I just did a bit more analysis of our portfolio after realizing that the real benefit of figuring out our total ER is to identify whether there are places we can cut it back. I also realized that it’s not really accurate to include in the denominator asset values that inherently have no ER. For us this includes things like CDs, iBonds, and individual stocks. I also don’t count the ER of the cash positions held in money market mutual funds at our brokerage because by the time I net off the fund expense fee it ends up paying the same amount of interest as a high yield online savings account (right now 3.9%). By removing those items from my ER analysis I’m left with only ETFs that attract some sort of ER. That didn’t change the numerator I started with, but it made the denominator smaller, thereby increasing our average ER quite a bit to 0.38%. In terms of dollars, 2/3 of the ER comprises the AUM fee we’re paying to a broker to robo manage part of our portfolio. The remaining 1/3 of the average ER comes from actual ER fees for the ETF positions. And of those, fully 1/3 comes from a single position our robo advisor put us in that has an ER of 0.36%. That really got my attention, so I did a bit of research on it and found out that a comparable Vangard ETF has an ER of 0.03%. A side by side comparison of their respective performance at various time intervals out to five years tells the tale, though. The high-priced ETF is consistently turning in a 1% better performance on both ups and downs than the Vanguard fund. Conclusion: in this case it’s worth paying the higher ER for the better performance. AND - it’s worth paying my robo advisor for their insightfulness to put me in the higher fee ETF in the first place - a move I probably wouldn’t have made. Thank you, again, for asking the question. This prompted me to do a nice year-end checkup and learn something about the total cost of owning and managing what we have.
Average ER for whole portfolio is 0.08%. We pay for robo management of part of our portfolio, which averages around 0.15% across everything. Total ER is 0.22%.
Great post, James. Re SSA, have you played around with the numbers using https://opensocialsecurity.com/? It basically does a sensitivity analysis on the full range of claiming dates for both you and your spouse’s SSA, and gives you a nice visualization and the numbers related to the results. Obviously if longevity is in your genes then both waiting until 70 nets the highest payment total. I like to hedge my bet, so I give myself 5% leeway on maximum, worth an NPV of about $100k on the total amount of payments for both of us in constant dollars. Using this I can see that I can start as early as now, at 65, and my much younger wife can be the one to wait until 70, and we’ll only leave 5% on the table. Now it becomes a matter of tax minimization, and also cash needs for the coming year. In our case, I need neither the cash due to bond ladder rungs maturing nor the tax hit that claiming now would create, so I’ve changed our claiming plan to 2026. Nice to have options.
Great example of the saying, ‘with age comes clarity.’ This should be printed out on a long, vertical banner and hung in college classrooms (I guess with a QR code at the bottom so the students could download it 😊).
Not suggesting beating cancer, but beating the docs predictions of how much longer one might live. And yes, I do believe that it is absolutely the case.
Thank you, Jonathan, for sharing this journey so candidly with us. You are an inspiration to my wife and me and I’m sure many others. We keep you in our thoughts and we continue to root for you beating the doc’s predictions. It certainly does happen, and your attitude and all the support coming from so many different places seems like a good recipe to help you do just that. Go well.
These are all great, Jonathan. The ones that resonated with me as I recall my very early days of investing under my father’s guidance are 1,2,and 8. He had me subscribing to Barron’s so I could become proficient at picking winners; and Fidelity’s Peter Lynch (of Magellan mutual fund fame) was everyone’s guru. Ha! Another one that he used to drill into my sibs and me was that nobody ever gets rich being a corporate executive, which is what he was for his career. The way to make real money was to be an entrepreneur. While he wasn’t wrong about that, those who are fortunate enough to make it even some way up the corporate ladder and hang on long enough to retire come out financially very well, so that’s also changed a lot.
Actually, pensions were pretty common according to CNN Money, which asked and answered the question, Just how common are defined benefit pensions? Answer:
Not very. The percentage of workers in the private sector whose only retirement account is a defined benefit pension plan is now 4%, down from 60% in the early 1980s.
https://money.cnn.com/retirement/guide/pensions_basics.moneymag/index7.htm Point being, retirees have had to make a significant shift in their thinking over the last decade or two as more and more workers started to realize that their retirements no longer came with any sort of guaranteed income beyond Social Security.
