Spencer Jakab

Tag: investing

  • An Excerpt of My Book

    Beaver

    Can’t wait to read my brilliant explanations of why people are such lousy investors and how you can get better in Heads I Win, Tails I Win? A sneak preview is now online and in print days before the book is available in stores.

    It’s an adaptation of a chapter titled “The Seven Habits of Highly Ineffective Investors” and is one of the parts of the book I had the most fun writing. It’s also the only chapter of my book, or for that matter any investing book, that recounts an episode of “Leave it to Beaver.”

    There will be other excerpts available around publication time but this one is the longest and also appears in a publication that readers of my book should check out (they should subscribe to The Wall Street Journal too, of course!).

    The AAII Journal accepts no advertising and is published by the American Association of Individual Investors. This group provides a lot of good investor education and also publishes an interesting survey of its members that I mention elsewhere in the book.

    Stay tuned – release day is July 12th!

     

     

     

  • The Procrastination Penalty

    I cover a lot of investing errors in my book (coming on July 12th), but, sadly, the list of mistakes is way too long to fit in 255 pages. An interesting one I overlooked was what Vanguard calls “the procrastination penalty.” Now this is a little different than the old chestnut you may have heard about the awesome advantage of starting to save money early. One variant goes like this:

    A young person begins saving at age 21, socking away $2,500 a year in a tax-free account until she reaches 30, after which she never sets aside another penny. The money grows at 7% a year compounded. Her brother starts at age 31 and puts away money the same amount until age 70, earning an identical return. In other words, he saves four times as much in nominal terms. Even so, his late start sees a nest egg grow to “only” $534,000 which is a little less than the $553,000 earned by his sister.

    Money_G

    The effect highlighted by Vanguard is more modest but also far easier to avoid. They looked at their own company’s data for when people make contributions to IRAs (individual retirement accounts). Not surprisingly, since the deadline for the preceding year is on tax day in April, that’s the most popular month by far. For example, one could have made a contribution as early as January 1st of 2015 or as late as this Monday, April 18, 2016.

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    The stock and bond markets don’t always go up so waiting will occasionally work to your advantage (as it would have in spades in tax year 2008, for example). In the long-run, though, markets tend to rise. That small delay compounds over a saver’s working years into a not-so-small difference. Vanguard takes the example of an investor who contributes the maximum $5,500 over 30 years on either January 1st or April 1st. The “early bird contributor” would, at a 4% rate of return after inflation, earn $158,967 while a procrastinator would earn just $143,467 or nearly 10% less.

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