Saturday, March 12, 2011
Social Security COLA Increases and the Coordination of Benefits
Dr. Helen has a blog post up on senior griping over the unintended consequences of raising the Social Security payout by 5.8% this year.
The comments are full of people who slam the entitlement mentality of some of those seniors who complain. But conservatives shouldn't be so quick to pooh-pooh those concerns. Here's why:
There is a branch of financial planning that specializes in special needs planning for the handicapped, and another that specializes specifically in Medicaid planning. There is a good deal of overlap in that Medicaid largely serves the elderly poor and the chronically handicapped, especially the indigent. Medicaid, as a matter of fact, is one of the largest if not the largest payors of nursing home care for the elderly.
Now, in order to qualify for Medicaid, recipients must meet some extremely draconian eligibility criteria. Specifics vary by state, but an individual cannot receive Medicaid unless he or she has an income at or below what amounts to the poverty level, AND does not have more than a certain amount of countable assets.*
Now, imagine a middle-class guy who's worked hard all his life, but who, 80 years old can't work anymore, and needs assistance in his day to day activities. He's been responsible, and has tried to put away a bit of a nest egg, which he has annuitized in order to guarantee him a subsistence-level income. Now, he may have done some planning before, and he's got Social Security coming in, in addition to a monthly payout from his annuity. He has already sold all of his other assets in order to pay for care. Let's assume he does not own a home, or if he did, he sold it to pay for nursing home care, too.
Under the old rules, his Social Security check and his annuity payout were low enough to keep him from being disqualified for Medicaid and being forced to pay for care out of his own pocket.
But what if, under the new rules, an unexpected 5.8% increase in his Social Security, combined with his annuity, put him over the Medicaid limit?
After all, under the current rules, there is no phaseout for medicaid eligibility (though maybe there should be.) If you go ONE DOLLAR over the allowable monthly income limit for Medicaid, you disqualify yourself from the whole kit and kaboodle.
Now, few people collecting Social Security alone will have checks large enough to bust the limit by themselves. But remember, this is a guy who saved something. Who did the right thing and tried to provide for his future. Now, he's disqualified for Medicaid - and unless rules change, he could be disqualified permanently, based on a sudden increase in Social Security payouts.
But he's got no other assets with which to pay for care. And his income is nowhere near sufficient to pay nursing home costs of 150 to 200 DOLLARS PER DAY. (The average daily cost of nursing home care in Florida is $236/day, and rising faster than inflation.
So if he's got no assets, his income doesn't get within spitting distance of the money he needs to raise, and no Medicaid eligibility, what do conservatives suggest we do with this man? And given that he's stuck with the Medicaid eligibility rules we have, not the rules we wish we had, how can we slam him for griping at losing his Medicaid eligibility?
The irony is that conservatives are oh-so-attuned to absurd incentives in the income tax code that reduce the marginal value of the next dollar of earned income, and are constantly on the lookout for situations where earning the next dollar could cause cause the taxpayer MORE than a dollar in a combination of lost credits and higher tax brackets.
Coordination of benefits is an absolutely legitimate concern, and it's serious business. I hope State Medicaid coordinators are on the ball with this one... and conservatives should take a chill pill rather than conduct knee-jerk attacks on seniors who could not have seen this coming, and like our hypothetical 80 year old, will wind up punished for doing the right thing.
After all, someone who had ZERO annuity income would not lose Medicaid eligibility from Social Security payments alone. It is only the one who saved something to provide for himself in later years who would take it on the chin....indeed, the consequences to a responsible man in our imaginary friend's position could be catastrophic.
Long Term Care insurance? Maybe he should have it. But hardly anyone was selling it 20 years ago, when he was 60. Suppose he tried to buy it, but was uninsurable by then?Labels: Personal finance, retirement, Social Security, tax
Why The Argument "We Already Ration" is Bogus
Liberals are fond of arguing that insurance companies already set limits on care, therefore it's fine for government to do the same thing. They are so stupid, they forget that they are making this argument in nearly the same breath as they deny the proposed existence of "death panels" whose purpose is to do exactly what they insist we already do, and what we must do to control costs, eliminate waste, and discover cost efficiencies.
