FREE NEWSLETTER

Financial danger sign: You earn extra income by purchasing mutual funds just before they make their distributions.

Evasive Action

DEAR FAMILY, you know I don’t typically give unsolicited investment advice. But today, I’m breaking that rule, because I don’t want you to get hurt financially.
I can’t promise that, by following my advice, you’ll be better off in the short run. But I firmly believe that you’ll be better off in the long run, by which I mean in the next five to 10 years. Please take this letter for what it is,

Read more »

Trends That End

CONGRATULATIONS are in order for Jay and Kateri Schwandt, a Michigan couple who recently welcomed a new baby girl. This might not seem like an event that’s worthy of national news, except this is the Schwandt’s 15th child—and the first 14 are all boys. In an interview, Jay Schwandt said he didn’t think a girl was even possible: “You know after 14 boys, we just assumed perhaps medically it just wasn’t meant to be.”
The Schwandt’s new baby illustrates a point that’s often debated in the world of personal finance: When you see a pattern,

Read more »

Bad Influence

KEEP AN EYE on the neighbors. They could be the reason you’re poor and unhappy.
We all like to think we’re independent thinkers who weigh the evidence and reach our own conclusions—and yet there’s ample evidence that our views are heavily influenced by those around us, whether we’re choosing presidential candidates, bottled water or mayonnaise. This extends to financial matters, sometimes with grim consequences.
Stocking up. Studies have found that those who live near one another tend to invest in a similar fashion.

Read more »

For Goodness Sake

AS YOU STRIVE to do well, should you also strive to do good?
We’re seeing a boom in environmental, social and governance (ESG) investing. For instance, according to a recent Morningstar report, there are now 534 index mutual funds and exchange-traded funds (ETFs) around the world that screen their holdings using ESG criteria. Together, these funds have almost $250 billion in assets—more than twice the sum they had three years earlier.
ESG investing offers a way to invest in funds that consider issues such as the use of natural resources,

Read more »

Prepare for Pain

WHEN I THINK about investment advisors selling high-fee products, it brings to mind the story of two politicians who were shouting at each other. One of them stands up and screams, “You’re lying!” The other one answers, “Yes, I am, but hear me out!”
In my 40 years of investing, I’ve bought into some questionable sales pitches. You’ve heard them: “The easy money’s been made. It’s going to be a stock picker’s market going forward.” Or: “Only losers are satisfied with just earning the market averages,

Read more »

Don’t Delay

I’M GOING TO BE 70 next year and I think I’m in pretty good shape. I do 25 pushups before bed, along with some stretching. I usually go for a long walk in the morning and, once in a while, I might head out for a hike. On top of that, I do strengthening exercises three times a week.
I don’t take medication or have any chronic ailments. Of course, you can never be sure what’s going on with your body,

Read more »

Money Guide

Step 2: Allocation

THE KEY DRIVER of your portfolio's risk and return is your asset allocation. The more you have in stocks, the higher your potential long-run return, but the rougher the ride will be. You’re fine with a rough ride? In theory, buying a 100% stock portfolio will give you the highest return. Still, there are good reasons to hold other assets. Stocks aren’t guaranteed to win, even over long holding periods. During the 10 years through year-end 2008, the S&P 500-stock index lost 1.4% a year, including reinvested dividends, while the broad bond market returned 6.2%. Moreover, a portfolio that includes some combination of the four major assets—stocks, bonds, cash investments and alternative investments—offers three benefits that you can’t get by owning just one of these four assets. First, by holding multiple assets, you can get the same reward with less dramatic day-to-day and month-to-month swings in your portfolio’s value, thanks to the lack of correlation among these assets. This is the magic of smart portfolio building, and it can make investing far more pleasant. Second, by owning assets that aren’t perfectly correlated with one another, you can reduce the chance that you’ll suffer big losses. Those losses can wreak havoc with your portfolio’s long-run return, while steadier performance can help your nest egg compound at a faster rate. Finally, you can turn this lack of correlation into additional portfolio gains—by engaging in regular rebalancing. Next: Correlations Previous: Risk Tolerance Article: Math vs. Emotion
Read more »

Manifesto

NO. 58: IF WE HAVE a long time horizon, we should aim to be owners—by buying our cars, our home and a diversified stock portfolio. The latter will make us part owners of companies large and small.

Truths

NO. 79: PAYING ZERO taxes is a terrible waste. If you lose your job, or you just retired and aren’t yet tapping your retirement accounts or collecting Social Security, you may have a year with little or no taxable income. To take advantage of your low tax bracket, consider realizing capital gains in your taxable account or converting part of your traditional IRA to a Roth.

Act

ELIMINATE duplication. Many folks have multiple bank and brokerage accounts, multiple funds from the same market sector and even multiple advisors. This can make sense if, say, you want to boost FDIC coverage. But often it reflects naive diversification, the idea that more accounts mean greater safety. Our advice: Simplify—for your sake and that of your heirs.

