Financial Update – Nov 2018

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • Fidelity is now an HSA administrator!
    • Fidelity Link
    • Bogleheads Discussion
    • Thoughts from the Finance Buff
    • There are no administrative fees. It is now unambiguously the best HSA administrator. The only reason not to use them is to capture the payroll tax benefits from your employer. However, even in this case you can still utilize Fidelity by first capturing the payroll tax benefit from your in-house administrator then rolling the HSA over to Fidelity. Doing so would only make sense when the transfer fees are less than the payroll tax benefit.
      • I am in the process of rolling over my HSA from Saturna to Fidelity.
  • WSJ article on the FI movement (link).
  • My Money Blog on immunizing yourself from shocks (i.e. unemployment, etc) through financial freedom (link).
  • Fascinating bogleheads discussion about the ACA subsidy cliff (link).
    • Cliff notes version: If you make <= 400% of the federal poverty level (FPL), you can quality for a subsidies of $1-2 thousand per month.
    • If you make 400% FPL + $1, you lose out on $1-2 thousand per month of subsidies..
      • In other words, the implied tax rate on that extra $1 of income is 1,200,000% (=(12*$1k)/$1) to 2,400,000% (=(12*$2k)/$1).
      • If you want to learn more, here are write-ups by the Finance Buff (link) and Root of Good (link).
        • These cliff’s can be manipulated with 401k/401a/403b/457/HSA/FSA contributions, much like the EITC.
      • Go Curry Cracker has a very thought provoking post this month regarding gaming the ACA subsidy game (link).
        • If you are thinking about strategically implementing these strategies down the road there are several things you can begin to do now:
          • Be comfortable living on relatively little.
          • Reduce your cash flow needs by eventually paying off mortgage.
            • I think this is an underappreciated strategy regarding prepaying your mortgage. I don’t think I’ve seen anyone write about this one.
          • Capital gain harvest now (to minimize taxes down the road).
          • Having a stockpile of Roth principal to live on tax-free in retirement.
            • I understand that this advice generally contradicts the premise of tax arbitrage that I tout so widely.
  • Mr 1500 on practical tips for maximizing happiness, now (link).
  • I’ve been following the blog and instagram feed of “the Dangerz” couple for a few years now. They’ve lived out of a personally-customized sprinter van for the last few years, but recently sold it, purchased a sailboat, and are teaching themselves to sail. Pretty remarkable to see people breaking free from the cube farm and sucking the marrow out of life.
    • Their recent sailing adventures haven’t fully hit the blog yet but are limited to the instagram feed.
  • Watched the season finale of This is Us.
    • My favorite show on TV right now (with Shark Tank coming in second).
    • You have to watch it from season 1 to make any sense of what’s going on.
    • I loathe folding laundry, but we’ve designated Tuesday night as our laundry night as a form of temptation bundling.
      • Never in my life have I more looked forward to folding laundry.
  • WSJ article on Walmart’s efforts to curtail healthcare spending costs by mandating that employees travel to preferred hospitals for a particular spine surgery (link). Walmart is self insured (i.e. they end up bearing the entire medical costs of their employees), so they have every incentive to have their employees be frugal consumers of healthcare. With the incentives properly aligned (a seeming rarity with healthcare), the company is going to drastic measures (i.e. actually considering price in the purchasing of services) to lower prices.
    • It’s odd how newsworthy it is for costs to be factored into healthcare decisions. It’s no wonder that our healthcare costs are skyrocketing! It’s not often you see a WSJ headline stating “Consumer Bob buys bananas at Costco because they are 33% less expensive than at Whole Foods!” That’s just basic economics. But basic economics in the context of the American Healthcare (in which trillions are spent annually) system is indeed a rarity.
      • Imagine a system in which your food were paid for by your employer (via “food insurance”). With food insurance, you may go to any restaurant you want as often as you want. In this system, the restaurant doesn’t even bother to put prices on your menu – they know with certainty that either your “food insurer” or you will pay for it regardless of the price. Any restaurant bill is sent to your food insurance administrator. After 6 months of processing time, you will be informed of any deductibles and co-insurance that you’re responsible for. You learn through years of experience that you are not paying for your food…your insurer is. As a result, food seems “free” to you. Eventually you come to believe that food insurance is a basic human right, without which people will die. Restaurants respond to this price-indiscriminate demand and begin offering meals with astronomical prices without noticing any corresponding drop in demand. Suddenly, every restaurant is a 5-star Michelin Restaurant. Inevitably, the high food costs end up driving up the cost of food insurance premiums. After years of overpaying for food insurance, a subset of rational people emerge and leave the system (those who realize they can cook cheaper on their own, and importantly, don’t receive food insurance from their employer). Eventually, only the most gluttonous remain on food insurance. These individuals are those for whom the value of the food they consume is greater than the dollar amount of the premiums they pay. This adverse selection of gluttonous individuals remaining on food insurance drives the premiums even higher creating a death spiral which destroys the industry.
        • I believe that bad economics are the primary driver of skyrocketing healthcare costs, which are inflating at 3x the pace of overall inflation.

