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If a 10% stock market decline is a “correction,” is an 11.1% gain a mistake?

Reading the Signs

I MISS BASEBALL. I love the strategy and the moments of excitement that come in the later innings. I also like to attend games, watching the interaction among the players and coaches. The third base coach plays a big role, relaying signals from the manager to the baserunners and the batter. If you’re a player, and you miss a signal, it can ruin the next play.
While the stock market has signals, they aren’t as black and white as those in baseball.

Read more »

Day by Day

I’M THE TYPE of person who likes to plan. I have at least 10 to-do lists going at any one time. I have calendars on my refrigerator, my desk and my phone. I plan out my days, my months, my years and, on occasion, my decades.
My job, managing the biology department at a small liberal arts college, is a perfect fit for my personality. For the past 22 years, I’ve methodically planned out every day of each semester.

Read more »

Fed Up

LAST WEEK, I talked about some of the unsettling trends in the financial markets. In that article, I focused on the role of brokers and day traders, and noted that it takes two to tango. But it turns out the dance floor is quite a bit more crowded than that.
Yes, brokers and day traders are doing their part, but there’s another set of actors who are less visible but a whole lot more influential.

Read more »

15 Ways to Happy

WE DON’T PURSUE money just to put food on the table and a roof over our head. Instead, the hope is to enhance our life. On that score, it seems we aren’t doing terribly well: Our reported level of happiness is no higher than it was half a century ago.
Could we do better? I believe so. There’s been extensive research on happiness in recent decades. For those who want to dig into the details,

Read more »

It Took Decades

IF YOU’VE WORKED a lifetime—while prudently saving and investing—so that in old age you’re well off financially, should you feel guilty?
If your retirement income is greater than the income of most American families, including those still raising young children and facing college costs, as well as the cost of their own retirement, is that embarrassing?
A few years back, during a discussion about how people spend, save and invest, my son-in-law—who’s a financial advisor to high net worth families—casually said to me,

Read more »

Did It Myself

I PURCHASED my first house almost 30 years ago. To call it a “fixer” would have been an understatement. It was 800 square feet of neglected space in desperate need of repairs and updating. Being fresh out of college and working at a job that paid less than $20,000 a year, I didn’t have a lot of money to spend on improvements. But I had the energy and enthusiasm of youth.
Over a five-year period,

Read more »

Money Guide

Short-Term Threats

IF YOUR TIME horizon is five years or less, the big threat can be summed up in two words: losing money. To get a sense for the range of potentially rotten returns, consider the worst annual returns for some of Vanguard Group’s mutual funds. In 2008, when the financial crisis hit with full fury, Vanguard’s S&P 500-stock index fund declined 37%, its small-company index fund fell 36.1% and its total international-stock fund tumbled 44.1%. And these numbers don’t fully reflect the punishment suffered: The market’s slide started in late 2007 and continued into early 2009, before global stock markets bounced back beginning in March. The S&P 500’s peak-to-trough price decline was a staggering 57%. For bonds, 2013 was a rough year. How rough? Vanguard’s long-term Treasury fund fell 13% that year, its inflation-indexed bond fund slumped 8.9% and its long-term corporate bond fund slid 5.9%. Vanguard’s high-yield corporate bond fund, which invests in low-quality “junk” bonds, made money in 2013, returning 4.5%. Instead, its rough year was 2008, when it fell 21.3%, reflecting junk bonds’ tendency to trade more like stocks than bonds. Want to see how your funds performed? You might check the website for the fund company involved or head to Morningstar.com. The bottom line: If you have money that you will need to spend in the next five years, you probably shouldn’t own anything riskier than short-term bonds. The worst annual performance of Vanguard’s short-term corporate bond fund was a 4.7% loss in 2008—and it easily recouped that loss the following year. Vanguard’s short-term Treasury fund has given shareholders an even smoother ride, including notching a 6.7% gain in 2008’s turbulent market. For greater safety, you might go for money-market mutual funds, which strive to maintain a stable $1 share price, or even an FDIC-insured savings account or certificate of deposit. One tip: You may find you can come out ahead by buying longer-term CDs, with their higher yields, even if you have to cash out before maturity and pay an early-withdrawal penalty. Next: Long-Term Threats Previous: Step 1: Goals Article: Bearing Gifts
Read more »

Manifesto

NO. 5: WE CAN’T stop misfortune from befalling us—but we can limit the fallout by keeping emergency money, living below our means, taking on debt cautiously and buying the right insurance.

Truths

NO. 65: REBALANCING controls risk—and can boost returns. Take U.S. and foreign stocks. They’ve generated similar long-run returns, but fare well at different times. By owning both and regularly rebalancing back to target portfolio percentages, you can reduce risk while raising long-run returns, as rebalancing forces you to buy low and sell high.

Act

VISUALIZE YOUR goals. Daydream about the vacation cottage, new car, remodeled kitchen and what you’ll do in retirement. Why? It will make you more motivated to save and you’ll enjoy the pleasure of anticipation. It’ll also give you a chance to ponder your goals in greater detail—and you might discover, on second thought, that some aren’t so enticing.

