Spoiler alert: Just Keep Buying (available now on Amazon) is an excellent personal finance and investing book. If it had been written 30 years ago, it would have been one of the best ever.

I know that sounds like I’m lauding author Nick Maggiulli while also damning him with faint praise.

But it’s simply a reflection of the spread of investing knowledge on the Internet since the 1990s. (At least until TikTok and YouTube started ruining things.) There’s far more competition.

Good accessible investing books were once rare jewels. I owned them all!

But today I suspect only a minority of even the keenest DIY investors buy and read a book about it.

Tens of thousands of decent investing articles are freely available online. Sorting the wheat from the chaff isn’t an efficient way to learn – and there’s always a risk you’ll accidentally become a meme stock day trader. But given time, the Internet can teach you all you need to know.

It has been a Cambrian explosion of engaging voices and investor empowerment.

Even so, reading a concise and actionable primer like Just Keep Buying could save you months of trawling and dead-ends.

That the book happens to be an engaging read is even better.

Crushing it

Nick’s blog Of Dollars and Data will already be familiar to readers of our Weekend Reading links.

In fact, much of the book will be.

That’s because – to stretch my Cambrian metaphor – Just Keep Buying is like the enduring fossil record of everything the wiser personal finance and investing voices have agreed upon over the past 20 years.

Save regularly and automatically. Invest passively with index funds. Diversify according to your age. You probably know the drill.

Indeed Nick himself contributed some of the best of that raw material.

I regularly find other bloggers quoting his seminal Even God Couldn’t Beat Dollar Cost Averaging for instance. (On a good day they even link to him…)

Just Keep Buying compresses it all down into an action plan. It reads like a very intelligent person consumed the passive investing bloggerati consensus, checked it against the data, and squeezed out the essentials on how to do it right.

Think of how tectonic forces crush coal to leave a diamond.

Nick’s book even sparkles in its way.

Easy reader

It’s ridiculously readable, for one thing.

It wouldn’t be right to say Just Keep Buying reads exactly like a blog, although it does repurpose some articles first posted on Nick’s website.

As I said, it’s much better structured than a blog.

But there’s that blog feel, in the short, attention-grabbing chapters.

Nick leans heavily too on the now familiar blog scaffolding made popular – at least in our sphere – by superstar money writer Morgan Housel.

Each chapter starts with the hook: a characterful and often only tangentially-related story from the world of science, geography, or astronomy. Then there’s the bridge to investing. Then the meat of what you need to know. All so cleanly dispatched you hardly notice the education going down.

For example a chapter on why you shouldn’t fear volatility starts with the founder of Federal Express gambling his company’s dwindling cash at Vegas, to stave off imminent bankruptcy.

The message? Risk comes with the territory. What’s important is taking an appropriate level for your needs and time horizon. But the image of a CEO playing blackjack to save his company is far more arresting than that previous bland sentence was.

Chapter after chapter slides by this way. Before you know it you’re halfway done.

For a book about a potentially dry subject, Just Keep Buying is a page turner.

Putting Just Keep Buying to work

That halfway point is where Just Keep Buying pivots. The first half is all about personal finance. The second half focuses on investing.

Like this the book first outlines how, why, and how much to save – with useful detours into debt and home buying – before explaining how to put your money to work to create long-term wealth.

There’s not much prevarication. Nick makes the case for each step like a confident barrister. Save this much to aim for that much. As you’d expect if you know his writing, he also backs up each strategy with data. So he doesn’t just tell not to sit around in cash waiting for the next crash. He’s got the data to prove why it’s usually a losing strategy.

There’s plenty of graphs too. These are very welcome, albeit they’re not quite as easy to read in printed form as on his website.

And there’s the judicious deployment of personal anecdotes.

As a Stanford graduate with a fairly modest background who is now moving and shaking in New York, Nick straddles several worlds. Yet he deploys his experiences lightly.

For example very late in the book he reveals his family’s financial fall from grace during the US housing downturn in the 2008 crisis. Where others would have opened the book with a strident claim to have risen from the ashes or whatnot, Nick just makes a level-headed point about the perception and reality of wealth. It’s disarming and effective.

