Jim Dahle (7:30)

Hi, Jim, this is Eric from the Midwest thanks for all that you do. I have several questions regarding the XIRR function in Excel. I tried reading your 2011 blog post, but the spreadsheet links no longer work and I need a visual demonstration. I want to calculate the annualized return of my individual retirement accounts, but I'm stuck on the nuts and bolts of the data entering process. I understand that the calculation requires a cash flow with its corresponding date. Therefore, does this mean I have to manually enter every single date corresponding to every single bi weekly contribution, employer match or reinvested dividend into the spreadsheet? Also, how do I use XIRR to calculate the annualized return of my entire portfolio at large? I have a 401K, HSA, 457 and Roth IRA. Is it possible to use XIRR to calculate the return of a portfolio as a whole? If not, then what is the best method to do so? Thank you.

Eric (8:31)

Okay, great question. I've been getting this feedback that whatever software I used for that post 15 years ago when I first wrote it, is one of the first posts on the blog apparently went out. It's not that Excel stopped working. You don't even need Excel to do this. You can do this in Google Sheets. But apparently the program I was using to kind of put the spreadsheet into the blog post stopped working. Well, I've redone that entire post. Okay. If you go to the website and you search xirr, you will find this post. And I think we're probably going to republish it again at some point given all the work I recently put into it. I've now got a bunch of screenshots in there. I've also got the spreadsheet that you can download. You can actually download spreadsheet and play around with it on your own computer. And so I think I've fixed the problem with the blog post. XIRR is just a way to calculate the dollar weighted return of your portfolio, which is really the return that matters. And all you need is two columns of numbers. The first column is cash flows, right? These are positive numbers when money goes into the account. They are negative numbers when the money comes out of the account. The number at the bottom of the list should be the amount that's in the account now, as though you were taking it out today. The next column is dates and you have to use the date function. You can't just type in the date. There's actually a date function in spreadsheets and you have to use that to mark the dates. But yeah, you have to put in every cash flow if you want an accurate dollar weighted return, you don't have to put in reinvested dividends though, because that's not money coming out of the account. It's only money when it comes into the account and comes out of the account. But each of those you have to have. Now, if you're like me and you don't have a lot of cash flows, right, because you just stay invested all the time, it's not too onerous, but if you're swapping in and out all the time of this investment, it could be a pain to actually calculate your return. As far as doing this for your whole portfolio, you just gotta do it the same way. All the cash flows have to be there. Now, if you go from one investment to another in the portfolio, that's not a cash flow in or out of the portfolio. So you don't have to include that. Like a rebalancing or something like that you wouldn't include. But anytime you put more money in, and if that's every two weeks, it's every two weeks. And anytime you take money out, that cash flow has got to be in the calculation. But otherwise the xirr function itself is just one column and the next column. And then there's a third thing in there. You can put a guess of what the return is, but frankly, most of the time you don't even have to do that to get the right answer. But that's how you calculate your own return. If you want to accurately calculate your return on an investment where it's had cash flows going into it and cash flows coming out of it, this is how you have to do it. Now, whether it's worth doing that or not, it's a totally different question, right? Maybe you're comfortable with whatever Vanguard or Fidelity tells you. The return is on the portfolio, and that's good enough for you. But I've been calculating my returns since like 2004, so I can actually tell you what return I had in every investment in every year since 2004. And I go back and calculate what it was over any multi month period for most of that time. And so I could literally tell you what my returns have been on everything. And I do do it for the whole portfolio. I do it for each individual investment. I don't do it for every account in the portfolio. Like I couldn't tell you what my Roth IRA returns were or my 401 returns were, but I do for each individual investment, a lot of work. Yeah. But it's led to a lot of great information that's been able to make this blog better over the years than it otherwise would be. But anyway, I fixed the blog post. Go check it out. Just search xirr on the website, it'll pull right up. Okay, our quote of the day today comes from Warren Buffett who said, if you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes. And I love Buffett's emphasis on the fact that when you're buying stocks, whether you're buying them individually or via an actively managed mutual fund or via an index fund, you really are functioning as an owner of that company or those companies. And that's why you make money is because you own the company. It's not about finding the best price to buy it at and finding the best price to sell it at. It's owning the company for years. And as the company makes money, you participate in that profit making and benefit from that. In the long run, all the speculative stuff kind of drops out and the market becomes not a voting machine, but a weighing machine. All right, let's take some questions about HSAs and FSAs.

Jim Dahle (13:06)

Hi. Me and my wife live in two different states. We have our own high deductible health plans. Until June 2024, I have enrolled for HSA through my employer for a total $8,300 at the beginning of year. My wife joined a new job in July 2024 and chose a no deductible plan with FSA. As we had a baby in October 24, she enrolled to contribute $1,500 for the FSA and already had 1,000 contributions from Paycheck. We just realized that we can't have both HSA and FSA during the same tax year. What can we do now?

