Investing Differently

Comments on “The Price We Pay for Being Different,” by Chris Pedersen, in the October 2020 AAII Journal:

I would like to see what happens if foreign stocks are included in the “different investor’s” portfolio.
—Stephen R. from California

With years or even decades of underperformance, how can you suggest that such an approach is advisable for an older investor? It is only a viable approach if your goal is to leave more money for your heirs. The older investor is well advised to only use a relatively small portion of their portfolio to practice the “different might be better” approach.
—Robert L. from Virginia

Chris Pedersen responds:

Stephen, although there will be periods when the U.S. outperforms international or vice versa, academics say under-diversifying geographically is taking a risk we’re not compensated for. Having said that, it is slightly cheaper to invest in the U.S., and there are more options for inexpensively investing in factor tilts like small and value.

Robert, as you point out, some older investors are essentially caretakers for resources that will be passed on to heirs, and that part of their portfolio can be invested in less-predictable approaches. For money that’s needed in the near term, it’s far better to protect it with an allocation to bonds. I talked about this at my AAII Wednesday Webinar on October 21.

Budgeting Apps Go the Extra Mile

Comments on “Comparing and Contrasting Budgeting Apps,” by AAII Staff, in the October 2020 AAII Journal:

I recently switched from Quicken to YNAB. Quicken costs less per year and provides many more reports and features, but YNAB’s cash envelope philosophy has a far more intuitive feel. I can immediately see how much money I have in any category and access it from my phone, tablet or PC and all my data is current.
—Glenn B. from Maryland

I have been using Quicken since 1984 and would never use anything else. It is reliable and accurate. If you get way up on the learning curve, you can make it do almost anything. Finally, the downloading from brokerage houses, banks, credit card companies, etc., makes managing finances easy. Why didn’t you mention the largest financial management program on the planet for individuals?
—Charles L. from Pennsylvania

Charles Rotblut responds:

Charles, I too have used Quicken for a very long time and continue to do so. Our goal with this article was to focus on mobile budgeting apps. While Quicken does offer a mobile app, it is a companion app to the desktop software as opposed to a purely mobile app.

Calculating Social Security

Comments on “A Primer on Social Security,” by Robert Muksian, in the October 2020 AAII Journal:

What benefit calculator is recommended to determine when my 64-year-old wife should start taking her Social Security benefits considering I am 73 and started mine at age 70½? What are the considerations that might complicate this decision?
—Scott T. from Texas

Scott, I would suggest starting with the free calculator at OpenSocialSecurity.com. Consider using at least one of the paid calculators such as MaximizeMySocialSecurity.com or SocialSecuritySolutions.com. Social Security rules for married couples are complex, and survivor benefits should be considered in the calculations.
—J.M. from New Jersey

What about Financial Independence, Retire Early (FIRE) retirees? I made an above-maximum salary until the day I retired at age 55 two years ago. The Social Security calculator says I will get the maximum benefit. But does the formula average me down for the seven years between age 55 and 62?
—Dan M. from California

Robert Muksian responds:

As I interpret the regulations, the base number is the average indexed monthly earnings (AIME). When you stop working under Social Security, that value cannot be determined until you reach age 60 and older; age 60 is the indexing year. The highest 35 years of indexed wages through the year prior to the benefit year are used to make the determination. If you do not work again under Social Security, that value will not change in the future. When you reach age 62, your primary insurance amount (PIA) at eligibility can be determined. When you apply for benefits, the PIA is increased by the cost of living adjustments (COLAs) from age 63 through the retirement age. If that age is greater than your full retirement age, the delayed retirement credit is then applied and your benefit will be that value with the cents dropped. The actual benefit you receive will be net of the Medicare Part B premium (be sure to apply at age 65). If my analysis is correct, your benefit will not be reduced by waiting to collect.