Slightly less successful is a range of quotes and other sources sort of shoehorned into the copy. We even get US shock writer Tucker Max’s advice not to be an angel investor, for instance. Perhaps these are part of what makes the book such a breezy read, but at least for me they feel a bit like they’d been peppered in to spice up or add depth to the message.

I feel the book is at its best when Nick just tells us what he thinks.

Sincerely simplified

On that note, a flipside to Nick’s confident no-nonsense approach is you’ll probably find some things you disagree with. There’s usually a caveat in the text (just like my ‘usually’ there) but in some places Nick’s rules do stretch the sense of that word.

There’s no law that says you must save as much as you splash out to assuage spending guilt, for example (Nick’s 2x rule). And a throwaway comment that you could give your match to charity instead would in reality produce a vastly different financial outcome over a couple of decades.

Similarly, while I understand the mathematics that says somebody with a high savings rate ‘must’ save more of any future salary raise to stay on-target – because that target has been arbitrarily defined as retirement spending that’s a certain percentage of their pre-retirement spending, reached by a predetermined date – the reality is that if you save hard for a couple of decades you actually have huge optionality later.

Of course there will be consequences if you spend your raises in your 50s and 60s. But you won’t really be breaking any savings rules.

This isn’t to take anything away from Just Keep Buying. Nick shows his workings, as my old maths teacher used to say. He’s not preaching a huckster’s secret way to wealth. Many readers will find his clear instructions hugely helpful and reassuring. Those who want to tweak the formulas will do so from a solid starting point.

The same could be said for the investing chapters. We don’t get a deep dive into asset classes or platforms or anything else.

But how many people really need that?

Our chapter on bonds in the never-published Monevator book is longer than Nick’s entire summary of the pros and cons of the most important assets to build a portfolio. But honestly? For most people his summary will be enough. For them a simpler guide that is easily digested and put to work will trump a deep dive that satisfies the purists (even one that has been published!)

That said, one thing I’m not quite sure about is whether I found the book to be such an easy read because I’m so well-versed in this stuff.

Nick talks a lot about volatility, for example. That’s a bread-and-butter word for old hands, but opaque to the uninitiated. I think a moderately intelligent reader would have few problems. But I guess some people could find the simple messages obscured by unfamiliar lingo, despite Nick’s best efforts.

I should mention too that the book was written for a US audience. In practice there’s only one chapter where this matters – a provocative section on how to best use US tax shelters that actually is a bit contrary to that prevailing consensus I talked about.

You won’t get much from that if you’re not a US citizen. But the rest of the book is universal.

A sticker and a keeper

In the 15 years since starting this blog, I’ve seen many money bloggers come and go.

I still remember finding Nick’s blog, Of Dollars and Data. That first article featured his trademark animated data-visualizations, which might as well be black magic to us Cro-Magnons at Monevator.

Better still, Nick’s words lived up to the fancy graphics.

I gulped and copied the link for Weekend Reading.

Long ago I decided that if we were going to be outgunned by smarter, savvier new kids on the block then at least I’d do my small bit to bring them to the world’s attention. That’s one reason why I’ve kept linking to other websites each week for all these years – and long after it fell out of fashion. (The other is so you enjoy my finds and keep reading us to discover more!)

There’s been a lot of false alarms along the way. Many people have a couple of great blog posts in them. Some a half-a-dozen.

But very few keep up the quality for years.

Nick has – even several years in and after his blog turbo-charged his career (and I presume his workload). And now he has a great book to add to his resume.

Just buy it

Just Keep Buying is among the best of the spate of investing blogs turned into books. It’s not quite at the level of Morgan Housel’s The Psychology of Money, but that was one for the ages.

Besides – whisper it – much as I adore Housel’s writing and will laud The Psychology of Money as much as the next jealous blogger who’s unlucky enough to be writing at the same time as him, Nick’s book will probably deliver more takeaway value to more people.

That’s because Just Keep Buying is both a solid mantra and a call to action.

Yes, if you’ve been knocking around these parts since the financial crisis it’ll be reassuringly familiar, like a greatest hits album. But if you’re newer, it could seriously accelerate your progress.

It would also be a perfect gift for that smart, curious, would-be investor in your life.

