Financial Well-being

Highly leveraged ETF TQQQ performance has been mind boggling ( almost doubling each year) for 2019, 2020 and 2021: Source: Morningstar Performance Tab  Fantastic 8 times compounded gain for anyone invested in it during these 3 years. However, it takes one single typical crash of 45% in technology asset class to wipe out all this outsized gain.  For example, down the lane, if we do witness recession in 2022, perhaps we could see typical median  broad Total Stock crash of 35% YTD drop. Technology heavy QQQ is likely to decline by 45% YTD. In that case, triple leveraged TQQQ is likely to lose 90% YTD. What is performance number for above typical crash scenario?  Initial 10K invested in TQQQ in beginning of 2019 would be worth 80K by end of 2021. Fabulous return so far. However, above YTD 90% drop for 2022 would reduce that 80K to just 8K. In essence, one is in net loss of 20% of original 10K investment, in spite of 3 years of yearly doubling.  That's ugly face of highl

Most commonly used retirement income planning strategies use actual expences , which I believe is more practical and includes one's spending habits and chosen life style. One of the most popular strategy uses 55/45 stock/bond conservative  retirement portfolio equal to 22 times  of desired initial yearly  needed expences (after accounting social security benefits). For example, say someone retires at age 67 and starts collection 50K social security benefit as joint household. With fully paid house, say household expences are 60K per year. So household needs remaining 10K from retirement portfolio to meet all expenses. Using above rule of 22, one just needs 220K (22*10K) portfolio to provide needed retirement income for rest of retirement years. Now, let's visit other scenario where household wants to retire earlier , say by age 62. Social Security benefits are reduced (25%) to around 40K per year in that case. Now household needs retirement portfolio to provide remaining 20K in

PYMNTS’ research finds that 61%  of U.S. consumers lived paycheck to paycheck  in April 2022, a nine percentage-point increase from 52% in April 2021, making it the main financial lifestyle in the U.S. Source: https://www.pymnts.com/consumer-finance/2022/report-36-of-consumers-earning-250k-now-live-paycheck-to-paycheck/ This increase means approximately three in five  U.S. consumers devote nearly all their salaries  to expenses with little to nothing left over at the end of the month. Above excessive discretionary spending based lifestyle seems to be becoming common amongst privileged high earner millennials.  Even though they are not *likely to practice frugality* the way most of first generation immigrants have been practicing, let's keep nudging  our second generation millennial kids to avoid excessive discretionary spending and become savvy investors. Chances of success are quite slim, but trying is what we, as parents, have control over. One example of excessive discretionar

As recently as 2011, bonds had earned higher returns than stocks  over the prior 30 years  ( long-duration  Treasury bonds, 10.7% annually; U.S. stocks, 10.4%). Source: https://www.wsj.com/articles/sometimes-its-bonds-for-the-long-run-1541176880?st=f5mipeo430wzfr5&reflink=desktopwebshare_permalink It seems that long duration  bonds have been best performers in bonds, when we buy and hold them for long haul . In short term, they might be most volatile  (due to higher sensitivity to interest rate changes).  So, if you are uneasy with recent under performance of long term bonds (such as PIMCO 15+ Year US TIPS ETF LTPZ  ), keep reminding yourself that such bonds are likely to be best bond performers, if you are willing to have patience and hold them for long haul.

Effective  (after standard deduction) federal tax rate for typical retired household is likely to be near zero percent. For example, take a scenario where household's joint social security benefit is 50K and they are tapping 10K from traditional IRA and 10K from Roth account to meet their annual expenses of 70K. Social security benefits are completely tax free as far as half of social security benefits plus other  taxable withdrawals are up to 32K threshold for joint household. In above example, 25K (half of 50K in SS benefits) plus taxable  10K traditional IRA withdrawal comes out to be 35K. Since 3K amount is above 32K threshold, this additional 3K social security benefit becomes taxable. Total taxable income is 3K taxable SS plus 10K traditional IRA withdrawal. However 3K+10K still falls under 26K standard deduction for joint filers . So there are no taxes at all. Several states, including Massachusetts, do not tax social security benefits.  Source: https://www.irs.gov/help/it