Investment showdown -- beyond the Roth, SDP, & TSP

[nunya]

I follow the Lazy Portfolio theory (4 fund to be specific).  Not very glamorous, but I'm a believer.  You can do it with ETFs or mutual funds.  Pros and cons to each method.  With only $10K to invest, ETFs have a lot of benefits.

https://www.bogleheads.org/wiki/Lazy_portfolios

As for brokerage, I'd say start with building your asset allocation in generic terms.  X% small/mid/large cap, Y% bonds, Z% real estate, etc.  Then go out in the ETF world and find the funds or stocks that you want to plug in to those niches.  If two families offer the same fund (S&P 500, for example), then the lowest expense ratio wins.

Finally, find the lowest cost brokerage to make those trades happen.  TD Ameritrade has ~100 commission-free ETF options from several fund families.  Fidelity offers iShares commission-free.  Or just open a Vanguard account and use their ETFs.  Other companies have a fund or two that are cheaper, but as a whole, the lowest expenses are at VG.

[Termy]

I have about 20% of my portfolio in individual stocks BUT they are all blue chip/conservative dividend payers.  Once you own more than roughly 7 stocks (assuming they have betas of near one) your diversity/risk is about the same as the market.  So why do I buy some individual stocks?  No, I don't think I am going to beat the market-that's a fools errand.  I do it because I get a lot more satisfaction and education and enjoy the dividends more.  When a major US aircraft manufacturer has news, I read it with great interested.  I follow the battle between the two major cell phone carriers closely.  When one of my holdings announces they are raising their dividend (something that has been very common the last five years!) I recalculate what the yield is on my original investment and smile.

I don't recommend this to anyone unless they have already maxed their TSP/IRA with broad funds.

 

[mcbush]

4 hours ago, Termy said:

When a major US aircraft manufacturer has news, I read it with great interest.

Speaking of which...

https://www.bloomberg.com/news/articles/2016-02-11/boeing-said-to-face-sec-probe-into-dreamliner-and-747-accounting

[MilitaryToFinance]

16 hours ago, bluedevil said:

Mainly the latter, but the former sounds pretty legit.  Any strategies?

You guys following anybody strategy wise?  I follow some of Stansberry Research's products for ideas and strategies.   

One important rule to remember in life, but especially in the investment world, is that free research is almost always worth what you paid for it. With a few incredibly rare exceptions (like Mike Burry posting on Yahoo message boards) anybody who is smart enough and provides useful insight in their research will demand to be paid for that research. I would be wary of any free newsletter pitching stock "research" and I use that term loosely. Also, before you listen to anybody who claims they saw the financial crisis coming before it happened you should stop and ask yourself, why is this person not worth hundreds of millions of dollars and why are they still writing for an online newsletter? 

I'm a big believer that smart individuals with discipline and research can outperform the market over time. However the more time I spend working in finance the more I believe that most individuals are better off with low cost, broad coverage index funds or ETFs. If you have a full-time job it is highly unlikely you will have the time to really do the due diligence necessary to outperform the averages. Jim Cramer's 1 hour per week is a bullshit number, you're competing against people who spend 60-80 hours/week doing research and for every share you buy because you think it is cheap somebody is selling it to you who thinks it is expensive. If you are going to run the risk of a concentrated portfolio of just a few names you need to know them inside and out. Not just read the news but understand the accounting, how will those things you read about flow through the three statements, how will it effect the multiple being applied, which multiple is the right multiple for this business, where are we in the cycle. If you don't have the time to really understand a few businesses completely then you need to diversify to lower your risk and if you're doing that you might as well just own an index fund.

[Day Man]

[bluedevil]

5 hours ago, MilitaryToFinance said:

Also, before you listen to anybody who claims they saw the financial crisis coming before it happened you should stop and ask yourself, why is this person not worth hundreds of millions of dollars and why are they still writing for an online newsletter? 

Sounds like you are familiar with Stansberry's products.  I'll be honest, the whole "financial crisis" pitch is what initially got me reading their stuff.  Always with skepticism though. 

Bear market approaching?

[Vetter]

Read "A Random Walk Down Wall Street".  Buy low cost passive index funds and once you come up with an asset allocation you are comfortable with, stay the course and tune out the noise.  Rebalance yearly.  

Im actually excited about this downturn.  Lots of things on sale!

[bluedevil]

Switching the subject slightly. For those of you with TSP accounts, how "actively" do you manage your allocations? Do you shift money from fund to fund? I figure when the market starts taking a shit you can reallocate to the G fund to weather the storm.

