Financial Update – June 2024

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • I didn’t read/listen/watch too much this month, but on vacation we binged the first season of Welcome to Wrexham with the kids, which is basically a real-life Ted Lasso. It is a fantastic show if you aren’t offended by language. Such a beautiful and well-done documentary. We are halfway through season 2 now.

 

Life

  • We did Canada (Whistler):
    • Spent many glorious days of hiking.
      • Cheakamus Lake (link). 10/10.
      • Train Wreck (link). 8/10.
      • Crater Rim and Farside Loop (link). 10/10.
      • Lost Lake (link). 7/10.
    • Visited two different Vancouver Costcos.
      • The downtown Vancouver Costco was pretty wild. It was my first downtown Costco experience. I wasn’t a fan of paying 2 CAD / $1.46 USD for parking.
    • Consumed several Costco poutines (including an entire order consumed by myself (plus hot dog) less than 24 hours before a triathlon).
    • Completed one executive Costco membership renewal arbitrage.
      • Tax-inclusive renewal price was 126 CAD * ($0.73 USD / 1 CAD) = $91.98 USD.
      • Tax-inclusive renewal price at home = $120*1.0725= $128.70 USD.
      • Arbitrage Amount = $36.72 USD, a 28.5% discount.
      • 5.25% cash back earned on all purchases with Costco Shop cards. No foreign transaction fees.
    • Consumed two meals at the fabulously economical el Furniture Warehouse in downtown Whistler.
      • The last time Mrs FP and I visited was 7 years ago when the each item on the menu was 5 CAD. Prices have risen, but it’s still reasonably priced.
  • We did Seattle:
    • It has been 13 years since we moved away from Seattle. I’d forgotten how beautiful it is up there.
    • Went Kayaking the Puget Sound in Everett.
    • Visited old friends in Mukilteo.
    • Four of us participated in a triathlon.
      • FC1 won the women’s division of the sprint race (0.25 mile swim, 10 mile bike, and 2.6 mile run). Her childhood friend won the men’s division of the sprint race. It was her first triathlon. It was really special to see them both win. They were toddlers when their dads started the tradition of racing up there.
      • Mrs FP and FC3 also did the sprint race. It was FC3’s first and Mrs FP’s second. I was really proud of all of them.
      • My friend and I did double the sprint distance (so we swam 0.5 miles, biked 20 miles, and ran 5.2 miles). My training consisted of me running the dog and biking my normal routine. In other words, I completely neglected my swim training — I hadn’t swam more than 15 yards in over a decade (when I did my last triathlon during grad school), so I went to a nearby lake once at home to see if I still remembered how to swim. I did…sort of. During the first 100 yards of the swim portion of the triathlon, I swallowed some water, panicked, and almost tapped out by swimming to the lifeguards. Luckily, I regained my composure (and breath) while doing the elementary backstroke. The bike and run went well enough but I lost to my friend by two minutes. Darn.
      • During my run, I saw the aftermath of a horrifying and random physical assault. Two police officers were assisting the victim when I ran past her. Since I didn’t see the attack — I assumed that she was a participant in the race who had fainted/collapsed and had a bad fall onto her head — but was horrified to learn that she had been assaulted just minutes prior to me running past the scene. It’s times like these where I lose all faith in humanity.
  • We did Colorado:
    • The kids went go karting.
      • Our family has become obsessed with formula 1 thanks to the documentary Drive to Survive. My daughters follow the drivers on YouTube/Instagram. We even started a family fantasy league. It has taken on a life of its own, which is hilarious because we’re not “car people.”
    • Spent a morning of climbing with Mr Clipping Chains in Boulder.
  • We did Utah:
    • Attended a family reunion with extended family, including my 92 year old grandfather.
    • Golfed several times with FC3 & FC5.
    • Went bike riding with the Finance Buff.
    • Did three campus visits for FC1.
      • It’s interesting to see these tours from the lens of both a parent and professor.
  • Mrs FP and the girls (FC1, FC2, and FC4) did NYC.
    • They did NYC things. The children experienced NYC smells: marijuana, subway urine, etc. They saw shows. They went to the taping of a morning TV show. Pretty much the opposite of what I would like to do on vacation.

