September 2024 Best of the Web
The big financial news this month was interest rates starting to fall with the Fed cutting rates by .5%. What does this mean moving forward? We’ll explore.
I share an early retiree case study and resources to help you build a solid financial foundation. Resources will also help you assess risk, deal with uncertainty, and challenge your mental models.
Finally, I close with an encouraging study about aging and cognitive abilities. Let’s dive in!
Falling Interest Rates
Many “experts” and prognosticators see the recent Fed rate cuts as the first of a series that will send rates progressively lower. I don’t think trying to predict the future is a particularly good use of time. So instead I’m going to share a few takes on the topic from writers who I respect for their study of economic history.
Jason Zweig writes What’s In a Cycle?
Ben Carlson explores Rate Cuts & Historic Market Analogues.
Carlson also uses data to provide a reminder that just because you have a thesis that seems to make sense, it doesn’t mean things will play out as you anticipate. He writes What Happens to the Money Market Cash On the Sidelines?
Early Retirement Case Study
Jordan Grummet invited one of his listeners, Sandi Mccoy Kramos, and me for a “Community Episode” podcast titled Can I Retire? We planned to discuss a Bezinga article about an early retiree case study.
As we started talking Sandi revealed she would be retiring early within the year. This led to a more interesting real-life case study. For those of you who enjoy the case studies I publish on the blog, you will enjoy this conversation. Check it out.
Personal Finance Foundations
William Bernstein answers the question Why Should You Care When Stocks Plunge?
A lot of people get caught up in the minutiae of investing. One thing we all need to do is to choose a brokerage to hold our investments. Jeremy Zuke breaks down the pros and cons of the “Big 3” Fidelity, Schwab, and Vanguard to help you make this decision. How to Choose a Custodian for Your Accounts.
Mike Piper explains an important and often misunderstood concept in tax planning. Effective vs. Marginal Tax Rate in Retirement: Why Taxes Don’t (Usually) Cause People to Go Broke.
Meg Bartelt writes that you should Look Out for These Mistakes in Your Estate Plan.
A common issue I work on with planning clients is figuring out an exit on real estate investments gone bad. The common cause of these poor outcomes is entering into these investments underestimating the level of work and/or risk involved. I love the conversation from the ChooseFI podcast with Scott Trench: Real Estate 2024 Update.
Trench is the president and CEO of the real estate investing platform BiggerPockets. I appreciate his sober assessment of what it takes to be successful as a real estate investor generally, and particularly in today’s market.
Mental Models
Earlier this year, I wrote a popular post comparing managing risk and evaluating decisions made in the face of uncertainty in the mountains as an analogy to retirement planning.
If you found that post valuable, I highly recommend checking out the conversation on the White Coat Investor Podcast between host Jim Dahle and Carl Richards.
Peter Attia interviewed Marty Makary on The Drive podcast. This is a fascinating conversation exploring group think, cognitive dissonance, and blind spots that we are all susceptible to when making decisions.
Upsides to Aging
I frequently write about the risk of cognitive decline which can occur with age. I’ll close with a more hopeful perspective. Lydia Denworth writes Many Older People Maintain and Even Gain Cognitive Skills.
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Valuable Resources
- The Best Retirement Calculators can help you perform detailed retirement simulations including modeling withdrawal strategies, federal and state income taxes, healthcare expenses, and more. Can I Retire Yet? partners with two of the best.
- Boldin (formerly New Retirement): Web Based High Fidelity Modeling Tool
- Pralana Online (formerly Pralana Gold): Online and/or Microsoft Excel-Based High Fidelity Modeling Tool
- Monitor Your Investment Portfolio
- Sign up for a free Empower account to gain access to track your asset allocation, investment performance, individual account balances, net worth, cash flow, and investment expenses.
- Our Books
- Choose FI: Your Blueprint to Financial Independence
- Can I Retire Yet: How To Make the Biggest Financial Decision of the Rest of Your Life
- Retiring Sooner: How to Accelerate Your Financial Independence
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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible. Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences. Blog inquiries can be sent to chris@caniretireyet.com. Financial planning inquiries can be sent to chris@abundowealth.com]
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Great collection of articles Chris, as usual. Thank-you!
