Jonathan Clements Money Guide 2015 -- A Gem

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Taylor Larimore
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Jonathan Clements Money Guide 2015 -- A Gem

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Bogleheads:

Jonathan Clements, Wall Street Journal columnist, has written a comprehensive financial guide that will help us make the every-day, financial decisions that we all face during our lifetime.

Jack Bogle wrote: "It's hard to imagine a finer place to begin your search for financial peace of mind than with Jonathan Clements Money Guide 2015".

Author Allan Roth wrote: "I can honestly say this is the best money manual ever written--period!"

Jonathan's 31 Rules of the Road are a small sample of the gems inside:
1.Check your retirement progress by taking your nest egg and applying a 4% annual portfolio withdrawal rate, equal to $4,000 a year for every $100,000 saved. Will you have enough retirement income—or should you be saving more?

2. Don’t automatically claim Social Security at age 62. It often makes sense to delay benefits so you get a larger monthly check.

3. Never buy a home unless you expect to stay put for at least five years or longer. Between mid-2006 and early 2012, the S&P/Case-Shiller U.S. National Home Price Index plunged 27.4%. Enough said.

4. Planning to remodel your home in 2015? If you’ll get a lot of pleasure from the improvements and you can afford the cost, go ahead. But don’t kid yourself that you’re making an investment.

5. Never use a custodial account to save for college costs. Instead, open a 529 college savings plan or a Coverdell education account. Both will give you tax-free growth and shouldn’t badly hurt financial aid eligibility.

6.Don’t let your children take on more student loans than they can reasonably handle, given their expected career and likely earnings.

7.Insure against the big financial risks in your life, while skipping the small stuff. Extended warranties, trip-cancellation insurance and low auto-insurance deductibles? Just say no.

8. If you aren’t rich, buy term life insurance to protect your family. If you’re superrich, consider cash-value life insurance to save on estate taxes.

9. Worried about layoffs? Limit your fixed living costs to 50% or less of your pretax income. Fixed costs include expenses such as mortgage or rent, property taxes, debt payments, groceries, utilities and insurance premiums. At the 50% level, you know that—with money from your emergency fund—you could get by on half your old income if you lose your job.

10.Think about which expenditures gave you a lot of pleasure in 2014 and which were quickly forgotten. Use that to guide your spending in 2015.

11.Always contribute at least enough to your employer’s 401(k) plan to get the full matching contribution.

12.Expect modest returns from stocks and bonds. The worst that will happen is you’ll save too much.

13.Think about your paycheck—and how secure it is—as you decide how much to invest in stocks, how big an emergency fund to hold and how much debt to take on.

14. Avoid investments you don’t understand. Among other financial products, that likely means skipping equity-indexed annuities, leveraged exchange-traded index funds, hedge funds and mutual funds that mimic them, and variable annuities with living benefits.

15. Shun investments with high expenses or whose costs you don’t fully grasp. Examples? See previous point.

16. Never keep 100% in stocks—or 100% in bonds. A well-designed portfolio will always include both investments.

17. Don’t buy individual company stocks, and think hard before purchasing actively managed mutual funds. You’re highly unlikely to beat the market, which is why passively managed, market-tracking index funds make so much sense.

18. Check that you have tax-efficient investments in your taxable account, while using your retirement accounts to hold investments that generate big annual tax bills.

19. When did you last rebalance your portfolio back to your target weights for stocks, bonds and other investments? If it’s been over a year, you likely have too much in stocks.

20. If rich stock valuations and skimpy bond yields make you nervous, you can always pay down debt instead.

21. Never have a year when you pay nothing in income taxes. Take advantage of a low tax bracket by converting part of a traditional IRA to a Roth.

22. Check your credit reports for inaccuracies. You can get free copies through AnnualCreditReport.com.

23. Always pay your bills on time. This is likely the biggest factor affecting your credit score. In particular, late payments on credit-card bills and loan payments are quickly reported to the credit bureaus.

