The big gain from homeownership is the imputed rent: the ability to live in the place. That’s highly valuable—but immediately consumed.
I DON’T MAKE New Year’s resolutions. I exercise to feel good, not to lose a certain number of pounds or notch some personal athletic record. I save because my future self will appreciate the sacrifice I make today, not because I’m targeting some specific level of wealth. I’ve never had a defined life plan. My career has been opportunistic. Yet, despite all that, my wife and I settled on and pursued two goals early in our marriage that had a lasting impact on our family’s finances—and on the stories we share with our kids as they,
LIKE SOME OF YOU reading this, I get a thrill from seeing my 401(k) contributions start at zero in January and tick up to the annual limit. I’ve been fortunate to maximize my contributions for most of my 24 working years. Last year, my contributions topped out at the 2021 limit of $19,500. In 2022, I’m aiming to make the maximum contribution of $20,500. For those age 50 and older, you can contribute up to $27,000 in 2022.
WE’VE BEEN BRAINWASHED by advertisers and financial firms into believing that retirees are a homogeneous group who all want the same things. They aren’t. Instead, they have differing needs, values and wants, and this divergence is getting greater because of things like increasing longevity, dwindling job security and the elimination of pensions.
Let’s consider the standard bell-shaped distribution curve—and then apply it to people’s retirement behaviors. On the far left and far right of the curve are the outliers,
QUICK FINANCIAL scores can be thrilling. The idea of plopping down a few bucks to hit it big with a lottery ticket or the roulette wheel is alluring to many. Even folks who know the odds are stacked in favor of the house engage in these gambles.
That brings me to a recent M1 Finance survey of more than 2,000 investors. A particularly sobering stat involved alternative assets: 73% of those who described their situation as “struggling to survive financially” planned to invest in some form of alternative asset,
MY PORTFOLIO GAINED some 4% in 2021. While I certainly didn’t expect to match the S&P 500’s impressive 28.6% performance, I was surprised at how low my return actually was. This surprise is a lesson unto itself: We often overestimate our own performance.
There’s a number of reasons for my portfolio’s middling returns. First, I began 2021 with my stock allocation at around 40%. Bonds, cash, and gold and gold mining companies rounded out the rest of my portfolio.
WHEN FOLKS TALK about their best financial decisions, they’ll often mention the investments they bought. But my list is quite different. Here are the five best money moves I’ve made during my dozen years in retirement:
1. Updating my estate plan. When I was my mother’s primary caregiver, she was the major beneficiary of my estate. If something happened to me, I wanted to make sure she could afford the care she needed.
BACK IN NOVEMBER, I wrote about using options to bet that shares of Peloton Interactive would decline. This was my first options trade. I purchased the put option when Peloton was trading in the low $50s. The option cost me $200, and it gave me the right to sell 100 shares at $35 per share in March 2022.
Since then, Peloton’s shares have indeed tumbled. It was recently announced that the stock will be booted from the Nasdaq-100 index,
OVER CHRISTMAS, I got the sort of question I love to answer. My daughter’s thoughtful boyfriend had set aside some money for his niece’s college education. What was the best way to invest it?
I said that we’d paid for much of our children’s education with money invested in 529 college savings plans. The investment gains went untaxed because we’d spent the money on tuition, room and board. On top of that, our 529 contributions were deductible against our state-income tax in Pennsylvania,
DESPITE WHAT’S SHOWN on TV medical shows, cardiopulmonary resuscitation (CPR) can be a traumatic procedure that has a low likelihood of success. Even if successful in immediately restarting the heart, the fact that it was necessary doesn’t bode well for long-term survival.
Some injuries or illnesses happen so suddenly that there’s little time to consider options. But for many, old age creeps up slowly or a serious illness drags on and worsens. This is the point where it’s helpful to have not just a living will and a health care power of attorney,
OVER THE PAST 25 years, the Federal Reserve has become more transparent than ever. Much of this is the result of political pressure. Still, the Fed has taken it further, believing greater transparency to be a good thing in helping the public understand the likelihood of future policy changes. Talking more may have helped us move past the 2008 financial crisis. But it isn’t helping us now.
Congress created the Federal Reserve in 1913.
WHEN I STARTED flying for American Airlines in 1978, the industry was regulated. Routes, fares, airline size, pretty much everything the airlines did was controlled by the Civil Aeronautics Board. Then, later that year, the Airline Deregulation Act became law. Overnight, rules governing the industry changed.
This had far-reaching effects. But the biggest change was the cost of airline tickets. They became a lot cheaper.
Over the next 40 years, established carriers went bankrupt and disappeared.
MANY FOLKS SPEND December frantically hunting for ways to cut their taxes, whether it’s realizing losses in their taxable investment accounts, making charitable donations or raising their 401(k) contributions for the year’s final few paychecks.
