Financial Update – Feb 2020

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • Interesting 2hr PBS Frontline report on Amazon. It’s worth watching (link).
    • TL;DW – Amazon is big and powerful. Really big. Really powerful.
  • Another Econtalk episode on healthcare economics (link).
  • Fiscal health of each state in the US, published by a non-partisan think tank (link).
  • Two interviews similar to what you’d see at a Berkshire meeting. Each is 2hrs long:
    • Munger
    • Buffett
    • I’m amazed at how sharp these men remain at their age (Munger 96, Buffett 89). I look forward to hanging out with them in 2 months if the event isn’t cancelled due to Coronavirus.
  • Playing with Fire Documentary (link).
    • I snagged a Google Play promo code and rented it for $1.50 + tax after unsuccessfully convincing my library to purchase it.
    • It begins with Scott & his wife Taylor living an idyllic life in Coronado (by San Diego). Then Scott discovers FIRE, convinces his wife to reluctantly hop on board, quits his job (Taylor keeps hers since she works remotely), then move in with their parents/inlaws for 6 months to save up for a down payment, then buy a home in Bend, OR. During the transition from Coronado to Bend, Taylor became depressed. She missed her perfect Coronado life: her friends, her BMW, and the beach.
    • Thoughts:
      • They looked pretty happy in Coronado despite their meager retirement savings. They sacrificed all of that to have their Vanguard brokerage grow. As Scott mentions, watching growing numbers on a Vanguard website fails to solve all of life’s problems.
      • It’s a lot easier to pursue FI when you inherently abhor luxury since pursuing FI doesn’t introduce any meaningful sacrifices; for those who like luxury then spending less is inherently more difficult. It’s a lot easier pursuing FI if you have always lived like a (happy) poor college student, a strategy I’d recommend to anyone.
  • 1917 (link).
    • $5 Tuesday ticket at local theater with fancy pants reclining seats. Good movie.
  • 42 year-old zamboni driver called in as emergency backup and wins NHL playoff game (link).
    • This is one of the most wholesome things I’ve seen on the internet in a long time. His post-game interviews and his wife’s initial twitter reaction were priceless (both linked in comments of post).
  • Kim, the Frugal Engineer, on states that offer college scholarships (link).
  • Bill Gates on Coronavirus (link).
    • I’m continually amazed at the amount of good that Gates is achieving with his vast wealth. He’s a glaring counterexample for the need to introduce wealth taxes; Gates is a far better steward of his money than the U.S. government would be.

Life

  • I filed our federal taxes for free using FreeTaxUSA for the third year in a row. I love that site. Since I’m too cheap to pay $12.95 for the state filing, I e-filed via my state’s clunky early-1990 era website for free. It took me about 10 extra minutes to do, translating to $12.95/(10/60)=$77.7/hr on a post-tax basis or $12.95/(10/60)/(1-24%-7%)=$112.61/hr on a pre-tax basis. That’s a pretty good hourly rate.
    • In total, I was off by around $30 total (federal + state) this year. I’m considering it a tax-planning success. Most fulfilling was going through the 1040 afterwards and understanding at a deep level the significance of every single entry throughout every form.
    • For my own future reference, 94% of VTSAX’s dividends were qualified (relevant Vanguard link).
      • 100% of Vanguard’s S&P 500 index are qualified dividends vs the 94% for the total stock market index. Assuming a 2% dividend yield on both indices, this implies that VTSAX’s dividend tax drag is about 0.01% (=2% dividend yield * (100%-94% difference in qualified dividends) * (24% – 15% difference in federal taxation of qualified dividends) ). I like the diversification from VTSAX enough to bear that 0.01% return burden.
  • The IRS sent me a scary looking letter (CP2000) a few months back saying I deducted too much from an Trad IRA in 2017. I just claimed whatever FreeTaxUSA told me (we were in the phase-out region that year), but the deductibility of the Trad IRA turned out to be irrelevant since we converted the entire amount via the backdoor Roth (which completely negated the Trad deduction in the first place). I tried explaining to the IRS over the phone to no avail. I proceeded to fax the IRS a one-page memo describing why I was right and therefore owed $0 taxes. After a very slow 2-month wait, the issue was resolved. It felt good but the experience was relatively frustrating.
    • Had I not understood the tax code, I probably would have cut the gov’t a check for $550 and gone on with my life.
  • It got cold. -20°F with wind chill.
  • Unfrugal dog is slowly driving us insane. She loves to eat socks (not chew socks…but swallow socks). Her record is swallowing 6 socks + 1 dog toy + a couple hair scrunchies in a single day. We got her to puke them up with hydrogen peroxide. She has also developed an unfortunate taste for library books.
    • Completely unrelatedly, we happen to know a really nice family man that is looking to give away a perfectly behaved and fully trained 6-month old goldendoodle puppy…
  • Our 8-year-old sofa had worn to the point that it was giving Mrs FP and I back pain every time we sat on it. So naturally, we turned to Costco to replace the sofa. The back pain began last fall but Costco doesn’t begin to sell sofas until Dec 26. After patiently waiting for that date to come, we discovered Costco’s inventory this year to be a little underwhelming. However, after much deliberation we eventually decided on a $1k modular sectional. Since we are optimizers, we waited patiently several more months for the couch to go on sale. A couple weeks back our Costco received its summer inventory (have fun selling life jackets when its 20° outside!) so they were trying to clear out the furniture that’s been sitting for months. Last week they had moved the furniture away from the prime near-the-entry location to the less-than-prime middle-of-the-store location. Despite relegating the furniture to the less desirable location, the prices remained unchanged. Last Wednesday Mrs FP and I went on a date to Costco to count the remaining inventory. We counted 6 units of the sofa we wanted and reasoned that the price would have to come down for them to clear the inventory. Two days later, Mrs FP was there and saw that the price had dropped to $700, so we bought the couch. We were there the next day for free samples, and we somewhat impulsively bought a second couch for our basement for $550 (after $200 off). We almost got the damn thing stuck bringing it down to the basement. Through a miracle (and a few scrapes to the wall and lot of cussing on my end), we successfully got it down the stairs. If I ever move from this home, I’ve determined that the sofa is staying put. Consequently, I’ll be selling a $400k sofa with a free home included.

