first. I'm just not sure what the stock market is likely to do in that time.

And as I briefly mentioned ("some kind of hybrid thing"), I could put some money toward retirement each month and reduce the extra student loan payment by that much. Or put less in the bank for emergencies, but I'm really not thrilled with that idea.
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Crimson847 wrote:In other words, transgender-friendly privacy laws don't molest people, people molest people.

(Presumably, the only way to stop a bad guy with a transgender-friendly privacy law is a good guy with a transgender-friendly privacy law, and thus transgender-friendly privacy law rights need to be enshrined in the Constitution as well)
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Re: Investment discussion

Postby cmsellers » Sun Aug 09, 2020 4:22 pm

Holy fuck, I'm sorry, sully. That sucks. I knew your working situation sucked, but I thought you were still an engineer and paid accordingly. I wish I could introduce you to all those "major in STEM and you can write your own ticket" people.

It sounds like the paradox of still living with your parents is that you'd need quite a substantial jump in income to make moving to a better job market profitable. And of course now's neither a good time to move nor look for a good job. It probably won't make you feel better to know that a lot of people in our generation are still in the same boat. Some media outlet called us "the unluckiest generation in American history."

Any rate, as to your questions: the stock market is unpredictable. The more volatile an asset, the higher its returns should be to compensate for the risk, hence the idea of risk-adjusted returns. The stock market averages around 7%, but a huge chunk of the time is below 0% or above 14%. The rule of thumb I've heard for debt is "keep it below 4%, pay it off above that" (not sure where 4% itself falls), so I'd prioritize that.

Conventional wisdom is to prioritize an emergency fund above everything else financial except getting the company 401k match (which I'm guessing you don't have either), but I haven't been doing that because A. I've been able to cover every emergency that's come up (though four emergencies in five months is part of why I don't have much of an emergency fund yet), B. my credit is such that I can open a credit card with 0% for one year, and C. I'm putting money into my IRA and 401k as Roth, which in the most dire emergencies, I can withdraw the principal without penalty.

I know that A. & C. aren't true for you, but is your credit good enough that you could open a new credit card with zero interest for a year or more? If so, I'd say don't bother with an emergency fund yet: focus on getting that debt down.
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Re: Investment discussion

Postby jbobsully11 » Sun Aug 09, 2020 5:04 pm

Yeah, I should’ve gotten a two-year degree first, then a job related to that for a year, and then a bachelors degree, to satisfy all the companies that have told me I need experience to get experience. If I made anywhere near what an engineer makes, I’d be almost out of debt by now. Oh well.

I suspect the 4% “rule” is average stock returns minus inflation, or something like that. I would think a better rule is, if you have an emergency fund (or a decent amount of credit), pay down any debt that has a higher interest rate than you can earn elsewhere. It’s around this time that a small voice inside my head whispers, “but the future...”

That’s the one thing I have: credit cards with fairly high limits (three between $2,500-8,000, and a fourth at $500) for emergencies, though they aren’t zero interest anymore (well, one is until September). So my emergency fund is basically covered.
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Crimson847 wrote:In other words, transgender-friendly privacy laws don't molest people, people molest people.

(Presumably, the only way to stop a bad guy with a transgender-friendly privacy law is a good guy with a transgender-friendly privacy law, and thus transgender-friendly privacy law rights need to be enshrined in the Constitution as well)
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Re: Investment discussion

Postby cmsellers » Sun Aug 09, 2020 5:31 pm

So, the actual average return for the S&P 500 is 10%, and inflation averages 2%, meaning the inflation-adjusted return is 8%. S&P 500 is large-cap, so the whole market would be a little bit higher, at the cost of more volatility, and similarly if you "overweight small-cap and/or value stocks. Not sure where the "7%" number I always hear comes from.

I think historically, US treasury bonds have averaged 3-3.5%, so that's probably where the rule comes from, Treasury bonds being seen as a completely "safe" investment, and paying off debt is a safe "investment." However right now, Treasury bonds are performing terribly.

Keep in mind that inflation also applies to your debt. So your 7% student debt is 5% adjusted for inflation, which is still high. Financially, paying off debt at a 7% interest rate is exactly the same as a guaranteed 7% return, and you won't find that anywhere else. So ignore that voice; paying off those loans is the smart financial decision to set yourself up for the future.
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Re: Investment discussion

Postby jbobsully11 » Sun Aug 09, 2020 6:24 pm

7% might be a more conservative estimate for the difference; say, if the stock market has a long run of relatively shit performance (or if you retire during a crash), or if inflation is unusually high for a time. I had heard for a long time that inflation was estimated at 3%/year, but I guess the 1970s (~3-13.5%/year according to this inflation calculator) are far away enough that they don't really count anymore.
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Crimson847 wrote:In other words, transgender-friendly privacy laws don't molest people, people molest people.

