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Everything’s a tradeoff: If you buy one item, you’ll have less for other purchases—either now or in the future.

The Happy Employee

OWNING a business comes with a unique opportunity: the chance to better the lives of your employees. The paycheck you provide helps them pay for their daily expenses and supports the local economy. But there’s an opportunity to do even more: By being thoughtful in how you structure employee benefits, you can ensure they have a more prosperous future, while also helping them lead happier lives today.
Remember, money is simply a tool to help you enjoy your life—and one way to do that is to buy time.

Read more »

Know Doubt

ONE SPRING DAY in 1995, McArthur Wheeler walked into two banks near his Pittsburgh home and robbed them at gunpoint.
His plan had one critical flaw: The disguise he chose didn’t hide his face at all. Instead of the usual stocking cap or hat and sunglasses, Wheeler made an unconventional choice. He applied a coating of lemon juice to his face. His reasoning: Lemon juice could be used to make invisible ink, so Wheeler figured it would have the same effect on his face,

Read more »

Debtor’s Dozen

THE GREAT Recession highlighted the frightening amount of debt—especially mortgage debt—that had been taken on by many American families.
A decade later, the picture is far brighter, with one exception: student loans. Since 2008’s third quarter, education debt has ballooned 144%, according to data just released by the Federal Reserve Bank of New York. But the total of all other debt—mortgages, car loans and credit card balances—is up less than 1% over the same period.

Read more »

Check’s in the Mail

I HAD TO PAY my credit card bill, so I went online and set up a payment from my credit union a week before the bill was due. Why not, it’s an online transfer, right?
Not always.
The payment was due on the 16th. I went online the day before to check my bank account. It said the credit card payment was “sorted” and hadn’t transferred. Same thing the next day and the next.

Read more »

Shortsighted

IN 1914, Henry Ford approved a new minimum wage of $5 per day for most of his workers. Thousands lined up for jobs. Other businesses were thrown for a loop, as they tried to figure out how to compete for workers.
Ford’s shocking wage wasn’t pure altruism. He wanted to motivate his workers to do a routine, boring job and to reduce employee turnover. The $5 included an advance on profit sharing—another motivating factor.

Read more »

Power of Two

I WENT FOR MY yearly physical. During the exam, my doctor asked me if I was in a relationship.
“Yes, I’m with someone.”
“Is there anything she would want me to know about you?” he asked.
“Uh, are you asking how things are in bed?”
“No, no, no,” he answered. “I meant, has she noticed any changes in your health that I should be aware of? For instance, any skin lesions, forgetfulness or problems with your hearing that she might have brought to your attention.”
I have often heard that people who are happily married live longer than those who are single or divorced.

Read more »

Money Guide

Taxable Accounts

WITH A RETIREMENT account, your investments grow tax-deferred, so you don’t have to worry about tax bills until retirement. But with a taxable account, trading too much or buying investments that pay a lot of immediately taxable interest can mean a heap of pain at tax time.

Read more »

