Financial Well-being

ETF  ProShares UltraPro QQQ (TQQQ) offers 3x ( T riple) daily long leverage to the NASDAQ-100 Index based Invesco QQQ Trust (QQQ) ETF . Using 3x leverage means that fund manager invests another ( borrowed  ) $2 for each $1 investors put in. This results into 3 times of index return in boom times like last several years. This all sounds great until market moves to crash  territory. All those gains as well as principal could be quickly wiped out during a crash. For example a 10-20% market correction  (which typically happens every alternate  year) would result into 30-60% drop in TQQQ. If one had doubled one's money in last couple of years, all that gain is wiped out with just a mild 15% correction. With such outsized  loss, one is likely to resort to panic selling  and so would miss out further during quick  recovery (typically 4-5 months for corrections). I strongly suggest to stay away from such souped up leveraged  investing. Savvy invest...

iShares Russell Top Growth ETF (IWY) is one of the best passive index ETFs for large cap growth asset class. It's quite inexpensive with expense ratio of just 0.20%. It has outperformed it's category by almost 25% for last 3,5,10 years period: Source: Morningstar Performance tab It's holdings are 12% cheaper (PE of 30 vs 34) than broad large cap growth index. It's projected long term earnings growth of 17% is quite comparable to that of it's index.  It's standard deviation of 18% is same as that of Total Stock index, even though it has outperformed   Vanguard Total Stock index by 50% in last 3,5 years period. Note that, as long term investor, my advice is to mostly stick with style-neutral broad market index. Styles come and go and those chasing today's hot style are mostly too late in the style game and eventually tend to lag.  As such, we can go for Large Growth factor bias for small portion of portfolio. My suggestion would be to go s...

Tax advantage is not that great for after-tax  contribution when not converted to Roth. Even though tax liabilities for growth from capital gains and reinvested dividend is deferred, eventually gains gets taxed at higher  ordinary income tax rate at withdrawal. Taxable brokerage account is perhaps better tax optimized for after-tax dollars. Capital gains are deferred here too, especially for passive index (which rarely do any capital gains distribution). When we withdraw, we pay lower  capital gains tax or perhaps no taxes for middle class lower tax bracket household . For example, Vanguard Total Stock Market ETF (VTI) has distributed only 1.5% yearly (just for dividends), even though it grew 9% annually since 2001. So 85% of growth has been tax deferred, even in taxable account.

When we apply for Home Equity Line Of Credit (HELOC), we normally try to get maximum possible line. However, near-retirees should get HELOC for only amount they realistically need. It's good to keep debt to income (DTI) ratio low for them. As they retire and wish to take another loan (say zero percent auto loan financing deal), it might get tricky to qualify as retiree (with limited  income). For the same reason, as near-retiree, it's better to go for 30 years mortgage refinancing . It would keep DTI ratio low. Also this would make it much easier to qualify for  another  HELOC in future  as and when current HELOC's draw period is about to end. BTW, while calculating new loan DTI ratio, prospective lenders assume maximum utilization of line, even though our current HELOC loan balance might be just zero. For example, I have $80K HELOC line with 3% interest. When I re-financed my mortgage few months back, I had no current loan balance on my HELOC. However, I saw $...

Well known passive indices, such as Total Stock market index, seem to outperform active  funds by following one simple concept: Follow the leaders  in stock equities and allocate money proportional to how good they are doing. One of the simplest measure of success for a company is it's market cap . Accordingly, most indices allocate money to top n (as measured by market cap) companies in proportion to their market cap. Since industries (and it's associated leaders) change with time , it's pertinent to not get emotionally attached to any company. Investors tend to hang onto their losses from past leader holdings due to sunken cost fallacy. Similarly they tend to chase high flyers during boom times due to investor psychology called herd investing.  An emotionless data driven  index does not become victim to any of these investor psychology and keeps recalibrating  itself as leaders become laggards and new leaders emerge. There are several indices representing suc...

