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The further stocks fall, the shorter investors’ time horizons get.

Certain but Risky

A POPULAR MYTH holds that individual bonds are safer than bond funds—because individual bonds supposedly come with no interest rate risk.
Proponents of this notion claim that if you buy a bond and interest rates rise—which they have this year—you won’t lose any principal because you’ll eventually get back the bond’s par value, assuming you hold the bond to maturity and the issuer doesn’t default. This is true, but it doesn’t mean individual bonds don’t involve interest rate risk.

Read more »

What Went Right

I SPEND WAY TOO much time analyzing what went wrong and how to do better. Instead, I should probably focus more on what went right and how to do it again.
This tip came from a close friend, when I told him about my money mistakes. My friend’s logic? Despite my missteps, I must have done a few things right to offset the damage.
He had a good point. There are three things I did that paved my path to financial freedom.

Read more »

Acquired Taste

SPECIAL PURPOSE acquisition companies are hot. But will investors get burned?
Also known as “blank check” companies, special purpose acquisition companies (SPACs) are shell companies with no current business operations that raise investor funds through an initial public offering (IPO). The companies then seek a merger with a private company, allowing its new partner to go public without the delays and demands of a traditional IPO.
An additional advantage: The acquired companies are allowed to make projections about their business prospects,

Read more »

Not That Simple

CHIMAMANDA ADICHIE coined the term “single story” in 2009. A novelist and a native of Nigeria, Adichie first came to the U.S. to attend college. Almost immediately, she was struck by the one-dimensional lens through which many saw her. It started with her roommate.
Knowing that Adichie had just arrived in this country, her roommate—an American—asked how she was able to speak English so well. Adichie had to explain that English is Nigeria’s official language.

Read more »

Poor Old Me

HERE’S A COMMENT I’ve heard countless times in recent years: You should claim Social Security early because you’ll enjoy the money more in your 60s and because you’ll spend less later in retirement.
I think this is nonsense that rests on three wrongheaded assumptions:

That spending needs should drive when you claim Social Security.
That you will indeed spend less each year as you age.
That you’ll be better able to enjoy whatever money you have in your 60s than later in retirement.

Read more »

Which Road?

I RECENTLY LEFT my fulltime position at an energy trading company. I had a good run and enjoyed the job. It was mainly the people, both my coworkers and our clients.
I also liked the business travel. It broke up the daily routine and put faces to names, plus there were the awesome ribeye steak dinners with clients. Speaking at conferences was fun, too.
But things evolve. To quote Rocky, “If I can change and you can change,

Read more »

Money Guide

Early Retirement

IF YOU TAKE EARLY retirement, there are three key issues you need to worry about. First, and most important, do you have enough saved? In this part of the guide, we talk about a 4% portfolio withdrawal rate. But if you’re quitting the workforce in your 50s, you might play it a little safer and assume not a 4% withdrawal rate, but 3% instead. Second, if you retire before age 59½, you could potentially face tax penalties if you tap your retirement accounts. There are ways around that, as you’ll learn in the chapter on taxes. Still, if your goal is early retirement, you might sidestep potential problems by building up your regular taxable account. Third, if you retire before you turn age 65 and become eligible for Medicare, you’ll likely need to buy your own health insurance. That’s become easier, thanks to the health care exchanges launched as part of the Affordable Care Act. You might also cover yourself for 18 months by taking advantage of the so-called COBRA coverage that may be offered by your employer. For more on both topics, check out the discussion of health insurance. Next: Playing Catch-Up Previous: Estimating Expenses Articles: Fanning the FlamesFueling the Fire, Independence Day and Quitting Early
Read more »

Manifesto

NO. 16: IT TAKES years to achieve full financial freedom. But we can quickly escape much financial worry—if we live beneath our means, pay off credit card debt and build a cash cushion.

Truths

NO. 39: IN MARKETS that are inefficient, winners are easier to find—and harder to profit from. You’re more likely to find mispriced shares among microcap stocks and in emerging markets. A big reason: It costs so much to buy and sell. Indeed, because active management is so expensive in these inefficient markets, indexing can be an especially smart strategy.

Act

FUND YOUR IRA—for 2021. This time of year, folks are exhorted to get their IRAs funded for 2020 before the mid-April tax-filing deadline. That’s a good idea. But if you want the most out of your IRA, you should also make your 2021 contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.

Think

VALUE AVERAGING. This variation on dollar-cost averaging involves adjusting the sum you invest each month, depending on market performance. You set a target growth rate for your stock portfolio. If you don’t achieve that target in any given month, you increase the sum you save next month—a contrarian approach that could bolster long-run results.

