Mutual fund taxes: Lessons learned

Every year I learn a little bit more about investing that I often wish I didn’t know.

Why?  Well, back in the day, my father took care of my investments and he’s really into complicated stuff.  Each year I can generally only handle untangling one crazy thing.  (I think I’m going to have one share of AOL for ETERNITY.  How?  I had AOL, then it became TWC, then it split off again, so now I have a bunch of TWC, some other Turner/Time Warner company, and one lonely AOL share.  Figuring out the cost-basis on that share is a really low priority.  Update:  And now Comcast is buying TWC… that’ll be fun.)

This year I learned that mutual funds can generate capital gains without your knowledge, and they don’t give you the money but instead they reinvest it, buying more shares of the fund.  This particular capital gain hasn’t done any such thing since like 1994 (before I was paying attention), so the $4K capital gain was a surprise.  I immediately groaned and wished I’d given these funds to the school instead of cash back when my dad was donating money to the school, but I was worried about dealing with that paperwork then too.  Or that I’d taken leave from the school when DH was unemployed so that I could claim a 15% marginal tax rate and sell every single one of those tangled up funds.  (Or better yet, taken a capital loss on all of them when the markets were down during the recession!)  If only I were more organized and not still learning in the past.

But, it turns out that paying capital gains taxes now on mutual funds isn’t such a horrible thing.  The tax I pay now will reduce my tax bill in the future when I actually sell the whole thing.  So it may be best not to donate these shares to charity.  (I probably have some QQQQ with a higher capital gain anyway.  QQQQ has been good to me.)

Still, this mutual fund has a 1% expense ratio, and I think it’s just a large cap fund, so I should get rid of it one of these days anyway since I can get large cap from Vanguard much less expensively.

So anyway.  None of our readers probably cares about this, but hey.  Stick with Vanguard index funds or Target date funds and you’ll be fine.  Stay away from needless and expensive complications!

And so say I.

Meeting pet peeves

Here’s some things that annoy us in meetings and workshops.  You know, since it’s that time of year again.
1. People who cannot come to the point.  Don’t say in three paragraphs what you can say in 3 sentences or less.

2. Lack of agenda.  We should not be having meetings for the sake of having meetings.

3. Arguing about the same excrement over and over again without doing anything about it.  Either we do something about it or we don’t waste our time griping.
4. Lack of action items.  It doesn’t matter how many good suggestions people make unless someone actually implements them.
5. People who talk over my female and minority colleagues.  Gentlemen, you suck.
6. People who are making good points but just shut up when they’re talked over. (But I get why they do that and I always break in and say, “What is it you were saying…” etc.  Still, I wish they would break in so I don’t have to.  Also if they did that it would seem more normal when I refuse to let myself talked over by the same senior white guys who try to steamroll everybody.)
7.  “Let’s defer that to another committee.”
8.  “Let’s put you on that other committee.”
9.  People who make a bunch of suggestions about work for other people to do and then leave the meeting early so they can’t be assigned any of said work.  (Bonus points if they email later with more work for people “assigned to the committee [I suggested]” to do after.  Note that they have actually done no work themselves and conveniently ducked out right after suggesting a committee but before being able to be assigned to a committee.  No committee was created after they left, btw.)
10.  Anything longer than an hour and 30 min.  Or more frequent than once a month.  (Exceptions:  research meetings– those can/should be more frequent.)
What makes you want to claw your eyes/ears out at meetings?

compound interest

One of the things Dave Ramsey is infamous for is making the claim that the stock market returns 12%/year.  Lately he’s been saying well, his money market funds return that.  (Uh huh.)  Then he goes through an exercise showing how much money you’ll make if you put away X, assuming an interest rate of 12%/year.  It’s a lot.  Because of the magic of compounding.

And obviously that 12% number is garbage.  (Reality is probably closer to 7%.)  However, after he makes this claim, he’ll often say, “Even if I’m half wrong…that’s still a lot of money.”

The implication being, if the interest rate is closer to 6% you’ll end up with half of that huge number he just calculated, which is still a huge number.

Of course you don’t.

Because compound interest doesn’t work that way.  As time goes on tiny differences are magnified with each compound, so that 6% difference starts out as half as big, but ends up compounding over time to something much larger than half as big.

Here’s a calculator because that’s more fun than doing the math by hand.  (Or at least it’s more fun than either typing out the formula or typing out the derivation of the formula.)

Take a Principal of 100,000.  Don’t add anything to it.  Assume a 12% interest rate that compounds once per year for 30 years.  You get $2,995,992.21 .  Or almost 3 million dollars.

Now let’s assume it’s actually half of 12%, or 6%.  If you’re thinking, I could totally live on 1.5 million dollars… you probably could.  But a 6% interest rate over 30 years only gives you $574,349.12, or half a million dollars.  Not chump change, but not enough to live through retirement on, even assuming these are real interest rates (putting things in today’s dollars instead of tomorrow’s inflationed dollars) and not nominal (if you assume 2% inflation, the real interest rate is 2 points lower than the nominal rate).

Half the interest rate compounded doesn’t result in half the earnings, but instead far less than that.