A better strategy: Manage your taxes year-round rather than just at year-end. Filing a tax return is a reactive process—a record of income and deductions that have already occurred. It takes foresight and action to shape what those lines will look like on next year’s tax return.
THIS PAST YEAR marked my 50th anniversary of driving. Over that time, our family has owned 19 cars and driven them roughly 1.9 million miles. While latte purchases frequently evoke financial debate, cars seem less discussed, despite being Americans’ second-largest expenditure after housing. The purchase, ownership, maintenance and sale of cars can all get pretty complicated.
Cars are considered a depreciating asset, but not always. My first car was a 1967 Mercury Comet, which I bought for $400 in 1973.
I’LL ACKNOWLEDGE THAT today’s topic isn’t the most upbeat. I want to talk about risk—and, specifically, some of the underappreciated risks related to retirement.
In thinking about risk, the hardest part—in my view—is that it defies a single definition. Because of that, there’s no uniform yardstick for measuring it and thus no single strategy for managing it. As Howard Marks states in his book The Most Important Thing, “Much of risk is subjective,
NO. 12: WE SHOULD focus less on the odds of something happening and more on the consequences. We likely won’t die during our working years. But if we did, how would our family cope?
NO. 7: GREAT RETURNS are a bad reason to save less. Thanks to strong investment performance, you may be closer than expected to your target nest egg. But if the markets have raced ahead of underlying fundamentals, the big returns may have borrowed from the future, weaker results might lie ahead—and saving less could imperil your goals.
ADD UP YOUR FIXED living costs. Include mortgage or rent, car payments, property taxes, insurance premiums and other recurring monthly expenses. How long could you cover these costs if you lost your job? Are these expenses so high you find it tough to save—and suffer constant stress? Our advice: Keep fixed costs below 50% of pretax monthly income.
EFFICIENT FRONTIER. What mix of investments offers the highest expected return for a given level of risk—or the lowest risk for a target return? In theory, these optimal portfolios can be found on the “efficient frontier.” Their key attribute: broad diversification. By combining investments that don’t always move in sync, we can reduce volatility.
ANNUITIES ARE OFTEN dismissed as costly, complicated contraptions that are more lucrative for Wall Street than investors. And I’m half-inclined to stick with that blanket condemnation, rather than muddy the waters by offering a more nuanced view. I hate the idea that somebody might read this article and then buy the wrong type of annuity—and end up making a horribly expensive mistake.
Still, I believe there are four types of annuity that can make sense for investors.
I RECENTLY RECEIVED an email from a friend asking, “What financial advice would you give to your younger self, now that you’re older?” I had to think for a while. But once I sat down to reply, I realized my attitudes about personal finance were already well-developed by the time I was in my 20s. I also realized my financial beliefs had been shaped, in part, by growing up in a family where money wasn’t exactly plentiful.
I HAVE A BIG problem with a small word. But before I get to that, I’ll start with a little bit of history.
In his book The Success Equation, Michael Mauboussin tells this story: Back in the 1970s, a Spanish man won the country’s biggest national lottery, called El Gordo—the Big One. Awarded annually at Christmastime, it’s the rough equivalent of our Powerball. In this particular year, when the winner was interviewed,
THE FINANCIAL markets are often quick to punish investment sins. By contrast, if we err with our borrowing, spending and other personal-finance issues, problems might not show up until years later—but the damage can be just as great. Here, to complement last week’s list of 12 deadly investment sins, are 12 deadly personal-finance sins:
1. Pride: Keeping up with the Jones by buying luxury cars and fancy clothes.
Antidote: Realize the folly of buying depreciating assets you don’t need,
YOU’RE SITTING in your favorite restaurant, feeling famished. The waiter arrives and reads a long list of mouth-watering specials. Yet the moment he walks away, all you can recall is the last item on the list.
Welcome to the recency effect.
In psychology, the recency effect refers to the human tendency, when asked to remember a long list of things, to have sharper recall of the final items. No doubt you’ve experienced this at a party.
DESPITE WHAT’S SHOWN on TV medical shows, cardiopulmonary resuscitation (CPR) can be a traumatic procedure that has a low likelihood of success. Even if successful in immediately restarting the heart, the fact that it was necessary doesn’t bode well for long-term survival.
Some injuries or illnesses happen so suddenly that there’s little time to consider options. But for many, old age creeps up slowly or a serious illness drags on and worsens. This is the point where it’s helpful to have not just a living will and a health care power of attorney,
OVER THE PAST 25 years, the Federal Reserve has become more transparent than ever. Much of this is the result of political pressure. Still, the Fed has taken it further, believing greater transparency to be a good thing in helping the public understand the likelihood of future policy changes. Talking more may have helped us move past the 2008 financial crisis. But it isn’t helping us now.