If you’re looking for a comprehensive manual on the nuts and bolts of even simple passive investing, you’ll have to buy a companion tome. (Or keep reading Monevator!)

But how many people really need that? For 90% of its target market, Just Keep Buying will get 95% of the job done. Recommended.

You can get your copy of Just Keep Buying via our Amazon affiliate link. (Here’s the US link). Nick did kindly send me a copy of his book for review. He also wrote a personal note at the front. But I don’t believe these thoughtful gestures have bamboozled me into liking his book!

What caught my eye this week.

I have ruffled feathers before by remarking that in my – purely anecdotal, totally unscientific – experience, engineers make the worst stock pickers.

On reflection, perhaps the push back I got was fair. I should have included doctors too.

We could spend a lot of time debating why my observation about engineers and doctors is not very useful. For example, I know a lot of engineers, and there are an awful lot of doctors about.

Perhaps flautists make even worse stockpickers than engineers? Perhaps but they so rarely pipe up.

Luck looms large

Instead I want to point to a great post at Fortunes & Frictions.

The author Rubin Miller asks whether chess players make good investors. However the question is sneakily rhetorical because Miller – a minor chess whiz, incidentally – already knows there’s no reason why they should:

It’s easier for people who aren’t great chess players to be great investors. They don’t expect things to always work out perfectly.

Disruption of well-laid plans, and navigating the unexpected, are familiar. That’s how life works.

Whereas people who invest their time in a niche pursuit like chess, where perfect execution leads to ideal outcomes…have a potentially warped version of what drives success.

Chess players are familiar with wins and losses being honest feedback loops on the quality of their strategy and decisions.

But investing outcomes are often not helpful feedback loops, and completely unhelpful in the short-term. There is too much noise.

The post makes a compelling argument that luck looms too large in some pursuits – Scrabble, Backgammon, investing – for anyone to stay on top for long.

In chess, by contrast, the greatest winners keep winning.

That’s nothing like with investing. Just think of all those tumbling league tables and stories about the latest fallen investing guru.

Perhaps I’d argue that as you extend out the time horizon of investing, maybe the skill-signal becomes more apparent. (I say this, as most of you know, as a naughty active investor).

But in the short-term term investing is more like a game of Hungry Hungry Hippos.

And this is where the engineers and doctors go wrong, I suspect.

Engineers tend to think in terms of certainties, which is death to good investing.

Doctors do (rightly) have a capacity for fuzzier thinking, as anyone who has received a maddeningly vague prognosis on their lump, cough, or bump will know.

But their differential diagnosis rarely reverses back to first principles.

Perhaps medics also believe (thankfully) that they can fix things.

In contrast, good active investors can be more like the brutal backstreet butchers of yore. Real chop and chuck merchants.

Too good to be true

Coincidentally, Joe Wiggins at Behavioural Investment warned this week that consistent performance from a fund manager is actually a giant red flag.

After all, we know that the market is capricious.

We also know that different investing methods prosper under different regimes.

Given that, you should run for the hills if your fund manager posts market-beating returns year in, year out. In that case you probably don’t own a fund but a bit part in a Ponzi scheme.

Wiggins advises:

Fund investors should stop focusing on and thinking about consistent excess returns – it tells us nothing meaningful – and instead concentrate on consistency of philosophy and process.

In a complex, unpredictable system that is all that can be controlled.

(Incidentally, in case anyone cites Renaissance Technologies’ infamous Medallion fund as a consistent performer I’d say (a) fair and (b) to me ultra-high frequency trading looks more like financial systems plumbing if you’re generous and rent extraction if you’re more cynical. Either way it’s not really active investing as we’re discussing it here).

Thrills and skills

An alternative piece of advice to Wiggins’ for active fund managers – or those who would try their hand at stock-picking – is the one we’ve espoused for years.

Don’t bother.

The chances you will turn out to be even a legitimately inconsistent market-beating stockpicker are slim. It will be years before you have a sense of whether any gains you make are due to luck or skill.

And as Jack Raines at Young Money pointed out this week, you could have been doing something more predictable with your time and effort instead of signing up to an existential crisis:

Was it worth it?

My friend Lars Kroijer ribbed me about this years ago.

