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The Only Guide You'll Ever Need for the Right Financial Plan: Managing Your Wealth, Risk, and Investments

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Praise for The Only Guide You'll Ever Need for the Right Financial Plan

"Larry Swedroe's work comes as close to being the definitive investment book of our time as any that I can imagine. His greatest gift is his ability to communicate with profound simplicity, bringing clarity to the daunting challenge facing investors who are intent on reaching their financial goals."—BILL SCHULTHEIS, author of The Coffeehouse Investor

"If you're looking to sharpen your financial thinking, let Larry Swedroe be your guide. With insights from The Only Guide You'll Ever Need for the Right Financial Plan, you should be able to raise your financial game—and maybe boost your family's wealth."—JONATHAN CLEMENTS, author of The Little Book of Main Street Money

"Just as every successful builder needs a blueprint, so too does every successful investor need a personally tailored investment policy. How much stocks, how much bonds? Foreign versus domestic? When and how to begin Social Security or withdrawing from your IRA? Larry Swedroe plots your financial life from cradle to grave (and even beyond). Don't invest without it!"—WILLIAM BERNSTEIN, author of The Four Pillars of Investing

"This is a most excellent book! Either as a great educational read or an indispensible reference, The Only Guide You'll Ever Need for the Right Financial Plan will pay you back many times over the cover price."—HAROLD EVENSKY, President, Evensky & Katz Wealth Management

"If you have investing experience and want to improve your portfolio, this is the book to read."—TAYLOR LARIMORE, coauthor of The Bogleheads' Guide to Investing