I wanted to point out a couple of errors of commission and omission in Jeremy Zuke’s piece comparing Schwab, Vanguard and Fidelity.
On the omission side, Schwab offers an AmEx credit card and a debit card that reimburses ATM fees worldwide. Fidelity does far better, offering the same debit card benefit, an excellent cash-back, no international transaction fee Visa card AND (unlike Schwab) solid, 4%+ (at time of writing) interest on funds in your sweep account. You can (and we, Rob Burger and many others have) use Fidelity to replace your local bank to great advantage.
So the ranking in terms of website quality and tools, customer service via phone or chat and overall experience, IMHO, is Fidelity, Schwab, Vanguard. The fact that Vanguard is dead last in all of these areas despite not having any brick-and-mortar offices and ostensibly being owned by and thus accountable to its investors falls under the old cliché of “you had only one job” and failing to do it.
On the commission side Vanguard’s patent was on its ETFs being treated, for tax purposes, as shares of its mutual funds – an ETF advantage, not a mutual fund one. And that patent has expired and many other firms have adopted it:
https://www.dividend.com/active-etfs-channel/vanguard-etf-patent-expiration-game-changer-for-investment-industry/
Lastly, not mentioned in the article is that it’s wise to have assets at two brokerages if feasible, since cyberattacks are a real and increasing issue and you don’t want to be without access to funds during an outage. For our part we hold our mostly-Vanguard ETFs at Schwab and Fido, thereby enjoying the one thing Vanguard does well, while benefitting from the superior service and not-to-be-underestimated real-world advantages of access to brick-and-mortar offices and in-person guidance if need be for the less financially-sophisticated spouse.
Thank you for the thoughtful comment Kevin.
I was not aware Schwab changed their sweep accounts. If they did so, they did so recently and I assume only after vast criticism and I would certainly keep an eye on them to see if they stay competitive. Similarly, Fidelity seems to have ramped up the aggressiveness of their marketing recently.
I fully agree with your criticism of Vanguard’s service. I am acutely aware of it after spending countless hours on hold to help my dad make required account changes following my mom’s passing.
IMO, Vanguard’s one big redeeming quality is I trust them more. Schwab and Fidelity offer better service and lower costs because they have to in order to get you in the door when they will immediately look for ways to make more money from you in some other way. I never believe their heart is into doing what is best for investors in the way it is built into Vanguard’s structure.
All that said, when talking to clients who aren’t already established somewhere I have them do almost exactly what you are doing. Accounts at Fidelity, utilizing Vanguard ETFs. For those that are established somewhere, I think any of the three are acceptable and I don’t encourage them to move unless there is a compelling reason.
Best,
Chris
I agree with you completely Chris. We were at Vanguard for many years and it pained me to move our accounts elsewhere. And no question that Schwab and Fidelity only do most of the good things they do because Vanguard created a competitive environment where they had to. Vanguard still has the opportunity to improve itself by showing that being owned by its customers translates into a customer service and website experience that is worthy of them. I’ll never give up hope – or my reverence for Jack Bogle and the Bogleheads. And I manage my mother-in-law’s accounts which are 100% at Vanguard so I unfortunately get to continue to keep tabs on their service. The website seems to be slowly improving; the phone situation not so much.
To be clear on Schwab: their sweep account currently pays .20%. Fidelity’s sweep account is SPAXX which is currently paying 4.60%. As you know, Schwab makes most of its money by offering lousy returns on cash and shoehorning clients into “smart” portfolios with excessive allocations to cash. It’s obnoxious, but hey, so is Vanguard relentlessly steering clients into paying a percentage of assets for the “privilege” of having an advisor enroll them in their PAS program that uses the same 4 index funds the client could buy on their own for free. No free lunch and no pure altruists among the big three – or anywhere else.