Congress created the Federal Reserve in 1913.
WHEN I STARTED flying for American Airlines in 1978, the industry was regulated. Routes, fares, airline size, pretty much everything the airlines did was controlled by the Civil Aeronautics Board. Then, later that year, the Airline Deregulation Act became law. Overnight, rules governing the industry changed.
This had far-reaching effects. But the biggest change was the cost of airline tickets. They became a lot cheaper.
Over the next 40 years, established carriers went bankrupt and disappeared.
MANY FOLKS SPEND December frantically hunting for ways to cut their taxes, whether it’s realizing losses in their taxable investment accounts, making charitable donations or raising their 401(k) contributions for the year’s final few paychecks.
A better strategy: Manage your taxes year-round rather than just at year-end. Filing a tax return is a reactive process—a record of income and deductions that have already occurred. It takes foresight and action to shape what those lines will look like on next year’s tax return.
THIS PAST YEAR marked my 50th anniversary of driving. Over that time, our family has owned 19 cars and driven them roughly 1.9 million miles. While latte purchases frequently evoke financial debate, cars seem less discussed, despite being Americans’ second-largest expenditure after housing. The purchase, ownership, maintenance and sale of cars can all get pretty complicated.
Cars are considered a depreciating asset, but not always. My first car was a 1967 Mercury Comet, which I bought for $400 in 1973.
I’LL ACKNOWLEDGE THAT today’s topic isn’t the most upbeat. I want to talk about risk—and, specifically, some of the underappreciated risks related to retirement.
In thinking about risk, the hardest part—in my view—is that it defies a single definition. Because of that, there’s no uniform yardstick for measuring it and thus no single strategy for managing it. As Howard Marks states in his book The Most Important Thing, “Much of risk is subjective,
NO. 12: WE SHOULD focus less on the odds of something happening and more on the consequences. We likely won’t die during our working years. But if we did, how would our family cope?
ADD UP YOUR FIXED living costs. Include mortgage or rent, car payments, property taxes, insurance premiums and other recurring monthly expenses. How long could you cover these costs if you lost your job? Are these expenses so high you find it tough to save—and suffer constant stress? Our advice: Keep fixed costs below 50% of pretax monthly income.
NO. 7: GREAT RETURNS are a bad reason to save less. Thanks to strong investment performance, you may be closer than expected to your target nest egg. But if the markets have raced ahead of underlying fundamentals, the big returns may have borrowed from the future, weaker results might lie ahead—and saving less could imperil your goals.
EFFICIENT FRONTIER. What mix of investments offers the highest expected return for a given level of risk—or the lowest risk for a target return? In theory, these optimal portfolios can be found on the “efficient frontier.” Their key attribute: broad diversification. By combining investments that don’t always move in sync, we can reduce volatility.
ANNUITIES ARE OFTEN dismissed as costly, complicated contraptions that are more lucrative for Wall Street than investors. And I’m half-inclined to stick with that blanket condemnation, rather than muddy the waters by offering a more nuanced view. I hate the idea that somebody might read this article and then buy the wrong type of annuity—and end up making a horribly expensive mistake.
Still, I believe there are four types of annuity that can make sense for investors.
I RECENTLY RECEIVED an email from a friend asking, “What financial advice would you give to your younger self, now that you’re older?” I had to think for a while. But once I sat down to reply, I realized my attitudes about personal finance were already well-developed by the time I was in my 20s. I also realized my financial beliefs had been shaped, in part, by growing up in a family where money wasn’t exactly plentiful.
I HAVE A BIG problem with a small word. But before I get to that, I’ll start with a little bit of history.
In his book The Success Equation, Michael Mauboussin tells this story: Back in the 1970s, a Spanish man won the country’s biggest national lottery, called El Gordo—the Big One. Awarded annually at Christmastime, it’s the rough equivalent of our Powerball. In this particular year, when the winner was interviewed,
THE FINANCIAL markets are often quick to punish investment sins. By contrast, if we err with our borrowing, spending and other personal-finance issues, problems might not show up until years later—but the damage can be just as great. Here, to complement last week’s list of 12 deadly investment sins, are 12 deadly personal-finance sins:
1. Pride: Keeping up with the Jones by buying luxury cars and fancy clothes.
Antidote: Realize the folly of buying depreciating assets you don’t need,
YOU’RE SITTING in your favorite restaurant, feeling famished. The waiter arrives and reads a long list of mouth-watering specials. Yet the moment he walks away, all you can recall is the last item on the list.
Welcome to the recency effect.
In psychology, the recency effect refers to the human tendency, when asked to remember a long list of things, to have sharper recall of the final items. No doubt you’ve experienced this at a party.
What Voices questions would you ask?
Which aspect of the tax code do you hate the most?
What's the best place to stash money you'll spend soon?