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Recommended Reading: Taking Stock by Jordan Grumet

Last year, I read Jordan Grumet’s book Taking Stock: A Hospice Doctor’s Advice on Financial Independence, Building Wealth, and Living a Regret-Free Life. (I initially encountered the book via a Morningstar The Long View podcast episode with Grumet as the guest.)

Grumet’s book made enough of an impression on me that I referenced it in the conclusion of my own book, More Than Enough. And I find that the ideas from his book are coming up more and more often in correspondence with readers, as well as discussions with clients, friends, and family.

As far as the financial advice itself, you won’t be surprised by any of it. And to be clear, I mean that as a compliment. It’s industry-standard, best practice advice — very much along the lines of what you’d expect from a book by Rick Ferri, Christine Benz, Wade Pfau, Allan Roth etc.

Where the book really shines though is in its perspective — because Grumet’s work as a hospice doctor has granted him a perspective that most of us do not have.

One of the critical and most valuable concepts from the book is the idea of conducting a life review. (This is a standard practice in hospice care, but I was unaware of such, as it’s well outside my own field.)

Grumet writes:

There is very little that is enviable about receiving a terminal diagnosis. For many, it is the worst moment in their lives. I have had this conversation over and over again in some of the most agonizing circumstances. Yet, after the initial shock dies down, a much deeper, richer period of self-evaluation and introspection often ensues. We call this process life review.

Life review is a holistic and structured process of evaluating one’s past and present, including events and memories, in an attempt to find meaning in and achieve resolution of one’s life. Often what happens is that a hospice caregiver or chaplain will sit down with a person and ask them to look back at their life.

At the end of the first chapter of the book, Grumet shares the steps for doing a life review on your own, now, rather than waiting until your last days.

Throughout the book, Grumet also shares many lessons that can be taken from other people’s life reviews. There’s a lot to learn from the dying.

Here’s the story for Tony the dishwasher, for instance:

Tony, a retired hospice patient dying of lung cancer, put it best. While conducting a life review, he told his nurse, “I left my long-standing job as a dishwasher at a restaurant to do what?”

His retirement years were spent cooking, cleaning, and—you guessed it—doing his own dishes at home. As death was nearing, he realized that maintaining his social connections at work had been giving his life meaning. But when planning for retirement, he hadn’t considered the importance of those connections. He had become so enamored with the idea of retiring that he failed to realize that “washing dishes is washing dishes.”

It didn’t matter whether he was performing this chore for his boss at the restaurant or at home for himself. While the “work” was the same, his job not only provided a salary but also connected him with people he loved.

In financial planning, we often take it as a given that retirement is the #1 financial goal for a person/household. There’s nothing wrong with such a goal (and in fact I’d argue emphatically that you should plan/save for retirement, even if you love your job), but it’s worth asking in advance: why are you retiring? What’s next? Is that better?

Different schools of thought say different things about what is necessary for a fulfilling life, but three things that come up often are autonomy (you’re in control of our own time), competence (you feel like you’re doing a good job at whatever it is that you do with your time), and relatedness (you have meaningful relationships in your life).

If you’re planning for your retirement right now, do you have a plan for how to meet all three of those needs after you leave your job?

The money decisions are important of course. But it’s critical not to let that be the only part of retirement planning that you engage in.

If you haven’t read Grumet’s book yet, I’d encourage you to do so. My own copy is heavily highlighted. I bet yours will be too.

Book Review: From Here to Financial Happiness by Jonathan Clements

At this point, when I read a personal finance book that’s targeted toward a general audience, what I’m usually hoping for is simply that the book is enjoyable to read. I’m not necessarily expecting to learn a lot of new information that will improve my own finances. This is the natural consequence of reading many books in one field over time — each one tends to provide less new information than the one before.

I imagine many of you are in a similar position.

Suffice to say, Jonathan Clements’ new book — From Here to Financial Happiness: Enrich Your Life in Just 77 Days — surprised me.

In case you haven’t heard of the book yet, it’s a collection of brief financial lessons on a variety of topics, with the idea being that you do one lesson each day. (Admittedly, I did not follow the one-section-per-day plan. I think I read it over 3-4 days. Regardless, I enjoyed the unique structure of the book. It makes it easy to pick up, even if you’re not sure you have a lot of time, because you know you’ll never be more than a couple of pages from a “stopping spot.”)

Some days Clements provides a succinct explanation of a specific financial topic (e.g., why it’s important to have disability insurance if you’re still working). Other days he guides you through a brief personal reflection of sorts (e.g., asking you a specific question about one of your financial goals).

In other words, the book is, in part, a step-by-step guide to getting your finances in order, if they aren’t already: make sure you have the appropriate insurance coverage (and no unnecessary coverage), contribute enough to your employer retirement plan to get the maximum match (if one is offered), select an asset allocation that does not exceed your risk tolerance, etc.

