Brexit

Two Totebaggers have Brexit on their minds.

by Finn

Now that the voters in the UK have spoken on Brexit, how does it affect you?

Some of us have jobs with companies that are based in Europe. Anyone whose jobs are in the financial sector probably will be affected more than most others.

Did anyone make any financial moves, or does anyone plan to make any financial moves, based on Brexit? Anyone see the resulting dip in the stock market as a buying opportunity?

 

by WCE

My attention to politics is limited but the Brexit vote has caught it. This article draws attention to what economists have long identified as the primary hurdle to a strong social safety net, global immigration.

Why Britain Left
The June 23 vote represents a huge popular rebellion against a future in which British people feel increasingly crowded within—and even crowded out of—their own country.

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175 thoughts on “Brexit

  1. Yes, that’s a bright move by the UK. Let’s stop Spanish nurses, German bankers and Belgian engineers from coming. Take our country back… by making it so bad to live in, no one else wants it!

  2. “Anyone see the resulting dip in the stock market as a buying opportunity?”

    Sure. But on that note, forums like Bogleheads and MMM will often talk about P/E’s, and for good reason, I’d say. So when you think about “buying opportunity,” would you agree that the “current” P/E of the S&P500 is about 17 now (forward 12 month estimate), or 24 (trailing 12 months). It seems like an important distinction.

    http://www.wsj.com/mdc/public/page/2_3021-peyield.html

  3. I think it is horrendous for younger people in Britain, who are used to working and studying anywhere in the UK. But they didn’t turn out to vote, so they are stuck with it.

    My big question – will Scotland find a way to do its on EU deal? They do not want out.

  4. I’m guessing our trip to Ireland will be cheaper. I can’t get over the fact that everyone is using this stupid Brexit term to describe it like it is a celebrity couple not a major public policy issue. We are getting dumber and dumber as a people.

  5. I held off on reinvesting retirement money until the brexit decision came out. Was exiting some poor performers and always like to buy things at a slight discount. It’s long term money anyway. Probably did more for long term good by exiting the low performing funds than waiting for brexit discount.

    Global economics fascinate me so I was like a little Econ nerd glued to the TV all day. It was the one day the many TV’s in our office weren’t on sports.

  6. Anyone see the resulting dip in the stock market as a buying opportunity?

    Doesn’t that imply an attempt to time the market?

  7. My immediate reaction was to go out and buy Euros for our upcoming trip, since they had dropped so sharply. Now I’m wishing I’d waited, as it keeps dropping. :-) I had assumed a quick drop, followed by a fairly quick recovery as everyone figured out the sky is not falling.

    Personally, I think GB still sees themselves as the 900-lb gorilla in the room, because it used to be the great empire that ruled huge swaths of the globe. But that’s not today’s reality. The rest of the world has caught up quite a bit — and the rest of Europe in particular after WWII. So Britain just handed over whatever economic/moral suasion power it had to Angela Merkel.

  8. Does not affect my job or at this point my portfolio..maybe travel plans though.

    However, I observe that anytime you see your (you, your family, friends, neighbors) jobs, schools and workplaces change fairly quickly demographically, it feels uncomfortable. Now, if unemployment goes up with jobs get harder to find (or spots in competitive schools , sports or fine arts) at the same time, it is blamed on the immigration. I have observed this in my state fairly often.

    To MM’s point – yes, often the young think “this” vote is crazy and the majority would never vote to do “that”. As a result they don’t participate and then are shocked at the result. It will be interesting to see what Scotland does. Have they ever split away without a lot of bloodshed?

  9. I have relatives in the UK, immigrants themselves but in the non EU category. What had happened in recent years was the sheer numbers of people coming in from the rest of the EU and the migrant crisis made things worse. It wasn’t like in the past where the numbers of people allowed in was regulated.
    In 1987 the free movement of goods, services and people was passed. Since then a bunch of countries joined. The largest add of members occurred in 2004. The last referendum was in 1975.

  10. I empathize with the Brexiters. It’s tough to feel that your government isn’t listening to you and have to deal with what you see as “uncontrolled” immigration. Very similar to what’s going on in the US.

  11. can I do a brief hijack?

    2nd interview with a local company this afternoon in a couple hours for a Controller job

    1. What questions to ask the owner? (I’m more used to talking with HR/accounting)
    2. negotiation tips? (might send in a topic for this one)

    TIA

  12. This spring I was working on my investments, assuring enough cash and bonds (after the unexpected hit from the new HVAC system) and doing my donations while the market was high, not because I was worried about the UK referendum, but because I consider a Trump presidency within the realm of possibility. The UK vote increases that possibility, because the same dynamic could play out here. Long term I am not worried – we have a steady cash income to tide us over – but I don’t want to get “stuck.”

    The growth and prosperity of the US as a nation is entirely built on immigration. Successive generations may have forgotten their history and the fact that (for most) when their European origin ancestors arrived they were not considered worthy of full acceptance by the exact assortment of European origin earlier waves already here. Those who are themselves or who are descended from non European origin immigrants are usually reminded of that history by current encounters from time to time.

  13. Houston – I agree, in no small part because the Elites still don’t view their decision as legitimate:

    http://reason.com/archives/2016/06/27/elitist-rage-over-brexit

    You see the same thing in this country when people dismiss an election victory by sniffing that a candidate garners support from a higher proportion of uneducated voters. I never quite know what we’re supposed to make of that–are they implying that their votes shouldn’t count?

  14. Roger Cohen does nothing to discredit the charge that opponents of Brexit quietly wish to return to a time where only the landed gentry could vote (particularly in the last two paragraphs):

    I have been overcome by gloom since Britain voted to leave the European Union. It’s not just the stupidity of the decision. It’s not merely the lies of the charlatans who led the “Leave” campaign. It’s not only the absence, now so evident, of any “Nextit.” It’s not even the betrayal of British youth. It’s far more: a personal loss. Europa, however flawed, was the dream of my generation. The European Union was an entity, a bloodless noun, yet it had a beating heart.

    Riding a European train, gazing at the lines of swaying poplars, the villages huddled around their church spires, it was often impossible, at least for me, not to look past the tranquility to the blood-seeped soil and the tens of millions who gave their lives in Europe’s collective suicides. Well, as the Germans say, we had the blessing of late birth; and the duty inherent in that blessing was to build a united Europe.

    When he tries to extricate Britain from the union, he will face a hostile Parliament. Last time I checked, Britain was a parliamentary, not direct, democracy. So perhaps there is still hope. If words mean their opposite, as they do in Johnson’s mouth, anything is possible. Europa is worth a fight.

    The union, for all its failings, did not deserve to be betrayed by a huckster. It will not die because of this imbecilic vote, but something broke — a form of optimism about humankind, the promise of 1989.

    http://www.nytimes.com/2016/06/28/opinion/britain-to-leave-europe-for-a-lie.html

  15. I was on a conference call yesterday with some of our investment bankers and one of them pointed out that the Brexit referendum actually has no legal weight. IOW, unless/until the politicians actually officially request to drop out of the EU, nothing legal changes. Sure, lots of emotion on both sides and political fallout for the Tories, but the reality is no legal impact until the UK government takes action.

