Ting referrals

Ting is a pay as you go data and voice plan that is pretty popular these days with millenials and getting traction amongst masses. It is just ala carta menu instead of the buffet that the big carriers serve. It is a neat service, neat website and the cost seems less for folks who rely on wifi for most part but want the odd directions when then venture out. If you consistently go overage - which is industry term to denote that you go over 1 GB, then you are better off using a fixed plan such as AT&T which gives 2GB for $25 and there are myraid number of MVNOs - another industry term for secondary data providers .. which means these are private operators who offer the plans which run on the Sprint or AT&T or Verizon networks. Boost Mobile or Cricket or Metro PCS give $30 plan. There are a bunch more for $20 or so. These are better than the bigger ones such as T-Mobile.

My referral if you choose to use is https://zfhaib4h08c.ting.com/

This will give us both $25 each and now for a limited period of time, till September end, you can get a ting sim card for $5 with free shipping. The phone selections that they have is not half bad either!

Review of robo advisors

In this post, we will look at some automated rebalancers and robo advisors. These have exploded in the recent few years from 2011 till 2015, slowly picking up steam and investments. Many manage in the tune of billions. If you read my last post about tax loss harvesting, you will see that it is just a tool. A strategy which should be the side one and not the main or core one. It can be used to capture some value. But I would personally not pay a dime to get this in ETF. For stocks, I would stick to my algorithms and core values and beliefs and change them. The tax loss harvesting gives some money back from IRS to soften this blow and maybe serves as a reminder from them to diversify and not take this to heart. Instead, Uncle IRS is telling you to take a chill and maybe get a sandwich with that money and play it cool.

So here let us review all the available or leading players in the tax effeciency business and the final recommendations regarding it.

1) Wealthfront: free upto first $10,000

2) Betterment: 

It has dynamic pricing.

3) hedgeable: same as above, 0.35% - 0.75%

4) https://www.sigfig.com/site/#/home/am

First $10k is free. After that is 0.25%.

5) Wisebanyan seems free but I am not sure about their sign up process or investment strategy

6) Future Advisor: The most impressive in this list apart from Wealthfront. https://www.futureadvisor.com/content/pricing/retirement-advice .. their fees are free.

7) Charles Schwab Intelligent portfolios: Free. This looks good too.

8) Vanguard: New kid in the block and since most of the above funds leverage on Vanguard ETFs  anyway, it makes sense for Vanguard to look at their voyager clients, anyone with more than $50k in assets to use this service for 0.3% fee. I think this is an overkill and  might not be needed.

9) A whole remaining bunch: Personal Capital, Moneyfront?, RebalanceIRA, Liftoff, tradeking, motif?, what-have-you and so on. Even TD Ameritrade pitched me this about 8 years ago for some x% fee. 

Recommendations:

Split the amount between Future Advisor and Wealthfront. This is not a terrible investment to have and even might make you money. But make sure you put the taxable money in here since your IRAs are anyways tax -deferred and hence you might not really need to save the taxes there or take advantage of tax loss harvesting strategy. Second, in view of the tax loss harvesting do not lose sight of the fundamental strategy of buy low sell high. In 2015 the market is high and volatile. Be ready to sell quickly. It is fine to enter into the index funds in some way now and maybe exit if there is a popup. But still overall individual stocks or etfs, invest conservatively and in drops for now. Third, go all out 100% risk in such accounts. I mean, if you want to invest conservatively, you have your own bond funds or CDs where you can hold your money. There is also balanced funds which will do this for you. Vanguard Wellington and Wellesley funds come to the top. Apart from their balanced funds. So with this robo advisors - go 100% stock funds .. which basically is 100% stock etfs with Domestic and Emerging markets mainly.

Apart from the above two, go with the Charles schwab (https://intelligent.schwab.com/) if you want more assurance on the security front. In terms of loss harvesting strategy, basic rebalancing, I would not venture beyond the above three recommended ones. Maybe I will start with something small and gradually build up from there.

One cant fail to notice the way Schwab or Vanguard have structured their funds with minimum requirements of $5000 or $50,000 in their respective accounts. I think they might do a basic rebalancing along the lines of fixed time based or portfolio allocation based rebalancing. It is low fees to nothing for them. So just like at the outset of this research, I am not too sold on robo advisors. It is good to have some in your portfolio to optimize the tax loss harvesting in taxable account. But beyond that there are simply too many avenues out there to make this the core or central piece of your overall investment strategy.

The semantics of loss harvesting (continued, part 2)..