Spending a lot of time researching and picking stocks made sense if you were paid to manage other people’s money, he said. You took a small percentage of a huge number as your reward.

But I wasn’t rich enough for even 10% outperformance on my nest egg to beat simply earning more from a career or starting a business. So why not just invest in a tracker fund and do something else more profitable instead?

Why not indeed?

Because active investing had become a passion and a game long before I knew enough about it to understand any of this.

Perhaps you’re the same. If you’re going to do it, you’re going to do it, right?

Even though most of us know we shouldn’t – and many of you reading this sensibly don’t!

Have a great weekend all, and enjoy the links below.

[continue reading…]

This is part six of a series on planning and paying for later life social care costs.

We’ve previously:

• Explored why your care needs likely won’t be funded by the state.
• Discussed the means test, and which of your assets are counted or disregarded.
• Highlighted the mechanics of the key social care funding thresholds that determine your funding position.
• Provided a guide on estimating your own social care costs.
• Given a case study of a plan to cover care home fees.

Today we’ll look at how to self-fund care from your assets.

We’ve previously covered what a Local Authority counts in its means test. This test determines how much you personally have to pay.

This time we pass the baton to professional paraplanner – and Monevator contributor – Planalyst.

Assuming you’ve been deemed a self-funder, how might your own assets pay for your social care?

Take it away Planalyst!

Personal experience

Any social care I might need is likely many decades away. However my grandparents required care later in later life. I know my parents could too.

I work as a paraplanner for a financial advice firm. This role includes advising clients on how to fund social care at the point of need.

We should all know about the care system. You may stay fit as a fiddle by the end. But what about your parents, or a partner? What if you want to pay top-up fees to get them into a nicer or better-located care home? Life happens.

Today we’ll look at how to pay for social care with products that have some specific application to this purpose.

We’ll only mention in passing investments like equities and bonds. Most Monevator readers are plenty familiar with those.

Immediate Needs Annuity

Typically the go-to product for anyone needing care, an Immediate Needs Annuity is the only financial product designed to cover care costs – at home or in a care home – currently available.

You buy an Immediate Needs Annuity with cash outside of a pension. That’s as opposed to from a pension pot, like with a typical annuity.

If paid directly to your registered care provider, the income from an Immediate Needs Annuity is tax-free. That’s the big advantage.

If instead it’s paid directly to you, then only part of the income is tax-free. That’s because a proportion counts as a return of capital.

Show me the money

For a one-off cost you get:

• A lifetime income, which can’t be changed once set-up.
• Typically an enhanced starting level of income due to age or health conditions.
• Annual fixed (between 1-8%) or inflation-linked increases to cover care fee rises.
• Capital protection to pay a lump sum to your estate or under trust for beneficiaries. (This costs extra).

You can also choose a deferred care plan. This is essentially an Immediate Needs Annuity, with all the above features, only the income payments start one to five years later. This lowers the upfront cost. But you’d have to self-fund your care in the meantime.

Taking the capital protection option enables you to buy the annuity but still potentially bequeath some of the funds to your heirs (terms and conditions apply!). The extra cost might make it less attractive if you’re set on leaving a large legacy.

You can only purchase an Immediate Needs Annuity on a single-life basis. That’s different to pension annuities, which offer a joint-life basis to include a named spouse or dependant to receive your income (or a portion of it) on your death.

How to get an Immediate Needs Annuity

Anyone can put up the cash for the Immediate Needs Annuity purchase. So a relative could help to fund your annuity, if needed, for example. The tax treatment to the income remains the same, because it is still based on your life.

Immediate Needs Annuity income payments typically break even against the purchase price at around five years at current rates.

Unfortunately, ever-rising care fees have made providing these annuities less attractive to insurers. As a consequence only four providers remain in the market.

Covid has affected Immediate Needs Annuities. Today’s products may offer you capital protection for free. Such protection returns your capital purchase amount, less any income already paid, if you die from Covid within the first 6-12 months. Check the specifics with the insurer. This protection probably won’t stay available for long.

Capital investments: equities and bonds

Don’t fancy your chances of living long enough to get value for your money from an annuity? Then you’ll need to self-fund from your accumulated capital and income streams.

Check out the average life expectancy data for people in care in our previous article for more.

