Forum Mailbag: Timeshares, Emergency Fund Asset Allocation, Job Decisions, 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: Timeshares

Question: Dodgersummer wants to know more about timeshare properties and whether they are good investments. He saw advertisements for them when he was vacationing in Las Vegas. Salespeople would be giving away “free” tickets to shows in exchange for either buying a timeshare or attending a sales presentation.

WSP’s Take: I understand the general attraction of timeshare properties. It allows you to have a home away from home, for a lower price than buying a second property outright. Like most of the other Bogleheads community, I recommend staying away from timeshares. I would prefer going on vacation to destinations all around the world, rather than being locked down in a single timeshare location.

From a financial perspective, timeshares are typically not good investments. You know this because they have to sell these timeshares so aggressively. We are more prone to making costly impulse purchases like timeshares while on vacation. Buyers remorse quickly sets in once we return home.

Many salespeople will offer free dinner to listen to a sales pitch for a timeshare.  The dinner is never free. just like dinner with a financial advisor is never truly free. While you may be able to resist the smooth sales pitches and “make money” by getting a free dinner, it’s really not worth the hassle.

2. Mr. Money Mustache: High Fee Target Retirement Fund vs. S&P 500 Index Fund For 401(k)

Question: Dash41 is weighing his options between a target retirement fund and a S&P 500 index fund for his 401(k). Unfortunately, his target retirement fund is not the usual target-date funds containing low-cost index funds. Instead, his target retirement fund contains actively managed funds with expense ratios ranging between 0.74% and 1.56%. He is wondering whether to switch to the Blackrock S&P 500 index fund (ER: 0.11%) or stay in his current 2055 Target Retirement fund?

WSP’s Take: It is unfortunate that active fund managers are using the moniker “target retirement” fund to sell high-fee actively managed funds. I would recommend that they original poster immediately sell his “target retirement” fund and invest 100% of his 401k into the S&P 500 index fund. While 100% stocks is not the optimal asset allocation for most investors, the original poster is young (27 years old). If necessary, he could also fund a Roth IRA and put his bond allocation there.

3. Reddit: Protective Put Options in Emergency Fund Asset Allocation

Question: IncendiaryGames wrote a long post discussing an alternative investment strategy for emergency funds. He argues for investing your emergency fund in 100% stocks, but also buying protective put options to protect against market downturns.

WSP’s Take: While I appreciate his thoughtful analysis, I disagree with the original poster’s proposed strategy. I have written about the basics of stock options and common option strategies previously. One of the common options strategies I discussed was buying protective put options to protect against downside risk. In my opinion, I do not think protective put options add value. If you are worried about downside risk, simply buy fewer stocks. The original poster even proposed a 50% stock / 50% bond portfolio for investors reluctant to use put options. Put options are relatively illiquid, meaning that there will be significant transaction costs in order to implement this strategy.

While I do think that a large, 3-6 month emergency fund is not necessary for physicians who are saving 20% of their income and otherwise making good financial decisions, I do not think the original poster’s strategy is an appropriate, cost-effective strategy for managing an emergency fund.

4. White Coat Investor: Rural vs. Urban Job Decision

Question: Hsmooth is a family medicine physician three years out of residency. He currently lives in a small town, and is considering two job offers. One option is to stay in his rural small town, earning a $247,000 salary with a signing bonus of $75,000–100,000. The alternative is to move to a metropolitan city for a $230,000 salary with a signing bonus of $15,000. The original poster and his wife are strongly considering the second option, because they are urban people and are unhappy with their current life in rural America.

WSP’s Take: Of course, the decision is up to the original poster, but I would strongly recommend going to the metropolitan city. The difference in salary isn’t that much, maybe $12,000 after-tax. Yes, there’s a $60,000 difference in signing bonuses and the cost of living will be higher in the big city. But the original poster and his wife are clearly unhappy with living in rural America and would have a much better quality-of-life if they move to the big city.

If the salary were double at the rural job, then perhaps it could be worth staying for a few years longer. Everyone can be bought for a price, but I suspect for this poster, their price is higher than $60,000 upfront and $12,000 annually.

Wall Street Shares: 5 Articles I Enjoyed Reading This Week

1. Live Free, MD: How I Paid Off $400,000 Worth Of Debt – This PM&R doctor did a serious “financial fellowship” and was able to crush his debt in 3 years.
2. Big Law Investor: Budgeting is for Beginners and Budgeting is for Professionals – lawyers can win arguments no matter which side they’re on.
3. Smart Money MD: How to Save Money While Living in New York City – brings back fond memories from my time on Wall Street
4. ESI Money and The Green Swan: Millionaire Interview 5 and A FIRE-Side Chat With Physician On FIRE – I enjoyed reading these back-to-back profiles of Physician On Fire, anesthesiogist / blogger extraordinaire.
5. Go Finance Yourself! on Mustard Seed Money: Don’t Burn Bridges – an awesome personal story of the importance of networking

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?