Eric (13:40)

Okay, great question. I understand the need for people and the desire to remain anonymous on podcasts and things like this. You can do that by emailing me your question, right? You don't have to record it in computer voice because I'm sure most of you out there don't enjoy listening to computer voice. Like this question came in as so please don't start doing this with all the Speak Pipe questions. People do not want to listen to that. So it's a great question though. So we're going to use it on the podcast. Yes, a regular FFSA and an HSA, you're not allowed to use both. So limited use FSAs can be used with an HSA though. Like if it's just for dental and vision, that sort of a thing or just for like child care, then you can use it. But a regular healthcare fsa, you can't use that and still be eligible to make a contribution to an HSA for the year. If you have an hsa, you can use the money in it, but you can't make a contribution to an hsa. So you got to decide between the two if your employer is going to give you a bunch of money and an fsa. Well, maybe you don't want to use an HSA that year, but how do you fix this once you've kind of screwed it up? Well, you probably have made an excess HSA contribution. So I think you've got to go back and take that money back out, including any earnings add and probably pay taxes on the earnings. Maybe you can go to the employer and work the other end of it and say, hey, pay me more salary instead of this money you put in the FSA and reverse the FSA contribution. But the important thing to know is that you can't do both unless it's a limited use fsa. All right, our next question. Also off the speak pipe.

C (15:21)

Hi Dr. Dali, longtime fan of your work here. I have a question about HSAs. I'm leaving the military soon and starting a new job. My wife is employed and on a high deductible health plan with her two children and it costs nothing extra for the added family members and premiums. It just raises the annual deductible. So we were planning to add me on to her a high deductible health plan when I leave the military as my secondary insurance. We have not been allowed to contribute to my wife's work HSA while I was in the military since she has Tricare as her secondary insurance and we are hoping to return to contributing to the HSA now that we will be done with Tricare in the military. My plan is to sign up by myself for health insurance through my work in an Accountable Care type plan that is not a high deductible health plan. My question is, if I join my wife's high deductible health plan and I have separate insurance through work that is not a high deductible health plan, would I then make my wife ineligible again to contribute to her HSA? Our hope is for her to maximize the 20258550 family contribution. Thank you.

Eric (16:30)

Good question. This isn't that complicated. If you have no other health insurance coverage than a high deductible health plan, you are eligible to make an HSA contribution if that plan is a family plan, then you can make a family sized HSA contribution. That's it. Those are the rules. So in this case, even if you and all of the kids had another coverage, she would still be able to make a family sized $8,550 HSA contribution for 2025. So no big deal to have you on that plan. She should still be able to make a family sized contribution so long as she doesn't have any other health insurance coverage other than that high deductible plan. All right, our next question also about FSAs comes in by email, says I'm a doc. I was switching jobs last year. I was doing 1099 for the first eight months of 2024. Then I signed a contract in August and maximize my dependent care FSA through the new employer. Now I'm trying to reimburse myself for Dependent Care 2024, but the company does not accept my receipts prior to August stating it was before my plan onset. Okay, that doesn't seem unreasonable. Can you advise me if there's anything else I can do? I did reimburse some of the dependent care expenses for the last part of the year, but I may lose almost $3,000. That's a bummer. Mainly for the summer dependent care and first part of the year since I'm not allowed to have that reimbursed. My understanding is that these are my pre tax money and Inspira acts as a carrier. I'm not sure why they're not letting me use it for the first half of the same tax year. Well, this is a bummer. The bottom line is don't put money in an FSA that you're not going to spend that year. FSAs are use lose accounts. They're not like HSAs where it rolls over to the next year and you can invest it for decades. An FSA is for money you're going to spend that year and I think it's totally reasonable and I suspect the way the law is written that you can't use it for expenses before you establish the fsa. And come on, that's totally reasonable. So I think you're out of luck for most of this. However, it is possible to roll over a small amount of your FSA to the next year from 2024 to 2025. I think it's $660. So that's kind of what you can do. I mean I'd look at everything you spent after August and see if it can possibly qualify to be paid for with that money. Make sure you're not missing anything. You know, I wouldn't create a fraudulent receipt or anything, but see if you can find anything there that you can, you know, beg hir for mercy. But I think you're out of luck. I think the money's just going to be gone. And even that rollover thing is relatively new. It wasn't very many years ago, I don't think, where you couldn't do a rollover of FSA money at all. All right, so be careful using FSAs. They are use lose accounts. Thanks for all of you out there and what you're doing, though, you know, it's not easy work. You know, there's a reason burnout levels range from 40 to 65% in medicine is because the job's hard. So no one said thanks today for what you're doing. It is important. Yes. After 10 years of doing anything, sometimes it feels like moving widgets down the assembly line. But these are really important widgets that you're working on. So thanks for doing that. All right. Another question. This one comes off the speak pipe.