You might decide to self-fund simply by drawing directly from your investments. But you must be sure your capital withdrawals from your ISAs and other investments will last. That leads us back to the Sustainable Withdrawal Rate (SWR) that The Accumulator covered last time.

You need to think about how much risk to take with your underlying investments. Paying for social care is a short-term objective. You don’t want sudden market declines to eat into your funds just when you need to turn them into cash.

Investment bonds

This type of investment bond is bought from a life insurance company. They are not the standard corporate or government bonds we usually cover on Monevator.

Single premium investment bonds with an element of life assurance can be a good option to pay for social care.

That’s because the value of investment bonds can be disregarded from your capital total for the purposes of the means test.

You must purchase investment bonds when still healthy to benefit from this feature.

If you invest in them when you need care, your Local Authority is likely to count your investment bonds as capital under the ‘deprivation of assets’ rules. (We covered deprivation of assets in part two of the series.)

These rules mean your investment bonds would count as capital even if you can’t access them – because they were gifted or placed in a Trust.

(Note that your local authority will count withdrawals from an investment bond as ‘income’ in the means test. That’s confusing because such withdrawals are normally classified as ‘capital’ by HMRC.)

Tax and investment bonds

Withdrawals from investment bonds can take two forms:

• 5% per year (cumulative) of the original investment, tax-deferred.
• ‘Encashment’ of segments, which could incur chargeable gains tax.

New jargon alert! Encashment just means to exchange a cheque or a financial product such as a bond for money.

The return of the originally invested capital is tax-deferred. It is included in a ‘chargeable gains’ tax calculation when the bond is partly or fully encashed. At this point the amount previously withdrawn could incur income tax.

A complex calculation is deployed to work out if an encashment of the bond has made a chargeable gain. There are lots of factors to consider.

Ultimately you’re liable to pay income tax on any chargeable gains. This tax is levied via standard self-assessment. The chargeable gain counts as savings income for your income tax calculation.

• If it’s an onshore bond, this is added at the highest marginal rate over and above any other income.
• Offshore bond gains are the first, lowest part of any savings income.

There’s also 20% deemed corporation tax already paid in an onshore bond (not offshore). That means there’s effectively a 20% tax credit:

• Basic rate taxpayers won’t have more tax to pay if the gain is in that tax band.
• Higher-rate taxpayers pay 20%.
• Additional rate payers must cough up 25%.
• Non-taxpayers can’t reclaim the tax already deemed as paid.

Exotic locales

Not having taxes paid within the funds in an offshore bond means you could see higher growth compared to an onshore bond. The tax-free growth rolls up and compounds over time.

However depending on where in the world the investment is held, you could face non-reclaimable withholding taxes instead. Offshore bonds are usually more expensive than onshore, too.

Bonds can be placed into various kinds of trusts. Trusts can be structured so that the person needing care could still have access to the original capital withdrawals, but a beneficiary would receive a lump sum on death. Potentially outside the estate.

Professional financial and legal advice is needed. If you’re interested you must do it early in any estate planning process. And it might not be right for your circumstances.

Pension assets

Unless you’ve no other means of self-funding, starting a pension annuity or drawing down income from a pension isn’t the first port of call for funding care fees.

That’s mostly because pension and annuity income is taxable (over and above any tax-free cash). Whereas when left alone your pension investments roll-up tax-free.

Someone paying for social care is usually acutely aware of their mortality. Estate planning therefore often influences how they pay for social care. And a pension doesn’t incur inheritance tax, because it’s not included in your estate.

Wondering how to calculate your potential pension annuity annual income level? The Accumulator did that in a previous post. He used the Money Helper comparison tool.

Pix-and-mix

You can combine the different funding options. For instance you could purchase a small immediate need or pension annuity income. This provides you with a guaranteed base, alongside any existing secure incomes in retirement like the state pension or other non-means-tested State benefits, or even a defined benefit pension income.

Residual savings and/or personal pensions could cover the balance.

This approach could avoid a high withdrawal rate on your invested assets. It’d also mean not spending so much on an annuity. That could leave more of your estate intact.

Your family home

Typically your largest asset, equity in your home may be required to self-fund your care.