Second Look

Retirement

For Your Own Good

IF WE WON’T SAVE for the future, should somebody do it for us? Everyone knows Americans don’t save; last year, we managed a miserable 3.4% of personal disposable income. That’s not going to cut it for either financial emergencies or retirement.
We can’t even get many workers to save sufficiently to obtain an employer match in their 401(k) plan. That’s free money left on the table. According to separate calculations by Alight Solutions and Fidelity Investments,

Read more »

Family Finance

Playing Your Cards

YOU’VE PROBABLY already asked yourself this question: Is it better for my credit score to have just one credit card—or many?
There’s no magic number, because it isn’t really about how many credit cards you have. Rather, what matters is your financial situation and how you handle your cards. For example, if you are just beginning to build a credit history, it’s best to have a single card. Try to follow three rules:

Pay your bills on time—and avoid late payments at all costs.

Read more »

Investing

On the Other Hand

I LOVE THE QUESTIONS that kids ask. This week, my first grader told me he had heard the word “caricature” and wanted to know what it meant. I explained it and then we went online to see some examples. In our highly politicized culture, we didn’t have to look far to see some exaggerated cartoon depictions of various political leaders.
It occurred to me, though, that our posture toward investments isn’t all that different.

Read more »

Lists

Connecting the Dots

MANY OF US ENGAGE in mental accounting, thinking of our mortgage as separate from our savings account and our job as unrelated to our portfolio. But these are all pieces of our sprawling financial life—and it’s important to understand how everything fits together. Here are 12 examples:
1. If you have plenty of cash in the bank, you can probably raise the deductibles on your auto and homeowner’s insurance.
2. If you’re inclined to buy bonds,

Read more »
Home Call to Action

Mindset

Keys to Happiness

SELF-DETERMINATION theory posits that we have three basic psychological needs: the need for competence, relatedness and autonomy. When these needs are satisfied, we’re more motivated and experience a greater sense of well-being.
To this, you might reasonably respond, “What the heck are you talking about?”
As I see it, self-determination theory provides a useful framework for thinking about the connection between money and happiness. We tend to be happier and more enthused about our daily lives if we’re engaged in activities we feel we’re good at (competence),

Read more »

Certain but Risky

A POPULAR MYTH holds that individual bonds are safer than bond funds—because individual bonds supposedly come with no interest rate risk.
Proponents of this notion claim that if you buy a bond and interest rates rise—which they have this year—you won’t lose any principal because you’ll eventually get back the bond’s par value, assuming you hold the bond to maturity and the issuer doesn’t default. This is true, but it doesn’t mean individual bonds don’t involve interest rate risk.

Read more »

What Went Right

I SPEND WAY TOO much time analyzing what went wrong and how to do better. Instead, I should probably focus more on what went right and how to do it again.
This tip came from a close friend, when I told him about my money mistakes. My friend’s logic? Despite my missteps, I must have done a few things right to offset the damage.
He had a good point. There are three things I did that paved my path to financial freedom.

Read more »

Acquired Taste

SPECIAL PURPOSE acquisition companies are hot. But will investors get burned?
Also known as “blank check” companies, special purpose acquisition companies (SPACs) are shell companies with no current business operations that raise investor funds through an initial public offering (IPO). The companies then seek a merger with a private company, allowing its new partner to go public without the delays and demands of a traditional IPO.
An additional advantage: The acquired companies are allowed to make projections about their business prospects,

Read more »

Not That Simple

CHIMAMANDA ADICHIE coined the term “single story” in 2009. A novelist and a native of Nigeria, Adichie first came to the U.S. to attend college. Almost immediately, she was struck by the one-dimensional lens through which many saw her. It started with her roommate.
Knowing that Adichie had just arrived in this country, her roommate—an American—asked how she was able to speak English so well. Adichie had to explain that English is Nigeria’s official language.

Read more »

Poor Old Me

HERE’S A COMMENT I’ve heard countless times in recent years: You should claim Social Security early because you’ll enjoy the money more in your 60s and because you’ll spend less later in retirement.
I think this is nonsense that rests on three wrongheaded assumptions:

That spending needs should drive when you claim Social Security.
That you will indeed spend less each year as you age.
That you’ll be better able to enjoy whatever money you have in your 60s than later in retirement.

Read more »

Which Road?

