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

[BashiChuni]

I think that is a very good explanation and it sounds like you are set up for financial success! 
 

however I think most average Americans are getting hammered by inflation and don’t have the long term view that you have. The average American has definitely lost real time purchasing power due to inflationary policies  

 

 

[HeloDude]

If the economy was so great then we wouldn’t be running a $1.8 TRILLION annual deficit…

[nsplayr]

45 minutes ago, BashiChuni said:

I think that is a very good explanation and it sounds like you are set up for financial success!

You're not wrong that many people are struggling, but then again that's always the case. Inflation in particular punishes people who stupidly overspend and richly rewards those who save. Unfortunately too few people take advantage of that. The stupid-cheap money era particularly since 2008 has also melted a lot of brains and folks have failed to learn how to exist in other fiscal environments that are historically very typical.

1 hour ago, BashiChuni said:

The average American has definitely lost real time purchasing power due to inflationary policies

This was true from early 2021 until early 2023, but is no longer true. https://www.statista.com/statistics/1351276/wage-growth-vs-inflation-us/

I'll make a broader counter-argument though, economic sentiments are often about vibes and expectations.

Did you know that inflation today is lower than at any point during the Reagan Administration? Morning in America also had higher unemployment than today. The vibes then were great and the admin was beating expectations compared to what folks got used to during the stagflation of the 70s. Today, despite objectively better numbers on inflation and unemployment rate, the vibes are somewhat bad and this economy has underperformed the expectations of many folks for various reasons. 🤷‍♂️

I will die on the hill that the economy now is good and that it's a fantastic time to save, invest, and live your best life. This is especially true for the types of people that populate this board, people who are are largely well-educated, well-compensated, and likely equipped with the ability to conceive of & execute a long-term plan.

I for one don't sweat the price of, and I truly have to lol here, jeans & "nice shirts" at the NEX 😂 #DadFashion to the max there @ViperMan. What's the price of braided belts like these days?

My investing advice remains the same no matter what short of a zombie apocalypse: spend less time doing complex stuff, worrying, trading, etc. Just invest broadly in the most successful companies in the world's most successful economy and chill.

[nsplayr]

37 minutes ago, HeloDude said:

If the economy was so great then we wouldn’t be running a $1.8 TRILLION annual deficit…

Did you consider the economy good Jan 2017 - Jan 2021?

[HeloDude]

14 minutes ago, nsplayr said:

Did you consider the economy good Jan 2017 - Jan 2021?

Was 2020 good?  Is that a serious question?  It was dog crap!  I would say it was somewhat decent (not great) the few years before…still way too much government spending and regulations.  Then with Covid, and later, the politicians were like “hold my beer!”.  

[ViperMan]

5 hours ago, nsplayr said:

I mean if inflation is around 3.5% YOY and my investments are up 26% over that same time, my purchasing power increased about 22.5%, which is incredibly good! I will take years like the last 12 months economically every day and twice on Sunday.

The “one weird trick” of investing is DCA into a broad index of equities, and literally do nothing else.

Yes, the hill we're climbing right now isn't as steep as it recently was.

Cumulative inflation since 2019 (or March 2020) has been approximately 21-22%. This is an extreme historical anomaly. That's 5%+ per year, and it doesn't include certain sectors like housing. Which has undergone even more extreme inflation. The worst part is that we're not addressing the root cause - which is an out of control spending habit.

Furthermore, even though the end product is the same, when you have higher inflation earlier in an inflationary period, the later inflation, even if it is lower, has a worse effect because the intermediate products are greater for a longer period of time. Recent years' inflation was over 9%. That's going to have a downstream affect.

https://www.usinflationcalculator.com/

https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1%2C000.00&year1=202003&year2=202403

[ViperMan]

2 hours ago, nsplayr said:

Inflation in particular punishes people who stupidly overspend and richly rewards those who save.

The truth is the exact opposite of this. I actually can't tell if you're serious, or seriously trolling. But inflation crushes those who save, and richly rewards those who spend every cent.

Think about it this way - inflation makes your money worthless. Does it make sense to hold on to something whose value is decreasing?

2 hours ago, nsplayr said:

What's the price of braided belts like these days?

.No idea. However, the price of braided belt futures is way down from its previous highs in the late 90s and early 2000s.

[Inertia17]

10 hours ago, nsplayr said:

If stocks are up 7% for the year and inflation was 3% that year, your real return is 4%. My purchasing power for the same basket of goods is 4% higher.

What if actual price inflation was what is reported...

[nsplayr]

14 hours ago, ViperMan said:

The truth is the exact opposite of this. I actually can't tell if you're serious, or seriously trolling. But inflation crushes those who save, and richly rewards those who spend every cent.

Think about it this way - inflation makes your money worthless. Does it make sense to hold on to something whose value is decreasing?

We're both right; I'm not trolling you.

Textbook answer, yes, inflation hurts savers. However IRL who is doing better in today's economic environment?

• A worker who spends every last dollar and prays his raises keep up with inflation, or
• Someone who saves (and invests, I should have added that before) in a broadly diversified portfolio heavily weighted toward equities, and also puts their savings in a high-yield savings account that more or less preserves the purchasing power of their saved dollars by offering rates at or slightly above inflation?

The second guy is way better, and everyone on this board has the capability to be the second guy. Furthermore inflation helps borrowers who have locked in loans for big-ticket items at lower rates, which also likely applies to lots of people on BO.net, myself included.

South American-style hyperinflation, yea you're hosed if you have saved, but that's not what we're seeing here today.

[HeloDude]

1 hour ago, nsplayr said:

We're both right; I'm not trolling you.