    I am happily watching from the sidelines.

  16. winemama – have you done your homework about the exact industry/niche? Do you know his main competitors or larger issues facing his business? You don’t want to throw out a tiny bit of useless knowledge and not be able to negotiate the follow up, but you should be able to nod at the right time. If you don’t know much about the business, encourage him to talk about it so you can learn.

    The default question is some version of the following – how do you see me in this role helping you to grow or maintain your business. Alternatively, something like, what financial concerns do you have or is there anything on the financial/tax side that has been holding you back in growing/maintaining your business.

  17. I think you are being too hard on the folks who are against Brexit. Yes, a lot of those people are “elites”, but the fact that the under 40 crowd was pretty opposed, as well as a big majority of people in Scotland, tells me that this isn’t just an elite opinion. Scotland is hardly a bastion of elites.

  18. To me, this is more of an older vs younger thing. People in Britain who are over 50 can remember a time when Britain was not that well integrated into what was once called the Common Market. Heck, I can remember that time. To people under 40, that seems quaint. I think that is why people are so profoundly unsettled right now

  19. I’m not against the Remainers–they had some solid arguments on their side. However, I cringe at the vitriol and insults being hurdled at the Brexiters by the media and elites.

  20. I never quite know what we’re supposed to make of that–are they implying that their votes shouldn’t count?

    That’s certainly what the Founding Fathers thought, hence the need for the 17th Amendment. Well, and the 15th and 19th..

  21. The Economist had some great podcasts about this issue as well. One point they raised is that this may encourage other countries populace to vote to leave as well, for example, France.

  22. “hence the need for the 17th Amendment. Well, and the 15th and 19th..”

    Right, so the issue is long settled. But you still see it come up all the time as a not-fully-stated argument that their votes shouldn’t fully count.

  23. Leavers, Remainers… this sounds like some horrible dystopian teen novel. Or perhaps an ironic novel about the Rapture

  24. Right, so the issue is long settled.

    It’s never really settled. Look at the situation in California* there is an argument to be made that direct democracy has a lot of flaws.

    * Prop 13, Prop 1 etc.

  25. I saw Roger Cohen’s editorial this morning. It was a tad over the top. Still, I think there is something about this that speaks to the anger in Britain. Young people in Britain had bought into the idea that they were part of Europe rather than an island fortress. In fact, I have seen it suggested in recent days that one of the forces driving the leaver vote was the fear that the younger generation was losing their Englishness. Kind of like why the Pilgrims left Leiden…

  26. In fact, I have seen it suggested in recent days that one of the forces driving the leaver vote was the fear that the younger generation was losing their Englishness.

    That’s interesting. We once had a discussion about regional accents and how they indicate social class. The stronger your Texan, Boston, Bronx, etc. accent is the lower your social class. That seems to mirror the working class in the UK wanting to leave while the more cosmopolitan elite wanting to stay. It almost seems the more you identify with a specific place the lower your status tends to be.

  27. Wine – Depending on the industry, if you know there are changes on the horizon – regulatory for example – you can ask about how the owner thinks these will affect the business or whether he/she feels they are prepared for them. Following up with the skills you bring to help make this change easier, more effective, etc.

  28. My Dad has been observing for decades that global trade and relatively open immigration has been killing the working class. He thinks unions went too far but there was a time and a place for them.

    The country was built on immigration when workers were needed to farm the land or to work in the factories. Now there is an excess of workers, especially low skill workers, and our immigration policy emphasizes family connections, not employment skill. The question now is whether the US can maintain its superior standard of living or whether it will decline toward the global norm. I would like to see US immigration law enforced and for policy to reward employment skill.

    I think Cordelia and I often share opinions in part because our employment is heavily affected by global trade issues. Many others on this blog have jobs in finance or regulation or medicine where salaries are supported directly or indirectly by government.

    Economists may be correct that immigration is necessary for a growing economy but perhaps research should focus on changes in per capita income and whether those changes are associated with a transition from unpaid to paid work. I haven’t seen data on how much of income growth has come from jobs in childcare and housekeeping that didn’t used to be part of the GDP, but counting work that didn’t used to be counted could be a factor in why a growing GDP doesn’t feel like a growing GDP. The combination of anti-growth zoning laws with population growth is particularly problematic.

  29. It should be noted that unfettered low wage immigration, both legal and illegal, is “wink wink” fostered by industries and consumers of all political stripes that want to keep wages low in low margin businesses and to purchase services that either did not exist in the past or were provided by family members, more often than not women who had no sure way to earn an independent living wage outside the home. A well regulated guest worker program could exist for necessary agricultural workers if huge agribusiness allowed it (not talking about small and medium sized farmers who try to comply with the law to their economic detriment) .

    Equally hypocritical to me is the corporate replacement of full wage US white collar workers with expressly recruited or consultant company immigrant workers, many of whom eventually qualify for permanent resident status. The Disney debacle was only one of many. Overseas outsourcing is in part a consequence of information technology. In country non US labor sourcing on the premise that qualified US workers do not exist is an abuse.

  30. I haven’t seen data on how much of income growth has come from jobs in childcare and housekeeping that didn’t used to be part of the GDP, but counting work that didn’t used to be counted could be a factor in why a growing GDP doesn’t feel like a growing GDP.

    I doubt that’s the issue as female workforce participation is the same now as it was 30 years ago.

    https://fred.stlouisfed.org/series/LNS11300002

  31. @Meme – I agree.

    @wine – Good luck! If I am not too late, I would ask how Finance fits into the organization as a whole and how he sees the connection between Finance and the other functions in the organization. I would also ask about the corporate culture – what are some of the key tenets of company culture that he sees as really being at the heart of the company.

  32. Rhett, I think full-time workers would be a better measure than labor force participation. Lots of service workers can’t get full-time jobs but are counted as part of the labor force. I also know that labor force participation drops as the fraction of the adult population over 65 increases.

    I can’t decide how much of my perception that the young child years are harder than they used to be is accurate.

  33. Scarlett,

    His complaints about his home town and your complaints about your new town seems eerily similar.

  34. “a Trump presidency within the realm of possibility. The UK vote increases that possibility, because the same dynamic could play out here. ”

    I’d thought the Brexit vote would tend to decrease the likelihood of a Trump presidency, by making more people considering voting for Trump as an anti-establishment gesture consider the possibility that such a vote could actually help get him elected.

    OTOH, while I’m not thrilled with the possibility of a Trump presidency, the most likely alternative doesn’t look any better.

  35. “So Britain just handed over whatever economic/moral suasion power it had to Angela Merkel.”

    I haven’t been following European politics much, but I was under the impression that the immigration issues in Europe, and Merkel’s responses to them, had reduced her support among her electorate.

