Overhyped: The Smartest 401k Book You’ll Ever Read
I wasn’t so impressed by Dan Solin’s previous book, but I was willing to take a second chance on his The Smartest 401k Book You’ll Ever Read because it got endorsements from John Bogle, founder of Vanguard, William Bernstein, whose books I like, and Taylor Larimore, a co-editor of The Bogleheads’ Guide to Retirement Planning, to which I contributed a chapter.
I don’t know what’s wrong about publishing these days. Or maybe it’s always been this way. It seems you have to make an outlandish claim in order to grab people’s attention. The book isn’t necessarily bad but it’s way overhyped. The back cover has these in large bold colored font:
Everyone is telling you it’s a “no-brainer” to invest in a 401(k) or 403(b) plan because of the employer match.
Spending Other People’s Money
Someone bumped into my car in a parking lot but wasn’t decent enough to leave a note. The hood of my car was damaged. I went to two reputable body shops. One quoted $850; the other quoted $740. As body work goes, it’s a small job. Because the bill isn’t much more than my deductible, I decided to pay out of pocket and not bother with an insurance claim.
Both body shops told me if insurance is involved, the repair bill will be over $2,000. They will have to fix it "the right way." Instead of just repairing the hood, they will have to replace the hood and repaint the fenders to match the color. Both also told me I will not notice any difference with my untrained eyes if I only have them repair and repaint the damaged area. Since I’m paying the bill, I chose the lower-cost option.
What if the driver who caused the damage gave me his or her insurance information? Guess which option I will choose? Fix it the right way, of course, however marginal the quality difference may be. I don’t have to care if I’m spending other people’s money.
Why Is ACH Slower At Some Places Than Others?
ACH stands for Automated Clearing House. It’s low-cost method to move money from one account to another. When you have payroll direct deposit, it’s done by ACH. When you give your bank account to an insurance company for automatic monthly payments, it’s done by ACH. When you transfer money from a checking account to an online savings account or to a brokerage account, it’s done by ACH. ACH is everywhere.
ACH transfers take longer at some places than others. When I transfer money from Fidelity to my checking account, I see the money the next day. When I do the same from Vanguard, it takes two days. When I do it from E*Trade, it sometimes takes three days. Why is that?
ACH supports both credits and debits. You can ask one institution to move money to another institution (credit, or "push") or you can ask it to get money from another institution (debit, or "pull").
The Origin of Solo 401k
As I wrote in a previous post Rollover IRA to Solo 401k, I rolled over substantially all pre-tax money in my traditional IRA to my solo 401k plan in 2009. My traditional IRA was left with non-deductible contributions plus a little bit of earnings. For 2010, I made another non-deductible contribution before I converted the whole thing to a Roth IRA.
Because the traditional IRA had mostly non-deductible contributions, I will not pay much tax for this conversion. I plan to do the same contribute-then-convert move in 2011 and beyond unless Congress changes the law.
Having a solo 401k made things easy for me. This post is a sidebar about the history of solo 401k.
My Future Is Not a Game
I beat the market in 2009 … in a mock trading game. My return from $100,000 fake cash was +48.6%.
Among more than 100 Vanguard mutual funds, only 5 had a higher return in 2009 than I did in the game.
No Sugar Coating Please: It Was a Lost Decade
Happy New Year! With the first decade in the new millennium having come to the end, there’s a lot of retrospection in the media. What happened? What should’ve happened but didn’t? In the investing world, some say the decade was a “lost decade” and some apologists say how it wasn’t.
I read articles from both camps. I’m not convinced by the contrarians who say it wasn’t a lost decade. Hence the title of this post. Although it’s not the news everybody cheers for, I have to respect the facts. It was a lost decade. Let’s not sugar coat it and say it wasn’t.
As in any other debate, the definition is very important. What is a lost decade, really? I define it as a decade in which risk taking wasn’t rewarded. You took risk, you did what everybody says you are supposed to do, but you have nothing to show for after ten years. That’s a lost decade.
529 Plans: Age-Based Options Don’t Make Sense
A new-born niece came into my extended family recently. I got the task for looking into setting up a college education fund for her.
I know about 529 plans. Every state has at least one plan. Some states have several plans. I quickly identified Ohio CollegeAdvantage 529 plan as the best plan for my niece. Her parents live in a state that does not give a tax deduction for 529 plan contributions. They can use a plan offered by any other state. The Ohio CollegeAdvantage 529 plan has low cost Vanguard index funds.
Like many other 529 plans, the Ohio CollegeAdvantage 529 plan offers age-based investment options. There are actually four age-based options, three of which offer exclusively Vanguard funds. Within the Vanguard age-based options, there are conservative, moderate, and aggressive tracks. Here’s how the middle-of-the-road Vanguard Moderate Age-Based Option will invest:
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