The Bogleheads' Guide to Retirement Planning (53 page)
Read The Bogleheads' Guide to Retirement Planning Online
Authors: Taylor Larimore,Richard A. Ferri,Mel Lindauer,Laura F. Dogu,John C. Bogle
Tags: #Business & Economics, #Investing, #Personal Finance, #Business, #Business & Money, #Financial, #Non-Fiction, #Nonfiction, #Retirement, #Retirement Planning
BOOK: The Bogleheads' Guide to Retirement Planning
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“As Steven Wright said: Experience is something you don’t get until just after you need it.”
Imbogled
Imbogled
“Live within your means, save for a rainy day, and enjoy life because it will end sooner than you want.”
YDNAL
YDNAL
“The simpler the explanation, the more likely it is to be true.”
grandpajack
grandpajack
“The best investment is in yourself through health and education.”
Ziggy 75
Ziggy 75
“The improbable is possible.”
Indexer 88
Indexer 88
“As Albert Einstein said: Everything should be made as simple as possible, but not simpler.”
LadyGeek
LadyGeek
“Live well within your means, and live well your entire life.”
TenS2XS
TenS2XS
“You work all your life to earn stacks and stacks. But you never saw a hearse with luggage racks.”
sunofpaul
sunofpaul
“What the large print giveth, the fine print taketh away.”
Derek Tinnin
Derek Tinnin
“As Anne Herbert said: Libraries will get you through times of no money better than money will get you through times of no libraries.”
Nisiprius
Nisiprius
“As John Bogle said: With most things in life, you get what you pay for. With investing, you get what you don’t pay for.”
Morse Code
Morse Code
“If it seems too good to be true—it probably is.”
deepdrive
deepdrive
“Torture numbers long enough and they’ll confess to anything.”
wilson08
wilson08
“Money is freedom.”
johnjtaylorus
FINALLY, A FEW REALLY GREAT PEARLSjohnjtaylorus
“Read a few good books recommended by the Bogleheads and you’ll know more about investing than 99 percent of the population—including many advisors.”
Roverdog
Roverdog
“A fool and his money are soon parted, so get some sage advice at the Bogle heads.org web site.”
KarlJ
KarlJ
APPENDIX II
Recommended Reading
FOR NOVICE INVESTORSThe Bogleheads’ Guide to Investing
by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf (Hoboken, NJ: John Wiley & Sons, 2007). A textbook for beginners that reflects the wisdom of John Bogle.
by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf (Hoboken, NJ: John Wiley & Sons, 2007). A textbook for beginners that reflects the wisdom of John Bogle.
The Little Book of Common Sense Investing
by John C. Bogle (Hoboken, NJ: John Wiley & Sons, 2007). This is a short, delightful-to-read book. The legendary founder of index funds explains the many reasons he recommends simple portfolios and broad market index funds for most investors.
by John C. Bogle (Hoboken, NJ: John Wiley & Sons, 2007). This is a short, delightful-to-read book. The legendary founder of index funds explains the many reasons he recommends simple portfolios and broad market index funds for most investors.
All About Index Funds
and
All About Asset Allocation
by Richard Ferri (New York: McGraw-Hill). Two easy-to-read guidebooks for sound Boglehead investing.
and
All About Asset Allocation
by Richard Ferri (New York: McGraw-Hill). Two easy-to-read guidebooks for sound Boglehead investing.
The New Coffeehouse Investor
by Bill Shultheis (New York: Penguin Group, 2009). A little book with a big message: How to invest simply and successfully.
by Bill Shultheis (New York: Penguin Group, 2009). A little book with a big message: How to invest simply and successfully.
The Informed Investor
by Frank Armstrong III (New York: American Management Association, 2003). An easy-to-understand explanation of how the market works.
by Frank Armstrong III (New York: American Management Association, 2003). An easy-to-understand explanation of how the market works.
Making the Most of Your Money Now
by Jane Bryant Quinn (New York: Simon & Schuster, 2009). This is a recently updated classic of practical financial planning advice for every family.
by Jane Bryant Quinn (New York: Simon & Schuster, 2009). This is a recently updated classic of practical financial planning advice for every family.
