Why will folks spend 30 years in a job they hate to get a pension, but won’t delay Social Security by a few years to get a larger check?
WHAT DOES IT TAKE to manage money prudently? Yes, we should save diligently, favor stocks, diversify broadly, hold down investment costs, buy the right insurance and so on. But all these smart financial moves stem from key assumptions we make about our lives and the world around us.
What assumptions? I believe prudent money management starts with five core notions—which, as you’ll discover below, sometimes contradict one another:
1. We’ll live a long life.
FROM AN EARLY AGE, my son showed an interest in business and investing. As a toddler, he’d watch CNBC with me. When my wife and I discussed legal and accounting issues, he’d have his “listening ears” on. (Yes, our dinner table conversations are pretty exciting.)
By the time he was eight years old, he was giving me investing input. He thought Microsoft overpaid when it bought Minecraft maker Mojang for $2.5 billion in 2018.
IMAGINE A MARKET genie offered you the choice between knowing the stock market’s return next year or the stock market’s average return over the next 10 to 15 years. Which would you choose?
I’m guessing that most people would prefer to know how the stock market will do next year. After all, that seems like more actionable information, plus who has the patience to wait a decade or longer? But for those with an investing time horizon of more than 10 years—the vast majority of us—knowing the stock market’s return over the next decade or longer is far more valuable information.
SERIES I SAVINGS bonds are getting a lot of attention right now because their stated yield is 3.54%, an apparently fabulous interest rate on an almost no-risk investment.
But don’t be fooled: While I bonds are a fine choice for super-conservative investors, you’ll get that 3.54% annualized yield for just six months and thereafter the yield could be far lower.
I bonds feature a variable interest rate that floats with inflation. That floating rate resets each May and November based on recent inflation.
I WENT TO SEE MY primary care physician about a medical problem. I actually felt pretty good and wasn’t in any pain. I was fairly confident there wasn’t anything seriously wrong with me, so—when the doctor greeted me and asked how I was doing—I said, “I’m doing well.”
When he responded, “No, you’re not,” I knew this wasn’t going to go well.
I gave him my explanation of what might be causing my physical condition.
RETIREMENT CAN BE the best time of our life—but only if we manage it right.
I recently passed a milestone: the three-year anniversary of the day I left my 40-year banking career. What have I learned over the past three years? I’ve found that a good retirement has three key elements: sound finances, wellness, and intentionality about managing time.
1. Finances. I watched some of Berkshire Hathaway’s annual meeting last month. As usual,
NO. 50: WE SHOULD strive to raise financially responsible children. If our kids grow up to make foolish financial mistakes, we’ll likely ride to the rescue—and their problems will be ours.
NO. 84: IF YOUR portfolio earns 6% annually and you spend the entire 6% every year, you’ll face a financial reckoning. The spending power of the 6% will shrink with inflation, forcing you to either cut your standard of living or dip into principal to maintain it. The latter is dangerous, especially early in retirement, because you can quickly eviscerate your nest egg.
GET A WILL. Less than half of U.S. adults have a will. Without one, many of your assets will be distributed according to state law, plus you won’t have a say in who becomes your children’s guardian. Some folks don’t bother with a will, because they have a living trust. But when you die, there’ll inevitably be assets outside the trust—and, for them, you need a will.
LOSS AVERSION. Behavioral finance experts say we aren’t so much risk averse as loss averse: We get more pain from losses than pleasure from gains—perhaps twice as much. This is why losing stocks cause such anguish. Some react by panicking and selling. But others will double down on losing stocks, taking more risk in hopes of quickly recouping the loss.
A WRITER RECENTLY asked my opinion of gig economy jobs and how they could benefit retirees looking for extra income. I looked up the term to be sure my understanding was correct. It was—except we used to call the jobs “temporaries,” “part-time,” “project work” or “consulting.” As I told the writer, a gig economy job sounds pretty good for us retirees who want to keep active or supplement our income, especially if it doesn’t involve being a crossing guard.
FULL DISCLOSURE: I wrote this out of frustration, bordering on desperation.
More than a year ago, I bought a condo and took out what was supposed to be a short-term mortgage, which we’d pay off once we sold our home of 45 years. Silly me. You guessed it: I still have the mortgage and I still own the old house, with not even a single offer received. The No. 1 reason for buyers’ lack of interest: The kitchen is too small.
AN MIT PROFESSOR named Edward Lorenz published a paper in 1972 titled Predictability: Does the Flap of a Butterfly’s Wings in Brazil Set off a Tornado in Texas?
It was a catchy title. Though Lorenz didn’t mean it literally, the basic idea was that events in the physical world are highly interconnected—more so than they might appear.
The world of investments is similarly interconnected in ways that aren’t always visible. Just like the weather,
MANAGING MONEY is ridiculously simple—and unbelievably hard.
Figuring out what we should do with our dollars is typically straightforward: We should save regularly, diversify broadly, rebalance occasionally and so on. Instead, the tough part is getting ourselves to do what we intellectually know is right.
Take the notion of buying low and selling high. Every investor knows that’s the goal—and yet, when the S&P 500 slumped 34% earlier this year, many folks just couldn’t bring themselves to buy stocks.
WHEN I WAS GROWING up, I don’t remember my parents talking about the stock market. In fact, I’m not sure when they started buying stocks. It could have been sometime after I graduated from high school in 1969.
When I was a junior in high school, however, I do remember a conversation about stocks between two of my classmates. Brandon was telling Brian that he could buy a motorcycle if he sold some of his shares.
