Forum Mailbag: 529 Plans, FIRE MDs, HSA Investment Options, and More!

There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, Mr. Money Mustache, Rockstar Finance, and Reddit.

This is a roundup of my favorite discussions happening around the internet.

1. Bogleheads: 529 Plan for FL Resident

Question: Lieutenant.Columbo lives in Florida, which does not have a state income tax. Therefore, he does not care about a state tax deduction when considering 529 plans. He would like to know the best 529 options for him. Specifically, he is deciding between the New York and Utah plans.

WSP’s Take: Utah and New York have excellent 529 plans, but I would consider a few other excellent options as well. For example, California has a 529 plan with expense ratios as low as 0.09%. Michigan’s plan can be managed for as little as 0.12%. This is compared to the 529 plans of New York, which has expense ratios of about 0.16%, or Utah, which can be managed for 0.13%. I am not saying that these small differences in expense ratios should lead you to choose California over New York, or Michigan over Utah. Any of these state 529 plans would be an excellent choice. I would advise Liutenant.Colombo to review the website of each of these four 529 plans and consider which one is best for him.

2. Rockstar Finance: Frequency of Checking Investments

Question: Katrina asks the Rockstar Finance community how often they check their investment accounts. Katrina checks her accounts every other day during the week, but not on weekends. She feels like she is checking them too much, and would like to see how she compares to others.

WSP’s Take: I recently wrote an article on this topic. My personal preference is to check my investments once a month. I will occasionally check how the stock market is doing a few more times during the month, but not check my actual portfolio. Certainly, I check my investments much less than in the past, when I would check the Stocks app on my iPhone multiple times a day. Most responses from other members of the Rockstar Finance community ranged from daily to monthly. All of these frequencies are reasonable, so long as they do not cause you to panic if the stock market falls.

3. White Coat Investor: MDs Retiring in their 40s

Question: WCI reader fatlittlepig wonders why more physicians don’t retire early in their 40s. In fact, he doesn’t know any physician who has retired this early.

WSP’s Take: There are many reasons why we don’t know many physicians who retired early in their 40s. Physician on Fire and White Coat Investor have outlined many possible reasons. First, you will not see them at the hospital, because they are retired and do not work there anymore. Second, physicians may not retire early because they do not have the financial means to do so. Third, even if they do have financial independence and could retire early, they may continue to work because of their love of medicine. Finally, being a physician often commands respect and is a very prestigious job within the community. Some physicians may choose to continue to work for the prestige of being a doctor.

4. Reddit: Will Index Funds Make the Market Inefficient?

Question: Bafflepitch discusses a recent New York Times article that considers whether the market may become inefficient if too much money flows into index funds. Bafflepitch also cited a Morningstar commentary that reported that $500 billion flowed into passive funds in 2016, while active funds experienced $340 billion in outflows. Is it possible that too much money in index funds will make the market inefficient?

WSP’s Take: While there has been significant outflows from actively managed funds, the same Morningstar commentary reported that there remains over $9.5 trillion dollars invested in actively managed funds, compared to $5.4 trillion in passively managed funds. At present, there is still plenty of money working to make the markets efficient. Wall Street is still minting millionaires and billionaires. In 2016, some of these traders earned their salary, while others did not. 

There definitely is a point where if too much money is in index funds and not enough money is in active funds, the market would become inefficient and good active fund managers could achieve above-market returns. However, we are very far away from that day. Even if the market did become inefficient, the typical alpha (outperformance) of the active funds may not exceed its expense ratios. For the foreseeable future, I continue to recommend investing in index funds. With no effort, you beat the vast majority of investors, who are spending significant money in management fees to pay professionals to make the market efficient.

5. Mr. Money Mustache: Non-Standard Vanguard HSA Investment Options

Question: Secretly Saving wants to know how to invest in his HSA that offers only five Vanguard options, none of which are part of the standard three-fund portfolio:

• VSMAX: Vanguard Small-Cap Index Fund Admiral Shares (ER 0.08%)
• VIIIX: Vanguard Institutional Index Fund Institutional Plus Shares (ER 0.02%)
• VIGIX: Vanguard Growth Index Fund Institutional Shares (ER 0.07%)
• VEMPX: Extended Market Index Fund Institutional Plus Shares (ER 0.05%)
• VGSNX: Vanguard REIT Index Fund Institutional Shares (ER 0.10%)

WSP’s Take: While Secretly Saving does not have the standard three fund portfolio options, he has extraordinarily excellent alternatives. He could invest in the Vanguard Institutional Index Fund, which tracks the S&P 500. He is able to own this for just 0.02%. If he wishes to have broader U.S. stock exposure, I would add the Extended Market Index fund, which costs only 0.05% to own. Because Vanguard’s Total Stock Market Index fund has approximately 75% large-cap stocks, I would weight the S&P 500/Extended Market Index funds at a 75/25 ratio. This enables him to have a Total Stock Market portfolio with fees of about 0.03%. I want his HSA administrator!

Wall Street Shares: 5 Articles I Enjoyed Reading This Week

1. Physician on Fire and Future Proof, MD: my article, Statistically Significant, Clinically (or Financially) Insignificant was featured in The Sunday Best (2/5/17) and Future Proof Shares – 2/7/17. Thanks, PoF and FPMD!
2. Some Random Guy Online: Financial M&M – a great analysis of SRGO’s past financial mistakes, for your benefit!
3. Financial Samurai: Rejecting Every Reason Not To Retire Early – a guest post by PoF explaining why he’s choosing to retire early
4. White Coat Investor: Moderation in All Things – another great article by WCI
5. Smart Money MD: Are You Turning Away Millions of Dollars As An Academic Doctor? – financial considerations for the academic vs. private practice decision

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?