Their argument is as stupid as they are, and that's saying something.
For proponents of a single-payor system, and ESPECIALLY for proponents of a system in which it is illegal to pay out of pocket for medical care, there is a HUGE difference between what the libtards falsely call "rationing."
In a private market, I am free to select my own menu of benefits and exclusions, deductibles, caps and limits. Case in point: One major carrier in my area, United Health, offers a standard $3 million dollar lifetime benefit cap. I can pay a little extra per month in premiums and enhance that lifetime cap to $5 million.
From the perspective of economic freedom and, I'll say it, basic human rights, between having my insurance company deny a claim and having the government deny treatment. Here it is:
My insurance company would tell me: "We're sorry, but this treatment is not covered by your plan. If you and your doctor want to do it, you are free to purchase it yourself. By the way, here's a list of in-network doctors. They offer discounts."
My government will tell me: "We're sorry, you may not get this treatment."**
Stranger Owned Life Insurance
These contracts are abortions, and I'd like to personally adjust the actuarial outlook for any of these Wall Street scumwads trying to push these.
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
Why? Well, we have insurable interest laws for a reason. Do you really want a sociopath like Bernie Madoff owning a substantial interest in wanting you dead?
But let's put aside the obvious perversity in granting Wall Street a windfall when they kill you. Let's just look at the math- the math the New York Times misses:
The primary purpose of life insurance is death benefits. DEATH BENEFITS. Why? To protect widows, orphans, and business partners. That's it.
When an insurance company sets its premiums on a block of business, they have to take into account the expected lapse rate. A certain percentage of all life insurance contracts will never pay a death benefit - because they either lapse or get cashed in well prior to the death benefit. Indeed, term insurance is DESIGNED to lapse without paying a claim. This is part of why term is so cheap... the premiums are well below the expected mortality for any given age group. Because of lapse rates. This is part of why young families and small businesses can afford the protection they need.
When you have third parties buying up life insurance... parties whose primary interest in the insured is identical to that of a corpse-eating zombie - they will keep policies in force that would otherwise have lapsed or surrendered. Lapse rates will fall. Premiums will rise. Life insurance will become less affordable. And families and small business will have to make do with less protection. Dividends fall on par whole life contracts. further raising premiums neccessary for a given level of protection. Seniors will have to pay longer before dividends offset premiums. Some won't be able to. And we will have forgotten why we have life insurance to begin with: To protect future widows, orphans, and dependents of small business owners from unexpected financial catastrophe due to death.
This is one asset class we can definitely do without.Labels: Insurance, Personal finance
Personal Finance Book Recommendations
From time to time, I get a request for my favorite investment and finance books, which I usually answer via email.
I'm always afraid to post this list publicly, because as my own understanding evolves, my list of favorites changes, and some books that were my early favorites would not make the list now.
Nevertheless, here goes. It will be interesting to me to look back at this list some years hence and compare and contrast it.
For mass consumers
The Millionaire Next Door - I give this as a gift to young people just starting out. Essentially, the authors interviewed thousands of wealthy people to find out how they got that way. The results aren't what many would think.
Eric Tyson's Financial Planning for Dummies. Nothing fancy, and I haven't read it in years. But well-presented, basic stuff to get you started.
For investing enthusiasts
The Intelligent Investor, by Benjamin Graham. Written in the 1970s. Get the updated version, edited by Jason Zweig, who illustrates Graham's timeless principles with recent examples.