 

After a little scotch tape, surely the library won’t notice…..???

 

I biffed it about 20 minutes after taking this picture (my third crash in 15 months, two of which caused by ice and one of which caused by my own stupidity (if you don’t count biking on ice as stupid)). Aside from the occasional crash, biking in the snow is enjoyable.


-20°F with windchill. Cold.

 


A moral victory; $0 owed after CP2000 inquiry.


Impulsively purchased $550 basement couch with non-matching ottomon salvaged from our older couch. Unfinished portion of climbing wall shown to shame me into finishing it one of these decades.


Unfrugal dog thwarted from going downstairs to ingest socks thanks to newly purchased baby gate.

 

 

 

 

  This month’s finances

  • The good:
    • No catastrophes….(?)
    • We crossed the completely arbitrary milestone of $1M in net worth on Feb 4. I showed Mrs FP via our Personal Capital homepage and we gave each other an awkward high five. I contemplated celebrating with a $1.50 (+ tax) Costco hot dog but talked myself out of it because of the financial and health ramifications. It’s a good thing I didn’t do so because we proceeded to lose $100k (literally) over the past week, promptly demoting us back to the land of the “single comma club” after a couple-week stint. The silver lining is that we will now have the opportunity to celebrate joining the two comma club again. Perhaps next time I’ll throw caution to the wind and spring for the celebratory $1.50 (+ tax) Costco hot dog.
      • On a related note, FC1 joined the single-comma club this month. She was pretty excited about that. She (unfortunately?) seems to have inherited the physical pain I feel when wasting money. Not all of my kids inherited this gene.
  • The bad/abnormal:
    • $1250 for two sofas.
    • $372 in airfare for annual backpacking trip this summer (wind rivers for the third time in a row; this time to Titcomb Basin).
    • $84 YMCA membership.
    • $80 flag football registration fee for FC3.
      • After a multi-year retirement from kid sports, Mrs FP and I caved and let FC3 sign up as a special Christmas gift. Like the dog purchase, I’m unsure what possessed us to do so and continue to question whether we made a mistake.
    • $368 in medical expenses (doc visits + meds).
      • $177 for two sick-kid visits to the doc.
      • $97 for heavily subsidized tooth cleanings for 5 kids.
      • $70.38 for 30-day supply of ADHD medicine for FC4 thanks to GoodRx. If I’d used my insurance instead, it’d cost $131.21 (so GoodRx is saving us 46.3%). It seems that the drug/insurance market is broken when circumventing insurance is 46% cheaper.
        • That’s $845 a year with GoodRx. If anyone has experience procuring the drug for cheaper, I’d be interested to learn how. I can’t imagine I’m the only parent of an ADHD child with sticker shock at the price of the drug. Specifically it’s:
          • METHYLPHENIDATE ER 18 MG TAB TABLET EXTENDED RELEASE 24HR
        • Since we’re circumventing insurance using GoodRx, none of these payments count towards our deductible. Bummer.
      • $39.82 in maintenance allergy shots for two kids.
    • $75.06 for 1-year of Disney Plus
      • Mrs FP made me do it.
    • $116 for Unfrugal Dog.
      • $60.55 for dog gate + mounting hardware to close off basement (and hopefully make it harder for her to find & swallow socks).
      • $30 dog food.
      • $20 to replace chewed up library book.

 

 

Our brief stint in the two comma club lasted 2 weeks or so, with our net worth peaking at $1.02M and falling by about $100k in 7 days.

 

Full version is 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. 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.

