taking a break

I started this website in 2011, back when I was a junior in college. Over the last five years, I’ve written about baseball, history, politics, music, science, and other random stuff that’s popped into my brain-thing. I’ve interviewed the voice of Siri and the founder of craigslist and my hero Aaron Small. Over 300 posts, half a million words typed, and now, well, here we are.

No one reads this, and that’s fine. That’s never been my motivation for writing this thing. But over the last few months, I haven’t had the usual desire to post here. I’m not sure why that is. But it is. So, I’ve decided that I’m going to take a bit of a break from posting here. I have no idea how long that will last. It may only be a week. Or a month. Or six months. Probably not forever. But for a little while.

If you’re reading this, then I thank you very much for giving ol’ jfleishman.com a spot in your internet rotation. If you’re not reading this, then, um, uhhhhh, I don’t have anything to say to you.

I’ll be back at some point. I’ll leave the lights on.

For now, I leave you with the definition of the Heisenberg Uncertainty Principle:

In quantum mechanics, the Heisenberg uncertainty principle is any of a variety of mathematical inequalities asserting a fundamental limit to the precision with which certain pairs of physical properties of a particle, known as complementary variables, such as position x and momentum p, can be known.

 

 

Why are you still here? Go on! Get!

My 2017 Baseball Hall of Fame Ballot

Barry Bonds. Here’s a thought from Joe Posnanski that I agree with: I don’t think the Hall of Fame should be a morally cleansed place where only the pure belong. I think the best baseball players should be in, plain and simple, and their stories — complete with their genius for the game and their moral failings — should be told. I think that’s the way history should be taught.

You can’t argue that Bonds wasn’t one of the greatest hitters ever – I think only Babe Ruth and Ted Williams were better. And, I would argue that Bonds had a Hall of Fame career before he started taking steroids. After 1998, Bonds was a career .290/.411/.556 hitter with 411 home runs, 445 stolen bases, and a 164 OPS+. Of course, Bonds then went on to destroy the record books and make a farce of the game – but even if you take out those years, Bonds should be in.

But the numbers alone are not enough for many voters. Bonds was arrogant, a jerk, just a terrible person in general. He is the antithesis of the Hall of Fame’s character clause. But it’s clear that after five years on the ballot, more and more writers are coming around to him.

2013: 36%
2014: 35%
2015: 37%
2016: 44%

And on this year’s version of the indispensable Baseball Hall of Fame tracker, he’s up to a whopping 69%.

Roger Clemens. If you divide all of Roger Clemens’ career numbers by two, he might still be a Hall of Famer: 177-92, 2458 innings, 3.12 ERA, 2336 strikeouts, 70 Wins Above Replacement, 3.5 Cy Youngs.

By WAR, Clemens’ 1997 (11.9) was the best season in the last 25 years, when he struck out a career-high 292 in 264 innings and had a 222 ERA+. Of course, Clemens had other legendary seasons:

1986: 24-4, 2.48 ERA, 8.9 WAR
1987: 20-9, 2.97 ERA, 9.4 WAR
1990: 21-6, 1.93 ERA, 10.6 WAR
1991: 18-10, 2.62 ERA, 7.9 WAR
1992: 18-11, 2.41 ERA, 8.8 WAR
1998: 20-6, 2.65 ERA, 8.1 WAR

Baseball-Reference considers a WAR over 5 to be at an all star level, and anything over 8 to be MVP level. Clemens had fourteen seasons with a WAR over 5 and six that were over 8.

A lot of younger fans will remember Clemens’ 2001 season, when he went 20-3 and won the Cy Young with the Yankees. It was a great season, yes, but that was when I first realized that wins don’t do a good job of measuring value. Mike Mussina should have won the Cy Young that year (really, you could make the case for a handful of other guys too). Moose pitched more innings, gave up fewer runs, walked fewer, struck out more, and had a much lower WHIP. But he went 17-11, which isn’t quite as sparkly as 20-3. Interestingly, Clemens had the reverse problem in 2005, when he had a 1.87 ERA but only went 13-8.*

*I remember that the Texas Rangers really wanted Clemens after 2005 and did this whole study where they determined that Clemens would have been 24-3 if he pitched for the Rangers that year. He would have undoubtedly run away with his 8th Cy Young.