Archive

Jack of Hearts

ON WEDNESDAY, Vanguard Group’s 89-year-old founder John C. Bogle was in hospital to receive treatment for his latest health scare—an irregular rhythm in his transplanted heart. On Thursday and again today, he was at the Bogleheads’ 17th conference in Philadelphia, as feisty as ever. The Bogleheads are, of course, the online community who congregate at Bogleheads.org. They’re renowned as fans of frugality—especially frugally priced index funds. And Jack Bogle—even though it’s been more than two decades since he was Vanguard’s Chief Executive Officer—remains their guiding light. He has a new book, Stay the Course, which should be out next month. Near the beginning of his remarks on Thursday, he quoted the Ancient Greek playwright Sophocles: "One must wait until the evening to see how splendid the day has been." He then added, “I think my evening is here, and I don’t much like that.” Jack’s long day has included launching the first index mutual fund in 1976. He was talking about evidence-based investing decades before it was a thing—and even now he’s quick to back his remarks with a timely statistic. Here are just some of his comments from this week’s conference: 1. He points out that today traditional index mutual funds and exchange-traded index funds together account for 37.8% of stock and bond fund assets, up from 9.1% in 2000 and 21.2% in 2010. ETFs now hold slightly more assets than traditional index mutual funds. Jack’s not entirely happy about that—he notes that investors are too quick to buy and sell ETFs—but admits to mellowing somewhat. “I don’t want to be too tough on ETFs, because there are good uses for them,” he allows. 2. Why buy index funds? Again, Jack goes to the numbers. If you look across the nine U.S. stock market style boxes—large-cap growth, small-cap value, mid-cap blended style funds and so on—just 7% of actively managed funds have outperformed their benchmark index over the past 15 years, according to data from S&P Global. Advocates of active management often contend that stock pickers are more likely to shine in less efficient markets, such as those for smaller-company stocks. But Jack notes that, over the past 15 years, actively managed large-cap funds have trailed their benchmark index by an average 1.54 percentage points, mid-cap funds by 2.01 and small-cap funds by 2.24. He attributes small-cap funds’ larger shortfall to their higher trading costs and higher annual expenses. 3. Many investors—including me—tilt their portfolios toward value stocks. But Jack points out that, while value has indeed outpaced growth stocks over the past 90 years, the performance advantage has disappeared in recent decades. “If you think something will be better forever, it’s highly unlikely it will be better forever,” he quips. One piece of evidence cited by Jack: Since Vanguard launched its first value and growth index funds in 1992, the average annual returns have been almost identical. 4. Since year-end 2014, Vanguard has captured 80% of the net new cash flowing into funds. It now manages almost a quarter of stock and bond fund assets, more than twice as much as Fidelity Investments, the next largest fund manager. In response, Fidelity has rolled out four index funds with zero annual expenses. “They’re clearly making an effort to make a big show in the indexing business,” Jack says. “It’s what I would do if I were Fidelity. I think it’s going to draw a lot of business.” He says that, for Vanguard, there isn’t a good competitive response. It doesn’t overcharge on some funds in order to subsidize others—which is what Fidelity and other fund companies are clearly doing. “We’re in a kind of a box,” he concedes. Still, he notes that investors with funds in taxable accounts would be crazy to sell their current funds to buy Fidelity’s new zero-cost index funds. The resulting capital-gains tax bill would likely swamp the potential cost savings. 5. Over the next 10 years, Jack sees nominal corporate profits growing at an average 4% a year, while investors also collect 2% in dividends, giving them a potential total return of 6% a year. But he says, “It would probably take a 25% drop [for the stock market] to get to its normalized value.” He sees investors surrendering two percentages points a year to falling price-earnings ratios over the next decade, leaving them with a nominal annual return of 4%—which shrinks to just 2%, once you factor in inflation. Meanwhile, over the next 10 years, he expects bond investors to earn a nominal 3½% a year, or 1½% after inflation. “Everything that’s happening today is great for the short term and terrible for the long term,” Jack cautions. “We’re on dangerous ground and yet the [stock] market goes blithely on.” Faced with low expected returns, what's his advice? “You better save more money,” Jack counsels. “You better get more costs out of the equation.” What about lightening up on stocks? “It all depends on your financial ability and emotional ability to withstand a market decline,” he says. “It’s probably wise to sell to the sleeping point." Jack suggests “you might do a five or 10 percentage point reduction” in your stock exposure. But he adds: “There’s no certainty in this, so you never want to do anything too big.” What did Jack Bogle say at last year's Bogleheads' conference? Check out our summary of 2017's meeting. Follow Jonathan on Twitter @ClementsMoney and on Facebook. His new book, From Here to Financial Happiness, can now be ordered from Amazon and Barnes & Noble. Jonathan's most recent articles include Budget BustingAll Better, Archie Is Scum and My Favorite Questions.
Read more »

Numbers

FOLKS LIVING on their own accounted for 28% of all households in 2018, up from 16% 50 years earlier, according to the Census Bureau. Over that stretch, the average number of people per household dropped from 3.2 to 2.5.

Home Call to Action

Manifesto

NO. 7: THE TWO easiest financial wins are paying off credit card debt and putting enough in our 401(k) to get the full employer match. Failing to do either is the height of financial foolishness.

Truths

NO. 55: UPSIDE GAINS are a sign of downside risk. Investors will say they don’t care how quickly an investment rises, only about how fast it might fall. But if an investment’s price skyrockets, there’s a risk it’ll plunge just as rapidly. The lesson: Pay attention to measures of volatility—and be leery of highflying stocks.

Act

REASSESS YOUR emergency fund. Experts often recommend keeping three-to-six months of living expenses as an emergency fund. Just left a secure job to strike out on your own? You should probably hold more cash. Just retired? Now that losing your job is no longer a risk, you might shrink your emergency fund—and perhaps shutter it entirely.

Think

INSTINCT VS. REFLECTION. Our brain’s instinctual side makes most decisions. That’s usually a plus: Our instincts tell us to jump out of the way, even before we’re fully aware of the speeding car. But our instincts can also lead us to overspend and panic when markets decline. Making money decisions? Hit the pause button, so your brain’s slower-moving, contemplative side can weigh in.