Disclaimer: This site is for entertainment purposes only, as disclosed here: https://frugalprofessor.com/disclaimers/

17 thoughts on “Financial Update – Feb 2020”

  1. We have a basement rock climbing wall too 🙂 It was one of the main selling points when we bought this house!

    I have similar thoughts on the Playing with FIRE documentary. I read the book first and loved it, then was underwhelmed by the film. I’ve met Scott and Taylor in person and they are fun, easygoing people. That’s why I was so surprised that they fell into the SoCal BMW + Yacht Club lifestyle. I do wonder if they had just dropped the egregious spending habits, whether they’d still like to live in Coronado with their friends and the sunshine (they pointed out the weather was a big adjustment in Oregon).

    Reply
    • I’m glad to hear that I wasn’t the only one who saw a disconnect between the story portrayed in the book vs movie. I guess the movie did a lot better job of illustrating the pain than the book did.

      Reply
    • Amazon web services runs a third of the cloud. I get the sense that their retail division is pretty inconsequential in the grand scheme of things. I haen’t looked at their income statements lately, but I have a hunch that it’s the non-retail divisions driving their profitability.

      Their exponential growth has been incredible.

      Reply
    • Thanks for sharing! Interesting read.

      While I buy the arguments in the article, I really dislike the Amazon Prime interface. It’s worse than any other I’ve personally tried (Netflix, Hulu, Disney+, etc). But maybe I’m alone in loathing the interface?

      Reply
    • Thanks for the heads up! I ran the query and it came up pretty close to GoodRx, but slightly higher.

      Do you actively use both services? I’ll keep this in mind for future prescriptions. Thanks again for sharing!

      Reply
      • Your welcome! I find that the prices change daily, so each month I recheck GoodRx, RxGo.com, and do a quick google search for alternatives. I’ve found that the best coupon prices move. Also, sometimes the best pricing causes me to fill an Rx at a different pharmacy. The lengths we go through to remain financially prudent:)

        Reply
        • This is really helpful. Given the opaque nature of healthcare pricing (services + drugs), it is incredibly difficult to be a prudent consumer. Thank goodness for tools like GoodRx & RxGo.

          A few years ago I had the idea to create a tool like GoodRx, but for services (MRI, tonsillectomy, etc). I obviously never got around to doing so but have fortunately seen products like this start to emerge. My prior insurance adminsitrator, BCBS, had a great in-house tool for estimating prices that I used several times. When we had surgeries performed, it helped us identify docs that were doing so for 10% of the price of other docs. Our new administrator, UMR, does not have a great tool.

          What a crazy world in which we live. All driven by a complete breakdown of market forces that regulate all other industries, thanks to employer provided healthcare and the fact that few consumers care what healthcare actually costs.

          Reply
  2. Forgive me but out of curiosity…you are on year 4/5 of your 15 year mortgage. If you live off approximately 60k why not take the next two years and pay off mortgage, cutting out acquired interest? I’m sure you’ll say the interest you gain from investments is more than what you lose in the mortgage, BUT knowing this is a crazy pet peeve of yours AND that you are practically at 1 million mark isn’t it work the peace of mind to pay the dumb thing off?

    Reply
    • Good question.

      Mortgage interest at 2.875% doesn’t bother me too much, particulary before the Trump tax cuts when that interest was tax deductible (and thus closer to 1.5% after tax…..that’s no longer the case for us, at least).

      But I don’t pay it off because the after-tax expected return on investments is greater than 2.875%. That’s not a guarantee, of course, but on average we’ll be better off simply dumping money into the market every month (as we’ve been doing for our entire marriage).

      Plus, with 11Y remaining on our 15Y mortgage, it seems like a reasonable enough horizon for it to pay off with the minimum payments.

      Reply
      • With the caveat that this is a sample size of one (and after an incredible bull market), I did what Heather is suggesting and it might be my biggest financial regret. I was fortunate to receive company stock options that were worth a decent six-figure amount after my employer’s IPO in the mid-2000s. We funneled that money into our mortgage, due to the “guaranteed return.” (We had a newborn at the time, so all financial decisions were made in a sleep-deprived state!) If we had a do-over, I would have invested that money in the market instead. We’re still in good shape, and could probably FIRE right now if we were willing to relocate to a lower-cost-of-living area. But had that money gone into the stock market instead of the mortgage, we could FIRE tomorrow in our current area.

        Reply
        • Thanks for the reply. With the benefit of hindsight, paying off a mortgage before a 12 year bull market is indeed a mistake. However, ex-ante I don’t think you can beat yourself up over it.

          Given the returns over the last couple of days, I’m second guessing my decision to not pay off the mortgage sooner.

          The grass is always greener, I suppose!

          Reply
  3. It is! That’s why I haven’t allowed myself to actually calculate what that money would be worth today if it had been invested.

    Reply
  4. “He’s a glaring counterexample for the need to introduce wealth taxes; Gates is a far better steward of his money than the U.S. government would be.” Seriously? What about Bloomberg’s millions’ of dollars of campaign ads?

    Reply

Leave a Reply