SJBenen Advisory, LLC
Sam has been in the investing business since graduating from Princeton in 2007 with a Bachelor’s degree in economics. His career as a trader and portfolio manager in the hedge fund industry, with experience trading a wide range of financial instruments and overseeing complex portfolio strategies, gives him a unique perspective on being an investment adviser. He started SJBenen Advisory, LLC in 2016 with the simple idea to use his accumulated investing experience to help people.
Sam was a top-ranked chess player in the nation growing up, winning 7 individual national chess championships between the ages of 8 and 18. He is an ever-aspiring dilettante at all kinds of strategic games like Scrabble, Boggle, gin rummy, poker, and golf. He is originally from New York City and now lives in Chapel Hill, North Carolina.
BA, Economics, Princeton University
Assets Under Management:
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Sam Benen -- SJBenen Advisory, LLC
I advise you in the strongest possible terms not to put any personal financial information out on the web in an open forum format such as this. Financial planning conversations in which you reveal your holdings should occur with a financial advisor, with the mutual understanding of total privacy. We live in a world where phishing, identity theft, and fraud are rampant. Just last year, Equifax was hacked and all of our Social Security numbers and sensitive credit information were leaked out into the dark web. At 53 and 55, you are still vibrant and have many good years left, but note that financial schemes targeting retirees are rampant. I believe that people who frequently travel internationally are easier targets in many ways (someone reading this would know you are traveling internationally and when you plan to travel). In such a vicious world, there is reason to be ultra-cautious about divulging any personal information to anyone for any reason, much less volunteering it for the entire world to see.
It is clear from your question that you are thinking about financial security for the rest of your life. This cannot happen without complete and total protection of your private data and personal information. I would urge that, before you even consider a financial plan, you do an honest and robust accounting of your personal cybersecurity. One cannot exist without the other. Do you use the same user name and password for multiple financial account logins? Do you use two-factor authentication to access your financial accounts online? Do you monitor your credit frequently to make sure that fraudulent accounts are not being opened in your name? Are sensitive details about your life easily visible on social media?
This may not be the advice you were looking for, but I believe it is the advice you need. While your name is obviously not revealed on this forum, it would not be too difficult for a skilled hacker or identity thief to track down the IP address you used and realize that you are wealthy retirees who plan to travel internationally and are a bit casual about divulging personal information. I apologize for the harsh tone of this response but I believe it is of paramount importance.
All my best to you and congrats on your success and upcoming retirement. And, for what it's worth, the answer to your original question is yes, having four years' worth of cash parked in CDs is more than likely sufficient protection.
You can think of paying down your mortgage as akin to buying a bond or a bond fund. Instead of a traditional bond ownership arrangement in which you buy a bond and get a regular coupon payment, in the mortgage paydown example your 'coupon' is the privilege of not paying the bank each month. Reversing a negative cash flow each month is effectively the same as adding a positive cash flow in equal and opposite amount. In this way, paying down a mortgage is like buying back your own bond, from an asset allocation standpoint.
A traditional portfolio of stocks and bonds consists of roughly 60% stocks and 40% bonds. The 10-year rate from the government is about 3.06% and there are several bond ETFs that yield in the range of 3-3.5%. For example, the Vanguard Total Bond Market ETF yields about 3.3%.
So, as you consider how to deploy the $343k, maybe you can construct a 60-40 stock-bond portfolio by putting 60% of it in the stock market, and instead of allocating the remaining 40% to bonds, you simply pay off your mortgage. In this way, you replace the traditional bond component with mortgage paydown. This is a balanced approach, and you are using the mortgage paydown as a bond investment that is superior to the average bond fund out there right now. Naturally you would never want to buy the Vanguard bond fund at 3.3% or the 10-year treasury at 3.06% when you could simply earn 4% by paying back your own debt.
Then, as you save off of your monthly paychecks and allocate your savings to new investments, you can continue to put 60% towards the stock market and 40% toward "the bond market" i.e. your mortgage principal.
Hope that helps you think about it.
