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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 »

Imagining the Worst

IF THE NAME Harry Browne doesn’t ring any bells, I’m not entirely surprised. Though he was twice a presidential candidate, he never captured more than 1% of the vote. Still, to my knowledge, Browne is the only financial advisor ever to run for the White House. 
As a Libertarian, some of Browne’s economic proposals were extreme—including, for instance, abolishing income taxes. But one of his ideas has stood the test of time: In his 1981 book, 

Read more »

Breaking Bad

WE ALL DO things that make us feel good right now, but which aren’t so good for us over the long haul. Yes, even me. Yes, even you.
Some of this behavior stems from hardwired instincts passed down to us from our hunter-gatherer ancestors, like our tendency to consume whenever we can and to focus too much on today, while giving short shrift to tomorrow. Other damaging behavior is the result of habits we’ve developed,

Read more »

Money Guide

The 80% Rule

ONE RULE OF THUMB suggests that, to retire in comfort, you need 80% of your preretirement income. Why the 20% drop? You are no longer saving 10% or so every year toward retirement and you’re no longer making an employee’s 7.65% payroll-tax contribution to Social Security and Medicare. In addition, you won’t have to buy work clothes or pay commuting costs. Your income tax bill should also go down, in part because a portion of your retirement income will likely come from Social Security benefits, which are always at least partly tax-free. It turns out, however, that many retirees are living on far less than 80% of their final salary. For instance, a 2014 T. Rowe Price Group survey of relatively affluent recent retirees found that these retirees were, on average, living on 66% of their preretirement income—and they reported being quite content. This isn’t a huge surprise, for three reasons. First, many folks save much more than 10% in the run-up to retirement, so they’re already used to living on a lot less than 80% of their income. Second, many homeowners aim to get their mortgage paid off by retirement, which eliminates a major expense. Finally, by retirement, the kids are usually through college and in the workforce, which also greatly reduces the parents' spending. Add it all up, and you may find you can comfortably retire on 50% or 60% of your final salary. Next: Estimating Expenses  Previous: Adjusting Your Mix
Read more »

Archive

My Space

I BOUGHT MY HOUSE in Silicon Valley by launching a Kickstarter campaign. Together, the team blew past our target and disrupted an entire industry—all while driving for Lyft (not Uber) and Airbnb-ing our couches, of course. Just kidding. First, what is a house in Silicon Valley? In the lauded land of garages-turned-unicorns, owning a house means any number of things: A wall, if one’s lucky. A floor. Perhaps a couch. Not so for the wise who live elsewhere—like my Phoenix-based high school best friend. There, houses have four bedrooms, three baths and substantial yards, all for mortgage payments below a one-bedroom Silicon Valley apartment’s monthly rent. At least, those were the numbers she and I swapped, at the time she bought her home. Step 1: Find the down payment. Kickstarter pipe dreams aside, I’d actually saved for a decade and got financial help from my parents. Grateful and excited, I pulled up the Redfin app. Step 2: Locate a neighborhood. Whaaat? Turns out, I’d be living near the freeway. That, or train tracks were my way to go. Step 3: Then, a house. Finding a condo actually wasn’t too hard, though that may be a product of knowing what I wanted: A condo with two bedrooms, one bath. Fingers crossed for a side yard. More accurately, it was driven by the limited number of options I could afford. Step 4: Bid. I ended up lucking out when placing a bid. My real estate agent had been in the business for years and kindly pulled a personal favor during the process. That gave my name extra attention and good vibes. My thoughtful “Dear Owner” letter also didn’t hurt. Step 5: Go into escrow. After we entered escrow, I discovered there was a leak in the roof, and we’d likely need to replace it in three-to-five years for a sizable sum. I considered withdrawing, but negotiated my purchase price down instead. Maybe I could now afford that couch. Step 6: Close. I couldn’t believe it the day my condo closed. Selfie-time. Hashtag #gotthekeys. Step 7: Remodel. Remodeling the ancient floor and kitchen after moving in has been quite an adventure. I now understand emotional homeowner decisions. Which may be why I still periodically.... Step 8: Go back to Airbnb. Since I moved in, the homeowners’ association has paid sizeable sums to replace our sewer pipes and extract underground tree roots. We’re still waiting to fork over for the roof. To keep up with the assessments, I Airbnb my place when I travel. And I’m not talking about just my couch. Caitlin Roberson, author of 30 Ways to Happy, helps top tech executives change the world through business storytelling. Her previous blogs were Money Well-Wasted and Self-Tithing. Caitlin obsessively lifts weights and attends hip-hop classes, so she can tithe in Napa, guilt-free. You can learn more about her at CaitlinRoberson.com and follow her on Instagram @CRobRobber.
Read more »

Numbers

HOW DID the top-performing quartile of U.S. stock funds for the five years through September 2014 fare over the subsequent five years? Depending on the category, just 26% to 30% managed to stay in the top quartile, says S&P Dow Jones.

Home Call to Action

Manifesto

NO. 13: FACED with an unknown future, we should diversify our investments, buy insurance, keep some cash—and accept that, in retrospect, these precautions will often seem unnecessary.

Truths

NO. 99: A REAL ESTATE agent’s greatest financial incentive isn’t to get us the best price, but to get us to act quickly. If we spend an extra month hunting for the right house to buy—or holding out for a higher price if we’re looking to sell—the agent might make little or no additional commission, but he or she will have to put in substantially more work.