Manny Ramirez. Right now, Manny is polling at around 28%, which is well below the 75% threshold and certainly due to his two failed steroid tests. Clemens and Bonds, for all of their faults, never failed a test.

My stance on steroids/PED’s is pretty subjective. I think most voters prefer to take a more black-and-white approach with failed tests and alleged violations, but here’s what I think: if  someone is a transcendent talent, and (in my judgment) a no doubt, slam-dunk candidate, then I vote for them. So I put in Clemens, Bonds, and Manny. I leave out Sosa, McGwire, and Palmeiro.

Manny was, maybe, the best pure right-handed hitter of all time. He finished his career with a .312 batting average and .585 slugging percentage – only Babe Ruth, Lou Gehrig, Ted Williams, Jimmie Foxx, and Hank Greenberg have done that.

Jeff BagwellHere’s a thought: Jeff Bagwell is the best first baseman in the history of the National League.

There is an argument to be made. By WAR, he trails only Albert Pujols in the modern era (and if you include the American League, he trails only Pujols, Lou Gehrig, and Jimmie Foxx).

Bagwell dominated the league for the better part of a decade – from 1993 to 2002 he hit .306/.422/.574, a 158 OPS+ and averaged 35 home runs, 113 runs, 114 RBI’s, and 104 walks. He had a ridiculous 1994 season where he hit .368/.451/.750 and had 39 home runs in just 110 games. Bagwell is one of just six players to have a season with a .450 OBP and .750 SLG, along with Babe Ruth, Lou Gehrig, Barry Bonds, Rogers Hornsby, and Mark McGwire.

While Bagwell has fallen short in prior years, he’s polling over 90% and should easily get in this year. This is great news! His support has skyrocketed in recent years:

2014: 54%
2015: 56%
2016: 72%
2017 (preliminary): 92%

Tim Raines. Raines is perpetually underrated. By WAR, he was the best player in the National League from 1983 to 1987. I would also argue that he was the best base stealer in baseball history – or at the very least, the most efficient.

Raines: 808 stolen bases, 146 caught stealing, 84.7% success rate
Rickey Henderson: 1406 stolen bases, 335 caught stealing, 80.8% success rate
Lou Brock: 938 stolen bases, 307 caught stealing, 75.3% success rate

There have been other efficient base stealers in history – Vince Coleman, Ichiro Suzuki, Carlos Beltran. But of those that have stolen 400+ bases, Raines has far and away the best success rate.

If you couple his base running with a career .385 on base percentage, 123 OPS+, and 69.1 WAR, then I think Raines has a clear case for the Hall of Fame. Yes, he never won an MVP and never hit more than 20 home runs. He was never viewed as the best player in the league. But, consider this: he finished with the same career WAR as Manny Ramirez even though he had almost 400 fewer home runs. He reached base more times than Tony Gwynn.

Like Bagwell, support for Raines has skyrocketed in recent years. He’s currently polling at 92% and should get in.

Ivan Rodriguez. Pudge is on the Mt. Rushmore of catchers. 14-time All Star, 13 Gold Gloves, an MVP, a .296 career batting average. Only Bench and Carter finished with a higher WAR as a catcher. Despite alleged steroid use, he’s polling at 84% and should get in on his first ballot.

Vladimir Guerrero. Man, I love Vlad. Let’s just take a moment to watch this.

One of the best bad-ball hitters of all time. He finished his career with a .318 average, 449 home runs, and a 140 OPS+. You finish your career with a 140 OPS+ and you’re getting my vote.

Edgar Martinez. Finished his career with a .312 average, a .418 OBP, and a .515 SLG. Even though he played in a massive offensive environment, his OPS+ was 147, higher than:

Harmon Killebrew
Mike Piazza
Alex Rodriguez
Chipper Jones
David Ortiz
George Brett
Al Kaline
Tony Gwynn

…and many others.

Trevor Hoffman. I go back-and-forth on this one. Whatever you think of the save, I think Hoffman was one of the best relief pitchers of all time. He wasn’t as dominant as Billy Wagner, but he was more consistent and had a longer career. For what it’s worth, I think Wagner should be in too, but I don’t have enough room for him on my ballot.