The Millionaire in You
by Michael LeBoeuf (New York: Crown Business, 2002). A primer on how to invest money and time intelligently to achieve financial freedom.
by Michael LeBoeuf (New York: Crown Business, 2002). A primer on how to invest money and time intelligently to achieve financial freedom.
Straight Talk on Investing
by Jack Brennan, Vanguard’s chairman (Hoboken, NJ: John Wiley & Sons, 2002). A book that is elegantly simple, eminently sensible, and delightfully readable.
by Jack Brennan, Vanguard’s chairman (Hoboken, NJ: John Wiley & Sons, 2002). A book that is elegantly simple, eminently sensible, and delightfully readable.
You’ve Lost It. Now What?
by Jonathan Clements (Hoboken, NJ: Portfolio, 2003). An award-winning former
Wall Street Journal
columnist gives straightforward advice for ordinary people to invest successfully.
FOR INTERMEDIATE INVESTORSby Jonathan Clements (Hoboken, NJ: Portfolio, 2003). An award-winning former
Wall Street Journal
columnist gives straightforward advice for ordinary people to invest successfully.
Common Sense on Mutual Funds
by John Bogle (Hoboken, NJ: John Wiley & Sons, 1999). Warren Buffett called this book “a must read for every investor.”
by John Bogle (Hoboken, NJ: John Wiley & Sons, 1999). Warren Buffett called this book “a must read for every investor.”
The Four Pillars of Investing
by Bill Bernstein (New York: McGraw-Hill, 2002). A brilliant, small-town doctor became fascinated with investing. The result is one of the best books on the subject.
by Bill Bernstein (New York: McGraw-Hill, 2002). A brilliant, small-town doctor became fascinated with investing. The result is one of the best books on the subject.
A Random Walk Down Wall Street
by Burton G. Malkiel (New York: Norton, 2007). This book is an investment classic, regularly updated. Burton Malkiel is a professor at Princeton and a former member of the Vanguard board of directors.
by Burton G. Malkiel (New York: Norton, 2007). This book is an investment classic, regularly updated. Burton Malkiel is a professor at Princeton and a former member of the Vanguard board of directors.
Unconventional Success
by David Swensen (New York: Free Press, 2005). Harvard’s chief investment officer shares his insight of how Wall Street fails individual investors, and he tells us how to outperform the vast majority of investors.
ADVANCED READING ON SPECIFIC TOPICSby David Swensen (New York: Free Press, 2005). Harvard’s chief investment officer shares his insight of how Wall Street fails individual investors, and he tells us how to outperform the vast majority of investors.
Asset Allocation
by Roger C. Gibson (New York: McGraw Hill, 2000). The original handbook on asset allocation and still one of the best on the subject.
by Roger C. Gibson (New York: McGraw Hill, 2000). The original handbook on asset allocation and still one of the best on the subject.
The ETF Book
by Richard A Ferri (Hoboken, NJ: John Wiley & Sons, 2008). A complete guide to understanding exchange-traded funds (ETFs) and other exchange-traded products.
by Richard A Ferri (Hoboken, NJ: John Wiley & Sons, 2008). A complete guide to understanding exchange-traded funds (ETFs) and other exchange-traded products.
The Intelligent Investor
by Benjamin Graham, with commentary by Jason Zweig (New York: HarperCollins, 2003). A stock valuation course in a book, beautifully written, with updated commentary by one of America’s most respected financial writers.
by Benjamin Graham, with commentary by Jason Zweig (New York: HarperCollins, 2003). A stock valuation course in a book, beautifully written, with updated commentary by one of America’s most respected financial writers.
Capital Ideas
by Peter L. Bernstein (Hoboken, NJ: John Wiley & Sons, 2005). The founder of the
Journal of Portfolio Management
gives a fascinating history of the financial revolution of the past 35 years.
by Peter L. Bernstein (Hoboken, NJ: John Wiley & Sons, 2005). The founder of the
Journal of Portfolio Management
gives a fascinating history of the financial revolution of the past 35 years.
