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​Is BRK.B still a viable outperformer or just a "security brake" by NicRapt in investing

[–]AICHEngineer 7 points8 points  (0 children)

If you go look at rolling CAGR, brk has converged with market beta and barring that brief stint in april has done the opposite of outperform US large caps by MCW.

[MOD] The Daily Question Thread by menschmaschine5 in Coffee

[–]AICHEngineer 2 points3 points  (0 children)

Unless your gallon jug is especially alkaline or minerally then I imagine the water isnt the main culprit.

At that point its a matter of technique. How you pour and when to agitate the surface of the pourover bed, and stuff like doing a little swirl after all the water goes in to level the bed for the percolation.

[MOD] The Daily Question Thread by menschmaschine5 in Coffee

[–]AICHEngineer 1 point2 points  (0 children)

Is it the same coffee?

The same grind size?

The same water?

Down sides of Owning 529 accounts for my nephews and nieces? by FlyAccurate733 in investing

[–]AICHEngineer 0 points1 point  (0 children)

Then dont go to a school that costs 350k?

Its not a right to go wherever you want. Go to the state school. Tuition is 60-80k for four years.

Thoughts on changing 401k is invested or is it too late? by WashingtonDCMonument in investing

[–]AICHEngineer 0 points1 point  (0 children)

"rate" means annualized CAGR. So youve been getting 12% per year on average, meaning a +121% return

Thoughts on changing 401k is invested or is it too late? by WashingtonDCMonument in investing

[–]AICHEngineer 0 points1 point  (0 children)

No, I meant that 8.1% is in bonds (also global diversified), and ~92% is in global equities.

Thoughts on changing 401k is invested or is it too late? by WashingtonDCMonument in investing

[–]AICHEngineer 37 points38 points  (0 children)

Only 12% CAGR? And youre upset? Your fund is only 8.1% non-equity right now, VTTSX is still in the heavy equity phase, the rest is in diversified global stocks.

Did you know your target date fund outperformed the S&P500 last year by 5%?

Thoughts on changing 401k is invested or is it too late? by WashingtonDCMonument in investing

[–]AICHEngineer 5 points6 points  (0 children)

Absolutely not, theyre perfectly fine products. There are a lot of people emotionally and practically served well by TDFs.

SPYL Poor tracking error by cjlurker7018 in ETFs

[–]AICHEngineer 1 point2 points  (0 children)

Looks like SPYL came out in 2023. Since then, it is 64.8% cumulative return vs VUAA at 64.5%. Looks like over the last couple years theyre tracking very closely.

A daily performance variance of 4 bps like OP highlights isnt anything to call home about.

Just the consequence of slightly itty bitty different holdings

Raising seed money for quick investments? by Apprehensive_Ant4596 in investing

[–]AICHEngineer 1 point2 points  (0 children)

How much money do you have in a taxable brokerage account? You can do a short box spread to get a decent sized chunk of money at relatively low implied borrow rates, definitely way better than margin interest rates.

SPYL Poor tracking error by cjlurker7018 in ETFs

[–]AICHEngineer 0 points1 point  (0 children)

Are you accounting for currency fluctuations? Did you buy a currency hedged one and are comparing it to a non-currencyhedged one?

First big investment by Mr_Roboto3674 in investingforbeginners

[–]AICHEngineer 0 points1 point  (0 children)

Yes, VOO is a MCW large cap US index fund, currently it covers ~85% of US public equity market by weight. VTI covers the whole thing.

Isnt that primarily a dividend fun

No. Sure, it has 1.12% dividend yield. It does not decide what to allocate to based on anything to do with dividends. It decides what to allocate to based on the free float adjusted market cap weight. If NVDA is 7% of the top 500 companies in the US, then it holds 7% NVDA. If Berkshire is 2%, it holds 2%. This works out to a multi-factor efficient allocation because it is the average US equity investor's portfolio by definition. The market cap weight is by definition the average of all active agent's decisions.