  36. Currency issues haven’t been limited to European currencies. As DD pointed out recently, Asia:Hawai’i travelers::Europe:NE US travelers, and the Brexit impact on exchange rates for currencies like the yen and won are affecting people here.

  37. I’m thinking that because it’s summer, when a lot of people travel, the Brexit impact on interest rates will hit more people than had it happened some other time of year..

  38. “Doesn’t that imply an attempt to time the market?”

    Yes.

    Unfortunately, I did not make any moves last week. All the big one-day losses in my memory have, in hindsight, proven to have been buying opportunities.

  39. I’ve had a couple limit orders execute to reinvest a small 401(k) I had to withdraw from a previous fund in order to consolidate my retirement accounts in my umbrella finance company after I switched contracting companies. I also have to actively invest some Roth IRA money.

    I wonder if the focus necessary to reinvest one’s 401(k) when one changes employers is another factor that limits the return of the average person’s 401(k).

  40. I wonder if the focus necessary to reinvest one’s 401(k) when one changes employers is another factor that limits the return of the average person’s 401(k).

    As most people tend to sit on the cash rather than placing a buy order?

    “Doesn’t that imply an attempt to time the market?”

    Yes.

    Which we all know is impossible.

  41. Living where I do, we see a number of low skill and wage jobs and/or physically demanding jobs go unfilled even though individuals qualified for these jobs remain unemployed. In part, HS and college students seem to be looking toward paid and unpaid experience that makes their resumes look better rather than paying job in a fast food or retail, or physical labor job. These students used to make up a good portion of the workers in those areas. When I was in high school, boys wanted a roofing job for the summer because it paid double what a fast food or retail job paid at the time. Many of my peers (and I ) had part time fast food/retail jobs at least in the summer if not year round.

  42. When I want to invest, I often put in a limit order for ~5% below the current price or whatever the low has been in the past month. Is that considered “timing the market”? It’s also possible to do that with 2 or 3 stocks/funds and let whatever executes, execute and cancel the others.

  43. “I wonder if the focus necessary to reinvest one’s 401(k) when one changes employers is another factor that limits the return of the average person’s 401(k).”

    I thought the issue was that a certain percentage of people just cash the checks instead of reinvesting, but who knows.

    How much does the average person change jobs? I don’t think the hassle involved in switching is really a problem, is it? Most places have made it pretty easy when I’ve switched jobs. All the jobs that I left transferred the money directly to my rollover IRA. The whole thing took less than 30 minutes – maybe 15 minutes to fill out the rollover form as part of the exit interview paperwork and then 5-10 to buy funds online in the new account when they show up. Even when I got a check from an old company years later because of a policy change, it was easy. I dropped the check in the mail, the cash showed up, I bought my funds.

  44. Ivy, I think the key is the end of your sentence, “I bought my funds.”

    At least in their 20’s, when 401(k) investing has the most lifetime reward, the average person changes jobs pretty option, often too frequently to become eligible for a 401(k).

  45. Rhett, it’s not impossible to time the market on any given day. What’s supposedly impossible is beating the indexes over some long period of time.

  46. Rhett, surely I’m not that bad???

    I don’t think he’s complaining that his hometown lacks good breakfast spots. Instead, he seems to be resentful that society has failed to recognize his skills and compensate him accordingly, which would enable him to live in Essex in the style to which he thinks he should be accustomed instead of back with Mommy and Daddy in some leafy provincial but expensive town.

    Not sure how Brexit fits into it, except that he anticipated more funds from Other People Overseas to sustain him as a scholar?

  47. “I can’t decide how much of my perception that the young child years are harder than they used to be is accurate.”

    I’d go with 100%. Or 0%. All depends on your perspective. :-)

    If you are talking MC/UMC, the expectation for women in the ’50s and ’60s was to take care of the home and kids — meaning, put the kids in a playpen or send them off to play most of the day and get the cooking and cleaning done. Way easier than the current expectations of constant enrichment and supervision and local/organic/gourmet food and etc. (I kind of think the ’60s were the golden era — recent enough that you had modern conveniences like vacuum cleaners and dishwashers and refrigerators and gas/electric stoves and grocery stores and cars and frozen dinners so you didn’t require 14-hour-days just to get the laundry done, but not so recent that everyone required a dual-income family to support that standard of living).

    OTOH, if you wanted or needed to work back then, you were screwed — most places you were expected to quit or were fired (without breaking any laws) as soon as you got pregnant, and there was little to no childcare that did not involve relatives (poor) or nannies (wealthy).

    I like to whine about how hard it feels some days. But, come on. I grew up with a single mom who had to work for both income and personality reasons, and who had no family nearby. Those circumstances forced her into choices that would now get CPS called (e.g., latchkey kid at 7). I may whine about missing the school play or getting caught in traffic on the way to the camp bus, but at least I have reliable full-time childcare that I can afford and an employer who lets me work flexible hours so I can leave at 4 for that stupid bus without getting fired.

  48. Although I don’t attempt to time the market because I know that’s mainly a fool’s errand, I do like to tweak planned purchases by buying into the dip using a strategy similar to what WCE does. If nothing else, it makes me feel better. And in fact I usually end up not buying at market highs.

  49. “What’s supposedly impossible is beating the indexes over some long period of time.”

    I believe the buying is the easier part. It’s the selling that’s harder. :)

  50. I don’t think he’s complaining that his hometown lacks good breakfast spots.

    You mentioned that you really do best when you work for people smarter than you and that wasn’t possible to do at the university.

  51. Man that NYT kid is a pretentious prick.

    “I believe the buying is the easier part. It’s the selling that’s harder. :)”

    Never sell. :)

  52. “When I was in high school, boys wanted a roofing job for the summer because it paid double what a fast food or retail job paid at the time. Many of my peers (and I ) had part time fast food/retail jobs at least in the summer if not year round.”

    When I was in HS, fast food, and especially retail, jobs were considered desirable because they were less physically demanding, and typically were in more pleasant settings, than cannery or field labor jobs.

  53. Rhett, it’s not impossible to time the market on any given day.

    How do you mean?

  54. I don’t try to time the market. You have to have the funds available to do so at that particular moment. Also, you actually have to do it, which requires follow through at that particular moment. When I have funds available, I just buy more of one of my index fund holdings and forget about it.

  55. “Also, you actually have to do it, which requires follow through at that particular moment.”

    Not if you place a limit order. It will happen automatically if/when the price reaches a certain point.

  56. Speaking of portfolios–what’s everyone’s optimal stock/bond mix? I’m 70-30, moving toward 65-35. My financial advisor thinks that’s too conservative and suggests 80-20.

  57. “You mentioned that you really do best when you work for people smarter than you and that wasn’t possible to do at the university.”

    Ouch. Yes, I guess I did. But I do know lots of smarter people here. Unfortunately, mostly faculty and medical professionals who aren’t looking for part-time legal help. :)

  58. “I believe the buying is the easier part. It’s the selling that’s harder. :)”

    ITA. Events like Brexit and Black Friday are clear dips across the markets. I don’t recall any jumps across the market of similar magnitude that would be selling opportunities.

