Q&A I: Gaijin Shogun

Gaijin Shogun

An original painting by Alex Ferrar

On display at his restaurant Sobremesa, Antigua, Guatemala

Traveling without a computer, as I do, provides a wonderful break from the relentless onslaught of non-stop connectivity that is the mark of our modern world. For a brief few weeks it gives me the chance to return to the more peaceful time of not so long ago when our days were more fully our own. But there is a price to be paid.

Returning from this latest trip to Mexico and Guatemala I have over 100 comments and questions waiting for a response here on this blog. That’s just counting the ones that actually require a response.

I love getting questions and comments here and, when I’m around, look forward to them each day. On a daily basis, it is relatively easy to keep up. But left to build for a few weeks they become an intimidating task. Catching up can easily overwhelm the time normally allocated to writing new posts. And, of course, new posts are also thin and rare while I travel.

When readers take the time to comment I am very appreciative and if they ask a question or two I very much like to be able to respond. But buried in the comments section of whatever post they’ve chosen, our conversation is unlikely to be seen and enjoyed by other readers. In fact, when answering I can’t really even be sure the original commentator has subscribed to the comments and will see the response. It is tempting to blow off these questions and simply move on to writing new posts more readers will see.

But the calibre of most of the questions I get here is excellent and, as I’ve often contended, the comment section on this blog has some of the best, most interesting content. So here’s my plan. I’m going to start working thru all these comment/questions, answering them in the posts where they were made. In addition, I’m going to select several of the most interesting and reproduce them in a series of posts — starting with this one. I see three benefits:

• It will get responses to readers who were kind enough to comment.
• It will get the flow of new posts started.
• It will introduce readers who don’t currently bother reading the comments to some of the content to be found there.
• It might even introduce you to some older posts you’ve missed so far.

OK, that’s four. Works for me! Hope it works for you, too.

Oh, and I’ve named this post after the featured painting above. Enjoy!

From:

How to give like a Billionaire 

Workinghard:

I don’t know how many times I’ve thought about a charitable trust fund. It’s been on my someday wish list. However, it’s my understanding that any money in the fund can only go to qualified non-profit or tax exempt organizations. Is that correct? Or can the money be used to help individuals in need? We give 10-12k a year to people rather than churches or organizations. I also prefer giving anonymously which calls for some creativity and using people out-of-state to help. It would be nice to have some of the advantages of a charitable trust fund.

Thanks for addressing this topic! Now to read your other blogs.

jlcollinsnh:

Welcome WH…

Correct. Your fund can only contribute to qualified, established charities. I suspect this is because, since it is tax-deductible, the same rules for IRS charitable tax deductions apply.

As it happens, like you, I frequently prefer to give directly to individuals and small organizations that may not qualify.

So what I do is occasionally fund my charitable trust with larger donations that get me over the IRS standard deduction for the tax benefit. This money is then distributed over the next several years.

At the same time the money I choose to give anonymously and to places not qualified I give randomly and without concern for the tax break.

Hope that helps.

Workinghard:

Thanks for replying and everything you’re doing to help us (me)!

I don’t care about the tax advantages per se of a charitable trust but the anonymity would be great.

bookaunt:

Just to let you know that you can open a charitable gift account at Fidelity for $5000 while you are waiting to build a bigger stake

jlcollinsnh:

Good to know, bookaunt.

But for smaller sums like $5000 I would just distribute the cash directly to the charities of my choice without bothering with a charitable trust.

Such trusts, in my view, are better at providing an immediate tax advantage for a larger donation that will be distributed over time.

For instance, unless you have other deductions $5000 will be under the standard deduction amount and no tax benefit will be realized.

But if you fund your trust with 25k and then distribute the money over five years at 5k per year, you get a very valuable 25k deduction in the year you fund your trust.

Make sense?

bookaunt:

There are times when even a $5k charitable fund can be useful. It worked for us a couple of years ago when we wanted to sell some stock that had a significant capital gain. By funding our gift fund with that stock, we were able to shield the profit from taxes – worthwhile to us even though the amount was not much over $5k (but we did have other deductions).

Also – when looking at setting up one of these funds, note that both Vanguard and Fidelity charge an annual cost/maintenance fee.

  From:

Stocks — Part V: Keeping it simple, considerations and tools

It would be great to meet you one of these days, Justin. Enjoy your travels and who knows what little dive we might stumble across each other in?

Walt:

I’m actually in much the same boat as Jim was, but without the $300 rent coming in.

We bought my mother-in-law a condo and pay the HOA for it to the tune of $350 a month plus debt service of course. We also pay for cleaners to come in once a month, because she is an awful housekeeper.

She, of course, has zero savings, doesn’t work, and lives on social security of around $750 a month.

Fortunately our association is the opposite of the one he describes – the HOA hasn’t gone up in three years, and there are no special assessments. As with many condo boards they’re a bunch of kooks, but they’re very careful with the money. One of them wanders the pool area over the summer yelling at people who leave the outdoor shower running too long.

I look at the condo when I’m visiting, though, and I wonder how long until she starts complaining about the ancient carpet and other things – but the carpet was in very good shape when she moved in. Add in a woman who flat out doesn’t clean, her piggy 12-year-old grandson and two cats who pee everywhere, and things don’t stay nice for long.

