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Your kids will grow up to imitate your financial habits. Will you like what you see?

The Call on AT&T

HAVE YOU EVER HELD a stock for years and grown to love it? What if your research now says it might be time to break up?
Many years ago, I bought AT&T. It was the perfect stock for a dividend investor like me. It was a dividend aristocrat, meaning it had increased its dividend for at least 25 years. In fact, AT&T had been increasing its dividend for more than three decades.
But while the dividend was always generous,

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Time Can Heal Wounds

I RECENTLY WROTE about the fallacy of time diversification. Time diversification is the widely held belief that market risk declines as our holding period lengthens. It’s one of the cornerstones of many investors’ approach to asset allocation and risk management.
Financial theory, however, refutes time diversification because market risk—as measured by standard deviation—actually increases with longer holding periods. The math tells us that the dispersion of potential results widens with longer time horizons. This counterintuitive insight rests on the assumption that total returns have a normal,

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Short Stuff

Worth the Cost

MY MOM JUST SOLD her house. A few months ago, she interviewed three real estate agents. Each offered her a different opinion of how much her home was worth. All three also charged different commissions.
In the end, she selected the agent with the highest fee. I was skeptical when she told me her 1,100-square-foot home would be listed for $500,000. My mom’s house and mine are nearly identical in size, age, location and condition.

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Getting Heated

REMEMBER JULY 2008? The financial system was faltering following Bear Stearns’s March 2008 forced merger with J.P. Morgan Chase. That summer, Fannie Mae and Freddie Mac needed special assistance. The Global Financial Crisis was almost upon us.
But many folks forget that, at that time, another crisis was coming to a head—a global energy squeeze.
In 2008, I was a busy 20-year-old driving my 1998 Toyota Camry around Jacksonville, Florida, taking summer classes and working a part-time job.

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A Diminished Voice

IN 1994, AMERICANS could find out what was going on in their communities by reading one of the 1,534 daily U.S. newspapers. Most of them were published in individual cities and towns where they served subscribers defined by geography, rather than by political persuasion or socio-economic class.
These newspapers were trusted voices. They provided common knowledge and community forums for everyone from bank presidents and doctors to plumbers and teachers.
As of 2018, 255 daily newspapers had stopped publishing,

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Coming Out Ahead

LAST WEEK’S NEWS that Social Security recipients will receive a 5.9% cost-of-living adjustment for 2022 might seem like a nonevent. After all, those larger monthly checks will be fully devoured by today’s higher prices.
Or maybe not.
September’s report for the Consumer Price Index (CPI) showed that inflation for medical care services—a big cost for retirees—was quite tame over the past 12 months, rising less than 1%. Seniors also spend significantly less on transportation,

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Numbers Game

IT HAPPENED AGAIN. For the third time in two years, our credit card number was stolen. I learned this yesterday when I received the now-too-frequent question from Chase: “Do you recognize this gas station purchase for $1?” We live nowhere near the station in question, so I knew something was amiss.
I appreciate Chase’s diligence in identifying such transactions, and the fact that we won’t be held liable for any fraudulent charges. Still, I’ve grown weary of the whole process of cancelling credit cards,

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Gaining Perspective

ON MONDAY, OCT. 19, 1987, stocks plunged more than 20%. I was relatively new to investing—and the crash shocked me. I realize now that, when you’re starting out, no matter how much you study, the trait you’re most lacking is perspective.
When I began investing, I approached a successful investor and asked for tips to learn about the market. Part of his advice was to watch Wall Street Week with Louis Rukeyser on PBS.

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Longer Reads

Fit to Be Bought

I ALMOST NEVER MAKE fast decisions. But I bought a used car in August immediately after seeing it. If I hadn’t, I might still be looking.
Inventories for new cars are at record lows. Prices for used vehicles are at record highs. This was not the year to buy another car, but I wanted to replace my 14-year-old Mazda sedan with a more reliable vehicle for long trips to see my children. I was tired of months isolated at home,

Read more »

My Mentor

FOURTEEN YEARS AGO, my father-in-law was diagnosed with a blood cancer—multiple myeloma—and given five years to live. Ever since, he’s been battling it like a warrior. But he’s dying now, and he won’t be around much longer.
My father-in-law grew up without money to Depression-era parents. He earned his way into a prestigious college, and eventually received a PhD in chemical engineering. He had an impressive career as an engineer with a large chemical company in the Midwest.