Mike Mussina. Every pitcher (except Roger Clemens) with 100 more wins than losses is in the Hall of Fame. Mussina finished 270-153. And, sure, wins and losses are not a great way to evaluate pitching, but I do think they tell a story over 20 years.

Look, if Mussina finished his career with 300 wins, then he sails into the Hall of Fame. And, if he sticks around for a bit longer, he probably gets to 300. He retired in 2008 when he was 39 years old, but he was coming off a remarkable season where he won 20 games. If he sticks around for three more years, and puts up three mediocre seasons, then he gets to 300. And I don’t think three mediocre seasons should be the difference between the Hall of Fame and borderline.

Mussina finished his career with an 82.7 WAR.That ranks 24th in history, and that includes about a dozen pitchers from the deadball and early 20th century who threw 400 innings a year and died of dysentery. Of the 23 pitchers ahead of him, 22 are in the Hall of Fame. The only one missing is Clemens.

In which jfleishman gives a year-end address to his nonexistent investment clients

Good evening, thank you, thank you, please, hold your applause. We here at Fleishman Wealth Management are delighted to report that 2016 was another excellent year for our clients, particularly because we continued with our decades-long philosophy of doing nothing and throwing up our arms and saying ‘lol, idk’ to explain every move in the stock market.

You may remember January, when the S&P 500 lost 10.5% in the first 28 trading days of the year. It was the worst start to a year for US stocks ever. Ever! And many of our competitors saw that as a sign that things were bad and it was time to pull out of the markets. Our friends at RBS said to sell everything. Time to liquidate your 401(k), folks!

And there were lots of good reasons to believe them: falling oil, volatility in China, shrinking world trade, rising debt, weak corporate loans, and deflation. Heck, this was before Brexit or President Trump entered the scene.

But at Fleishman Wealth Management, we did not panic. We did not sell a single share of stock. We actually bought more!

Here is what happened next.

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Over at The Reformed Broker, Josh Brown explains:

It’s important to note that this happened in the absence of quantitative easing by the Fed and with the pace of US stock buybacks down substantially from the prior year. This also happened in the context of an “earnings recession” and with all of the uncertainty of the most rancorous election of our lifetime, slowing Chinese economic data, Brexit, a spike in European nationalism and all of the other horrible sh*t you could toss into the cauldron.

The stock market will not go up every year. And we will have future downturns and recessions and plenty of other bad things that we can’t see coming. But who’s to say when that will happen and how that will affect the market. A lot of bad stuff happened this year, frikkin’ Donald Trump is President, and the market is up 20% from its January lows. Um, ok.

We don’t try to explain the unexplainable at Fleishman Wealth Management. Many of you are frustrated by this. We just diligently save and invest your money, in a broad range of stocks, at every downturn, and at every upturn. And, I would say we’ve done quite well. You wanted to pull out in 2000. You wanted to pull out in 2008. And believe me, we understand that it’s not fun to watch your accounts get cut in half. This game is not easy. But ultimately, you’ve stuck with us. And I don’t want to brag, but you’re all better for it.

Patience in this game is a good thing. Warren Buffett once said, the stock market is a device for transferring money from the impatient to the patient. We don’t accept impatient clients in our firm. We don’t accept day-traders or speculators or people who yell loudly. We’re quiet and boring, and we like it that way.

Here’s the thing, folks. You have to invest. You have to do something with your cash to beat the rate of inflation over time. Jack Bogle once said that the only way to guarantee you will have nothing at retirement is to invest nothing along the way.

And yes, investing is hard. Loss aversion is a powerful force. There will always be risks in the market. But the alternative for stepping out into the unknown is the known of never building your wealth.

You have to take your chances. Thanks for taking them with us.

Jorge Posada for the Hall

OK, so let’s start with this. I have a lot of fond memories of Jorge Posada. He was the most vocal of the ‘Core Four’, regularly yelling at his pitchers or getting ejected or starting brawls. He batted from both sides of the plate, never wore batting gloves, and peed on his hands to make them tougher. He was great.

Like Jeter and Rivera and Bernie and Pettitte, I grew up with Jorge. I chanted ‘Hip Hip Jorge!’ at Yankee games from the time I was eight until I was in college. He was on my bedroom posters. I walked around imitating his batting stance.