Betterment, wealthfront - ring a bell? A whole slew of automated robots have come off in recent years. They are basically a layer on top of the vanguard etfs typically that will operate on the "when" aspect. Like you, they also buy vanguard or ishares or what have you etfs. Typical investors mess with timings. They sell here and there, forget to rebalance etc. Enter automated trading which just sets the ratio to what you like say 50-50 or 70-30 and then forget it. It will automatically balance it periodically on said date or likely on limits getting reached and rebalance it. This is nothing but automation of the yearly or bi-annual rebalance that you may do or just spend 10  minutes per month or per weekend to check out the pie chart and then rebalance or better yet, get a balanced ETF and forget it. 

These funds charge you another few percentage points over your expense ratio for this service. I think you are better off doing this on your own. But here is the key differentiator. Many of them tout automatic Tax loss harvesting. Many say these fees are worth the free time and no need to worry about rebalancing or tax loss harvesting etc. So this post will dwell more on tax loss harvesting. 

To continue on what we said in the last post, tax loss harvesting is a simple principle of softening your losses by "harvesting" the loss and claiming this loss in your tax returns. Meanwhile, you continue to hold on to your investments and hope that it would go up significantly. Automated robots to etf level tax loss harvesting and get this additional value. While you can do the same at stock level too. To continue with the example  that I gave  previously, why would you want to hold on to a loser stock in this case? To some extent it colludes your ideas, clouds your thinkings and judgements and maybe compromises objectivity ? Why ? Take for instance you had C at 50 and then it went down to 5, you can of course hold on to it and then harvest this big huge loss down the line. Or you could keep harvesting it as it keeps going down. Which is in a way a fool's game. You are paying commissions here unlike the ETFs. Speaking of ETFs, I think this is good for maybe a 2 billion or 10 billion pool in an investment running into trillions of assets under management. If this was worthwhile the big houses of Vanguard and Fidelity would be all over it. In practice, this is not feasible or optimal. In theory it does not lead to effecient market hypothesis and maybe undermines other investors. Maybe the small investor can get some value but it harms the overall market interest or even the individual stocks due to constant selling pressure. So for ETF perspective, I dont think this trend would be widely adopted. But the likes of wealthfront might adopt this to differentiate themselves in the market and add that few values. Not to be harsh but back to the C example, instead of going down on it, if you are so determined, why not short this stock ? You can gain a ton by shorting it or maybe go the options route. I agree that options is more betting. While this is more objectively harvesting the loss and realizing the value. But then if you sell, you exited, you are out. Why not take this C position and put it in say WFC. That would have given you more money that the value can ever give you. 

My point is simply this, in a straightforward world, you put say 100 in stock A which went to 50. You sell half your position here and put it in B which is at 50 now and is going to 100 in next two years. At the end of two years, you have made your loss and are essentially at the same principal amount. Your capital gains from B is offset by capital loss or tax harvesting of A. Simple as that. What is being sold these days is hold on to A and keep harvesting the loss. You will never exit this position then.  But assuming you manage to separate all this out, the net gain or value you are talking is , subjectively speaking , not much. Why? Let us look at hedge funds. Many use this strategy already. You can call it loss harvesting or just focusing on a stock and buying and selling on a daily basis no matter what. Say there is a theoratical stock - like BAC or C which have huge volume and everyone trades it. Any daily trader would go for such stocks given the liquidity. Since there is volume, any small gain would help realize a huge margin. Similarly, a small loss means you get a huge red. Which you can promptly write off against your profit. You can do this ad infenitum on huge amount of money. In fact, there are many "market makers" and a huge pool of money which does such things. Many might go on the dark side too .. they notoriously call it "dark pool" just like "dark web" . Many are legally sanctioned for large institutions but not for individuals. All that aside, in market people just hold on, I mean even if you buy and sell like a computer to a buy and sell approach of a human that holds on for 10 years - in either case, you hold. That is the predominant position. One essentially is on waiting period. This holding period. And this is where one thinks. People like John Bogle said, ignore this, buy etf and let market do its own. If not, go the buffet way. Buffet says, do your homework well and hold on. But buffet does sell his investments too. He probably uses tax loss harvesting but I doubt on a daily basis. Maybe periodically when he sells a turd and landed a good capital gains on another. I dont have info on that. But you get the gist, the academic and good view of this is not to abuse it. What if IRS closes this loophole, will tax loss harvesting work in that case? So in this holding period, some other get nervous, they sell. Some hold on till x years. Some sell - it is just a mix of emotions from fear to greed to "I have hard earned money, I will just keep mine and not lose it and keep it fair and straight" to really anything in between. Tax loss harvesting is the guy who says, hey life gave a lemon, might as well make a lemonade.  So fundamentally nothing wrong but it should not be core part or strategy. Maybe put a few bucks and see how it works. So it is basically not core strategy. It is one of the tools you have. More than ETF level, I am more concerned about the stock level. Except that the strategy here would be once you sell a dog, do not repurchase the full dog. Go for half dog, half cat. Because once a dog cant be trusted, lets not confuse further. 