Read more »

Keeping Score

WHAT’S YOUR CREDIT score? That’s hard to answer because none of us has just one. You likely have a dozen or more. So how did consumers come to think that one credit score—the FICO score—is the sole reflection of their ability to repay a loan?
Following decades of growing consumer spending, and associated data collection, the Fair Credit Reporting Act of 1970 required credit bureaus to open their files. The intent was to protect consumers from lenders who were relying on incorrect information.

Read more »

Fighting IRMAA

I TURNED AGE 64 over the Labor Day weekend. One of my goals for my 65th orbit of the sun is to really dig into Medicare.
Luckily, I have a few friends and relatives who have blazed the trail before me. I’ve also studied Medicare as part of some financial planning courses I took a few years ago. Still, one topic I’ve never researched in detail is Medicare’s income-related monthly adjustment amount, otherwise known as IRMAA.

Read more »

Teaching the Teacher

I RECENTLY STARTED reading Think Again, the new book by Adam Grant. Subtitled The Power of Knowing What You Don’t Know, Grant’s book got me thinking about all the ways that, over the years, conversations with clients have led me to look at things through different lenses. Below are eight such topics:

1. There’s one important financial question that stumps most everyone—for good reason. In building a financial plan,

Read more »

An F in Retirement

IT’S EMBARRASSING to admit in a public forum that I failed at retirement. But I’m doing so—because I think people can learn from me, and thereby avoid making the same mistakes.
I spent my entire 38-year career in the banking industry. Naturally, I learned a lot about money and investing. I helped thousands of clients save for their own retirement. On top of that, my wife is an investment advisor.
But despite all that knowledge and expertise—and having enough money to retire comfortably—I still managed to find my way into retirement hell.

Read more »

Voices

What aspect of Wall Street do you find most distasteful?

"Easily the near-institutional lack of legal accountability on the part of VC and private equity to leverage employee pensions and benefits as collateral to knowingly load up debt knowing that it's likely to cripple a company. Then to walk away having pocketed short term profits while leaving rank and file employees jobless and broken. I can't help but think there are legislative and regulatory means to significantly limit this from occurring, but suspect that these very very deep pockets have paid handsomely for elected officials to facilitate their practices."
- medhat
Read more »

Does it ever make sense to buy actively managed funds?

"I am usually an individual stock guy. Sometimes I will buy a closed-end fund selling at its historically high discount. Been 95% stocks, 5% cash for decades. Social Security will be my fixed income. Today it would be like owning $2.3M in a 10-yr govt. bond. See no good reason to own any more fixed income. Obviously, stock market volatility doesn't bother me."
- Kurt S
Read more »

What do you need for a fulfilling retirement?

"To be doing something you really like that you couldn't while earning a living. Sometimes these coincide but not often. After spending a working life in international finance I went back to study viticulture and enology and now have my own vineyard and winery. It can be done."
- Arpe Gio
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Money Guide

Taxed vs. Tax-Deferred

BY USING RETIREMENT accounts, or by pursuing tax-efficient strategies in a taxable account, you can get tax-deferred growth. How valuable is this growth? Imagine a husband and wife. Both invest $1,000 for 40 years and earn 6% a year before taxes. The husband pays 22% in taxes every year on his entire 6% investment gain, so his $1,000 grows annually at an after-tax 4.68%. If you earn 4.68% a year for 40 years, your cumulative gain would be 523.1%. (On your financial calculator, this would show up as 6.231 before you subtract 1 and multiply by 100.) That means the husband’s $1,000 grows to $6,231. Meanwhile, the wife puts her $1,000 into a nondeductible retirement account, where her money grows tax-deferred at 6% annually. After 40 years, she cashes out the account and pays 22% in taxes on her four decades of investment gains. Before taxes, her $1,000 would grow to $10,286. What’s her after-tax gain? Remember, her contribution to the retirement account was nondeductible, meaning she didn’t get an initial tax deduction for her $1,000 contribution and hence she doesn’t have to pay tax on that $1,000 when she withdraws it. Instead, only the $9,286 in gains is taxable. Knock off 22% from that sum for taxes, add back the $1,000 nondeductible contribution and the wife would be left with $8,243, compared with $6,231 for her husband. Next: Taxables vs. Munis Previous: Rebalancing
Read more »