Think

DUNNING-KRUGER. Why do so many amateur investors persist in trying to beat the market, despite results that are mediocre or worse? It could be that, because they’re incompetent, they don’t have the skill needed to recognize their own incompetence and, as a result, have the illusion of superiority—a cognitive bias known as the Dunning-Kruger effect.

Second Look

Retirement

The Tipping Point

STARTING TO SAVE is a discouraging business. Even if you invest in stocks—and even if stocks post gains—progress initially can seem agonizingly slow.
Consider a simple example. Let’s say you earn $100,000 a year. Not exactly an everyday salary, I admit, but it makes the numbers easier to grasp. You save 12% of your income, equal to $12,000 each year. That money is invested at the start of the year and earns 6% annually,

Read more »

Family Finance

Higher Taxes?

FEDERAL RESERVE Chairman Jerome Powell appeared before Congress late last month and spoke in serious terms about the country’s debt situation. It’s worth understanding what Powell said—and how that might impact your investments.
Powell’s message: “The U.S. federal government is on an unsustainable fiscal path.” Specifically, “debt as a percentage of GDP is growing, and now growing sharply, and that is unsustainable by definition.”
Powell’s remarks mirrored those of the Congressional Budget Office (CBO).

Read more »

Investing

Going Mainstream

PAST PERFORMANCE is no guarantee of future results—and that’s especially true once an investment goes from backwater to broad acceptance. Take real-estate investment trusts. Over the past 15 years, they have been embraced by investors, leading to great returns as folks loaded up on REITs. But that widespread acceptance was a onetime event—and returns from here will likely be more modest, especially with equity REITs yielding just 3.4%, versus almost 9% at year-end 1999.

Read more »

Lists

Homes: 10 Questions

HOUSING IS the biggest expense for most American families, typically devouring a third of their budget. Are those dollars getting spent wisely? Here are 10 questions to ask yourself:

Should you buy? If you play around with the mortgage calculator at Bankrate.com, you can figure out how big a mortgage you could support with your monthly rent payments. That will give you a sense for whether homeownership is within reach. Even if it is,

Read more »
Home Call to Action

Mindset

Never Too Late

FOLKS OFTEN feel that, because they’re a certain age, their time has passed and it’s too late for them to pursue new goals, whether it’s saving for retirement or starting their dream business. But I believe we can reinvent ourselves at any age.
Last year, I listened to an NPR podcast that featured an interview with Bob Moore, founder of Bob’s Red Mill. You’re probably familiar with Bob’s Red Mill: Their products are now sold in most grocery store health-food sections.

Read more »

Reading the Signs

I MISS BASEBALL. I love the strategy and the moments of excitement that come in the later innings. I also like to attend games, watching the interaction among the players and coaches. The third base coach plays a big role, relaying signals from the manager to the baserunners and the batter. If you’re a player, and you miss a signal, it can ruin the next play.
While the stock market has signals, they aren’t as black and white as those in baseball.

Read more »

Day by Day

I’M THE TYPE of person who likes to plan. I have at least 10 to-do lists going at any one time. I have calendars on my refrigerator, my desk and my phone. I plan out my days, my months, my years and, on occasion, my decades.
My job, managing the biology department at a small liberal arts college, is a perfect fit for my personality. For the past 22 years, I’ve methodically planned out every day of each semester.

Read more »

Fed Up

LAST WEEK, I talked about some of the unsettling trends in the financial markets. In that article, I focused on the role of brokers and day traders, and noted that it takes two to tango. But it turns out the dance floor is quite a bit more crowded than that.
Yes, brokers and day traders are doing their part, but there’s another set of actors who are less visible but a whole lot more influential.

Read more »

15 Ways to Happy

WE DON’T PURSUE money just to put food on the table and a roof over our head. Instead, the hope is to enhance our life. On that score, it seems we aren’t doing terribly well: Our reported level of happiness is no higher than it was half a century ago.
Could we do better? I believe so. There’s been extensive research on happiness in recent decades. For those who want to dig into the details,

Read more »

It Took Decades

IF YOU’VE WORKED a lifetime—while prudently saving and investing—so that in old age you’re well off financially, should you feel guilty?
If your retirement income is greater than the income of most American families, including those still raising young children and facing college costs, as well as the cost of their own retirement, is that embarrassing?
A few years back, during a discussion about how people spend, save and invest, my son-in-law—who’s a financial advisor to high net worth families—casually said to me,

Read more »

Did It Myself

I PURCHASED my first house almost 30 years ago. To call it a “fixer” would have been an understatement. It was 800 square feet of neglected space in desperate need of repairs and updating. Being fresh out of college and working at a job that paid less than $20,000 a year, I didn’t have a lot of money to spend on improvements. But I had the energy and enthusiasm of youth.
Over a five-year period,

Read more »

Free Newsletter

Home Call to Action

Manifesto

NO. 5: WE CAN’T stop misfortune from befalling us—but we can limit the fallout by keeping emergency money, living below our means, taking on debt cautiously and buying the right insurance.