The Only Guide to a Winning Bond Strategy
by Larry Swedroe (New York: St. Martin’s Press, 2006). A good explanation of bonds and bond funds, and how to use them in a portfolio.
by Larry Swedroe (New York: St. Martin’s Press, 2006). A good explanation of bonds and bond funds, and how to use them in a portfolio.
Your Money and Your Brain
by Jason Zweig (New York: Simon & Schuster, 2007). How the new science of neuroeconomics can help us become more successful investors.
by Jason Zweig (New York: Simon & Schuster, 2007). How the new science of neuroeconomics can help us become more successful investors.
Glossary
active management:
An investment strategy that seeks to outperform the average returns of the financial markets. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.
An investment strategy that seeks to outperform the average returns of the financial markets. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.
adjusted gross income:
A tax term for all your income, including salary, interest, dividends, and retirement income. It is adjusted for Social Security, IRA contributions, and other items.
A tax term for all your income, including salary, interest, dividends, and retirement income. It is adjusted for Social Security, IRA contributions, and other items.
alternative minimum tax (AMT):
A separate tax system designed to assure that wealthy individuals and organizations pay at least a minimum amount of federal income taxes.
A separate tax system designed to assure that wealthy individuals and organizations pay at least a minimum amount of federal income taxes.
annualize:
To make a period of less than a year apply to a full year, usually for purposes of comparison. For instance, a portfolio turnover rate of 36 percent over a six-month period could be converted to an annualized rate of 72 percent.
To make a period of less than a year apply to a full year, usually for purposes of comparison. For instance, a portfolio turnover rate of 36 percent over a six-month period could be converted to an annualized rate of 72 percent.
annuitant:
A person who receives the payments made by an annuity contract.
A person who receives the payments made by an annuity contract.
annuity:
Literally, a series of annual payments. In investing and insurance, a contract with an insurer that provides payments for the annuitant at regular intervals, often monthly. Often short for life annuity or for variable annuity.
Literally, a series of annual payments. In investing and insurance, a contract with an insurer that provides payments for the annuitant at regular intervals, often monthly. Often short for life annuity or for variable annuity.
assets under management (AUM):
A fee structure where the adviser receives an annual fee based on a percentage of the client’s assets being managed.
A fee structure where the adviser receives an annual fee based on a percentage of the client’s assets being managed.
automatic reinvestment:
An arrangement by which the dividends or other earnings from an investment are used to buy additional shares in the investment vehicle.
An arrangement by which the dividends or other earnings from an investment are used to buy additional shares in the investment vehicle.
baby-boomer generation:
The demographic group of 78 million people born between 1946 and 1964.
The demographic group of 78 million people born between 1946 and 1964.
back-end load:
A sales fee charged by some mutual funds when an investor sells fund shares. Also called a contingent deferred sales charge.
A sales fee charged by some mutual funds when an investor sells fund shares. Also called a contingent deferred sales charge.
behavioral finance:
The study of how humans behave with respect to financial matters. The key assumption is that humans do not always behave in a perfectly rational fashion.
The study of how humans behave with respect to financial matters. The key assumption is that humans do not always behave in a perfectly rational fashion.
benchmark index:
A passive market index that is used to measure a fund manager’s performance.
A passive market index that is used to measure a fund manager’s performance.
beneficiary:
At the time of your death, the person who receives the life insurance settlement or the remaining portion of a retirement account, such as an IRA.
At the time of your death, the person who receives the life insurance settlement or the remaining portion of a retirement account, such as an IRA.
Best, A. M.:
One of five agencies (A. M. Best Company, Fitch Ratings, Moody’s Investors Service, Standard & Poor’s, and Weiss Research) that issue letter-grade ratings of insurers’ financial strength.
One of five agencies (A. M. Best Company, Fitch Ratings, Moody’s Investors Service, Standard & Poor’s, and Weiss Research) that issue letter-grade ratings of insurers’ financial strength.
broker/broker-dealer:
An individual or firm that buys or sells mutual funds or other securities for the public.
