Friday Reading: Saving More vs Investing More Aggressively

By Harry Sit

Retirement: Saving More vs. Higher Investment Returns by Jonathan at My Money Blog

Jonathan reported a research paper by Vanguard: Penny Saved, Penny Earned. Among other things, the paper compared saving more with investing more aggressively.

The conclusion, as you would have guessed, is that saving more wins. A 9% savings rate invested at moderate risk (50% in stocks) would provide a higher median end value than a 6% savings rate invested more aggressively (80% in stocks). Saving more is also more reliable because you are less subject to the whim of the markets.

However, if these are the only choices — save more or invest more aggressively — I think most people will still choose the latter despite the evidence presented in the paper. That’s because investment returns are seen as "free." You don’t have to sacrifice your lifestyle; just be a grown-up and hang tough on risk tolerance. I don’t agree but it’s tough to fight human nature.

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What target-date funds can’t do by John Ameriks at Vanguard Blog

I chuckled at The Top 10 Things Target-Date Funds Can’t Do.

Number 10: Mow your lawn.

I said the same thing about TIPS. Detractors also often set an absurdly high bar for TIPS. Whether it’s TIPS or target-date funds, they only do what they are designed to do, nothing more.

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Why Annual Retainer Fees Won’t Overtake The AUM Model by Michael Kitces at Kitces.com

Michael Kitces wrote to the financial advisors audience saying

an annual retainer model where clients have to write a check for services makes the fee significantly more "salient" and can actually force firms to either cut prices or work harder to generate the same income

From a consumer’s point of view, that’s good. Whether the fee is an annual retainer or a percent of your assets, insist on paying that fee separately. Have the advisor stand up for the services provided as opposed to just silently deducting the fees from your account.

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The outlook for bonds: Are the good times about to end? by Joe Davis at Vanguard Blog

No, the good times are not necessarily about to end for bonds, but there isn’t much more upside either. Certainly not nearly as well as bonds already did. When you front-load all the gains, you drain from the future.

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Interest rates: How low can they go? by Allan Roth at CBS MoneyWatch

Not much more but they can stay low for longer than anybody thinks or likes to see.

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On Borrowing Digital Books From the Library by Ann Carrns at New York Times Bucks Blog

Digital books are a great opportunity to bring our public libraries to the 21st century. Think about it, the cost to shelve paper books is very high. As long as the system ensures that a single copy of a digital book can be read by only one person at any time, I don’t see any problem with libraries buying e-books instead of paper copies for circulation. No messy returns, sorting or shelving.

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Should We Tax Olympic Prize Money? by NPR Planet Money

Absolutely. We should enact a moratorium on new exceptions put into the tax code and let all temporary provisions run out.

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Posted on August 10, 2012 under News. Keywords: , , , .

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2 Comments on Friday Reading: Saving More vs Investing More Aggressively

  1. Matt on August 10, 2012
     

    “We should enact a moratorium on new exceptions put into the tax code and let all temporary provisions run out.”

    Here, here!

    Temporary has to have meaning. If we’re serious about reining in the deficit, allowing temporary provisions to expire is as good a place to start as any.

    About taxing the Olympic medal bonus: it would be one thing if it was a non-cash gift with tax ramifications that could hurt a “poor” athlete. This, however, is not the case. It is a cash performance bonus, just like many of us hope to receive for success in our jobs. I’d be interested to see data on how many US Olympians are actually amateurs besides boxers and wrestlers (required to be amateurs for safety reasons). Missy Franklin still swims for her high school team, I know, and I heard the only amateur team USA gymnast is Kyla Ross, but how many others? Would said amateurs need to turn down the bonus to maintain their amateur status anyway?

    I think the numbers will show that many of the Team USA athletes have individual sponsorship deals so that they can train full time. The Olympics, then, is part of their job. I know my bonus is taxed…

  2. Harry Campbell on August 12, 2012
     

    I don’t think Olympians should be taxed. I know we think of how rich Phelps and some of the NBA ballers are, but there are also a ton of wrestlers, fencers, judo masters, etc that are definitely not living it up.

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