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If a purchase promises lasting value, there’s a good chance it’ll last long enough to disappoint.
I NEVER PURCHASED long-term-care insurance, even though the personal finance magazine I wrote for in the 1990s often recommended it. To the magazine’s editors, it seemed like another logical step in retirement preparation. I had two reasons to decide against it, however.
First, it seemed a huge expense. We were advised to buy it around age 60, long before any presumed decline. I was younger than that and unprepared to pay hundreds a month for decades when I didn’t know if I’d ever use the coverage.
THE BEST WAY TO WIN a contest for the largest tomato is to paint a cantaloupe red and hope the judges don’t notice, or so says an old adage.
What does that have to do with managing money? Newspapers and magazines frequently interview mutual fund managers who have beaten their competitors, and perhaps the S&P 500 as well. Fund-management firms will even run ads touting the performance of these funds.
These interviews sometimes prompt me to do my own research.
MY RETIREMENT IN July 2020 came at a stressful time. I was recovering from knee replacement surgery and we were in the midst of the pandemic. Luckily, I had physical therapy goals to meet, and I’d already purchased a huge supply of reading material. TV, music and my laptop were also there to distract me. In addition, my wife had retired eight months before, so we had each other for company.
As the pandemic stretched on,
ON TELEVISION, I WATCH the Barrett-Jackson auctions of expensive cars. When two bidders want the same car, they drive up the price until one decides enough is enough and drops out.
Why is this car so important to the bidders? In many cases, it’s a well-known car that’s highly valued by car collectors, so it’s treated like an investment with lasting value. Other times, it could be a model that the bidders had admired as teenagers,
I WAS INTRIGUED WHEN an old Dutch painting attributed to a “follower of Rembrandt” came up for auction near me in Maine late last month. It was a portrait of a young woman wearing an elaborately starched ruff collar, the type of clothing depicted in Golden Age paintings from the 1600s.
The country auction house estimated the painting would fetch $10,000 to $15,000. I couldn’t shake the thought—however fleeting—that this might be the real thing.
ABOUT ONCE A WEEK, someone will say to me, “I don’t understand bonds.” Sometimes, they’ll state it in stronger terms: “I don’t like bonds.”
Fundamentally, bonds are just IOUs. If you buy a $1,000 Treasury bond, you’re simply lending the government $1,000. The Treasury will then pay you interest twice a year and return your $1,000 when the bond matures. That part is straightforward. What’s more of a mystery is why we should own bonds and what we should expect from them.
NO. 91: A MORTGAGE leverages your home’s price appreciation—and costs you a bundle in interest. If you buy a $300,000 home with $30,000 down and the price climbs 30% to $390,000, your home equity would leap 300% to $120,000. But how much did you pay in mortgage interest to get this gain? Often, the cost of leverage offsets the benefit.
NO. 5: WE'RE IMPULSIVE. Our brain has two parts: an instinctive side and a contemplative side. Much of the time, we operate on instinct. But with money, our instincts can lead us astray, prompting us to make impulsive spending and investing choices. To reduce the risk of subsequent regret, stop and pause, especially before big financial decisions.
TRY THE BACKDOOR. Is your income too high to fund a Roth IRA? Consider making nondeductible contributions to a traditional IRA and then converting it to a Roth. This can allow you to get money into a Roth at little or no tax cost—provided your nondeductible IRA is your only IRA. If it isn't, the so-called backdoor Roth could trigger a big income tax bill.
NO. 32: WE SHOULD start with the global market portfolio—the investments we collectively own—and decide what we don’t want in our portfolio. Often, foreign bonds are the biggest subtraction.
WHEN I WAS A YOUNG engineer, I supervised a charismatic worker named Neil, who was a sort of pied piper to the younger engineers and technicians in our group. He was about 20 years older than us and loved to dispense advice like a guru.
His quirky advice usually had a financial component. For example, he recommended that we single guys marry women with curly hair, as that would save tens of thousands of dollars over the course of the marriage,
AS A PARENT, IT’S my responsibility to teach my children good financial habits. Core among these are deferring gratification, saving diligently, giving generously and making sensible spending choices. I feel it’s also important to make my children aware of financial pitfalls. Succeeding financially—and in life generally—seems to be as much about avoiding self-destructive habits as it is about cultivating good ones.
My wife and I have been homeschooling our children for the last couple of years.
I WROTE ABOUT the perils of timing the market last Sunday. This week, I’ll address its close cousin: stock-picking.