Life

  • Hosted extended family for thanksgiving.
    • Tricked my parents into flying out from CA to the midwest to experience a November blizzard! Suckers!
  • Got up my first V7 bouldering problem in the climbing gym.
  • Biked to work in single digit temperatures.
    • Crashed my bike once on black ice this month (nothing a couple of bandaids didn’t fix). Should probably invest in better winter biking equipment (studded snow tires).
    • Questioned the rationality of living in the midwest (an annual winter tradition spanning the last decade).
  • Saved 33% on my internet while increasing internet speeds by more than an order of magnitude:
    • My internet speeds for past 7 years:
      • $15 TWC 2mpbs(down)/1mbs(up)
        • Sufficient speeds to do dissertation, 720p streaming & VOIP.
      • $20 TWC 3mpbs/1mpbs
        • Unwanted forced upgrade. Noticed slight performance in streaming.
      • $45 20mbps/40mpbs (few months ago)
        • Fiber internet.
        • Wiked fast. Cannot fathom why anyone would want faster internet.
      • $30 TWC/Spectrum 450mpbs/20mpbs (this month)
        • Promotional rate for 3 years.
          • I created note on my google calendar 3 years from now to change internet providers.
        • I cannot fathom why this is speed is practical at all.
        • 20mpbs internet streamed 4k video with about 3 seconds of initial buffering. 450mpbs internet is instantaneous.
          • And no, I can’t notice a difference between 4k video and 1080p video unless I’m 2 inches away from a screen, but that’s beside the point!
    • I enjoy 450mpbs about 10% more than 3mpbs internet and 0.01% more than 20mpbs internet.
      • I think that this is a great example of diminishing marginal utility. Driving a $100k BMW won’t make you 10x happier than driving a <$10k used 10Y old Corolla (as I do when I’m not on a bike). A $2M home won’t make you 10x happier than a $200k home. A 10k vacation won’t make you 100x happier than a $100 vacation.

Stupidly fast $30 internet.


Sledding is a challenge in our city due to the topography, but that didn’t deter our kids from attempting to do so with about foot of elevation drop in our back yard. It’s funny how magical snow is as a child and how much of a loathsome nuisance it is as an adult.


Here are our new 12×18 frames in action. Not bad for less than $4/frame + $4/print. We shamelessly stole this large-and-ubiquitous picture hanging idea from our friends in Seattle.


The best picture we could muster (tripod + timer since I’m too cheap to buy a $20 remote) after many failed attempts and the shedding of many tears.