Common Sense on Mutual Funds, by John C. Bogle. The founder of the Vanguard group, and the guy who brought index funds to the world, fills you in on why mutual funds, in the aggregate, must fail to beat their indexes over time by the amount of their costs. The solution: Cut expenses, using index funds! For years I was a dedicated Boglehead. Not so much now... I can see a place for active management and active manager selection, and I've written as much here on this blog from time to time. But I think before playing the active game, I think everyone should first have a firm grasp of the beauty and logic of passive management.
A Random Walk Down Wall Street - by Burton Malkiel. An efficient markets guy, Malkiel continues Bogle's thesis and introduces you to the math and logic behind it.
The Superinvestors of Graham and Doddsville. Not a book, but a speech by Warren Buffett.
The Warren Buffett Way - by Robert C. Hagstrom. There are a lot of books on Buffett, and I've actually read most of them. Short of plowing your way through Security Analysis (see below) and the Chairman's Letters from Berkshire Hathaway themselves, this one is the best I've seen at actually cracking open the fundamentals of the companies that Buffett has chosen in the past (note: in the past), and exploring why Buffett may have selected them. The others are much better at portraying Buffett's character. But for the individual who's asking himself "well, how do I actually apply these ideas?" Hagstrom does a pretty good job, I'd say.
For advanced readers and people with a serious interest in finance and economics (but not serious enough to read the trade journals)
Security Analysis, by Benjamin Graham and Chris Dodd. 1934 edition. It takes discipline to read, but it's pure gold. A great next step after reading The Intelligent Investor. Learn about the investing approach that made Warren Buffett famous and many others wealthy. The Internet bubble, technology, the mortgage crisis, junk bonds...Graham and Dodd forsaw everything in 1934 and described it to a T. Brilliant. Drop the cash and keep it on your book shelf. The Intelligent Investor also belongs in this list. Just because it's relatively accessible doesn't mean it isn't brilliant!
The Intelligent Asset Allocator. William Bernstein. Explores the math behind diversification! Surf the efficient frontier by mixing asset classes with low correlation coefficients. Is there a such thing as a "free lunch" after all?
The New Financial Order, by Robert Shiller. Rather than investing, Shiller places his focus on risk management - and completely turned around my thinking from an investment/mutual funds focused writer to an insurance and risk management focus. Shiller explores ways that the individual and family and small business, with next to no capacity to absorb financial and economic shocks without disaster, can transfer risk to the capital markets, which can absorb those risks.
People I would NOT recommend: Kiyosaki. Dave Ramsey for anything other than people on a debt reduction plan and budgeting advice. Suze Ormond, for serious thinkers, though I have gifted her book to young women just starting out, on the theory that the mediocre book that gets read is better than the perfect book that doesn't.
My favorite columnists:
Jason Zweig, Jean Chatsky, Eric Joffe, and Sandra Block. Mark Hulbert. Alan Ableson. Stanley Bing is very good. And Nancy Opiela at the Journal of Financial Planning.
Hope this helps get you started!Labels: authors, books, Dave Ramsey, Personal finance, Suze Ormond
The comments are full of people who slam the entitlement mentality of some of those seniors who complain. But conservatives shouldn't be so quick to pooh-pooh those concerns. Here's why:
There is a branch of financial planning that specializes in special needs planning for the handicapped, and another that specializes specifically in Medicaid planning. There is a good deal of overlap in that Medicaid largely serves the elderly poor and the chronically handicapped, especially the indigent. Medicaid, as a matter of fact, is one of the largest if not the largest payors of nursing home care for the elderly.
Now, in order to qualify for Medicaid, recipients must meet some extremely draconian eligibility criteria. Specifics vary by state, but an individual cannot receive Medicaid unless he or she has an income at or below what amounts to the poverty level, AND does not have more than a certain amount of countable assets.*
Now, imagine a middle-class guy who's worked hard all his life, but who, 80 years old can't work anymore, and needs assistance in his day to day activities. He's been responsible, and has tried to put away a bit of a nest egg, which he has annuitized in order to guarantee him a subsistence-level income. Now, he may have done some planning before, and he's got Social Security coming in, in addition to a monthly payout from his annuity. He has already sold all of his other assets in order to pay for care. Let's assume he does not own a home, or if he did, he sold it to pay for nursing home care, too.
