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For many years, Vanguard has published an annual study (“How America Saves“) that looks at investor behavior within employer-sponsored plans. Last week, Vanguard released a new study: “How America Invests,” which looked at the portfolios and transactions of Vanguard clients in more than 5 million retail households from 2015 through the first quarter of 2020. There’s a lot of material, but one thing that strikes me — and which is in keeping with the data from the annual employer-plan studies — is that individual investors (at least, those who are Vanguard clients) aren’t the dummies they’re often made out to be....


A reader writes in, asking: “I am tentatively starting to think how taxes affect retirement especially for the ACA purposes, in case it somehow survives the latest current court fight. So, which kind of tax should we be concerned about? When I google this, I can find someone saying ‘marginal tax’ whereas somebody else saying ‘effective tax rate’. So, which is it?...


In the realm of personal finance, far too much attention is paid to investing — with the implicit idea that if you find just the right mutual funds, just the right asset allocation, and just the right plan for rebalancing, you’ll be sure to meet your goals. In reality, none of those things matter very much, unless you have a sufficiently high savings rate (or, in the case of a retiree, a sufficiently low spending rate). Recommended Reading Thanks for reading!


In the realm of personal finance, far too much attention is paid to investing — with the implicit idea that if you find just the right mutual funds, just the right asset allocation, and just the right plan for rebalancing, you’ll be sure to meet your goals. In reality, none of those things matter very much, unless you have a sufficiently high savings rate (or, in the case of a retiree, a sufficiently low spending rate). Recommended Reading Thanks for reading!


Getting taxed once is hard enough, but getting hit a second time on the same dollars? That’s enough to give even a compliant taxpayer the urge to toss crates of tea into Boston Harbor. Whether double taxation like the gift tax is morally right or not is a topic for someone else to tackle. But if you understand the gift tax rules, it’s fairly simple to avoid this painful tax and beat your dear ole’ Uncle Sam at his own game....


I have a new book, out this week: Corporate Finance Made Simple (print version, Kindle version). As you can tell from the name, the book is primarily focused on finance in a business context, but, in writing it, I chose to give particular emphasis to topics that play important roles in personal finance as well (e.g., the concept of net present value)....


If you’ve hung out on the Bogleheads forum very much, you’ve surely seen plenty of discussions in which a person comes in with a mess of a portfolio and forum members provide suggestions for how to clean it up: changes that would improve diversification, reduce costs, simplify, etc. This week Morningstar is publishing a similar series from Christine Benz — providing portfolio makeovers for people in a range of circumstances. Recommended Reading Thanks for reading!


The IRS recently published the annual inflation updates for 2021. If you have questions about a particular amount that I do not mention here, you can likely find it in the official IRS announcements: Single 2021 Tax Brackets Taxable Income Tax Bracket: $0-$9,950 10% $9,950-$40,525 12% $40,525-$86,375 22% $86,375-$164,925 24% $164,925-$209,425 32% $209,425-$523,600 35% $523,600+ 37% Married Filing Jointly 2021 Tax Brackets… [ 542 more words ]


It’s no secret that Social Security is insufficiently funded. For as long as I’ve been dealing with personal finance, the Trustees (of the Old-Age and Survivors Insurance Trust Fund) have been putting out an annual report that the fund is expected to deplete somewhere around 2033, give or take a couple of years. As Tara Siegel Bernard notes this week, the pandemic will have a negative effect on that projection as well, due to the reduced tax revenue this year (if a person is out of work, they aren’t paying payroll tax). The sooner we enact a solution, the less drastic the solution will have to be. Other Recommended Reading Thanks for reading!


A reader writes in, asking: “At my primary brokerage firm I have two IRAs: a traditional IRA and a rollover IRA that holds assets that came from my prior employer’s 401-k plan. What is the difference between the two?” “Rollover IRA” is just a subcategory of “traditional IRA.” In other words, a rollover IRA is a traditional IRA. Specifically, rollover IRAs are traditional IRAs that contain nothing but assets that came from an employer-sponsored plan. [ 359 more words ]


On Monday we discussed the expected return from the Vanguard Total Bond Market Index Fund. This week I came across an article from esteemed economist Kenneth French discussing the expected and unexpected returns of Facebook, Amazon, Apple, Netflix, and Alphabet (i.e., Google). A key point about expected returns is that, except for a few specific types of investments (e.g., Treasury bonds that we intend to hold to maturity), we don’t actually expect to get the expected return. [ 60 more words ]


In reply to the previous article about fixed-income options in a low-yield environment, a reader wrote in with the following question: “Would Vanguard’s Total Bond Market fund (or the equivalent) be expected to match inflation over time?” For a bond (or bond fund), the best estimate for its expected return is its yield. Right now, the SEC yield for Vanguard Total Bond Market Index Fund is 1.19% You can find this on either the “ [ 550 more words ]


Interest rates are one of the key tools that the Federal Reserve has to manage the economy. Changing how much it costs to borrow money (even if the Federal Reserve doesn’t have complete control of this) can slow down an overheating economy or give a slower economy the nudge that it might need. Recently the Fed has announced that they will be keeping the federal funds rate at 0 (or very near 0) until… [ 2,398 more words ]


This report features world capital market performance and a timeline of events for the past quarter. It begins with a global overview, then features the returns of stock and bond asset classes in the US and international markets. The report also illustrates the impact of globally diversified portfolios and features a quarterly topic. Have any questions about the review?