This month’s finances

  • The good:
    • Continued consuming “free” healthcare services with reckless abandon since hitting our out-of-pocket (OOP) max.
      • We’re rapidly approaching $10k in discretionary medical expenditures since hitting the OOP max a couple months back. Six of our family members saw an allergist at $1k/visit.
        • One of our good friends is a radiologist. His wife implored my children to become allergists when I expressed shock at the sticker price of the 1 hr office visits.
        • I was the only family member not tested for allergies. My only experience with an allergist occurred a decade ago in Seattle where they confirmed what I already knew – that I have horrendous seasonal allergies – and proceeded to tell me to take an over-the-counter generic Zyrtec from Costco. That was several hundred dollars poorly spent!
      • In the process of frantically consuming free healthcare, we learned that a child will need to have a routine eye surgery performed in 2019.
        • Yes, I asked if we could accelerate the surgery to 2018 but there was no availability. Bummer.
        • As a result, there is a very high likelihood that we’ll hit our OOP max next year, ushering in another “year of unlimited healthcare” for our family.
          • With 5 kids, I’m slowly realizing that the past few years of low medical expenses were anomalous and that I should mentally plan for higher expenditures (perhaps the OOP max?) on healthcare on an ongoing basis.
  • The bad/abnormal:
    • $1,982 in healthcare spend, the vast majority going towards medical treatments incurred several months ago.
    • $201 to Geico for 6 months for 2 cars.
    • $75 splurge to take 10 people to see Wreck it Ralph 2 over Thanksgiving.
    • $37 in overdue library fees.
      • Best money I spend all year. It’s one of the few times I’m happy to pull out my wallet – to support this phenomenal public resource that freely fulfills personal book requests for me on a monthly basis.
    • $32 for our annual 3 girl hair cuts + 1 mom hair cut at beauty school. Us boys simply make due with clippers.
    • $12 to purchase the digital copy of the Dawn Wall (HD version on Google Play) to show to my parents & brother.
      • It’ll probably be available to stream on Netflix some day, but I had to show them this film.
      • Watch this movie! It’s incredible! And while you’re at it, watch Meru!

Full version is downloadable here (link).

Footnotes:

  1. I lazily approximate home value as my historical purchase price.
  2. 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.
  3. ~$0 cell phones as described here.
  4. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, etc).
  5. 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).
  6. I prefer Vanguard funds but my employer offers Fidelity instead.
  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 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.
  9. 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).
  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. 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 4 free tickets/year to Berkshire’s annual meeting, which is incorrectly classified as US stock index because it is a trivial holding and because it essentially is a US stock index.

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

6 thoughts on “Financial Update – Nov 2018”

    • Assuming that I’m not talking to a spam robot (I can’t tell given the vagueness of the comment), thanks. I’m just a dude who maintains a blog to share a thing or two that I find interesting as I stumble through life.

      Reply
  1. Thanks for keeping up the crazy. Average low here for winter is 38 degrees at night. Haven’t turned our heat one once. 😉
    Be sure to post about Christmas expenses and $ spent per child and what you gave them (and for you and Mrs. Frugal). I think it would be really insightful for readers.

    Reply
    • Glad to hear from you Urry! I wish we had the problem of not having to turn our heat on this winter.

      I like your idea on christmas gift per kid. I’m guessing that it’ll be in the neighborhood of $50-$75/kid????, but Mrs Frugal Professor is the boss.

      Reply
  2. 1 question and 1 comment:
    Question – I read the linked Go Curry Cracker article and couldn’t figure out what you meant by “Reduce your cash flow needs by eventually paying off mortgage.
    I think this is an underappreciated strategy regarding prepaying your mortgage. I don’t think I’ve seen anyone write about this one.” What did I miss?
    Comment – Sometimes I go down a rabbit hole when I click through one of your links. And then I’ve lost my place in reading your post. Would you consider having your links open up in a separate tab?

    Reply
    • 2 answers:

      If you have a mortgage in early retirement, you need higher cash flows than you would otherwise. These higher cash flows may prove to be problematic when trying to stay below the 400% FPL threshold. Why? If you run out of tax-free money (like Roth principal) you’d be forced to draw assets from taxable sources (via Roth IRA conversions or drawing down taxable brokerage accounts) which could bump you over the 400% FPL threshold with the potential to push you over the ACA subsidy cliff. If instead, you pay off mortgage before early retirement (by selling off assets before retiring), your ongoing cash flow needs are mitigated substantially.

      Thanks for the comment on the links. The default that WordPress uses is not “open in new tab”, which is annoying. For the reader to defeat this on a PC, simply do “control+click” to open in new tab or push down the middle mouse-wheel on a mouse to open in new tab. On a smartphone, hold down the link to open in new tab. As a consumer of information, I never open a link with a conventional click because I want to control my experience.

      That said, I’ll try to be better about doing as you suggest. The problem is that it’s a pain to implement and surely I’ll forget to do it consistently throughout the blog given the nuisance it is to do.

      Reply

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