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What’s the common attribute of everyday Americans who have amassed $1 million or more? They’re frugal—otherwise known as cheap.

The Cardinal Sin

THERE’S A LITANY of investment sins. But one may top them all. I’m guessing it’s one you haven’t given much thought to. Until recently, neither did I. The cardinal investment sin: selling your winners too soon.
From 1926 to 2016, more than half of all U.S. stocks—57.4% to be exact—returned less than one-month Treasury bills. In other words, you were better off putting your money into risk-free T-bills than owning these stocks. In fact,

Read more »

Dream Inflation

AS PART OF OUR retirement strategy, my husband and I plan on using the money we make from the sale of our home in Oregon to help cover part of our retirement expenses. We already own a second home in Arizona, which we’ll move into once I leave my job. We’ve played around with different ideas for how best to use the money, including making a large, onetime payment against our Arizona home’s mortgage.

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Short Stuff

Saturday All Week

AS A HAPPILY RETIRED 69-year-old, I still remember a conversation I had with an acquaintance two decades ago. The gentleman had had many years in the military, followed by time as a city police officer. He had recently retired—forever—from his third career in federal law enforcement. That meant he was sitting pretty with three different pensions. To top it all off, he was probably in his mid-50s.
Even though my own retirement was still many years away,

Read more »

Feeling Insecure

NATIXIS INVESTMENT Managers published its ninth annual Global Retirement Index last week, which focused on overall wellbeing and financial security. The U.S. slipped to an unimpressive 17th out of 25 countries.
Perhaps that isn’t surprising given the state of Social Security. Based on the program’s current financing, benefits would need to be cut after 2033. None of us wants to hear that, but we also aren’t surprised. The Natixis study reports that a whopping 77% of U.S.

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Found Money

IT’S ESTIMATED THAT up to $3 billion of unclaimed property is recovered every year. But another $49 billion is lost and still waiting to be claimed. How much of it is yours?

Whenever I check if I’m due anything, I always come up empty. But the memories of found money keep me checking and hoping something pops up. Who can ever forget finding that surprise dollar bill in the pocket of your recently washed jeans when you were 11 years old,

Read more »

A Few Extra Bucks

MY FIRST JOB DURING high school was bagging groceries at Publix Super Markets. The starting wage was a cool $7 per hour in 2004. That was big money to me. It meant I could work the weekends and a few nights a week, and then buy music CDs on eBay. My 2005 goal was to earn enough to fund a Roth IRA at Vanguard Group.
Today’s teenagers have it better. Don’t take my word for it: The latest wage growth tracker,

Read more »

What They Remember

THERE’S A SAYING in the military: Rank has its privileges. It’s absolutely true. The trappings that accompany the highest military ranks can include aides, personal drivers and even cooks, to name just a few. The best leaders I’ve worked with knew that these trappings were ephemeral and often the result of luck, albeit mixed with hard work and ability.
Not every leader—whether they served in the military, corporate America or elsewhere—understands this. After retirement,

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Moving Back Home

WHEN MY PARENTS were alive, they would ask me what I was going to do with their home when they passed away. I knew they wanted me to live there. My sister and brother-in-law had no interest in the house. They were planning to move to Tennessee to be close to their son.
I never really gave them an answer on what my plans were. They probably never understood why I wouldn’t jump at the chance to live in a bigger house with more amenities in a safer neighborhood.

Read more »

Longer Reads

You Aren’t Listening

WHEN IT COMES to communication, I’m kind of a fanatic. (My wife would say I should drop the “kind of.”) More specifically, I’m a fan of responsive communication.
Back in my working days, when I practiced criminal law, I made it a point to return phone calls and emails from clients promptly. It was rare that I didn’t do it the same day. If that meant staying late at the office until I caught up,

Read more »

On Your Way Out

IMAGINE YOU PLAN to retire next year. What can you do beforehand to gain the most later on? Here are some ideas to consider before you log off at work for the last time.
If you’re retiring mid-year, increase your 401(k) or 403(b) contributions. Raise your savings enough to make a full year’s allowable contribution in the months you have left. This may be your last chance to put away tax-deferred money. I retired mid-year,

Read more »

Giving Twice

MY ANDROID RANG on a sunny Saturday afternoon. The screen said it was from a police station. Hesitating, I took the call. My biracial son came on.
“I’m going to jail, Mom. But I didn’t do it.”
Instant memories, almost 50 years old, of police guns pointing at my African husband’s head and mine. Wrong profile of an interracial couple. It wasn’t us. Checking IDs, they realized we weren’t the suspects sought.
With my son’s phone call,

Read more »

Warren’s Relative

AT 40 YEARS OLD, I missed out on the phenomenal early years that allowed Berkshire Hathaway to return nearly 3,000,000% since 1964, versus a “mere” 23,500% for the S&P 500. Yet my investment time horizon is still long—and that’s a huge advantage as an investor.
How should I use that advantage? As I write this, Berkshire’s total stock market value is roughly $650 billion. By contrast, one of the stocks my wife and I bought—Boston Omaha—is worth less than $1 billion.

