Forever Paychecks, and Leveraged ETFs — Useful Finds #19
Hi from Stefan,
Welcome to the nineteenth issue of this biweekly newsletter.
Nothing here is sponsored or written for compensation.
Product update
New in the web app — “The Rule of 55” is now implemented for people who qualify to take penalty-free withdrawals from certain employer retirement plans after leaving their job before age 59½.
The rule only applies in limited circumstances. See the Bogleheads wiki’s page on The Rule of 55 for more detail on who it can and can’t benefit. Despite the 55 in the name, it also benefits some public safety employees who retire as early as 50.
The new feature also handles early withdrawals for people who retire due to permanent disability, which falls under a separate IRS exception. This feature offers no advantage to someone once they turn 59½.
If everyone in your household is above that age, you won’t see anything different when you login. The UI for the Rule of 55 will only be shown to you if there is someone in your household who is both younger than 59½ and owns a retirement account.
To set up early withdrawals, log in to the site, open the Investment accounts tab and scroll down to Retirement Account Early Withdrawal Dates.
Forever Paycheck
On the Morningstar Long View podcast, Jean Chatzky discusses her new book, The Forever Paycheck, about converting assets into a dependable stream of retirement income.
I will give an overview of the book in an upcoming newsletter.
Leveraged ETFs?
Jason Zweig of the WSJ takes on leveraged ETFs — ETFs that use derivatives to magnify the returns (both up and down) of an underlying index, or individual stock.
A recent academic paper claims to “correct several critical misunderstandings” about leveraged ETFs, and in a challenge the conventional guidance, suggests that they might be suitable long-term holdings for younger investors.
Zweig counters that “buying a leveraged fund and holding it for the long run is appropriate only for people who can spend the rest of their lives in a sensory-deprivation tank.”
My take: Nearly all of my equity allocation is in conventional index funds.
But every once in a while I’ll invest a small amount into something more speculative. I put a few thousand dollars into 3X S&P 500 ETF UPRO about 3 years ago. Vanguard’s VOO is up 77% since then, UPRO is up 220% (UPRO targets 3× the daily return, not 3× the long-run return. Daily rebalancing, financing costs, and fees mean the long-run result depends heavily on the market’s path).
A different time period could have produced a drastically worse result. My reasoning isn’t that leverage is a free lunch.
It’s that the size of the position matters. I plan to leave assets to heirs and charities, so a small leveraged position gives me and them some additional upside if stocks perform well over a long period. If they don’t, losing much of a few-thousand-dollar position wouldn’t materially affect my retirement.
What I’m watching
Fauda, season 5 on Netflix, the newly released season of the Israeli drama about a counterterrorist special forces unit.
This season takes place in the aftermath of the October 7th attacks and the Gaza war. The unit members, now all retired from the force, still dealing with the trauma of October 7th and torn by feelings of revenge, are reactivated to stop an impending attack.
More than an action series, it is fundamentally about how the conflict personally affects those involved on both sides. Watch seasons 1 – 4 first, if you haven’t already.
Warmly,
Stefan Sharkansky, PhD
Founder of The Best Third