Financial Update – Oct 2018

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • Free Solo (link).
    • Honnold is a nut job. This movie highlights this well. He’s brilliant but has no fear of death, arguing that in the end we’re all dead anyway.
      • Paraphrasing from the movie: “My girlfriend is weird; she has this weird obsession with maximizing her lifetime happiness by maximizing time with those she loves and maximizing the length of her life. Nobody has ever accomplished anything meaningful by maximizing happiness. Those that accomplish great things sacrifice happiness for their greater objective.”
      • Along the same line of reasoning, Honnold and his girlfriend had some frank and unusual discussions about his failure to maximize his expected lifespan like most human beings.
      • His friends correctly nickname him Spock, as he is devoid of emotions.
    • To summarize the two climbing movies: the Dawn Wall showcases a bromance between two climbing partners. Free Solo highlights the insanity of Honnold. Both movies showcase incredible athletic achievements with beautiful cinematography.
  • Hoop Dreams (link).
    • Now streaming on Amazon Prime. Found via the “Just Watch” website (link).
    • I was a young teenager when Hoop Dreams came out in 1994. My mother took me to see the three hour documentary in the movie theater. As a kid, I loved the entirety of the three hour movie which resonated with me as I had aspirations to be the next Michael Jordan (despite being a pre-pubescent, five foot nothing, scrawny, uncoordinated middle schooler at the time).
      • Spoiler alert: My life ambition to play in the NBA never materialized. In fact, the furthest I played organized basketball was the remedial 8th grade middle-school “C” team, for short players 5’2″ and under. If I recall correctly, I lead the team to a winless season as starting point guard.
    • Seeing the movie again 25 years later was great. One of the Amazon reviews I read for the movie said that it’s not a movie about basketball, but rather about American life. Seeing the movie again through a different lens as an adult, I completely agree with this statement. It’s really a movie about systemic poverty and the seemingly insurmountable struggle to rise out of it.
  • 10 minute PBS News Hour report on FIRE movement (link).
    • Thoughtful blog post from Michael (from Uncommon Dream), one of the interviewees in the interview (link).
  • WSJ editorial board lambasting the proposed medicaid expansion which is on the ballot in several states this year (link).
  • The Finance Buff on not forgetting about the opportunity cost of home equity when paying down mortgages early (link).
    • The same line of reasoning could be extended towards any purchase. Just bought a new phone? Then your opportunity cost is the purchase price * (1+R)^N in N years.
    • As TFB states, at the end of the day it’s all about wealth accumulation: NW = A – L. Using a lump sum of your assets to pay down a mortgage does nothing to your net worth, and in fact may cause you to be less wealthy over time when comparing the forgone investment returns.
  • Go Curry Cracker summarizes his continued dominance over the US tax code (link).
    • Over the past five years, he has paid $0 in federal taxes in early retirement, despite having high retirement income. If you carefully read his techniques (Roth IRA conversion ladder, capital gain harvesting), you’ll realize how simple it is and how anyone one of us can accomplish the same.
  • Started listening to a parenting podcast for fathers (link).
  • Started playing the podcast “Wow in the World” to my kids (link).
    • I first tried it out a year or two back when it the podcast first came out but was unimpressed initially.
    • This time around my kids and I are hooked. My 6 year old loves it the most.
    • Guy Raz, who hosts TED Radio Hour and How I Built That, cohosts it. He is great.
  • This Humans of New York post really struck a chord with me, succinctly illustrating the very profound and embarrassing racial problems in this country (link).
  • Humans of New York is also doing a series on the Rwandan Genocide and highlighting incredible acts of heroism. I realize that it’s not everyone’s cup of tea to awake to an RSS feed of harrowing genocide stories, but I find it makes me a more informed human being.
    • Story 1 (part1part2part3part4)
    • Story 2 (part1part2part3part4)
    • If you want to read more stories, there are a half dozen more on the website.
    • It’s hard to believe that such atrocities occurred a mere 24 years ago.
  • Tales by Light (link).
    • A behind-the-scenes documentary series following various world-renowned photographers.

