Archives for November 2015

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Social Security Made Simple Updated, Free for Two Days

As I mentioned on Friday, the updated edition of my book about Social Security is now available on Amazon, and the Kindle edition is free to download (here) today and tomorrow (11/30 and 12/1).

The most significant revisions to the book deal with the changes made by the Bipartisan Budget Act of 2015 earlier this month (i.e., the changes to the deemed filing and voluntary suspension rules). There are also a few smaller changes, such as including 2016 figures when available.

For those who have not read the book before, it covers a range of topics, such as:

  • How your Social Security retirement benefits, spousal benefits, and widow/widower benefits are calculated,
  • How your benefits are affected if you have a government pension or if you continue working while claiming Social Security,
  • How to decide when is the best age for you (and your spouse, if you’re married) to claim Social Security in order to get the most out of your benefits,
  • Whether or not it makes sense to take Social Security early in order to invest the money,
  • How to check your earnings record on the Social Security Administration’s website to make sure you’re getting the full benefit you deserve, and
  • How Social Security benefits are taxed and how this affects retirement tax planning.

Please Help Spread the Word!

If you know anybody else who would find the book helpful, please do mention it on social media or elsewhere. It would be great to see a large number of downloads in the next couple of days.

For People Who Have Previously Purchased the Kindle Edition

Important note: If you have already purchased the Kindle version of the book in the past, attempting to re-purchase and re-download the book will only result in you getting the old edition again. Instead, you’ll want to go to the “Manage Your Content and Devices” page on Amazon, find Social Security Made Simple in your collection, and click the “update” button.

Kindle Not Necessary

Just in case you are new to Kindle books: It is not necessary to own an actual Kindle device in order to read a Kindle book. In addition to being readable on tablets or smartphones, they can be read on a normal PC or Mac using freely downloadable software (here).

There is also no need for the “Kindle Unlimited” type of account that Amazon is promoting.

Want to Learn More about Social Security? Pick Up a Copy of My Book:

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less
Topics Covered in the Book:
  • How retirement benefits, spousal benefits, and widow(er) benefits are calculated,
  • How to decide the best age to claim your benefit,
  • How Social Security benefits are taxed and how that affects tax planning,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"An excellent review of various facts and decision-making components associated with the Social Security benefits. The book provides a lot of very useful information within small space."

Investing Blog Roundup: Social Security Made Simple Updated to Reflect Recent Legislative Changes, Free Next Monday

As of today, the new version of Social Security Made Simple is available on Amazon (here). It’s fully up-to-date, reflecting all of the changes made to Social Security by the recent Bipartisan Budget Act of 2015 (which we previously discussed here).

Of note, however, is that you may want to hold off on purchasing a copy, because on Monday and Tuesday of next week (11/30-12/1) I will be making the Kindle edition of the book available for free on Amazon.

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How Much Employer Stock is Too Much?

A reader writes in, asking:

“How much employer stock does it typically make sense to hold in one’s portfolio?”

From a financial planning standpoint, the ideal amount of employer stock to own is “as little as possible.” If anything, an argument can be made for having a negative allocation to employer stock (e.g., by using various options strategies that benefit if the stock goes down).

It’s true that many people have become mega-millionaires through ownership of employer stock (see: Microsoft). But many people have also experienced financial ruin through ownership of employer stock (see: Enron).

Owning individual stocks (as opposed to diversified mutual funds) is generally undesirable because it results in “diversifiable risk,” which is risk that is not, on average, compensated with additional return. (See this article for more on that topic.)

Owning the stock of your employer is, on average, even worse, because it causes your employment and your portfolio to be exposed to the same set of risks. Getting laid off is a bad financial scenario. Getting laid off at the exact same time that your portfolio tanks can be a catastrophic financial scenario — definitely the sort of thing that it makes sense to go out of your way to avoid, if possible.

