There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, and Rockstar Finance. Here are some of the discussions happening around the internet.

1. White Coat Investor: Buying in a hot housing market

Question: Gasdoc86 is a 31-year-old fellow who will graduate in June 2018. He currently lives in a high cost-of-living area and is thinking about buying a house. He’s looking at a $500,000 house, but is concerned at the high price and the hidden costs of owning a home.

However, because the housing market has been rising quickly in his market (along with mortgage rates), he is worried that when he feels more comfortable to buy a home in a few years, home prices in his area could be even higher. He has $42,000 in his checking account, $44,000 in student loans, $50,000 in retirement, and will be taking a job where he did his fellowship.

WSP’s Take: One question to consider is whether you think this home will be your “forever” home. If it is a “starter” home, you might be better off just staying in your current place and then moving into your “forever” home when you (1) are certain you will be in your current job for the rest of your career, (2) are in a better financial position (e.g. student loans paid off, more money for a down payment).

Even better, if you choose to stay in your current rental instead of moving to a “starter” home, you’ll save a lot of money and avoid jumping on the hedonic treadmill that so many physicians get on after training.

2. Bogleheads: Bond allocation during retirement

Question: Sandtrap asks whether the age in bonds rule applies to investors in retirement. He also wonders whether bond allocation might differ based on how much you have in retirement (e.g. 25x annual expenses vs. 50x annual expenses)

WSP’s Take: In general, I prefer at least a 50/50 allocation in retirement, as the Trinity University study required a 50/50 allocation in order for the 4% rule (i.e. saving 25x annual expenses) to be effective. The age in bonds rule would leave you with 65% bonds early in retirement and would rise as you got older.

I would argue that it might be reasonable to have even less in bonds if you have 33x or 50x expenses during retirement. Since you only really need 25x expenses to not outlive your own money, the excess money you have ends up being for your children and grandchildren rather than yourself. Since they have a significantly longer investment time horizon than you, that extra money beyond 25x expenses could be invested very aggressively. Of course, if the market runs into trouble or you want to increase your lifestyle in retirement, then the money is still yours to spend.

3. White Coat Investor: Retirement Fund Allocation For Resident

Question: Battle is halfway through residency and has been maxing out his Roth IRA every year through Betterment. He has set his portfolio to 100% stocks and was wondering whether this allocation would be OK for him, since he has a high risk tolerance and a long time horizon.

WSP’s Take: If you realize that the money currently in your retirement is relatively insignificant compared to the size of your portfolio later in your career, then you can probably have 100% in stocks. For example, if you have a $20,000 portfolio, a drop of 50% is “only” $10,000, which will probably be the daily movement of your portfolio when your portfolio rises in value to greater than $1-2 million.

The other question is whether it makes sense to be paying money to Betterment to manage your Roth IRA. The potential benefits of tax loss harvesting would be irrelevant in a retirement account and there is no need to rebalance a 100% stock portfolio.

4. Bogleheads: Simulating Total Stock Market

Question: Tkeppell’s daughter has a Fidelity 403(b), which does not have a total stock market option. It is currently invested in the Vanguard FTSE Social Index Fund, which has an expense ratio of 0.20%. He was wondering whether he could replicate the total stock market using the funds that are currently available to her.

WSP’s Take: According to Morningstar, the Vanguard Total Stock Market index has 72% giant and large-cap stocks, 19% mid-cap stocks, and 9% small-cap stocks. So you could hypothetically purchase a large-cap, mid-cap, and small-cap fund in these proportions to replicate the total stock market.

The question becomes whether it is even worth it to try to replicate the total stock market index fund. The S&P 500 and total stock market index have very similar historical returns, and the available small-cap and mid-cap funds in her 403(b) have very high expense ratios (0.37% and 0.58%, respectively). I would switch to the Fidelity S&P 500 Index – Institutional Shares that is available to her, which has an expense ratio of 0.03%.

Wall Street Shares: 5 Articles To Read This Week

  1. Mama Fish Saves: Why Investing Isn’t Gambling, It’s Owning the Casino — not a perfect analogy, but investing has the risk of casino gambling, but with a positive instead of a negative expected return.
  2. White Coat Investor and Cory Fawcett, MD: When To Take Social Security – A Pro/Con — WCI and Dr. Fawcett go to battle over the optimal time to take Social Security.
  3. White Coat Investor: What Doctors Need To Know About the Tax Cuts and Jobs Act (TCJA) — I wrote about how the tax law will affect residents — WCI goes over how it will affect attendings.
  4. Rogue Dad, M.D.: Is Work-Life Balance a Unicorn? — Rogue Dad, M.D. does a pro/con with himself on whether work-life balance is achievable in medicine.
  5. Get Rich Slowly: How to set smart goals: What science says about getting what you want — It’s time for New Year’s Resolutions — J.D. Roth goes beyond the “smart, measurable, … , timely” goals in this article.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?

5 COMMENTS

  1. WSP, I have a question about 529 funds that I hope you can clarify. I live in California, and I have Vanguard 529 funds for my children (Vanguard’s 529 plan is the Nevada plan, but I prefer the simplicity of Vanguard). However, the Vanguard (Nevada) plan’s max contribution is 370,000, whereas I believe the California plan’s max contribution is 425,000. I would like to contribute as much as possible to the 529 funds. Since I live in California, do I have to obey California state’s contribution limits? If so, I would transfer the Vanguard money to California. Or can I transfer it to another state’s 529 fund with an even higher contribution limit? (I’ve noticed some are around 500,000).

    Appreciate your thoughts! Thanks!

    • To be clear, the limits on contributions on 529s in Nevada and California are by account balance, not total contribution. So once a 529 account exceeds $370,000 in NV or $425,000 in CA, you can’t contribute any more money, but the balance could grow infinitely if the stock market keeps on rising — you wouldn’t have to withdraw money to keep the balance below $370,000.

      Each state regulates their own 529 plan, so once the money is in the CA plan, the $425,000 limit applies.

      Also note that you are limited in your 529 contributions by gift tax laws, so most families won’t hit the max unless they have a hot stock market or save a lot from a very early age or have other family members like grandparents also contribute.

      According to Saving For College, it appears permissible to have multiple 529 accounts. So if you want to pay for private college and private medical school for your child, that might cost $500,000 in today’s dollars, but $1,000,000 in 2035 dollars. But if they end up not going to college or medical school, then there’s no way to withdraw the money without penalty (but it can be transferred to other beneficiaries such as grandchildren).

      Note that it sounds like people can get in trouble if they use the 529 accounts exclusively as a tax haven instead of as a way to save for college.

  2. Got it, just want to make sure I understand. So my account value is not limited by the state in which I live, but by the plan I choose, and I can choose any plan I want? So even though I live in California where the plan limit is 425,000, I could choose the NY plan which I believe has a limit of 500,000? If so, that’s helpful, as I thought I was limited by my state’s limit.

    And it hasn’t been that hard to reach the plan’s limits in this bull market … my son just turned 7 and has 300,000 in his Vanguard account, which is why I’m thinking of switching to another state!

    Thanks for your help!

  3. I like to contribute to the first question. I will suggest that he works for some time so that he can have enough savings to make the down payment and the associated closing costs. Renting a place may be ideal for him because at his age, he may need some levels of privacy. That is why I can’t suggest staying with his parents

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