Losing just 1%, for a rate of 11% gives $2,289,229.66, which is a loss of about 700K!

The truth is that compound interest is magical, and the longer your time horizon, the less you need to put in to get big numbers out the other end.  However, it’s not quite as magical as a 12% interest rate would have you believe.  If Dave Ramsey is 50% wrong, you’re much worse than 50% worse off.

Shout-at (Travel edition)

F* you to cabdrivers who want to make small talk and chit-chat at 4am on the way to the airport.  I hate this guy so much.  Who wants to tell a stranger about their hobbies and politics at 4am?  You just lost all my future business for your company.

F* you also to cabdrivers who don’t know how to get places and have to ask me.  Ask Siri, use GPS, f*ing memorize an atlas in your free time, I don’t care.  If I could get there myself I wouldn’t have to pay you.  Do your job.

Related f* you to all people who are incompetent at their jobs!  Also f*-you to the awful Mexican place in the Denver airport, you know the one, with the extremely uninspiring food and the slow-ass service.

Shout-out, though, to the awesome Vietnamese place in Silver Spring, MD, who had delicious food and brought all our complex orders right, and fast, the first time.  Yum yum yum!  A+ would eat again.

#2 doesn’t mind chatty cab drivers (in fact, in her profession, cab drivers are the only regular people that many of the top folks in her field ever talk to…so she hears about their views at conferences as if they’re the “man on the street”), but she would mind them at 4am.

Shout-out to the grandparents who came to visit even though we don’t live in a big interesting city.  And even though you had to miss an important football game.

Do you have any travel-related shout-ats or shout-outs?

Some notes for book publishers and all types of writers

  • We really really need to stop titling novels “The [X]‘s Daughter”.  Not only are they hard to tell apart, and way overdone, but must we continue to define girls and women this way?
  • Alternate titles:
    “The woman in relationship only to herself”
    “The woman defined as her own person rather than as her relationship to another”
  • Also, why does everything have “: A Novel” in the title?  For real, you think we can’t tell it’s a novel?  Stop with cutesy titles and just call things the names of novels!  I know it’s really hard to think of good new names, but start now.
  • Could we maybe have pop songs retire the phrase, “You’re a good girl”?  I get that they’re into the whole madonna – whore thing, but can’t we retire it?
  • Note:  it is ok to use the phrase, “You’re a good girl” if the song is about an actual canine.  But you can’t then put sexual euphemisms or overt sexual stuff in there because dogs can’t consent.
  • We are happy to see women’s heads back on covers.
  • Misogyny, I hate you.

Why, Sir Terry, WHY???

I’m having a problem with Terry Pratchett’s Dodger.  And I say this as a huge fan of his.


[CONTAINS SPOILERS]
Does Dodger HAVE to run into EVERY famous person ever?

#2:  he does NOT run into Jack the Ripper

#1:  Charles Dickens, Sweeney Todd, Disraeli…. it takes me right out of the story.  It would be more believable if the names were made-up.  Let’s just name-drop Babbage and Lovelace while we’re at it, no reason at all, they don’t even have lines, we’ll just put them in this scene because Look How Much I Know!

#2:  The little professor has a couple of posts on this

#1:  (wow, I didn’t know that)  is there ever anyone who DOESN’T run into charles dickens?

#2:  I’m just proud of him for not running into Jack the Ripper

#1:  did Dickens seriously know every single person in London?  It’s just…. it’s cheap.  Were Dickens and Disraeli really friends?  I mean, really?  It’s cheap.

it’s like it’s saying, ha ha, in the book.

The things Disraeli does… the whole thing would be more believable if it were someone made-up.  And Dickens is always stopping to make a note of some turn of phrase that is the title of one of his books…. STUPID!

#2:  Yes, he could have had thinly disguised nods to famous people like he does in his Discworld series; however, I thought of Dodger more as a YA fiction, and those often have famous people in them.  Pretend the book is for 12 year olds.

#1:  I thought about that, but then there’s [SPOILER ALERT] domestic violence and miscarriage and baby-killing….

#2:  but not graphic or overt
it’s even discussed in a YA sort of fashion

#1:  but does a 12-year-old know who Disraeli is?  Like, there’s no REASON to have him in there.  If you’re old enough to know who he is, you’re old enough to think it’s disingenuous to have him in there.

#2: The 12 year old learns about Disraeli from books like that.

#1:  I dunno.  I’m just not… I don’t feel very forgiving about this book.  I feel like he’s written much better things.

#2:  He has.  It’s called Discworld.

#1:  he could do Dodger in Discworld though, and it would be better, with all the same themes.  I mean, Good Omens was fantastic.

#2:  Oh, yes.

#2: he’s not as good at children’s fiction, except when he’s not aiming it at children (see:  Tiffany Aching).  Diggers is terrible, and Johnny and the bomb is totally mediocre.

#1:  Dodger is just… cheap.  It’s like he’s saying, look how clever.

the Tiffany Aching books are amazing!  Why didn’t he just keep doing that.
Nudge, nudge, wink wink, can you tell that Karl Marx is in here, nudge nudge.
I don’t want to be nudged. Just make up some damn characters!  You’re a writer!
and I know: he is not my bitch.  But yet…
[Disclaimer:  #2 liked Dodger just fine and would totally recommend it to any middle schooler and up.  Not her favorite Terry Pratchett, but better than many non-Terry Pratchetts.  Her partner thought it was ok, but didn't think it was great.]

