Tag: stock market

Posted on

The Great Social Security Debate: Claim Early or Wait for a Larger Payoff?

The conventional “gold standard” advice for retirement is simple: delay claiming Social Security until age 70. Why? Because for every year you wait past your full retirement age, your benefit grows by 8% annually. Consequently, delaying provides the maximum possible inflation-protected life annuity. This decision can be a powerful hedge against longevity risk. So, it can create a larger safety net should you or a spouse live into your 90s.

Despite this clear benefit, few delay until age 70. In fact, the vast majority of retirees claim their benefits early, often at the minimum age of 62. For many, the choice isn’t financial optimization but necessity. They are being pushed out of the workplace or simply feeling they cannot afford to wait. There are also several tax implications to this decision.

The Great Social Security Debate: Claim Early or Wait for a Larger Payoff?
The debate continues over when a retiree should begin to claim Social Security

Some Arguments for Claiming Social Security Early

For those with adequate savings, a growing school of thought challenges the wisdom of delaying. Critics argue that traditional advice overstates the value of future benefits by using unrealistically low discount rates (0% to 2%). For example, the opportunity cost of a retiree’s potential portfolio growth makes delaying less attractive.

Furthermore, early claiming mitigates several real-world risks:

  • Mortality Risk: Claiming early ensures you collect benefits, reducing the risk of dying before reaching the break-even age.
  • Sequence-of-Returns Risk: Drawing income from your portfolio to delay Social Security can amplify losses during a market downturn.
  • Flexibility: Social Security doesn’t offer lump sums for unexpected needs, meaning a preserved portfolio provides better spending optionality.
  • Behavioral: Retirees are often more willing to spend a guaranteed income stream. However, they may be reluctant to draw down a nest egg. So, early claiming may potentially solve the problem of underspending in the healthiest years of retirement.

A Personalized Decision

So, early claiming can be a rational choice, especially for those with health concerns or a limited nest egg. Ultimately, the best age is unique to you, and you may benefit from running some online calculators. The key is to assess your health, your need for early cash flow, and your portfolio’s size. We suggest you take this information and use an online calculator. For example, you can try Mike Piper’s Open Social Security or our Optimal Retirement Income Calculator.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

Posted on

Research Showcase Presentation at FPA Annual Meeting

On November 3, 2025, I presented at the FPA (Financial Planning Association) research showcase. Ed McQuarrie from Santa Clara University and Philip Goldfeder from Northwestern University also contributed to this work. Our presentation evaluates Roth conversions and early account distributions to boost after-tax retirement and taxable wealth. Our work was motivated by our previously published research and Laura Saunders’ WSJ article “When Paying More Tax, Not Less, Is the Smart Play”. In this post, we highlight the key findings of our presentation.

Research Showcase Presentation at FPA Annual Meeting
Research Showcase Presentation at FPA Annual Meeting

Seeking Tax Alpha

Our presentation at the research showcase considered three alternatives to increase after-tax wealth through tax efficiency from a single-year model. All alternatives assumed a “default” approach, called the Common Rule, which aims to defer taxes for as long as possible. We then considered three alternatives to meet a current-year $300,000 after-tax retirement income need while maximizing after-tax wealth.

  • Common Rule, but also including Roth conversions
  • Optimal Rule, which mixes tax-deferred, tax-exempt, and taxable income sources. This approach uses a general-purpose global non-linear optimization algorithm available in Excel spreadsheets.
  • Optimal Rule, but also including the possibility of further improvements from Roth conversions.

We determined tax alpha as the additional investment returns needed to achieve the same after-tax wealth using the Common Rule. Our financial model included salient elements from the U.S. tax code.

  • Income tax, capital gains tax, Net Investment Income Tax (NIIT), and Income-Related Monthly Adjustment Amount (IRMAA)

Our baseline model assumed a single retiree, age 62, who has not yet started any social security or pension income. We then considered a number of variations of this hypothetical example.

  • Married Filing Jointly, different after-tax income needs, different tax rates for a non-spouse heir, and different cost bases in their taxable account.

Research Showcase Key findings

Consistent with our previously published work, we demonstrated that the tax alpha was significantly higher with the Optimal Rule than the Common Rule with Roth conversions. This is largely due to the capital gain tax triggered to pay the tax liability on the conversion from the taxable account.