24. Are you on track to pay off your mortgage by retirement? If not, consider making extra principal payments.

25. Never carry a credit-card balance, which might cost you 20% or more in annual interest. You’ll never earn that sort of return in the financial markets over the long haul.

26. If you have more than enough saved for your own retirement, consider taking advantage of 2015’s $14,000 gift-tax exclusion to make gifts to your children and other family members. It’s a great way to brighten their lives—and the cheapest and easiest way to reduce the potential hit from state and federal estate taxes.

27. Get a will. You’ve been promising to do so for years. Make it happen in 2015.

28. Check that you have the right beneficiaries listed on retirement accounts, life insurance and any trust documents. Let’s face it: You probably don’t want your ex-husband inheriting your individual retirement account.

29. Try not to spend money in Roth IRAs. Instead, leave these accounts untouched for your beneficiaries, who could enjoy decades of tax-free withdrawals. They’ll remember you fondly.

30. When giving to charity, consider gifting appreciated investments. You’ll potentially enjoy three tax benefits: an immediate tax deduction, avoiding capital-gains taxes on the investments donated, and a smaller taxable estate.

31. In 2015, keep an eye on the big picture: You want to design a financial life for yourself where money worries are minimal, you have special times with friends and family, and you devote your days to activities that you think are important and you’re passionate about.
Thank you Mr. Clements!
Taylor

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Munir
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by Munir »

I agree it's a great book, and have purchased it for my daughter.
Last edited by Munir on Fri Jan 09, 2015 11:27 am, edited 1 time in total.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by Alex Frakt »

Munir wrote:Posted earlier at 21:00 by Taylor also.

I agree it's a great book, and have purchased it for my daughter.
I deleted the duplicate. I left this one because it had a reply.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by rock581 »

Taylor Larimore wrote:Bogleheads:
11.Always contribute at least enough to your employer’s 401(k) plan to get the full matching contribution. Even if you leave your employer, immediately cash out your 401(k), and pay taxes and penalties, you’ll likely still come out ahead.

Cannot understand the logic behind number 11. Can someone please explain with numbers ? I thought it would be wise to rollover into an IRA.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by GerryL »

rock581 wrote:
Taylor Larimore wrote:Bogleheads:
11.Always contribute at least enough to your employer’s 401(k) plan to get the full matching contribution. Even if you leave your employer, immediately cash out your 401(k), and pay taxes and penalties, you’ll likely still come out ahead.

Cannot understand the logic behind number 11. Can someone please explain with numbers ? I thought it would be wise to rollover into an IRA.
The grammar is a bit ambiguous. I think that it is meant to be read "Even if you leave your employer AND immediately cash out ... etc." In other words, it's not a recommendation to do that.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by Call_Me_Op »

Not sure #3 makes sense. It you sell your home when prices are down, the next home you buy will also be cheap.
Last edited by Call_Me_Op on Fri Jan 09, 2015 8:06 am, edited 1 time in total.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by Taylor Larimore »

rock581 wrote:
Taylor Larimore wrote:Bogleheads:
11.Always contribute at least enough to your employer’s 401(k) plan to get the full matching contribution. Even if you leave your employer, immediately cash out your 401(k), and pay taxes and penalties, you’ll likely still come out ahead.

Cannot understand the logic behind number 11. Can someone please explain with numbers ? I thought it would be wise to rollover into an IRA.
rock581:

As you and Gerry both noticed, number 11 is ambiguous. I have eliminated the last sentence of # 11 in the "Gem."