    If you hold individual stocks, there are occasionally jumps in stock price that could be selling opportunities, but IME, while such jumps are often followed by short-term corrections, those stocks often continue to climb to levels higher than just after the jump.

  59. “Not if you place a limit order. It will happen automatically if/when the price reaches a certain point.”

    You are correct. But don’t you have to keep the cash around to execute the trade, when the price reaches your target?

  60. (I kind of think the ’60s were the golden era — recent enough that you had modern conveniences like vacuum cleaners and dishwashers and refrigerators and gas/electric stoves and grocery stores and cars and frozen dinners so you didn’t require 14-hour-days just to get the laundry done

    Wasn’t that sort of the impetus for change, though? Like, in previous decades keeping house and getting three meals a day on the table had really been a full-time job that needed doing, but now it’s not filling your days and you start to wonder whether you couldn’t use that college degree after all.

  61. Yeah, ok, that NYT guy is a twit. But, you know, he’s a twit like basically every other suburban kid who has been desperate to get the hell out of the desolation of whatever suburb he has grown up with. I remember sitting around with my friends, pretentiously talking about how we needed to get out of this non-place place, this hole of great sucking death where ideas and individuality went not to die — that would take too much effort — but just to slowly seep away to the nothingness of everyday placidity. We were off to do Great Things, to change the world, to surpass the dead-eyed commercialism and banality of life in the suburbs.

    30+ years later, through the eyes of a gainfully-employed adult with a family and a career, my little town looks much more appealing. And I have learned that the level of sanctimonious judgmentalism shown in that piece reflects more poorly on the speaker than on his targets.

  62. “but now it’s not filling your days and you start to wonder whether you couldn’t use that college degree after all.”

    Couldn’t leave well enough alone. :)

  63. @HM — yeah, I had the same thought, but for once decided I’d already said enough. :-)

  64. “he’s a twit like basically every other suburban kid who has been desperate to get the hell out of the desolation of whatever suburb he has grown up with”

    I think NYT readers and their ilk GREATLY overestimate the percentage of kids at any particular high school who actually felt this way, and the numbers are surely even lower now.

  65. ” But don’t you have to keep the cash around to execute the trade, when the price reaches your target?”

    Yes, but I’m describing a situation where I’ve already planned an investment so I have cash at hand. If it’s in my brokerage account it gets swept to pay for the purchase.

    “My financial advisor thinks that’s too conservative and suggests 80-20.”

    He may think it’s too conservative, but it may be right for you, as long as you accept the trade off of a lower expected return.

  66. “At least in their 20’s, when 401(k) investing has the most lifetime reward, the average person changes jobs pretty option, often too frequently to become eligible for a 401(k).”

    The companies where I have worked, you are eligible to contribute to a 401(k) within 30 days or so of your start date.

    “When I have funds available, I just buy more of one of my index fund holdings and forget about it.”

    Me too. Over the long term, I’m not sure that it would make much difference to do anything else, but YMMV. It’s not like I’m investing a large portion of my portfolio at once. And if the real trick is selling at the right time – it all sold on the day that I happened to leave the company Can’t time quitting with the market!

  67. If it’s in my brokerage account it gets swept to pay for the purchase.

    But, looking at an SPY chart, at numerous points along the way your order would never be executed and you’d stay in cash as SPY went from 70 to 210.

  68. I had a SWE acquaintance who became a financial adviser and discussed stock market fluctuations and modeling with her at a presentation. I came away with the conclusion that not only do financial advisers have little expertise in that area, the models that they use are weak in terms of unexpected events. I kept more in bonds when bond fund returns were not essentially zero.

    I’m OK with a lower-than-expected return in exchange for a higher-than-expected chance that my portfolio will not drop by 50% in middle age. I knew way too many 50 somethings who weren’t planning on the market decline of 2008/9.

  69. “But, looking at an SPY chart, at numerous points along the way your order would never be executed and you’d stay in cash as SPY went from 70 to 210.”

    This. These strategies are sounding good now only after about 18 months or so of no price gains.

  70. Ivy, my contracting companies have required over 3 months to be 401(k) eligible and my new company just implemented a small match. (Previous employment had no match.) But since you have to be employed by the contracting company for 2 years to be eligible and the primary company changes contracting companies frequently, most of the “match” will never be paid out.

    I suspect many “regular” 401(k)’s are like my experience as a contractor, rather than my experience as an employee, which was like what you describe.

  71. I knew way too many 50 somethings who weren’t planning on the market decline of 2008/9.

    It hit a low in 2009 but was back above it’s peak in 3 years. The impact should have been fairly modest. Or, do you mean the stress of it falling by 2/3 and not knowing it will all be back again in 3 years?

  72. Milo, what if you pick 4 possibilities you’d be OK with and let one of them execute on the dip? Of course, that means you’d be underweighted in whatever is going up with no dips.

  73. Rhett, I mean the stress and the fact that many of them sold when they should not have. Also, they were less diversified than I think they should have been.

  74. “But, looking at an SPY chart, at numerous points along the way your order would never be executed and you’d stay in cash as SPY went from 70 to 210.”

    In the situation I’m describing I have a planned investment, say $X every month for a year. The easiest thing is to automate it, but if I tweak it with a limit order that alerts me even if no trade is executed I can still make sure to invest the money even if at a higher price. IOW, the money would not stay in cash indefinitely.

  75. This conversation brings me to the internal struggle I see MIL going through. She raised three kids who are doing great but she feels she has to justify her days of cooking, cleaning and child care. She had a job but FIL made her give it up, so there is great conflict about the road not taken.

  76. IOW, the money would not stay in cash indefinitely.

    For instance, if an investor stayed fully invested in the S&P 500 from 1995 through 2014, they would’ve had a 9.85% annualized return.

    However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 6.1%.

    I think your plan would likely miss enough of those 10 days to render it ineffective.

  77. “Milo, what if you pick 4 possibilities you’d be OK with and let one of them execute on the dip? Of course, that means you’d be underweighted in whatever is going up with no dips.”

    It’s fine. It’s just too complicated for me. Most of our investments are timed based on pay periods, anyway. The extra is when I buy VTCLX. For me, I just want to get it in there. If I think too much about playing with a current price vs. a strike price, any advantage I might gain sometimes will be overshadowed by the pain I feel from either picking too high a price or missing a run-up, and I’ll be less motivated to make periodic purchases.

    I’m serious about never selling though. And I think that’s far more likely for a lot of us here than people realize, especially for everyone who can’t imagine early retirement and those who fail to appreciate just how much Social Security will pay to a dual-income couple, and how much less you’ll be “spending” when you’re no longer saving for retirement and college, or paying a mortgage. And when you really adopt the “never sell,” mentality, you don’t tend to worry about price movements.

