New Here? Get the Free Newsletter

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning. Join over 20,000 email subscribers:

Articles are published Monday and Friday. You can unsubscribe at any time.

Investing Blog Roundup: Calculating When to Take Social Security

Financial planner Allan Roth featured the Open Social Security calculator in an AARP article this week.

Roth summarized the Social Security decision succinctly: delaying does not give you an 8% return (despite what some people say). Still, most unmarried people and married people who are the higher earner in their marriage should wait until 70.

He also stressed one thing that I haven’t discussed very much here: the fact that the calculator uses year-by-year probability of being alive rather than assuming that the user dies in a given year. The difference is not significant for a single person. But for a married couple, it more accurately reflects the expected outcome (i.e., with a greater duration of time between the first spouse’s death and the second), with the net result being that Open Social Security is more likely to suggest an early filing date for the lower earner and a later filing date for the higher earner than other calculators or DIY analyses might.

Other Recommended Reading

Thanks for reading!

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).

Investing Blog Roundup: Social Security Disability

This week I released another major update to the Open Social Security calculator: it can now account for disability benefits. That is, if the “advanced options” checkbox is checked, it now allows a person to note if they are on disability, and it adjusts calculations and output accordingly.

Recommended Reading

Thanks for reading!

Why I Don’t Pay Much Attention to Net Worth

A reader writes in, asking:

“What metric(s) do you track with respect to your portfolio? Net worth I assume? Anything else?”

Yes, my personal finance tracking spreadsheet does calculate our net worth. It also calculates another asset-related number that I find more useful: our funded ratio.

But the number I pay most attention to is not a measure of our assets. The number I pay most attention to is our annual retirement account contributions.

To explain, allow me to share a brief bit of personal history. From age 17-21, I worked in a sales position in which the compensation was purely commission. In that position, some days were good, and others were not so good — and it often had nothing to do with how hard I worked or how smartly I worked. It was just luck.

The first year or two in the job felt like a rollercoaster. Some days were crushingly bad. Other days I was riding high. Eventually, I learned that it all averaged out over time, as long as I did the necessary amount of work. And so I shouldn’t be too sad or worried about a particularly bad day.

Because the short-term results were significantly out of my control, it was helpful to judge my performance based on effort rather than the results. Doing so allowed me to stay sane. In addition, focusing on the effort (i.e., making sure I worked enough) was in fact the best way to improve results.

With regard to investing, the stock market has been shooting upward over the last several years. So of course our stock-heavy, index fund portfolio has been growing rapidly. But that’s not because of anything brilliant we did. Similarly, our portfolio fell by nearly half from late 2008 to early 2009. But that wasn’t because of any mistake we made.

We have no control over how the market performs over any particular period. But we do have control over how much we save each year (for the most part, anyway).

Sometimes the trajectory of your net worth will be good. Sometimes it will be bad. But focusing on such results a) makes you crazy and b) sometimes leads to faulty conclusions. By focusing on what you have control over, it’s easier to stay level-headed and stay motivated.

To be clear, my point here isn’t that the results don’t matter. Results do matter, of course. But improving the inputs that you control is the best way to improve results. And you’ll be mentally healthier along the way.

Investing Blog Roundup: When Tax Efficient Asset Placement Doesn’t Matter

Tax planning is very case-by-case. Not only should PersonA be taking different actions than PersonB, the tax planning decisions they even have to make are often completely different.

In one way, that’s a good thing. It means that you need not concern yourself with much of what you read/hear about tax planning, because it isn’t applicable to you.

This week, Harry Sit provides an excellent example of that concept, pointing out that tax-efficient asset placement (“asset location”) isn’t very important for many people.

Other Recommended Reading

Thanks for reading!

Why Stock Prices Are Still Volatile in an Efficient Market

A reader writes in, asking:

“Last month Facebook’s price fell because the new European privacy law hurt their advertising revenue. I always see the ‘experts’ saying that we shouldn’t invest in individual stocks because an ‘efficient market’ makes it impossible to pick winners and losers. But the idea that every stock is perfectly priced all the time seems wrong on its face. I can tell you right now that if the U.S. passes a similar privacy law, Facebook’s share price will fall again.”

The idea of an efficient stock market isn’t that the stock market can predict the future. Nobody knows what is ultimately going to happen (either with Facebook or with any other company/industry/country).

That is, the market price for a stock doesn’t mean that this is where the price will stay; it’s simply the consensus best estimate, given the information that is currently available.

By way of analogy, imagine that I’m hosting a raffle, in which the winner gets $100. I’m going to sell exactly 100 tickets to the raffle. How much is each ticket worth?

Each ticket is worth $1, because each ticket has a 1% chance of winning $100. (That is, $100 prize x 1% probability of being the winning ticket = $1 value.)

Of course, the reality is that, of the 100 tickets, 99 of them will turn out to be completely worthless, and one lucky ticket will turn out to be worth $100. But we don’t know in advance which ticket will be the lucky one, so until the raffle actually happens, each ticket is worth $1. (In probability/finance jargon, we say that each ticket has an “expected value” of $1.)

The point of the efficient market concept isn’t that an efficient market would successfully predict which raffle ticket will be the winning ticket. Rather, the point is that an efficient market would successfully price each ticket at $1 prior to the raffle.

With regard to Facebook, there’s a possibility that new regulation will come along that impedes the company’s profitability, in which case the stock will be worth significantly less than it’s worth right now. Or, maybe no such event will occur, and the company’s stock price will rise back to what it was before all the hullaballoo.

But because we don’t yet know what’s going to happen, an “in the middle” price is the current consensus price, even though everybody knows it will ultimately turn out to be wrong (i.e., even though everybody knows the value of the company will ultimately turn out to be more or less than the current market value — just like everybody knows that none of the raffle tickets will ultimately be worth $1).

Disclaimer: By using this site, you explicitly agree to its Terms of Use and agree not to hold Simple Subjects, LLC or any of its members liable in any way for damages arising from decisions you make based on the information made available on this site. I am not a financial or investment advisor, and the information on this site is for informational and entertainment purposes only and does not constitute financial advice.

Copyright 2018 Simple Subjects, LLC - All rights reserved. To be clear: This means that, aside from small quotations, the material on this site may not be republished elsewhere without my express permission. Terms of Use and Privacy Policy

My new Social Security calculator (beta): Open Social Security