(Presumably, the only way to stop a bad guy with a transgender-friendly privacy law is a good guy with a transgender-friendly privacy law, and thus transgender-friendly privacy law rights need to be enshrined in the Constitution as well)
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Re: Investment discussion

Postby cmsellers » Mon Aug 10, 2020 6:48 am

Oh, I realized what it could be!

Typically, performance of assets by people who do evidence-based investing is presented as an annualized return.

Consider the difference between an asset that consistently returns 10%, and one which returns -10% one year and 30% the next.

If you invested 100 in the first asset you'd have $117, while in the second asset, you'd have $121. And obviously, over time, such volatility can add up dramatically.

Taking the square root of 1.17 suggests that the average annualized return of our hypothetical asset is about 8.2%.

I imagine the formula for calculating an average annualized return is trickier, but if stock market returns follow a bell-curve around 10%, then websites the average annualized return could be more like 9%. Yet the first results on google, most aimed at a mass audience and trying to sell something, might pick the higher-sounding non-annualized average.
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Re: Investment discussion

Postby cmsellers » Fri Sep 11, 2020 11:06 pm

So, y'all probably know that checking investments you plan to hold long-term every day is not a good idea. I do it anyways. So I got to watch the latest crash this week.

This one is especially annoying because while it affected absolutely everything yesterday, it mostly affected US large-cap stocks today. So, my IRA, which is over-invested in international stocks relative to my target, is actually up slightly today. My 401k BrokerageLink account, a healthy mix of US small cap value and foreign value stocks, is almost unchanged today. But my main 401k, which is limited to a small handful of options, is down considerably.

Particularly annoying is that, because I want my BrokerageLink funds to come from my Roth contributions and not the pre-tax company match, and because you can only have up to 50% in BrokerageLink, can only autodeposit up to 50% from any one source into BrokerageLink and can only manually deposit over $1k in BrokerageLink, I've been storing the other half of my Roth contributions in the S&P 500 index fund. As of my last contribution, I was at $950. So close.

My rationale was that large cap stocks are less volatile than the stocks I actually want to invest in long-term and the expense ratio is very low, so I figured it made a decent place to hold money I was going to transfer to BrokerageLink, and because it's not something I'd normally invest in, it'll be easy to calculate how much I want to move.

Unfortunately, I've lost about $50 in assets in an asset class I don't even want to hold and wouldn't be holding if I could be investing it in small-cap value or foreign value immediately. Some of it I'd have lost anyways (like I said, everything took a hit yesterday, so I really lost an extra $15-20 on account of the dip today), but I guess that despite them having basically no return right now; I'll use bonds to hold the extra own-contribution until I can move it to the BrokerageLink account.
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Re: Investment discussion

Postby cmsellers » Wed Sep 16, 2020 4:13 pm

Most of the investments in my portfolio have been up and down, but there's one which has been consistently down by double digits. That's the Thailand ETF. Currently it's down by twelve percent and eleven dollars, which is rough where it's been since a month after I bought it.

Today, it finally hit me why.

What industry is Thailand best known for?

And what are people not doing during the 'rona?

Though, stock markets usually reflect a longer-term outlook. Maybe investors in Thailand don't expect international tourism to pick back up for some time, even when things return to normal. Maybe the expectation is that the lack of tourism now will damage a lot of small businesses, preventing the economy from returning to normal even when international leisure travel resumes.
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Re: Investment discussion

Postby Krashlia » Fri Sep 18, 2020 5:38 am

cmsellers wrote:Most of the investments in my portfolio have been up and down, but there's one which has been consistently down by double digits. That's the Thailand ETF. Currently it's down by twelve percent and eleven dollars, which is rough where it's been since a month after I bought it.

Today, it finally hit me why.

What industry is Thailand best known for?

And what are people not doing during the 'rona?


TAIWANESE-LADYBOYS

cmsellers wrote: international tourism...


Krashlia looks about nervously at the completely germane and civilized discussion about investments, realizing that his crass interruption brought down the overall sophistication of the room. He sits... then leaves awkwardly.
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Re: Investment discussion

Postby cmsellers » Tue Sep 22, 2020 3:08 pm

So, I know that the rule is not to try to time the market. And I knew that, because RBG died, it was going to be a bad idea to check my IRA.