[nunya]

Don't touch it unless it's a meditated change in your long term allocation.  You would have to time your exit AND reentry perfectly for timing the market to work in your favor.  Not gonna happen.  Keep your monthly contributions going and enjoy the sales.

Edited February 14, 2016 by nunya

[ComingLeft]

Switching the subject slightly. For those of you with TSP accounts, how "actively" do you manage your allocations? Do you shift money from fund to fund? I figure when the market starts taking a shit you can reallocate to the G fund to weather the storm.

Yes. You can "trade" once a calendar month and always have a free return trip to G fund. With that you need a trading system that signals 1-2 a month.

I want more info on the matching system. TSP is great for buy and hold but I cannot wait to dump all these never taxed gains into my option-able IRA. For the doubters in the forum, learning to trade is harder than going through pilot training, and in the market your instructors are trying to rob you blind. Trading long put and call options is one of the most aggressive but quickest ways to wealth for people in our line of work.

I think people are going to hate 2016. It may even set off Boomernomics or the 4001st (k) crash, but that remains to be seen. Bottom line: you need a system that makes money in both up and down markets.

[Swizzle]

Good to see this thread is alive....thread bump

[MilitaryToFinance]

On 2/12/2016 at 8:49 PM, bluedevil said:

Bear market approaching?

Here are my thoughts. I believe the fears of a recession are overblown. There are lots of not great things going on right now certainly but we are still growing, albeit slowly. That said, I’m not particularly bullish on US equity markets right now. I’m finding a lot more things I want to short than I want to buy right now. The destruction in energy markets is having knock on effects into industrial companies such that low input prices from oil aren’t helping margins as much as would be expected.

The market is currently at a slightly expensive multiple on historically peak earnings margins. We have a period of low nominal growth, increasing regulation/compliance costs, low total factor productivity gains and heavy debt burdens. Even without a recession that situation easily sets up to see limited topline growth, increasing overhead expenses, lower earnings and lower multiples on those lower earnings. For individuals who can’t/shouldn’t short stocks in their personal accounts I would be looking to sit on some extra cash and start adding to names with depressed valuations.

China is a potential disaster and that represents a wildcard that is hard to predict. The short metals/mining trade was a fairly obvious one but the potential fallout from a credit crisis in China is more difficult to estimate. Here is some food for thought though. Before the financial crisis the US banking system had assets equal to 100% of GDP, China today is at 340% of GDP. 10% loan losses in China would equal $3.5T in losses (prior credit cycles have had loan losses as much as 30% so 10% is conservative), losses in the US during the financial crisis totaled $650B. To combat that $650B the Fed had to expand their balance sheet by $4.2T, what is China going to have to do to recapitalize $3.5T in losses? Is it even possible?

There are my semi-coherent Friday morning ramblings as I procrastinate doing real work.

[Day Man]

Good post, MtF. What names do you see as having "depressed valuations?"

[Ping Hymas]

Gents-

I think long term buy and hold RE is the way to go.  I have been at it for 3 years now and though I am no Trump, I have a nice cash-flowing portfolio that will dwarf my 20 Yr Lt Col retirement (as soon as I can get my hands on it!!!).  Sure, nothing is perfect, but speculation in the market vs. a cash flowing property is an easy call.  I own both. However, when I get a hold of large sums of cash, I buy RE that produces income, 10 CAP minimum.  Mine's all SFR, and this year I plan on buying my first commercial property or multi-fam.  I've been looking for a mobile home park or RV park type deal, but haven't been able to put together the right deal.  Good luck, just my 2c.  Final note, I've noticed that there are those who do rentals as a hobby and those who do it as a business.  There is a difference.  I created a Podcast and a group to facilitate these conversations.  Check it out @ www.activedutymillionaire.com  Love any feedback you have.  Cheers!

 

[MilitaryToFinance]

On 2/25/2016 at 0:05 PM, Day Man said:

Good post, MtF. What names do you see as having "depressed valuations?"

Sorry I missed this question before. Unfortunately I'm not allowed to discuss specific names on social media but in general there are some interesting cyclical names out there. The industrial chemicals space (look at TiO2, ethylene producers, epoxies) has a number of low valuation companies as the commodity bubble bursting in China has hid chemicals and materials companies hard. At this point you have stocks trading at depressed multiples on depressed earnings sometimes at less than half what it would cost to replace the factories today. As long as they have enough cash flow to not go bankrupt these are stocks that will recover significantly when the market cycle turns. Additionally you have financial companies trading below book value who earn good ROEs through the cycle. Low interest rates hurt banks and there is fear of how much bad debt they are holding from the oil collapse but I think the fear is excessive. Regional banks in the Northeast aren't going to face significant write-downs from energy loans for instance.

[11F...]

On 6 April 2016 at 0:43 AM, Ping Hymas said:

Gents-

I think long term buy and hold RE is the way to go.  I have been at it for 3 years now and though I am no Trump, I have a nice cash-flowing portfolio that will dwarf my 20 Yr Lt Col retirement (as soon as I can get my hands on it!!!).  Sure, nothing is perfect, but speculation in the market vs. a cash flowing property is an easy call.  I own both. However, when I get a hold of large sums of cash, I buy RE that produces income, 10 CAP minimum.  Mine's all SFR, and this year I plan on buying my first commercial property or multi-fam.  I've been looking for a mobile home park or RV park type deal, but haven't been able to put together the right deal.  Good luck, just my 2c.  Final note, I've noticed that there are those who do rentals as a hobby and those who do it as a business.  There is a difference.  I created a Podcast and a group to facilitate these conversations.  Check it out @ www.activedutymillionaire.com  Love any feedback you have.  Cheers!

 

Ping,

Haven't listened to your podcast yet, and I'm still just slowly getting addicted to this site, but wanted to say I appreciate your commentary on here recently, and I'm impressed with your passive income stream you're building.    That said, I think you summed it up best with your comment "nothing is perfect" above.  Long term RE is great for some, but you claim it's either that vs. "speculation" in the market, which clearly aren't the only two options one has for trading/investing.  

I tend to agree with you that long term RE is an awesome investment plan, and I love the passive revenue stream it can build.   That said, for me personally, there's only so much of my asset/investment base I want rooted in any industry, RE included.  I am not a market speculator.  I am an investor.  When I buy equities, I am buying businesses.  Just like when you buy real estate.   You plan on long term buy and hold with RE and I view my stock purchases as the same.  I don't sell them when I need money, or "rebalance" to maximize my stock vs. bond weight.  I bought ownership in those business, and I expect them to pay me for it.   Just like a renter.   And most of them do quarterly.  I certainly don't sell them if the market is crashing (just like you don't sell RE during a housing crash).   I may reluctantly sell them if they get overpriced, because just like in RE, sometimes folks offer you a deal that you just can't pass up.   And every once in a while, I might sell when I see the company is starting to suck.  Neighborhood is getting bad, rent is decreasing, I would assume same would apply to RE.  

RE has some significant advantages, specially when it comes to taxes that you can't find in equities.  And I think it's more work and seems scary/difficult, which keeps people away which likely gives people willing to do some due diligence a huge advantage.  But I feel I can take advantage of the stock market so much easier and with much easier research than RE.   That's me only though, plus I have neither the time nor the interest to do any "fixing up" in any RE and I know many folks eat this up and it's great profit potential.    What's easier for me is to watch the news when I see Target has credit card numbers stolen...oh crap, everyone hates target, sell, sell, sell.  Nothing is wrong with target to me, except it's on sale.  Target has paid me rent every quarter since that disaster.  My target rent has gone up every year.  They've paid me back almost 10% of what I paid to own it, and far outpacing my RE rent increases.  Their rent will go up again Sept of this year.   If the stock market crashed tomorrow, people will still buy crap at target, who will still pay me rent.   I'm not a speculator in target.  I'm an investor in it.  But that's not to say one can't be highly successful speculating/trading stocks or doing the same with RE.  No right or wrong answer.  

Bottom line, I think the major takeaway is as you began with..."nothing is perfect."  Some folks may be uncomfortable with RE, some with active investing, some with passive investing, some with bonds, some with using technical analysis, etc.  In my opinion, the most critical areas for anyone is to have squared away is to 1) live within your means leaving some left over for investments, 2) diversify those investments so as not to piss everything away when the shite inevitably hits the fan, and 3) a well thought through plan for liquid funds if you need them.  

Anyway, bit of a rant but I look forward to listening to some of your shows in the near future.  I've learned so much crap on here the last few months from trolling these forums that I have to give a big thanks to all the dudes writing crap on here.  Almost every post is either instructional or comedic...and most of the time both.   