Our next key finding was that there was more than one optimal solution. The image below shows that there is a range of distributions from a tax-deferred account and a Roth account that achieves the same after-tax wealth of $5,262,315.

Wealth and Income at Alternative Optimal Solutions, FPA Research Showcase, November 3, 2025, Las Vegas, Nevada.
Wealth and Income at Alternative Optimal Solutions, FPA Research Showcase, November 3, 2025, Las Vegas, Nevada.

We show that these alternative optimal solutions are due to exploiting tax-deferred income up to the 32% income tax bracket, which we assumed as the non-spouse heir’s marginal rate. Other key findings include that, depending on the model’s assumptions, tax alpha can range from 0.26% to 0.91% per year. Additionally, these tax alphas are largely insensitive to inflation rates and market returns, consistent with another previously published article.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
Posted on

Using ETFs to understand recent activity in the US economy

The US economy continues to navigate a complex landscape. Recent events include fluctuating inflation, evolving labor market dynamics, and the Federal Reserve’s ongoing efforts to achieve price stability. While certain sectors have demonstrated resilience, others are showing signs of cooling, creating a mixed picture for ETF investors. And, reversing trends in globalization continues.

black blue and red graph illustration
Using ETFs to understand recent activity in the US economy
Source: Burak The Weekender on Pexels.com

Stock ETFs and the US Economy

The labor market, a pillar of strength for much of the past year, is showing subtle signs of moderation. While the unemployment rate remains low, job growth has slowed, and initial jobless claims have edged up slightly. This suggests a potential cooling in demand for labor, which could eventually help to ease wage pressures and contribute to lower inflation. Investors tracking the broad equity market through passively managed ETFs like IVV (iShares Core S&P 500 ETF) have witnessed the market’s sensitivity to these economic data points and the Fed’s reactions.

Bond ETFs

The bond market, as reflected in ETFs such as AGG (iShares Core U.S. Aggregate Bond ETF), has also experienced volatility. Rising interest rates have generally led to lower bond prices. But, expectations of future rate cuts can influence yields, prices, and investor sentiment. AGG, representing a broad basket of investment-grade US bonds, serves as a benchmark for overall bond market performance and investor risk appetite in fixed income.

In times of economic uncertainty, investors often turn to lower-risk assets. BIL (SPDR Bloomberg Barclays 1-3 Month T-Bill ETF), which invests in short-term US Treasury bills, can be seen as a safe haven. Increased flows into BIL may indicate a more risk-averse sentiment among investors, reflecting concerns about the economic outlook.

US Economic Direction

Overall, the recent state of economic activity in the US presents a nuanced picture. While inflation remains a concern and the labor market is showing signs of cooling, the economy has so far avoided a sharp downturn. The performance of passively managed ETFs like IVV, AGG, and BIL offers a glimpse into how investors are interpreting and acting on these economic signals. Continued monitoring of these ETFs will be crucial in understanding the trajectory of the US economy in the months ahead.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
Posted on

2025 Mid-year Sector Review

Happy Independence Day from ETFMathGuy! Similar to what we posted at the halfway point of 2024, this post summarizes the mid-year sector review and ETF performance in 2025. Accordingly, we highlight some of the newest trends and identify the strongest and weakest sectors this year.

This post summarizes the mid-year sector review and ETF performance in 2025, and identify the strongest and weakest sectors this year.
Photo by Brett Sayles on Pexels.com

Review of the 11 Sectors of the S&P 500

Indeed, there are 11 sectors in the S&P 500, as shown below. Therefore, while some of these sectors have several ETFs tracking them, we have chosen the ETFs in parentheses due to their long-standing presence in the markets. In our analysis below, we also consider the S&P 500 Index ETF (ticker: IVV), and the tech-heavy Nasdaq ETF (ticker: QQQ).

  • Information Technology (XLK)
  • Health Care (XLV)
  • Financials (XLF)
  • Consumer Discretionary (XLY)
  • Communication Services (XTL)
  • Industrials (XLI)
  • Consumer Staples (XLP)
  • Energy (XLE)
  • Utilities (XLU)
  • Real Estate (IYR)
  • Materials (XLB)

Consequently, using this list and reinvesting dividends, our sector review reveals that some sectors had total returns that did very well in the first half of 2025. However, a couple of sectors, such as Health Care and Consumer Discretionary, lost value in the first half of 2025.