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.

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 »

Imagining the Worst

IF THE NAME Harry Browne doesn’t ring any bells, I’m not entirely surprised. Though he was twice a presidential candidate, he never captured more than 1% of the vote. Still, to my knowledge, Browne is the only financial advisor ever to run for the White House. 
As a Libertarian, some of Browne’s economic proposals were extreme—including, for instance, abolishing income taxes. But one of his ideas has stood the test of time: In his 1981 book, 

Read more »

Breaking Bad

WE ALL DO things that make us feel good right now, but which aren’t so good for us over the long haul. Yes, even me. Yes, even you.
Some of this behavior stems from hardwired instincts passed down to us from our hunter-gatherer ancestors, like our tendency to consume whenever we can and to focus too much on today, while giving short shrift to tomorrow. Other damaging behavior is the result of habits we’ve developed,

Read more »

Free Newsletter

Numbers

HOW DID the top-performing quartile of U.S. stock funds for the five years through September 2014 fare over the subsequent five years? Depending on the category, just 26% to 30% managed to stay in the top quartile, says S&P Dow Jones.

Manifesto

NO. 13: FACED with an unknown future, we should diversify our investments, buy insurance, keep some cash—and accept that, in retrospect, these precautions will often seem unnecessary.

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. 99: A REAL ESTATE agent’s greatest financial incentive isn’t to get us the best price, but to get us to act quickly. If we spend an extra month hunting for the right house to buy—or holding out for a higher price if we’re looking to sell—the agent might make little or no additional commission, but he or she will have to put in substantially more work.

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

The 80% Rule

ONE RULE OF THUMB suggests that, to retire in comfort, you need 80% of your preretirement income. Why the 20% drop? You are no longer saving 10% or so every year toward retirement and you’re no longer making an employee’s 7.65% payroll-tax contribution to Social Security and Medicare. In addition, you won’t have to buy work clothes or pay commuting costs. Your income tax bill should also go down, in part because a portion of your retirement income will likely come from Social Security benefits, which are always at least partly tax-free. It turns out, however, that many retirees are living on far less than 80% of their final salary. For instance, a 2014 T. Rowe Price Group survey of relatively affluent recent retirees found that these retirees were, on average, living on 66% of their preretirement income—and they reported being quite content. This isn’t a huge surprise, for three reasons. First, many folks save much more than 10% in the run-up to retirement, so they’re already used to living on a lot less than 80% of their income. Second, many homeowners aim to get their mortgage paid off by retirement, which eliminates a major expense. Finally, by retirement, the kids are usually through college and in the workforce, which also greatly reduces the parents' spending. Add it all up, and you may find you can comfortably retire on 50% or 60% of your final salary. Next: Estimating Expenses  Previous: Adjusting Your Mix
Read more »

Archive

My Space

I BOUGHT MY HOUSE in Silicon Valley by launching a Kickstarter campaign. Together, the team blew past our target and disrupted an entire industry—all while driving for Lyft (not Uber) and Airbnb-ing our couches, of course. Just kidding. First, what is a house in Silicon Valley? In the lauded land of garages-turned-unicorns, owning a house means any number of things: A wall, if one’s lucky. A floor. Perhaps a couch. Not so for the wise who live elsewhere—like my Phoenix-based high school best friend. There, houses have four bedrooms, three baths and substantial yards, all for mortgage payments below a one-bedroom Silicon Valley apartment’s monthly rent. At least, those were the numbers she and I swapped, at the time she bought her home. Step 1: Find the down payment. Kickstarter pipe dreams aside, I’d actually saved for a decade and got financial help from my parents. Grateful and excited, I pulled up the Redfin app. Step 2: Locate a neighborhood. Whaaat? Turns out, I’d be living near the freeway. That, or train tracks were my way to go. Step 3: Then, a house. Finding a condo actually wasn’t too hard, though that may be a product of knowing what I wanted: A condo with two bedrooms, one bath. Fingers crossed for a side yard. More accurately, it was driven by the limited number of options I could afford. Step 4: Bid. I ended up lucking out when placing a bid. My real estate agent had been in the business for years and kindly pulled a personal favor during the process. That gave my name extra attention and good vibes. My thoughtful “Dear Owner” letter also didn’t hurt. Step 5: Go into escrow. After we entered escrow, I discovered there was a leak in the roof, and we’d likely need to replace it in three-to-five years for a sizable sum. I considered withdrawing, but negotiated my purchase price down instead. Maybe I could now afford that couch. Step 6: Close. I couldn’t believe it the day my condo closed. Selfie-time. Hashtag #gotthekeys. Step 7: Remodel. Remodeling the ancient floor and kitchen after moving in has been quite an adventure. I now understand emotional homeowner decisions. Which may be why I still periodically.... Step 8: Go back to Airbnb. Since I moved in, the homeowners’ association has paid sizeable sums to replace our sewer pipes and extract underground tree roots. We’re still waiting to fork over for the roof. To keep up with the assessments, I Airbnb my place when I travel. And I’m not talking about just my couch. Caitlin Roberson, author of 30 Ways to Happy, helps top tech executives change the world through business storytelling. Her previous blogs were Money Well-Wasted and Self-Tithing. Caitlin obsessively lifts weights and attends hip-hop classes, so she can tithe in Napa, guilt-free. You can learn more about her at CaitlinRoberson.com and follow her on Instagram @CRobRobber.
Read more »