Portfolio Expectations 101
This is the simplest way for everyone to stay calm, without overdosing on hopium.
Even the best mutual funds have underperformed the S&P 500.
VAGSX = Vanguard LifeStrategy Growth Fund Investor Shares (VASGX) = 14.6% YTD
AGG = US Bond Market = -3.6% YTD
Global investors do not invest “100% stocks.” This year the “other stuff (AGG is a less-extreme version)” is negative, something that has not occurred in over a decade.
Simple Weighted Average (video is free, not on YouTube)
Let’s call it 70% VAGSX and 30% AGG.
Total Return = (70% x 14.6%) + (30% x 3.6%) = 8.86% » this is 100% reasonable as an expectation for YTD returns.
Complications and Nuances
Taxes. The issue with mutual funds is they will release dividends and capital gains in a VERY non-transparent way. You get told, the money arrives, it gets put into a “bucket” which could be dividends, short-term capital gains, and long-term capital gains. Maybe you withheld at the source, maybe not; in fact, holding at the source has led to many people (you) totally misunderstanding the nature of your returns.
This creates complications, possibly big ones.
IRMAA is a Medicare-specific tax, and if those distributions increase your taxable income (they will), you don’t know until it’s too late.
ACA Advance Premium Tax Credits are VERY MUCH affected by your taxable income, I have seen errors here result in > $10,000 extra taxes being due, in a single year.
The same issue will exist if you use a robo-advisor in a Non-Qualified funds account. There will be turnover which will result in tax events, which you do not know as they occur. So while it is viable to be in a Qualified funds account (IRA, Roth IRA would also qualify since the money has already been taxed), the issue is Non-Qualified accounts, where the tax events can be large, and you do not know, until it is too late.
The size of the health insurance premium increases can easily nullify the capital gains.
Problem This Creates For You
When I get interviewed by the financial media, I always mention this quote I hear from many. “I have a separate financial markets guy, and a separate insurance guy.”
That was always a wrong, it is 100% obsolete now, and will continue to be. Medicare IRMAA and the ACA have only highlighted specific examples of why this was always the case, and only now are these issues being put into the spotlight, when Medicare premiums increase by 14.5% in a year.
The reasons I don’t solely focus on financial markets are complicated.
The earth is not flat. What does this mean? It means that most commonly held beliefs about financial markets, and perpetrated by the brokerage community and media, are SO WRONG and SO INGRAINED that undoing that (“the earth is round”) is a task that I find not worth it. Reminder: I have presented to global central banks on financial matters and direct interfaces have been with the world’s largest investors. The retail broker is reporting reports from sources, that have other motivations (like investment banking revenue generation, you can never ever get away from this inherent conflict). It’s easier and more correct to say “Stocks for show, bonds (and foreign exchange) for dough.”
Even if I could convince the masses that the earth is not flat, that doesn’t guarantee the result, so the flat-earthers point out random results and wrongly use it as “evidence.” “See, it was tails, I was right.”
There is reason that if there is a single book that everyone should read, it is Fooled by Randomness (click here to buy on amazon.com).
Medicare applies to many more, and the randomness in result is almost nil, due to the regulations and standard language, and options offered in the competitive marketplace. And I have saved a dollar for those that need it most, with a 100% likelihood.
Flip side: those that pay the bills are paying for my ability to create the Medicare platform.
Onwards, and oh, by the way: release date seems to be January 25, 2022.
Official website for the book: click here.