Read more »

How I’ve Strayed

LIKE MANY READING this article, index funds constitute the lion’s share of my family’s investments. But I also own small positions in two individual stocks: Boston Omaha and Markel.
Why have I strayed from a 100% indexing approach? Both companies are conglomerates—multiple businesses that function as a single entity. Conglomerates should—in theory—be able to deliver slightly higher returns, thanks to the business efficiencies and synergies they realize. On top of that, they can offer some of the strengths of a mutual fund: diversification plus intelligent capital allocation.

Read more »

Often Overlooked

PERSONAL FINANCE pundits love to debate safe withdrawal rates—the amount a retiree can withdraw each year from a portfolio without depleting it too quickly. I agree this is an important topic. In fact, I’ve addressed it a few times myself in recent months.

In July, I discussed the well-known 4% rule. A few weeks ago, I described an alternative called the bucket strategy. But as you build your retirement plan, withdrawal rates shouldn’t be the only consideration.

Read more »

Voices

Which financial markets are in a bubble, if any?

"Ask me this question in 10 years. We see bubbles in the rearview mirror."
- Kurt S
Read more »

If money were no object, what would you change about your life?

"I have no major regrets, for my life and choices, other than staying in a job(s) and field that I grew to dislike. The job(s) offered great pay and benefits but little satisfaction and a tremendous amount of stress. In hindsight, I should have chosen to leave this profession earlier than I did. I retired early, but some of the job-related stress may have resulted in some PTSD trauma that I'm trying to slowly address."
- Cathy Moriarty
Read more »

Which financial tasks do you find most irksome?

"My first career was a CPA specializing in tax, but I don't even do my own taxes anymore. They are all but impossible to do without software. Fortunately, my daughter is a CPA."
- Richard Gore
Read more »

Money Guide

Market Portfolio

AS INVESTORS DESIGN their portfolio, many will use a 100% U.S. stock portfolio as their starting point and then decide how they'll deviate. What's the advantage of this approach? You begin with stocks, which are a portfolio’s engine of growth: They’re the asset class that will give you the best shot at outpacing the twin threats of inflation and taxes over the long haul. Stocks, of course, also come with the risk of terrible short-term results. This is the reason that investors will add other investments. You can lower a portfolio’s overall volatility by taking some of your U.S. stock market money and shifting it into foreign stocks. But the biggest risk reduction comes from adding conservative investments, notably bonds. That brings us to an alternative—and perhaps more rational—approach: Instead of starting with a 100% U.S. stock portfolio and deciding what to add, you might begin with the so-called global market portfolio and then figure out what to subtract. What's the global market portfolio? It's the portfolio that includes the entire investable universe, with all investments weighted by their market value. In effect, the global market portfolio reflects what all other investors collectively own, so arguably it's the ultimate in diversification—and hence the logical starting point as you design a portfolio. The global market portfolio consists of four key sectors, all roughly equal in size: U.S. stocks, U.S. bonds, foreign stocks and foreign bonds. If you focus heavily on just one of these four sectors, you are making a huge market bet on a quarter of the global financial markets—a bet that could backfire. An example: Japanese stocks today remain far below their year-end 1989 value. That has meant disastrous results for Japanese investors who wagered solely on their own country’s stock market and it highlights the dangers of what experts in behavioral finance call "home bias." Could we see equally grim results for U.S. stocks? It seems improbable. But the terrible performance of the Japanese market since 1989 would also have seemed wildly improbable in the late 1980s, when the Japanese economy was the envy of the world. To avoid disastrous results like those suffered by Japan, you should probably hold a globally diversified stock portfolio, while also owning at least some bonds. Next: Diversifying Stocks Previous: Step 3: Diversify
Read more »

Manifesto

NO. 20: FRUGALITY isn’t just the key to financial success. It’s also no great sacrifice, because spending often brings only fleeting happiness—and sometimes even pangs of regret.