I had to pay some estimated taxes for realized long term capital gains I had during last quarter of year. I was under impression that we typically need to pay at end of each quarter with 15 days grace period after quarter ends. But, it's not necessarily true . It seems to be following interesting 2,3,4 months schedule as below: Source: https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2 First quarter of year does follow end of quarter plus 15 days rule. Later due dates don't follow calendar quarterly schedule at all. They follow 2 months, 3 months and then 4 months period segments. We can pay federal estimated taxes by going to IRS tax account login (using ID.me login now) here . My state MA  estimated tax payment follows same schedule as above one for federal. Perhaps other states do same.  We can pay MA state estimated tax by going to MassTaxConnect - MA DOR Estimated Tax Payment site here . MA tax rate is 5% of taxable income.

GlobalX US Infrastructure Dev ETF (PAVE) seems to be a good choice to capitalize on Biden's infrastructure bill spending for next couple of years. It has performed very well in it's domestic infrastructure category, since it's inception 4 years back.  It's PE ratio is 20% lower than that of broad Total Stock index, even though its long term earnings growth projection of 15% is quite similar to that of Total Stock index. It's expense ratio of 0.47% is little bit on higher side though. However, it's comparable to expense ratio of focused asset class such as infrastructure. Source: Morningstar Portfolio view page This fund seems to have outperformed Morningstar Gbl Eq Infrastructure index big way by mainly focusing into small/mid size growth-value blend industrial infrastructure companies. Hope it's able to do same in future. Above outperformance does come with some volatility  risk (standard deviation 25% as compared to 16% for index). Key is...

For those considering a tilt  to specific technology  asset class in their portfolio, high PE of this asset class is always concerning. However, to my utter surprise, semiconductor  technology specific passive   iShares Semiconductor ETF (SOXX) happens to have dirt cheap  PE of merely 21 (as compared to 29 for technology heavy NASDAQ 100 - QQQ). Also, amongst all the technology asset class non leveraged etfs , SOXX performance is almost  number one  for all 1, 3, 5 years horizon. With dividend yield of over 1% and projected earnings growth of 17%, this ETF is projected to generate 1+17=18% annual return for next 5 years. It invests into ICE Semiconductor Sector Index which is primarily based on top 30 (based on market cap) global semiconductor companies. It's expense ratio of 0.43% is little bit on higher side. However, it's still one of least expensive focused technology index ETF.

Long term  capital gain and dividends is tax free  for middle class household. Middle class here means households falling in lower 12%  tax bracket.  For example, joint household with up to $85,500 taxable  income in 2022 fall into lower 12% tax bracket. Similarly, households with almost similar income also qualify for tax free capital gains: Source: https://www.kiplinger.com/taxes/capital-gains-tax/603735/2022-capital-gains-tax-rate-thresholds Note that above threshold is for taxable income. Gross income threshold is much higher after adjusting for standard deduction and other tax deferred plan contributions. See  what gross income qualifies one to be in lower bracket  for more detail. Trick is to try to contribute enough in tax deferral plans such as 401(k) and traditional IRA (say, for spouse without access to 401k at work or full time mom/dad) to bring your household tax bracket to lower 12% tax bracket.  Same threshold as above ...

Joint household with 150K ( 163K  for  50+ age group)  gross income could be still in  lower 12%   tax bracket. Wondering as how is this possible? Well,  standard deduction  for married filing jointly  for tax year 2022 rises to $26K .  With this deduction, higher tax bracket of 22% kicks in as we cross threshold 83.5K  of taxable income: Source: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets So in essence, joint household is in lower  tax bracket for first 26K+83.5K= 109.5K  gross income for year 2022.  I found Engaging Data  web site to be easy to use resource for one to visually see one's tax bracket with full breakup of above kind of data: https://engaging-data.com/tax-brackets/ Now, we have tax deferral room of 20.5K  ( 27K if 50+ age) for each  401(K) participant in the household. So, if both members of joint household contributing max 20.5K to 401(k) plan, t...