Readers, what makes you mad?

Dear bloggers [a point of grammar],

There’s an easy way to figure out if you’re supposed to say “person and I” vs. “person and me.”

Say the sentence to yourself without the “person and” part.  We know you get it right when you’re starting a sentence with just “I” or using “me” appropriately later on.  There’s large swaths of the country that start sentences with “Me and him” but we know you wouldn’t do that.

“What works for DH and I” or “What works for DH and me”?  Think to yourself “What works for I” or “What works for me”?  Hopefully doing that has caused you to choose “What works for DH and me.”

Similarly when you’re labeling photos– “My BFF and I” would be appropriate if you finish the sentence “My BFF and I are eating ice cream” but is inappropriate if that’s all you’re labeling the picture with.  Do you label pictures just “I”, or do you label them “me”?  Therefore, the picture is labeled “My BFF and me.”

This has been a public service announcement from the grumpy grammarians.

My body defies science, or else everyone lies.

Ok what is it with this idea that you are getting enough sleep when you can wake up without an alarm?  Who does that?  Maybe if I set my alarm for 11am!  Even when I go to bed early, and set the alarm for 8 – 9 hours later, the alarm always wakes me up.  What is WITH you people and your freakish lack of need for alarm clocks?  That’s why they make alarm clocks!  Because we need them!  Perhaps if I never had a class or meeting before 2pm then I wouldn’t need an alarm clock.  But seriously!  Getting 8 – 9 hours of sleep is NO guarantee that I will then wake up at the right time.  Ha ha.  I laugh upon your alarm-clock-not-needing!  [#2 does not usually use alarm clocks, and even when she does use them, she usually wakes up before they go off.] [#1 sticks out her tongue at #2.]

I *always* feel groggy when I get up.  And there is nothing wrong with my thyroid [#2, using her armchair internet skillz, suspects it's a difficult to diagnose thyroid problem], I get plenty of vitamin D, I exercise several times per week (which only makes me MORE exhausted, but that’s a separate post).  If I was pulled over on my way to work, I would fail a field sobriety test because I am uncoordinated and usually sleepy at that hour.  I can’t even reliably touch my finger to my nose when stone-cold sober, and I do drive sleepy.  I know I shouldn’t.  But there’s no other way to get to work!  Or, if I’m awake when going TO work, I’m very exhausted when coming home, which leaves the same problem.

Who’s with me?!?!?!?!?

Ask the grumpies: worth fighting insurance company?

L asks:

My employer switched health insurance companies/networks recently and a service that used to cost $75 with the old network’s discounts now costs $175 with the new network, apparently there is no discounted price. It’s the exact same service and a month apart, so it’s not like prices went up in the meantime. I told the benefits department at my company this and they gave me a bunch of bullcrap about how the new network is supposed to save us money and unfortunately my case is one where it costs more than twice as much. There’s a distribution list and I asked and there are other people seeing similar increases in service costs.

While I can absorb this, it is rather annoying and I now have the high deductible plan, so it is 100% my cost. I did finally get the bill in the mail from the provider and sure enough, it is $175 like the insurance company’s website said it would be. Do you think that I can call the provider and try to negotiate my own discount since there was such a large discrepancy between back to back visits? I really wish my employer would do something like this since we as individuals have no pull with the insurance company, but they have enough employees that they probably would…

Sigh.

Thanks!

Well, the only time we’ve ever had luck negotiating with an insurance company is when we’ve been in the right. And even then it has sometimes taken multiple phone calls. Still, it’s always worth a shot, if you think your time is worth it– you can report back to us.

What do our readers think? Have you ever had any success negotiating with an insurance company? Any thoughts for L?

Stock investing: Focus on what you can control

With the market recovering, assorted PF bloggers are getting into the details of stock investing.  They all have some system that they think is going to beat the market.  Most of these systems take a lot of time, but they say the time expense is worth it if they can make higher returns than the market.

On average, once fees and transaction costs are considered, people who try to actively manage their portfolios make LESS than people who just stick money in diversified target-date funds and sit.

That means that the majority of people who sink time in with whatever system they’re following are making less money in the market than the people who just set and forget.  On top of that, they’re making less money than they would be if they were spending that time doing something that actually earns money.  (Cynically, some of these folks are getting advertising $ from their blogs for misleading people into becoming active investors.)

What can you control:

1.  The amount of money you put in
2.  The diversification mix of your portfolio
3.  The fees you pay

What can’t you control:

1.  Market returns
2.  The random walk down WallStreet

And what you might have difficulty controlling:

1.  Man’s (and to a much lesser extent, according to Greg O’Dean, Woman’s) tendency to trade too much and at exactly the wrong times

If you want to invest like Buffett, then buy some Berkshire Hathaway funds.

Even better, pick a target date and buy a Vanguard Target-date fund.  (If you’re not sure about when you’re going to retire, pick a late date.)

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