Manifesto

NO. 64: AS WE GROW wealthier, we should seize the chance to save on insurance—by raising deductibles, lengthening elimination periods and perhaps dropping some policies entirely.

Truths

NO. 29: BROKERAGE commissions aren’t your only trading cost. When you buy and sell individual stocks and bonds, or a fund manager does so on your behalf, you lose money to the bid-ask spread—the gap between the lower price at which you can currently sell and the higher price at which you can buy. Wall Street’s market makers pocket the difference.

Act

GIVE AWAY MONEY. You might be considering a large financial gift to your favorite charity or to your children. Charitable contributions aren’t limited, though their tax-deductibility can be. Meanwhile, with your kids, you might take advantage of the $15,000 annual gift-tax exclusion. But before you do, check you have plenty for your own retirement.

Think

WINNER’S CURSE. If you’re in a bidding war for a house and come out on top, you may suffer the winner’s curse: In beating out other possibly more prudent and knowledgeable bidders, there’s a risk you overpaid. The winner’s curse can also afflict other buyers, such as corporations that win takeover battles or the highest bidders at an art auction.

Second Look

Retirement

Losing My Balance

CNBC ANCHOR BECKY Quick recently summed up today’s retirement investing dilemma in one sentence: “You’re never going to make enough money if you have 40% of your money in bonds.” She, along with many pundits, believe the old standby recommendation to invest 60% in stocks and 40% in bonds—the classic balanced portfolio—is dead. Google “60/40 asset allocation” and the majority of recent articles have titles that include such words as “eulogy,” “endangered,” “dead,” “the end of” and “not good enough.”
Likewise,

Read more »

Family Finance

Their Loss, Your Gain

LONG-TERM-CARE insurance policies are, in my opinion, both a blessing and a curse. They’re a blessing because they can help cover critical and costly care when a family might have no other financial options.
But they can also feel like a curse. That’s because of what many owners of traditional long-term-care (LTC) insurance refer to as “the letter.” This is the renewal letter that policyholders receive each year. These letters provide a menu of renewal options,

Read more »

Investing

Non Prophet

THE SELF-PROCLAIMED fortune-teller Nostradamus published more than 6,000 predictions during his lifetime. With the benefit of hindsight, it’s easy to see that his prophecies had little substance or predictive value. In fact, in his day, even astrologers dismissed Nostradamus as incompetent.
But what if the person making a prediction is the opposite of Nostradamus? What if he is a serious individual, someone who is universally respected and whose forecasts have a demonstrated track record of success?

Read more »

Lists

Twelve Truths

AT LEAST ONCE A DAY, I find myself saying, “Another truism of financial planning is….” To be honest, I don’t know whether the 12 concepts below meet the strict definition of “truism,” but I’ve found them hugely helpful in navigating the world of personal finance:
1. There are always two answers to every question. There’s the mathematical answer and there’s the “how do you feel about it” answer. It’s okay—and, in fact,

Read more »
Home Call to Action

Mindset

Peace of Mind

I HAVEN’T BEEN feeling myself lately. Until now, I didn’t understand what had brought this on. You see, I have this different attitude toward money—and it’s changed the way I behave.
Before, it seemed like money was always on my mind. I used to love to read Barron’s every week. Now, I just pick it up in front of my house and toss it in the garage, where it joins 20 other unread copies. 