The Happy Employee

OWNING a business comes with a unique opportunity: the chance to better the lives of your employees. The paycheck you provide helps them pay for their daily expenses and supports the local economy. But there’s an opportunity to do even more: By being thoughtful in how you structure employee benefits, you can ensure they have a more prosperous future, while also helping them lead happier lives today.
Remember, money is simply a tool to help you enjoy your life—and one way to do that is to buy time.

Read more »

Know Doubt

ONE SPRING DAY in 1995, McArthur Wheeler walked into two banks near his Pittsburgh home and robbed them at gunpoint.
His plan had one critical flaw: The disguise he chose didn’t hide his face at all. Instead of the usual stocking cap or hat and sunglasses, Wheeler made an unconventional choice. He applied a coating of lemon juice to his face. His reasoning: Lemon juice could be used to make invisible ink, so Wheeler figured it would have the same effect on his face,

Read more »

Debtor’s Dozen

THE GREAT Recession highlighted the frightening amount of debt—especially mortgage debt—that had been taken on by many American families.
A decade later, the picture is far brighter, with one exception: student loans. Since 2008’s third quarter, education debt has ballooned 144%, according to data just released by the Federal Reserve Bank of New York. But the total of all other debt—mortgages, car loans and credit card balances—is up less than 1% over the same period.

Read more »

Check’s in the Mail

I HAD TO PAY my credit card bill, so I went online and set up a payment from my credit union a week before the bill was due. Why not, it’s an online transfer, right?
Not always.
The payment was due on the 16th. I went online the day before to check my bank account. It said the credit card payment was “sorted” and hadn’t transferred. Same thing the next day and the next.

Read more »

Shortsighted

IN 1914, Henry Ford approved a new minimum wage of $5 per day for most of his workers. Thousands lined up for jobs. Other businesses were thrown for a loop, as they tried to figure out how to compete for workers.
Ford’s shocking wage wasn’t pure altruism. He wanted to motivate his workers to do a routine, boring job and to reduce employee turnover. The $5 included an advance on profit sharing—another motivating factor.

Read more »

Power of Two

I WENT FOR MY yearly physical. During the exam, my doctor asked me if I was in a relationship.
“Yes, I’m with someone.”
“Is there anything she would want me to know about you?” he asked.
“Uh, are you asking how things are in bed?”
“No, no, no,” he answered. “I meant, has she noticed any changes in your health that I should be aware of? For instance, any skin lesions, forgetfulness or problems with your hearing that she might have brought to your attention.”
I have often heard that people who are happily married live longer than those who are single or divorced.

Read more »

Free Newsletter

Numbers

FOLKS LIVING on their own accounted for 28% of all households in 2018, up from 16% 50 years earlier, according to the Census Bureau. Over that stretch, the average number of people per household dropped from 3.2 to 2.5.

Manifesto

NO. 7: THE TWO easiest financial wins are paying off credit card debt and putting enough in our 401(k) to get the full employer match. Failing to do either is the height of financial foolishness.

Home Call to Action

Act

REASSESS YOUR emergency fund. Experts often recommend keeping three-to-six months of living expenses as an emergency fund. Just left a secure job to strike out on your own? You should probably hold more cash. Just retired? Now that losing your job is no longer a risk, you might shrink your emergency fund—and perhaps shutter it entirely.

Truths

NO. 55: UPSIDE GAINS are a sign of downside risk. Investors will say they don’t care how quickly an investment rises, only about how fast it might fall. But if an investment’s price skyrockets, there’s a risk it’ll plunge just as rapidly. The lesson: Pay attention to measures of volatility—and be leery of highflying stocks.

Think

INSTINCT VS. REFLECTION. Our brain’s instinctual side makes most decisions. That’s usually a plus: Our instincts tell us to jump out of the way, even before we’re fully aware of the speeding car. But our instincts can also lead us to overspend and panic when markets decline. Making money decisions? Hit the pause button, so your brain’s slower-moving, contemplative side can weigh in.

Money Guide

Start Here

Taxable Accounts

WITH A RETIREMENT account, your investments grow tax-deferred, so you don’t have to worry about tax bills until retirement. But with a taxable account, trading too much or buying investments that pay a lot of immediately taxable interest can mean a heap of pain at tax time.