Truths

NO. 100: THE BIGGEST “death tax” paid by your family will probably be the income taxes still owed on your retirement accounts. One possibility: Pay the tax to convert part of your traditional IRA to a tax-free Roth IRA, and then bequeath that account—an especially smart move if your heirs are likely to be in a higher income-tax bracket than you.

Act

LOOK FOR TAX savings—by reviewing your recent tax returns. Two danger signs: lots of interest income and realized capital gains, especially short-term capital gains. What to do? Avoid trading so much or, if necessary, confine it to a retirement account. Also use a retirement account to hold high-yielding bonds and other tax-inefficient investments.

Think

SHILLER P/E. Named after economist Robert Shiller, the Shiller price-earnings ratio—also known as the cyclically adjusted P/E ratio or CAPE—compares current stock prices to average inflation-adjusted earnings for the past 10 years. That smooths out cyclical fluctuations in corporate profits—a problem that can distort conventional P/E multiples.

Second Look

Retirement

Mind Games

I FEEL LIKE THERE is a death cloud hovering over me. I have been retired for nine years. I have lost my father and two of my best friends to cancer. I have seen aunts, uncles and cousins pass away. I have watched my mother struggle every day to do simple activities. When I talk to my friends, it usually ends in a discussion about our aches and pains or latest doctor’s appointments.
I’m not looking for sympathy or pity. 

Read more »

Family Finance

Gold Dust

FOR THE FIRST TIME in my life, I’ve hired a housecleaner. It’s absolutely worth it—but embarrassing to admit, at least at first.
I’ve always been a neat freak, demanding clean, organized and tasteful living quarters, so I’ve spent a good portion of my life cleaning and organizing. A lot. I have even declined an invitation to go boating and hiking because I was color-coding my books.
Lame, I know.
After purchasing our home, I realized something had to give.

Read more »

Investing

Comforts of Cash

I HAVE TO ADMIT IT, I’m one of those guys who likes to hide money. I have cash hidden in a couple of places in my house and even in the garage. And I’m not talking about a few dollars. I probably have more than $3,000 in denominations large and small tucked in envelopes. I also have a jar of coins.
You might ask, “Why in the world would someone have so much cash lying around the house?” I keep it on hand in case of an emergency.

Read more »

Lists

Picking Problems

I RECENTLY READ an interesting article about why you shouldn’t pick individual stocks. The author mentioned the classic reason: “Since most people (even the professionals) can’t beat the index, you shouldn’t bother trying.”
He also mentioned another reason: “The existential dilemma of doing so… how do you know if you are good at picking individual stocks?” The author goes on to mention that, since luck plays such a significant factor in stock-picking, it could take a very long time to determine if you’re good or just lucky and,

Read more »
Home Call to Action

Mindset

My Younger Self

DEAR 18-YEAR-OLD Kristine: You’re about to embark on adult life, so I want to share some financial advice with you. You will do many things right—and a few things wrong—so listen closely.
You’ll be heading off to college soon. Even though many of your high school classmates will be attending four-year schools, you’ll be staying closer to home. The local community college will be a good choice, since you have absolutely no idea what you want to do with the rest of your life.

Read more »

Longer Reads

You Aren’t Listening

WHEN IT COMES to communication, I’m kind of a fanatic. (My wife would say I should drop the “kind of.”) More specifically, I’m a fan of responsive communication.
Back in my working days, when I practiced criminal law, I made it a point to return phone calls and emails from clients promptly. It was rare that I didn’t do it the same day. If that meant staying late at the office until I caught up,

Read more »

On Your Way Out

IMAGINE YOU PLAN to retire next year. What can you do beforehand to gain the most later on? Here are some ideas to consider before you log off at work for the last time.
If you’re retiring mid-year, increase your 401(k) or 403(b) contributions. Raise your savings enough to make a full year’s allowable contribution in the months you have left. This may be your last chance to put away tax-deferred money. I retired mid-year,

Read more »

Giving Twice

MY ANDROID RANG on a sunny Saturday afternoon. The screen said it was from a police station. Hesitating, I took the call. My biracial son came on.
“I’m going to jail, Mom. But I didn’t do it.”
Instant memories, almost 50 years old, of police guns pointing at my African husband’s head and mine. Wrong profile of an interracial couple. It wasn’t us. Checking IDs, they realized we weren’t the suspects sought.
With my son’s phone call,

Read more »

Warren’s Relative

AT 40 YEARS OLD, I missed out on the phenomenal early years that allowed Berkshire Hathaway to return nearly 3,000,000% since 1964, versus a “mere” 23,500% for the S&P 500. Yet my investment time horizon is still long—and that’s a huge advantage as an investor.
How should I use that advantage? As I write this, Berkshire’s total stock market value is roughly $650 billion. By contrast, one of the stocks my wife and I bought—Boston Omaha—is worth less than $1 billion.

