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When irrational investors meet unpredictable markets, there’s only one recourse: Grab the popcorn and enjoy the show.

Righting Wrongs

SOCIAL SECURITY remains a great mystery to many Americans and is widely misunderstood. For instance, when Social Security’s trustees release their annual report, we get vastly different interpretations. One group will read the report and conclude there’s a “surplus” and plenty of money to improve benefits. Meanwhile, another concludes that the program is in fiscal trouble and fixing it is vital.
Headlines frequently state the program is going bankrupt. It isn’t. Today’s level of benefits may not be sustainable,

Read more »

Take It or Leave It

THE CLASH, the U.K. punk-rock group, famously asked, “Should I stay or should I go?” Retirees and job changers need to tackle the same question when they leave their employer.
At that juncture, you have four options for your 401(k) or 403(b) account: You can leave the balance in your old employer’s plan, roll over the balance to a new employer’s plan, roll over the balance to an IRA or close out the account.

Read more »

Fact vs. Fantasy

FRAUD WEARS many faces. But depending on who you believe, potentially the most unusual is that of Jeanne Louise Calment. For years, the French-born Calment, who claimed to have been born in 1875, was celebrated as the world’s oldest person. By the time she died in 1997, she would have been 122— if she’d been telling the truth. New research, however, casts doubt on Calment’s claim. 
The real story, it turns out, may be that Calment actually died many decades earlier—in the 1930s.

Read more »

Balancing Act

STOCKS MARCH ever higher, portfolios get ever fatter and yet the conundrum facing investors remains the same. We have no idea what will happen next to share prices—and no reliable way of figuring it out. Consider:

Valuations are rich, but they have been for much of the past three decades. Indeed, if above-average valuations were your signal to sell, you likely would have dumped stocks long ago and missed out on substantial gains. The reality: Valuations don’t predict short-term returns,

Read more »

Pay to Play

OUR WEALTH is usually measured by net worth, which is total assets minus all debt. But there’s an alternative measure—which is to assign our wealth to the purposes it serves. What purposes? Two come to mind: physical and social.
Let’s start with physical wealth. We’re talking here about a family’s ability to maintain basic physical comforts, such as enjoying decent food, a comfortable home, a reliable car and access to good health care.
You don’t have to be rich to afford these.

Read more »

Getting Used?

IN THE PAST, we’ve always bought certified preowned cars. We know new cars lose a big chunk of their value when you drive them off the lot, so we had our eye on a used car when we started our search earlier this year.
Our goal was a Mercedes Benz GLC 300 AWD 4MATIC. My husband enjoys the negotiating and drama that comes with buying a car, so he investigated choices, checked out prices at dealerships and was ready to start his usual two-to-three-month car hunt.

Read more »

Money Guide

Gift-Tax Exclusion

YOU CAN GIVE $15,000 to as many individuals as you wish in 2019, without worrying about the gift tax. This is the annual gift-tax exclusion. Do you and your spouse have three kids? You could together give each of them $30,000, thus shrinking your estate by $90,000. There’s even a special provision just for 529 college plans that allows you to contribute five times the gift-tax exclusion in a single year and count it as your gift for the next five years. There's more about that in the college chapter. Even if you give more than the gift-tax exclusion, you likely won’t pay gift taxes. Instead, the amount above the exclusion will reduce the sum you can leave to your heirs tax-free upon your death. Only if you manage to eat through your entire federal estate tax exclusion—$11.4 million in 2019—would you have to start paying gift taxes. Let’s say you are a single parent and you gave your only child a gift of $1,015,000 in 2019. That gift would be $1 million above 2019's $15,000 gift-tax exclusion, so it would reduce the amount you can leave tax-free at death to $10.4 million. The super-wealthy sometimes make such large gifts because it gets the money, including subsequent investment growth, out of their estate, thus trimming the eventual estate tax bill. An interesting wrinkle: While you can only give $15,000 to another person in 2019 without worrying about the gift tax, there’s no limit on the sum you can pay toward another person’s medical or education expenses, as long as the money is paid directly to the medical provider or educational institution involved. Our Humble Opinion: Giving away money is perhaps the cheapest and easiest way to shrink an estate. There are no fancy estate planning techniques involved and no legal fees, which may explain why this strategy isn’t given more publicity. If you can afford to make regular gifts to family members, seriously consider doing so. Next: Smart Giving Previous: Estate Checklist
Read more »