[nsplayr]

On 4/28/2016 at 3:07 PM, 11F... said:

When I buy equities, I am buying businesses.  Just like when you buy real estate.   You plan on long term buy and hold with RE and I view my stock purchases as the same.  I don't sell them when I need money, or "rebalance" to maximize my stock vs. bond weight.

I agree with much of what you said above, except this.  What's your rationale for not rebalancing your overall portfolio at least once in a while?

To me, it's straightforward - you set targets for asset allocation based on your goals and risk tolerance.  When your portfolio falls outside those targets by a certain amount, you correct course.

[11F...]

23 hours ago, nsplayr said:

I agree with much of what you said above, except this.  What's your rationale for not rebalancing your overall portfolio at least once in a while?

To me, it's straightforward - you set targets for asset allocation based on your goals and risk tolerance.  When your portfolio falls outside those targets by a certain amount, you correct course.

It's just a philosophy shift for me.  The rebalance approach was previously my strategy, and I think it's a great one, but it just doesn't fit my goals anymore.  I prefer to be much more hands on now, and try to view my investments as individual ones rather than a broad market of stocks.  I'm not concerned about bull or bear markets, but rather which of my companies are under vs overvalued.   This is only within accounts I have lots of flexibility and control over, however.

For my TSP, for example, I do subscribe to the re-balance theory exactly as you describe.  For my personal Roth and taxable accounts, which I obviously have much more control over, I don't want transaction costs and market timing efforts by rebalancing to erode gains which I feel I have better control over by utilizing buy and sell decisions individually.  And I buy way, way more than I sell.  

But again, there's nothing right about my plan and wrong about someone else's.  Well, there are lots of "right" and lots of "wrong" ways to invest in my opinion.  Definitely no perfect one-size fits all approach, which was meant to be my original point.  

[Ping Hymas]

On 5/2/2016 at 6:55 AM, 11F... said:

It's just a philosophy shift for me.  The rebalance approach was previously my strategy, and I think it's a great one, but it just doesn't fit my goals anymore.  I prefer to be much more hands on now, and try to view my investments as individual ones rather than a broad market of stocks.  I'm not concerned about bull or bear markets, but rather which of my companies are under vs overvalued.   This is only within accounts I have lots of flexibility and control over, however.

For my TSP, for example, I do subscribe to the re-balance theory exactly as you describe.  For my personal Roth and taxable accounts, which I obviously have much more control over, I don't want transaction costs and market timing efforts by rebalancing to erode gains which I feel I have better control over by utilizing buy and sell decisions individually.  And I buy way, way more than I sell.  

But again, there's nothing right about my plan and wrong about someone else's.  Well, there are lots of "right" and lots of "wrong" ways to invest in my opinion.  Definitely no perfect one-size fits all approach, which was meant to be my original point.  

11F, brother, you are spot on!  Fact is, I don't hear most of my bros who invest in RE describe it the way you do, so for them I'd advise different strategies.  Look, everyone should be able to articulate what they are doing in terms economic and psychological (like your Target example) and describe how it affects the market etc.  most can't.  I feel that way about long term buy and hold RE.  What I really like is listening to all the airline wannabe's talk about their future "dream jobs" and how much they will make....hilarious.  No "job" is a dream job.  Someone is still telling you when and where to be, 2 bags full etc.  Check out those guys picketting for better pay etc.  Sorry fellas, doesn't look like fun at all.  Got it, its an extreme example, but true passive income means that sure, I'll have to work here and there, but if I want to Ride the Divide on my new mountain bike for a month, I can.  Go to Patagonia for the summer, yeah, I can do that.  Do a "world year" with my 5 kids, sure.  Am I "rich"?  No!  I have income that shows up whether I do or not, and that is a beautiful thing.  Last thing, I have a buddy and a business associate stop by my office this morning.  He told me his check from the property manager this month was over $7K.  I'm super stoked for him, because, once he retires as a Lt Col, (or Col if he wants) he doesn't have to work and will still do over 6 figures every year.  Think about that for a minute.  Would you rather make $250K/year working 80 hrs a month where ever, OR $150K/yr passively?  Its a no-brainer for me, If I could do it in the markets I would, but right now, long term RE works, so that's what I'm doing.  Good luck!

[Day Man]

7 hours ago, Ping Hymas said:

but right now, long term RE works

Key phrase...

[Stitch]

15 hours ago, Ping Hymas said:

......but right now, long term RE works, so that's what I'm doing.  Good luck!

For the benefit of the slow kid in the room what is "RE"?