Home


A tiny bit of triathlon training on a beautiful spring day.

Seattle


Seattle is not ugly.


Meadowdale beach hike. A favorite of ours when we lived there.

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Doing the butterfly in the Puget Sound at Meadowdale Beach. I didn’t last long.

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Throwing rocks at Mukilteo beach.

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777 assembly line in Everett.

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Kayaking to Jetty Island.

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Cool decomposing ships off of Jetty Island.

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Taking a break from kayaking and wading in the shallows of Jetty Island.

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FC1 winning her triathlon.

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Post race family photo. The pacific northwest is so beautiful.

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FC1 with her childhood friend collecting their winning prizes.


Canada

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Train wreck hike.

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Suspension bridge along Crater Rim hike.

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View from suspension bridge.

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El Furniture Warehouse in downtown Whistler.

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Cheakamus Lake.

blankAt Cheakamus Lake, I fulfilled my lifelong dream of becoming a disney princess. Three butterflies landed on me at the same time. One on each foot and one on my head. Walmart Wrangler pants and Darn Tough Socks shown. Since I would rather get kicked in the crotch than pay exorbitant airline baggage fees, I didn’t have the luxury of bringing my trail-running shoes for hiking.

 

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Downtown Vancouver Costco. Apparently the secret of the Great Canadian Costco Hot Dog Arbitrage (GCCHDA) is out. This line was a disaster and certainly made me question the rationality of the pit stop.

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In both Vancouver Costcos we visited, they have standing-only tables.

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At the other Vancouver Costco we visited (not downtown), they didn’t have enough standing tables so we improvised on top of a trash can. Interestingly, I saw my first US standing table in the Bellingham Costco. I fear that the standing table trend is spreading South.

blankThe Great Canadian Costco Membership Renewal Arbitrage (GCCMRA), in all of its glory. The $36.72 savings practically paid for the entire vacation….

 

Colorado

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Fulfilling their dreams of becoming F1 drivers for the day.

 

Utah

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Y mountain, Provo. 1k feet of vert over 1 mile. Arcsin(1000/5280) = 10.9 degrees of average slope. One woman we saw on the hike was doing 6 laps that morning.

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FC3 golfing in crocs, as usual. Pretty good looking backswing, but needs to open that face a bit at the top of his swing. Despite my best efforts to steer the boys into non-golf activities, they are both addicted to it.

 

This Month’s Finances

As I eluded to in prior posts, I’m entertaining the idea of more seriously pursuing the brokerage account sign-up game. The epiphany I had this month was that with $600k of joint brokerage assets, the bonus-chasing game would be a lot more lucrative (and simpler in many respects) if Mrs FP and I could both partake as individuals rather than as a couple. Consequently, I’m planning on dividing our $600k of joint assets into two individual accounts of $300k each. Since $250k of assets seems to be a significant milestone for bonuses (e.g. $2.5k at Wells or $3k at TastyTrade), that would equal $11k in bonuses across both spouses if we simply move investments across brokerages a few times.

Some interesting discussion between me and a few Bogleheads on splitting joint accounts into two individual accounts (link 1, link2). See discussion with Matt in comments below for more context about step up in cost basis (link).

The Bogleheads forum is pretty much my favorite part of the internet.

Relatedly, reader Kacy emailed me this promo for IRA transfers (link). Seems like an interesting option for those who missed out on the Robinhood deal that I jumped on a month or two back.

  • The good:
    • Still employed.
    • Filled up the remaining $7k of 529 and stuffed $6.7k into a brokerage account.
  • The bad/abnormal:
    • The girl’s (Mrs FP, FC1, FC2, and FC4) trip to NYC was expensive.
    • The trip to Canada was economical, but still added up (passports, flights, car rental, lodging).
    • $640 in eating out, a new record.

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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/.

24 thoughts on “Financial Update – June 2024”

  1. Hi FP. I considered the WeBull offer but went with RH instead. I believe WeBull is Chinese owned which gave me pause. Regarding the woman attacked while jogging, crime has definitely increased in many areas of the country the past few years. Here in SC crime seems to have stayed “low”. Many of us legally conceal carry, and I believe it gives criminals pause as there is a high % chance their targeted victim is armed. It is a shame society has devolved to require this level of protection….