Table of Contents

  1. Copyright
  2. Preface
    1. How to Use this Book
  3. Acknowledgments
  4. I. Investment Strategy in an Uncertain World
    1. 1. The Uncertainty of Investing
      1. 1.1. Efficient Frontier Models
    2. 2. The Investment Policy Statement
      1. 2.1. The Foundation of the Investment Plan
        1. 2.1.1. The Need for Plan B
        2. 2.1.2. Mr. and Mrs. Brown
        3. 2.1.3. The Worst Case Should Not Be the Base Case
  5. II. Asset Allocation
    1. 3. Asset Allocation
      1. 3.1. The Ability, Willingness, and Need to Take Risk
        1. 3.1.1. The Ability to Take Risk
        2. 3.1.2. The Willingness to Take Risk
        3. 3.1.3. The Need to Take Risk
      2. 3.2. When Conflicts Arise
      3. 3.3. Risk Factors
    2. 4. Equities
      1. 4.1. Equities versus Fixed Income
        1. 4.1.1. Reasons to Increase Equity Exposure
        2. 4.1.2. Reasons to Reduce Equity Exposure
      2. 4.2. U.S. Equity versus International Equity
        1. 4.2.1. Reasons to Increase International Equity Exposure
        2. 4.2.2. Reasons to Decrease International Equity Exposure
        3. 4.2.3. Costs Matter
        4. 4.2.4. Recommended Reading
      3. 4.3. Emerging Markets
        1. 4.3.1. Reasons to Increase Emerging Markets Equity Exposure
        2. 4.3.2. Reasons to Decrease Emerging Markets Equity Exposure
        3. 4.3.3. Recommended Reading
      4. 4.4. Value versus Growth
        1. 4.4.1. Reasons to Increase Value Exposure
        2. 4.4.2. Reasons to Decrease Value Exposure (or Maintain a "Market" Exposure)
        3. 4.4.3. Small-Cap versus Large-Cap
        4. 4.4.4. Reasons to Increase Small-Cap Exposure
        5. 4.4.5. Reasons to Decrease Small-Cap Exposure
      5. 4.5. Real Estate
        1. 4.5.1. Reasons to Increase Real Estate Exposure
        2. 4.5.2. Reasons to Decrease Real Estate Exposure
      6. 4.6. Your Home
        1. 4.6.1. Recommended Reading
      7. 4.7. Collateralized Commodity Futures (CCF)
        1. 4.7.1. Reasons to Increase Commodity Futures Exposure
        2. 4.7.2. Candidates for Higher Commodity Allocations
        3. 4.7.3. Reasons to Decrease Commodity Futures Exposure
        4. 4.7.4. Recommended Reading
      8. 4.8. Socially Responsible Investing (SRI)
        1. 4.8.1. Recommended Reading
    3. 5. Fixed Income
      1. 5.1. Credit Quality
      2. 5.2. Short-Term versus Long-Term Maturities
        1. 5.2.1. The Results at Different Equity Allocations
        2. 5.2.2. Reasons to Reduce Maturity Risk
        3. 5.2.3. Reasons to Increase Maturity Risk
        4. 5.2.4. Recommended Reading
      3. 5.3. Municipal Bonds
        1. 5.3.1. Maturity Risk
        2. 5.3.2. Credit Risk
      4. 5.4. Inflation-Protected Securities
        1. 5.4.1. Reasons to Increase Exposure to TIPS
        2. 5.4.2. Reasons to Decrease Exposure to TIPS
      5. 5.5. Short-Term Fixed Income versus TIPS
        1. 5.5.1. Recommended Reading
    4. 6. Alternative Investments
      1. 6.1. Convertible Bonds: Not Recommended
        1. 6.1.1. Recommended Reading
      2. 6.2. Covered Calls: Not Recommended
        1. 6.2.1. Recommended Reading
      3. 6.3. Fixed-Income Currency Exposure: Generally Not Recommended
      4. 6.4. EE Bonds: Recommended
        1. 6.4.1. Recommended Reading
      5. 6.5. Emerging Market Bonds: Not Recommended
        1. 6.5.1. Recommended Reading
      6. 6.6. Equity-Indexed Annuities (EIAs): Not Recommended
        1. 6.6.1. Recommended Reading
      7. 6.7. Gold: Not Recommended
      8. 6.8. Hedge Funds: Not Recommended
        1. 6.8.1. Recommended Reading
      9. 6.9. High-Yield (Junk) Bonds: Not Recommended
        1. 6.9.1. Recommended Reading
      10. 6.10. Leveraged Buyouts (LBOs): Not Recommended
        1. 6.10.1. Recommended Reading
      11. 6.11. Leveraged Funds: Not Recommended
        1. 6.11.1. Recommended Reading
      12. 6.12. Master Limited Partnerships (MLPs): Not Recommended
      13. 6.13. Mortgage-Backed Securities (MBS): Not Recommended
        1. 6.13.1. Recommended Reading
      14. 6.14. Precious Metals Equities (PME): Not Recommended
        1. 6.14.1. Recommended Reading
      15. 6.15. Preferred Stocks: Not Recommended
        1. 6.15.1. Recommended Reading
      16. 6.16. Private Equity (Venture Capital): Not Recommended
        1. 6.16.1. Recommended Reading
      17. 6.17. Stable-Value Funds: Generally Not Recommended
        1. 6.17.1. Recommended Reading
      18. 6.18. Structured Investment Products: Not Recommended
        1. 6.18.1. Recommended Reading
      19. 6.19. Variable Annuities: Not Recommended
        1. 6.19.1. Recommended Reading
    5. 7. Liabilities and Asset Allocation
      1. 7.1. Mortgages
      2. 7.2. Prepay the Mortgage or Increase Tax-Advantaged Savings?
      3. 7.3. Other Liabilities
  6. III. Implementing The Plan
    1. 8. Individual Securities or Mutual Funds
      1. 8.1. Convenience
      2. 8.2. Diversification
      3. 8.3. Size Matters
      4. 8.4. Advantages of Individual Securities
      5. 8.5. Separate Account Managers
      6. 8.6. A Word of Caution
      7. 8.7. Summary
        1. 8.7.1. Fund Selection Criteria
    2. 9. Active versus Passive Management
      1. 9.1. The Evidence
        1. 9.1.1. Mutual Funds
        2. 9.1.2. Pension Plans
        3. 9.1.3. Individual Investors
      2. 9.2. The Search for the Holy Grail: Why Is Persistent Outperformance So Hard to Find?
      3. 9.3. The Value of Economic Forecasts
      4. 9.4. The Value of Security Analysis
      5. 9.5. Buy, Sell, or Hold?
      6. 9.6. The Tyrannical Nature of an Efficient Market