 

[guineapigfury]

Real Estate

[Ping Hymas]

On 5/2/2016 at 6:55 AM, 11F... said:

I

 

 

[Ping Hymas]

15 hours ago, Day Man said:

Key phrase...

Yes, because cheap money in the markets has slowly made its way into RE, which is inflating prices.  If you can't buy right, time to build your "war chest" so when something tanks, you can swoop in for the discount.  

In the areas I "farm" for deals, I'm seeing a steep 20% jump in asking prices, this has ZERO bearing on what I'm willing to pay, however, it has made it harder and slower to get homes on contract, thus I'm potentially losing some of my key contractors to those who can keep their pipelines open, I'm not so bullish right now.

[11F...]

On 11 May 2016 at 7:19 AM, Ping Hymas said:

11F, brother, you are spot on!  Fact is, I don't hear most of my bros who invest in RE describe it the way you do, so for them I'd advise different strategies.  Look, everyone should be able to articulate what they are doing in terms economic and psychological (like your Target example) and describe how it affects the market etc.  most can't.  I feel that way about long term buy and hold RE.  What I really like is listening to all the airline wannabe's talk about their future "dream jobs" and how much they will make....hilarious.  No "job" is a dream job.  Someone is still telling you when and where to be, 2 bags full etc.  Check out those guys picketting for better pay etc.  Sorry fellas, doesn't look like fun at all.  Got it, its an extreme example, but true passive income means that sure, I'll have to work here and there, but if I want to Ride the Divide on my new mountain bike for a month, I can.  Go to Patagonia for the summer, yeah, I can do that.  Do a "world year" with my 5 kids, sure.  Am I "rich"?  No!  I have income that shows up whether I do or not, and that is a beautiful thing.  Last thing, I have a buddy and a business associate stop by my office this morning.  He told me his check from the property manager this month was over $7K.  I'm super stoked for him, because, once he retires as a Lt Col, (or Col if he wants) he doesn't have to work and will still do over 6 figures every year.  Think about that for a minute.  Would you rather make $250K/year working 80 hrs a month where ever, OR $150K/yr passively?  Its a no-brainer for me, If I could do it in the markets I would, but right now, long term RE works, so that's what I'm doing.  Good luck!

This is the killer for me.  I don't understand why more people didn't like this post.  69 people will like a post telling General Chang to piss off, but no one wants to acknowledge that with our income, from day 1 in the military, none of us should ever have to work another day in our lives (if you stay until 20 anyway).   I think military officers are typically embarrassingly bad money mangers (guilty), and part of it is because we know (at least for a time) that we have guaranteed income while in the service, and most likely guaranteed once we're out.  But I'm with you on this decision of work a bunch/make a bunch or work none/make some being a no-brainer.  When I was in ROTC, a First Command (I'll buy you a drink AND save you $20,000 if anyone is actually still investing with them...PM me) and a USAA sales pitch were the only 2 "mil sponsored" $$ briefs I ever got while in school.  That is embarrassing and borderline criminal for our service members.  I was too busy eating chicken wings and drinking beer (amongst other things) to pay much attention in college, but if I would have had half a brain and mapped out my financial life at age 22, I would be set for life by now.  If I didn't have a family now, I would never work a day after retiring and live the exact same lifestyle/standard of living as I do now.  Because I do have a family, I will continue to work, and maybe for the airlines one day.  But not by choice, and certainly not for 20 more years.   I'm attempting to build a passive income stream, and that's where I 100% agree with your philosophy.  Mil folks, enlisted for sure, but certainly officers, have absolutely no excuse to end a career, whether that's 5, 12, or 20 years, without a solid foundation of passive income built up already.   I assume, like you, I can't live off my passive income once I quit right away, but I can definitely take a job at McDonalds if I want to, for fun.   Or take 6 months off.  Or coach high school baseball and teach "maths" or something.  Pretty much until I don't want to anymore.   

One quick half-drunken proofread of this leads me to say 2 things.  1) I use a lot of commas.  2) target is again slightly on sale today closing at $67.06 (reference my random stock example in a previous post).  This is only posted for future accountability/ridicule/disclosure, and since most free stock advice is rarely specific. Also, TGT increases their dividend next month...2003 is the last time they haven't had a double digit dividend increase (that includes that great recession we had from 08 to 09).  For those looking at a reasonable long term investment, the transgender bathroom sensation is a perfect example (IMO) of how to take advantage of buying stocks on sale.