That said, there are some cases in which it is more or less unavoidable to have a portion of your portfolio allocated to the stock of your employer. For instance, some employees are compensated with “restricted stock” that they cannot sell until certain conditions have been met (e.g., the employee has held the stock for a certain number of years). Alternatively, some employees are allowed to use a portion of their income to purchase employer stock at a significant discount, but they aren’t allowed to sell it within a certain number of months.

If employer stock is a part of your compensation, there’s no sense in turning down free money. But as soon as you can sell such stock, it generally makes sense to do so.


Investing Blog Roundup: How the Financial Services Industry Rips You Off

The financial services industry has a million and one ways to rip you off. But Madoff-style outright frauds are relatively rare. Most of the time, the industry tries to take advantage of you in ways that are completely legal, by selling you something that is a great deal for them and a bad deal for you.

Last week I mentioned that I was reading (and enjoying) Jason Zweig’s new book The Devil’s Financial Dictionary. Having now finished the book, I can confidently say that it’s a new favorite of mine. It manages to be quite entertaining while explaining:

  • the various buzzwords that the industry uses to hype its products, and
  • the jargon that the industry uses to muddy the waters so that you won’t notice/understand the less desirable traits of its products.

Investing Articles

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Reviewing the New Vanguard Tax-Exempt Bond Index Fund

A reader writes in, asking:

“I recently learned that Vanguard opened a muni bond index fund for the first time. What are your thoughts on it? Is it a better choice than the existing intermediate tax exempt fund? Is it worth switching?”

Overall, the new Vanguard Tax-Exempt Bond Index Fund appears to be very similar to the existing Vanguard Intermediate-Term Tax-Exempt Fund.

A few points of comparison:

  • The expense ratios are the same (0.12% for Admiral Shares, 0.20% for Investor Shares).
  • The minimum investment for Admiral Shares of the new index fund is $10,000, as compared to $50,000 for Admiral Shares of Vanguard Intermediate-Term Tax-Exempt Fund. However, the non-ETF version of the new index fund currently comes with a 0.25% purchase fee.
  • The new index fund includes a much smaller number of bonds, which makes it appear somewhat less diversified. But this data is as of 10/31/15 when the fund was super new. I would expect this number to grow as the fund attracts more assets.
  • The credit rating distribution within the funds is very similar.
  • The new fund has slightly more interest rate risk, with an average duration of 5.7 years as opposed to 4.8 years for the non-index fund.
  • And as you would expect for a fund with slightly higher risk, it has a slightly higher yield (1.86% as opposed to 1.71% for the non-index fund.)

In other words, the new fund looks like a great offering — very comparable to the existing Intermediate-Term Tax-Exempt Fund. But I do not see anything about the new fund that makes it distinctly better than the existing non-indexed fund. So I would definitely not think it’s necessarily worth switching, especially if doing so would incur undesirable tax consequences. (After all, by definition we’re talking about taxable accounts, otherwise tax-exempt funds wouldn’t be of interest in the first place.)

I think the new fund will be good for anybody who is simply more comfortable with indexed products than with actively managed products. (That said, the Intermediate-Term Tax-Exempt Fund, while technically not an index fund, is still a pretty passive fund with a relatively low degree of portfolio turnover.)

But I think the two most likely uses for the new fund will be:

  • As a tax-loss harvesting partner for the existing fund, and
  • As a low-commission option for people who invest via brokerage firms other than Vanguard (and who would be able to buy a Vanguard ETF at a lower commission than an open-end Vanguard mutual fund).

Investing Blog Roundup: The Devil’s Financial Dictionary

I recently purchased a Kindle copy of Jason Zweig’s new book The Devil’s Financial Dictionary, and I must say that I’m really enjoying it. I read a lot of books about various personal finance topics, and I often find them informative or interesting — but rarely fun. Zweig’s new book is fun. It’s gentle, friendly satire, helping the reader understand how financial jargon is used to trick investors into buying financial products that are rarely in their best interests.

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