These days, many people accept that stock-picking isn’t a great idea. Evidence shows that both professional and individual investors fare poorly, on average, when they choose individual stocks. But why exactly is that? How is it that indexes—which are simply lists of stocks—so frequently outpace the results of professional portfolio managers?
There’s more than one answer to this question.
DURING MY NEARLY 70 trips around the sun, I have made countless mistakes. Most have been minor, but three stand out. Two I have already made, and the third I’m about to make.
Mistake No. 1: Go-Kart. When I was 12 years old, I bought a go-kart. It has a fiberglass body and was built to resemble the car driven to victory by legendary driver Jim Clark in the 1965 Indianapolis 500.
WHY DON’T WE SPEND our time and energy on financial issues that have the greatest impact? We’ll drive to a more distant gas station to save 10 cents a gallon, but fail to do all the maintenance needed to extend the life of our car. What lies behind this sort of behavior? The savings from getting the best price per gallon is concrete and immediate, while maintaining our car is long term and abstract.
NO. 32: WE SHOULD start with the global market portfolio—the investments we collectively own—and decide what we don’t want in our portfolio. Often, foreign bonds are the biggest subtraction.
NO. 91: A MORTGAGE leverages your home’s price appreciation—and costs you a bundle in interest. If you buy a $300,000 home with $30,000 down and the price climbs 30% to $390,000, your home equity would leap 300% to $120,000. But how much did you pay in mortgage interest to get this gain? Often, the cost of leverage offsets the benefit.
NO. 5: WE'RE IMPULSIVE. Our brain has two parts: an instinctive side and a contemplative side. Much of the time, we operate on instinct. But with money, our instincts can lead us astray, prompting us to make impulsive spending and investing choices. To reduce the risk of subsequent regret, stop and pause, especially before big financial decisions.
TRY THE BACKDOOR. Is your income too high to fund a Roth IRA? Consider making nondeductible contributions to a traditional IRA and then converting it to a Roth. This can allow you to get money into a Roth at little or no tax cost—provided your nondeductible IRA is your only IRA. If it isn't, the so-called backdoor Roth could trigger a big income tax bill.
WHEN I WAS A YOUNG engineer, I supervised a charismatic worker named Neil, who was a sort of pied piper to the younger engineers and technicians in our group. He was about 20 years older than us and loved to dispense advice like a guru.
His quirky advice usually had a financial component. For example, he recommended that we single guys marry women with curly hair, as that would save tens of thousands of dollars over the course of the marriage,
AS A PARENT, IT’S my responsibility to teach my children good financial habits. Core among these are deferring gratification, saving diligently, giving generously and making sensible spending choices. I feel it’s also important to make my children aware of financial pitfalls. Succeeding financially—and in life generally—seems to be as much about avoiding self-destructive habits as it is about cultivating good ones.
My wife and I have been homeschooling our children for the last couple of years.
I WROTE ABOUT the perils of timing the market last Sunday. This week, I’ll address its close cousin: stock-picking.
These days, many people accept that stock-picking isn’t a great idea. Evidence shows that both professional and individual investors fare poorly, on average, when they choose individual stocks. But why exactly is that? How is it that indexes—which are simply lists of stocks—so frequently outpace the results of professional portfolio managers?
There’s more than one answer to this question.
DURING MY NEARLY 70 trips around the sun, I have made countless mistakes. Most have been minor, but three stand out. Two I have already made, and the third I’m about to make.
Mistake No. 1: Go-Kart. When I was 12 years old, I bought a go-kart. It has a fiberglass body and was built to resemble the car driven to victory by legendary driver Jim Clark in the 1965 Indianapolis 500.
WHY DON’T WE SPEND our time and energy on financial issues that have the greatest impact? We’ll drive to a more distant gas station to save 10 cents a gallon, but fail to do all the maintenance needed to extend the life of our car. What lies behind this sort of behavior? The savings from getting the best price per gallon is concrete and immediate, while maintaining our car is long term and abstract.
Booking It by Jonathan Clements
Active vs. Passive ETFs: Fidelity and T. Rowe Price Meet Vanguard by Steve Abramowitz
What’s your asset breakdown by tax treatment?
How would you prepare for the staggering cost of in-home care if you ever need it?
A Rental House? Questions to Consider (from Dana/DrLefty)
A Rental House?—By the Numbers (by Dana/DrLefty)