    For Rhett:

    http://www.boatingmag.com/galeon-380-fly

  78. WCE, I wonder if your approach of setting a buy price that’s below the recent trading range of a stock / fund biases your buys in favor of those stocks / funds that are about to start a downward trend.

  79. I came away with the conclusion that not only do financial advisers have little expertise in that area, the models that they use are weak in terms of unexpected events.

    I think their primary value is emotional. They are of use when you’re one to sell (or buy) in a panic (as many are) and they are able to calm your nerves.

  80. HM, it’s hard to say. Because my job is in technology and I want to avoid technology stocks, my active investing has been in stuff like Berkshire-Hathaway, Dow and DuPont and I know ~80-90% of my portfolio just stayed invested in index funds.

    I agree with Milo about some Totebaggers never selling or not having to sell much of your portfolio. If my Dad were remaining single, he would likely be in that position. My great aunt just died at 105 and she didn’t consume her portfolio.

  81. “I think your plan would likely miss enough of those 10 days to render it ineffective.”

    I highly doubt it. I’m not ‘trading”. I’m staying fully invested, but just sometimes timing new purchases to buy on dips.

  82. “I highly doubt it. I’m not ‘trading”. I’m staying fully invested, but just sometimes timing new purchases to buy on dips.”

    He’s not saying that you’re going to drop from 10% to 6% overall, just that you’re going to miss enough of those big days on your new purchases that the times when it is helpful will be canceled out.

  83. “and the numbers are surely even lower now.”

    @Milo: what’s your basis for thinking that? Not being snarky — I just hear the same thing out of my kids that I remember saying at that age, so I at least am not seeing any major generational difference on the “get the heck outta Dodge” front. If anything, my sort of anti-materialism/find “meaning”/don’t work for the Man ethos was very against the grain back in the go-go ’80s; the sort of environmentalist/anti-consumerist idealism that this guy espouses seems much more common now.

  84. I am very excited about Brexit. It was a very significant change and happened almost without violence. Non-violent political change is always a cause for optimism.

    As to the stock market, I am a buy and holder as is my family. I would only do that in the index format since the SP 500 companies turn over every 2 generations or so.

  85. I’m staying fully invested, but just sometimes timing new purchases to buy on dips.

    You’ve found a way to earn an above market rate of return that no one else (with billions of dollars and giant server farms) has been able to figure out? I find that highly unlikely.

    https://en.wikipedia.org/wiki/Efficient-market_hypothesis

    If your plan worked then every hedge fund, mutual fund, pension fund, sovereign wealth fund, family office, would try to do the same thing and prices would adjust such that the plan wouldn’t work anymore.

  86. Rhett, look at the impact on stock price as the stock enters or exits a major index. It’s nonzero as i recall. The efficient market hypothesis also assumes you can invest in incrementally small increments, which isn’t how small investors with $5500 annual Roth IRA contributions actually invest.

  87. my sort of anti-materialism/find “meaning”/don’t work for the Man ethos was very against the grain back in the go-go ’80s; the sort of environmentalist/anti-consumerist idealism that this guy espouses seems much more common now.

    I’ll try and find the study by basically the opposite is true. I think Pew has been tracking it but I can’t find the right study.

  88. “@Milo: what’s your basis for thinking that?”

    Just all the normal kids I’ve known who were always perfectly content to go to college not too far from home, and move back to the same area they grew up in, and some who buy houses down the street from their parents’ houses where they grew up (mostly from HS, as college friends tend to have moved around, but even then, many go back “home” after getting out). I had a teammate who lives about two houses down from his childhood home, teaches at our high school, and coaches our old team. And one of my brother’s classmates did the same thing, but is now also the school’s athletic director.

    I just generally see these types as a lot more common than the ones like the NYT kid.

    DW’s cousin, who often serves as my insight into the generation 10 years younger than me, is engaged, and they’d love nothing more than to buy a house in their childhood neighborhoods, but those are $600k+ houses. When they look for a rental apartment and talk about the various features of the neighborhood and area, they’re listing the attributes that make it as similar to the boring suburbs as possible. But they’re definitely the kids who are so far from rebelling against their parents that it’s a little bit worrisome in itself (neither knows how to tell his/her mother to mind her own business).

    In 12th grade, I had an English teacher who would sometimes wax philosophical but not really go anywhere. I forget what poem or piece of literature he was discussing, but he said something like “90% of you are going to live and die right in this same hometown where we are now. And there’s nothing wrong with that, but …”

  89. LFB, I was just like this, as were my friends
    “We were off to do Great Things, to change the world, to surpass the dead-eyed commercialism and banality of life in the suburbs.”

    This is the great prerogative of youth, and has been a feature since time immemorial. Iti is what drove young people to move to the newly industrial cities, to go west, to go crusading, and to explore.

    At this point in my life, like you, I have more respect for the town that contained the high school from which I graduated. It has really improved over the years, and probably wasn’t that bad to start with.

    I still have no desire to move back though.

  90. Several things in no particular order.

    Houston – at the end of May our portfolio (defined as retirement accounts 75% + a taxable account 25%) was 79% stock / 21% cash other. I am comfortable with that range. You might not be, and that’s very important. If you can sleep better at night being at a 65/35 ratio (1) you will generally do fine and (2) probably live a long, happy, totebag-level life.

    Timing the market – I do not view what WCE is doing as market timing. She’s made the decision to buy something, now just trying to get a better price.

    Timing the market II – I have looked at this a lot over the years and the point of missing out by being on the sidelines is accurate. The long-term, boring, steady investor wins.

    401(k) – good to be in one, pre-tax or Roth, whatever fits your situation. Make sure to contribute whatever is needed to get the full employer match / contribution. (In my case, it’s an employer contribution, so it does not matter what I contribute, DW’s employer does not contribute at all, and DS1’s employer matches 1:1 up to 5%.)

    401(k) II – the stats on when employees are eligible probably have an asterisk in some/many cases, to wit: immediate/quick eligibility for FULL TIME employees, and elongated eligibility schedule for PART TIME employees.

    401(k) III – the rollover – for us, like Ivy mentions, this is a no-big-deal thing. But for many in the non-totebag set, it just looks like free money when the cash out check for $1500 comes in, and since they don’t have any other place to put it except their checking account, that’s what they do.

  91. Rhett, look at the impact on stock price as the stock enters or exits a major index. It’s nonzero as i recall.

    Past studies have found that companies added to the S&P 500 experience increases in their share values, and yet recent studies with the largest samples also have shown that there are no corresponding declines in share values when firms are deleted from that index.

    http://www.nber.org/digest/nov13/w19290.html

  92. Rhett, it’s certainly possible that the methodology doesn’t identify a CORRESPONDING decline when Eastman Kodak or Yahoo is deleted from an index. But the fact that companies rise and fall is part of why index investing is so effective- the index deals with the losers for you.

  93. Looks like we are back to our favorite topic.

    We have a chunk of cash sitting in the bank. It will be another year before we will need that money for down payment. Looking to put it in a vehicle where it will grow but has low risk. Any ideas?