Here's a quick guide to ETFs for beginners looking to manage their own money: Look at broad-based index ETFs with a total expense ratio under 0.15%. You can browse around on the websites of Vanguard and iShares for index ETFs with extremely low fees and many holdings. On the information page for each ETF, they will show you the number of holdings (you want very high) and the expense ratio (you want very low).
Do not use leveraged ETFs or anything fancy like that. Those are for speculators and not for long-term investors. Think ETFs with names like "Total US Market," "All-world ex-US," and "Aggregate bond."
Also, look for brokerage arrangements where you can trade ETFs without commissions. For example, in a Vanguard account, you can trade Vanguard ETFs without commissions, and in a Fidelity account, you can trade iShares ETFs without commissions. Paying zero commissions and micro fees (under 0.15%) will help you get to your beach house faster, while paying high commissions and high fees will only help pay for the broker's beach house! In all seriousness, fees are an important component of total return for long-term investing, so make sure to keep them low!
If you do not want to manage your own money or need further help, consult with an advisor or financial planner to discuss personal goals and asset allocation strategies.
Hi, I completely understand the information overload on the internet. I can tell that you want a clear, straightforward answer. So here it is. If you came to me and wanted me to help you start investing, I would turn you away. I would tell you to pay down your debts first and then come back to me for investing help once you were out of debt entirely. In fact, I would read you the riot act and tell you to eat ramen noodles and live a life of total austerity to put every available dollar in your bank account towards getting out of debt. Period. Start with paying down the credit card debt first, since that is clearly going to have the highest interest rate.
The financial instrument he used is called a credit default swap. The size of the short position you are referencing is called the notional value of the swap. The reason he needed to speak to the bank up front about doing this transaction is that trading swaps requires an ISDA agreement, which is a document executed between a large bank and a hedge fund that wishes to speculate using complex financial instruments.
The way credit default swaps (CDS) trade is the following: There is an effective life of the contract, usually around 5 years, over which the swap buyer pays a fixed premium every year to the swap seller. The swap seller collects this premium free and clear if the underlying debt obligation does not default; however, in the event of a default, the buyer has the right to swap out defaulted bonds for the full original par value. Like an insurance contract, the buyer is paying the premium for the possibility that the debt defaults, while the seller collects the premium and hopes nothing bad happens.
CDS is quoted in basis points per annum. If a debt obligation is deemed very safe, the CDS on that debt obligation will trade at a low premium, i.e. not a high cost to protect against its default. In 2005-2006, CDS were trading with very low premiums because of a perception that underlying debt obligations, such as mortgages, were very safe and unlikely to default. Because of the low premium, a speculator who wanted to bet on a default could pay a small amount to make a huge multiple of his/her money.
Say Dr. Burry wanted to buy a CDS contract on a basket of mortgages. And say the CDS contract was a 5-year, quoted at 50 basis points (0.50%). And say Dr. Burry wanted to transact $100 million notional. Every year for 5 years, Dr. Burry would be obligated to pay 0.50% of $100 million, i.e. $500k. If nothing happened, the CDS seller would collect $2.5 million in total over the 5-year life. But, if a default happened, and the bonds crashed to 10 cents on the dollar in a bankruptcy proceeding, Dr. Burry would be entitled to a windfall profit of $90 million: $100mm * (100% - 10%), i.e. the notional value times the difference between par and the recovery.
The losses that Dr. Burry incurred initially were due to the fact that he was paying premium for these CDS contracts but no defaults were happening. This can be very painful as a CDS buyer because you have to time it right to win. If nothing had happened until after the life of the contract, or until he ran out of money to make the premium payments, he would have lost it all.
So, if he had a $1.3 billion short position all in all, that was merely the notional value. If the average price of the CDS were 100 basis points (1%), his annual premium obligation would have been around $13 million. That is a lot of leverage - to control $1.3 billion of bonds in a bankruptcy with only $13 million in annual premium. When the bonds went belly-up, he made a mint.
This is not something you can do in your brokerage account. To reiterate, trading swaps with a bank like Goldman Sachs requires an ISDA agreement, which is typically only granted to institutions with at least a few hundred million dollars. Hope this explanation helps.