Act

VISUALIZE YOUR goals. Daydream about the vacation cottage, new car, remodeled kitchen and what you’ll do in retirement. Why? It will make you more motivated to save and you’ll enjoy the pleasure of anticipation. It’ll also give you a chance to ponder your goals in greater detail—and you might discover, on second thought, that some aren’t so enticing.

Truths

NO. 65: REBALANCING controls risk—and can boost returns. Take U.S. and foreign stocks. They’ve generated similar long-run returns, but fare well at different times. By owning both and regularly rebalancing back to target portfolio percentages, you can reduce risk while raising long-run returns, as rebalancing forces you to buy low and sell high.

Think

DUNNING-KRUGER. Why do so many amateur investors persist in trying to beat the market, despite results that are mediocre or worse? It could be that, because they’re incompetent, they don’t have the skill needed to recognize their own incompetence and, as a result, have the illusion of superiority—a cognitive bias known as the Dunning-Kruger effect.

Money Guide

Start Here

Short-Term Threats

IF YOUR TIME horizon is five years or less, the big threat can be summed up in two words: losing money. To get a sense for the range of potentially rotten returns, consider the worst annual returns for some of Vanguard Group’s mutual funds. In 2008, when the financial crisis hit with full fury, Vanguard’s S&P 500-stock index fund declined 37%, its small-company index fund fell 36.1% and its total international-stock fund tumbled 44.1%. And these numbers don’t fully reflect the punishment suffered: The market’s slide started in late 2007 and continued into early 2009, before global stock markets bounced back beginning in March. The S&P 500’s peak-to-trough price decline was a staggering 57%. For bonds, 2013 was a rough year. How rough? Vanguard’s long-term Treasury fund fell 13% that year, its inflation-indexed bond fund slumped 8.9% and its long-term corporate bond fund slid 5.9%. Vanguard’s high-yield corporate bond fund, which invests in low-quality “junk” bonds, made money in 2013, returning 4.5%. Instead, its rough year was 2008, when it fell 21.3%, reflecting junk bonds’ tendency to trade more like stocks than bonds. Want to see how your funds performed? You might check the website for the fund company involved or head to Morningstar.com. The bottom line: If you have money that you will need to spend in the next five years, you probably shouldn’t own anything riskier than short-term bonds. The worst annual performance of Vanguard’s short-term corporate bond fund was a 4.7% loss in 2008—and it easily recouped that loss the following year. Vanguard’s short-term Treasury fund has given shareholders an even smoother ride, including notching a 6.7% gain in 2008’s turbulent market. For greater safety, you might go for money-market mutual funds, which strive to maintain a stable $1 share price, or even an FDIC-insured savings account or certificate of deposit. One tip: You may find you can come out ahead by buying longer-term CDs, with their higher yields, even if you have to cash out before maturity and pay an early-withdrawal penalty. Next: Long-Term Threats Previous: Step 1: Goals Article: Bearing Gifts
Read more »

Second Look

Retirement

The Tipping Point

STARTING TO SAVE is a discouraging business. Even if you invest in stocks—and even if stocks post gains—progress initially can seem agonizingly slow.
Consider a simple example. Let’s say you earn $100,000 a year. Not exactly an everyday salary, I admit, but it makes the numbers easier to grasp. You save 12% of your income, equal to $12,000 each year. That money is invested at the start of the year and earns 6% annually,

Read more »

Family Finance

Higher Taxes?

FEDERAL RESERVE Chairman Jerome Powell appeared before Congress late last month and spoke in serious terms about the country’s debt situation. It’s worth understanding what Powell said—and how that might impact your investments.
Powell’s message: “The U.S. federal government is on an unsustainable fiscal path.” Specifically, “debt as a percentage of GDP is growing, and now growing sharply, and that is unsustainable by definition.”
Powell’s remarks mirrored those of the Congressional Budget Office (CBO).

Read more »

Investing

Going Mainstream

PAST PERFORMANCE is no guarantee of future results—and that’s especially true once an investment goes from backwater to broad acceptance. Take real-estate investment trusts. Over the past 15 years, they have been embraced by investors, leading to great returns as folks loaded up on REITs. But that widespread acceptance was a onetime event—and returns from here will likely be more modest, especially with equity REITs yielding just 3.4%, versus almost 9% at year-end 1999.

Read more »

Lists

Homes: 10 Questions

HOUSING IS the biggest expense for most American families, typically devouring a third of their budget. Are those dollars getting spent wisely? Here are 10 questions to ask yourself:

Should you buy? If you play around with the mortgage calculator at Bankrate.com, you can figure out how big a mortgage you could support with your monthly rent payments. That will give you a sense for whether homeownership is within reach. Even if it is,

Read more »

Mindset

Never Too Late

FOLKS OFTEN feel that, because they’re a certain age, their time has passed and it’s too late for them to pursue new goals, whether it’s saving for retirement or starting their dream business. But I believe we can reinvent ourselves at any age.
Last year, I listened to an NPR podcast that featured an interview with Bob Moore, founder of Bob’s Red Mill. You’re probably familiar with Bob’s Red Mill: Their products are now sold in most grocery store health-food sections.

Read more »