Read more »

Longer Reads

Fit to Be Bought

I ALMOST NEVER MAKE fast decisions. But I bought a used car in August immediately after seeing it. If I hadn’t, I might still be looking.
Inventories for new cars are at record lows. Prices for used vehicles are at record highs. This was not the year to buy another car, but I wanted to replace my 14-year-old Mazda sedan with a more reliable vehicle for long trips to see my children. I was tired of months isolated at home,

Read more »

My Mentor

FOURTEEN YEARS AGO, my father-in-law was diagnosed with a blood cancer—multiple myeloma—and given five years to live. Ever since, he’s been battling it like a warrior. But he’s dying now, and he won’t be around much longer.
My father-in-law grew up without money to Depression-era parents. He earned his way into a prestigious college, and eventually received a PhD in chemical engineering. He had an impressive career as an engineer with a large chemical company in the Midwest.

Read more »

Keeping Score

WHAT’S YOUR CREDIT score? That’s hard to answer because none of us has just one. You likely have a dozen or more. So how did consumers come to think that one credit score—the FICO score—is the sole reflection of their ability to repay a loan?
Following decades of growing consumer spending, and associated data collection, the Fair Credit Reporting Act of 1970 required credit bureaus to open their files. The intent was to protect consumers from lenders who were relying on incorrect information.

Read more »

Fighting IRMAA

I TURNED AGE 64 over the Labor Day weekend. One of my goals for my 65th orbit of the sun is to really dig into Medicare.
Luckily, I have a few friends and relatives who have blazed the trail before me. I’ve also studied Medicare as part of some financial planning courses I took a few years ago. Still, one topic I’ve never researched in detail is Medicare’s income-related monthly adjustment amount, otherwise known as IRMAA.

Read more »

Teaching the Teacher

I RECENTLY STARTED reading Think Again, the new book by Adam Grant. Subtitled The Power of Knowing What You Don’t Know, Grant’s book got me thinking about all the ways that, over the years, conversations with clients have led me to look at things through different lenses. Below are eight such topics:

1. There’s one important financial question that stumps most everyone—for good reason. In building a financial plan,

Read more »

An F in Retirement

IT’S EMBARRASSING to admit in a public forum that I failed at retirement. But I’m doing so—because I think people can learn from me, and thereby avoid making the same mistakes.
I spent my entire 38-year career in the banking industry. Naturally, I learned a lot about money and investing. I helped thousands of clients save for their own retirement. On top of that, my wife is an investment advisor.
But despite all that knowledge and expertise—and having enough money to retire comfortably—I still managed to find my way into retirement hell.

Read more »

Free Newsletter

Voices

If you could buy just three funds or less, what would they be?

"A low-cost total market index fund, a low-cost international index fund, and a low-cost REIT index fund. The latter, preferably in an IRA/401 k. In a 50%/25%/25% split. Note: Each investor needs to determine the amount of cash or cash equivalents that need to be held outside of these three funds."
- mjflack
Read more »

If you inherited $5 million, how would you use the money?

"I'd take a good chunk of it and build an outdoor track for kids in our community to practice their running :)"
- Kyle Mcintosh
Read more »

What are the smartest financial moves you’ve ever made?

"Majoring in engineering and going to work right after completing my undergraduate degree. I was able to get a decent income right out of the gate (even in a government job) and caught the financial independence bug early in life. That feeling of supporting yourself (and eventually others) was addictive and drove me to work hard at my career. I was able to start saving early in life, and a brief detour to graduate school after four years of working helped me pivot to the private sector while staying in engineering, upping my income dramatically."
- Richard Adams
Read more »
Home Call to Action

Manifesto

NO. 64: AS WE GROW wealthier, we should seize the chance to save on insurance—by raising deductibles, lengthening elimination periods and perhaps dropping some policies entirely.

Act

GIVE AWAY MONEY. You might be considering a large financial gift to your favorite charity or to your children. Charitable contributions aren’t limited, though their tax-deductibility can be. Meanwhile, with your kids, you might take advantage of the $15,000 annual gift-tax exclusion. But before you do, check you have plenty for your own retirement.

Truths

NO. 29: BROKERAGE commissions aren’t your only trading cost. When you buy and sell individual stocks and bonds, or a fund manager does so on your behalf, you lose money to the bid-ask spread—the gap between the lower price at which you can currently sell and the higher price at which you can buy. Wall Street’s market makers pocket the difference.