She has occasionally said things that make me think she believes this arrangement is somehow to our financial advantage. Of course, she hasn’t made a sound financial decision in her whole entire life, so there’s that…

My strong suggestion is to NOT buy your parents’ housing. Go ahead and subsidize it if needed but it’s not a comfortable place to be.

jlcollinsnh:

Yikes!

Your situation sounds much worse than mine!

David:

Next time she suggest the condo is to your financial advantage, suggest she move somewhere else if she can find a better deal. And if she can’t find a better deal, you expect a sincere “Thank you” or she can move out anyway.

My mom and dad taught me not to put up with passive-aggressive excrement (or any other kind!) from anyone.

From:  

Pickpocket at work

Stocks Part VIII-b: Should you avoid your company’s 401k?

Ally:

HI Jim, GREAT post, GREAT video. I am really enjoying having my eyes opened. I always thought I was good at watching the fees in my 401k.

I am lucky enough to have Vanguard options in my 401K which I utilize. My boyfriend on the other hand has an awful 401K (in my opinion). I tried picking the “best” of the options available but I feel lost.

He has JP Morgan and Putnam funds available to him and all have annual expense ratios of 1.04%-1.38% and all are Actively Managed accounts so the Load Charge is anywhere from 5.25% to 5.75% per fund. I think this is just outrageous.

My question is, is it best to just pick one fund with an outrageous fee or spread the money and diversify? Does it cost more to have all your money in one bad fund or many bad funds?

Thanks,

Ally

jlcollinsnh:

Holy crap, Ally….

Those options he has really do sound ugly. “Outrageous” doesn’t seem strong enough a term.

Are there no choices without the loads?

As for your question: The only reason it would cost more to have the money spread around is that some of those funds are even worse than the others. Other than that, more funds are just more hassle in keeping your allocation choices in balance. Given those loads, he should be sure to do that with new money rather than buying and selling shares.

Personally, I’d look for the lowest cost fund offered. It is likely to be the index fund if they offer one, and that’s what you’d want anyway.

But if all the funds have fees as intense as what you describe, I’d be tempted to skip it all together. I’d certainly hesitate before funding it beyond the company match. (Please tell me there is a company match!)

If he is feeling ambitious, he might also campaign for better choices with his HR department.

Read Addendum #1 very carefully and walk thru the Mad Fientist’s math as it applies to your boyfriend’s situation, and then decide.

Good luck and please keep us posted!

Jeff:

My 401k includes the following Vanguard funds – is there any reason to choose something other than the mid-cap index fund? Just want to make sure I’m navigating these correctly!

Mid-Cap Index (VIMSX) Prime Money Market (VMMXX) Target Retirement 2010 (VTENX) Target Retirement 2020 (VTWNX) Target Retirement 2030 (VTHRX) Target Retirement 2040 (VFORX) Target Retirement Income (VTINX) Total Bond Market Index (VBMFX)

jlcollinsnh:

Hi Jeff…

The mid-cap index fund is likely your lowest cost fund choice, but it is also very focused on one type of stock: Mid-sized companies.

If you have other investments outside your 401k you can balance this with large cap and small cap index funds. I’d shoot for about 70% large and 15% in each of the small and mid cap funds. This will roughly duplicate the Total Stock Market Index fund like VTSAX.

If you don’t have other investments, one of the better diversified Target Retirement funds would likely be a better choice for you, even with the bit higher expense ratio.

From:

Why your house is a terrible investment

Jon:

Mr. Collins:

Another terrific article where you provide a compelling argument mixed in with a “single finger salute” ( f-u money’s second cousin, twice removed) to tired conventional wisdom.

Of course, many of these “experts” that dispense this advice are broke and/or leveraged. I wish I would have “met” you years ago but sure enjoy your work now. Thanks for what you do.

By the way…I’m a satisfied homeowner yet don’t claim be a real estate baron by any means.

jlcollinsnh:

Thanks Jon…

Glad you liked it and glad we’ve “met” now. Also glad to meet someone who can be both a satisfied homeowner and still appreciate the concepts in the post. I’ve owned them myself for 28 years.  

Nickster:

I don’t mind renting, but I don’t know how much is my “F-You Rent.” That is to say, how much money do I need to:

1) Rent in pretty much any area I like2) Rent as much space as I need3) Have the option to renovate or decorate as I please4) Not worry about getting evicted

jlcollinsnh:

Welcome Nickster….

The best way is to simply take your annual rent and multiple it by 25. That is, if your monthly rent is $1000, you’d multiple 12k x 25 = $300,000. In turn, 4% of 300k = $12,000. It is the same formula as for figuring your FI number: https://jlcollinsnh.com/2012/12/07/stocks-part-xiii-withdrawal-rates-how-much-can-i-spend-anyway/

Only you can answer your questions 1 & 2. Once you do you should be able to figure the rent needed.

As for #3, most landlords will limit your ability to move walls or paint the place in the exotic colors of your choice. At the very least, you’ll be expected to return the place to it’s original and presumably more rentable condition.

It is the same as if you owned the place. Come time to sell you’ll need/want to walk back any exotic renovations you’ve made. Even the most tasteful updates can simply go out of fashion by the time you chose to sell. Unless, of course, resale value is not a concern.

As for #4, most landlords are looking to keep good tenants not evict them. But if you plan on behaving badly, owning might be the better choice. It is much tougher for your neighboring owners to get rid of you than a responsible landlord.