An individual or firm that buys or sells mutual funds or other securities for the public.
capital gain/loss:
The difference between the sale price of an asset—such as a mutual fund, stock, or bond—and the original cost of the asset.
The difference between the sale price of an asset—such as a mutual fund, stock, or bond—and the original cost of the asset.
capital gains distributions:
Payments to mutual fund shareholders of gains realized during the year on securities that the fund has sold at a profit, minus any realized losses.
Payments to mutual fund shareholders of gains realized during the year on securities that the fund has sold at a profit, minus any realized losses.
cash investments:
Short-term debt instruments—such as commercial paper, banker’s acceptances, and Treasury bills—that mature in less than one year. Also known as money market instruments or cash reserves.
Short-term debt instruments—such as commercial paper, banker’s acceptances, and Treasury bills—that mature in less than one year. Also known as money market instruments or cash reserves.
certified financial planner (CFP):
An investment professional who has passed exams administered by the CFP Board of Standards on subjects such as taxes, securities, insurance, and estate planning.
An investment professional who has passed exams administered by the CFP Board of Standards on subjects such as taxes, securities, insurance, and estate planning.
certified public accountant (CPA):
An investment professional who is state licensed to practice public accounting.
An investment professional who is state licensed to practice public accounting.
charitable gift annuity:
A contract under which a charity, in return for a donation, agrees to pay one or two individuals specified lifetime payments.
A contract under which a charity, in return for a donation, agrees to pay one or two individuals specified lifetime payments.
chartered financial analyst (CFA):
An investment professional who has met competency standards in economics, securities, portfolio management, and financial accounting as determined by the Institute of Chartered Financial Analysts.
An investment professional who has met competency standards in economics, securities, portfolio management, and financial accounting as determined by the Institute of Chartered Financial Analysts.
closed-end fund:
A mutual fund that has a fixed number of shares, usually listed on a major stock exchange.
A mutual fund that has a fixed number of shares, usually listed on a major stock exchange.
commission-based financial planning:
The salesperson receives a commission from the customer for selling financial products.
The salesperson receives a commission from the customer for selling financial products.
commodities:
Unprocessed goods such as grains, metals, and minerals traded in large amounts on a commodities exchange.
Unprocessed goods such as grains, metals, and minerals traded in large amounts on a commodities exchange.
consumer price index (CPI):
A measure of prices for consumer goods and services at a given time. The percentage change in CPI is used to track the pace of inflation.
A measure of prices for consumer goods and services at a given time. The percentage change in CPI is used to track the pace of inflation.
cost basis:
The original cost of an investment. For tax purposes, the cost basis is subtracted from the sales price to determine any capital gain or loss.
The original cost of an investment. For tax purposes, the cost basis is subtracted from the sales price to determine any capital gain or loss.
cost-of-living adjustment (COLA):
An annual increase in benefit payments from Social Security or from some defined benefit pension plans, based on a predetermined formula, usually the percentage increase in CPI.
An annual increase in benefit payments from Social Security or from some defined benefit pension plans, based on a predetermined formula, usually the percentage increase in CPI.
CPI-indexed annuity:
A fixed annuity whose payments are contractually linked to the consumer price index (CPI); not to be confused with an equity-indexed annuity.
A fixed annuity whose payments are contractually linked to the consumer price index (CPI); not to be confused with an equity-indexed annuity.
custodian:
Either (a) a bank, agent, trust company, or other organization responsible for safeguarding financial assets or (b) the individual who oversees the mutual fund assets of a minor’s custodial account.
Either (a) a bank, agent, trust company, or other organization responsible for safeguarding financial assets or (b) the individual who oversees the mutual fund assets of a minor’s custodial account.
default:
Failure to pay principal or interest on debt when due.
Failure to pay principal or interest on debt when due.
deferred annuity:
An annuity in which the payments begin at a scheduled time in the future after the annuity is purchased; for example, an annuity purchased at age 65 that makes its first payment at age 80. Not to be confused with a tax-deferred annuity; almost all annuities are tax-deferred.