  94. when the cash out check for $1500 comes in

    Doesn’t the check need to go directly from your 401k to your IRA or new employer 401k otherwise it triggers a taxable event? You shouldn’t ever have the check, right?

    That may be a bubble thing as my first though is to make sure I don’t screw it up and have to pay taxes on it vs. what the average person might think.

  95. Dell – if you are planning to use that for a down payment in a year…just leave it in the bank.

  96. Rhett – for small amounts, some employer plans just cash you out. Of course they include all the required legal information with the check saying you have 60 days to roll that into another qualified account, etc, but (1) who, other than people like us, reads all that crap? (2) where can I open a “qualified account” and then what do I invest it in and (3) man, I can sure use that $1500 to cover that new set of tires / water heater / nice weekend.

  97. Looking to put it in a vehicle where it will grow but has low risk

    If you have it in a BofA savings account you can earn a higher return in an ING or Capital One account. But, other than that there isn’t really an option for money you’ll need in a year.

  98. @Dell: whatever one-year CD gives you the highest yield. Low risk + high return + short timeframe = a unicorn with the Holy Grail on its horn prancing through Atlantis on its way to Camelot.

    Of course, if you really want growth and are willing to postpone the house hunting in the event of a crash, stick it in VTSMX.

  99. Thank you Lfb, Rhett and Fred. Will leave in bank. Frustrating part is that it has been sitting there past couple of years and we haven’t pulled the trigger on a new home. We are too happy with our less than 1k (now) mortgage in our nice town home. But at some point, the kid will need a yard. I just want to let the kid out in a fenced yard while I keep an eye from inside. And also because I have house envy.

  100. @Rhett — yeah, I should have been more precise: look at money markets and 1-year CDs and online savings accounts and pick the one with the highest rate. Although the benefit of a CD is it’s a fixed rate, so if you think rates are going down, you might still come out ahead (although the 0.25% spread is pretty big).

    But I also think that when the alternatives are all under 1%, you’ve already wasted too much time trying to optimize.

  101. ” just that you’re going to miss enough of those big days on your new purchases that the times when it is helpful will be canceled out.”

    That’s certainly possible. That risk doesn’t bother me with the relatively small amounts in play. Most importantly if I invest regularly and stay invested I’m confident my overall returns will be competitive.

  102. @Dell: so what is keeping you from shopping now? Current projections are Brexit is going to knock down mortgage rates potentially even lower (hey, I even tied it to the OT). Would seem to be a good time to shop.

    Having just this weekend gotten functioning garage doors and electronic keypads for the pedestrian door and back door of the house, I am right in the middle of “this is awesome, wtf didn’t I do this 12 years ago??”

  103. ‘I am right in the middle of “this is awesome, wtf didn’t I do this 12 years ago??”’

    Laziness? Trouble getting contractors to do stuff? I confess that’s my problem, and sometimes one small hiccup ends up taking lots of time and derailing projects. I should just suck it up and accept that screw-ups and cost overruns are going to happen,

  104. @Dell: so what is keeping you from shopping now?

    A $1,000 mortgage is a great comfort in times of strife and uncertainty.

  105. On the employment topic, specifically retail. I gotta tell ya, there’s always the exception to the rule.

    I have shared DS1’s college academic experience in a fair amount of detail. For those who (want to) forget, let’s just say he distinguished himself in a manner different that what we would have wanted or expected.

    Now about a year ago, he took a job at a national retailer as a cashier. Simple, part-time, $9/hr gig. No expectations except that it was a way to earn some money and be in school (he was still in a BA program at the time).

    After about 6 months, he gets promoted to a ‘shift supervisor’. Some more hours (now he’s working to complete his AA online) and 25% more/hour. That’s $11.25 for those keeping score at home. Obviously he’s doing well, the store manager likes him, etc. He’s caught a couple of people shoplifting, gone to court for the company. And he shows up on time every time, does not beg off at the last minute.

    So last month, just short of a year with the company, he decides to put his resume on Monster. Gets ~6 immediate hits for sales jobs that’ll pay better, and two offers within about 10 days. Meanwhile, his district manager, who knows him because he’s now caught 3 shoplifters and there have been convictions / guilty plea bargains in all of them, tells him he wants to move him to a different store where they need the help, and his new rate would be $13/hr. DS says all the right “I appreciate that” stuff and adds he’s reluctant to commit because got a couple of other things working and wouldn’t want to bail right after taking a new position (telling Dad all that after he’s already said it). Within an hour the guy calls back and says forget it, your new rate is $15/hr, and you’ll get at least 30 hours/week, (he’s actually been averaging 35-40), will you stay with us? So, of course, yes.

    Now, granted $30k/yr isn’t yet in the totebag income stratum, but for a 22yo with no college degree, no real financial obligations other than rent/utilities/food, and clearly an employer who likes him, not a shabby situation. And it’s a whole lot better than some of his newly minted BA / BS friends who don’t have offers and look at retail as below them.

    The short term goal is to finish the AA by the end of this year, should happen, and then see if he can further improve his lot with this employer. If nothing looks to be in the offing soon, given he’ll have some actual material experience and his 2yr degree, maybe then he puts his resume up on Monster again.

  106. “A $1,000 mortgage is a great comfort in times of strife and uncertainty.”

    This. And I would add don’t move JUST because you think the kid needs a yard. There are plenty of ways around that. If you want the house for yourselves, blah blah blah, then go for it.

  107. Houston. I am 3 years retired 64 years old. 70 percent of personal liquidity is after tax. I am 65 percent in dividend paying equities, the rest in bonds. DHs pension and SS mean that our day to day cash needs are covered, (not vacation and charity and generational transfers), but those go with him to the grave, so I treat my need to support myself from my investments plus my SS as an event 10 years in the future. I will keep that allocation as long as it is sustainable probably as long as I am healthy enough to control my own finances.

    The bonds, many of which are 4 plus percent mass Munis I luckily bought below par, are my source of ready cash via income or emergency sale. That is the main reason for the allocation percentage 4 years of cash needs coveyed if there is a serious stock market down cycle.

  108. “DHs pension and SS mean that our day to day cash needs are covered, (not vacation and charity and generational transfers), but those go with him to the grave, so I treat my need to support myself from my investments plus my SS as an event 10 years in the future.”

    This is also my mom — my stepdad’s pension and SS more than cover her daily cash needs. The difference for her is that my stepdad elected 100% survivor coverage on the pension, so neither income stream will ever go away (lesson for all: if you have a pension and can elect 100% survivor coverage, DO IT — my stepdad never got one dime of his pension, but she is taken care of for life because of it). So she assumes she’ll never need the money and so is able to keep it all in stocks/funds. Of course, she also never plans to retire anyway. :-)

  109. Thanks everyone for your POVs regarding your portfolio allocations.

    Meme: Your post is a good benchmark for me. Thanks for sharing your info.

