Financial Update – Aug 2021

Another month, another update. A few random comments.

 

Good Reads/Listens/Watches

• Season 7 of Alone on Netflix (link).
  • I’ve only seen about half the seasons of Alone, but this was by far my favorite.
  • Unlike prior seasons, in which the objective was to be the last person standing, the objective this season was to last 100 days in the arctic (starting in late fall).
• Mr Clipping Chains started a podcast (link).
  • It is enjoyable. 
  • In his most recent episode, Mr CC discusses recent changes to the ACA (e.g. the removal of 400% subsidy cliff) and his experience getting on a bronze plan for less than $0 (after incentives).
    • $9.39 monthly insurance premium – $40 monthly gift card incentive = negative $30.64/month in net insurance costs.

 

Life

• I backpacked 70 miles.
  • 30 miles in Wind Rivers, WY (Titcomb Basin).
    • Two days, one night.
    • Saw an adolescent black bear. As per usual, my frugal brother recorded the incident. I should probably post it to YouTube.
  • 40 miles in the Sawtooths, ID.
    • Four days, three nights.
    • No bears.
    • My first time there. It was not ugly.
• 7-year-old FC5 decided to do Mutton Bustin at the county fair. That is, he strapped on a helmet, grabbed on for dear life, and rode a sheep until he fell off.
  • Good times. We are embracing our Midwest roots.
  • Somewhat relatedly, we went to a rodeo and a demolition derby as well.
    • Some families try to instill an appreciation of high-culture by taking their kids to the ballet or the symphony. We attempt to do so by strapping our children to sheep and taking them to demolition derbies….
• The kids are back in school. Life got busy in a hurry.
  • FC1 started high school. Weird. It’s hard to believe that she’ll be gone in 4 years.
• I have enjoyed serving on my university’s retirement plan committee.
  • I’m amazed at the prevalence of bad investing advice, even from supposed “expert” consultants who we are paying to guide us.
    • Our consultants recommended the inclusion of many high-cost active funds to our menu. Conveniently (and coincidentally), to manage such a complex menu of actively managed funds, our university would need to continue to pay these consultants on an ongoing basis to monitor and remove underperforming funds (i.e. a subset of funds that they had previously deemed as exemplary a few months prior).
      • Hand-picking actively managed funds is a losing battle. It is high time that all employers get out of the business of adding such high-cost funds to 401k menus that will almost inevitably underperform their passive benchmarks (particularly over long horizons).
  • By my calculations, we can save university employees $10M/year in fees by offering a simple, passive-only menu (with the option for employees to deviate from the menu via the brokerage window).
    • There is something really satisfying about doing things that have meaningful real-life outcomes.

FC1 showing FC3 the ropes on his new saxophone.

 

Demolition derby. Still not sure if it was money well spent.

 

A moment from FC5’s chaotic and short-lived Mutton Bustin’ attempt.

 

FC5 thoroughly enjoying his Mutton Bustin’ participation medal.

 

Milking a cow at the county fair.

 

Titcomb Basin, WY.

 

Just a bit shy of Hobbs Lake, WY (GPS coordinates). The four gals were having a nice picnic lunch by a little pond, but an adolescent black bear was hell-bent on raiding their (attended) packs for food. The bear was undeterred by our yelling. Only after one of the gals deployed bear spray did it go away. The lingering bear spray burned our lungs a bit. If not for the spray, at least one pack would have been destroyed.

 

A Pinedale resident with a sense of humor out on a stroll with his horses. Perhaps this is how I will spend my retired years. For the curious, the blow up doll was an ardent Trump supporter (she wore a Trump scarf, etc.).

 

22-year reunion of six undergrad roommates who first met in fall of 1999. Fun times. The highlight of the Sawtooths was an impromptu hacky sack session in which we used my pair of Kirkland Signature wool socks (wrapped lightly in duct tape to prevent unravelling). We spent about an hour trying to reach our goal of 20, never coming particularly close. Miraculously, we finally got to 30. I wish I had it on video. It was glorious. If you are not impressed by the marvelousness of this event, I suggest that you replicate it.

 

View near our first campsite. Alice Lake, ID.

 

Twin Lakes, ID.

 

Imogene Lake, ID. Our third campsite. The water was cold.

 

Yellow Belly Lake, ID. Minutes after snapping this photo, we made the decision to abort on the 5th day (and fourth night). On our way back to the trailhead, a massive storm blew in. The decision to abort was the right one.

 

 

This Month’s Finances

Our $12k HVAC repair from Aug 2020 fell off our rolling 12-month expenditure window, causing our calculated 12-month rolling expenditures to drop precipitously. A result is that our last twelve months of spending fell below a 4% Safe Withdrawal Rate (SWR) of our investments for the first time ever.