A quick announcement about the Open Social Security calculator: it now has full functionality for widow/widower scenarios (including mother/father benefits as applicable). To be clear, the calculator has always accounted for survivor benefits, but it was not built to provide guidance to people who are already widows/widowers at the time they are using the calculator. When I first created the calculator, my line of thinking was that such wasn’t necessary because the analysis for a surviving spouse is usually very straightforward. [ 102 more words ]


Most people really don’t like lifetime annuities. At the same time, most people really do like pensions. An interesting fact, given that they’re the same thing. This week David Blanchett, Michael Finke, and Timi Jorgensen took a look at a recent survey by The American College. The survey assessed people’s knowledge and attitudes about retirement income planning and financial products — looking specifically at people age 50-75 with at least $100,000 of non-housing wealth. [ 30 more words ]


A reader writes in, asking: “I have read that your traditional IRAs are all considered one IRA as far as the IRS is concerned. But I recently found another article that explicitly indicated otherwise. Maybe it depends on circumstances? Could you elaborate on this in an article?” The issue is not so much that it depends on circumstances, but rather that IRAs are aggregated for some purposes and not for other purposes. [ 535 more words ]


In the spirit of transparency, we are continuing to refine a scale to determine your retirement income style. I thought it would be a good idea to share with all of you some of the feedback we have received from the RISA™’s release in early 2020. Overall, the initial response has been really promising. There is a quote from Reid Hoffman (LinkedIn founder) that goes something like this…. [ 355 more words ]


Another book announcement for today: the 2020 edition of Can I Retire? is now available. Of the 2020 editions I’ve done this year, this is the book that received the most significant update. Some of the changes include: The discussion of annuities has been adjusted, given the new environment in which inflation-adjusted SPIAs are no longer available; There’s a new brief chapter on Social Security and how that fits into a broader retirement plan, especially in a “creating a floor of safe income” sort of context; [ 43 more words ]


After releasing our unofficial “official” launch of the RISA™ we followed up with a survey asking you if you felt the results were accurate; did the RISA™ “capture the essence of your style?” If we needed to get something right, this is it! I asked everyone this opened-ended question. After reading the responses, I sorted the answers into three groups; Yes, Mixed, No. [ 800 more words ]


Over the course of the past two entries, we documented user reactions to the RISA™ Profile and if they felt their retirement income style was accurately described. We were very pleased with our results, especially for an initial release. We also included other questions in our follow up survey. One question asks: “Is there a specific follow up offer we could provide in the next steps section that complements the RISA™ results?” [ 355 more words ]


In previous entries, we have discussed your reactions to various aspects of the RISA™. Here, I want to address whether or not you feel it would be helpful to share the results with a financial professional. We asked participants: If you have a financial advisor, do you feel the RISA™ would be helpful to them in implementing your retirement income plan? [ 1,034 more word ]


A reader writes in, asking: “I’d be interested in an article on the specifics of Social Security inflation adjustments. I have a vague awareness that my wages are indexed so that my wages from early years count for more than just the actual dollar amount earned. And I also know that the SSA publishes a COLA figure every year for people already receiving benefits. [ 749 more words ]


Over a lifetime, we accumulate a lot of stuff. If you’ve lived in the same home for many years — and it’s therefore been quite a while since you’ve gone through the forced purge of moving — it’s probably a lot of stuff. At some point, all of that stuff will have to go. Maybe that job will be yours if you do end up moving, or maybe the job will ultimately fall to your children or some other designated party. [ 81 more words ]


A reader writes in, asking: “I’ve read over and over this year that the Fed is ‘propping up’ the stock market by keeping interest rates low. How does that work?” Broadly, there are two ways in which low interest rates help to keep stock prices high. Firstly, to the extent that corporations are borrowers, keeping interest rates low reduces their costs and therefore directly improves their profitability, which of course helps keep their share prices higher. [ 512 more words ]


This week Barry Ritholtz tackled the question of why the stock market is doing reasonably well when the economy, clearly, is not. One critical point, as we discussed recently, is that the stock market and the economy are not the same thing. The stock market isn’t even supposed to reflect the economy. (Rather, the market’s value at any time is a… [ 126 more words ]


A reader writes in, asking: “I think there is more to deciding when to file for SS income than just the maximum benefit. I plan to coordinate SS with regular IRA, Roth IRA, and portfolio income in order to avoid as much taxes as possible. Any recommendations for how to optimize for the total portfolio?” The tax aspect side of Social Security planning is very case-by-case (just like any tax planning, really). [ 459 more words ]


Just a quick announcement today. The 2020 editions of three of my books were released this week. You can find them at the links below: In each case the book has been updated for any applicable tax changes — both legislative changes and inflation adjustments to various figures. In Investing Made Simple the chapter about working with a financial advisor has been reworked to discuss not only the differences in compensation (e.g., hourly fees as opposed to AUM fees as opposed to commission) but also the fact that different advisors actually do different things for you (e.g., some advisors focus exclusively on managing your portfolio, while others provide broader financial planning). Other Recommended Reading I hope you’re well, and thanks for reading!


A reader writes in, asking: “What do you think about using a Roth IRA for a home down payment?” This is a topic that generates endless disagreement, in part because when somebody asks this question, they can actually be asking either of two completely separate questions: What do you think about taking money out of a Roth IRA, to use it as a down payment on a home? [ 1,129 more word ]


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