Unfortunately, my computer froze yesterday, I had to reboot, and that led to me checking my IRA. (It was open in a tab, and when I was logged out, I clicked "log in" without thinking.)

And holy fuck! My IRA is at a loss for the first time since a month of opening it. Which makes it, IMO, a good time to time the market.

I know that with a decline of this magnitude, it's probably not just uncertainty over RBG's death. Most likely, it's investors thinking "well shit, if the GOP is gonna play hardball with this, maybe the Democrats will play hardball with all the money they've been dumping into the economy."

But I know the Democrats. Responding to GOP escalations with anything resembling a proportionate response (much less a proportionate escalation), is not something they do. Spending money, however, is something they love.

So, while the implications of RBG's death horrify me, now looks like a good time to make some money betting on the spinelessness of the United States Democratic Party
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Re: Investment discussion

Postby jbobsully11 » Tue Sep 22, 2020 10:34 pm

I put money in a total-stock index fund (SWTSX) not long ago, so ofc the market will sink like a rock. But maybe some of those stocks I put limit orders on will come through now.
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Crimson847 wrote:In other words, transgender-friendly privacy laws don't molest people, people molest people.

(Presumably, the only way to stop a bad guy with a transgender-friendly privacy law is a good guy with a transgender-friendly privacy law, and thus transgender-friendly privacy law rights need to be enshrined in the Constitution as well)
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Re: Investment discussion

Postby cmsellers » Fri Oct 09, 2020 5:12 am

cmsellers wrote:3. I had a conversation today with a fellow who has made and lost multiple fortunes in tech. I was talking about 3D printing, and how the 'rona has demonstrated a lot of new potential uses for it. He mentioned that he also expects it to do well, which is why he's invested (among other things) in a 3D printer ETF. It's so far performed rather poorly, and investing in sector ETFs is generally a bad idea, but in this case, I think it's worth investing maybe 1-1.5% of my portfolio in, because I've seen what I can do, and in researching other disruptive technologies with an eye to having perhaps 5-10% of my portfolio eventually dedicated to disruptive technology ETFs.

I don't know why I didn't think of this before, but I looked at what other ETFs the company (ARK) offers. There's six others, all of which seem like they could be promising. The problem is that the stock market growth during the 'rona has been driven by tech companies, and I think there's a lot of overvaluing going on here. It's easy in the case of Tesla, whose 300% surge I think is due for a correction. However in other cases, it's more that I think the whole tech sector in general might be overvalued.

The two most promising ETFs, I think, are the Israeli tech ETF (IZRL) and the "Genomic Revolution" ETF (ARKG). The Israeli tech one is easy. I've seen how widespread Israeli-origin tech is, and I think that Israel has a culture which will encourage this to continue, plus it hasn't gone up nearly as much as US tech stocks have. It does fall in the small-cap growth category, and globally small-cap growth stocks have done so poorly they nearly wipe out the size premium, but I'm going to gamble, without any evidence, that Israeli tech stocks will defy this pattern.

The "Genomic Revolution" one is trickier. I know biotech is supposed to be the next big thing, the problem is everybody knows that and has for years. (I'd actually looked for biotech ETFs earlier, but the ones I found seemed to be over-invested in established players, and I somehow overlooked this one.) It remained fairly flat until the rebound from the rona crash, when it basically followed the same trajectory as other US tech stocks and nearly tripled in price. So, I think it's overvalued, but I kind of want to buy in at least one share anyways, so I can see the moment it crashes and buy more. But at $70/share, that's potentially a rather high price to pay for my laziness.

The other ETFs have a combination of large size (and I think large-cap stocks have been severely overvalued since the recovery, due to the influx of new investors who only know the household names), high prices, drastic recent increases, and a high investment in specific companies I think are overvalued, so for now I'm not going to consider them. But they include a "Next Generation Internet" ETF (ARKW), a "Fintech Innovation" ETF (ARKF), an "Autonomous Technology & Robotics" ETF (ARKQ), and a general "Innovation" ETF (ARKK) which appears to cover all their investments, or at least their US investments.

I may consider investing in some of these other products in the future. All of them have outperformed tech as a whole, but it's not clear to me how much of this is due to the fact that these are growth stocks, and growth has outperformed value for the last decade, though value has outperformed growth in every 20-year period since we've started recording this stuff.
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