Think

BOUNDED RATIONALITY. There are limits on how much information we can process, because of time constraints and cognitive limitations, so we take mental shortcuts. We’re more likely to buy stocks that are in the news, we rely on rules of thumb and we only make financial decisions when issues are brought to our attention. Result: Our choices often aren’t optimal.

Second Look

Retirement

Don’t Ignore It

AS BABY BOOMERS and Generation X march toward retirement, they face a daunting issue: What steps should they take, given the risk they’ll require long-term care?
Long-term care—defined as needing help with activities of daily living such as bathing, dressing and eating—is something that almost 70% of retirees will require at some point, according to LongTermCare.gov. Problem is, Medicare only provides limited coverage.
Yes, Medicaid does cover long-term care. But it was designed as a last resort for low-income folks.

Read more »

Family Finance

Parting Thoughts

“IT HAS LONG been important to us to help our children and 12 adult grandchildren learn some of the fundamentals of saving and investing,” wrote Henry “Bud” Hebeler in a Feb. 26 email to me. “I sent them each a booklet that I wrote, illuminating the key elements that I have talked about in the past. To test their comprehension, I sent the following message.”
Bud died in August, nine days after his 84th birthday.

Read more »

Investing

Don’t Concentrate

WHO DOESN’T like free money? I know I do. If you’ve worked for a major U.S. corporation, you have probably also been offered free money. But there’s a potential downside—in the form of a large, undiversified investment bet.
What am I talking about? Let’s start with the matching employer contribution that’s offered in about half of 401(k) plans. You put in a portion of every paycheck and your company then matches all or half of your contribution.

Read more »

Lists

Wall Street Story

WE’RE A NATION divided, two camps clinging fervently to their own unshakeable beliefs and baffled at the nonsense that the other camp accepts as truth.
Yes, you guessed it: We’re talking about money management. Let’s call the two camps the Sharks and the Jets. What divides them? Here are seven fault lines:
1. Get Rich vs. Meet Goals. The Jets have one overriding goal—they want to make heaps of money—and they’ll hop any investment train that can get them there.

Read more »
Home Call to Action

Mindset

Buen Camino

ON APRIL 3, my husband Jim and I were among 262 pilgrims who made our way into Santiago de Compostela to receive an official pilgrim’s certificate for completing the required distance along one of the famous El Camino’s several routes—the most popular of which is some 500 miles. We were now certified peregrinos, or pilgrims.
Because it was early in the season, ours was one of the slow days for Camino completion.

Read more »

Evasive Action

DEAR FAMILY, you know I don’t typically give unsolicited investment advice. But today, I’m breaking that rule, because I don’t want you to get hurt financially.
I can’t promise that, by following my advice, you’ll be better off in the short run. But I firmly believe that you’ll be better off in the long run, by which I mean in the next five to 10 years. Please take this letter for what it is,

Read more »

Trends That End

CONGRATULATIONS are in order for Jay and Kateri Schwandt, a Michigan couple who recently welcomed a new baby girl. This might not seem like an event that’s worthy of national news, except this is the Schwandt’s 15th child—and the first 14 are all boys. In an interview, Jay Schwandt said he didn’t think a girl was even possible: “You know after 14 boys, we just assumed perhaps medically it just wasn’t meant to be.”
The Schwandt’s new baby illustrates a point that’s often debated in the world of personal finance: When you see a pattern,

Read more »

Bad Influence

KEEP AN EYE on the neighbors. They could be the reason you’re poor and unhappy.
We all like to think we’re independent thinkers who weigh the evidence and reach our own conclusions—and yet there’s ample evidence that our views are heavily influenced by those around us, whether we’re choosing presidential candidates, bottled water or mayonnaise. This extends to financial matters, sometimes with grim consequences.
Stocking up. Studies have found that those who live near one another tend to invest in a similar fashion.

Read more »

For Goodness Sake

AS YOU STRIVE to do well, should you also strive to do good?
We’re seeing a boom in environmental, social and governance (ESG) investing. For instance, according to a recent Morningstar report, there are now 534 index mutual funds and exchange-traded funds (ETFs) around the world that screen their holdings using ESG criteria. Together, these funds have almost $250 billion in assets—more than twice the sum they had three years earlier.
ESG investing offers a way to invest in funds that consider issues such as the use of natural resources,

Read more »

Prepare for Pain

WHEN I THINK about investment advisors selling high-fee products, it brings to mind the story of two politicians who were shouting at each other. One of them stands up and screams, “You’re lying!” The other one answers, “Yes, I am, but hear me out!”
In my 40 years of investing, I’ve bought into some questionable sales pitches. You’ve heard them: “The easy money’s been made. It’s going to be a stock picker’s market going forward.” Or: “Only losers are satisfied with just earning the market averages,

Read more »

Don’t Delay

I’M GOING TO BE 70 next year and I think I’m in pretty good shape. I do 25 pushups before bed, along with some stretching. I usually go for a long walk in the morning and, once in a while, I might head out for a hike. On top of that, I do strengthening exercises three times a week.
I don’t take medication or have any chronic ailments. Of course, you can never be sure what’s going on with your body,

Read more »

Free Newsletter

Home Call to Action

Manifesto

NO. 58: IF WE HAVE a long time horizon, we should aim to be owners—by buying our cars, our home and a diversified stock portfolio. The latter will make us part owners of companies large and small.