It’s possible to keep your home in the family. You can do this by outright gifting it or placing it in a trust. Such a move must be part of genuine estate planning. Do it well in advance of any need for social care to avoid falling foul of the deprivation of assets rules.

Alternatively, you could downsize to release some equity. You’d then still have a property to pass on. Downsizing works well if you need a place to live whilst receiving care at home. You could buy a home that’s easier to maintain or is more accessible. This could reduce the level of care you need.

If you’re going into a care home, you could sell your property to use the cash to cover your care fees, and invest the excess. That excess could ultimately be left to your family.

Letting out your home as an extra source of income is another option. For many needing care it will be less attractive. You’d have all the cost and hassle of being a Buy to Let mogul.

The second post in this series explained how a family home is disregarded from the local authority’s financial assessment, provided certain family members or your live-in carer lives there.

There’s also a 12-week disregard if no one was left living there when you went into care. During this period, your home would not be included in the assessment. After that your property value will be considered as capital in the means test.

Equity release and deferred payment

We previously covered Deferred Payment Agreements with a local authority. Such an offer is only available when you go into a care home.

The commercial equivalent is equity release. It’s broadly the same idea. You again release capital from your home. But with equity release you’re paid a lump sum upfront or multiple sums over time.

You might enter into an equity release arrangement before needing care to meet other spending needs. Note that if you’ve already taken out equity release against your home, you’re unlikely to be eligible for a Deferred Payment Agreement.

Equity release comes in various flavours, such as Lifetime Mortgage or Home Reversion. Which reviewed the details. Compared to a Lifetime Mortgage, a Home Reversion plan typically gives you less than the share of your property being given up and repayments are more expensive.

Different strokes

There is one notable difference between the local authority and commercial lenders. A commercial lender who is a member of the Equity Release Council agrees that:

• Customers must be allowed to remain in their property for life.
• Customers have the right to move their plan to another suitable property without any financial penalty.
• All plans carry a ‘no negative equity’ guarantee. Borrowers will never repay more than the value of the home at the end of the contract, provided it is sold for fair market value.

The first two principles wouldn’t apply to a Deferred Payment Agreement. You would already be in a care home. For that reason they may also not be relevant to your equity release deal.

The local authority puts an equity limit on the property charge – up to 70% of its value.

If you hit this level of care funding, the local authority stops paying for your care under the agreement. You’re then back to a financial assessment to see if you remain a self-funder.

What about interest?

Local authorities can choose whether to charge interest on the Deferred Payment Agreement. If they do1, then interest is linked to the market gilt rate plus 0.15%.

This rate is published for local authorities in the Office for Budget Responsibility’s Economic and Fiscal Outlook every six months.

In October 2021, the weighted average interest rate on conventional gilts was 0.40%. It is forecast to be around 1% for the next seven tax years.

In contrast, equity release always incurs interest on the loan. Typically the rate is fixed, though some lenders offer variable rates. The average rate recently was 4.26%. That’s according to the Autumn Market Report 2021 from the Equity Release Council.

With both local authority and equity release you’ll probably lose your home to repay the debt. You may sell during your lifetime to reduce the interest you owe, or on your death. Hence your house is not going to go to the kids.

As with trusts, you should get professional financial and even legal advice.

Free support

Even self-funders should explore potential free money options, including:

• NHS continuing healthcare
• NHS-funded nursing care
• Section 117 mental health aftercare
• Intermediate care and re-ablement package
• Minor aids and adaptations in the home
• Charities and the voluntary sector

We cover these free social care options in the final post in the series.

Bonus appendices

Discontinued products

You might hear about a couple of products that are no longer available:

• Long-term care insurance policies
• Long-term care investment bonds

You may have elderly relatives who use/d them.

These products were very tax-efficient. Most of the payments are typically tax-free, whether paid to the person in care or directly to the care home. (The bond’s tax position is a little more complicated. It depends on how the funds are withdrawn and whether onshore or offshore.)

This income still counts as part of the means test.

Unfortunately these products disappeared due to rising cost of providing care. They became less profitable for issuers even as the level of care they covered shrunk. So they’re no longer available.

Social care funding – the diagram

This flowchart simplifies the complexities of the social care system:

1. In England and Wales. [↩]