Life

  • Visited Utah. Mount Timpanogos in the fall is extraordinary. It remains one of my favorite places on Earth.
    • The Stewart Falls Hike departing at Aspen Grove is a great little hike (link).
  • Gave a personal finance talk to entomology (bug) grad students at the university. Slides here (link).
    • Yes, I’m a broken record.
  • Aside from some crappy snow mid-month, October provided some glorious weather.
  • Participated in a fundraiser (proceeds going to church youth to pay for scout camp, girls camp) by selling merchandise during a home college football game. As in many midwestern towns, college football is the state religion here. My wife and I were assigned to the official merchandise shop at the stadium (as opposed to kiosks by hot dog stands). Stadium wide, they do around $60-$80k of merchandise during each home game. Our shop produced around $20k of revenue. I personally rang up around $5k of merchandise.
    • I had never worked retail before. This was a difficult assignment for me given my (extreme?) frugal tendencies. When someone brought a $100 sweatshirt or a $7.50 foam football about half the size of a baseball for me to ring up, I wanted to reprimand customers by yelling “DO YOU REALIZE THE FUTURE VALUE OF THESE EXPENDITURES? THIS PURCHASE COULD INSTEAD MAKE SIGNIFICANT CONTRIBUTIONS TO YOUR KIDS/GRANDKIDS COLLEGE SAVING FUND!!!”
  • Had a birthday, relentlessly barreling ever closer to the big 4-0. My wife made a music video, and ode to Costco, for me. It was hilarious. I don’t know how to anonymize videos, but here’s the audio if you’re interested (link).
    • The crescendo: “And maybe they’ll rewrite the prices, giving us more love and happiness.”

 



We’re not in Kansas anymore.


Early snow in mid-October created lots of sagging/downed tree branches and an occasional downed tree. I rode under dozens of sagging tree branches on my way to work one day. About five minutes after taking this picture, I misjudged the height and the girth of a sagging tree branch and whacked it at 10mph with my helmet. Suffice it to say that it was unpleasant. But still less unpleasant than sitting in traffic!


The artwork in the business school is different from the artwork in the entomology building. I remain unsure whether this mural was painted before my presentation or after it, symbolizing the perceived value of my frugality, tax, and investing rant to entomology students.


Millions of apples, apples for me, millions of apples, apples for $1.50/lb at the local orchard.

This month’s finances

  • The good:
    • Stocks went on sale.
  • The bad/abnormal:
    • $1,364 medical bills. More to come, of course.
    • $458 car registration.
    • $242 in house decorations.
      • For the past 13 years of marriage, the interior of our homes has resembled that of a state penitentiary: barren & ugly. After tolerating this for 12 years, my wife reached a breaking point this year and revolted. Stage 1 of the revolt was to paint the interior of our home (done). Stage 2 is to blow up a bunch of pictures, frame them, and hang them. For $242 we blew up about three dozen 12×18 prints and bought as many frames. After much anguish, we converged on the $3.99 prints from Costco + $3.48 frames from Walmart (link). The frames aren’t fancy, but seem to do the job pretty well.

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.

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4 thoughts on “Financial Update – Oct 2018”

  1. Pretty good month FP considering stocks were on sale and the medical bills. The most important metric (savings rate) is still where it should be.

    One question I had for you is how do you determine what amount to keep in your checking account? Seems like it’s a month or two of spending, right? Were you tempted to go lower since October provided a sale on stocks?

    Reply
    • My financial statements grossly inflate by regular cash holdings since I construct them when I’m paid (the last day of the month). On the first of the month, all of my credit cards autopay in full. My mortgage of $2,185.20 autopays on the 15th. On the second of the month, I simply transfer (Current Cash Holdings – $2,185.20 – $1,000) to my investments (following the hierarchy of savings logic…currently to my brokerage). Once the stock purchases and all autopays clear, I’m left with exactly $1k in the bank for misc utility bills / music lessons for kids / etc. I’ve been aggressively managing my cash like this for over a decade now and I have never encountered a need to hold more than the $1k of cash. Especially in conjunction with the $30k or so of unused credit on credit cards (to provide short term liquidity before selling investments to pay for catastrophic event).

      Changing the due date of my credit card bills to the first of the month (the last possible date to maximize float) helps simplify this cash management strategy and maximize free float at the expense of the credit card companies who continue to pay me to borrow money for free for 30-60 days. When I have large bills due (i.e. large medical bills due), I wait until my credit card cycle closes at the beginning of the month to make the payment, giving me 60 days of float.

      Through the above, I’m probably earning a few dollars more in interest per year, but I’m a fan of optimizing systems, and the above seems about as streamlined as I can get it. Given my perpetually cash poor situation, I’m never in the position to opportunistically market time after falls. I just DCA every single paycheck.

      Reply
      • I gotcha now. I couldn’t have imagined you leaving ~$15k of cash sitting around in a simple checking account (at least put it in an online savings account).

        Do you have a post on how you moved your credit card payment date? I think it would be handy so I can also optimize my cash and increase my float. I have an Amex, some Chase cards and a Capital One. I assume each issuer is a little different.

        At least you will be buying at pretty good deals today.

        Reply
        • My checking account pays 2% which is pretty nice. But 2% of $1k is not very much interest.

          I haven’t written about shifting the credit card payment date, but I’ve done it with all of my current issuers: Citi/BoA/Fidelity. Some times it’s available on the website, but it’s usually hard to find so I just call up customer service. It’s a recent trick I picked up in the past few years and I love it. I simply ask “I want to change my statement cycle such that the due date of the credit card bill is the 1st of the month.”

          Reply

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