FREE NEWSLETTER

The big gain from homeownership is the imputed rent: the ability to live in the place. That’s highly valuable—but immediately consumed.

Project Mickey

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,

Read more »

Take It to the Limit?

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.

Read more »

Short Stuff

Life’s Not a Beach

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,

Read more »

Taking Their Chances

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,

Read more »

Tale of the Tape

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.

Read more »

Five Money Moves

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.

Read more »

End of the Ride

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,

Read more »

A 529 for Sophia

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,

Read more »

Longer Reads

Final Act

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,

Read more »

Too Much Talk

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.

Read more »

Why Am I Late?

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.

Read more »

Year-Round Planning

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.

Read more »

Driving Lessons

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.

Read more »

Risk Doesn’t Retire

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,

Read more »

Voices

What Voices questions would you ask?

"What is a kind way to leave your financial advisor when he has done little wrong, but you want to do the investing yourself to save money?"
- Tom Matera
Read more »

Which aspect of the tax code do you hate the most?

"form 8938 report of foreign bank accounts - especially having to report joint accounts because my wife is American and is the second holder on some of our accounts. I am Canadian and feel like this is an unwelcome invasion of my privacy. Also Fincen 114 is no party either"
- Glenn Hyde
Read more »

What's the best place to stash money you'll spend soon?

"I’ll need a bit more than my pension to cover living expenses for three years, until I’m ready to claim Social Security. I’m stashing that money in laddered CDs, which I’ll cash quarterly. I’ll sell some bond funds to buy a flat in a retirement community, once I’ve decided which of the options I’m considering will suit me best."
- Ginger Williams
Read more »

Money Guide

Indexing Dangerous?

AS INDEX FUNDS garner ever more assets, proponents of active management have all but given up claiming that there are reliable strategies for beating the stock market averages. Instead, they've sought to persuade folks that they should avoid index funds, because indexing is bad for the smooth functioning of the stock market. In essence, investors are being told, “We know that, on average, indexing beats active management. But you should still trade stocks and buy actively managed funds, because we need folks like you to ensure we have liquid markets without major mispricings.” The goal of investing is to make money, so this seems like a bizarre argument. But is it in any way justified? It’s hard to know precisely how much of U.S. and foreign stock market value is in passively managed strategies that simply seek to replicate the performance of a market index like the S&P 500 or the Russell 2000. But we know indexing is far more popular in the U.S. than elsewhere—and yet, even in the U.S., the most generous estimates suggest that less than half of the stock market’s total value is held by index mutual funds, exchange-traded index funds and other passive strategies. Moreover, if the goal is to ensure there’s a liquid, efficient market where investors can readily buy and sell, what’s important isn’t how much money is actively managed, but rather how active that money is. On that score, there seems little reason to worry. Stock trading in the U.S. is as vigorous as ever, despite the flood of money into index funds. In fact, according to World Bank figures, the annual value of U.S. stock trading was $23 trillion in 2019, up almost tenfold over the past three decades. How much more buying and selling do we need to have a well-functioning market? If there are no signs that the U.S. stock market is about to grind to a halt from lack of trading, why all the handwringing over the growth of indexing? As always on Wall Street, you need to follow the money. Just as the Street has a financial incentive to belittle the intelligence of small investors, it also makes far more money from active money management than from index funds. What if the Street can persuade investors to stick with active management? Those investors will, on average, be worse off—but Wall Street's bottom line will be fatter. Next: Bonds or Bond Funds? Previous: Stocks Overpriced? Articles: Why We Try and Passive Stampede?
Read more »

Manifesto

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?

Truths

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.

Act

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.

Think

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.

Second Look

Retirement

One Cheer

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. 

Read more »

Family Finance

Growing Up (I)

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.

Read more »

Investing

As If

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,

Read more »

Lists

12 Financial Sins

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,

Read more »
Home Call to Action

Mindset

Yesterday Once More

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.

Read more »

Longer Reads

Final Act

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,

Read more »

Too Much Talk

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.

Read more »

Why Am I Late?

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.

Read more »

Year-Round Planning

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.

Read more »

Driving Lessons

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.

Read more »

Risk Doesn’t Retire

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,

Read more »

Free Newsletter

Voices

What would you happily buy even if it were twice the price?

"Season tickets for live theatre and fresh produce, especially berries. Both are worth having to cut back on other expenses."
- Ginger Williams
Read more »

Should affluent parents insist their children pay college costs?

"Sort of. We, my wife and I, were able to pay for both of our kids to go to college. We paid all of their tuition, books, fees and provided a set amount each semester for them to live on. We made it clear that since we were paying them to go to school that they in fact work for us and that the performance standard was a B or better in every class. We did not pay for substandard performance and the tuition spent on any class where this standard was not reached, they would have to refund. A running tab was kept, and payments were collected from summer jobs and after they graduated until it was paid off. What they didn't know was that we had opened a Roth IRA for them and deposited all of these payments into their Roth IRA. A year or so after they had paid off their college debt, we revealed the accounts to them with the hope that they would be the seed to a lifetime habit of saving."
- Jim Burrows
Read more »

When is it okay to go into debt?

"Avoid auto loans, if possible. If you need to borrow to buy a new car, you may not need to buy a new car. It is a rapidly depreciating asset."
- Carl Book
Read more »
Home Call to Action

Manifesto

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?

Act

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.

Truths

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.

Think

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.

Money Guide

Start Here

Indexing Dangerous?

AS INDEX FUNDS garner ever more assets, proponents of active management have all but given up claiming that there are reliable strategies for beating the stock market averages. Instead, they've sought to persuade folks that they should avoid index funds, because indexing is bad for the smooth functioning of the stock market. In essence, investors are being told, “We know that, on average, indexing beats active management. But you should still trade stocks and buy actively managed funds, because we need folks like you to ensure we have liquid markets without major mispricings.” The goal of investing is to make money, so this seems like a bizarre argument. But is it in any way justified? It’s hard to know precisely how much of U.S. and foreign stock market value is in passively managed strategies that simply seek to replicate the performance of a market index like the S&P 500 or the Russell 2000. But we know indexing is far more popular in the U.S. than elsewhere—and yet, even in the U.S., the most generous estimates suggest that less than half of the stock market’s total value is held by index mutual funds, exchange-traded index funds and other passive strategies. Moreover, if the goal is to ensure there’s a liquid, efficient market where investors can readily buy and sell, what’s important isn’t how much money is actively managed, but rather how active that money is. On that score, there seems little reason to worry. Stock trading in the U.S. is as vigorous as ever, despite the flood of money into index funds. In fact, according to World Bank figures, the annual value of U.S. stock trading was $23 trillion in 2019, up almost tenfold over the past three decades. How much more buying and selling do we need to have a well-functioning market? If there are no signs that the U.S. stock market is about to grind to a halt from lack of trading, why all the handwringing over the growth of indexing? As always on Wall Street, you need to follow the money. Just as the Street has a financial incentive to belittle the intelligence of small investors, it also makes far more money from active money management than from index funds. What if the Street can persuade investors to stick with active management? Those investors will, on average, be worse off—but Wall Street's bottom line will be fatter. Next: Bonds or Bond Funds? Previous: Stocks Overpriced? Articles: Why We Try and Passive Stampede?
Read more »

Second Look

Retirement

One Cheer

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. 

Read more »

Family Finance

Growing Up (I)

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.

Read more »

Investing

As If

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,

Read more »

Lists

12 Financial Sins

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,

Read more »

Mindset

Yesterday Once More

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.

Read more »