Read more »

How I’ve Strayed

LIKE MANY READING this article, index funds constitute the lion’s share of my family’s investments. But I also own small positions in two individual stocks: Boston Omaha and Markel.
Why have I strayed from a 100% indexing approach? Both companies are conglomerates—multiple businesses that function as a single entity. Conglomerates should—in theory—be able to deliver slightly higher returns, thanks to the business efficiencies and synergies they realize. On top of that, they can offer some of the strengths of a mutual fund: diversification plus intelligent capital allocation.

Read more »

Often Overlooked

PERSONAL FINANCE pundits love to debate safe withdrawal rates—the amount a retiree can withdraw each year from a portfolio without depleting it too quickly. I agree this is an important topic. In fact, I’ve addressed it a few times myself in recent months.

In July, I discussed the well-known 4% rule. A few weeks ago, I described an alternative called the bucket strategy. But as you build your retirement plan, withdrawal rates shouldn’t be the only consideration.

Read more »

Free Newsletter

Voices

Which financial tasks do you find most irksome?

"My first career was a CPA specializing in tax, but I don't even do my own taxes anymore. They are all but impossible to do without software. Fortunately, my daughter is a CPA."
- Richard Gore
Read more »

What are your top financial worries?

"My son's financial future. He is living paycheck to paycheck due to a divorce, child support and a general lack of understanding of real world finances."
- Jim Wood
Read more »

Is rental real estate a good investment?

"I think real estate can be a great investment if you have a long time frame to work with. I had a friend I worked with in Phoenix who every year for about 20 years would buy a rental property house. All of the homes followed the same pattern - 3 bedroom, 2 bath, cinderblock brick single story homes with a two car car port or garage and off street parking. They were all painted white, (inside and out), had the same hot water heaters, the same tan carpet, the had the same toilets, bath fixtures (Moen - lifetime guarantee), and the exterior plants that used minimal water and were landscaped with a drip irrigation system on a timer. My friend always targeted the same pattern of tenants. Working class people who had stable jobs, and 2 to 3 kids in school. The school districts were very important to these families as they all wanted educational opportunity for their children. My friend came to realize if he had stable renters, they would stay in the home for many years as moving caused a big disruption for their families. He was able to get modest rent increases every year without loosing a tenant. My friend would watch the market for these homes and attempt to buy them at a below market cost. He would then paint/carpet/fix up the property to attract the type of renter he was looking for. He never sold the houses even though the real estate had appreciated considerably. His plan was to use them as his "pension" fund, selling one home a year, starting when he retired, and continue to rent the remaining homes. He had the same HVAC, electrician, plumber, landscape guys working for him for years. Every few years, he built up a schedule for regular maintenance which kept his replacement cost manageable for repairs. I think most successful real estate investors have a plan they work from. Some specialize in small apartment complexes, some specialize in raw land investing, etc. Most important is figuring out how you can get an edge in the buying process to get the right property at a low price. I always believe you make your profits in real estate when you acquire the property."
- Bob Wilmes
Read more »
Home Call to Action

Manifesto

NO. 20: FRUGALITY isn’t just the key to financial success. It’s also no great sacrifice, because spending often brings only fleeting happiness—and sometimes even pangs of regret.

Act

LOOK FOR TAX savings—by reviewing your recent tax returns. Two danger signs: lots of interest income and realized capital gains, especially short-term capital gains. What to do? Avoid trading so much or, if necessary, confine it to a retirement account. Also use a retirement account to hold high-yielding bonds and other tax-inefficient investments.

Truths

NO. 100: THE BIGGEST “death tax” paid by your family will probably be the income taxes still owed on your retirement accounts. One possibility: Pay the tax to convert part of your traditional IRA to a tax-free Roth IRA, and then bequeath that account—an especially smart move if your heirs are likely to be in a higher income-tax bracket than you.