And always remember, this whole thing - investing etc. might get you that extra push but it never is going to literally make a millioinaire out of you unless you own it. You own your business and you have bought it low and then you sell it high. Literally, the wall street ones are the ones making money off commissions and legal structures rather than a super bet of seeing the stock going from 100 to 200. Anyhow, I distracted from the topic. At an individual level, it makes sense to use some services of automated advisors or robo advisors. But overall, at a stock level, I would still stick with focusing on market and not on tax loss harvesting. Unless you are a full time trader which by the way would be alarming if you are one and reading this blog :D

Brokerage firms as of 2015 September

As September begins I thought it would be a good idea to scan the landscape of brokerages to see how is charging how much. Rather who is not charging at all. August was a lot of upheavel. Went down and went up and again now back to where it was. September started by another round of downturn. Now for the scope of this discussion, like this site, I will eliminate options, derivatives, forex and the likes. Mutual funds are assumed to be bought from the source directly so are any bonds or some such. Even ETFs. But many people tend to regards ETFs as stocks too and prefer to have them in their brokerage account. TD Ameritrade and many other brokers have it for free - not all but the vanguard ones among others. Focusing on stocks, for long timers, they might have known about Zecco. I was active in that platform and it was good while it lasted before they put on fees. But for many, this firm will be the first which started the $0 brokerage commission. Honestly, the clearing firms being common, it is not out of world idea to offer $0 commissions. There is often Penson clearing firm used by many brokerage firms. The trading technical costs have gone down. Many firms make money on cash that regular people keep after selling. That itself adds to a lot.

So among the current roster of free stocks, there are lot of firms lilke Interactive Brokers and some other firm which I forgot that allows you to buy in smaller quantities per month or so. I would avoid firms like that and percentage based firms. I will focus on firms exactly like TD Ameritrade but that would give us $0 instead of $10.

Firms are in no particular order:

1.Robinhood: Just in March 2015, they opened up their app to all so that anyone with a smartphone can buy any stocks for $0. Dont know how long this will last as this is exactly same as Zecco model. They have kept is super simple though and as far as I know there is no IRA account type here. One can maybe put $1000 or so if so desires and then test it out. But then better with market down or swinging like it does these days. The downside is the ease with which such apps are there in your phone, you are likely to binge trade or trade frequently making you likely to lose your capital.

2. Loyal3: Same as above with a limited basket of stocks. Most big names are there and in a way it is not a bad idea to hold an account here. Like robinhood, I would keep this account for taxable account trading and not for IRA. 

3. Merrill Edge: This is an offshoot of erstwhile Merrill Lynch - for those who know this was a big name traditional brokerage which got bought over by Bank of America in recession and since have come with this $0 stocks - 30 limited. As long as you have more than 25 grand lying in their account. This makes it a strategy account. As in at one point, I did not want so much money lying there. Especially given that since 2007, we are having practically nil interest earnings in savings. Simply does not makes sense. One can as well keep this 25 grand in an online savings account at 1% APY and take this interest and trade it in a regular firm. But often times, in life, one comes across a point where one realizes that it is better to put some money aside. No matter what. Maybe a stock comes which is uber promising and a sure shot. Even then I would suggest just keep this in. Maybe it is inheritance or maybe you just banked a good stock profit or maybe you have been playing this game for about 10 to 15 years and you just want to put a 10 grand or 25 grand on the side. I remember reading or watching this billionaire mention that once he made his first million, the first thing he did was take that amount and put it in bonds. Simple safe bonds. He just wanted them to be in treasury or TIPS or something very very basic and rudimentary and ordinary. The point being that this was the first million and no matter what just keep this million in a safe place. Even if the rest of the money goes away in a war, this money will be always there. For hard working and studying people like me, it makes total sense. All in all, I am also sold on this idea and that it is better to keep at least say $25k in a IRA CD. Maybe it wont earn much. But that is fine. That Rollover IRA CD is from my hard earned money. And am sure lots of folks in this world also have similar hard earned money - borne out of years of education and savings and hard work that you just want to keep it savings. This gives you a peace of mind. A certain calm that can be used as a ballast or stepping stone. So I am too going to open a rollover IRA CD that maybe at 80 or 90 years old will always be there to let you know that some time ago you made it. Made a small amount of money by yourself. 

I chatted with the Merrill Edge folks and like always they are a delight to speak like the fidelity customer reps. 