Comments
I just did a bit more analysis of our portfolio after realizing that the real benefit of figuring out our total ER is to identify whether there are places we can cut it back. I also realized that it’s not really accurate to include in the denominator asset values that inherently have no ER. For us this includes things like CDs, iBonds, and individual stocks. I also don’t count the ER of the cash positions held in money market mutual funds at our brokerage because by the time I net off the fund expense fee it ends up paying the same amount of interest as a high yield online savings account (right now 3.9%). By removing those items from my ER analysis I’m left with only ETFs that attract some sort of ER. That didn’t change the numerator I started with, but it made the denominator smaller, thereby increasing our average ER quite a bit to 0.38%. In terms of dollars, 2/3 of the ER comprises the AUM fee we’re paying to a broker to robo manage part of our portfolio. The remaining 1/3 of the average ER comes from actual ER fees for the ETF positions. And of those, fully 1/3 comes from a single position our robo advisor put us in that has an ER of 0.36%. That really got my attention, so I did a bit of research on it and found out that a comparable Vangard ETF has an ER of 0.03%. A side by side comparison of their respective performance at various time intervals out to five years tells the tale, though. The high-priced ETF is consistently turning in a 1% better performance on both ups and downs than the Vanguard fund. Conclusion: in this case it’s worth paying the higher ER for the better performance. AND - it’s worth paying my robo advisor for their insightfulness to put me in the higher fee ETF in the first place - a move I probably wouldn’t have made. Thank you, again, for asking the question. This prompted me to do a nice year-end checkup and learn something about the total cost of owning and managing what we have.
Post: Costs Matter
Link to comment from December 7, 2024
Average ER for whole portfolio is 0.08%. We pay for robo management of part of our portfolio, which averages around 0.15% across everything. Total ER is 0.22%.
Post: Costs Matter
Link to comment from December 7, 2024
Great post, James. Re SSA, have you played around with the numbers using https://opensocialsecurity.com/? It basically does a sensitivity analysis on the full range of claiming dates for both you and your spouse’s SSA, and gives you a nice visualization and the numbers related to the results. Obviously if longevity is in your genes then both waiting until 70 nets the highest payment total. I like to hedge my bet, so I give myself 5% leeway on maximum, worth an NPV of about $100k on the total amount of payments for both of us in constant dollars. Using this I can see that I can start as early as now, at 65, and my much younger wife can be the one to wait until 70, and we’ll only leave 5% on the table. Now it becomes a matter of tax minimization, and also cash needs for the coming year. In our case, I need neither the cash due to bond ladder rungs maturing nor the tax hit that claiming now would create, so I’ve changed our claiming plan to 2026. Nice to have options.
Post: Living It Up
Link to comment from November 30, 2024
Great example of the saying, ‘with age comes clarity.’ This should be printed out on a long, vertical banner and hung in college classrooms (I guess with a QR code at the bottom so the students could download it 😊).
Post: Advice for the Kids
Link to comment from November 9, 2024
Not suggesting beating cancer, but beating the docs predictions of how much longer one might live. And yes, I do believe that it is absolutely the case.
Post: Turned Upside Down
Link to comment from October 10, 2024
Thank you, Jonathan, for sharing this journey so candidly with us. You are an inspiration to my wife and me and I’m sure many others. We keep you in our thoughts and we continue to root for you beating the doc’s predictions. It certainly does happen, and your attitude and all the support coming from so many different places seems like a good recipe to help you do just that. Go well.
Post: Turned Upside Down
Link to comment from October 5, 2024
These are all great, Jonathan. The ones that resonated with me as I recall my very early days of investing under my father’s guidance are 1,2,and 8. He had me subscribing to Barron’s so I could become proficient at picking winners; and Fidelity’s Peter Lynch (of Magellan mutual fund fame) was everyone’s guru. Ha! Another one that he used to drill into my sibs and me was that nobody ever gets rich being a corporate executive, which is what he was for his career. The way to make real money was to be an entrepreneur. While he wasn’t wrong about that, those who are fortunate enough to make it even some way up the corporate ladder and hang on long enough to retire come out financially very well, so that’s also changed a lot.
Post: What We Believed
Link to comment from August 31, 2024
¯\_(ツ)_/¯
Post: He Asked, I Answered
Link to comment from March 9, 2024
Actually, pensions were pretty common according to CNN Money, which asked and answered the question, Just how common are defined benefit pensions? Answer:
https://money.cnn.com/retirement/guide/pensions_basics.moneymag/index7.htm Point being, retirees have had to make a significant shift in their thinking over the last decade or two as more and more workers started to realize that their retirements no longer came with any sort of guaranteed income beyond Social Security.Post: He Asked, I Answered
Link to comment from March 9, 2024