This post summarizes the mid-year sector review and ETF performance in 2025, and identify the strongest and weakest sectors this year.
2025 Mid-year review of S&P 500 sector ETFs. Total Returns. Source: https://www.etfreplay.com/charts.aspx

Analysis and Insights from our Sector Review

Outperformers occurred in six sectors, suggesting a strong cyclical comeback. Leading the way were Industrials, Communication Services, and Technology sectors. Moreover, we see that Financials, Materials, and Utilities also outperformed the S&P 500. Our sector review is in sharp contrast to the mid-year review from 2024 when only one sector (Technology) outperformed the S&P 500. These trends appear to be due to easing tariff fears, a resilient labor market, and expectations of rate cuts. It also shows that the outperformance occurred in both the growth and value sectors of the S&P 500.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

Posted on

Globalization and International Stock ETFs

Globalization over the last several decades has increased the correlation between domestic and international stock ETF returns. In this post, we quantify how this relationship has recently changed, what may be contributing to this change, and what it means for ETF investors.

Correlation changing?

Correlation measures potential portfolio diversification benefits. A high correlation indicates that the prices of two assets move similarly to one another. For diversification benefits, portfolios should contain assets that do not exhibit high correlation with each other. We previously discussed the correlation between the S&P 500 and a wide variety of asset classes. Below, we show that there appears to be a recent downward trend in correlation between U.S. and international stocks.

90-day Correlation of Total Returns of International Stocks (VEA) against the S&P 500. Downward trending suggests a reduction in globalization.
90-day Correlation of Total Returns of International Stocks (VEA) against the S&P 500

Here, the short-term correlation between the total returns of the iShares Core S&P 500 ETF (ticker: IVV) and the Vanguard FTSE Developed Markets ETF (ticker: VEA) hit a recent low from its longer-term average. This reduction in correlation suggests that U.S. and international stock markets are moving more independently than in the past. Thus, there is the potential to offer enhanced diversification benefits for investors.

Tariffs and Globalization

The most likely explanation of lower correlations is the news of significant tariffs on imported goods to the U.S., and perhaps more broadly, due to different central bank policies and geopolitical factors. This new trend appears to be reversing much of the investments in globalization that led to a high correlation between domestic and international stock markets. However, since most of these investments take some time to go into effect, we shouldn’t expect a rapid shift in correlations between domestic and international stock markets. The longer and more significant the tariffs are, the greater the chance that globalization will decrease. For ETF investors, enhanced diversification from international stock market investments may offer greater risk reduction than it did previously.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
Posted on

Bond ETFs and Money Market Funds

One of our favorite WSJ writers this week provided a critical analysis of money market funds, which many individual investors use to hold their cash. In this post, we discuss the similarities and differences between money market funds and ETFs that invest in treasury bills.

The purpose of money market funds

One purpose of a money market fund in a taxable brokerage account is to provide a place for cash to stay after it is transferred in from an outside source, like a bank checking or savings account. It also serves as a holding place for securities after they are sold. But some investors are also using them as a safe haven to avoid sharp changes in the stock market. Unfortunately, these funds tend to charge relatively high fees compared to ETFs that provide a similar safe haven. According to this WSJ article, the average money market fund charges 0.51% in fees and yields 3.89%.

But you’re probably getting ripped off on your money-market funds—and it’s one of the biggest heists on Wall Street.

Jason Zweig, WSJ columnist, May 2, 2025

Brokerages also use money market funds as a “sweep” account for investors. So, investors can benefit from this feature by being able to write checks against these balances. However, the cost and convenience of assets in these funds, which often invest in short-term U.S. treasury bills, means investor returns underperform when compared to investing in an ETF with a similar level of risk.

Very low risk ETFs

Bond ETFs still have risks, depending on the type of bonds included in them. But some bond ETFs can provide investors with direct access to short-term treasury bills, which some would refer to as a good proxy for a risk-free rate. The list below shows several of these types of ETFs, along with their expense ratio and assets under management.