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Jonathan Clements Money Guide 2015 -- A Gem

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Call_Me_Op wrote:Not sure #3 makes sense. It you sell your home when prices are down, the next home you buy will also be cheap.
That's only if you are buying another home immediately in the same area. If you end up renting or moving to another area where prices have not fallen, it may not work out so well. Also, there is the cost of selling - usually about 7% that does not favor short term ownership.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

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3. Never buy a home unless you expect to stay put for at least five years or longer.
Call_Me_Op wrote:Not sure #3 makes sense. It you sell your home when prices are down, the next home you buy will also be cheap.
Call_Me_Op:

This is one of "four caveats" given by the author: "Homes are horribly expensive to buy and especially sell, which is another reason you need a long time horizon. There's the mortgage-application fee, home inspection, title insurance and legal fees when you buy--and the 5 or 6 percent real estate brokerage commission and local transfer taxes when you sell."
(Buy the book to learn the other three.)

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by Call_Me_Op »

Thanks Taylor. I know it's not good to move too often, but not necessarily for the reason cited in your first post. It's all of the associated costs that get you - real estate broker, moving expenses, move-in expenses, etc - not to mention aggravation.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by fishboat »

BahamaMan wrote:
Call_Me_Op wrote:Not sure #3 makes sense. It you sell your home when prices are down, the next home you buy will also be cheap.
That's only if you are buying another home immediately in the same area. If you end up renting or moving to another area where prices have not fallen, it may not work out so well. Also, there is the cost of selling - usually about 7% that does not favor short term ownership.

I've been working through a potential company relo over the last few months...which I declined a few days ago for a number of reasons. One aspect was my home value..down 30-35% from the purchase in 2005. The company is relocating to a high growth mid atlantic-south state. The realtor maxim, "sell low, buy low" didn't apply..it was closer to sell low, buy high, even with lower home prices in the south(I'm in WI). The maxim in my case was basically sell low, buy into fully recovered and spiked by high demand. Everything is relative..and local..or not.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by iceport »

Mike Piper has good things to say about this book as well.

Investing Blog Roundup: Jonathan Clements Money Guide 2015
This week, Jonathan Clements released his new book: Jonathan Clements Money Guide 2015. I received a review copy last week, and I must say that I’m impressed. It is, I believe, the broadest personal finance book I’ve ever encountered — discussing everything from saving for retirement, to buying a home, to 529 plans, to Social Security claiming strategies.
Jonathan Clements Money Guide 2015

I don't know Jonathan Clements personally, but I emailed him with questions a few times many years ago, before finding the (former) Vanguard Diehards. He was invariably prompt with a reply and generous with his time.

As Mel like to say, he really is one of the "good guys."
"Discipline matters more than allocation.” ─William Bernstein
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Re: Jonathan Clements Money Guide 2015 -- A Gem

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This thread is now in the wiki: Taylor Larimore's Investment Gems

Going by the book title, I filed it under "J".
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by texasdiver »

fishboat wrote:
BahamaMan wrote:
Call_Me_Op wrote:Not sure #3 makes sense. It you sell your home when prices are down, the next home you buy will also be cheap.
That's only if you are buying another home immediately in the same area. If you end up renting or moving to another area where prices have not fallen, it may not work out so well. Also, there is the cost of selling - usually about 7% that does not favor short term ownership.

I've been working through a potential company relo over the last few months...which I declined a few days ago for a number of reasons. One aspect was my home value..down 30-35% from the purchase in 2005. The company is relocating to a high growth mid atlantic-south state. The realtor maxim, "sell low, buy low" didn't apply..it was closer to sell low, buy high, even with lower home prices in the south(I'm in WI). The maxim in my case was basically sell low, buy into fully recovered and spiked by high demand. Everything is relative..and local..or not.
Isn't there something of a sunk cost fallacy happening here?

You have a northern home with a current value of X
You might buy a southern home with a current value of Y

Other than the fixed cost of the real estate transactions, the only relevant financial question is how much each home is likely to appreciate in the FUTURE. How much each home was worth in 2005 is meaningless.
Last edited by texasdiver on Sun Jan 11, 2015 12:12 pm, edited 1 time in total.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by staythecourse »

The best compliment I can give is that Mr. Clement gives clear, easy to understand, concise advice that I have seen few be able to do outside of Mr. Bogle and Taylor.