      7. 9.7. The Prudent Investor Rule
      8. 9.8. The Benefits of Passive Investing
      9. 9.9. Summary
    3. 10. The Asset Location Decision
      1. 10.1. Exceptions
      2. 10.2. Order of Preference
      3. 10.3. Additional Considerations
      4. 10.4. Advanced Concept
      5. 10.5. Balanced and Lifestyle Funds
    4. 11. The Care and Maintenance of the Portfolio
      1. 11.1. Rebalancing
        1. 11.1.1. The Rebalancing Table
        2. 11.1.2. The Rebalancing Process
      2. 11.2. Tax Management Strategies
        1. 11.2.1. Tax Loss Harvesting
        2. 11.2.2. The Mechanics of Harvesting
        3. 11.2.3. Swapping Back
        4. 11.2.4. Using ETFs
        5. 11.2.5. When Does Similar Become Too Similar?
        6. 11.2.6. What if Capital Gains Taxes Rise in the Coming Years?
        7. 11.2.7. Avoiding the Wash Sale Rule
        8. 11.2.8. Other Tax Management Strategies
      3. 11.3. Final Considerations
  7. IV. The Investment Plan and Financial Security
    1. 12. College Savings Plans
      1. 12.1. 529 Plans
        1. 12.1.1. Features
        2. 12.1.2. Prepaid Tuition Plans
        3. 12.1.3. Features
      2. 12.2. Coverdell Education Savings Accounts
        1. 12.2.1. Features
      3. 12.3. Custodial Accounts
        1. 12.3.1. Features
      4. 12.4. U.S. Savings Bonds
      5. 12.5. Financial Aid Impact
    2. 13. Insurance
      1. 13.1. Risk Management
        1. 13.1.1. Company Quality
        2. 13.1.2. Investment Risk
        3. 13.1.3. Guaranteed Death Benefits
        4. 13.1.4. Term Life
        5. 13.1.5. Whole Life
        6. 13.1.6. Guaranteed Death Benefit Universal Life
        7. 13.1.7. Universal and Variable Life: Not Recommended
        8. 13.1.8. Variable Whole Life—Not Recommended
      2. 13.2. Payout Annuities
        1. 13.2.1. Longevity Risk
        2. 13.2.2. When Annuities Can Be the Right Choice
        3. 13.2.3. When to Purchase a Fixed Annuity
        4. 13.2.4. Why Aren't More Payout Annuities Purchased?
        5. 13.2.5. Recommended Reading
      3. 13.3. Long-Term Care Insurance (LTCI)
        1. 13.3.1. Why People Fail to Plan
        2. 13.3.2. Understanding the Product
        3. 13.3.3. The Importance of Long-Term Care: A Monte Carlo Analysis
      4. 13.4. Life Settlements
        1. 13.4.1. Background
        2. 13.4.2. Benefits
        3. 13.4.3. Risks
        4. 13.4.4. Opaqueness of the Bidding Process
        5. 13.4.5. Market Changes
        6. 13.4.6. Conclusion
    3. 14. IRAs and Retirement/Profit Sharing Plans
      1. 14.1. Roth versus Traditional IRA
      2. 14.2. Five Key Facts
        1. 14.2.1. One
        2. 14.2.2. Two
        3. 14.2.3. Three
        4. 14.2.4. Four
        5. 14.2.5. Five
        6. 14.2.6. Summary
      3. 14.3. What to Do When Retirement Plan Choices Are Poor
      4. 14.4. IRA Conversions
        1. 14.4.1. Limitations
        2. 14.4.2. Who is Eligible for the Roth Conversion?
        3. 14.4.3. Who Should Consider a Roth Conversion?
        4. 14.4.4. Who Should Not Consider a Roth Conversion?
        5. 14.4.5. Partial Conversions
        6. 14.4.6. What if the Conversion Was a Mistake? (Recharacterizations)
        7. 14.4.7. The Pension Protection Act of 2006
        8. 14.4.8. Conversions from Non-Deductible IRAs
        9. 14.4.9. Summary
    4. 15. Social Security
      1. 15.1.
        1. 15.1.1. How Benefits are Determined
        2. 15.1.2. When to Take Benefits
        3. 15.1.3. Factors to Consider
        4. 15.1.4. Taking Benefits Early
        5. 15.1.5. Delaying Benefits
        6. 15.1.6. Taxes
      2. 15.2. Is Social Security a Balance-Sheet Asset?
        1. 15.2.1. File and Suspend Strategy
      3. 15.3. Double Dipping Strategy
        1. 15.3.1. Summary
    5. 16. Determining a Safe Withdrawal Rate
      1. 16.1. Monte Carlo (MC) Simulations
        1. 16.1.1. Summary
      2. 16.2. In the Absence of an MC Simulator
        1. 16.2.1. The Safe Withdrawal Rate
      3. 16.3. The Sequencing of Withdrawals to Fund Retirement
        1. 16.3.1. Traditional IRA versus Roth IRA
        2. 16.3.2. Sensitivity Analysis
        3. 16.3.3. Summary
    6. 17. Planning Beyond Your Lifetime
      1. 17.1. Estate Planning
        1. 17.1.1. Recommended Reading
      2. 17.2. Preparing Your Heirs
        1. 17.2.1. What do Parents Worry About Most?
        2. 17.2.2. Are Your Heirs Prepared for their Assets?
        3. 17.2.3. Taboo Topic
        4. 17.2.4. Those who Fail to Plan, Plan to Fail
        5. 17.2.5. Benefits of Creating a Family Wealth Mission Statement (FWMS)
        6. 17.2.6. Recommended Reading
  8. Conclusion
  9. A. Effective Diversification in a Three-Factor World
    1. A.1. Independent Risk Factors
    2. A.2. Diversifying Risk
    3. A.3. Risk Aversion
    4. A.4. Considerations
      1. A.4.1. Summary
  10. B. Dollar Cost Averaging
    1. B.1. Why Is DCA so Popular?
    2. B.2. When does DCA make Sense?
  11. C. Reverse Mortgages
    1. C.1. Reverse Mortgage Features
    2. C.2. Loan Considerations
    3. C.3. Eligible Property Types
    4. C.4. How Are Payments Received?
    5. C.5. Types of Reverse Mortgages
      1. C.5.1. Single-Purpose Reverse Mortgages
      2. C.5.2. HECMs
    6. C.6. Beware of High Up-Front Costs
    7. C.7. Other Points
    8. C.8. Summary
  12. D. How to Choose an Adviser You Can Trust
  13. Notes
      1. Chapter 2
      2. Chapter 3
      3. Chapter 4
      4. Chapter 6
      5. Chapter 7
      6. Chapter 9
      7. Chapter 13
      8. Chapter 16
      9. Chapter 17
      10. Appendix C
    1. Sources of Data
  14. Glossary