Archive

Five Trip Tips

MY WIFE AND I just got from two weeks of travel through Vietnam and Cambodia. For us, traveling strengthens our relationship and reminds us what we want in life. International travel is a luxury—there’s no doubt about it—but it’s also a meaningful experience that is easier to afford if you follow some basic principles before crossing oceans or international borders: 1. Save in advance. Before booking a trip, take the time to build up the funds needed to cover your expected costs. By doing so, you will avoid paying for the trip on credit, or booking a trip that is simply out of your budget. As I mentioned in an earlier post, our approach is to regularly dedicate a portion of each paycheck to our “travel fund,” which we keep in a separate savings account. 2. Pay with a purpose. There are many travel rewards credit cards that not only give you points that can be redeemed to offset hotel and airfare, but also don’t charge any foreign transaction fees. By avoiding those 3% fees, you’ll have more money to spend on souvenirs, lunches and bus tickets. 3. Search strategically. When you’re flexible about your destination but know you want to travel, use one of the many search aggregators, like Kayak's explore function, to find the best deals. We did this when planning our honeymoon and found cheap direct flights to the Azores. We previously weren’t considering the Azores as a destination, but I now strongly recommend them to friends for an amazing, budget-friendly week that’s off the typical tourist’s radar. 4. Borrow instead of buy. Use your local library and social media friends to get your hands on travel guides and climate-specific gear, instead of purchasing things you’re unlikely to use again. This is an easy way to save initial costs and get good recommendations. 5. Explore the outdoors. Research experiences and outings at your destination that allow you to interact with local culture and be physically active. Often, these are free or low-cost—think visiting neighborhood food markets, hiking and exploring city parks—thus ensuring that some of your time abroad doesn’t cost anything. Got other travel tips? I’d love to hear them. Please share them in the comments section below. Zach Blattner’s previous blogs include Zeroing In and Money Pit. Zach is a former teacher and school leader who now teaches teachers across the Philly/Camden region as a faculty member at Relay GSE. He is a self-taught finance nerd who dispenses advice to his wife, friends, family and anyone else willing to listen.
Read more »

Numbers

AMONG WORKERS, 67% are somewhat or very confident they’ll have enough to live comfortably in retirement, but only 42% have bothered calculating how much they need saved, according to the Employee Benefit Research Institute.

Home Call to Action

Manifesto

NO. 3: WE SHOULD focus relentlessly on what we want from our financial life. That’ll motivate us to save, drive our investment strategy—and help ensure we pursue the goals we care about most.

Truths

NO. 15: WE FAVOR the familiar. We suffer from home bias, meaning we’re drawn to our employer’s shares, local corporations and stocks of companies whose products we use. We also favor U.S. stocks and shy away from foreign shares. These familiar investments create a portfolio we’re comfortable with—but maybe not one that’s well diversified.

Act

FIRE YOUR BROKER. Is your advisor a true fiduciary, or is he or she held to the suitability standard part or all of the time? If it’s the latter, what you have is a broker—someone with an incentive to sell products that charge high commissions. Do yourself a favor: Hire an advisor who’s a fulltime fiduciary and hence always required to act in your best interest.

Think

RETURN COMPONENTS. If the stock market’s dividend yield is 2% and earnings per share grow 4%, the investment return would be 6% a year. This is a decent guide to long-run returns. But short-run results could stray far from 6%, depending on the speculative return—changes in how investors value corporate profits, as reflected in price-earnings ratios.

Righting Wrongs

SOCIAL SECURITY remains a great mystery to many Americans and is widely misunderstood. For instance, when Social Security’s trustees release their annual report, we get vastly different interpretations. One group will read the report and conclude there’s a “surplus” and plenty of money to improve benefits. Meanwhile, another concludes that the program is in fiscal trouble and fixing it is vital.
Headlines frequently state the program is going bankrupt. It isn’t. Today’s level of benefits may not be sustainable,

Read more »

Take It or Leave It

THE CLASH, the U.K. punk-rock group, famously asked, “Should I stay or should I go?” Retirees and job changers need to tackle the same question when they leave their employer.
At that juncture, you have four options for your 401(k) or 403(b) account: You can leave the balance in your old employer’s plan, roll over the balance to a new employer’s plan, roll over the balance to an IRA or close out the account.

Read more »

Fact vs. Fantasy

FRAUD WEARS many faces. But depending on who you believe, potentially the most unusual is that of Jeanne Louise Calment. For years, the French-born Calment, who claimed to have been born in 1875, was celebrated as the world’s oldest person. By the time she died in 1997, she would have been 122— if she’d been telling the truth. New research, however, casts doubt on Calment’s claim. 
The real story, it turns out, may be that Calment actually died many decades earlier—in the 1930s.

Read more »

Balancing Act

STOCKS MARCH ever higher, portfolios get ever fatter and yet the conundrum facing investors remains the same. We have no idea what will happen next to share prices—and no reliable way of figuring it out. Consider:

Valuations are rich, but they have been for much of the past three decades. Indeed, if above-average valuations were your signal to sell, you likely would have dumped stocks long ago and missed out on substantial gains. The reality: Valuations don’t predict short-term returns,

Read more »

Pay to Play

OUR WEALTH is usually measured by net worth, which is total assets minus all debt. But there’s an alternative measure—which is to assign our wealth to the purposes it serves. What purposes? Two come to mind: physical and social.
Let’s start with physical wealth. We’re talking here about a family’s ability to maintain basic physical comforts, such as enjoying decent food, a comfortable home, a reliable car and access to good health care.
You don’t have to be rich to afford these.

Read more »

Getting Used?

