Financial Update Feb 2018

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • Discovered a new podcast called Millionaires Unveiled.
    • I enjoyed the episodes with Justin at Root of Good and White Coat Investor.
  • Berkshire’s 2017 letter to shareholders
    • Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.
    • By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a longterm investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would have decreased the purchasing-power of the government bond that Protégé and I sold.
    • I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.
    • It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individualsto measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.
  • We saw the Greatest Showman. Our family loved it.

Life

  • February was cold. I don’t care for freezing rain which turns the entire town into a skating rink. Months like this make me reconsider my life choices that have led me here.
    • Got to use my manplow quite a bit. One of the best investments I’ve made in a while.
    • We had a few magnificent days of sunshine between rounds of bad weather. We busted out our mini soccer goals in the back yard and had a magical time playing. We also played a round or two of frisbee golf.
  • The kids were constantly sick (littlest currently has pneumonia but seems to be doing ok).
  • Climbed a bunch at the gym. I’m really enjoying bouldering, in particular. Easy to do without a climbing partner. Really challenging.
  • My bike pedal stripped out of the crank while commuting. Got the crank replaced at the bike shop. Doing some quick math, it costs about 100X more to maintain my 2 cars than it costs to maintain my bike.
    • I’d like to get down to zero cars but that’s not entirely practical living in the midwest with 5 kids in <0 degree weather. I need to convince Mrs Frugal Professor to join me in becoming full-on biking hippies. With Costco a quarter mile away, why would we ever need to own a car again?
      • It pains my soul that people don’t carpool more often. When I drive to work, I carpool. When our girls have girl scouts we carpool with neighbors. But we always seem to be the ones instigating these carpools. Why don’t others see the maddening inefficiency of schlepping kids around town constantly? The person who can develop an app to solve the kid carpooling problem (soccer practice, boy scouts, etc) will be a millionaire and make the world a better place in the process. Nothing gives me more pain than schlepping a kid across town to an activity (a birthday party) only to find out that my neighbor down the street is doing the exact same thing.
        • And the above is why we are quitting organized activities for our kids. We quit team sports. For some reason I thought we had quit girl scouts as well but apparently I’m misinformed.
    • Circling back to the no-car thing. Within 1.8 miles we have: Costco, Library, YMCA, elementary school, middle school, high school, mall with movie theater (thanks movie pass!), Chipotle, Chick-fil-a, access to city-wide bike trail system. I need to think harder about reducing our dependence on cars, but it’s easier said than done with deplorable weather and lots of kids.
  • Mrs Frugal Professor does most of the school mentoring for our kids, with me filling in occasionally for math HW. But last night I proofread my 5th grader’s writing assignment for a reading class. I was floored at how funny and articulate she was. I attempted to fix her spelling a few times only to find out that she was right and I was wrong. And so it begins….my 11 year old daughter is now smarter than me. Mrs Frugal Professor has read out loud to our kids for what seems like hours per day for the entire life of our kids. She supplements with audiobook CDs in the car borrowed from the library (or borrowed digitally through the Overdrive app). Our 9 year old had read the entirety of the Harry Potter series on her own during kindergarten. Our oldest two are seldom seen without their noses buried in a book. Despite this, our second oldest hasn’t quite grasped the concept of a proper bookmark, and instead resorts to placing bananas, socks, or whatever is within arm’s reach to save her place in a book. We read to our kids at bedtime which makes it a multi-hour ordeal at our house. Currently, I’m reading “Holes” to my 7 year old boy, “Love, Stargirl” to my oldest daughters, and “Mysteries According to Humphrey” to my 5 year old daughter. My wife and I take turns putting the boys or girls to bed each night. She is currently reading “Lord of the Rings” to the girls and “Wonder” to my 7 year old boy (you must read this book to your kids then go see the movie (which we just watched tonight)!!!).
    • Below is the snapshot of my wife’s library account from yesterday and today. Yesterday, she had 114 books checked out. She bought her way off the naughty list today and now has 149 books checked out. I cannot fathom how many books we cycle through in a year. Probably a thousand? Granted many of these are for the littles, but many are long novels. But the annual cost to us (not including indirect fees paid through property tax) is a few bucks in late fees, which reminds me of the Good Will Hunting (one of my top three movies of all time) quote “You wasted $150,000 on an education you coulda got for $1.50 in late fees at the public library.”

Naughty list yesterday.

 

Good list today.

  • Parenting remains my biggest daily challenge by a mile. It turns out that kids are irrational and don’t always do what you want them to do. And they break my house. I don’t like irrationality, disobedience, and broken houses which puts me at odds with my kids some times….or most of the time.
    • I’m not exactly sure what the plot is of difficulty vs number of kids, but I’m guessing that it’s y = sqrt(2x-1), where y is the difficulty as measured in terms of single kids and x is the number of kids. The more kids you have, the harder it is, but it’s not linear. There are some synergies. As shown in the plot, having 5 kids is as difficult as having 3 kids individually. I’m thinking that a similar equation holds for the cost of raising kids.

This month’s finances

  • The good:
    • Stuffed another $9.25k into 403b+457.
    • Another frugal month despite the $13.60 late fee from the library.
  • The bad:
    • Bunch of doctors visits which will hit next month’s financial statement.

 

Full version is downloadable here (link).

Footnotes:

  1. Don’t lend money to friends/family.
  2. I lazily approximate home value as my historical purchase price.
  3. I have a 15Y mortgage; which results in a faster rate of repayment. The true cost of the mortgage should exclude repayment of principal, which I show above.
  4. $20 internet and $0 cell phones as described here.
  5. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, etc).
  6. I prefer Vanguard funds but my employer offers Fidelity instead.
  7. 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).
  8. 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.
  9. ETF’s are a pain to own relative to holding index funds directly. You have to deal with bid-ask spreads as well as the inability to buy partial shares. With a simple index fund, you don’t have to deal with either of these issues. I am currently invested in VTI b/c it’s $10/year cheaper than VTSAX in my Saturna HSA.
  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 0.30%. 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. The only other administrative cost not captured by my expense ratios is a $19/year administrative fee for my HSA at Saturna Capital ($15 per transaction + 4*$1/dividend reinvestment).

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6 thoughts on “Financial Update Feb 2018”

  1. That’s a pretty good month all in all Prof! I’m jealous of the location if your house. How long of a bike ride to the University?

    I wish we could be a no car family as well, but Midwest winters and little kids usually don’t make for a good combination.

    You’ve convicted me, I need to read to my kids more. We do about 30 minutes a day minimum, but in reality that should be doubled. I’ll try to work on that in March. Doesn’t your library have a limit on book checkouts? Ours is like 35 or something low.

    Reply
    • I live 7 miles away from work. However, during the school year I throw my bike on the back of my car and drive 4/5 kids to elementary school each morning, which is on the way and shaves 1.5 miles off the bike ride leaving only 5.5 miles on the bike trail. I can’t decide whether I dislike oppressive cold or oppressive heat and humidity worse.

      Regarding limit on book checkouts, it seems that it’s not an issue at our currently library. At previous libraries we probably had a 50 book limit which my wife would defeat by getting each kid their own card, allowing her to check out hundreds of books at a time. I’m frankly amazed that we don’t lose more books each year. We probably lose an average of 1 book per year.

      The reading thing is definitely my wife’s doing. I did not grow up in a book family and my literacy suffered greatly. Thank goodness my math skills bailed me out in school until I became literate in my early 20s.

      There was a time in life where we did a better job of reading together as a whole family. I have fond memories of reading “Where the Red Fern Grows” with our kids in grad school. I think I need to have a chat with my wife about doing that again.

      Reply
  2. I am curious why you fill up the 403b and governmental 457 at the same time, rather than filling the 457 first. Is it to have fewer moving parts and still get an employer match?

    Reply
    • My match is tied to my 401a. At my current employer, they don’t emphasize the need to prioritize one account over another, so I just fill them simultaneously. I think this may vary across employers?

      Holding everything equal, I suppose the 457 is more versatile than the 403b since it allows for penalty free early distributions upon leaving the employer. But the Roth IRA conversion strategy I hope to employ will make this benefit obsolete.

      Reply

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