But a major part of the book — the part I enjoyed the most — was about how to get the most happiness out of your money. This is of course a trickier topic to navigate, because the answer varies significantly from one person to another. This is why, in these sections, Clements is generally asking you questions rather than giving you answers.

The major brilliance of the book, in my opinion, is that Clements makes these personal reflection “to do” items brief enough that you’re likely to actually do them, because it’s clear that what you’re being asked to do will only take 2-3 minutes. But, over time, the insights build on each other.

I’m intentionally not delving into the specifics here, as what you get out of the book will be different than what I got out of it — which is exactly the point. But I recommend the book highly. It’s the first personal finance book I’ve read in quite a while that had me frequently taking notes for my own benefit (as opposed to taking notes for the sake of a future article).

Recommended Reading: A Social Security Owner’s Manual

Since finishing up my book on retirement planning, I’ve known that the next addition to the “in 100 Pages or Less” series would be a book about Social Security. I expect it to be my major project for the second half of this year.

I have good news, though, for those of you who don’t want to wait.

This last week, I finally got the chance to read A Social Security Owner’s Manual by Jim Blankenship — a CFP and enrolled agent who blogs at Financial Ducks in a Row. I cannot recommend the book highly enough for anyone looking for a brief, easy-to-read resource on the topic of Social Security.*

The first two-thirds of the book walk you through the nuts and bolts of Social Security:

  1. The terminology (What’s a “primary insurance amount”? What does “full retirement age” mean?),
  2. The calculations (How are retirement benefits calculated? What about spousal benefits and survivor benefits?), and
  3. The related rules (How is Social Security taxed? How is your benefit affected if you have a government pension?).

Then the final part of the book digs into the nitty gritty of Social Security planning: At what age should you (and your spouse, if applicable) take Social Security, and how does that fit into the rest of your retirement planning picture?

Of course, the book doesn’t address every single situation, as there are simply too many variables to consider without thoroughly overburdening the reader (e.g., difference in ages between spouses, difference in earnings history between spouses, tax rates, assumed rate of return if you take the money early and invest it, unusual life expectancies due to medical conditions, etc.). But it does a great job of providing a few different strategies that are likely to work out well in most circumstances, and it provides you with guidance for choosing between them.

You can find the book here on Amazon. (Also, if you’re an Amazon Prime member, you can read the Kindle version free of charge.)

*The book focuses primarily on Social Security retirement benefits. In other words, if you’re looking for a book about Social Security disability benefits, this is probably not the book for you.

Learning about TIPS (Inflation-Protected Bonds)

I recently finished reading Explore TIPS: A Practical Guide to Investing in Inflation Protected Securities by fellow blogger The Finance Buff.

It was actually my second time reading it. You see, the author mistakenly thought that I might have something meaningful to add to the book, so he sent me a proof copy during the editing stage.

Instead, I found myself scribbling down several pages of notes. (The second time through the book resulted in two more pages of notes.) The honest truth is that, while I have a pretty good grasp of the basics of how TIPS work, I still had much to learn.

Random example #1: I never would have guessed that, when purchasing TIPS in the secondary market, it’s often more cost effective to place a buy order over the phone rather than online, despite the higher commission. (Reason being that the rep on the phone may be able to find you a better price on a given bond.)

Random example #2: At any given moment, every financial website may be quoting completely different yields for a given TIPS fund. The Finance Buff explains how to figure out what each of the yield figures means, and he provides advice on which figures to pay the most attention to if you’re trying to figure out what yield you’re going to get if you buy the fund. (Hint: Look for something forward-looking that’s inflation-adjusted.)

Explore TIPS covers everything that you’d need to know about investing in TIPS, things like:

  • When to buy individual TIPS and when to use a mutual fund or ETF,
  • How individual TIPS are taxed (and why you might want to consider a fund rather than individual TIPS if you’re investing in a taxable account),
  • How to buy TIPS at auction, and
  • How to buy TIPS in the secondary market (both how to understand the quote screens as well as how to minimize transaction costs).

For as much of our portfolios as bonds–and TIPS–make up, they sure get a lot less coverage than stocks and stock mutual funds. If you’re like me in that you could use a little more background on the other half of your portfolio, I’d suggest picking up a copy of the book. It’s short, it’s easy to understand, and it’s only $10 (and change) on Amazon.

Review: Worry-Free Investing by Zvi Bodie

I recently read Zvi Bodie’s Worry-Free Investing. It’s a brief book that makes basically one argument.

Bodie (a Professor of Finance and Economics at Boston University) points out that the reason stocks have high expected returns is that they’re risky. And no matter how long we hold them, there’s always a chance that that risk will show up in the form of poor returns.