    Reply
    • I agree that RH seemed like a decent option relative to WeBull. I like that the 3% hit the Roth IRA rather than outside of it, as I believe to be the case with WeBull.

      The increase in violent crime is troubling. It has me concerned as a parent.

      Reply
  2. You have my favorite monthly financial update posts of any blogger. I especially like the graphs and I’ve added similar tracking to our spreadsheets. We are an engineer and professor household and only one of us loves spreadsheets so it’s nice to see other formats for tracking net worth.

    It was wild to read about your triathlon. We live just 5 miles away from that lake and as I was reading your post, I thought, oh geez, an assault during a race sounds frighteningly familiar. Lo and behold, same race, same assault. Ugh. So scary. My wife used to run around there regularly by herself but no longer. It’s sad that we can no longer feel safe running alone in the middle of the day.

    Glad you had a good trip to the PNW.

    Reply
    • I’m assuming the engineer is the spreadsheet lover?

      For whatever reason, I find the tracking of finances in my manner to be so satisfying and rewarding. It so clearly illustrates what is happening in a given month. No other product/service/app that I’m aware of provides that clarity as far as I can tell. I like the charts a lot as well, and they are frankly the only thing I look at.

      You live in a beautiful city. I’ve often wondered about retiring there.

      That was my 4th time doing that triathlon. I couldn’t believe the absurdity of that assault. Plain daylight. On a Saturday afternoon. With a hundred+ racers in the course, not to mention the general public taking leisurely walks around the lake. Some serious mental illness going on there. Scary. That could have easily been my kids or wife assaulted. I fear it could have been much worse had people not intervened so quickly.

      Reply
  3. Thanks Professor for wonderful June update. Good to know that Costco allows renewing membership in the local currency irrespective of the permanent address.

    Reply
    • It’s quite the arbitrage. I was sort of afraid that there would be some problem that arose, but so far it’s smooth sailing.

      Reply
  4. I wanted to echo Nathan’s sentiment – your blog post is the highlight of my monthly reads! I always look forward to reading it and learning something new.

    I’m curious, do you write your blog post throughout the month or sit down and write it all at once? Either way, it feels like a delightful journaling experience. Looking forward to the next one!

    Reply
    • Thanks for stopping by.

      Most months I have a blank update and simply fill in the good reads/watches/listens as I come across interesting things. Or I’ll email them to myself to do so later. Most of the time I’m sharing these things with friends/family anyway, so it’s really no extra work. Throw in a few pictures to remind myself what I did in a given month, and that’s basically a post. It could take as little as 30 minutes or as much as an hour or two if I’m really verbose. Kind of fun to write things down. Time continues to fly by, so it’s kind of a nice monthly ritual. Some day when I’m older and more senile, I’ll look back and be able to remember these years.

      While it’s far from perfect, I like having a place where I can share things I like. What other mechanism to people have to find good things? Word of mouth is pretty ineffective, particularly as our society becomes increasingly insular. Social media is a cesspool of disinformation, paid influencers, and political rantings.

      Reply
  5. Unfortunately, there are many bloggers, YouTubers, and ‘influencers’ who seem more motivated by ulterior motives rather than sharing good products and ideas. It often seems like that their primary goal is to earn referral money by pushing certain products, rather than recommending something that truly benefits their audience and just happen to make referral money on it.
    I keep seeing Public/WeBull on the internet – however I totally believe they are being pushed rather than being better products over Fidelity/Vanguard since they don’t offer referrals. Same for credit cards, I love the BofA cashback setup you have suggested and I follow the same for its simplicity and higher value.

    Reply
    • For the record, I loathe RobinHood with a fiery passion and hope they crash and burn, but I still took them up on their 3% IRA offer. I plan on doing something similar with Wells Fargo, Chase Wealth Management, etc. Not because I think they are worthy of my business (like Fidelity) but because they are paying me to park money there temporarily.

      The unbiasedness and collective wisdom of the bogleheads community is why I love it so much. No obvious conflicts of interest there. Just a great group of internet strangers there to help each other out. Reddit has similar vibes to me.