Read more »

Archive

Jack of Hearts

ON WEDNESDAY, Vanguard Group’s 89-year-old founder John C. Bogle was in hospital to receive treatment for his latest health scare—an irregular rhythm in his transplanted heart. On Thursday and again today, he was at the Bogleheads’ 17th conference in Philadelphia, as feisty as ever. The Bogleheads are, of course, the online community who congregate at Bogleheads.org. They’re renowned as fans of frugality—especially frugally priced index funds. And Jack Bogle—even though it’s been more than two decades since he was Vanguard’s Chief Executive Officer—remains their guiding light. He has a new book, Stay the Course, which should be out next month. Near the beginning of his remarks on Thursday, he quoted the Ancient Greek playwright Sophocles: "One must wait until the evening to see how splendid the day has been." He then added, “I think my evening is here, and I don’t much like that.” Jack’s long day has included launching the first index mutual fund in 1976. He was talking about evidence-based investing decades before it was a thing—and even now he’s quick to back his remarks with a timely statistic. Here are just some of his comments from this week’s conference: 1. He points out that today traditional index mutual funds and exchange-traded index funds together account for 37.8% of stock and bond fund assets, up from 9.1% in 2000 and 21.2% in 2010. ETFs now hold slightly more assets than traditional index mutual funds. Jack’s not entirely happy about that—he notes that investors are too quick to buy and sell ETFs—but admits to mellowing somewhat. “I don’t want to be too tough on ETFs, because there are good uses for them,” he allows. 2. Why buy index funds? Again, Jack goes to the numbers. If you look across the nine U.S. stock market style boxes—large-cap growth, small-cap value, mid-cap blended style funds and so on—just 7% of actively managed funds have outperformed their benchmark index over the past 15 years, according to data from S&P Global. Advocates of active management often contend that stock pickers are more likely to shine in less efficient markets, such as those for smaller-company stocks. But Jack notes that, over the past 15 years, actively managed large-cap funds have trailed their benchmark index by an average 1.54 percentage points, mid-cap funds by 2.01 and small-cap funds by 2.24. He attributes small-cap funds’ larger shortfall to their higher trading costs and higher annual expenses. 3. Many investors—including me—tilt their portfolios toward value stocks. But Jack points out that, while value has indeed outpaced growth stocks over the past 90 years, the performance advantage has disappeared in recent decades. “If you think something will be better forever, it’s highly unlikely it will be better forever,” he quips. One piece of evidence cited by Jack: Since Vanguard launched its first value and growth index funds in 1992, the average annual returns have been almost identical. 4. Since year-end 2014, Vanguard has captured 80% of the net new cash flowing into funds. It now manages almost a quarter of stock and bond fund assets, more than twice as much as Fidelity Investments, the next largest fund manager. In response, Fidelity has rolled out four index funds with zero annual expenses. “They’re clearly making an effort to make a big show in the indexing business,” Jack says. “It’s what I would do if I were Fidelity. I think it’s going to draw a lot of business.” He says that, for Vanguard, there isn’t a good competitive response. It doesn’t overcharge on some funds in order to subsidize others—which is what Fidelity and other fund companies are clearly doing. “We’re in a kind of a box,” he concedes. Still, he notes that investors with funds in taxable accounts would be crazy to sell their current funds to buy Fidelity’s new zero-cost index funds. The resulting capital-gains tax bill would likely swamp the potential cost savings. 5. Over the next 10 years, Jack sees nominal corporate profits growing at an average 4% a year, while investors also collect 2% in dividends, giving them a potential total return of 6% a year. But he says, “It would probably take a 25% drop [for the stock market] to get to its normalized value.” He sees investors surrendering two percentages points a year to falling price-earnings ratios over the next decade, leaving them with a nominal annual return of 4%—which shrinks to just 2%, once you factor in inflation. Meanwhile, over the next 10 years, he expects bond investors to earn a nominal 3½% a year, or 1½% after inflation. “Everything that’s happening today is great for the short term and terrible for the long term,” Jack cautions. “We’re on dangerous ground and yet the [stock] market goes blithely on.” Faced with low expected returns, what's his advice? “You better save more money,” Jack counsels. “You better get more costs out of the equation.” What about lightening up on stocks? “It all depends on your financial ability and emotional ability to withstand a market decline,” he says. “It’s probably wise to sell to the sleeping point." Jack suggests “you might do a five or 10 percentage point reduction” in your stock exposure. But he adds: “There’s no certainty in this, so you never want to do anything too big.” What did Jack Bogle say at last year's Bogleheads' conference? Check out our summary of 2017's meeting. Follow Jonathan on Twitter @ClementsMoney and on Facebook. His new book, From Here to Financial Happiness, can now be ordered from Amazon and Barnes & Noble. Jonathan's most recent articles include Budget BustingAll Better, Archie Is Scum and My Favorite Questions.
Read more »