I RECENTLY LEFT my fulltime position at an energy trading company. I had a good run and enjoyed the job. It was mainly the people, both my coworkers and our clients.
I also liked the business travel. It broke up the daily routine and put faces to names, plus there were the awesome ribeye steak dinners with clients. Speaking at conferences was fun, too.
But things evolve. To quote Rocky, “If I can change and you can change,

Read more »

Free Newsletter

Home Call to Action

Manifesto

NO. 16: IT TAKES years to achieve full financial freedom. But we can quickly escape much financial worry—if we live beneath our means, pay off credit card debt and build a cash cushion.

Act

FUND YOUR IRA—for 2021. This time of year, folks are exhorted to get their IRAs funded for 2020 before the mid-April tax-filing deadline. That’s a good idea. But if you want the most out of your IRA, you should also make your 2021 contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.

Truths

NO. 39: IN MARKETS that are inefficient, winners are easier to find—and harder to profit from. You’re more likely to find mispriced shares among microcap stocks and in emerging markets. A big reason: It costs so much to buy and sell. Indeed, because active management is so expensive in these inefficient markets, indexing can be an especially smart strategy.

Think

VALUE AVERAGING. This variation on dollar-cost averaging involves adjusting the sum you invest each month, depending on market performance. You set a target growth rate for your stock portfolio. If you don’t achieve that target in any given month, you increase the sum you save next month—a contrarian approach that could bolster long-run results.

Money Guide

Start Exploring

Early Retirement

IF YOU TAKE EARLY retirement, there are three key issues you need to worry about. First, and most important, do you have enough saved? In this part of the guide, we talk about a 4% portfolio withdrawal rate. But if you’re quitting the workforce in your 50s, you might play it a little safer and assume not a 4% withdrawal rate, but 3% instead. Second, if you retire before age 59½, you could potentially face tax penalties if you tap your retirement accounts. There are ways around that, as you’ll learn in the chapter on taxes. Still, if your goal is early retirement, you might sidestep potential problems by building up your regular taxable account. Third, if you retire before you turn age 65 and become eligible for Medicare, you’ll likely need to buy your own health insurance. That’s become easier, thanks to the health care exchanges launched as part of the Affordable Care Act. You might also cover yourself for 18 months by taking advantage of the so-called COBRA coverage that may be offered by your employer. For more on both topics, check out the discussion of health insurance. Next: Playing Catch-Up Previous: Estimating Expenses Articles: Fanning the FlamesFueling the Fire, Independence Day and Quitting Early
Read more »

Second Look

Retirement

For Your Own Good

IF WE WON’T SAVE for the future, should somebody do it for us? Everyone knows Americans don’t save; last year, we managed a miserable 3.4% of personal disposable income. That’s not going to cut it for either financial emergencies or retirement.
We can’t even get many workers to save sufficiently to obtain an employer match in their 401(k) plan. That’s free money left on the table. According to separate calculations by Alight Solutions and Fidelity Investments,

Read more »

Family Finance

Playing Your Cards

YOU’VE PROBABLY already asked yourself this question: Is it better for my credit score to have just one credit card—or many?
There’s no magic number, because it isn’t really about how many credit cards you have. Rather, what matters is your financial situation and how you handle your cards. For example, if you are just beginning to build a credit history, it’s best to have a single card. Try to follow three rules:

Pay your bills on time—and avoid late payments at all costs.

Read more »

Investing

On the Other Hand

I LOVE THE QUESTIONS that kids ask. This week, my first grader told me he had heard the word “caricature” and wanted to know what it meant. I explained it and then we went online to see some examples. In our highly politicized culture, we didn’t have to look far to see some exaggerated cartoon depictions of various political leaders.
It occurred to me, though, that our posture toward investments isn’t all that different.

Read more »

Lists

Connecting the Dots

MANY OF US ENGAGE in mental accounting, thinking of our mortgage as separate from our savings account and our job as unrelated to our portfolio. But these are all pieces of our sprawling financial life—and it’s important to understand how everything fits together. Here are 12 examples:
1. If you have plenty of cash in the bank, you can probably raise the deductibles on your auto and homeowner’s insurance.
2. If you’re inclined to buy bonds,

Read more »

Mindset

Keys to Happiness

SELF-DETERMINATION theory posits that we have three basic psychological needs: the need for competence, relatedness and autonomy. When these needs are satisfied, we’re more motivated and experience a greater sense of well-being.
To this, you might reasonably respond, “What the heck are you talking about?”
As I see it, self-determination theory provides a useful framework for thinking about the connection between money and happiness. We tend to be happier and more enthused about our daily lives if we’re engaged in activities we feel we’re good at (competence),

Read more »