ETFTickerExpenseAssets Under Management
iShares 0-3 Month Treasury Bond ETFSGOV0.09%$45 B
SPDR Bloomberg 1-3 Month T-Bill ETFBIL0.14%$47 B
iShares Short Treasury Bond ETFSHV0.15%$22 B
Three large ETFs investing in short-term U.S. treasury bills

Although the expense ratios are all quite similar, it is clear that the return of SGOV is likely to be the highest. The figure below shows this is true and that all of these ETFs had a slow and steady investment return over the last three years.

Total returns for the last three years of short-term U.S. treasury bill ETFs were higher than the average money market fund.
Total returns for the last three years of short-term U.S. treasury bill ETFs

So, investors willing to take the time to invest their money market funds into one of these ETFs can often earn very close to the current U.S. treasury bills yield, which in the last year was about 4.8%. Additionally, these ETF returns may be exempt from state taxes, unlike money market funds. Investors not needing the convenience of money market funds may wish to consider these ETFs as an alternative safe haven.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
Posted on

How ETFs responded to tariffs in the news

Recent news about U.S. tariffs has impacted ETFs representing several asset classes. This post discusses both positive and negative market effects. We close with some historical perspectives to help ETF investors make educated decisions that are best for their situation.

Broad-based ETF recent performance

To see how recent tariff news has impacted several broad-based ETFs, we considered the following list.

  1. iShares Core S&P 500 ETF (ticker: IVV)
  2. iShares Core Total US Bond (ticker: AGG)
  3. SPDR 1-3 Month T-Bill ETF (ticker: BIL)
  4. iShares Barclays Long-Term Treasury (ticker: TLT)
  5. iShares MSCI EAFE (ticker: EFA)

The first ETF on this list tracks large-cap U.S. stocks. The second one follows intermediate-term U.S. treasuries and investment-grade corporate bonds. The third and fourth ETFs in our list consist entirely of short and long-term U.S. treasuries, respectively. The fifth and last ETF is an international stock ETF composed of “…developed-market securities based in Europe, Australia and the Far East“. The image above shows the total return of these ETFs for 2025.

Stock ETFs and tariffs

The sharpest downturns in the prices of ETFs due to recent announcements on tariffs appear to be in domestic and international stocks. However, since international stocks started the year stronger, they are currently at a small loss for the year. On the contrary, domestic stocks have produced a more significant negative return so far this year.

Bond ETFs and tariffs

Bond markets are typically less volatile than the stock market. In particular, short-term treasury bills returns largely follow the federal funds rate, as shown by the ticker BIL. But intermediate and long-term bond fund prices appear to have benefitted from the selloff in stocks, likely in a “flight to safety“. While investors holding bond ETFs now benefit from higher prices, yields on the underlying bonds are decreasing. If the yields decrease significantly enough, an inverted yield curve may result, which could be a sign of an economic recession. Time will tell if the leading indications of the market foreshadow such an economic downturn.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

Posted on

2024 Year-end returns of broad index and sector ETFs

With 2024 officially over, it is a good time to reflect on 2024 equity ETF returns. Like our mid-year post from 2024, this post highlights the top and bottom-performing ETFs by sector. We’ve added the Nasdaq-100 ETF (ticker: QQQ) 2024 returns for comparison. We also discuss what themes likely contributed to this performance.

S&P 500 Sector Returns, S&P 500 and Nasdaq ETF total returns, 2024

Top and bottom-performing sector ETFs for 2024

As the chart above shows, communication services (ticker: XTL) was the top-performing sector ETF of 2024, with a nearly 35% return. This may be surprising, given it was the worst-performing sector ETF in the 1st half of 2024. It appears that this ETF’s exposure to artificial intelligence (AI) and data centers contributed significantly to its total return for 2024. The healthcare sector ETF (ticker: XLV) was the worst-performing sector of the S&P 500 index. Considered a more defensive sector, investors were not looking for this approach in 2024. However, lower prices in the healthcare sector, relative to other sectors in the S&P 500, may bode well for healthcare ETF investors in 2025.