I asked some friends to tell me their favorite memory of Jorge Posada, and this is what they said:

Jon R: Favorite memory of Jorge is the bloop hit game 7 2003 ALCS. 

Adam: As a non Yankee fan, the thing I remember is the Sportscenter commercial.

Cooper: Best memory: some random game one summer when we were younger. Yanks down like 7 runs going into the 9th and we come back and win it with a walk off. Some new guy to the team is interviewed after the game and says Jorge gave them the pep talk going into the ninth that was essentially “we’re the Yankees, this is what we do!” And they f@&king did it. When I think of Jorge, there’s a lot of good, but that’s the first thing I think of every time.

Aaron SmallJorge was a great guy and teammate. Loved working with him as a pitcher/catcher relationship. We meshed well together. Smart catcher with a great knowledge of the game and of American League hitters. Enjoyed my two years with him. Great family man as well. Blessed to say that I had the chance to play with him.

Grace: Not sure I have a favorite memory.

Jon S: Walkoff against Texas.

Ben: Bloop vs. Pedro, especially after what happened earlier in the series.

David: He caught David Wells’ perfect game against the Twins, and he also hit the last ever home run in the Metrodome. And I loved how he never wore batting gloves. I really respected that. Even if he did pee on his hands.

Drew: I have an off the field one. There was a video they used to play on TV during rain delays where they would ask the players weird questions and I remember one with Jorge. He said he learned to move his ears because he was driving home and his glasses were falling off his face and he didn’t want to take his hands off the wheel, so he just willed his ear muscles to pull his glasses back up.

My favorite memory came on May 25th, 2011. I’ve talked about this game before. The Yankees were trailing the Blue Jays 4-3 in the ninth. Down to their last out, Curtis Granderson hit a single to tie the game. The next batter, Mark Teixeira, hit a single to win it. It was a wonderful night at the ol’ ballpark, and I was there, fresh off a hellish finals week to end my sophomore year of college.

The loudest roar of the night wasn’t the Granderson single. It wasn’t the Teixeira walk-off. No, the loudest roar of the night came when Jorge Posada stepped to the plate in the bottom of the ninth inning. He didn’t start the game, so he was pinch-hitting for someone, I can’t remember who, because it didn’t matter. And in a collective roar, the 50,000 fans at the ballpark hoped for one more magical moment in what would be his final season.

This was just a few days after he had pulled himself out of the lineup when he learned he was hitting ninth. Well, Jorge was never one to hide his thoughts. This was unacceptable to him. He sort of threw a tantrum in the clubhouse*, even though he was hitting just .176 that season, and that’s when we knew this was probably the end.

*Cooper: ‘Worst memory is how he was kind of a dick his last season with Joe G moving him down in the lineup.’

But the fans were on his side. Posada stepped into the batter’s box, double tapped his bat to home plate, and the crowd noise did not stop, and he ripped a 94 mph Frank Francisco fastball into the right-center gap for a double. Then he came out of the game for a pinch-runner, which eventually scored as the tying run.

I’ll always remember that sequence because it was probably louder when Posada WALKED TO THE PLATE than when he actually hit the double.

So, yes, I have good memories of Jorge, and I’m very clearly biased when I say that I think he belongs in the Hall of Fame.

I say this because this is the first year he is eligible, and we’re a month away from the vote. Unfortunately, there is about a .00001% chance he makes it, about the same odds that I make it. It’s just not going to happen, certainly not in his first year of eligibility. I’d be surprised if he gets more than 5% of the vote.

I also asked my friends if they think he belongs in the Hall:

Jon R: No, I don’t think he’s a Hall of Famer, but he deserves votes and consideration.

Cooper: I guess I’d have to look at the the numbers, but gut reaction is no.

Jon S: Yes for hall.

Grace: Yes he should be.

Ben: Strong no to hall.

David: I don’t believe he should be in the HoF. He was a very good and durable catcher for a long period of time, but I’m a small Hall kind of guy. In my opinion, he was never great. Yankees HoF for sure, but not baseball HoF.

I’m outnumbered, but dammit, I think he’s a Hall of Famer. And I think the math agrees with me.