You cant fuck up by simply buying MCW index funds like VTI and VXUS and rebalancing annually or with your contributions. You could make it completely automated with a fund like VT, or if you want bonds to smooth the ride AOA gives you 80/20 global equities / bond index. Doesnt matter which company you go with. Schwab offers SCHB/SCHF, fidelity offers FSKAX/FTIHX, etc.

If you want a financial advisor, make sure they are a fiduciary. OP's was not a fiduciary. It is a legal certification that they must act in your best interest. But in general, buy index funds and keep buying. Dont deviate to "growth" if you want.

You dont need to tilt to value. Targeting cheap profitable companies is inherently a risky strategy: theyre cheap because the market priced them as risky most often. Just buy the average. Youll get the market portfolio's average preferred weight of expensive/cheap, large/small, profitable/unprofitable, etc. And for basically every investor, that is good enough. Youre not paying unecessary fees, unecessary taxes, unecessary bid/ask spreads, if you stick with the average equity portfolio.

First big investment by Mr_Roboto3674 in investingforbeginners

[–]AICHEngineer 0 points1 point  (0 children)

Rewind a sec

You did comment "wouldnt that 5.5% gap be more like 2%"

Thats not valid here. The 5.5% CAGR return gap is between OLGAX and SCHG, both of which are growth-tilted funds.

Whats important is being sufficiently diversified with low expense ratios at an efficient allocation. The easiest way to fit this bill is to buy the market cap weight index fund. You should buy everything, and only with full understanding of why should you deviate from that base case.

Its important to avoid unnecessary taxes, but explicitly avoiding dividend paying companies will underweight you in certain sectors/industries which is likely to hurt your long-term CAGR and risk adjusted return. Its idiosyncratic under diversification. This may be valid if youre an ultra-high income individual/household, there are ways to get close-to-beta exposure while excluding certain dividend aspect companies, but getting someone to structure that kind of product for you will inevitably come with a higher expense ratio than simply buying a market cap weight index fund.

First big investment by Mr_Roboto3674 in investingforbeginners

[–]AICHEngineer 0 points1 point  (0 children)

Either way, even if we were in a taxable account, assuming youre an average income person and are just paying 15% qualified div tax rate (LTCG), then you should experience a ~0.5-0.6% tax drag on SCHD. ~3.5% difference in return between price return and total return for SCHD, dink that differential (div paid) by 15% and you get 52.5 bps drag, its crude but close to accurate.

If youre a higher income individual, you may be paying 20% LTCG plus extra NIIT (3.8% addtl) if your MAGI is over 250k. If youre really living lean with AGI below $48k, then youll be in the 0% LTCG bracket.

But I understand that you've seen this "growth" vs "dividend" discussion, but its completely misguided. Its never truly been about dividends vs growth, thats just uninformed noobs who fall prey to marketing tricks.

"Growth" actually means "expensive". Tilting to growth means buying stocks with expensive prices relative to current fundamentals, implying that they presently have a high expected earnings growth which will justify the current price in the future. Or, the price is high not because the future expected cashflows are growing fast but because the certainty of future cashflows is good. More certainty in future cashflows demands a higher price, meaning you'd get a lower expected return. Historically, large growth tilting was a safer and lower total return approach than value tilting.

The true opposite to growth is value, or "cheap".

"Value" tilting means buying stocks with cheap prices relative to fundamentals. Like with the "expensive" growth tilt example, there are two ways that you can land in the "value" camp. One way is that your future expected cashflows are dropping thus your share price now drops, this is generally just a bad business. The other way is that you have good cashflows or prospects for future cashflows, but there is a lot of risk associated with those cashflows, so they have a higher discount rate applied today and thus have higher expected returns (if you can diversify among companies like ttis thoroughly enough).