Think

WINNER’S CURSE. If you’re in a bidding war for a house and come out on top, you may suffer the winner’s curse: In beating out other possibly more prudent and knowledgeable bidders, there’s a risk you overpaid. The winner’s curse can also afflict other buyers, such as corporations that win takeover battles or the highest bidders at an art auction.

Money Guide

Contents

Taxed vs. Tax-Deferred

BY USING RETIREMENT accounts, or by pursuing tax-efficient strategies in a taxable account, you can get tax-deferred growth. How valuable is this growth? Imagine a husband and wife. Both invest $1,000 for 40 years and earn 6% a year before taxes. The husband pays 22% in taxes every year on his entire 6% investment gain, so his $1,000 grows annually at an after-tax 4.68%. If you earn 4.68% a year for 40 years, your cumulative gain would be 523.1%. (On your financial calculator, this would show up as 6.231 before you subtract 1 and multiply by 100.) That means the husband’s $1,000 grows to $6,231. Meanwhile, the wife puts her $1,000 into a nondeductible retirement account, where her money grows tax-deferred at 6% annually. After 40 years, she cashes out the account and pays 22% in taxes on her four decades of investment gains. Before taxes, her $1,000 would grow to $10,286. What’s her after-tax gain? Remember, her contribution to the retirement account was nondeductible, meaning she didn’t get an initial tax deduction for her $1,000 contribution and hence she doesn’t have to pay tax on that $1,000 when she withdraws it. Instead, only the $9,286 in gains is taxable. Knock off 22% from that sum for taxes, add back the $1,000 nondeductible contribution and the wife would be left with $8,243, compared with $6,231 for her husband. Next: Taxables vs. Munis Previous: Rebalancing
Read more »

Second Look

Retirement

Losing My Balance

CNBC ANCHOR BECKY Quick recently summed up today’s retirement investing dilemma in one sentence: “You’re never going to make enough money if you have 40% of your money in bonds.” She, along with many pundits, believe the old standby recommendation to invest 60% in stocks and 40% in bonds—the classic balanced portfolio—is dead. Google “60/40 asset allocation” and the majority of recent articles have titles that include such words as “eulogy,” “endangered,” “dead,” “the end of” and “not good enough.”
Likewise,

Read more »

Family Finance

Their Loss, Your Gain

LONG-TERM-CARE insurance policies are, in my opinion, both a blessing and a curse. They’re a blessing because they can help cover critical and costly care when a family might have no other financial options.
But they can also feel like a curse. That’s because of what many owners of traditional long-term-care (LTC) insurance refer to as “the letter.” This is the renewal letter that policyholders receive each year. These letters provide a menu of renewal options,

Read more »

Investing

Non Prophet

THE SELF-PROCLAIMED fortune-teller Nostradamus published more than 6,000 predictions during his lifetime. With the benefit of hindsight, it’s easy to see that his prophecies had little substance or predictive value. In fact, in his day, even astrologers dismissed Nostradamus as incompetent.
But what if the person making a prediction is the opposite of Nostradamus? What if he is a serious individual, someone who is universally respected and whose forecasts have a demonstrated track record of success?

Read more »

Lists

Twelve Truths

AT LEAST ONCE A DAY, I find myself saying, “Another truism of financial planning is….” To be honest, I don’t know whether the 12 concepts below meet the strict definition of “truism,” but I’ve found them hugely helpful in navigating the world of personal finance:
1. There are always two answers to every question. There’s the mathematical answer and there’s the “how do you feel about it” answer. It’s okay—and, in fact,

Read more »

Mindset

Peace of Mind

I HAVEN’T BEEN feeling myself lately. Until now, I didn’t understand what had brought this on. You see, I have this different attitude toward money—and it’s changed the way I behave.
Before, it seemed like money was always on my mind. I used to love to read Barron’s every week. Now, I just pick it up in front of my house and toss it in the garage, where it joins 20 other unread copies. 

Read more »