Under the old rules, his Social Security check and his annuity payout were low enough to keep him from being disqualified for Medicaid and being forced to pay for care out of his own pocket.
But what if, under the new rules, an unexpected 5.8% increase in his Social Security, combined with his annuity, put him over the Medicaid limit?
After all, under the current rules, there is no phaseout for medicaid eligibility (though maybe there should be.) If you go ONE DOLLAR over the allowable monthly income limit for Medicaid, you disqualify yourself from the whole kit and kaboodle.
Now, few people collecting Social Security alone will have checks large enough to bust the limit by themselves. But remember, this is a guy who saved something. Who did the right thing and tried to provide for his future. Now, he's disqualified for Medicaid - and unless rules change, he could be disqualified permanently, based on a sudden increase in Social Security payouts.
But he's got no other assets with which to pay for care. And his income is nowhere near sufficient to pay nursing home costs of 150 to 200 DOLLARS PER DAY. (The average daily cost of nursing home care in Florida is $236/day, and rising faster than inflation.
So if he's got no assets, his income doesn't get within spitting distance of the money he needs to raise, and no Medicaid eligibility, what do conservatives suggest we do with this man? And given that he's stuck with the Medicaid eligibility rules we have, not the rules we wish we had, how can we slam him for griping at losing his Medicaid eligibility?
The irony is that conservatives are oh-so-attuned to absurd incentives in the income tax code that reduce the marginal value of the next dollar of earned income, and are constantly on the lookout for situations where earning the next dollar could cause cause the taxpayer MORE than a dollar in a combination of lost credits and higher tax brackets.
Coordination of benefits is an absolutely legitimate concern, and it's serious business. I hope State Medicaid coordinators are on the ball with this one... and conservatives should take a chill pill rather than conduct knee-jerk attacks on seniors who could not have seen this coming, and like our hypothetical 80 year old, will wind up punished for doing the right thing.
After all, someone who had ZERO annuity income would not lose Medicaid eligibility from Social Security payments alone. It is only the one who saved something to provide for himself in later years who would take it on the chin....indeed, the consequences to a responsible man in our imaginary friend's position could be catastrophic.
Long Term Care insurance? Maybe he should have it. But hardly anyone was selling it 20 years ago, when he was 60. Suppose he tried to buy it, but was uninsurable by then?
Labels: Personal finance, retirement, Social Security, tax
Liberals are fond of arguing that insurance companies already set limits on care, therefore it's fine for government to do the same thing. They are so stupid, they forget that they are making this argument in nearly the same breath as they deny the proposed existence of "death panels" whose purpose is to do exactly what they insist we already do, and what we must do to control costs, eliminate waste, and discover cost efficiencies.
Their argument is as stupid as they are, and that's saying something.
For proponents of a single-payor system, and ESPECIALLY for proponents of a system in which it is illegal to pay out of pocket for medical care, there is a HUGE difference between what the libtards falsely call "rationing."
In a private market, I am free to select my own menu of benefits and exclusions, deductibles, caps and limits. Case in point: One major carrier in my area, United Health, offers a standard $3 million dollar lifetime benefit cap. I can pay a little extra per month in premiums and enhance that lifetime cap to $5 million.
From the perspective of economic freedom and, I'll say it, basic human rights, between having my insurance company deny a claim and having the government deny treatment. Here it is:
My insurance company would tell me: "We're sorry, but this treatment is not covered by your plan. If you and your doctor want to do it, you are free to purchase it yourself. By the way, here's a list of in-network doctors. They offer discounts."
My government will tell me: "We're sorry, you may not get this treatment."**
Their argument is as stupid as they are, and that's saying something.