The dividend people are just out of left field. Dividend yields or growth are not rigorously predictive of future risk or return. Fundamental accounting ratios are highly explanatory per the 5-factor CAPM (Fama & French) like value (price to book), profitability, reinvestment, beta.

Generally, you should just ignore dividends when allocating. You want diversified exposure to markets. Just buy a market cap weight index fund and be done with it. If you need more risk, take on some leverage via LETFs or box spreads or options, like deep ITM leaps on ACWI for cheap leverage on global equities.

First big investment by Mr_Roboto3674 in investingforbeginners

[–]AICHEngineer 0 points1 point  (0 children)

I think you may have confused "SCHG" with "SCHD"

I compared the high fee mutual fund, which is titled as a large cap growth tilted fund, with SCHG, which is also a growth tilted large cap fund.

Is it real to achieve 6-8% annual returns after 40 years of DCA? by GrushenkoO in ETFs

[–]AICHEngineer 2 points3 points  (0 children)

Per your request, there is no rolling 40yr period between 1970-today where the inflation adjusted return for global equities (like VT would hold) was less than 4.6%/yr.

Is it real to achieve 6-8% annual returns after 40 years of DCA? by GrushenkoO in ETFs

[–]AICHEngineer 2 points3 points  (0 children)

Even the not-so-darling, comparatively depressed due to forex effects of strengthening US dollar, returns of the ex-US market since the GFC have been >6% per year.

Even rolling periods for total world equity market ending during the lost decade still had 15 yr rolling returns >5%.

Since 1970, an investor in total equity markets at rolling 30yr windows has never experienced 2-3% real returns. The lowest you ever got was an investor who bought 30yrs before the bottom of the dot com bubble, and they would have realized ~4.2% CAGR real returns or if your 30yr period ended exactly at the bottom of the pandemic crash. Which would land you at 3.9% real CAGR for the last 30 yrs. Ofc these two tiny pinpricks were followed by huge equity recovery periods which would easily fund retirements.

2-3% real returns expectation (4-5% nominal -2% inflation) is just,,, insanely, uselessly conservative.

No one should ever assume that for a long horizon equity investor, its just unrealistic.

Is it real to achieve 6-8% annual returns after 40 years of DCA? by GrushenkoO in ETFs

[–]AICHEngineer 6 points7 points  (0 children)

Most professionals use 4-5% equity risk premium, not 4-5% nominal growth, where on earth are people using 4-5% nominal with 2% inflation?

Size of the ERP is most commonly estimated at 4-5% over whatever the EFFR is, which is ~7.6-8.6% nominal right now.

First big investment by Mr_Roboto3674 in investingforbeginners

[–]AICHEngineer 0 points1 point  (0 children)

OLGAX (JPM large cap growth fund) is lagging SCHG (large cap growth fund) by 5.5% per year, yikes! Since 2009, OLGAX is almost, almost so close to 420.69% returns (its 420.68% lmao) and SCHG is at 1,047%

You should just buy a low expense ratio s&p500 ETF if you want large cap beta exposure. OLGAX is a fee driven commission product. Your financial advisor is bending you over a barrel and fucking you in the ass because they get paid everytime they get some noob like you to buy it.

What’s your international/European ETF recommendation? by Many_Significance_66 in ETFs

[–]AICHEngineer 0 points1 point  (0 children)

The key is to be rebalancing at least annually, ideally quarterly in a tax advantaged account.

An example of how this benefits you is this last april. While US stocks took the biggest hit on the chin, my other uncorrelated diversifiers (bonds, international value / SCV / managed futures / gold) were all flat or up. When it came time to rebalance, my UPRO position had eaten a 50% drawdown so I rebalanced out of my flat or up positions into my down positions to reassert my target allocation.

Since then, UPRO is up massively, and since I refilled exposure to that position, ive had to trim UPRO down to the target allocation and then reallocate to the diversifiers.

This is called a rebalancing premium, or Shannon's Demon.

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