Bodie argues that the long-term riskiness of stocks is dramatically understated by conventional investment wisdom and that most investors have far too much allocated to stocks and far too little allocated to safer, inflation-indexed investments such as TIPS and I Bonds. In many cases, Bodie recommends a portfolio comprised exclusively of TIPS and I Bonds.

100% TIPS?

The problem, in my opinion, is that Bodie significantly understates the rate of savings that would be required for most people to reach their goals using a 100% TIPS portfolio. The reason for this underestimate is that he makes a few shoddy assumptions:

  1. He assumes every investor will die at or prior to his/her life expectancy.
  2. He assumes that you’ll earn a 2% real return from TIPS over any time period.
  3. He assumes that the amount you pay into Social Security will also earn a 2% real return.

Life Expectancy

In Bodie’s calculations, if someone retires at 65 and has a life expectancy of 90, Bodie does the math assuming that the investor needs enough money to last for 25 years.

The catch, of course, is that approximately 50% of people will live beyond their life expectancy. Planning to only meet your life expectancy hardly seems worry-free to me.

(Real) interest rates change.

Throughout the book, Bodie assumes that you can earn a 2% real return with TIPS. This works reasonably well for an investor with a lump sum to invest, who is already some years into retirement, and who can currently buy TIPS with a 2% real return.

Of course, that overlooks a great many scenarios. For example, for the 30-year-old investor, even if TIPS are currently yielding 2% (or even more), there’s no way to know what rate of return he’ll get on the TIPS he buys at age 40, 50, or 60.

I’m not arguing that a 2% real return is unreasonably optimistic. But relying on a given return (even from a portfolio comprised entirely of TIPS) is neither risk-free nor worry-free.

Social Security is risk-free?

In most of Bodie’s examples, his math shows that the hypothetical investors need to save somewhere from 20% to 40% of their income in order to reach their goals. Bodie argues that that’s not as hard as it sounds because they’re already saving 15% of their income in the form of social security taxes.

The unspoken assumption here is that you will earn that same 2% real return on your Social Security tax payments that Bodie assumes you will earn from a TIPS portfolio.

For younger investors especially, this assumption seems questionable. Again, neither worry-free nor risk-free.

Is it worth reading?

To be clear: my point in all of this is not that TIPS are riskier than stocks. They aren’t. My point is simply that an investor following Bodie’s plan is not 100% certain of success. Not even close.

That said, Worry-Free Investing provides a thought-provoking counterpoint to the conventional wisdom of stock-heavy allocations. And for that, I’d say it’s worth reading.

Review: Unconventional Success by David Swenson

I recently finished reading David Swenson’s Unconventional Success: A Fundamental Approach to Personal Investment. (For those unfamiliar with Swenson: he’s Yale University’s Chief Investment Officer.)

The book is broken down into three sections:

  1. Asset Allocation
  2. Market Timing
  3. Security Selection

Asset Allocation

The first section is a thorough run-down of each asset class, discussing various characteristics that make it either worthy or unworthy of investment. Swenson suggests a portfolio (one of my favorite “lazy portfolios” actually) consisting of 6 asset classes:

  • 30% domestic equity,
  • 15% foreign developed equity,
  • 5% emerging markets equity,
  • 20% REITs
  • 15% U.S. Treasury Bonds
  • 15% Treasury Inflation-Protected Securities

It’s good information, and I’m on board with his advice. The problem? This section of the book is boring, wordy, and repetitive. Given how engaging Swenson is as a speaker, I was disappointed.

Market Timing

The second section provides guidance on how to avoid behavioral investment mistakes. Specifically, Swenson warns against chasing performance and neglecting to rebalance your portfolio. Like the first section, it’s good advice, but not the most exciting reading.

Security Selection

Roughly halfway through the book and so far unimpressed, I was just looking forward to being done with it. Little did I know, this tamely-named section would be arguably the finest piece of investment industry muckraking I’d ever read!

In a degree of detail I’ve never seen before, Swenson highlights the various conflicts of interest between fund management companies and fund investors. I suspect that the majority of the information in this section will be eye-opening for most investors. I’m as cynical as they come with regard to the financial services industry, and there were a few moments when even I felt scandalized.

Recommended Read?

For a general introduction to investing, I’d recommend Bernstein’s The Investor’s Manifesto above this book. And in terms of avoiding behavioral investment mistakes, I’d suggest anything by Jason Zweig.

If, however, you’ve ever considered investing a portion of your wealth via actively managed mutual funds, I strongly recommend you read (the third section of) Swenson’s Unconventional Success. In all likelihood, it’ll convince you to stick with index funds and ETFs. But if it doesn’t, you’ll at least know what you’re up against (namely, the company managing your money on your behalf).

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My Social Security calculator: Open Social Security