IN THE PAST, we’ve always bought certified preowned cars. We know new cars lose a big chunk of their value when you drive them off the lot, so we had our eye on a used car when we started our search earlier this year.
Our goal was a Mercedes Benz GLC 300 AWD 4MATIC. My husband enjoys the negotiating and drama that comes with buying a car, so he investigated choices, checked out prices at dealerships and was ready to start his usual two-to-three-month car hunt.

Read more »

Free Newsletter

Numbers

AMONG WORKERS, 67% are somewhat or very confident they’ll have enough to live comfortably in retirement, but only 42% have bothered calculating how much they need saved, according to the Employee Benefit Research Institute.

Manifesto

NO. 3: WE SHOULD focus relentlessly on what we want from our financial life. That’ll motivate us to save, drive our investment strategy—and help ensure we pursue the goals we care about most.

Home Call to Action

Act

FIRE YOUR BROKER. Is your advisor a true fiduciary, or is he or she held to the suitability standard part or all of the time? If it’s the latter, what you have is a broker—someone with an incentive to sell products that charge high commissions. Do yourself a favor: Hire an advisor who’s a fulltime fiduciary and hence always required to act in your best interest.

Truths

NO. 15: WE FAVOR the familiar. We suffer from home bias, meaning we’re drawn to our employer’s shares, local corporations and stocks of companies whose products we use. We also favor U.S. stocks and shy away from foreign shares. These familiar investments create a portfolio we’re comfortable with—but maybe not one that’s well diversified.

Think

RETURN COMPONENTS. If the stock market’s dividend yield is 2% and earnings per share grow 4%, the investment return would be 6% a year. This is a decent guide to long-run returns. But short-run results could stray far from 6%, depending on the speculative return—changes in how investors value corporate profits, as reflected in price-earnings ratios.

Money Guide

Start Here

Gift-Tax Exclusion

YOU CAN GIVE $15,000 to as many individuals as you wish in 2019, without worrying about the gift tax. This is the annual gift-tax exclusion. Do you and your spouse have three kids? You could together give each of them $30,000, thus shrinking your estate by $90,000. There’s even a special provision just for 529 college plans that allows you to contribute five times the gift-tax exclusion in a single year and count it as your gift for the next five years. There's more about that in the college chapter. Even if you give more than the gift-tax exclusion, you likely won’t pay gift taxes. Instead, the amount above the exclusion will reduce the sum you can leave to your heirs tax-free upon your death. Only if you manage to eat through your entire federal estate tax exclusion—$11.4 million in 2019—would you have to start paying gift taxes. Let’s say you are a single parent and you gave your only child a gift of $1,015,000 in 2019. That gift would be $1 million above 2019's $15,000 gift-tax exclusion, so it would reduce the amount you can leave tax-free at death to $10.4 million. The super-wealthy sometimes make such large gifts because it gets the money, including subsequent investment growth, out of their estate, thus trimming the eventual estate tax bill. An interesting wrinkle: While you can only give $15,000 to another person in 2019 without worrying about the gift tax, there’s no limit on the sum you can pay toward another person’s medical or education expenses, as long as the money is paid directly to the medical provider or educational institution involved. Our Humble Opinion: Giving away money is perhaps the cheapest and easiest way to shrink an estate. There are no fancy estate planning techniques involved and no legal fees, which may explain why this strategy isn’t given more publicity. If you can afford to make regular gifts to family members, seriously consider doing so. Next: Smart Giving Previous: Estate Checklist
Read more »

Archive

Five Trip Tips

MY WIFE AND I just got from two weeks of travel through Vietnam and Cambodia. For us, traveling strengthens our relationship and reminds us what we want in life. International travel is a luxury—there’s no doubt about it—but it’s also a meaningful experience that is easier to afford if you follow some basic principles before crossing oceans or international borders: 1. Save in advance. Before booking a trip, take the time to build up the funds needed to cover your expected costs. By doing so, you will avoid paying for the trip on credit, or booking a trip that is simply out of your budget. As I mentioned in an earlier post, our approach is to regularly dedicate a portion of each paycheck to our “travel fund,” which we keep in a separate savings account. 2. Pay with a purpose. There are many travel rewards credit cards that not only give you points that can be redeemed to offset hotel and airfare, but also don’t charge any foreign transaction fees. By avoiding those 3% fees, you’ll have more money to spend on souvenirs, lunches and bus tickets. 3. Search strategically. When you’re flexible about your destination but know you want to travel, use one of the many search aggregators, like Kayak's explore function, to find the best deals. We did this when planning our honeymoon and found cheap direct flights to the Azores. We previously weren’t considering the Azores as a destination, but I now strongly recommend them to friends for an amazing, budget-friendly week that’s off the typical tourist’s radar. 4. Borrow instead of buy. Use your local library and social media friends to get your hands on travel guides and climate-specific gear, instead of purchasing things you’re unlikely to use again. This is an easy way to save initial costs and get good recommendations. 5. Explore the outdoors. Research experiences and outings at your destination that allow you to interact with local culture and be physically active. Often, these are free or low-cost—think visiting neighborhood food markets, hiking and exploring city parks—thus ensuring that some of your time abroad doesn’t cost anything. