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Combine above-average intelligence, hard work and self-confidence, and you’ll have a stellar career—and truly terrible investment results.

Saving Myself

WHAT DOES IT take to succeed financially? Pundits love to parse stock market returns, dig into the minutiae of Roth conversions and debate retirement withdrawal strategies. Yet, when asked what’s the most important financial virtue, almost all give the same answer: great savings habits.
That mundane reason certainly explains my financial success. Yes, I’ve benefited from owning index funds, holding a stock-heavy portfolio and buying enthusiastically during market declines. But all of that has been gravy.

Read more »

Tending the Garden

WE HAVE a hardwired biological incentive to promote the wellbeing of our kids, so that the family line will continue. This is the selfish gene in action. Yet modern human behavior suggests that the wiring may be at least a little faulty—for three key reasons.
Environmental. Our domination of natural resources continues to create tremendous improvements in global wealth, but it sometimes comes at the expense of the only confirmed habitable space that’s practical for our species.

Read more »

Bonding With Bonds

FOR MANY YEARS, I didn’t own bonds or anything similar, except some bank certificates of deposit. Frankly, I was clueless.
My first dilemma: Should I invest in bonds if I have a mortgage? It didn’t make sense to me to borrow from the bank and, at the same time, lend out my money at a lower interest rate to a bond issuer. I felt I should pay off my mortgage first. A few friends and even a financial advisor recommended otherwise.

Read more »

Give Until It Hurts

I’M GUESSING our credit cards are excited. It’s the holidays, so they’ll get to see the light of day more often. December is a time for spending, for throwing caution to the wind, for rationalizing what we and our children need or deserve. It doesn’t help that we’re barraged with advertising tugging at our heart strings.
Perhaps it’s time to counterattack, to apply logic and to think not about the joys of Christmas morning presents or the next Chanukah gift,

Read more »

Making the Call

TRADITIONAL or Roth retirement accounts? Below are eight key questions to ask. Your decision should be based on your answers to these eight questions—including the importance you put on each.

Do you want a tax break now? Assuming you qualify, a traditional IRA allows you to deduct your contributions, resulting in a lower taxable income for the year. Ditto for tax-deductible contributions to an employer’s 401(k) or 403(b) plan. But with Roth accounts, you don’t get this tax benefit.

Read more »

November’s Hits

BEEN DISTRACTED by Thanksgiving? Maybe it’s time to catch up on your reading—by checking out last month’s seven most popular articles:

Are you on Medicare and own a Medigap policy? James McGlynn argues that Plan G is the way to go—assuming you can qualify.
“There’s no need to think about my money because, according to Carl, I’m not going to run out,” writes Dennis Friedman. “For the first time in my life, I realize I’m financially secure.”

Read more »

Money Guide

Term Life Insurance

LOOKING FOR LOW-COST insurance coverage that will deliver a big payout to your family if you die prematurely? Term insurance, which provides a death benefit and nothing more, will likely be your best bet. When you first buy, you typically need to take a medical exam. Many term policies are convertible into permanent life insurance. Most are one of two types: annual renewable term or level-premium term. Level-term policies are priced so you pay the same premium every year for, say, 10, 15 or 20 years. You may be able to continue coverage beyond the end of the policy’s term, but another medical exam might be required. If your health has deteriorated, that could create serious problems. To sidestep this issue, before you first purchase a policy, think carefully about how long you’ll need coverage for. Don’t skimp by buying insurance with a shorter term than you really need. One possible strategy: Buy two policies with different terms, such as 10 years and 20 years, so your coverage—and your premiums costs—decline as your savings grow and your need for insurance declines. Meanwhile, with annual renewable term, the premium rises each year as you grow older. But these policies can give you more flexibility. They may be renewable up until age 95, with no further medical exam necessary. Even if you can renew your term insurance late in life, you probably won’t want to—because at that point the premiums can be exorbitant. But by then, you will likely no longer need coverage because your children will be out of the house, and you and your spouse should have enough socked away for retirement. You might also hear about a third type of term policy: return-of-premium term life insurance. With these policies, if you live until the end of the term—which might be 20 or 30 years—some or all of your premiums are returned to you. That feature, however, means that the premiums on these policies are significantly higher than those on annual renewable term or level-premium term. Next: Permanent Life Insurance Previous: Life Insurance Related: Term or Cash Value?
Read more »

Archive

First Impressions

WHEN I WAS age six or seven, an older man came to our house. My mother answered the door. I couldn't hear what the man was saying, but my mother mentioned the word “garage.” I then followed her to the kitchen and watched her make a sandwich with white bread, sliced bananas and mayonnaise. She then poured a glass of milk and went to the garage. There, sitting in a lawn chair in our tiny garage, was that man. She gave him the sandwich and milk. As I stared at this man, it was the first time I realized that people went hungry in our country. I think the reason I have such a sympathetic view of the homeless is because I remember how my mother treated that man. Maybe, if she had been hostile toward him, I might have a different view today. As a young adult, one of my first investments was a company that went bankrupt. I lost almost all my money. Since that early, failed investment, I have been a conservative investor with a lower-than-recommended percentage of my portfolio in stocks. Just as my initial investment experience influenced my lifetime behavior, it seems today’s young adults have been scarred by the 2007-09 bear market. According to Barron's, "An average of just 31% of people ages 18 to 29 held stocks from 2009 to 2017, versus 42% in that age cohort in the years from 2001 to 2008, according to Gallup." Jamie Cox, managing partner of Harris Financial Group, commented for the article: "I think the younger people have a more emotional hesitance toward investing than the older people. Your behavior is shaped early in your career." First impressions or experiences are hard to dispel, especially those that occur at a young age. They can affect you for the rest of your life. They can withstand the test of time, as if etched and burned into your brain. I remember the combination of my first lock in the seventh grade: 36, 18, 8. Ask me about my first car? It was a two-tone 1956 Chevrolet Bel Air with a big steering wheel, two-speed automatic powerglide transmission, V8  265-cubic-inch engine, radio with vacuum tubes, gas cap in the rear tail light, back seat with a tear on the right side, glasspack muffler, air shocks on the rear suspension, oversized tires at the back and undersized tires on the front end. I can go on and on describing that car. Ask me about my other cars and I wouldn’t have much to say. One reason first impressions or experiences are tough to shake: Most people get their information from news outlets and people who reaffirm their beliefs. If you watch Fox News, you probably also read a conservative newspaper and listen to a conservative radio station. If you watch MSNBC, you probably read a progressive newspaper and listen to a progressive radio station. Most of us are essentially getting our information from the same source. Result: We aren’t challenging our first impressions or experiences. Why is all of this important? If you want your children to have a secure financial life, it starts with you as a parent. The most influential finance teacher your children will have is not their high school or college instructor, it's you—mom and dad. Your children are watching your financial behavior, just as I watched my mother help that man in our garage. What you teach your children about saving and investing through your actions could be with them for their entire life. Tempted to overspend on a luxury item? Just remember, your children are watching. Dennis Friedman retired at age 58 from Boeing Aerospace Company. He enjoys reading and writing about personal finance. His previous blogs include Family Inc.Creative DestructionTaking Inventory and A Word of Advice.
Read more »

Numbers

AMONG AMERICANS with retirement accounts, 49% say they have withdrawn money before retirement age, found a Bankrate survey. The most common reasons cited were unemployment, medical bills or other unplanned expenses, and debt repayment.

Home Call to Action

Manifesto

NO. 21: A HIGH income makes it easier to grow wealthy. But no matter how much we earn, we’ll struggle to amass a healthy nest egg—unless we learn to spend less than we earn.

Truths

NO. 125: BORROWING early in our adult life can be a rational strategy. It allows us to buy items for which we don’t currently have the cash, including college educations, homes and cars, thereby jumpstarting our financial life. But we should be careful not to overdo it—and we should aim to get all of our debts paid off before we retire and give up our paycheck.

Act

DON’T BUY a distribution. Toward year-end, stock mutual funds—especially active funds—can make large distributions, on which you’ll owe taxes if you hold the fund in a taxable account. This shouldn’t stop you from making a regular monthly investment. But if you’re looking to add a big sum to a fund, find out the distribution’s size—and, if it’s large, consider delaying.

Think

MORAL HAZARD. When we know someone else will pick up much or all of the financial tab, it’ll often change our behavior. For instance, those with health insurance are quicker to seek medical help, while those with long-term-care insurance are more inclined to enter nursing homes. The downside of this moral hazard: It means insurance costs more.

Saving Myself

WHAT DOES IT take to succeed financially? Pundits love to parse stock market returns, dig into the minutiae of Roth conversions and debate retirement withdrawal strategies. Yet, when asked what’s the most important financial virtue, almost all give the same answer: great savings habits.
That mundane reason certainly explains my financial success. Yes, I’ve benefited from owning index funds, holding a stock-heavy portfolio and buying enthusiastically during market declines. But all of that has been gravy.

Read more »

Tending the Garden

WE HAVE a hardwired biological incentive to promote the wellbeing of our kids, so that the family line will continue. This is the selfish gene in action. Yet modern human behavior suggests that the wiring may be at least a little faulty—for three key reasons.
Environmental. Our domination of natural resources continues to create tremendous improvements in global wealth, but it sometimes comes at the expense of the only confirmed habitable space that’s practical for our species.

Read more »

Bonding With Bonds

FOR MANY YEARS, I didn’t own bonds or anything similar, except some bank certificates of deposit. Frankly, I was clueless.
My first dilemma: Should I invest in bonds if I have a mortgage? It didn’t make sense to me to borrow from the bank and, at the same time, lend out my money at a lower interest rate to a bond issuer. I felt I should pay off my mortgage first. A few friends and even a financial advisor recommended otherwise.

Read more »

Give Until It Hurts

I’M GUESSING our credit cards are excited. It’s the holidays, so they’ll get to see the light of day more often. December is a time for spending, for throwing caution to the wind, for rationalizing what we and our children need or deserve. It doesn’t help that we’re barraged with advertising tugging at our heart strings.
Perhaps it’s time to counterattack, to apply logic and to think not about the joys of Christmas morning presents or the next Chanukah gift,

Read more »

Making the Call

TRADITIONAL or Roth retirement accounts? Below are eight key questions to ask. Your decision should be based on your answers to these eight questions—including the importance you put on each.

Do you want a tax break now? Assuming you qualify, a traditional IRA allows you to deduct your contributions, resulting in a lower taxable income for the year. Ditto for tax-deductible contributions to an employer’s 401(k) or 403(b) plan. But with Roth accounts, you don’t get this tax benefit.

Read more »

November’s Hits

BEEN DISTRACTED by Thanksgiving? Maybe it’s time to catch up on your reading—by checking out last month’s seven most popular articles:

Are you on Medicare and own a Medigap policy? James McGlynn argues that Plan G is the way to go—assuming you can qualify.
“There’s no need to think about my money because, according to Carl, I’m not going to run out,” writes Dennis Friedman. “For the first time in my life, I realize I’m financially secure.”

Read more »

Free Newsletter

Numbers

AMONG AMERICANS with retirement accounts, 49% say they have withdrawn money before retirement age, found a Bankrate survey. The most common reasons cited were unemployment, medical bills or other unplanned expenses, and debt repayment.

Manifesto

NO. 21: A HIGH income makes it easier to grow wealthy. But no matter how much we earn, we’ll struggle to amass a healthy nest egg—unless we learn to spend less than we earn.

Home Call to Action

Act

DON’T BUY a distribution. Toward year-end, stock mutual funds—especially active funds—can make large distributions, on which you’ll owe taxes if you hold the fund in a taxable account. This shouldn’t stop you from making a regular monthly investment. But if you’re looking to add a big sum to a fund, find out the distribution’s size—and, if it’s large, consider delaying.

Truths

NO. 125: BORROWING early in our adult life can be a rational strategy. It allows us to buy items for which we don’t currently have the cash, including college educations, homes and cars, thereby jumpstarting our financial life. But we should be careful not to overdo it—and we should aim to get all of our debts paid off before we retire and give up our paycheck.

Think

MORAL HAZARD. When we know someone else will pick up much or all of the financial tab, it’ll often change our behavior. For instance, those with health insurance are quicker to seek medical help, while those with long-term-care insurance are more inclined to enter nursing homes. The downside of this moral hazard: It means insurance costs more.

Money Guide

Start Here

Term Life Insurance

LOOKING FOR LOW-COST insurance coverage that will deliver a big payout to your family if you die prematurely? Term insurance, which provides a death benefit and nothing more, will likely be your best bet. When you first buy, you typically need to take a medical exam. Many term policies are convertible into permanent life insurance. Most are one of two types: annual renewable term or level-premium term. Level-term policies are priced so you pay the same premium every year for, say, 10, 15 or 20 years. You may be able to continue coverage beyond the end of the policy’s term, but another medical exam might be required. If your health has deteriorated, that could create serious problems. To sidestep this issue, before you first purchase a policy, think carefully about how long you’ll need coverage for. Don’t skimp by buying insurance with a shorter term than you really need. One possible strategy: Buy two policies with different terms, such as 10 years and 20 years, so your coverage—and your premiums costs—decline as your savings grow and your need for insurance declines. Meanwhile, with annual renewable term, the premium rises each year as you grow older. But these policies can give you more flexibility. They may be renewable up until age 95, with no further medical exam necessary. Even if you can renew your term insurance late in life, you probably won’t want to—because at that point the premiums can be exorbitant. But by then, you will likely no longer need coverage because your children will be out of the house, and you and your spouse should have enough socked away for retirement. You might also hear about a third type of term policy: return-of-premium term life insurance. With these policies, if you live until the end of the term—which might be 20 or 30 years—some or all of your premiums are returned to you. That feature, however, means that the premiums on these policies are significantly higher than those on annual renewable term or level-premium term. Next: Permanent Life Insurance Previous: Life Insurance Related: Term or Cash Value?
Read more »

Archive

First Impressions

WHEN I WAS age six or seven, an older man came to our house. My mother answered the door. I couldn't hear what the man was saying, but my mother mentioned the word “garage.” I then followed her to the kitchen and watched her make a sandwich with white bread, sliced bananas and mayonnaise. She then poured a glass of milk and went to the garage. There, sitting in a lawn chair in our tiny garage, was that man. She gave him the sandwich and milk. As I stared at this man, it was the first time I realized that people went hungry in our country. I think the reason I have such a sympathetic view of the homeless is because I remember how my mother treated that man. Maybe, if she had been hostile toward him, I might have a different view today. As a young adult, one of my first investments was a company that went bankrupt. I lost almost all my money. Since that early, failed investment, I have been a conservative investor with a lower-than-recommended percentage of my portfolio in stocks. Just as my initial investment experience influenced my lifetime behavior, it seems today’s young adults have been scarred by the 2007-09 bear market. According to Barron's, "An average of just 31% of people ages 18 to 29 held stocks from 2009 to 2017, versus 42% in that age cohort in the years from 2001 to 2008, according to Gallup." Jamie Cox, managing partner of Harris Financial Group, commented for the article: "I think the younger people have a more emotional hesitance toward investing than the older people. Your behavior is shaped early in your career." First impressions or experiences are hard to dispel, especially those that occur at a young age. They can affect you for the rest of your life. They can withstand the test of time, as if etched and burned into your brain. I remember the combination of my first lock in the seventh grade: 36, 18, 8. Ask me about my first car? It was a two-tone 1956 Chevrolet Bel Air with a big steering wheel, two-speed automatic powerglide transmission, V8  265-cubic-inch engine, radio with vacuum tubes, gas cap in the rear tail light, back seat with a tear on the right side, glasspack muffler, air shocks on the rear suspension, oversized tires at the back and undersized tires on the front end. I can go on and on describing that car. Ask me about my other cars and I wouldn’t have much to say. One reason first impressions or experiences are tough to shake: Most people get their information from news outlets and people who reaffirm their beliefs. If you watch Fox News, you probably also read a conservative newspaper and listen to a conservative radio station. If you watch MSNBC, you probably read a progressive newspaper and listen to a progressive radio station. Most of us are essentially getting our information from the same source. Result: We aren’t challenging our first impressions or experiences. Why is all of this important? If you want your children to have a secure financial life, it starts with you as a parent. The most influential finance teacher your children will have is not their high school or college instructor, it's you—mom and dad. Your children are watching your financial behavior, just as I watched my mother help that man in our garage. What you teach your children about saving and investing through your actions could be with them for their entire life. Tempted to overspend on a luxury item? Just remember, your children are watching. Dennis Friedman retired at age 58 from Boeing Aerospace Company. He enjoys reading and writing about personal finance. His previous blogs include Family Inc.Creative DestructionTaking Inventory and A Word of Advice.
Read more »