Think

SHILLER P/E. Named after economist Robert Shiller, the Shiller price-earnings ratio—also known as the cyclically adjusted P/E ratio or CAPE—compares current stock prices to average inflation-adjusted earnings for the past 10 years. That smooths out cyclical fluctuations in corporate profits—a problem that can distort conventional P/E multiples.

Money Guide

Contents

Market Portfolio

AS INVESTORS DESIGN their portfolio, many will use a 100% U.S. stock portfolio as their starting point and then decide how they'll deviate. What's the advantage of this approach? You begin with stocks, which are a portfolio’s engine of growth: They’re the asset class that will give you the best shot at outpacing the twin threats of inflation and taxes over the long haul. Stocks, of course, also come with the risk of terrible short-term results. This is the reason that investors will add other investments. You can lower a portfolio’s overall volatility by taking some of your U.S. stock market money and shifting it into foreign stocks. But the biggest risk reduction comes from adding conservative investments, notably bonds. That brings us to an alternative—and perhaps more rational—approach: Instead of starting with a 100% U.S. stock portfolio and deciding what to add, you might begin with the so-called global market portfolio and then figure out what to subtract. What's the global market portfolio? It's the portfolio that includes the entire investable universe, with all investments weighted by their market value. In effect, the global market portfolio reflects what all other investors collectively own, so arguably it's the ultimate in diversification—and hence the logical starting point as you design a portfolio. The global market portfolio consists of four key sectors, all roughly equal in size: U.S. stocks, U.S. bonds, foreign stocks and foreign bonds. If you focus heavily on just one of these four sectors, you are making a huge market bet on a quarter of the global financial markets—a bet that could backfire. An example: Japanese stocks today remain far below their year-end 1989 value. That has meant disastrous results for Japanese investors who wagered solely on their own country’s stock market and it highlights the dangers of what experts in behavioral finance call "home bias." Could we see equally grim results for U.S. stocks? It seems improbable. But the terrible performance of the Japanese market since 1989 would also have seemed wildly improbable in the late 1980s, when the Japanese economy was the envy of the world. To avoid disastrous results like those suffered by Japan, you should probably hold a globally diversified stock portfolio, while also owning at least some bonds. Next: Diversifying Stocks Previous: Step 3: Diversify
Read more »

Second Look

Retirement

Mind Games

I FEEL LIKE THERE is a death cloud hovering over me. I have been retired for nine years. I have lost my father and two of my best friends to cancer. I have seen aunts, uncles and cousins pass away. I have watched my mother struggle every day to do simple activities. When I talk to my friends, it usually ends in a discussion about our aches and pains or latest doctor’s appointments.
I’m not looking for sympathy or pity. 

Read more »

Family Finance

Gold Dust

FOR THE FIRST TIME in my life, I’ve hired a housecleaner. It’s absolutely worth it—but embarrassing to admit, at least at first.
I’ve always been a neat freak, demanding clean, organized and tasteful living quarters, so I’ve spent a good portion of my life cleaning and organizing. A lot. I have even declined an invitation to go boating and hiking because I was color-coding my books.
Lame, I know.
After purchasing our home, I realized something had to give.

Read more »

Investing

Comforts of Cash

I HAVE TO ADMIT IT, I’m one of those guys who likes to hide money. I have cash hidden in a couple of places in my house and even in the garage. And I’m not talking about a few dollars. I probably have more than $3,000 in denominations large and small tucked in envelopes. I also have a jar of coins.
You might ask, “Why in the world would someone have so much cash lying around the house?” I keep it on hand in case of an emergency.

Read more »

Lists

Picking Problems

I RECENTLY READ an interesting article about why you shouldn’t pick individual stocks. The author mentioned the classic reason: “Since most people (even the professionals) can’t beat the index, you shouldn’t bother trying.”
He also mentioned another reason: “The existential dilemma of doing so… how do you know if you are good at picking individual stocks?” The author goes on to mention that, since luck plays such a significant factor in stock-picking, it could take a very long time to determine if you’re good or just lucky and,

Read more »

Mindset

My Younger Self

DEAR 18-YEAR-OLD Kristine: You’re about to embark on adult life, so I want to share some financial advice with you. You will do many things right—and a few things wrong—so listen closely.
You’ll be heading off to college soon. Even though many of your high school classmates will be attending four-year schools, you’ll be staying closer to home. The local community college will be a good choice, since you have absolutely no idea what you want to do with the rest of your life.

Read more »