Rethinking My Mix
Catherine Horiuchi | Nov 13, 2021
ASSET ALLOCATION is usually a set-it-and-forget-it exercise. At least, that’s how I’ve handled it until now. I decided on my appetite for risk, then set my stock-bond ratio accordingly. I tallied everything once or twice a year, and then rebalanced. I’d apply a portion of my winning positions to my less successful asset classes. Rebalancing this way forced me to buy low and sell high. Combined with dollar-cost averaging, it’s an investing approach that’s served me well for more than 20 years. Each year, I’d also consider how much I wanted to keep in cash investments. Now that I’m semi-retired, I’d been looking to reduce my stock exposure and add to cash. At least that was the plan, until now. The current “transitory” spike in inflation has forced me to me to rethink my entire approach. Here’s why: If the current inflationary bout should persist, my cash assets could lose nearly a quarter of their value over the next five years. This has me looking to trim my cash investments substantially, not add to them. Next, I’m concerned about what life will be like 20 years from now. The remaining baby boomers will swell the ranks of the over-80 crowd. They’ll be selling investments to pay for health care and many other senior-oriented necessities. The cost of these services has risen faster than consumer inflation for years. I don’t imagine that trend reversing now. The general investment selloff required to meet these expenses may depress returns for all of us. This creates a dilemma as I weigh my asset allocation. Higher inflation means low—or negative—real returns on cash and bonds. I may be required to own more stocks just to have a fighting chance against that loss of purchasing power. Of course, that would increase my investment risk during retirement—not…
Read more » Thanks, Younger Self
Catherine Horiuchi | Apr 15, 2020
SAVING FOR THE FUTURE entails a pinch in the present. Every so often, it makes sense to reconsider how much we save—and whether it’s time to take a break from saving. As a recent early retiree, I was pondering this, even before the latest stock market disruption. Unfortunately, none of us has a reliable crystal ball that tells us when to buy low or sell high. We also don’t have complete knowledge of our future self. Maybe future me will receive a windfall or die young, so I can get by with saving less. Or maybe I’ll develop a chronic condition and need more savings. We don’t know how lucky we will be on the way from youth to retirement—those years when we have the greatest opportunity to save. Savings aren’t “safe.” Risk is inevitable. Cash in an FDIC-protected bank account is guaranteed to keep its face value, but it’s also pretty much guaranteed to decline in real value each year due to inflation. Meanwhile, buying bad stock or bond market investments does little more than transfer your wealth to someone else. Recessions, market corrections and normal fluctuations can be difficult to stomach. And then we have occasional extraordinary events, like the economic and political disruptions caused by the coronavirus. Faced with all this uncertainty, I don’t try to divine the future. Instead, in setting aside a portion of my money for future me, I’m simply seeking to maintain purchasing power for a comfortable old age. With moderate luck and ongoing financial education, I might be able to eke out a percentage point or three above inflation, opening the road to a more prosperous retirement. I recently reviewed the Series EE and I savings bonds that I’ve purchased over the years. These ultra-conservative investments are rarely recommended. They’ve never been more…
Read more » At the End
Catherine Horiuchi | Nov 21, 2019
IT STARTED INNOCENTLY. A doctor’s visit. A blood test. Results. Admit to hospital for “a couple days of observation” that instead cascaded, over six days, into my husband’s death at age 71. His death certificate states “etiology unknown.” While doctors suspected prescribed medication, we will never know just what caused his liver to fail. Throughout, the situation had been confusing. Clarity regarding treatment options—and the likely outcome from procedures—was in short supply. He and I and doctors made medical decisions in the face of this uncertainty and without regard to costs. Crucially useful was my husband’s advance medical directive, completed a decade earlier when we updated our wills. I kept this at hand to reference as we made decisions. Language in directives is ambiguous and can be a poor fit to clinical decisions. Yet the directive was essential to working through differences of opinion among family members and to obtaining, in the final hours, a frank assessment from attending doctors and clinicians. Amid many roundtrips at all hours between home, hospital, airport and hotels, I lost my identification twice. Once, I was paying for parking at the hospital lot kiosk. I cancelled my credit and debit cards before getting my wallet back two days later, less the cash. “Nobody turns wallets in, ever,” said the hospital security guard as he handed it back. After that, I only carried keys, phone, my driver’s license and my backup credit card, and lost the license and credit card a couple of days later. It would be two months before I could replace my driver’s license with a new picture ID. In the interim, I carried my passport card and a printout listing my appointment with the DMV to replace my driver’s license. At the end, I was bedside with our three teenagers. Afterward, before…
Read more » Twin Peeks
