[Maxatar]

This is absolutely and unfathomably terrible to such a great degree that I think it reinforces OPs point. It seems like using an LLM has given you the confidence to make an incredibly ill-informed decision that will cost you dearly.

Every single time you rebalance your portfolio, you will need to pay short-term capital gains taxes on any gains, as opposed to an ETF in which you simply pay for the gains when you sell your stock which can be years/decades from now. This alone will reduce your average expected earnings by 20% over a 10 year period eviscerating whatever tiny advantage you think you'll get from saving a few bucks in fees.

Furthermore, assuming you rebalance your portfolio monthly, which is the minimum you need to rebalance in order to remain even somewhat aligned with QQQ, you're basically going to be paying a MINIMUM of 30-40 bucks a month in commissions to Interactive Brokers, or 400 dollars a year. And on top of IBKR's commissions you then need to pay the pass through fees of about 5-10 dollars a month for a total of around 500 bucks a year.

Compare that to QQQ which only costs you 18 dollars a year for every $10000 invested.

I've read some incredibly foolish investment advise on HackerNews, but I think this one just about takes the cake.

[tombert]

IBKR has payment for order flow if you use the Lite service, so it actually wouldn't be $30-40 a month.

You still are paying the capital gains taxes with the ETF, they are just rolled into the management fees.

You can avoid a lot of the short-term capital gains taxes by only rebalancing within certain thresholds and being ok with being "close enough" to QQQ instead of being completely aligned with QQQ.

ETA:

Looked it up, looks like I was wrong about the taxes being rolled into the fees. There's some extra weirdness associated with tax efficiency of ETFs.

I still think some of the numbers the parent provided were a bit handwavey and bullshit, but I'll acknowledge I was mostly wrong in my response.

[Maxatar]

>You still are paying the capital gains taxes with the ETF, they are just rolled into the management fees.

There is just so much wrong with this statement and several others that I don't even know where to begin.

At the end of the day... if you are having fun doing what you're doing, then by all means go for it, my main concern is that people might read what you're saying and actually get misled by it or believe that you're saying something that is true. Your statement seems sophisticated enough that someone could read it, think you have actual knowledge of this topic, and come away with the idea that this is actually a remotely good idea.

For those people... please understand that tombert has no idea what he's talking about, his reasons for what he's doing are not actually because he's trying to save any fees, or because there is anything optimal or rational behind it or he's in anyway outsmarting actual institutional ETFs.

His genuine reason for this appears to be entirely whimsical and for his own amusement and enjoyment, and honestly that is fine, people can do what they want with their own money and there is nothing inherently immoral about this. My main issue is him not being upfront about his actual incentive and instead misleading people into thinking that there is some kind of economic advantage behind this.

[tombert]

Yeah I was wrong, I actually updated my comment right before you posted your response so I understand why you didn't see it.

I was definitely wrong; I misunderstood something about ETFs. ETFs probably are more tax efficient after all, or maybe some kind of direct indexing thing if I want to avoid Tesla and/or SpaceX.

I'll acknowledge that there's some validity in "doing things for my amusement". I do think that if I avoid selling things and instead only buy to rebalance, that could avoid a lot of tax bullshit, but that's definitely not what I was suggesting before so I'll acknowledge that I was absolutely in the wrong.

ETA:

I actually think I agree with you for the most part. I don't think it's the worst financial advice on HN but it's definitely not good financial advice either.

It's too late to edit the root comment directly but I did email HN support to ask if they could amend it for me.

[jjav]

> you will need to pay short-term capital gains taxes on any gains

Stating the obvious here, but only in a taxable account.

I rebalance frequently and on small divergences in the IRA, which has no trading fees and obviously no tax consequences.

In a taxable account I try to favor growth over dividends and rebalance very rarely.

[sunnyhacker]

If short-term capital gains taxes are the main concerns, perhaps this pseudo QQQ strategy can be done in a Roth IRA account using brokers that offer free commission?

[tombert]

The poster was mostly right, and I was mostly wrong, I don't like admitting that but that's just what it is.

I updated the skill I wrote to make it so that rebalancing is "buy-only", as in rebalancing will just buy shares for the underweight things instead of selling the overweight. I don't think buying is a taxable event so I don't think that's going to make me have an absurd tax burden then.

I will say that I think Maxatar was a bit misinformed about Interactive Brokers though; they've had PFOF/"commission-free" trading with their free Lite package for awhile. Of course you still pay the bid/ask spread, but if something is popular enough to be on the NASDAQ-100, the spread is usually on the order of a cent or two.

[sunnyhacker]

It was a creative use of AI to essentially fork your own version of QQQ, which is definitely interesting! It probably doesn’t work with a US based retail account but some Roth IRA account holders or expats in Hong Kong trading US stocks might appreciate your idea

[dumbmrblah]

But he avoids SpaceX and Tesla, which I think is probably the driving factor in not using QQQ. Maybe he values that more than $500

[Maxatar]

If that was his genuine concern, then instead of trying to balance a portfolio of 103 stocks... you simply buy QQQ and short Tesla at 3.53% worth of your QQQ holdings.

[tombert]

You pay interest when you short stock.

And if we want to talk about "bad financial advice", I think telling people to try and time the market with a short is considerably worse than "buy the same shares that QQQ does".

[Karrot_Kream]

You pay interest on the margin you put up for shorts net profits from the position itself and cash or other assets you place inside investment accounts. You're also usually being charged interest at only a few basis points above the RFRR so this isn't "interest" in the sense of a loan.

> I think telling people to try and time the market with a short is considerably worse

Nobody is trying to time the market. If you want QQQ but don't want the Tesla exposure in it, it's a lot cheaper net to simply hedge against your Tesla exposure with a short position counteracting your long position. If you're worried about margin rates interfering with your profits, you can model all of these and come up with the optimal short needed to hedge your risk. This is standard financial practice.

Shorting doesn't have anything to do with timing the market, the reason why pop investing communities think that shorting and timing the market are synonymous is because as a whole asset prices are expected to keep pace with the RFRR assuming they at least hold their value, so taking a short position is going against the "default" market direction.

[pama]

The GP did not try to time the market. He suggested a sensible strategy to exclude a tiny subset from an index (less expensive than maintaing the alternative index yourself).

[justincormack]

Its not timing the market if it is exactly offset by the position in the etf

[tombert]

Yeah, I guess this entire thread has been an inadvertent exercise in Cunningham's Law, and maybe Dunning Kruger as well.

I thought I understood this stuff more than I actually do. Guess I have some stuff to learn over the weekend!

[methodical]

I'm unsure what SpaceX's weighting would be in QQQ but with Tesla being <3.54% weighting it would take both companies being 0s within a year to offset the cost in taxes from reweighting...

[tombert]

Everyone keeps saying this but I'm a little confused; you're still paying the reweighting taxes with QQQ, it's just rolled into the management fees.

[kgwgk]

https://www.fidelity.com/learning-center/investment-products...

[tombert]

Yeah I just looked it up myself. I was wrong; taxes are definitely more efficient with ETFs.

Now this idea is sounding pretty stupid. Damn.

[Giefo6ah]

tombert should instead long QQQ and short the bits they don't like

[tombert]

You pay interest on shorting, and it requires trying to time the market, which people are famously bad at doing.