As you probably know, it’s really difficult for a catcher to make the Hall of Fame. Only 17 have made it, but many of them are from a bygone era:

Pre-1920:

Roger Bresnahan
Buck Ewing

1921-1950:

Mickey Cochrane
Bill Dickey
Rick Ferrell
Gabby Hartnett
Ernie Lombardi
Ray Schalk

Negro Leagues:

Josh Gibson
Biz Mackey
Louis Santop

1950-present:

Johnny Bench
Yogi Berra
Roy Campanella
Gary Carter
Carlton Fisk
Mike Piazza

So, only six catchers have made the Hall of Fame in the last 66 years. Again, it’s a tough bar to clear.

For the sake of comparison, let’s look at Posada’s numbers against those six guys, ranked by OPS+:

Mike Piazza: .308/.377/.545, 142 OPS+, 427 HR, 59.4 WAR
Johnny Bench: .267/.342/.476, 126 OPS+, 389 HR, 75.0 WAR
Yogi Berra: .285/.348/.482, 125 OPS+, 358 HR, 59.5 WAR
Roy Campanella: .276/.360/.500, 123 OPS+, 242, 34.2 WAR
Jorge Posada: .273/.374/.474, 121 OPS+, 275 HR, 42.7 WAR
Carlton Fisk: .269/.341/.457, 117 OPS+, 376 HR, 68.3 WAR
Gary Carter: .262/.335/.439, 115 OPS+, 324 HR, 69.9 WAR

Posada’s offensive numbers fit in quite comfortably with his peer group. And I think they also show one of Posada’s most underrated assets – his ability to walk*. His .374 career on-base percentage is second only to Piazza. He had four seasons with an OBP greater than .400. The other six guys had four seasons, COMBINED.

*I went to a game in 2004 where the Yankees won on a walk-off walk by Posada.

Posada became the Yankees’ full-time catcher in 2000, and for the next eleven years, he had an OPS above the league average, every single year, with only one extended stint on the DL in 2008. He made five All Star teams, won five Silver Sluggers, hit 20+ home runs eight times, and, of course, played in 125 additional playoff games and won five World Series.

But with catchers, you also have to factor in defense. The widely accepted notion is that Posada’s defense was not very good. And as a fan who watched literally hundreds, probably thousands, of games with Jorge Posada behind the plate, I would agree with that.

But I don’t think it was as bad as everyone thinks. Measuring catcher defense is more art than science, but I think the numbers are pretty close to reality. The all-time leaders in defensive WAR for catchers are Ivan Rodriguez (+28.7), Gary Carter (+25.5), Bob Boone (+25.3), and Jim Sundberg (+25.0). To me, that matches the eyeball test. Yadier Molina and Russell Martin lead active players.

Jorge Posada finished his career with a defensive WAR of +2.1, which, yeah, doesn’t put him in the upper echelon of defensive catchers, but it isn’t terrible either. It’s actually higher than Mike Piazza. And it was much higher in the early part of his career. His last few years were awful.

What I’m getting at is that I don’t think Posada’s defense was as bad as everyone thinks. And his offensive numbers were really good, better than some of his peers. He wasn’t as good as Bench, or Berra, but no one is.

I think we’ve set a standard that is too high for catchers. I say we add a few more to the Hall. Add Posada, add Ivan Rodriguez, and down the road, add Joe Mauer and Buster Posey and Yadier Molina.

Now let’s watch some of my favorite Jorge videos.

Nobody knows anything, redux

A year ago, I wrote a post called Nobody knows anything. Here’s what I said:

The older I get and the more I learn about things, the more I realize that nobody knows nuthin’ about anything.

Those self-proclaimed experts are lying. Predictions are pointless. Anyone that tells you that they know for certain how something is going to turn out is probably going to be wrong.

All simplicity is a lie.

It was written in the context of baseball, but it was eerily prescient given the outcome of the Presidential election.

We have statistical models and advanced polling and supercomputers, and they all pointed to a decisive Hillary Clinton victory. They were all wrong. And what I think this shows – and where I think the failure of big data lies – is that people are wildly unpredictable and don’t fall neatly into models. Clearly, there’s a real anger that permeates throughout our country far more than we thought. Our echo chamber on Facebook and Twitter is not how the majority of this country thinks and feels.