The S&P 500 has another strong year in 2024

For ETF investors who selected the broad-based S&P 500 index (ticker: IVV), this was another strong year, with a total return of nearly 25%. The past two years have been the best returns for this broad-market index in the past 25 years. So, investors looking for a diversified equity ETF did well in 2023 and 2024 by investing in an S&P 500 index ETF.

S&P 500 Index performance since 1995. Source: WSJ.

2025 ETF Outlook

As we noted in previous outlooks at the start of the year, there is plenty of uncertainty going into 2025. With a new political party in the White House, and the Fed still considering the potential of future rate cuts, 2025 should be another challenging year for ETF investors.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
Posted on

The biggest ETF may be changing

The largest and oldest ETF is the SPDR S&P 500 ETF Trust (ticker: SPY), with $624 B in assets under management. However, two other S&P 500 ETFs are close behind. The Vanguard S&P 500 ETF (ticker: VOO) and iShares Core S&P 500 ETF (ticker: IVV) have $588 B and $582 B of assets under management. In this post, we discuss the likely change in the largest ETF, what may be contributing to it, and why it matters to investors.

In this post, we discuss the likely change in the largest ETF, what may be contributing to it, and why it matters to investors.
Photo by Markus Winkler on Pexels.com

The oldest ETF, SPY

The SPDR S&P 500 ETF Trust, commonly referred to as SPY, has been around the longest of any ETF. With an inception date of January 1993, SPY created an entirely new way to invest in a passive index that offered greater tax efficiency than mutual funds. As we wrote about a few years ago, the taxable gains between ETFs and mutual funds can be significant. This tax inefficiency makes no difference for Individual Retirement Accounts (IRAs). But for taxable account holders, significant tax drag is drawing investors into ETFs. Several mutual funds are converting to ETFs.

The two other S&P 500 index ETFs

ETFs from Vanguard and iShares also offer ETFs that track the S&P 500 index. This index is very popular with many investors as it diversifies across many equity sectors. But, because of its weighting by market capitalization, some companies hold more significant influence. Nevertheless, it remains a popular index for investors. And, with an expense ratio of 0.03%, these ETFs offer this exposure with very little cost. These expense ratios are in stark contrast to SPY, with its expense ratio of 0.09%. While still small, the expense ratio of SPY is 3X larger, helping VOO and IVV to grow faster than SPY.

Another driver of ETF growth

So, investors seem to be preferring lower expense ratio ETFs. VOO’s unique structure may also be contributing to its popularity. But, this benefit, which Vanguard patented, has expired in 2023. So, IVV and VOO may continue to grow at a similar rate. For individual investors, the small difference between the two ETF structures likely makes little difference in meeting their investment objectives.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
Posted on

Business leaders are cautious

Business leaders and other corporate insiders aren’t as optimistic as others who are contributing to strong market returns for 2024. Also, according to InsiderSentiment.com, their index continues to track below the long-term average. So, this post examines other possible contributors to lower optimism among business leaders, like Warren Buffett, Jamie Dimon, and Jeff Bezos.

business leaders have low sentiment
Photo by energepic.com on Pexels.com

The fourth year of a presidential cycle

As we’ve written about previously, the four years of a presidential cycle can have very different market returns. So here, we’ve updated the table below from this previous article, and included the upper and lower 95% confidence limits.

Presidential YearAverage Return (%)95% Lower Limit (%)95% Upper Limit (%)
16.7-2.115.6
23.3-4.911.5
314.06.621.5
46.70.612.9
Average Returns of the S&P 500 from 1928 to 2024. Data Source: www.macrotrends.net

So far, with the S&P 500 up about 21% this year, we are well above the upper limit for the 4th year of the Biden administration. Consequently, this statistical analysis suggests markets may trend back to their long-term mean.

Other factors at play for investors and business leaders

Of course, there have been other factors influencing investors recently. For instance, the Federal Reserve recently reduced short-term interest rates by 0.5%. Also, the monthly jobs report was stronger than expected. Lastly, seasonal hiring appears to be picking up ahead of a potentially strong demand this holiday season. Whether these factors hold until the end of the year is uncertain. And, many expect the presidential election result may also impact future market performance, along with whether the port workers strike again in the early part of 2025. Thus, only time will tell how the market responds to these factors of uncertainty.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs