Stock Investing

[mission27]

On 3/16/2023 at 10:10 AM, PARROTHEAD said:

Hate to capitalize on the misfortune of others.

But tossing money at META everytime they fire someone pays pretty freakin good.

 

Live look at Menlo Park...

[mission27]

3 minutes ago, mission27 said:

What you are saying is true from a Finance 101 Homo Economicus perspective 

The reality, though, is that even good companies are generally not that well managed and most management teams are not really making decisions by comparing the IRR on investment opportunities with their WACC.  

Profitable companies that do not return money to shareholders, either through dividends or buybacks, usually end up wasting that money on stupid crap IMO. 

See, e.g., most of the tech industry and what has happened to the market value of those companies. 

On the other hand if you were an investor in Apple over the past ten years, you got half a trillion dollars back, because of Carl Icahn.  And somehow they've managed to grow just fine without all that extra $$$.

As further example of this... 

The sharp, active money always wants cash returned

In capital markets: activist investors are always pushing for dividends and buybacks 

In private markets: PE is always looking to monetize and exit 

[ramssuperbowl99]

8 hours ago, mission27 said:

What you are saying is true from a Finance 101 Homo Economicus perspective 

The reality, though, is that even good companies are generally not that well managed and most management teams are not really making decisions by comparing the IRR on investment opportunities with their WACC.  

Profitable companies that do not return money to shareholders, either through dividends or buybacks, usually end up wasting that money on stupid crap IMO. 

See, e.g., most of the tech industry and what has happened to the market value of those companies. 

On the other hand if you were an investor in Apple over the past ten years, you got half a trillion dollars back, because of Carl Icahn.  And somehow they've managed to grow just fine without all that extra $$$.

In an era of low never ending interest rates, I agree with you. When there is money for Dogecoin and NFTs and Jake Paul Prize Fights, all the good ideas have funding already. In an era of high interest rates where projects have to be prioritized and the funding doesn't always exist, that's going to be less true overall.

[MWil23]

@ramssuperbowl99 since you’ve been my go to guy here, if you know anything about the federal TSP match 401K equivalent portfolios and returns since 1988 in its inception, I’d love to get your opinion and thoughts. I’m working 24-26 years so thinking going the aggressive route then rolling it conservative the last 5 or so years.

[mission27]

1 hour ago, ramssuperbowl99 said:

In an era of low never ending interest rates, I agree with you. When there is money for Dogecoin and NFTs and Jake Paul Prize Fights, all the good ideas have funding already. In an era of high interest rates where projects have to be prioritized and the funding doesn't always exist, that's going to be less true overall.

Probably, in part because in the era of high interest rates investors demand companies return cash to shareholders

[ramssuperbowl99]

1 hour ago, mission27 said:

Probably, in part because in the era of high interest rates investors demand companies return cash to shareholders

Ahh true, I was thinking about it from an operations side, but yeah the bar for what the investors could do with the cash also goes up.

[ramssuperbowl99]

3 hours ago, MWil23 said:

@ramssuperbowl99 since you’ve been my go to guy here, if you know anything about the federal TSP match 401K equivalent portfolios and returns since 1988 in its inception, I’d love to get your opinion and thoughts. I’m working 24-26 years so thinking going the aggressive route then rolling it conservative the last 5 or so years.

I'm not a federal employee and haven't been, but TSP was more or less designed to be the public employee equivalent of a 401k, so most of the same advice would apply (contribute as much as you can, aggressive early and generally move towards conservative later, etc.)

But I'm not sure if you would prioritize it over HSA, IRA, etc. once you max out the match.

 

[MWil23]

Just now, ramssuperbowl99 said:

I'm not a federal employee and haven't been, but TSP was more or less designed to be the public employee equivalent of a 401k, so most of the same advice would apply (contribute as much as you can, aggressive early and generally move towards conservative later, etc.)

But I'm not sure if you would prioritize it over HSA, IRA, etc. once you max out the match.

 

Got it, thanks. It's a 5% match, so that's going to get maxed out, but then after that I have some figuring to do.

[Pats#1]

On 3/20/2023 at 10:00 AM, MWil23 said:

Got it, thanks. It's a 5% match, so that's going to get maxed out, but then after that I have some figuring to do.

How much you make will affect the strategy. If you’re AGI is above a certain amount ($73,000 for 2023) and your employer offers a retirement plan, any contribution to an outside IRA won’t be tax deductible.

 

You should weigh out the importance of reducing your tax bill and getting tax deferred growth (max out TSP as much as your cash flow allows) vs paying more in taxes but getting tax-free growth long term (Roth-IRA contribution or back door Roth on top of 5% TSP contribution to get employer match).

 

As for TSP plans themselves, I’ve got a couple clients who have them and while the investment choices within the plan are pretty limited, they give you enough to effectively participate in the market. The expense ratios are practically 0 which is great. They are basically index funds. They’ve got 5 funds that each follow an index. An F Fund for Fixed Income, G Fund for Govt Securities, C Fund for common stock, S Fund for Small Cap, and I Fund for International Equities. With your long term timeline I’d say a good mix of C, S, and I Fund. 

Edited March 23, 2023 by Pats#1

[bigbadbuff]

I’m going to do the back door Roth. I don’t know exactly how it works or why but my financial advisor told me it’s a good idea lol.

[Pats#1]

23 hours ago, bigbadbuff said:

I’m going to do the back door Roth. I don’t know exactly how it works or why but my financial advisor told me it’s a good idea lol.

You make too much to contribute to directly to a Roth IRA so your advisor will have you contribute to a traditional IRA and then convert it to a Roth. You’ll pay tax on the conversion at ordinary income rates but now all future growth in the account is tax free.

 

Great way to get around the Roth IRA income limits.

[bigbadbuff]

33 minutes ago, Pats#1 said:

You make too much to contribute to directly to a Roth IRA so your advisor will have you contribute to a traditional IRA and then convert it to a Roth. You’ll pay tax on the conversion at ordinary income rates but now all future growth in the account is tax free.

 

Great way to get around the Roth IRA income limits.

Got it. How is that legal? 

[Pats#1]

12 minutes ago, bigbadbuff said:

Got it. How is that legal? 

Loop hole that hasn’t been closed…..yet

 

100% legal

[ramssuperbowl99]

On 3/25/2023 at 8:47 PM, Pats#1 said:

Loop hole that hasn’t been closed…..yet

 

100% legal

Should remove income caps for roths instead.

[Pats#1]

6 hours ago, ramssuperbowl99 said:

Should remove income caps for roths instead.

100%

 

And make Roth options for 401ks available for all standard/safe harbor plans.