      Reply
  6. Hey FP. I’m a longtime lurker and really enjoy your monthly updates. Thanks for continuing the blog and putting the effort in each month.

    As a dad of a 2 year old daughter, I was curious what your approach to finances and parenting has been. Specifically, if your kids willingly adopted the frugal lifestyle through observation or if there is an approach you and your wife have taken to help them see the light. I’m sure many of their peers’ families approach finances differently and it seems like an uphill battle to develop respect for frugality and delayed gratification.

    This thought occurred to me because my wife and I are given a never-ending stream of free toys that our friends kids have grown out of. I am wondering if the frequent introduction of material items may be setting us up for challenges down the road. Curious if there are any parenting approaches that you find particularly effective.

    Reply
    • Thanks for stopping by.

      Even though I have 5 kids, the oldest of which will soon be off to college, I think it’s far too early to assess whether our frugality will have worn off on them or will repulse them. I’ll let you know in a decade….

      That said, here are some things I’ve done that I think are worthy of copying:
      * Implement a “bank of dad” where I pay 8% on deposits. I’ve done this for over a decade, back when prevailing interest rates were 0% or so, so it used to be really generous. Now it’s less so. But I track in a simple spreadsheet the sum of deposits in a given month, the sum of withdrawals in a given month, and interest earned in a given month. That is three cells worth of data per month. Each month is a row. I have a fourth cell to comment what it is. $20 bday gift from grandma and $5 withdrawal for teddy bear. Across the 5 kids, they have close to $10k banked at the bank of dad. They get excited watching their balances grow. I love it. I pass through all credit card rewards on expenditures to them (e.g. my 5.25% cash back shennanigans). In other words, my 17 year old kid has a detailed accounting of every penny of income and expenses and interest earned since she was a little kid. Most adults have nothing close to that over the past three months.
      * I “match” any Roth IRA deposits from W2 income to make up for payroll taxes (6.2% social security + 1.45% medicare). Why? To get them up to 100% of gross on their contribution power. I like the discipline it instills in them and the demonstration of compound interest (and market volatility). My oldest is converging on a 5-figure Roth account from her W2 jobs over the years.
      * I add my kids as authorized users to a credit card. Most providers allow you to do that when your kid is born (Fidelity and BoA, if I remember correctly), which helps them to build credit at the same time. Some credit card providers have a minimum age limit. Regardless, this is how the kids spend their “bank of dad” money. I simply debit the appropriate amount from the “bank of dad” spreadsheet.

      I remain unsure on how to handle the bigger stuff for now, like how college. We’ll have to figure that out soon enough.

      The older kids grew up in the era of our poverty. 7 years of grad school living well below the poverty line on an income basis (but not assets). We devoured hand-me-down clothing and toys from friends and family and would still gladly do so if clothing were dropped off on our doorstep. Or we did craigslist for baby/kid stuff. I still remember a hilarious baby-bjorn craigslist transaction in a Seattle taco bell parking lot at night. It honestly felt like an illicit drug deal, but instead we were buying a used baby bjorn.

      Just today, my wife took my two oldest “thrifting” for prom dresses. My daughters get a kick out of that. Apparently one of them found on for $12. They’ve seen us be deliberate about our spending through our lives, but also trying to live life to the fullest. I think we’ve set a decent example, but who knows? Maybe we’ve traumatized them and maybe they’ll rebel or something. TBD.

      Not sure if any of that made any sense. Good luck…..

      Reply
  7. You missed out on quite the deal they have for new members. Don’t see why you can’t cancel and have Mrs FP be the member

    Reply
  8. What is the step up cost basis benefit that happens if you are married with separate brokerage accounts vs married with a single brokerage account?

    Is it just that the deceased account goes to 100% cost basis (zero gains) while the surviving account stays the same, as opposed to the whole account getting an increase in basis equal to 50% of the gains?

    Reply
    • Upon further investigation, it seems more complicated than I thought. This was the first time I’d really looked at this. It depends on whether you live in a community property state vs common law. I’ll fix that in my post.