Good luck.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by black jack »

texasdiver wrote:
fishboat wrote:
BahamaMan wrote:
Call_Me_Op wrote:Not sure #3 makes sense. It you sell your home when prices are down, the next home you buy will also be cheap.
That's only if you are buying another home immediately in the same area. If you end up renting or moving to another area where prices have not fallen, it may not work out so well. Also, there is the cost of selling - usually about 7% that does not favor short term ownership.

I've been working through a potential company relo over the last few months...which I declined a few days ago for a number of reasons. One aspect was my home value..down 30-35% from the purchase in 2005. The company is relocating to a high growth mid atlantic-south state. The realtor maxim, "sell low, buy low" didn't apply..it was closer to sell low, buy high, even with lower home prices in the south(I'm in WI). The maxim in my case was basically sell low, buy into fully recovered and spiked by high demand. Everything is relative..and local..or not.
Isn't there something of a sunk cost fallacy happening here?

You have a northern home with a current value of X
You might buy a southern home with a current value of Y

Other than the fixed cost of the real estate transactions, they only relevant financial question is how much each home is likely to appreciate in the FUTURE. How much each home was worth in 2008 is meaningless.
And speaking as a southerner whose job has anchored him in the (lower reaches of the) snowbelt - how much is it worth to you (and the other members of your household, if any) to not have to deal with ice, snow, and subzero temperatures for several months each year?
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Re: Jonathan Clements Money Guide 2015 -- A Gem

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staythecourse wrote:The best compliment I can give is that Mr. Clement gives clear, easy to understand, concise advice that I have seen few be able to do outside of Mr. Bogle and Taylor.

Good luck.
Agreed. Also, IMO, Clements speaks the Boglehead language of simplicity, as of course do Jack and Taylor, but also Mel, Laura, Rick, Larry, both Bills (Bernstein and Schultheis), etc. The basic BH philosophy is simple ("but not easy").
Last edited by Fallible on Mon Jan 12, 2015 12:07 pm, edited 1 time in total.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by iceport »

Fallible wrote:
staythecourse wrote:The best compliment I can give is that Mr. Clement gives clear, easy to understand, concise advice that I have seen few be able to do outside of Mr. Bogle and Taylor.

Good luck.
Agreed. Also, IMO, Clements's speaks the Boglehead language of simplicity, as of course do Jack and Taylor, but also Mel, Laura, Rick, Larry, both Bills (Bernstein and Schultheis), etc. The basic BH philosophy is simple ("but not easy").
I agree with you both. But I had to learn how to read him. His style is so concise and informal, at first it can be easy to miss or just disregard some of the nuggets of wisdom he packs in. Over time, I came to appreciate how tight his writing really is, and learned to read him more carefully.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by hbgpharmd »

Anyone pick up Money Guide 2016?

I bought it a few weeks ago and have been paging through it...seems like a solid reference.

I just looked through the detailed index and didn't come across the "Rules of the Road" that Taylor quoted...maybe that was just for his 2015 edition.
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Re: Jonathan Clements Money Guide 2015 -- A Gem

Post by Peter Foley »

Thanks for posting Taylor. I've enjoyed Jonathan Clements's writing for years.

I did react to one of the gems.
Never use a custodial account to save for college costs. Instead, open a 529 college savings plan or a Coverdell education account. Both will give you tax-free growth and shouldn’t badly hurt financial aid eligibility.
I disagree with this. While I agree that 529 plans/Coverdells should take precedence, there are some post secondary education costs for which 529 plans can not be used. A small custodial account could be used for these costs. (My daughter was a Spanish major in college and air travel for study abroad comes to mind immediately.) Note the modifier "small custodial account."

I hope this is not prohibited speech on the forum, but I also react negatively to the advice to title assets so as to maximize financial aid eligibility. There are a lot of folks who need that aid whose families have little in assets to re-title. I happy to pay more so that those in need have more available.
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