Here’s an idea for a new ETF

Actually, not one ETF, but two! Or more! How can there be a need for a new ETF? Aren’t there enough already? Earlier this year, Motley Fool argued there are too many ETFs (1,929 at that time, probably over 2,000 by now) and they are covering pretty much every thinkable (and unthinkable) benchmark. Soon we might have more ETFs than publicly traded equities in the U.S., how crazy is that??? Why would I propose a new ETF that doesn’t already exist?

Here’s some background. I’m an index investor at heart and I like tax optimization. For so many years now, I’ve held equity index ETFs and Mutual Funds in both taxable accounts and tax-deferred accounts (both retirement and deferred compensation at work). It’s so painful to see the dividend payments in the taxable accounts getting taxed every year. Sure, it’s only about 1.9% dividend yield in the S&P500 right now but for us, that’s taxed at 15% federal, 10+% state (California!) and 3.8% Obamacare tax, for a total of almost 30% marginal tax! Isn’t there a better way? Sure! Simply put the taxable equity allocation into stocks that pay zero (or close to zero) dividends and keep the high-dividend stocks in the tax-deferred account where they can compound in peace and be taxed only once upon withdrawal rather than every year along the way! So, the two ETFs that I wish existed would exactly replicate the S&P500 if held in equal shares. But individually they’d have non-index weights and one would hold the equities with the lowest dividend yield and the other with the high-yield equities!

Notice that most folks already do this tax optimization across asset classes: Hold the tax-inefficient asset classes (bonds, REITs, etc.) in tax-deferred accounts and equities in taxable accounts. So, why not do this within the equity asset class as well for additional tax efficiency? How much extra after-tax return would we get out of this? Let’s look at the numbers…

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The Ultimate Guide to Safe Withdrawal Rates – Part 25: More Flexibility Myths

Welcome to the newest installment of the Safe Withdrawal Series! Part 25 already, who would have thought that we make it this far?! But there’s just so much to write on this topic! Last time, in Part 24, I ran out of space and had to defer a few more flexibility myths to today’s post. And I promised to look into a few reader suggestions. So let’s do that today pick up where we left off last time…
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The 2018 ERN Family World Tour

My apologies in advance to all who were expecting an update on the Safe Withdrawal Rate Series. I posted Part 24 last week with a promise to do an update this week. Well, I got distracted a little bit last weekend and the new simulations take some more time. Stay tuned until next week! What to do now? Less math, more travel! We’re planning our June-December 2018 ERN Family World Tour and I thought now might be a good time to share our plans. The locations and dates are pretty much fixed already, though some details are still being finalized.

Let’s look at where the ERN family is heading for the second half of 2018…

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The Ultimate Guide to Safe Withdrawal Rates – Part 24: Flexibility Myths vs. Reality

It’s been three months since the last post in the Withdrawal Rate Series! Nothing to worry about; this topic is still very much on my mind. Especially now that we’ll be out of a job within a few short weeks. I just confirmed that June 1 will be my last day at the office! Today’s topic is not entirely new: Flexibility! Many consider it the secret weapon against all the things that I’m worried about right now: sequence risk and running out of money in retirement. But you can call me a skeptic and I like to bust some of the myths surrounding the flexibility mantra today. So, here are my “favorite” flexibility myths…Read More »

A dog, a homework and a reader question about Robo Advisors

There is a first time for everything. A first time in about two years! I didn’t get today’s designated blog post up and running in time! The dog ate my homework! Well not literally but only figuratively. Things are busy at work and last weekend we had to move (again). After a month and half of couch-surfing with friends and relatives and some vacation time in between, we finally moved into a slightly more permanent place, an AirBnB in Oakland. Hopefully, our last place in the Bay Area before I finish my job in mid-June. Right as we settled in at the new place and I wanted to get working on my blog post my laptop gave up its ghost! The new one I wanted was not available at Costco and needs to be shipped. ETA TBA! What to do now? Well, I could just skip this week’s post, right? I figure once we go on our long trip to Europe, Asia, Australia and New Zealand in the second half of 2018 I will likely reduce the blog post frequency to 1-2 per month anyway. Vacations are a lot of work! But as long as we’re here I’ll try to keep up with the weekly posts on Wednesdays.

So, what about today’s post? Simply repurpose something I had already done! I receive a lot of emails with personal finance questions from readers. I can’t answer them all because I don’t have an army of Macedonian content writers working for me! But a few weeks ago I got an interesting question via email that I couldn’t help but answer! It’s about Robo advisors! And why two Robo advisors are worse than one! That’s something I have to share on the blog as well! Let’s take a look…

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