For proponents of a single-payor system, and ESPECIALLY for proponents of a system in which it is illegal to pay out of pocket for medical care, there is a HUGE difference between what the libtards falsely call "rationing."
In a private market, I am free to select my own menu of benefits and exclusions, deductibles, caps and limits. Case in point: One major carrier in my area, United Health, offers a standard $3 million dollar lifetime benefit cap. I can pay a little extra per month in premiums and enhance that lifetime cap to $5 million.
From the perspective of economic freedom and, I'll say it, basic human rights, between having my insurance company deny a claim and having the government deny treatment. Here it is:
My insurance company would tell me: "We're sorry, but this treatment is not covered by your plan. If you and your doctor want to do it, you are free to purchase it yourself. By the way, here's a list of in-network doctors. They offer discounts."
My government will tell me: "We're sorry, you may not get this treatment."**
Stranger Owned Life Insurance
These contracts are abortions, and I'd like to personally adjust the actuarial outlook for any of these Wall Street scumwads trying to push these.
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
Why? Well, we have insurable interest laws for a reason. Do you really want a sociopath like Bernie Madoff owning a substantial interest in wanting you dead?
But let's put aside the obvious perversity in granting Wall Street a windfall when they kill you. Let's just look at the math- the math the New York Times misses:
The primary purpose of life insurance is death benefits. DEATH BENEFITS. Why? To protect widows, orphans, and business partners. That's it.
When an insurance company sets its premiums on a block of business, they have to take into account the expected lapse rate. A certain percentage of all life insurance contracts will never pay a death benefit - because they either lapse or get cashed in well prior to the death benefit. Indeed, term insurance is DESIGNED to lapse without paying a claim. This is part of why term is so cheap... the premiums are well below the expected mortality for any given age group. Because of lapse rates. This is part of why young families and small businesses can afford the protection they need.
When you have third parties buying up life insurance... parties whose primary interest in the insured is identical to that of a corpse-eating zombie - they will keep policies in force that would otherwise have lapsed or surrendered. Lapse rates will fall. Premiums will rise. Life insurance will become less affordable. And families and small business will have to make do with less protection. Dividends fall on par whole life contracts. further raising premiums neccessary for a given level of protection. Seniors will have to pay longer before dividends offset premiums. Some won't be able to. And we will have forgotten why we have life insurance to begin with: To protect future widows, orphans, and dependents of small business owners from unexpected financial catastrophe due to death.
This is one asset class we can definitely do without.Labels: Insurance, Personal finance
Personal Finance Book Recommendations
From time to time, I get a request for my favorite investment and finance books, which I usually answer via email.
I'm always afraid to post this list publicly, because as my own understanding evolves, my list of favorites changes, and some books that were my early favorites would not make the list now.
Nevertheless, here goes. It will be interesting to me to look back at this list some years hence and compare and contrast it.
For mass consumers
The Millionaire Next Door - I give this as a gift to young people just starting out. Essentially, the authors interviewed thousands of wealthy people to find out how they got that way. The results aren't what many would think.
Eric Tyson's Financial Planning for Dummies. Nothing fancy, and I haven't read it in years. But well-presented, basic stuff to get you started.
For investing enthusiasts
The Intelligent Investor, by Benjamin Graham. Written in the 1970s. Get the updated version, edited by Jason Zweig, who illustrates Graham's timeless principles with recent examples.
Common Sense on Mutual Funds, by John C. Bogle. The founder of the Vanguard group, and the guy who brought index funds to the world, fills you in on why mutual funds, in the aggregate, must fail to beat their indexes over time by the amount of their costs. The solution: Cut expenses, using index funds! For years I was a dedicated Boglehead. Not so much now... I can see a place for active management and active manager selection, and I've written as much here on this blog from time to time. But I think before playing the active game, I think everyone should first have a firm grasp of the beauty and logic of passive management.