I had trouble sleeping last night and woke up this morning with a feeling of profound anxiety. Then I took a shower and started feeling a little better. The sun still rose, the subway still came, I listened to my morning podcast, had my two cups of coffee like I always do, and life goes on. My mom texted me ‘it will be OK’ and I think that’s right. Things will be OK. They have to be.

But I can say that from a position of immense privilege. Things might not be OK for immigrants or Muslims or women or the LGBT community. And the new wave of anti-Semitism that’s been popping up on social media is absolutely terrifying. So part of me doesn’t know if things will be OK. I hope they are.

I was in London a few months ago. Everyone was fresh off the panic of Brexit, and people were endlessly fascinated with the US election. As soon as someone – a cab driver, a barista, a random person on the street – heard my American accent, they immediately asked about Trump.

Is he actually going to win this thing?

My response each time was a confident No.

But despite my confidence, people there weren’t so sure. Everyone I talked to thought Trump could win. Social stigma disappears in the booth, they said. People are angry. People want change. No one thought Brexit would happen, and then people voted, and then it did. The same will happen across the pond, mate.

They were right.

Donald Trump is our next President. No one knows anything.

How to save for retirement

The other day, I received this message:

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I’m a firm believer that educating yourself on the basics of investing, personal finance, and retirement saving is one of the most important things you can do in your twenties. A working knowledge of this stuff can have a big pay-off in the form of your standard of living, your financial freedom, and your general sanity. Unfortunately, it’s not taught in school. It’s on us to learn it and apply it.

OK – to start, there are few main investment vehicles you can use to save for retirement: a 401(k), a Roth 401(k), a normal IRA, and a Roth IRA. All of these are useful because they grow your investments tax-free, meaning you don’t pay taxes on any earnings or dividends.

You may know all of this already, but in case you don’t:

A 401(k) is a retirement savings plan that is sponsored by an employer. It lets you save and invest a piece of your paycheck before taxes are taken out. A lot of times, your employer will match a certain portion of your 401(k) contributions (3 or 4%, sometimes more). You should, at a minimum, invest the same as your employer match. This is what we in the business call ‘free money.’

Once you sign up for your company’s 401(k) plan, you’ll have a list of stocks or mutual funds to pick from. Each company’s plan is different – some have 10 choices, some have 100. The funds you choose are entirely up to you (you can put everything in one fund, or in five different funds, whatever you want), but there are certain things to be wary of (namely, fees) that we’ll tackle later.

The money in a 401(k) sits there for a very long time, and it will grow with each paycheck and with each rise in the market. Sometimes it will fall, like in 2008 when the stock market halved. But there’s no need to worry about the daily, or even yearly, moves in the market, because you can’t touch the money* in your 401(k) until you’re 59 1/2 years old. And, thankfully, 40-year market returns are pretty great (the market has risen 2,100% since 1976).

*Well, this isn’t entirely true. You are allowed to withdraw funds from your 401(k) early (usually in an emergency), but you have to pay a 10% penalty, in addition to taxes.

A 401(k) offers lots of great benefits (employer match, tax-free growth), but there’s a limit of how much you can put into it each year. For 2016, that’s $18,000. If, for some reason, you accidentally contribute more than $18,000, you have until tax time (April) to withdraw the excess and set everything straight (or else you pay a penalty).

Some employers also offer a Roth 401(k). It’s very similar a normal 401(k) – a small portion of your paycheck gets set aside for retirement, but it’s taken out post-tax instead of pre-tax. So you pay tax on it now instead of later.

A traditional IRA is an individual retirement account that you have outside of work. It’s similar to a 401(k) in that you contribute your money on a pre-tax basis, so you don’t pay tax on it until you withdraw funds down the road. Most of the major banks and financial institutions offer some sort of IRA.

Roth IRA is like an IRA, but your contributions are post-tax instead of pre-tax. In other words, you can contribute your ‘take-home pay’ to a Roth IRA, and since you’ve already paid tax on it, you can withdraw funds tax-free. The two things to be aware of with a Roth IRA – the maximum you can contribute is $5,500 per year, and you can’t contribute if you make more than $132,000.

