{"id":19194,"date":"2025-01-09T15:31:50","date_gmt":"2025-01-09T15:31:50","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/finance\/568-qa-why-smart-investors-are-questioning-vtsax-and-chill\/"},"modified":"2025-01-09T15:31:50","modified_gmt":"2025-01-09T15:31:50","slug":"568-qa-why-smart-investors-are-questioning-vtsax-and-chill","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=19194","title":{"rendered":"#568: Q&A: Why Smart Investors Are Questioning VTSAX and Chill"},"content":{"rendered":"


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\"\"Jason is confused by the recent discussions about the efficient frontier and Paul Merriman\u2019s four-sector strategy. It seems a lot like another form of stock-picking. What\u2019s the difference?<\/p>\n

Michelle straddles the Roth income threshold and is frustrated that she never knows if she\u2019ll qualify for a Roth contribution until tax season. Is her current savings plan too complicated?<\/p>\n

Evan has $100 to spend on personal finance books for his high school\u2019s library. What books would Paula and Joe put on this limited shelf space?<\/p>\n

Former financial planner Joe Saul-Sehy and I tackle these three questions in today\u2019s episode.
Enjoy!
P.S. Got a question? Leave it here.
_______<\/p>\n

Jason asks (at 03:08 minutes):<\/strong> I\u2019ve enjoyed your recent discussions about the efficient frontier and the merits of diversification compared to the \u201cVTSAX and chill\u201d strategy.<\/p>\n

Like you and many of your guests, I agree that actively managed funds tend to underperform, and stock-picking is a losing game\u2014even for highly paid Wall Street professionals.<\/p>\n

But here\u2019s where I\u2019m confused. While I understand that strategies like Paul Merriman\u2019s four-fund portfolio focus on diversifying across asset classes, isn\u2019t that just another form of stock-picking?<\/p>\n

And if we agree that beating the market is statistically unlikely, why not consider alternative investments like real estate, which offers unique advantages?<\/p>\n

I\u2019ve personally shifted toward real estate syndications, and they\u2019ve been outperforming both VTSAX and the Merriman approach in my experience. Here\u2019s how:<\/p>\n

\u2022 Tax advantages: With bonus depreciation, I\u2019ve been able to deduct up to 60 percent of my initial investment in the first year. For example, a $50,000 investment could yield a $30,000 deduction, saving me $10,000 on taxes (though limited to investment income since I\u2019m not a real estate professional).<\/p>\n

\u2022 Passive income: Syndications provide annual distributions of four to eight percent while offering returns of 1.5x to 3x the original investment over three to five years.<\/p>\n

\u2022 Diversification: Real estate\u2019s risks differ from those of the stock market, which adds a layer of portfolio diversification.
Once I\u2019ve done the upfront due diligence, syndications are as passive as holding VTSAX or a diversified stock portfolio.<\/p>\n

If we\u2019re going to encourage stepping away from VTSAX and taking on more risk, why not advocate for options like real estate, which offers strong tax benefits and steady returns?<\/p>\n

Michelle asks (at 41:24 minutes):<\/strong> My husband and I are in a constant struggle with the income limits for Roth IRA contributions and every year, we\u2019re right on the edge of the adjusted gross income (AGI) threshold.<\/p>\n

For the past two years, we\u2019ve contributed to our Roth IRAs monthly, only to find out at tax time that we\u2019ve exceeded the limit. Each time, we\u2019ve had to recharacterize those contributions to a traditional IRA and then convert them to a backdoor Roth IRA the following year.
This process creates an issue: we\u2019re left with gains from the year that exceed the Roth contribution limit. These gains need to be rolled over to our 401k, which will be taxed upon withdrawal in retirement.<\/p>\n

So I\u2019ve been considering other strategies:<\/p>\n

1. Contribute directly to a traditional IRA monthly and immediately perform a backdoor Roth conversion. This ensures gains grow tax-free, but monthly conversions are an administrative hassle.<\/p>\n

2. Make a single annual contribution to the traditional IRA and convert the whole sum to a backdoor Roth. This simplifies the process but we\u2019d miss out on dollar-cost averaging and potential gains throughout the year.<\/p>\n

I also worry about what happens if the account loses money in a year\u2014something we haven\u2019t faced yet but could in the future.<\/p>\n

What\u2019s the most efficient way to handle this process? Should we stick with monthly contributions, switch to an annual contribution, or try a different approach?<\/p>\n

Evan asks (at 57:25 minutes):<\/strong> I\u2019m a high school teacher, and I\u2019ve just received approval to spend $100 on personal finance books for our school library.<\/p>\n

As a fan of your philosophy\u2014\u201dyou can afford anything, but not everything\u201d\u2014I\u2019d love to hear which books you think would make the cut if you were in my shoes.<\/p>\n

\"listen\"subscribe<\/a><\/p>\n\n

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