An annuity in which the payments begin at a scheduled time in the future after the annuity is purchased; for example, an annuity purchased at age 65 that makes its first payment at age 80. Not to be confused with a tax-deferred annuity; almost all annuities are tax-deferred.
defined benefit pension plan:
A retirement plan that pays employees a lifelong annuity each month after they retire. The annuity may or may not have a cost of living adjustment (COLA).
A retirement plan that pays employees a lifelong annuity each month after they retire. The annuity may or may not have a cost of living adjustment (COLA).
defined contribution pension plan:
A retirement plan in which the employee is responsible for making contributions to the plan and managing the investments in the plan. A lump sum is available to the employee at retirement.
A retirement plan in which the employee is responsible for making contributions to the plan and managing the investments in the plan. A lump sum is available to the employee at retirement.
delayed retirement credit:
The percentage increase in a worker’s Social Security retirement benefit if payments begin after full retirement age (FRA) equal to 8 percent times the number of years and months that benefits are delayed beyond FRA but not past age 70.
The percentage increase in a worker’s Social Security retirement benefit if payments begin after full retirement age (FRA) equal to 8 percent times the number of years and months that benefits are delayed beyond FRA but not past age 70.
depreciation:
A decrease in the value of an investment.
A decrease in the value of an investment.
derivative:
A financial contract whose value is based on, or derived from, a traditional security (such as a stock or bond), an asset (such as a commodity), or a market index (such as the S&P 500 Index). Options and futures are two examples of derivatives.
A financial contract whose value is based on, or derived from, a traditional security (such as a stock or bond), an asset (such as a commodity), or a market index (such as the S&P 500 Index). Options and futures are two examples of derivatives.
discount broker:
A brokerage that executes orders to buy and sell securities at commission rates lower than a full-service brokerage.
A brokerage that executes orders to buy and sell securities at commission rates lower than a full-service brokerage.
distributions:
Either (a) withdrawals made by the owner from an individual retirement account (IRA) or (b) payments of dividends and/or capital gains by a mutual fund.
Either (a) withdrawals made by the owner from an individual retirement account (IRA) or (b) payments of dividends and/or capital gains by a mutual fund.
dividend yield:
The annual rate of return on a share of stock, determined by dividing the annual dividend by its current share price. In a stock mutual fund, this figure represents the average dividend yield of the stocks held by the fund.
The annual rate of return on a share of stock, determined by dividing the annual dividend by its current share price. In a stock mutual fund, this figure represents the average dividend yield of the stocks held by the fund.
dollar-cost averaging:
Investing equal amounts of money at regular intervals on an ongoing basis. This technique ensures that an investor buys fewer shares when prices are high and more shares when prices are low.
Investing equal amounts of money at regular intervals on an ongoing basis. This technique ensures that an investor buys fewer shares when prices are high and more shares when prices are low.
early retirement:
Retirement prior to age 62, when a person is eligible for Social Security benefits.
Retirement prior to age 62, when a person is eligible for Social Security benefits.
efficient market:
The theory that stock prices reflect all market information that is known by all investors. Also states that investors cannot beat the market because it is impossible to determine future stock prices.
The theory that stock prices reflect all market information that is known by all investors. Also states that investors cannot beat the market because it is impossible to determine future stock prices.
Employee Retirement Income Security Act of 1974 (ERISA):
A federal law that sets requirements for pension plans in private industry.
A federal law that sets requirements for pension plans in private industry.
equity-indexed annuity:
An annuity in which the payments vary in a way that is linked to a stock market index such as the S&P 500. Typically, they have complex structures, high commissions, high annual expenses, and steep surrender charges. Promoted as investments that achieve some of the higher return of stocks but limit your losses.
An annuity in which the payments vary in a way that is linked to a stock market index such as the S&P 500. Typically, they have complex structures, high commissions, high annual expenses, and steep surrender charges. Promoted as investments that achieve some of the higher return of stocks but limit your losses.
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