    Our situation is this: Our financial obligations, at this point, are fairly minimal. We earn in the lower tier of the Totebag income scale. Both of our jobs are pretty unstable, which causes me to go with a more conservative portfolio (a la LFB’s cat food theory). However, given Meme’s benchmark, I will probably stay at 70-30.

  110. Well, we weren’t married when he retired. But I can still preserve principal and delay collecting on my own SS until 70. The point of the 35 percent fixed income allocation in my mind is to have sufficient tide over money so that I don’t end up cashing out at a market bottom. Younger people still earning need far less.

  111. “She raised three kids who are doing great but she feels she has to justify her days of cooking, cleaning and child care.”

    Doesn’t the former “justify” the latter, in her mind? Especially because she didn’t really have a choice about how to spend her time then. How old is she now?

  112. Lfb, if we move, we will want a neighborhood with good schools. That will double if not triple our mortgage payment.
    Where we currently live, the schools as well as house prices have only gone down. The other part of low mortgage is that we most probably will not recover our investment in this house. Our town home will sell at our current mortgage balance.

    If we save for another year before kid goes to school, we will have a larger buffer. If the rates fall further, we might pull the trigger.

    And yes, it’s good not to have to worry about struggling to make mortgage payments. I get palpitations when people who earn less than us take on mortgages that have them pay 2-3k a month.

  113. Never sell – that’s my long term investments.
    I have a small pot of short term money that I build up and then spend from. Even that is in an index fund.
    In the beginning my investment balance was small. I remember my first rollover was for $3,500. It was definitely at a time and an amount where the temptation to spend it was great.
    I really didn’t know know the rollover process worked but I was able to call a financial adviser with the investment firm and they helped me out.

  114. I never sold any of my funds until we needed to pay college expenses. Had to read the Vanguard website carefully to see how to do it. It was the strangest feeling to click on the “Sell shares” button.

  115. Scarlett – conflicted because she expected to be equally close to all her kids but hasn’t gotten that from two of the three. She feels she invested way more than she has gotten in return. In a way, it is the story kids who turned out successful leavers, the opposite of the guy in the NYTimes.

  116. Louise: I was a leaver but my sister stayed and now lives 3 blocks from my parents. My parents are fully integrated into her life and do a lot of babysitting, soccer games, family dinners, etc. I think different kids have different personalities.

  117. CoC, my work laptop runs Windows7 (and it is only a couple of months old, believe it or not). At home we avoid the entire thing by running MacOS downstairs, Ubuntu upstairs, and ChromeOS on a Chromebook

  118. Louise,
    Your MIL also lucked into a terrific DIL who chose the best of her kids, and then graciously invited her to move in. :)

  119. Scarlett – Thank you !

    Leavers – a fascinating subject for me. My great grandfather forbade his first born son from leaving. The son was a doctor who saw action in World War I. Worse, he married an English woman and remained in England but died childless. He was cut off from the family for a while. His story told with appropriate warning scared the day lights out of the youngers and no one left till I did.

  120. I am of two minds on whether I want my kids to take off or not. I want them to have good and exciting lives, and not feel constrained. But I also want them to stay nearby. It isn’t just selfishness (though that is certainly part of it), but also because I think as you go deeper into adulthood, life is better if you are near relatives whom you get along with. I really feel the same way about my own life – I am glad I went away and got to live a life without constraints but I deeply regret not living closer to my parents, especially my mother, while they were still around. I was always close to my mother, called her several times a week until she passed away when I was 40, and would have been happier if we weren’t so far away. Even more importantly, it would have been better for my own kids.
    I guess I hope that because we live in this area of wide open opportunities, that my kids can both not feel constrained and also stay in the area.

  121. As for kids leaving, sometimes you get lucky. It also helps if you don’t move to delray beach or Roanoke or Scottsdale or some other retirement haven

  122. Fred – does your son have opportunities to move up into management in the company after he completes his BA? My impression is that they are dying for young people like him – responsible and hard working – to move up the ladder. It all depends on how he feels about it down the road, as he may want a change, of course, but I’m so glad that he will have options.

  123. MM,

    It’s much easier for adult kids to stay in the area in which they grew up, and where family still lives, when that area is NYC instead of Springfield. :)

    But when they marry, all bets are off. Unless they marry someone who also lives in your area, AND really wants to stay there. A long time ago, I told the boys to just pick a city and all agree to live there, and then DH and I would follow them in retirement, but that didn’t work out very well as DS1 chose to move to his DW’s hometown, a place in which none of the rest of us wants to live.

  124. This conversation reminds me of the engineering group motto when I lived in eastern Kentucky: “Your career path ends within 50 miles of your mother-in-law.”

  125. Scarlett – one BIL moved from the west coast to his wife’s cold hometown, a few months after marriage. Prior to that he had proclaimed his love for the sunny west coast and had refused to consider the northeast because it was too cold.

  126. When DS made his first trip to his DW’s hometown to meet her parents, he told me that it was even worse than where we live now, which at least has a major university. But love and very affordable housing conquered all.

  127. @Dell: sounds like you have an excellent plan and good reasons to stay put (personally, ITA — I am a huge fan of having a big safety buffer). But you also have the ability to make a different choice if the inputs change. For me, the key has been to make it a conscious choice — not just floating along assuming prior decisions remain valid, but reminding myself of the pros and cons of each choice. A clear view of the benefits of the current choice + the downsides of the other options is the best anodyne I know to the grass-is-greener syndrome. It sounds like you’re doing that already, so go you.

  128. he told me that it was even worse than where we live now, which at least has a major university

    And you were on the case of that English New York Times writer…

  129. This conversation reminds me of the engineering group motto when I lived in eastern Kentucky: “Your career path ends within 50 miles of your mother-in-law.”

    Or, in DH’s case, within 6 houses. 😉

    Personally, I think my path was pretty awesome: leave for college and early career, come home when you have kids. Nice work if you can get it, that is. . . .

  130. “Am I the only one here who has not upgraded to Windows 10?”

    No, my computer at home is still on Windows 7. When Windows 10 came out and MS announced the free upgrade, I figured I’d wait and see how it worked for everyone else, and let the early adapters detect any bugs in the upgrade.

    I haven’t noticed any uproar or many complaints about the upgrade, so I’m beginning to think I should go ahead and upgrade. OTH, my computer is pretty old, I think 5 or 6 years or so, so I’m not sure it has the resources to run a newer OS without getting bogged down.

  131. “I think my path was pretty awesome: leave for college and early career, come home when you have kids. Nice work if you can get it, that is. . . .”

    That’s pretty much what DW and I did, and I hope my kids follow a similar path.

    Of course, I agree with the point about who they marry. But that point notwithstanding, I could see them doing what quite a few of their friends’ parents did, which was move home so their kids could attend the same school they did.

  132. I agree with the comments about living near family. We lived two miles from my parents when we had our first child, my dad had just retired and my mom was planning to retire the next year. We have looked into moving back several times, and over the last couple of weeks my dad has been dealing with some serious health issues, so it is crushing me that I cannot be of help.