      How does step-up in basis work in community property states? https://www.fidelity.com/learning-center/personal-finance/what-is-step-up-in-basis

      Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin are community property states. Spouses have equal ownership of most income, assets, and debts acquired during their marriage. In a separate property state, also known as a common law property state, spouses do not have equal claim over income or property that is acquired or earned solely in their partner’s name.

      When one spouse dies in a community property state, the living spouse receives a significant tax benefit: A full step-up in basis on both ownership portions of all jointly owned assets. By contrast, a living spouse in a common law property state would only get a step-up in basis on the deceased partner’s portion of ownership, assuming they are the beneficiary.

      For example, a couple purchased a home in California, a community property state, for $500,000. Ten years later, when the home is worth $600,000, one spouse dies. The surviving spouse’s new cost basis in the property is $600,000, wiping out any taxable gain up to that point. What’s more, the property—if still owned by the surviving spouse upon their own death—can get another step-up in basis when it passes to the next beneficiary.

      Note: Some states allow community property trusts, which essentially let married couples opt in to community property treatment. These states are Alaska, Florida, Kentucky, South Dakota, and Tennessee.

      Investopedia gives an example of a common law state: https://www.investopedia.com/terms/s/stepupinbasis.asp

      Consider Ann and Bill, a hypothetical married couple living in a common-law, rather than a community property state. They hold stock worth $200,000 in a joint brokerage account with a $100,000 cost basis at the time of Bill’s death. Under common law principles legislated in most states, Ann would be entitled to a step-up in basis on Bill’s half of the brokerage account, or $100,000 in current value, but not on her half. So the tax basis for stock held in the account would rise to $150,000 instead of $200,000 as in community property states or under community property trusts.

      Reply
  9. But none of this is dependent on whether a married couple has their taxable accounts in their individual name rather than a joint account right?

    What I could imagine is that the manner in which the accounts are titled effects how the step up basis in common law states works. Imagine a married couple with 2 assets (A&B) each in individually titled brokerage accounts bought for $50K and currently worth $100K so their NW as a couple is $200K. After 1 spouse dies does the deceased spouses assets become $100K with $100K basis and the surviving spouses stay the same. Which seems like a big tax benefit as they then have 50% of their wealth available to spend with zero cost basis.

    Or do both A&B assets get a step up to $75K basis. Which is still good but means that any expenses will incur CG tax.

    I could see those differences being impacted by how the accounts were titled. (And thought that was maybe what you were getting at with your post). Tried to do some quick googling but got distracted.

    Cheers and may we all die married, rich, in community property states, without too many bodily catheters!

    Reply
    • A few days ago, I was under the impression that the surviving spouse received no step up in cost basis upon the death of the first in a joint brokerage account. Obviously, I was wrong.

      Suffice it to say, I’m not well versed in this.

      I don’t know the answer to your question, but I’d like to know the answer as well.

      One remaining question I have is as follows. Say that a couple has a joint brokerage account with $1M. Some tax lots are low cost basis and some are high. They receive news that one of them has a terminal condition and will die soon. Can a couple in such a scenario simply split the $1M into two brokerage accounts ($500k each), but dump the lower cost basis shares to the soon-to-die spouse, leaving the surviving spouse with the higher cost basis shares? If so, that would seem like an interesting tax-planning strategy.

      Reply
  10. That’s the deal, yes. It’s too bad Costco doesn’t do Member since the way American Express does, since your oldest card.

    Reply
  11. I would like to know this as well. Recently I changed my individual brokerage to a joint account and looks like that is a bad move. I should probably take it back to individually owned.

    Reply
  12. This isn’t authoritative but is 2nd hand information from Vanguard. Apparently in some states (all?) you can file a form upon death to pick which shares you would like the cost basis adjustment “spread” over. I could imagine this being useful if someone either wanted to get rid of undesirable stocks/funds or if they wanted to spread the adjustment over a larger number of recently purchased shares (as opposed to fewer older shares that would require more step up basis).

    Apparently they request that you hire a tax professional which would probably mean I wouldn’t do it.

    https://www.bogleheads.org/forum/viewtopic.php?p=4868895#p4868895

    Reply
  13. Thank you. I am now wondering whether we should just split the accounts into individual ownership. I just need to know who will die first :-).

    Reply

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