Money Tree Podcast Interview

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I sat down to speak with Doug Goldstein of the Money Tree Investing podcast to discuss whether it’s realistic to expect to beat the market with any consistency and the media’s role in spooking or exciting investors. He asked smart questions and I tried to give smart answers based on the findings in my book and other personal finance sources. Check it out!

Come See Me in Nashville

Neon Lights of Lower Broadway, Nashville, TN

Music, hot chicken, Vanderbilt, my sister and her family, more hot chicken – I love coming to Nashville. My next visit and first-ever speaking engagement in town will be on February 9th at 6:30-8:00 in the evening at University School of Nashville. The $25 fee goes towards an excellent cause: the USN scholarship fund.

The title of my talk is “Beat the Odds and Become a Much Better Investor.” I’ll also be signing and selling copies (at my cost) of my book, Heads I Win Tails I Win: Why Smart Investors Fail and How to Tilt the Odds in Your Favor.

Sign up here.

 

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.

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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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