Financial Update – Jan 2024

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Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • PBS documentary of “The Boys in the Boat” (link).
    • We took the family to see the movie in the theater. I thought the book and above documentary are better.
  • 12-minute documentary about a man who has spent 50 years as Yellowstone’s “winterkeeper” (link).
  • Rich Roll interviews Bryan Johnson, the half-billionaire trying to defeat aging through trial and error (link).
    • I think he’s crazy, but interestingly so.
    • Reminds me vaguely of the excellent nutrition book How to Not Die (link).
  • How I Built This interviews the inventor of CAPTCHAs + founder of Duolingo (link).
    • Speaking of CATPCHAs, I got an interesting one from Amazon the other day. F&*( + my wife’s initials. I would post the screenshot, but this is a family friendly operation. I couldn’t believe that there isn’t an anti-expletive filter. Can I sue Bezos for emotional trauma?
  • NYT Podcast on the production of NFL football broadcasts (link).

 

Life

  • Like much of the midwest, we were slammed with unusually bad weather in January. Our kids’ school was cancelled four times out of a stretch of six consecutive school days; it would have been more but the worst of the bad weather occurred over a 3-day weekend. With wind chill, temps dropped below -30°F for several days in a row. We got a decent amount of snow which made me grateful for my purchase of an electric snowblower at Costco a few years ago on clearance. The older I get, the more I daydream of retiring to Vegas, AZ, or FL.
  • I created a YouTube video showing how to perform a backdoor Roth contribution at Fidelity (link).
    • If you can think of another useful topic to cover, let me know.
  • My group of undergrad buddies (who I met 25 years ago in 1999) is planning a summer trip to Denali this summer. We’ll be dumped at this lake by float plane, then backpack 20 miles, then packraft 60 miles to Talkeenta.
    • All-in, the trip should cost < $2k per person, thanks to sharing expenses across the four of us:
      • Flight to Anchorage: $500
      • Float plane: $420
      • Packraft rental: $400
      • Packrafting course: $225
      • Shuttle from Talkeenta to Anchorage: $75
      • AirBnb’s before/after hike: $250
    • This will be our 8th consecutive summer getting together:
      • 2017 Uintas, UT
      • 2018: Wind Rivers, WY
      • 2019: Wind Rivers, WY
      • 2020: Wind Rivers, WY
      • 2021: Sawtooths, ID (night-before audible because of bad weather in Winds)
      • 2022: Peru
      • 2023: Wind Rivers, WY
      • 2024: Denali, AK
  • Given the crappy weather, I reinstated my campus gym membership for $41/mo, which gives my kids a place to run around. It has been a great investment so far.

Here’s the YT video, with the video editing skills of a (novice) 10 year old.

 

 


I hadn’t played racquetball since grad school. I used to play religiously and get massacred by a 60+ year old friend. What a great sport; perhaps my favorite.


FC5 dreams of being a kicker in the NFL and bought himself this stand to practice. My longest was a 35 yarder (ball placed on the 25 yard line), which doinked off of the cross-bar and dribbled in. It’s so much harder than it looks!


Bike commute. The underpass flooded, then froze. It was unbelievably slick. Studded snow tires kept me upright. $18.00 clearance Costco ski mittens (purchased in warehouse) kept my hands warm. I am a convert to ski mittens. My first pair I’ve ever owned.

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FC1 singing in the capitol. Great acoustics in the cavernous space. I don’t understand the point of opulent government buildings paid for by taxpayers.

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The gang ice skating at a state park. We purchased a bunch (6?) of those eddie baur down jackets when they went on clearance ($15?) last year. We love them.

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After the zambonie (and before the crowds). Super fun. I love ice skating…it brings me back to my in-line skating days in the ’90s. And watching Brian Boitano in my childhood. An acquaintance just joined an adult rec hockey league; maybe I should give it a go…

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Kids got free donuts at Krispy Kreme for their report cards. Provided some calories for the ice skating which came after.

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FC4 built a snow fort while the others sledded.

blank Lots of snow-people were built this month.

This Month’s Finances

Robinhood is offering a 3% match on retirement assets. No cap on rewards. 5-year lockup period. $30k of bonus per $1M transferred. Bogleheads discussion here (link). MyMoneyBlog post here (link). For as much as I loathe Robinhood, if my assets weren’t tied up in my employer’s retirement plans I’d almost be tempted to bite.

  • The good:
    • Still employed.
    • Filled up 25% of 403b, 457, HSA, and 50% of IRAs.
  • The bad/abnormal:
    • $225 for 8-hr packrafting course in Anchorage.
    • $159 in annual vet expenses.
    • $114 for escape room experience.