Here is the highlight:

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To qualify for up to 30 online $0 stock and ETF trades per month, you must meet one of these criteria:

1. Maintain $25,000 or more in cash in your Bank of America deposit accounts: checking, savings, and CDs.

B: 2. Maintain $25,000 or more in cash balances in your Merrill Edge self-directed account.

For the purposes of the above two qualifiers: You would need to maintain a cash balance $25,000 either in personal Bank of America checking, savings, CDs, or FDIC insured bank IRA deposit accounts, OR $25,000 in settled cash within the Money Accounts portion of the personal Merrill Edge self-directed brokerage account(s).

Securities (stocks, bonds, mutual funds, etc.) in your Merrill Edge account do not count towards the $25,000 balance. The $25,000 qualifying cash balance would need to be either in Bank of America deposit accounts OR in the Money Accounts portion of the Merrill Edge account(s); it cannot be split between the two firms.

B: 3. Enroll in the Preferred Rewards Program which requires you to maintain a Bank of America personal checking account and maintain at least $50,000 as a combined balance in your Bank of America deposit accounts and/or your Merrill Edge brokerage accounts.

B: 4. To qualify for up to 100 free trades per month- Enroll in the Platinum Honors Preferred Rewards Program which requires you to maintain a Bank of America personal checking account and maintain at least $100,000 as a combined balance in your Bank of America deposit accounts and/or your Merrill Edge brokerage accounts.

Jamie B: For the purpose of the above two qualifiers: This aspect allows you to open a Bank of America account with as little as the minimum account requirements, as long as you maintain at least the minimum amount that the checking account needs to remain open and intact- your securities would count as qualifying for free monthly trades.)

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As you can tell it is a pretty nifty account and has good features. They are a very big firm backed by Bank of America and they have the $25,000 cash that is sitting in your account to cover the 30 free stocks. 100 free trades is a bit too much and the balance is a bit too high. But if you are up for it and I am sure many of the readers here have a higher set aside amount and for those, it makes sense to go with this account. 

So all in all, I would say Merrill is the way to go for IRAs and taxable followed by Robinhood and Loyal3 for the taxable ones.  Thanks!

The semantics of loss harvesting

Tax loss harvesting. The very name sounds frightening. At this point, you have a loss in your portfolio. The big red bolded sign. The dreaded signals and that negative sign which indicates that your idea and thought failed. It is the opposite of the rush that people can get when investing in stocks and seeing one's 100 bucks go to 200 bucks or 300 or so on.

So what is tax loss harvesting? Well, you have already lost money, got into wrong positions. It is red out there. So why not make some lemonade off it? Rather, why not make some money off it? How do you make money. Let us say you have bought something for 1000 dollars and it is now 500 dollars. You are at an unrealized gain of 500 bucks. Now if you sell your position now, you can claim this 500 dollars in your tax return this year and likely next or the one after that - upto 3 years or so. Now, this step is admitting defeat that your idea was wrong. But then it is also a reminder that market is objective and unemotional. There is nothing personal about all this. You are just trying to maximize your investments. So is this really a defeat ? Well, say you have this 500 bucks on Stock A. You had high hopes of A and their company and employees were the best in sector and were world beaters. It is just that B came out of nowwhere and A is now simply struggling. Holding on to past glory, declaring dividends and just waiting for that project which might take it back to its glory days or at least move it out of the current stench. Sounds all familiar in the technology sector which shifts rapidly. Or the finance sector if you had witnessed that in 2008. Or really any sector where shifts are happening in a global scale. So, now you have two options. You sell your position in A and buy B. Or you still have belief in A and want to hold on to it. Or you learnt your lesson and decide that some A, some B and possibly some C as insurance is the way to go.

Let us look at each case individually.

A: You buy the dog again. You have grudge against it. Normal since you just lost 500 bucks on it. Maybe tax loss in IRS will net you like 60 bucks but still it is a loss. A bigger hurt to your ego and knowledge and pride. That spring in your feet is gone. But still you buy some portion of it or maybe decide to put all in. A goes up or down. Down means you really lost nothing from your original position. It is just a continuation of the same. Same with up. A could even go back to 1000 in say 10 years. Which is fine by you. You are a long term investor. In which case, you just pay the capital gains. So really nothing here.

B: Now this is a risk and admittance of your loss. Maybe B goes crazy up and you recover your loss that you had with A. That is a good out come. In a way market is rewarding you  for your emotionless and detached behavior. B craps heavily and you now hate B as much as A. Maybe C has come now and you feel like a monkey on a musical chair who is just holding other people baggages while they make merry.

Buy some A, B and some C if you could identify C: Really that C is just your ETF or index fund. Unless it is very clear and you can sense that C has a market changing product. Usually it is recommended to go with this option.

To be continued...