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Successful money management doesn’t have to be complicated or clever. But it does take courage and clarity of thought.

Reflation Nation

RAMPANT SPECULATION in parts of the market has been obvious for months. Less obvious is whether investors collectively will pay a substantial price for it. Can a reflation trade pierce a market bubble?
Stocks posted solid gains in February—with the S&P 500 touching a record high on Feb. 12—but the final week felt a bit precarious, even if the benchmark ended the month down just 3.5% from that high. (Insert your favorite adjective to describe the correction so far: normal,

Read more »

Beware Groupthink

ECONOMIST JOHN Maynard Keynes once observed that, “It is better for reputation to fail conventionally than to succeed unconventionally.” This is probably true in many realms. It’s certainly true in the investment world.
As the last 12 months have demonstrated, extreme and unexpected events can and do happen. But analysts whose job it is to make economic forecasts rarely go too far out on a limb. Sure, there are some forecasters who will take a chance with a view that’s far outside the consensus.

Read more »

About the Kids

SHOULD LEAVING money to our children be a formal part of our financial strategy—or should we focus on our own wants and needs, and let the chips fall where they may?
My wife and I have four children ages 45 to 50. They’re all married and, between them, have 13 children ages five to 17. They’re also all college graduates, with almost the entire cost paid by my wife and me. Three have master’s degrees.

Read more »

Chews Wisely

THIS IS AN ARTICLE about not writing an article. It started with a Vox piece about the changes in society wrought by the 2007 introduction of the iPhone. One graph that caught my eye showed chewing gum sales steadily declining from 2007 to 2017, which was when the Vox article was published.
No economist would ever tie an economic trend to any one factor, but the article proffered an interesting hypothesis. It suggested that,

Read more »

Any Interest?

REMEMBER THE OLD joke about the efficient markets theory? An economics professor and a student are walking across campus, when the student says, “Look, there’s a $100 bill on the path,” to which the professor replies, “That can’t be true, because somebody would’ve already picked it up.”
I’ve been thinking about that joke not because of the efficient markets theory, but because I’m amazed at how many smart people walk by a $100 bill every day.

Read more »

Certain but Risky

A POPULAR MYTH holds that individual bonds are safer than bond funds—because individual bonds supposedly come with no interest rate risk.
Proponents of this notion claim that if you buy a bond and interest rates rise—which they have this year—you won’t lose any principal because you’ll eventually get back the bond’s par value, assuming you hold the bond to maturity and the issuer doesn’t default. This is true, but it doesn’t mean individual bonds don’t involve interest rate risk.

Read more »

Money Guide

Inflation

WHEN WE DISCUSS investment performance, we typically talk about nominal returns. But as an investor looking to increase your wealth, what you should care about are real returns, which are your results over and above inflation. Over the 50 years through year-end 2019, inflation climbed at 3.9% a year, as measured by CPI-U, the most widely used measure. But there’s been a notable deceleration in recent decades. Average annual inflation ran at 7.4% in the 1970s, 5.1% in the 1980s, 2.9% in the 1990s, 2.6% in the 2000s and 1.7% in the  2010s. Some observers worry that years of loose central bank monetary policy and federal government deficit spending will reignite inflation. But for now, inflation remains fairly subdued, with consumer prices climbing 2.3% in 2019. Lower inflation is typically good for investors, because it's a sign of economic stability—an environment where financial markets tend to flourish. Folks are also less likely to notch investment gains, only to discover that those gains are matched by inflation, so they're no better off in real terms. Factor in taxes, and things might be even worse. Let's say you sell a stock that's climbed 10% in a period when inflation rose 9%. After paying 15% in long-term capital gains taxes, you would be left with 8.5%, below the inflation rate. The decelerating inflation of recent decades has been especially good news for bond investors. Most bonds pay a fixed rate of interest, so inflation represents an unrecoverable subtraction from a bond investor’s real return—unless that inflation subsequently turns to deflation. By contrast, stocks can fare okay if inflation is high. Initially, accelerating inflation may depress share prices. But corporations can typically adjust to higher inflation, by raising the price they charge for their goods and services, thus compensating for any increase in wages and the cost of materials. That means corporate earnings can continue to grow faster than inflation. Assuming share prices rise along with those higher corporate earnings, stock investors will enjoy inflation-beating gains. Next: Economic Growth Previous: Asset No. 1: Stocks Article: Slipping Away
Read more »

Manifesto

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.

Truths

NO. 26: WALL STREET’S advice is often self-serving. Mutual fund companies want us to purchase actively managed funds, rather than index funds. Brokers want us to trade. Investment advisors want bigger portfolios to manage, and thus they may dissuade us from paying down debt or encourage us to take a lump sum in lieu of pension payments.

Act

FRONTLOAD 401(K) contributions in the early part of the year, so the money has longer to compound. But before doing so, contact human resources and ask how any employer match is credited—and only accelerate your contributions if the match is based on the sum you invest for the entire year, rather than the amount contributed each pay period.

Think

NEUROECONOMICS. To understand why we often make poor decisions, neuroeconomics studies how the brain reacts to financial situations. The research has confirmed insights first uncovered by behavioral finance, such as our strong aversion to losses, our fondness for long-shot investments and our preference for small rewards now over larger rewards later.

Second Look

Retirement

Take It or Leave It

THE CLASH, the U.K. punk-rock group, famously asked, “Should I stay or should I go?” Retirees and job changers need to tackle the same question when they leave their employer.
At that juncture, you have four options for your 401(k) or 403(b) account: You can leave the balance in your old employer’s plan, roll over the balance to a new employer’s plan, roll over the balance to an IRA or close out the account.

Read more »

Family Finance

Worldly Possessions

HOW MUCH are we all worth? The Credit Suisse Research Institute recently published its 2016 Global Wealth Report, as well as the accompanying Global Wealth Databook. It’s a tricky undertaking, given the difficulty of getting accurate data, even for developed countries. Still, the results are intriguing:

U.S. families own 33.2% of the world’s $256 trillion net worth. This figure combines financial assets (think stocks and bonds) and real assets (principally housing), with household debts then subtracted.

Read more »

Investing

Bought and Paid For

STOCK BUYBACKS are here to stay. The Securities and Exchange Commission opened the door in 1982, when it ruled that companies could repurchase their own stock without triggering accusations of share price manipulation. Ever since, more and more companies have taken advantage. Indeed, in recent years, U.S. corporations have spent more money buying back their own shares than paying out dividends.
Good news? I see both plusses and minuses. Here are the plusses:

Once you figure in buybacks,

Read more »

Lists

Choice Words

AS WE MAKE financial, political and other decisions, we’re bombarded with messages that supposedly offer helpful information. But as savvy consumers of news and advertising, we need to realize that we aren’t nudged just by the content of these messages. It’s also the packaging that can have a huge influence.
Below are 21 ways that information is packaged to make it more enticing. Think of this list as a follow-up to my earlier article,

Read more »
Home Call to Action

Mindset

Happily Misbehaving

IN SUMMER 2011, a rural Illinois man named Wayne Sabaj was in his backyard picking broccoli, when something caught his eye. Half buried in the dirt, he found a sealed nylon bag. Inside was $150,000 in cash. For Sabaj, who was unemployed and had, in his words, “spent my last $10 on cigarettes,” this was a godsend.
Though it remains a mystery who had buried this particular stash of money, these sorts of finds are not uncommon.

Read more »

Reflation Nation

RAMPANT SPECULATION in parts of the market has been obvious for months. Less obvious is whether investors collectively will pay a substantial price for it. Can a reflation trade pierce a market bubble?
Stocks posted solid gains in February—with the S&P 500 touching a record high on Feb. 12—but the final week felt a bit precarious, even if the benchmark ended the month down just 3.5% from that high. (Insert your favorite adjective to describe the correction so far: normal,

Read more »

Beware Groupthink

ECONOMIST JOHN Maynard Keynes once observed that, “It is better for reputation to fail conventionally than to succeed unconventionally.” This is probably true in many realms. It’s certainly true in the investment world.
As the last 12 months have demonstrated, extreme and unexpected events can and do happen. But analysts whose job it is to make economic forecasts rarely go too far out on a limb. Sure, there are some forecasters who will take a chance with a view that’s far outside the consensus.

Read more »

About the Kids

SHOULD LEAVING money to our children be a formal part of our financial strategy—or should we focus on our own wants and needs, and let the chips fall where they may?
My wife and I have four children ages 45 to 50. They’re all married and, between them, have 13 children ages five to 17. They’re also all college graduates, with almost the entire cost paid by my wife and me. Three have master’s degrees.

Read more »

Chews Wisely

THIS IS AN ARTICLE about not writing an article. It started with a Vox piece about the changes in society wrought by the 2007 introduction of the iPhone. One graph that caught my eye showed chewing gum sales steadily declining from 2007 to 2017, which was when the Vox article was published.
No economist would ever tie an economic trend to any one factor, but the article proffered an interesting hypothesis. It suggested that,

Read more »

Any Interest?

REMEMBER THE OLD joke about the efficient markets theory? An economics professor and a student are walking across campus, when the student says, “Look, there’s a $100 bill on the path,” to which the professor replies, “That can’t be true, because somebody would’ve already picked it up.”
I’ve been thinking about that joke not because of the efficient markets theory, but because I’m amazed at how many smart people walk by a $100 bill every day.

Read more »

Certain but Risky

A POPULAR MYTH holds that individual bonds are safer than bond funds—because individual bonds supposedly come with no interest rate risk.
Proponents of this notion claim that if you buy a bond and interest rates rise—which they have this year—you won’t lose any principal because you’ll eventually get back the bond’s par value, assuming you hold the bond to maturity and the issuer doesn’t default. This is true, but it doesn’t mean individual bonds don’t involve interest rate risk.

Read more »

Free Newsletter

Home Call to Action

Manifesto

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.

Act

FRONTLOAD 401(K) contributions in the early part of the year, so the money has longer to compound. But before doing so, contact human resources and ask how any employer match is credited—and only accelerate your contributions if the match is based on the sum you invest for the entire year, rather than the amount contributed each pay period.

Truths

NO. 26: WALL STREET’S advice is often self-serving. Mutual fund companies want us to purchase actively managed funds, rather than index funds. Brokers want us to trade. Investment advisors want bigger portfolios to manage, and thus they may dissuade us from paying down debt or encourage us to take a lump sum in lieu of pension payments.

Think

NEUROECONOMICS. To understand why we often make poor decisions, neuroeconomics studies how the brain reacts to financial situations. The research has confirmed insights first uncovered by behavioral finance, such as our strong aversion to losses, our fondness for long-shot investments and our preference for small rewards now over larger rewards later.

Money Guide

Start Exploring

Inflation

WHEN WE DISCUSS investment performance, we typically talk about nominal returns. But as an investor looking to increase your wealth, what you should care about are real returns, which are your results over and above inflation. Over the 50 years through year-end 2019, inflation climbed at 3.9% a year, as measured by CPI-U, the most widely used measure. But there’s been a notable deceleration in recent decades. Average annual inflation ran at 7.4% in the 1970s, 5.1% in the 1980s, 2.9% in the 1990s, 2.6% in the 2000s and 1.7% in the  2010s. Some observers worry that years of loose central bank monetary policy and federal government deficit spending will reignite inflation. But for now, inflation remains fairly subdued, with consumer prices climbing 2.3% in 2019. Lower inflation is typically good for investors, because it's a sign of economic stability—an environment where financial markets tend to flourish. Folks are also less likely to notch investment gains, only to discover that those gains are matched by inflation, so they're no better off in real terms. Factor in taxes, and things might be even worse. Let's say you sell a stock that's climbed 10% in a period when inflation rose 9%. After paying 15% in long-term capital gains taxes, you would be left with 8.5%, below the inflation rate. The decelerating inflation of recent decades has been especially good news for bond investors. Most bonds pay a fixed rate of interest, so inflation represents an unrecoverable subtraction from a bond investor’s real return—unless that inflation subsequently turns to deflation. By contrast, stocks can fare okay if inflation is high. Initially, accelerating inflation may depress share prices. But corporations can typically adjust to higher inflation, by raising the price they charge for their goods and services, thus compensating for any increase in wages and the cost of materials. That means corporate earnings can continue to grow faster than inflation. Assuming share prices rise along with those higher corporate earnings, stock investors will enjoy inflation-beating gains. Next: Economic Growth Previous: Asset No. 1: Stocks Article: Slipping Away
Read more »

Second Look

Retirement

Take It or Leave It

THE CLASH, the U.K. punk-rock group, famously asked, “Should I stay or should I go?” Retirees and job changers need to tackle the same question when they leave their employer.
At that juncture, you have four options for your 401(k) or 403(b) account: You can leave the balance in your old employer’s plan, roll over the balance to a new employer’s plan, roll over the balance to an IRA or close out the account.

Read more »

Family Finance

Worldly Possessions

HOW MUCH are we all worth? The Credit Suisse Research Institute recently published its 2016 Global Wealth Report, as well as the accompanying Global Wealth Databook. It’s a tricky undertaking, given the difficulty of getting accurate data, even for developed countries. Still, the results are intriguing:

U.S. families own 33.2% of the world’s $256 trillion net worth. This figure combines financial assets (think stocks and bonds) and real assets (principally housing), with household debts then subtracted.

Read more »

Investing

Bought and Paid For

STOCK BUYBACKS are here to stay. The Securities and Exchange Commission opened the door in 1982, when it ruled that companies could repurchase their own stock without triggering accusations of share price manipulation. Ever since, more and more companies have taken advantage. Indeed, in recent years, U.S. corporations have spent more money buying back their own shares than paying out dividends.
Good news? I see both plusses and minuses. Here are the plusses:

Once you figure in buybacks,

Read more »

Lists

Choice Words

AS WE MAKE financial, political and other decisions, we’re bombarded with messages that supposedly offer helpful information. But as savvy consumers of news and advertising, we need to realize that we aren’t nudged just by the content of these messages. It’s also the packaging that can have a huge influence.
Below are 21 ways that information is packaged to make it more enticing. Think of this list as a follow-up to my earlier article,

Read more »

Mindset

Happily Misbehaving

IN SUMMER 2011, a rural Illinois man named Wayne Sabaj was in his backyard picking broccoli, when something caught his eye. Half buried in the dirt, he found a sealed nylon bag. Inside was $150,000 in cash. For Sabaj, who was unemployed and had, in his words, “spent my last $10 on cigarettes,” this was a godsend.
Though it remains a mystery who had buried this particular stash of money, these sorts of finds are not uncommon.

Read more »