Financial Update – June 2023

Another month, another update. A few random comments.

Good Reads/Listens/Watches

• A fascinating 45-minute BBC documentary on the doomed Titan submarine, filmed many months prior to the recent disaster (link).
  • The amount of red flags documented within the first 5 minutes of this documentary is astounding.
    • For example, during the filmed expedition one of the thrusters was apparently installed backwards causing the sub to spin out of control. This anomaly was discovered at the time of launch, yet the mission was not aborted.
• Ramit Sethi interviews Mr 1500 (Carl) and his wife (link).
  • Here’s Carl’s follow-up blog post (link).
  • I certainly have some of Carl’s mentality in me. I’m working on changing my mindset.
• Ken Ilgunas, one of my favorite authors/bloggers, auditions for the TV show Alone and writes about his experience (link).
• Mrs FP and I watched the Tour De France Unchained on Netflix (link).
  • It was pretty good. Not near as good as Drive to Survive, but still enjoyable.

Life

• June flew by. I’m not sure where it went.
• I’m continuing to enjoy my new M2 Mac Mini quite a bit. That said, I loathe the neutered Excel on the device. Other than that, it has been great. If you buy it from Apple’s Educational store, you now get a $100 Apple gift card, effectively reducing the price to $500-$100=$400 (link). It is unbelievable now much computing power can be purchased for ~$400.
• Continued to settle into the old-man physical routine of disc golf, climbing, pickleball, and biking. My aging body is enjoying these relatively low-impact activities. It’s nice that they are also rather frugal and social activities.

$529.19 Costco Executive rebate, implying  $26,459.50 of Costco spend over my 12-month membership period. This was a big increase from last year’s $369 rebate check. This past year I shifted all of our pharmacy spend to Costco, which explains some of the differential. Not counted in our Costco spend is our gas & food court expenditures. We buy a bunch of Costco pizzas — at least one per week. It is basically our personal inflation hedge. As per tradition, I purchased a single bunch of bananas with the $529.19 executive check, so that I could get the remainder distributed back as cash (and thus continue to maximize the 5.25% rewards). These shenanigans augment the rebate check by about $28 dollars (=5.25%*($529.19-bananas)).

 
FC5 golfing at a local par 3 course.

Most of my kids largely loathe climbing. Somehow I convinced FC4 to join me once on the campus gym.

I’ve started regularly playing pickleball with some guys from work. The median age of pickleball players is about 65. It has been fun.

FC3 leaping in a state track championship.

 

This Month’s Finances

• The good:
  • Still employed.
• The bad/abnormal:
  • Not much bad. Pretty good month.
  • With 2023 tax-advantaged space now full, we’re transitioning once again back to taxable brokerage accounts. That said, there is a chance that my employer will enable the elusive “mega backdoor Roth,” which would be a game-changer. As shown in the below financial report, our annual dividend tax drag is roughly $1,600/yr. This dividend tax drag (+ eventual capital gain tax) could have been eliminated entirely if I’d had the Mega Backdoor Roth option from the beginning of my employment. While it might not seem like a big number, the cumulative effects of dividend + cap gains taxes are not trivial over a many-decade holding period.

Full version downloadable here (link).

 

 

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.

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