A Random Walk Down Wall Street - by Burton Malkiel. An efficient markets guy, Malkiel continues Bogle's thesis and introduces you to the math and logic behind it.
The Superinvestors of Graham and Doddsville. Not a book, but a speech by Warren Buffett.
The Warren Buffett Way - by Robert C. Hagstrom. There are a lot of books on Buffett, and I've actually read most of them. Short of plowing your way through Security Analysis (see below) and the Chairman's Letters from Berkshire Hathaway themselves, this one is the best I've seen at actually cracking open the fundamentals of the companies that Buffett has chosen in the past (note: in the past), and exploring why Buffett may have selected them. The others are much better at portraying Buffett's character. But for the individual who's asking himself "well, how do I actually apply these ideas?" Hagstrom does a pretty good job, I'd say.
For advanced readers and people with a serious interest in finance and economics (but not serious enough to read the trade journals)
Security Analysis, by Benjamin Graham and Chris Dodd. 1934 edition. It takes discipline to read, but it's pure gold. A great next step after reading The Intelligent Investor. Learn about the investing approach that made Warren Buffett famous and many others wealthy. The Internet bubble, technology, the mortgage crisis, junk bonds...Graham and Dodd forsaw everything in 1934 and described it to a T. Brilliant. Drop the cash and keep it on your book shelf. The Intelligent Investor also belongs in this list. Just because it's relatively accessible doesn't mean it isn't brilliant!
The Intelligent Asset Allocator. William Bernstein. Explores the math behind diversification! Surf the efficient frontier by mixing asset classes with low correlation coefficients. Is there a such thing as a "free lunch" after all?
The New Financial Order, by Robert Shiller. Rather than investing, Shiller places his focus on risk management - and completely turned around my thinking from an investment/mutual funds focused writer to an insurance and risk management focus. Shiller explores ways that the individual and family and small business, with next to no capacity to absorb financial and economic shocks without disaster, can transfer risk to the capital markets, which can absorb those risks.
People I would NOT recommend: Kiyosaki. Dave Ramsey for anything other than people on a debt reduction plan and budgeting advice. Suze Ormond, for serious thinkers, though I have gifted her book to young women just starting out, on the theory that the mediocre book that gets read is better than the perfect book that doesn't.
My favorite columnists:
Jason Zweig, Jean Chatsky, Eric Joffe, and Sandra Block. Mark Hulbert. Alan Ableson. Stanley Bing is very good. And Nancy Opiela at the Journal of Financial Planning.
Hope this helps get you started!Labels: authors, books, Dave Ramsey, Personal finance, Suze Ormond
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
Why? Well, we have insurable interest laws for a reason. Do you really want a sociopath like Bernie Madoff owning a substantial interest in wanting you dead?
But let's put aside the obvious perversity in granting Wall Street a windfall when they kill you. Let's just look at the math- the math the New York Times misses:
The primary purpose of life insurance is death benefits. DEATH BENEFITS. Why? To protect widows, orphans, and business partners. That's it.
When an insurance company sets its premiums on a block of business, they have to take into account the expected lapse rate. A certain percentage of all life insurance contracts will never pay a death benefit - because they either lapse or get cashed in well prior to the death benefit. Indeed, term insurance is DESIGNED to lapse without paying a claim. This is part of why term is so cheap... the premiums are well below the expected mortality for any given age group. Because of lapse rates. This is part of why young families and small businesses can afford the protection they need.
When you have third parties buying up life insurance... parties whose primary interest in the insured is identical to that of a corpse-eating zombie - they will keep policies in force that would otherwise have lapsed or surrendered. Lapse rates will fall. Premiums will rise. Life insurance will become less affordable. And families and small business will have to make do with less protection. Dividends fall on par whole life contracts. further raising premiums neccessary for a given level of protection. Seniors will have to pay longer before dividends offset premiums. Some won't be able to. And we will have forgotten why we have life insurance to begin with: To protect future widows, orphans, and dependents of small business owners from unexpected financial catastrophe due to death.