In summary:

401(k) Roth 401(k) IRA Roth IRA
Eligiblity if your employer offers it if your employer offers it anyone if you make less than $132,000
Max annual contribution $18,000  $18,000 $5,500 $5,500
Are deposits taxed? no – your deposits come directly from your paycheck, pre-tax yes – your deposits come directly from your paycheck, post-tax yes, but they’re tax-deductible if you don’t have a 401(k) yes
Are withdrawals taxed? yes no yes no
When can you withdraw? age 59.5, required by 70.5 age 59.5, required by 70.5 age 59.5 age 59.5, required by 70.5
Early withdrawal? minimum 10% penalty  ok, but you have to pay taxes on the earnings ok for high medical bills, $10K towards a first home, higher education, disability, or death; otherwise, 10% penalty ok for high medical bills, $10K towards a first home, higher education, disability, or death; otherwise, 10% penalty

Personally, I have a 401(k) through my job and a Roth IRA (with Fidelity) on the side.

Here are some general best practices for saving for retirement:

Start now. In the world of saving and investing, the most precious resource you have is not smarts or analysis or research. It’s time. The power of compound interest over a thirty or forty year period is amazing.

This is a real quote from Albert frikkin’ Einstein:

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.

Here’s the example I always use at parties. If I…

Save $10,000 a year from age 22 to 30, and then I stop and never save another dime for retirement.

And you…

Save $10,000 a year from age 31 to 60…

Guess who ends up with more money at age 60? Me! Even though I saved $220,000 less than you did.

No one ever seems to believe me, so then I load up Microsoft Excel, input the numbers, show them the data, grab ’em by the shoulders and shake ’em, and stare intimately into their eyes until they finally start to understand.

This is something that isn’t taught, and unfortunately a lot of people don’t fully appreciate the power of time until it’s far too late. So what I would say is: start now, contribute what you can to your retirement accounts (start at 5%, and go from there), and your future self will be quite happy. He or she exists, and you will soon become that person. Unless something terrible happens. Don’t die.

Do not invest in individual stocks. This is just my own personal philosophy, but I don’t think you should invest in individual stocks in your retirement accounts. Why? Because you’re not touching that money for forty years, bub, and a lot of companies aren’t going to be around in forty years. Instead, I would recommend a mutual fund that closely tracks the broad US stock market. A mutual fund, by the way, is just a collection of stocks (and/or bonds), so you hedge yourself against the failure of a single company. In other words, don’t put all of your eggs in one basket.

That’s not to say that you shouldn’t invest in individual stocks. By all means, go crazy! Just don’t do it in your retirement accounts, please. Also, stock-picking is a tricky thing. Most stock-pickers don’t beat the market. The one exception is my friend Eddy Elfenbein, who routinely beats the market, and spoke with me about it two years ago.

Watch out for fees. OK, great, you realize that investing is important and you’re committed to setting aside $10,000 every year until you retire in forty years. On average, let’s say your investments increase by 8% annually over the next forty years, which is actually lower than the long-term average. You pay, on average, a 0.25% fee on your investments. In forty years, you’ll have $2,613,971.03.

Now let’s say you invest that same $10,000, over the same forty year period, in the same kind of funds, so on average you’re still getting 8% per year. But the funds you chose charge 1.25%, not 0.25%. In forty years, you’ll have $1,998,500.80.

In other words, a 1% higher fee will eat 25% of your total investment value.

It doesn’t sound right, but I’ve done the math and the people who are selling these things hope you haven’t. Fees are absolutely debilitating over the life of your investments, which is why the majority of your investments should be in low-cost funds, ideally 0.50% or less.* Companies justify their higher fees by saying they produce higher returns, but that is categorically untrue. But don’t take my word for it. Read this or this or this or this or this or this or this.

*But the fee shouldn’t be 0%. You SHOULD be paying a small fee for all of the things a mutual fund can do for you – re-balancing, tracking the market, hedging against the failures of an individual stock, creating tax advantages, and (hopefully) giving you a nice safety net when all is said and done.

Think of a mutual fund as a product.