Textbook answer, yes, inflation hurts savers. However IRL who is doing better in today's economic environment?

• A worker who spends every last dollar and prays his raises keep up with inflation, or
• Someone who saves (and invests, I should have added that before) in a broadly diversified portfolio heavily weighted toward equities, and also puts their savings in a high-yield savings account that more or less preserves the purchasing power of their saved dollars by offering rates at or slightly above inflation?

The second guy is way better, and everyone on this board has the capability to be the second guy. Furthermore inflation helps borrowers who have locked in loans for big-ticket items at lower rates, which also likely applies to lots of people on BO.net, myself included.

South American-style hyperinflation, yea you're hosed if you have saved, but that's not what we're seeing here today.

So what you’re saying is that inflation we see today and have been seeing the last few years is a good thing?

[Milton]

6 hours ago, HeloDude said:

So what you’re saying is that inflation we see today and have been seeing the last few years is a good thing?

Of course! Just like the bread lines and literacy programs in Cuba were A GOOD THING (in my best Bernie Sanders accent).

On 4/10/2024 at 8:36 PM, nsplayr said:

Did you know that inflation today is lower than at any point during the Reagan Administration?

Sure. After various economic factors in the 1970s like oil shortages and the Carter administration we had an uphill battle. Reagan also accumulated  ~$1T in debt (if I remember my numbers correctly). But you know what else he did? Spent that money to win the Cold War. A pretty good bargain if you ask me.

I love the arbitrary standards we use to judge the economy. Remember when we used to call two consecutive quarters of negative growth a recession but then changed the definition of a recession so we didn't have one? Or when the cost of a 4th of July cookout was down $0.69 from the previous year?

The economy *looks good* depending on how you look at The Numbers. My 401K, TSP, brokerage account, IRAs, and college savings did very well the last year or so (14-17% range for most of them). That's great. But I don't buy groceries, pay my utility bills, or my insurance premiums with that money. My family does well, my investments have done well, but I'll be damned if I don't see the difference in the amount of money I have left at the end of the month after I pay all the bills. And for your average American who lives just above the paycheck-to-paycheck threshold, its much worse. But again, The Numbers look good. If you're a wealthy family, The Numbers look even better, especially when inflation, scarcity, and real estate are less of a concern. But for Joe Blow who doesn't have the flexibility to invest when The Numbers look good, well, things aren't so good. 

That's not to mention the 35T national debt, Social Security going insolvent in a few years (according to its own Board of Trustees and the CBO), record credit card debt, and about 10 million illegals who will need education, housing, and healthcare while simultaneously driving down wages for working class Americans.

I never bought too hard into the "party switch" of pre/post 1960s, but it certainly seems like we're in the midst of one now.

 

 

Edited April 12 by Milton

[Stoker]

27 minutes ago, Milton said:

Reagan also accumulated  ~$1T in debt (if I remember my numbers correctly). But you know what else he did? Spent that money to win the Cold War. A pretty good bargain if you ask me.

The idea that Reagan doing a bunch of deficit spending somehow won the Cold War implies that the Communist model was sound but for the US issuing a ton of bonds. That gives far too much credit to their economic model - the Cold War was always going to be lost by Russia, the only question was whether it would be lost due to internal collapse or lost due to nuclear annihilation.

[nunya]

Back on the personal finance front... Fidelity will allow SPAXX as your sweep account in Cash Management Accounts (CMA) starting around June 15. IMO this makes CMAs a no brainer. No need to mess with separate online savings accounts to get higher rates on your cash.

I know this took me a while to wrap my head around and I wish somebody had broken it down for me earlier, so for those that don't habla CMA, here's the skinny...

• CMAs are brokerage accounts that operate "like" checking accounts. Debit cards, ATMs, fee reimbursement, checks, online bill pay, direct deposit, etc.
• Your cash balances by default are kept at various banks around the country. You can see which banks, but there's no reason to care. You get FDIC protection, ~2.7%* interest, and manage your cash centrally via Fidelity.
• If you elect to keep your cash in SPAXX, you give up FDIC coverage, but you can get ~5%* on your cash balances.
• Vanguard just started "Cash Plus" accounts to compete. I'm sure they'll be great accounts, but I moved from Vanguard because (IMO) their service starting slipping around 2020 and became untenable.
• Bottom line, especially for the young dudes: Look beyond USAA for your banking needs. With some work, you'll be very wealthy one day - learn to manage it well now.

*all rates are as of 4/15/24

Edited Monday at 08:03 AM by nunya

[Khruangbin33]

19 minutes ago, nunya said:

Vanguard...service starting slipping around 2020 and became untenable.

Genuinely curious...in what ways?  I've just been auto-buying a target date fund and ignoring it, plus a few brokered CDs for the hermit hut fund, so I don't have many interactions with the institution/platform.

[nunya]

24 minutes ago, Khruangbin33 said:

Genuinely curious...in what ways?  I've just been auto-buying a target date fund and ignoring it, plus a few brokered CDs for the hermit hut fund, so I don't have many interactions with the institution/platform.

Vanguard was outstanding, as long as I didn't need anything from a human. I was happy with them for many years, until...

My specific experience was needing to move 6 figures out of my brokerage account. It was too much to move online so I had to call. I waited on hold for cumulative hours over several days. I was completely unable to move the money before a deadline. Luckily another party covered for me while I moved the money out in several installments, staying under the online maximums.

I talked to others with similar experiences. I already had a good chunk at Fidelity and had never waited more than a couple minutes for a rep, so I bailed on Vanguard. I was probably hasty, but I don't regret it one bit.

Edited Monday at 08:30 AM by nunya