There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, Mr. Money Mustache, Rockstar Finance, and Reddit. This is a roundup of my favorite discussions happening around the internet.

1. Rockstar Finance: Keeping an Investment Diary

QuestionMoneyBuffalo is wondering whether any other forum members keep an investing diary of their trades or investments. Sometimes, he wishes that he had kept a log of the rationale and thinking behind each of his past trading decisions.

WSP’s Take: In a previous postI recommended keeping a trading log if you must try your hand in trading. Especially for traders, there is no way to know which strategies do and don’t work if you don’t keep a diary.

For long-term investors who invest in low-cost index funds, there is no need for a detailed investing diary. However, it might be worthwhile to write down your rationale for the asset allocation you have selected, for future reference. This would best be done within the context of an investor policy statement. If you decide to tweak your asset allocation in the future, you should write down your reasons for doing so. Sometimes we will incorrectly tweak our allocation because of the recent over-performance of certain asset classes. By maintaining an investor policy statement, you will be able to avoid this mistake.

2. Mr. Money Mustache: Are We In A Stock Market Bubble?

Question: Supershrpy is anxious about the current levels of the market. He is hearing contradictory information about the future direction of the market. Warren Buffett argues to stay the course, while other talking heads are predicting a correction this month.

WSP’s TakeYes, the stock market has risen significantly over the past seven years. Yes, many indicators of stock market valuations (for example, P/E ratios) indicate that the market is trading at more expensive levels than historical averages. Yes, there is significantly uncertainty in the market because of President Trump.

All of that being said, I would not change my asset allocation one bit. Let us assume that we are in a bubble. Let’s just say that the stock market is 20% overvalued. How and when will the market eventually correct for this mispricing? The logical answer is that it would decline 20% to return to fair market value.

However, just as likely, the stock market could continue to rise, becoming 40%, 50%, or even 100% overvalued, before declining. How would you feel about being out of the market as the market continues to rise? After all, talking heads have been saying that the stock market is overvalued for at least the past four years.

An alternative way for the market to correct itself is to give low or flat returns for the next few years, until the market reaches fair market value. Would you rather be in cash or in the stock market if stocks rise slowly over the next few years?

In short, I do not know whether we are in a bubble. But if we are in a bubble, I would stay the course and not try to time the market.

3. Mr. Money Mustache: Replicating The Vanguard Total Stock Market Index

Question: AlienRobotAnthropologist (nice handle) would like to invest in the Vanguard Total Stock Market Index, but his 401k only has an S&P 500 index fund. He was wondering whether there was a way to replicate the Vanguard Total Stock Market Index using other index funds.

WSP’s Take: This is a very common question. The simplest way to replicate the Vanguard Total Stock Market Index (VTSAX) is to purchase the Vanguard S&P 500 Index Fund (VFIAX), which tracks large-cap stocks, and the Vanguard Extended Market Index Fund (VEXAX), which tracks mid-cap and small-cap stocks. By purchasing this combination, you would now have exposure to large-, mid-, and small-cap stocks, or the Total Stock Market Index.

The next question is how to weight the two funds. On their website, Standard and Poor’s states that the S&P 500 index consist of approximately 80% of the United States market capitalization, with the mid-cap and small-cap stocks comprising the other 20%. Therefore, you should purchase 80% Vanguard S&P 500 Index, and 20% Vanguard Extended Market Index. See this article for a much more detailed calculation.

4. White Coat Investor: Encouraging Kids To Go To Medical School

Question: Canadianoutlaw wonders whether the physicians and dentists on the White Coat Investor forum would encourage their children to go into medicine.

WSP’s Take: I would not hesitate to encourage my children to go to medical school. Yes, it is a long training process. Yes, medical school is very expensive. And yes, when you finish residency, being a physician is not as high-paying or as prestigious as it once was. However, having worked in a different industry prior to becoming a physician, I think being a doctor is a wonderful, fulfilling, and lucrative profession.

We should not forget, the Bureau of Labor Statistics ranks various medical specialties (physician and dentist) as 11 of the 12 highest-paying specialties in America. Sure, there are many ways to be financially successful in careers other than medicine. But in those professions, you cannot be average. You have to be the best. On the other hand, in medicine, P = M.D. = $$$. Once you get into a U.S. medical school, you will almost certainly finish residency and have a high-paying job that has nearly 100% job security.

Of course, I will not force my kids to go to medical school. But by my example, I hope they see that being a physician is an amazing privilege and a fulfilling career. Also, if they remember the lifestyle they grew up with as a result of being a child of a physician, they will realize that it is financially rewarding as well.

Wall Street Shares: 5 Articles I Enjoyed Reading This Week

  1. White Coat Investor and Physician On Fire: Mixing Business with Pleasure: PoF Goes to SLC – The two juggernauts in the physician finance blogosphere combine forces to help spread their message to more doctors and other high-income professionals. Congratulations, PoF and WCI!
  2. Some Random Guy Online: Investing Rate: A Different Take on the Savings Rate – This emergency physician gives an interesting spin on calculating your savings rate.
  3. Chief Mom OfficerOptimizing Your Expenses – One of the Keys to Financial Freedom – A nice article about cutting down on your monthly expenses. I especially liked the Financial Freedom pyramid diagram.
  4. Passive Income, M.D.If Doctors Chose Their Job Locations Based on State Income Taxes – I knew Texas had no state income tax and California had very high income taxes, but it was interesting to look at the states in the middle.
  5. Smart ProvisionsThe Power of 50,000 Miles – I’ve opened a few credit cards for the points and miles. Often the best value of these miles is in emergency situations when you need a last-minute flight. Smart Provisions shares a story of such a situation.

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?

8 COMMENTS

  1. Thanks for sharing the forum posts, particularly the state tax one on Passive Income. Living in the high taxed state of Cali is killing me. We moved 8 months ago and it blows my mind how much we pay in taxes….not to mention the cost for setting up an LLC (which I recently looked into). $800 a year! Talk about a barrier to small business entry.

    I suspect when my kid is out of the house we will relocate to a less expensive part of the country and just visit Cali. For now I will keep on keeping on.

  2. Thanks for the mention, WSP! It’s super awesome when you can use points and miles for a last-minute flight situation. In my case, it was an interesting and memorable experience!

    For the most part, I agree with all of your discussions. On the “encouraging kids to go to medical school”, I would probably encourage my kids to try and learn how to code as being able to “communicate” with computers and machinery would be very helpful as society is heading towards a more tech-heavy lifestyle and workforce.

  3. Happy to be included and to have a couple new threads and posts to check out. Thanks, WaSP!

    The question of recommending medicine to your children is an interesting one. I would not dissuade my boys from entering medicine for the right reasons, but I might not recommend it as wholeheartedly as I would have five or ten years ago. Fortunately, we’ve got more than a decade before they begin to face such decisions.

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