The more expensive one’s, generally called ‘active funds’, will have lots of smart people looking at lots of data to try to maximize the performance of the fund. The idea is that you, as the consumer, will be rewarded, in the form of a superior return, for paying a higher fee. You pay more to get more.

The less expensive funds, called ‘passive funds’, will contain a bunch of stocks that mimic the direction of the Dow Jones or S&P 500 Index or perhaps another sector. Passive funds are not actively managed, and they are built for the long haul. It’s a ‘set it and forget it’ strategy. If the market does well, then great, so do you. If the market doesn’t do well, then neither do you.

Again, the problem with the first strategy is that it’s really hard to beat the market. In the last year, 90% of US equity funds failed to do so. Every now and then, a fund like Peter Lynch’s Magellan Fund will come around, which averaged a 29.2% annual return from 1977-1990 and had the best 20-year return of any mutual fund ever. But these are rare.

The real danger with fees is that they aren’t very transparent, and you’re not actively paying the fee when you withdraw your money. Fees are baked into a fund’s NAV (net average value), or the share price of the fund. So you never see exactly how much you’re paying in fees. All funds are, of course, required to disclose their fees, but they’re not required to tell you. Thankfully, things like Google and Yahoo Finance exist, so they’re pretty easy to look up.

OK, so I understand that compound interest is amazing and fees are awful, plus all of the other stuff you said. So what should I specifically invest in, smartypants? 

An example of a low-cost mutual fund that tracks the S&P 500 is the Vanguard Total Return Index (VFIAX), which recently celebrated its 40th anniversary.

The Vanguard Total Return Index is pretty boring. It tracks the broad US stock market. It has an expense ratio of 0.05%. It holds some winners and some losers – it’s not loaded with tech start-ups in Silicon Valley, or emerging markets like China or India, or whatever the hottest trend is of the day. Nope, it just trudges along, facing strong headwinds here and there like recessions and wars and inflation and panics. But the fund rewards patience. It has a cumulative total return of 6,091%, or 10.86% annually.

Not every 401(k) plan will offer Vanguard funds, but thankfully it’s far from the only low-cost mutual fund out there. There are hundreds of them now. Fidelity offers one (FSTVX) with an expense ratio of 0.045%.

Vanguard, by the way, has become the single most influential force in the asset management industry. It’s been estimated that the firm has saved investors approximately $1 trillion in unnecessary fees over the years.

Got it? Good…wait…what…oh God what else do you want?

This all sounds great, but I don’t really want my money to track the stock market, because market volatility gives me severe diarrhea and I’m worried Trump will become President and everything will go to hell.

That’s a valid concern. Some people don’t want to take on the added risk of investing their hard-earned money in the stock market. Market crashes happen every few years, and they’ll happen again.* It’s completely understandable if you’re scared of the stock market, though I’ll mention that historically, the market provides the best returns of any investment vehicle – more than real estate, more than bonds, more than CD’s, more than beanie babies, more than my baseball card collection, all of it.

*Not just because of macroeconomic events or terrorism, but because of anything. Just recently, the market dipped 20% because of ebola (remember that?). Who knows what the next 40 years will bring! I’m guessing: climate change, solar flares, super virus, alien invasion, and robots who don’t listen to directions.

If you want to avoid diarrhea, I would recommend allocating part of your retirement funds (say, 40%) to bonds or other fixed income products. You’ll take on less risk (yay!), but you’ll probably see lower returns over a long period of time (boo!). That’s how the game works.

And then as you get closer to retirement, you should start shifting more and more of your money into fixed income products. When you’re 65, a guaranteed rate of return (even if it’s lower) will be more important than the whimsies of the stock market.

IN CONCLUSION:

Start investing as early as you can.

Take advantage of your company’s 401(k) plan.

Invest in simple, low-cost mutual funds that track the broad US stock market. Or invest part of your portfolio in bonds, if you’re more risk-averse.

Watch out for fees.

Continue to make contributions, regularly, for the next four decades or so.

Enjoy your retirement!

Also, try not to lose your job.

All of this advice is very specific to someone my age – mid-twenties, out of school, working full-time. If you’re older, it’s a different story. If you’re in debt, it’s a different story. If you’re saving for your kids’ college, it’s a different story.

If you have any specific questions, or would like some further elaboration, feel free to email me or comment below.