Catherine Horiuchi | Jan 12, 2024
CAN IT REALLY BE TWO years since I wrote about sending my twins off to college? One is a chemistry major, midway through her junior year. Meanwhile, for her twin sister, the artist, there have been big changes in her college trajectory. My initial criteria for college selections included published statistics on cost, likelihood of admission, timely graduation and low rates of loan default. I took this last stat as a reasonable proxy for post-college success. My daughter the chemistry major is on track to graduate after four years. This past semester was her first as an organic chemistry lab assistant. She’s applying for internships in her field. If that doesn’t work out, she’ll take any other job. Her sister, after three semesters in art school, came home without a degree. She’d become uncomfortable with the expense, not to mention the raw talent, Herculean effort and plain old good luck that would be essential to earning a living in the arts. She loved the big city and befriended amazing people. I’d paid tuition in full each semester, so she walked away debt-free. I’ve told her from the first to avoid the sunk cost fallacy—seeing something to completion only because she’d already invested considerable effort. Rather, I encouraged her to treat each semester as a new decision. She could continue at art school, look for work, switch to community college, become a volunteer or try something else. She returned home with “some college,” a category frequently found in job descriptions. A family friend suggested she volunteer at a school library. In our city, many elementary school libraries are open part of the day and staffed by volunteers. To take on this role at a public school required fingerprinting for a criminal background check and screening for tuberculosis. The principal explained the…
Read more » My Lazy Investing
Catherine Horiuchi | Mar 11, 2021
MY FIRST JOB AFTER college was at a global engineering firm. A roommate also worked there. It was a tedious office job, but my bosses thought I had potential and encouraged me to study engineering, which I didn’t. Instead, I quit and went to graduate school to study linguistics, a field where I observed the most professors having the most fun. My last paycheck at the engineering firm included an extra sum. It was a refund for a retirement account that had failed to vest because I hadn’t stayed long enough. This shocked me, since I hadn’t the foggiest sense that someday I would be old and need retirement funds. I didn’t know there was such a thing as a defined benefit plan. I spent the windfall, probably on rent and books, with nary a second thought. At my second job, I paid attention when bosses talked about the company’s 401(k) plan and insurance coverage. I worked there five years and, when I left, that money stayed in place. A lazy investor, I let it ride until I later rolled it over into my retirement account at my next employer. Throughout the remainder of my working life, I never cashed out that money. In fact, thereafter, I let all saved dollars ride, remembering that first little retirement check that got away. Some friends worked on picking better investments in an effort to boost their performance, but that sounded like extra effort with limited return for time invested. I just saved a little more, assuming my results were a little weaker. I’d ask others only general questions and tried to stay away from the worst investment mistakes, even when banner headlines managed to pierce my general disinterest in personal finance. During the dot-com boom, I met a couple of guys at…
Read more » Goodbye Assets
Catherine Horiuchi | Jan 12, 2021
MY TWINS ARE SENIORS in high school. That means, pandemic or no pandemic, we spent the fall applying to colleges. Here in California, the pandemic closed public schools in March and most did not reopen for in-person teaching with the start of the current academic year. That forced parents to stand in for college counselors. The preparations high school juniors usually engage in, such as visiting colleges and taking standardized tests, didn’t occur this past spring or summer. Student athletes spent the summer practicing in parks and driveways. Grades suffered under remote learning. For all these reasons, applying to college has been more difficult. And then there’s the price tag. Post-secondary education can be relatively inexpensive—or it can break the Bank of Mom and Dad. The federal government supplies some grants and many loans to limit the immediate financial damage, and colleges also dole out money from their own funds. Still, the student loan crisis is front page news. That’s one reason so many parents try to ensure their young adults don’t leave college with crushing debt. The federal government’s role begins with the Free Application for Federal Student Aid, or FAFSA, with “free” meaning it doesn’t cost you to ask. FAFSA calculates a family’s expected family contribution (EFC) based on the parents’ and student’s income and assets. On top of that, colleges use their own guidelines to distribute the grant money they control. For families earning below about $50,000, the EFC will likely be $0. After that, the amount rises sharply—and sometimes unfairly. For instance, middle-class single parents, along with older parents with a healthy amount of savings, may be shocked by how much they’re expected to pay toward college costs. There’s no way to sugarcoat it: Parents with decent incomes, or who’ve successfully set aside a chunk of…
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