WHAT DOES IT TAKE to manage money prudently? Yes, we should save diligently, favor stocks, diversify broadly, hold down investment costs, buy the right insurance and so on. But all these smart financial moves stem from key assumptions we make about our lives and the world around us.
What assumptions? I believe prudent money management starts with five core notions—which, as you’ll discover below, sometimes contradict one another:
1. We’ll live a long life.
FROM AN EARLY AGE, my son showed an interest in business and investing. As a toddler, he’d watch CNBC with me. When my wife and I discussed legal and accounting issues, he’d have his “listening ears” on. (Yes, our dinner table conversations are pretty exciting.)
By the time he was eight years old, he was giving me investing input. He thought Microsoft overpaid when it bought Minecraft maker Mojang for $2.5 billion in 2018.
IMAGINE A MARKET genie offered you the choice between knowing the stock market’s return next year or the stock market’s average return over the next 10 to 15 years. Which would you choose?
I’m guessing that most people would prefer to know how the stock market will do next year. After all, that seems like more actionable information, plus who has the patience to wait a decade or longer? But for those with an investing time horizon of more than 10 years—the vast majority of us—knowing the stock market’s return over the next decade or longer is far more valuable information.
SERIES I SAVINGS bonds are getting a lot of attention right now because their stated yield is 3.54%, an apparently fabulous interest rate on an almost no-risk investment.
But don’t be fooled: While I bonds are a fine choice for super-conservative investors, you’ll get that 3.54% annualized yield for just six months and thereafter the yield could be far lower.
I bonds feature a variable interest rate that floats with inflation. That floating rate resets each May and November based on recent inflation.
I WENT TO SEE MY primary care physician about a medical problem. I actually felt pretty good and wasn’t in any pain. I was fairly confident there wasn’t anything seriously wrong with me, so—when the doctor greeted me and asked how I was doing—I said, “I’m doing well.”
When he responded, “No, you’re not,” I knew this wasn’t going to go well.
I gave him my explanation of what might be causing my physical condition.
RETIREMENT CAN BE the best time of our life—but only if we manage it right.
I recently passed a milestone: the three-year anniversary of the day I left my 40-year banking career. What have I learned over the past three years? I’ve found that a good retirement has three key elements: sound finances, wellness, and intentionality about managing time.
1. Finances. I watched some of Berkshire Hathaway’s annual meeting last month. As usual,
NO. 50: WE SHOULD strive to raise financially responsible children. If our kids grow up to make foolish financial mistakes, we’ll likely ride to the rescue—and their problems will be ours.
GET A WILL. Less than half of U.S. adults have a will. Without one, many of your assets will be distributed according to state law, plus you won’t have a say in who becomes your children’s guardian. Some folks don’t bother with a will, because they have a living trust. But when you die, there’ll inevitably be assets outside the trust—and, for them, you need a will.
NO. 84: IF YOUR portfolio earns 6% annually and you spend the entire 6% every year, you’ll face a financial reckoning. The spending power of the 6% will shrink with inflation, forcing you to either cut your standard of living or dip into principal to maintain it. The latter is dangerous, especially early in retirement, because you can quickly eviscerate your nest egg.
LOSS AVERSION. Behavioral finance experts say we aren’t so much risk averse as loss averse: We get more pain from losses than pleasure from gains—perhaps twice as much. This is why losing stocks cause such anguish. Some react by panicking and selling. But others will double down on losing stocks, taking more risk in hopes of quickly recouping the loss.
A WRITER RECENTLY asked my opinion of gig economy jobs and how they could benefit retirees looking for extra income. I looked up the term to be sure my understanding was correct. It was—except we used to call the jobs “temporaries,” “part-time,” “project work” or “consulting.” As I told the writer, a gig economy job sounds pretty good for us retirees who want to keep active or supplement our income, especially if it doesn’t involve being a crossing guard.
FULL DISCLOSURE: I wrote this out of frustration, bordering on desperation.
More than a year ago, I bought a condo and took out what was supposed to be a short-term mortgage, which we’d pay off once we sold our home of 45 years. Silly me. You guessed it: I still have the mortgage and I still own the old house, with not even a single offer received. The No. 1 reason for buyers’ lack of interest: The kitchen is too small.
AN MIT PROFESSOR named Edward Lorenz published a paper in 1972 titled Predictability: Does the Flap of a Butterfly’s Wings in Brazil Set off a Tornado in Texas?
It was a catchy title. Though Lorenz didn’t mean it literally, the basic idea was that events in the physical world are highly interconnected—more so than they might appear.
The world of investments is similarly interconnected in ways that aren’t always visible. Just like the weather,
MANAGING MONEY is ridiculously simple—and unbelievably hard.
Figuring out what we should do with our dollars is typically straightforward: We should save regularly, diversify broadly, rebalance occasionally and so on. Instead, the tough part is getting ourselves to do what we intellectually know is right.
Take the notion of buying low and selling high. Every investor knows that’s the goal—and yet, when the S&P 500 slumped 34% earlier this year, many folks just couldn’t bring themselves to buy stocks.
WHEN I WAS GROWING up, I don’t remember my parents talking about the stock market. In fact, I’m not sure when they started buying stocks. It could have been sometime after I graduated from high school in 1969.
When I was a junior in high school, however, I do remember a conversation about stocks between two of my classmates. Brandon was telling Brian that he could buy a motorcycle if he sold some of his shares.
Will tax rates inevitably increase—and, if so, how should we prepare?
Is a good financial advisor worth 1% of assets per year?
What do you consider your greatest financial mistakes?