This is one asset class we can definitely do without.
Labels: Insurance, Personal finance
From time to time, I get a request for my favorite investment and finance books, which I usually answer via email.
I'm always afraid to post this list publicly, because as my own understanding evolves, my list of favorites changes, and some books that were my early favorites would not make the list now.
Nevertheless, here goes. It will be interesting to me to look back at this list some years hence and compare and contrast it.
For mass consumers
The Millionaire Next Door - I give this as a gift to young people just starting out. Essentially, the authors interviewed thousands of wealthy people to find out how they got that way. The results aren't what many would think.
Eric Tyson's Financial Planning for Dummies. Nothing fancy, and I haven't read it in years. But well-presented, basic stuff to get you started.
For investing enthusiasts
The Intelligent Investor, by Benjamin Graham. Written in the 1970s. Get the updated version, edited by Jason Zweig, who illustrates Graham's timeless principles with recent examples.
Common Sense on Mutual Funds, by John C. Bogle. The founder of the Vanguard group, and the guy who brought index funds to the world, fills you in on why mutual funds, in the aggregate, must fail to beat their indexes over time by the amount of their costs. The solution: Cut expenses, using index funds! For years I was a dedicated Boglehead. Not so much now... I can see a place for active management and active manager selection, and I've written as much here on this blog from time to time. But I think before playing the active game, I think everyone should first have a firm grasp of the beauty and logic of passive management.
A Random Walk Down Wall Street - by Burton Malkiel. An efficient markets guy, Malkiel continues Bogle's thesis and introduces you to the math and logic behind it.
The Superinvestors of Graham and Doddsville. Not a book, but a speech by Warren Buffett.
The Warren Buffett Way - by Robert C. Hagstrom. There are a lot of books on Buffett, and I've actually read most of them. Short of plowing your way through Security Analysis (see below) and the Chairman's Letters from Berkshire Hathaway themselves, this one is the best I've seen at actually cracking open the fundamentals of the companies that Buffett has chosen in the past (note: in the past), and exploring why Buffett may have selected them. The others are much better at portraying Buffett's character. But for the individual who's asking himself "well, how do I actually apply these ideas?" Hagstrom does a pretty good job, I'd say.
For advanced readers and people with a serious interest in finance and economics (but not serious enough to read the trade journals)
Security Analysis, by Benjamin Graham and Chris Dodd. 1934 edition. It takes discipline to read, but it's pure gold. A great next step after reading The Intelligent Investor. Learn about the investing approach that made Warren Buffett famous and many others wealthy. The Internet bubble, technology, the mortgage crisis, junk bonds...Graham and Dodd forsaw everything in 1934 and described it to a T. Brilliant. Drop the cash and keep it on your book shelf. The Intelligent Investor also belongs in this list. Just because it's relatively accessible doesn't mean it isn't brilliant!
The Intelligent Asset Allocator. William Bernstein. Explores the math behind diversification! Surf the efficient frontier by mixing asset classes with low correlation coefficients. Is there a such thing as a "free lunch" after all?
The New Financial Order, by Robert Shiller. Rather than investing, Shiller places his focus on risk management - and completely turned around my thinking from an investment/mutual funds focused writer to an insurance and risk management focus. Shiller explores ways that the individual and family and small business, with next to no capacity to absorb financial and economic shocks without disaster, can transfer risk to the capital markets, which can absorb those risks.
People I would NOT recommend: Kiyosaki. Dave Ramsey for anything other than people on a debt reduction plan and budgeting advice. Suze Ormond, for serious thinkers, though I have gifted her book to young women just starting out, on the theory that the mediocre book that gets read is better than the perfect book that doesn't.
My favorite columnists:
Jason Zweig, Jean Chatsky, Eric Joffe, and Sandra Block. Mark Hulbert. Alan Ableson. Stanley Bing is very good. And Nancy Opiela at the Journal of Financial Planning.