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Footnotes:

  1. Fidelity unambiguously has the best HSA on the market. $0 admin fees + cheap investment options (e.g. FZROX, FZILX, FSKAX, etc).
  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, and it’s trivially easy to manage. Further, a DIY portfolio allows one to tax-loss-harvest more easily. Lastly, a DIY portfolio can help avoid the dreaded cap gains distributions caused by a fund-of-funds (e.g. Vanguard Target funds in Dec 2021).
  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 hold VTSAX in my taxable brokerage account because its tax efficiency (no cap gains distributions thanks to its patented technique).
  10. CA’s 529 plan has the lowest expense ratio US equity index fund of any in the US (link). I’d have 100% of our 529 money there if not for the state tax deduction we receive in our own state.
  11. My Collective Investment Trust (CIT) version of Vanguard’s Total Int’l Stock Index has a 0.059% expense ratio, yet produces 0.15% of “tax alpha” due to reduced foreign tax withholdings. Vanguard implemented this change around 2019. Therefore, I report the effective expense ratio of negative 0.091% for this holding (=0.059%-0.15%). The “tax alpha” shows up in the performance differential in the fact sheets here (CIT vs MF) and is more thoroughly explained here. Unfortunately, this 0.15% of “tax alpha” is not available in the mutual fund version.

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

20 thoughts on “Financial Update – Jan 2024”

  1. Thanks for the backdoor Roth info. My significant other accidentally rolled over an old 401k to a traditional IRA. My understanding is that you have to have zero in traditional IRA to make this work. In our case, is there any other remedy to start this process? What would be the penalty for converting the traditional IRA to Roth IRA now? Is it just like a Roth Conversion that I read about? ie. it would be counted as taxable income? That would be a non-starter for us (marginal tax rates too high). And how do we find out if our plan is amenable to a Mega Back Door Roth contribution?

    Second question: I see you have a Roth IRA for kids started. I should look into this… when did you start this? what type of documentation do you need for income verification for your kid? Fidelity site says it could be for “mowing lawns” — most lawn mowing operations run by kids don’t get a 1099.

    Reply

    • If you have non-zero balance in Trad IRA, you have one of two options:
      1.) Roll in the rollover Trad IRA back into a new employer’s 401k (which is what I’ve done in the past)
      2.) Convert the Trad IRA to Roth

      Option 1.) is obviously preferable if you are in a high tax bracket currently or if the Trad IRA balance is high. Option 2.) is not bad if your Trad IRA balance is low-ish and you are young-ish, since you’ll have a long time to enjoy years of future backdoor Roth contributions.

      On the kid IRA thing, my daughter started working her first W2 job in the corn fields at the age of 13 (but currently works at chick-fil-a), so that’s when we started that for her. She earned money babysitting before then, but I never wanted to deal with any audit/hassle risks associated with IRA contributions without a W2 to back it up. If there is legitimate self-employment income, I would presume it would be legit to contribute to a Roth, but it seems a bit hard to defend if questioned about it.

      For every $100 of gross she earns, she nets $92.35 after FICA taxes, but I “match” her FICA getting her back to a $100 Roth contribution. So she contributes 100% of gross. It’s a pretty good system.

      Reply

  2. You might like Peter Attia’s book Outlive as well if you enjoyed how not to die and unpacking ideas related to longevity and extending our health span

    Reply

  4. FP, thank you for the info on the Robinhood 3% award for IRA xfers if gold status. I started looking into it. One caveat is if you make withdrawals during the 5 yr period and the end balance at 5yrs is less than the amount transferred at time zero, you lose some of the award. Withdrawals include RMDs and any Roth conversions, so this could be an issue for some if xferring a regular IRA.
    If you xfer a Roth there are no RMDs. As long as you do not make w/d during the 5 yrs and/or make sure the balance at 5yrs is greater than time zero, you keep all of the award. My only question is with no w/d for 5 yrs and 5yr balance less than time zero due to poor investment performance, would part of the award be lost ?

    Reply

    • Good question. The short answer is I don’t know.

      If you post your question on Bogleheads, I’m sure you’ll get a better answer than I could give you. Sorry to punt.

      Reply

  5. No problem. I realize you said you cannot move your accounts, so no need to study. I can’t believe they are willing to pay so much. It is very tempting to xfer a fairly large Roth balance I have built up over the years with conversions from a 401k.

    Reply

    • I’d be quite tempted to bite if:
      * My $ wasn’t tied up with my employer, and
      * I didn’t need the $ for the next 5 years

      I have some residual distrust/disdain towards Robinhood, but even still I’d be tempted to bite if the above were true for me.

      Good luck!!!

      Reply

  7. Hi FP, it would be nice to hear about Mega Backdoor Roth.
    Many sources claim that retirement plans have to satisfy specific requirements for Mega Backdoor – but they don’t say what are those.
    As an academic worker, my university does offer 403b pre- and post-tax contributions. Would this be enough to have Mega Backdoor or not? Just one of the confusions/questions I have.
    Thank you!

    Reply

  8. I wish you had posted the backdoor Roth Fidelity walkthrough a couple years ago. This fills a niche knowledge gap on the Internet as I remember searching for something that walks through the actual functional steps but was unable to find one a couple years ago. Thanks!

    Reply

  10. This is great! I am glad to have stumbled upon this blog. Thank you for all the information and your thought process on various aspects of financial and investment topics. I also really like the distributions, and plots above. Is there any way that you’d be able to share the blank template that use use for these? thanks

    Reply

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