D (20:06)

Hello, my name is Cliff from the Midwest internal medicine. I have a retired engineering friend who made the comment that he thought he was too aggressively invested because he had 100% of his brokerage account in equities. But I know that he gets about $80,000 between Social Security and the old fashioned type of pension. I believe it was about $50,000 from the pension, $30,000 from Social Security. And we were trying to figure out what his asset allocation would be. So I put his $80,000 per year into the present value function in Excel using 3%, which I believe would be inflation in this situation and said it went for 20 years at $80,000, and the present value would be $1,190,000. If you add his $400,000 in his brokerage account, you get $1,059,000,000. And so his equities would be the $400,000 divided by the $1,590,000 and you get 25%. So he's thinking he has 100% in equities, and I think he has about 25% in equities. Just want to know your thoughts on this type of calculation and how to think about it. Thank you. And thank you for being such a great teacher.

Eric (21:26)

I feel like I'm settling an argument here and somebody's going to be mad at me no matter what I say. So I'm actually going to opt out of the argument. I don't think you should be doing this at all. His asset allocation is 100% stocks. That's just the way it is. The money that he has control of, the money in his portfolio is 100% stocks. So his allocation is 100% stocks. However, the way to think about these sorts of things, the way to think about Social Security, the way to think about a pension, certainly, maybe even the way to think about a TIPS ladder or even some real estate income, although I would discount real estate income because it's not a sure thing at all, is that these things, these sources of guaranteed income, reduce your need for spending money for income from the portfolio. And so if you need to spend, let's say you have a million dollars in your account, and, you know, oh, I can take about $40,000 a year out of that and expect it to last 30 years, right? And let's say you've got a pension and Social Security that pay you another, you know, $60,000 a year. So in reality, you're going to be spending $100,000 a year. You're going to be spending 60 from Social Security and the pension, you're going to be spending 40 from the portfolio, okay? But in reality, to get your $100,000, what you are doing is you're recognizing the fact that you don't have to take it all from the portfolio. Your need for income from the portfolio is lower, and that's the way I would think about it. But I would not say my allocation is now 40% stocks and 60% bonds, because my Social Security is my bonds. I think you just get into messy calculations doing that. And I don't think there's any point to doing that. Recognizing that you have less need to get income from your portfolio than you otherwise would might change you to have a different asset allocation than you might. But I don't think most people, when the market tanks like crazy and your stocks lose 50% of your value, all of a sudden go, oh, it's okay, though. I got Social Security. And so I'm really not 100% stocks. That's not how we think. We're like, man, half of my portfolio's gone. That sucks. I don't like this. I'm going to panic, sell, and bail out of my portfolio now at a market low, right? That's what people do. And I don't know that having a pension or having Social Security really helps them a lot from doing that. So if you're concerned about your ability to have good investing behavior in a bear market, you should probably have less than 100% stocks in your portfolio. If you're concerned about the admittedly low but potential outcome where stocks outperform bonds over your investing horizon, or where bonds outperform stocks. Excuse me, over your investing horizon, then you probably ought to have some money in bonds. But otherwise it's not crazy. If you've got a lot of guaranteed income to still have a pretty aggressive portfolio in retirement. It's very, you know, asset allocation is a very personal thing. You know, my parents live almost entirely off guaranteed income between Social Security and a pension, and they still have a 5050 portfolio. You know, they didn't decide, well, we're going to put it all in stocks since we're probably not going to be spending this money every year. I try to get them to spend the money. Most years they opt not to spend the money and it gets reinvested in the taxable account when it comes out of their retirement accounts as RMDs. But we haven't changed the asset allocation because of that. It's an allocation that they've tolerated through 2008 and 2020 and 2022 and all the blips in between. And it works well for them. It's dramatically better than what they were doing before. I came along 20 years ago and pointed out that, that they were getting bad advice and paying way too much for it. But the point is, I would not try to put some sort of a value on your pensions or your Social Security and fold them into your asset allocation. Just like I wouldn't put your house into your asset allocation. I wouldn't put your car into your asset allocation. Everything doesn't have to go into your asset allocation. I don't know where this idea comes from that people feel like it does. It doesn't. It's okay to leave stuff out. The white coat investor. Its value as a business is not in our asset allocation. It doesn't have to be. If you own a surgical center, you may not put that in your asset allocation. You probably don't put the value of your buyout of your partnership into your asset allocation. And that's okay. Just have your more traditional investments in there, your stocks, your bonds, your real estate, whatever. But you don't have to put everything into your asset allocation. 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Jim Dahle (27:25)

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