Hope this helps get you started!
I'm always afraid to post this list publicly, because as my own understanding evolves, my list of favorites changes, and some books that were my early favorites would not make the list now.
Nevertheless, here goes. It will be interesting to me to look back at this list some years hence and compare and contrast it.
For mass consumers
The Millionaire Next Door - I give this as a gift to young people just starting out. Essentially, the authors interviewed thousands of wealthy people to find out how they got that way. The results aren't what many would think.
Eric Tyson's Financial Planning for Dummies. Nothing fancy, and I haven't read it in years. But well-presented, basic stuff to get you started.
For investing enthusiasts
The Intelligent Investor, by Benjamin Graham. Written in the 1970s. Get the updated version, edited by Jason Zweig, who illustrates Graham's timeless principles with recent examples.
Common Sense on Mutual Funds, by John C. Bogle. The founder of the Vanguard group, and the guy who brought index funds to the world, fills you in on why mutual funds, in the aggregate, must fail to beat their indexes over time by the amount of their costs. The solution: Cut expenses, using index funds! For years I was a dedicated Boglehead. Not so much now... I can see a place for active management and active manager selection, and I've written as much here on this blog from time to time. But I think before playing the active game, I think everyone should first have a firm grasp of the beauty and logic of passive management.
A Random Walk Down Wall Street - by Burton Malkiel. An efficient markets guy, Malkiel continues Bogle's thesis and introduces you to the math and logic behind it.
The Superinvestors of Graham and Doddsville. Not a book, but a speech by Warren Buffett.
The Warren Buffett Way - by Robert C. Hagstrom. There are a lot of books on Buffett, and I've actually read most of them. Short of plowing your way through Security Analysis (see below) and the Chairman's Letters from Berkshire Hathaway themselves, this one is the best I've seen at actually cracking open the fundamentals of the companies that Buffett has chosen in the past (note: in the past), and exploring why Buffett may have selected them. The others are much better at portraying Buffett's character. But for the individual who's asking himself "well, how do I actually apply these ideas?" Hagstrom does a pretty good job, I'd say.
For advanced readers and people with a serious interest in finance and economics (but not serious enough to read the trade journals)
Security Analysis, by Benjamin Graham and Chris Dodd. 1934 edition. It takes discipline to read, but it's pure gold. A great next step after reading The Intelligent Investor. Learn about the investing approach that made Warren Buffett famous and many others wealthy. The Internet bubble, technology, the mortgage crisis, junk bonds...Graham and Dodd forsaw everything in 1934 and described it to a T. Brilliant. Drop the cash and keep it on your book shelf. The Intelligent Investor also belongs in this list. Just because it's relatively accessible doesn't mean it isn't brilliant!
The Intelligent Asset Allocator. William Bernstein. Explores the math behind diversification! Surf the efficient frontier by mixing asset classes with low correlation coefficients. Is there a such thing as a "free lunch" after all?
The New Financial Order, by Robert Shiller. Rather than investing, Shiller places his focus on risk management - and completely turned around my thinking from an investment/mutual funds focused writer to an insurance and risk management focus. Shiller explores ways that the individual and family and small business, with next to no capacity to absorb financial and economic shocks without disaster, can transfer risk to the capital markets, which can absorb those risks.
People I would NOT recommend: Kiyosaki. Dave Ramsey for anything other than people on a debt reduction plan and budgeting advice. Suze Ormond, for serious thinkers, though I have gifted her book to young women just starting out, on the theory that the mediocre book that gets read is better than the perfect book that doesn't.
My favorite columnists:
Jason Zweig, Jean Chatsky, Eric Joffe, and Sandra Block. Mark Hulbert. Alan Ableson. Stanley Bing is very good. And Nancy Opiela at the Journal of Financial Planning.
Hope this helps get you started!
Labels: authors, books, Dave Ramsey, Personal finance, Suze Ormond