I still think it’s reasonable goal to get our spending to $45k/year for non-healthcare expenditures. I suppose if I deducted our credit card rewards from our computed spending levels, we’d be close to that point already. After tracking our spending religiously for the past 5 years, I believe the following is a reasonable monthly budget for our family of seven:

• $1.5k/month on “food” (where “food” is broadly defined as anything we buy at Costco)
• $1.5k/month on housing (mostly property tax; excluding mortgage principal)
• $1k-$1.5k/month on all remaining non-healthcare stuff (including cars)
• ????/month on healthcare (dependent on injuries, etc.)

This puts our comfortable household budget near 138% of FPL.

• The good:
  • Still employed.
• The bad/abnormal:
  • $4,313 property tax payment.
    • This will go up 9% next year to $9,500/year.
  • $448 for used saxophone ($260 for used saxophone for FC3 and $188 to tune it up).
    • Visiting a music store is a lot like visiting a veterinarian; you drop off your thing without any idea what the visit might cost. Then you pick up your thing a few hours later and pay the ransom.
  • $419 in health & dental payments.
    • Mercifully, we’ve now hit our $7,100 OOP max for the year, though surely there will be a few lingering bills straggling in over the next few weeks.
  • $95 annual fee for Chase Sapphire Preferred card #2.
    • Luckily we got the 100k bonus (not yet redeemed) to offset this fee. It is (generally) absurd to pay for a credit card when there are so many free alternatives.
  • $50 demolition derby.

 

Decomposition of our 2021 healthcare spending to arrive to the $7,100 out of pocket (OOP) max. The $4,479.43 of “Free Money” is a result of manufacturer coupons for drugs purchased during the year. Like most things in life, I never would have realized the above without digging into the underlying math. Incidentally, Mrs FP was recently prescribed a new drug that has a manufacturer’s coupon that will make the above even more lucrative next year. This single google query (and location of the associated drug coupon) will save us in excess of $2,500 next year for that single drug alone. These manufacturer coupons seem to be easier to come by for newly released brand-name drugs that the manufacturer is trying to promote. The gimmick, I suppose, is that the drug manufacturer subsidizes your deductible until you hit it, after which they are free to charge insanely high prices to your insurer/employer once you are no longer price sensitive.

 

  Full version downloadable here (link).

 

Footnotes:

1. Fidelity unambiguously has the best HSA on the market. $0 admin fees + $0 expense ratio funds.
2. I lazily approximate home value as my historical purchase price.
3. I have a 15Y mortgage which results in much larger principal payments than a 30Y mortgage. Since principal payments are simply transfers from one pocket (assets) to another (debt reduction), I treat such cash flows as savings.
4. ~$0 cell phones described here.
5. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, medicine, toys, etc).
6. Nobody knows the perfect asset allocation. Just pick one and run with it. Use a target date retirement fund as a benchmark if you want some guidance (link). If you prefer to DIY (as I do), then a three-fund portfolio is great (link).
7. My low portfolio expense ratio is the primary reason why I don’t hold target-date funds, which have expense ratios anywhere from 0.16% to 1%. I can achieve a much lower expense ratio on my own due to Admiral shares, etc. And it’s not hard. Plus, a DIY portfolio allows one to tax-loss-harvest more easily.
8. ETF’s are slightly more annoying to hold relative to index funds. With ETF’s, you must deal with bid-ask spreads as well as the inability to buy partial shares (Fidelity now offers fractional shares). With a simple index fund, you don’t have to deal with either of these issues. Bogleheads discussion here (link).
9. I continue to own VTSAX rather than FZROX and in my taxable brokerage account because it is more tax efficient due to lower capital gains distributions. Bogleheads discussion here (link).
10. The one blight in my expense ratio analysis is my 529 plan. The underlying Vanguard fund is almost free to hold (0.02%), but the high administrative fees bring the total cost of holding the fund to 0.29%. I abhor fees and would likely avoid 529 plans if I didn’t get to deduct up to $10k of contributions per year on my state return, saving myself $700/year in state income taxes.
11. CA’s 529 plan has the lowest expense ratio US equity index fund of any in the US (link). I’d have 100% of my money here if not for the state tax deduction I receive in my own state.
12. I own one share of Berkshire Hathaway (B Class) for the sole purpose of getting 4 free tickets/year to Berkshire’s annual meeting.
13. I bought 100 shares MoviePass for $0.0127/share to be able to tell my students that I held a stock that went to zero. So far, the stock price stubbornly remains above zero.

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