Act

ELIMINATE duplication. Many folks have multiple bank and brokerage accounts, multiple funds from the same market sector and even multiple advisors. This can make sense if, say, you want to boost FDIC coverage. But often it reflects naive diversification, the idea that more accounts mean greater safety. Our advice: Simplify—for your sake and that of your heirs.

Truths

NO. 79: PAYING ZERO taxes is a terrible waste. If you lose your job, or you just retired and aren’t yet tapping your retirement accounts or collecting Social Security, you may have a year with little or no taxable income. To take advantage of your low tax bracket, consider realizing capital gains in your taxable account or converting part of your traditional IRA to a Roth.

Think

BOUNDED RATIONALITY. There are limits on how much information we can process, because of time constraints and cognitive limitations, so we take mental shortcuts. We’re more likely to buy stocks that are in the news, we rely on rules of thumb and we only make financial decisions when issues are brought to our attention. Result: Our choices often aren’t optimal.

Money Guide

Start Here

Step 2: Allocation

THE KEY DRIVER of your portfolio's risk and return is your asset allocation. The more you have in stocks, the higher your potential long-run return, but the rougher the ride will be. You’re fine with a rough ride? In theory, buying a 100% stock portfolio will give you the highest return. Still, there are good reasons to hold other assets. Stocks aren’t guaranteed to win, even over long holding periods. During the 10 years through year-end 2008, the S&P 500-stock index lost 1.4% a year, including reinvested dividends, while the broad bond market returned 6.2%. Moreover, a portfolio that includes some combination of the four major assets—stocks, bonds, cash investments and alternative investments—offers three benefits that you can’t get by owning just one of these four assets. First, by holding multiple assets, you can get the same reward with less dramatic day-to-day and month-to-month swings in your portfolio’s value, thanks to the lack of correlation among these assets. This is the magic of smart portfolio building, and it can make investing far more pleasant. Second, by owning assets that aren’t perfectly correlated with one another, you can reduce the chance that you’ll suffer big losses. Those losses can wreak havoc with your portfolio’s long-run return, while steadier performance can help your nest egg compound at a faster rate. Finally, you can turn this lack of correlation into additional portfolio gains—by engaging in regular rebalancing. Next: Correlations Previous: Risk Tolerance Article: Math vs. Emotion
Read more »

Second Look

Retirement

Don’t Ignore It

AS BABY BOOMERS and Generation X march toward retirement, they face a daunting issue: What steps should they take, given the risk they’ll require long-term care?
Long-term care—defined as needing help with activities of daily living such as bathing, dressing and eating—is something that almost 70% of retirees will require at some point, according to LongTermCare.gov. Problem is, Medicare only provides limited coverage.
Yes, Medicaid does cover long-term care. But it was designed as a last resort for low-income folks.

Read more »

Family Finance

Parting Thoughts

“IT HAS LONG been important to us to help our children and 12 adult grandchildren learn some of the fundamentals of saving and investing,” wrote Henry “Bud” Hebeler in a Feb. 26 email to me. “I sent them each a booklet that I wrote, illuminating the key elements that I have talked about in the past. To test their comprehension, I sent the following message.”
Bud died in August, nine days after his 84th birthday.

Read more »

Investing

Don’t Concentrate

WHO DOESN’T like free money? I know I do. If you’ve worked for a major U.S. corporation, you have probably also been offered free money. But there’s a potential downside—in the form of a large, undiversified investment bet.
What am I talking about? Let’s start with the matching employer contribution that’s offered in about half of 401(k) plans. You put in a portion of every paycheck and your company then matches all or half of your contribution.

Read more »

Lists

Wall Street Story

WE’RE A NATION divided, two camps clinging fervently to their own unshakeable beliefs and baffled at the nonsense that the other camp accepts as truth.
Yes, you guessed it: We’re talking about money management. Let’s call the two camps the Sharks and the Jets. What divides them? Here are seven fault lines:
1. Get Rich vs. Meet Goals. The Jets have one overriding goal—they want to make heaps of money—and they’ll hop any investment train that can get them there.

Read more »

Mindset

Buen Camino

ON APRIL 3, my husband Jim and I were among 262 pilgrims who made our way into Santiago de Compostela to receive an official pilgrim’s certificate for completing the required distance along one of the famous El Camino’s several routes—the most popular of which is some 500 miles. We were now certified peregrinos, or pilgrims.
Because it was early in the season, ours was one of the slow days for Camino completion.

Read more »