    On the flip side, if we were to move back, our kids would almost certainly have to move away to find work, as so many major companies have moved out of the city. I’m hoping that by staying in Houston we are increasing the odds that they will stay in the general vicinity in adulthood. My parents may have to move to Plan B, an independent living place, so I am pitching for one in Houston if they are going to be moving out of their home anyway. I had no idea when I was younger just how important it would be to me to be near them.

  133. Way off topic, but if I’m remembering correctly that someone else on here likes Prefab Sprout (80s band), you should check out the newish band Ice Choir. I just ran across them and they sound amazingly similar.

  134. MBT,
    Great idea about persuading your folks to live close to you. How much of a social network do they have where they are now?

  135. If you purchased or owned a front-loading washing machine manufactured by Whirlpool, you may be entitled to cash or other compensation from a class-action settlement.

    Brands include Maytag, Kenmore, and Whirlpool….

    The lawsuits claim that the washers fail to self-clean and tend to accumulate bacteria and mold, resulting in bad odors and ruined laundry. …

    I continue to hear mixed reactions about this problem, but I’ll stick with a top loading machine.

    http://abc7chicago.com/shopping/consumers-may-get-cash-in-major-washing-machine-settlement-over-mold/1403902/

  136. ssk – he’s looking into that, specifically already talking with his DM about an internship at corporate maybe next summer, after he’s been in this store a year.

    CoC – I got an email about the Whirlpool washer class action. Ours has worked very well, except for the previously related need to replace the door latch > twice.

    Never sell — great idea, and clearly doable if your assets are in after tax accounts or Roth IRAs, since there are no required minimum distributions post age 70.5. OTOH, if your assets are in a 401k (Roth or regular), and I would assume 403b, plan or a regular IRA of your making or inherited, you are subject to annual RMDs, so “never selling” may not be possible. You can convert to a Roth IRA, subject to income limits, but to do so you’ll have to tax the tax hit on conversion which will probably mean selling assets to cover the taxes.

  137. @Fred — My mom’s current pet peeve is the RMD rule. I keep explaining to her that that just means that she has to take assets out of her IRA — it doesn’t mean she actually has to *spend* the money, she can just re-purchase the same exact funds in a regular taxable account. But she’s acting like it’s a plot to force her to go on a giant spending spree or something. It cracks me up. I think she is one who took “never sell” literally and is now irrationally angry that she has to do so.

  138. LfB. Doesn’t your mother make charitable donations each year? All she has to do is have the IRA distribution. 100 per cent of it. Transferred directly to charities and she won’t have to make contributions out of other funds. Disappears for taxes and is not part of agi. She can invest her usual contribution amount in her after tax accounts. Doesn’t work for 401ks.

  139. LfB and Fred – if I am correct taking the distribution at that age assumes you won’t have to pay tax again on the distribution as you don’t have any other income or am I wrong ?

  140. Fred, thank you for your updates on your son. It’s personally helpful to see the twists and turns of his non-totebaggy journey.

    I’m at the age where RMD and kids moving away are real possibilities that I face. I continue to value my kids’ freedom to pursue lives mostly unconstrained by worrying about mom, but check with me in 10-20 years when I’m sitting by myself in my lonely condo down south . . .

    I’ve been learning more about the range of techniques that can be used in withdrawing retirement income. The timing of when to claim Social Security factors in, and in most scenarios later is better. Then there’s the file and suspend loophole that is closing but gives some filers a nice extra boost. Also, partitioning IRA/401k money into segments of various risk/return packages and then withdrawing appropriately is important. It sounds as if Meme has considered all the important issues.

  141. I am grateful that my parents always encouraged me to go where ever I wanted to so I could do so without guilt. I wish that we could see them more but they love where they live and since it takes as long to get there (2 hr flight, 2 hr drive) as it would to get to Paris we only see them a couple of times a year. I would literally die if I had to live in my hometown.

  142. I agree with the LfB Corollary to Never Sell. Are RMDs based on the current value of the account in any given year? So if prices are high, you’re getting a good price on the shares that are being sold to cover the tax liability. If prices are low, do you have a lower RMD, and therefore a lower tax bill? So it’s a wash?

    I’m still operating on the idea that DW’s earned income is provisional and temporary, so we’re balls to the wall on tax-deferred (engineering term, not a crude expression). At some point, I may have to reconsider that and start spreading Roth conversions out over more years.

    I also wonder if buying a couple mortgaged rental properties for the early depreciation would help.

  143. Milo,
    Yes, RMDs (e.g. for 2016) are based on the account value at 12/31/15. So with market fluctuation the required amount can vary substantially. And remember, you can pick an choose which assets to sell if you need to do that, which can be important if you have a non-deductible IRA…you have basis in those assets and only have to pay tax on the gains.

    Buy the rental properties if you think you can make money on them.

  144. Our totebag author’s new novel is about some of the choices that you’re discussing. When Moxie said she couldn’t live in her hometown, I was reminded of one of the characters that ran from a small town in the novel.

    I love NY, but sometimes I would like to leave and I think it would be difficult to leave our families. There is just too much going on with elderly relatives to leave. Plus, our transfer opportunities have been London or San Fran. It’s just as expensive and crowded so we will probably be here forever unless we follow DD some where if she eventually moves away.

  145. We are planning for retirement on the assumption that we won’t retire in the town where we currently live (probably will retire in the town where our beach house is), and that our kids will be in different places & we’ll want to travel to them frequently, perhaps even own or rent a small place where they are. So no pressure on our kids to return here, we don’t plan to be here.

  146. Another thing that might make it beneficial to be one and done, we can live where DS lives without having to choose between children

  147. @Meme — I honestly don’t know what she does about charitable giving. But she has to know that’s an option — her *business* is advising charities on capital campaigns, so she knows the ins and outs of the tax laws that can be used to induce people to give to charity. And yet she just get so angry at the RMD. I truly think it’s just the principle of the thing: you mean I have to take money OUT?

    DS, btw, is the apple-from-the-grandma tree. We set up DD with a savings account with her Bat mitzvah money, and I started direct depositing part of her allowance to that account. DS begged for his own account, and when I realized he had something like $300 lying around in cash in his room, I set him up as well, and we agreed that I’d put half his allowance into that account. Now he has asked me to change it so that *all* of his allowance goes to that account — he had already built up like $60 in his room again that he hasn’t spent, and he figures that will last him basically forever.

  148. Scarlett – at one point my parents would not have left because they had a strong network. But they are among the youngest of their friends, so life these days seems to be busy with funerals. They are still active in the parish they’ve belonged to since 1971, but it is now predominantly Spanish as their generation has died out. They have a few good friends left, but all widowed so they don’t get together for card games, etc like they used to. My mom’s sisters live in the Philadelphia area, and they have considered moving back, but I’d rather have them come near one of their kids so we can provide some help. Up until very recently, they have been in excellent health for their age and had not anticipated needing help any time soon (and still don’t).

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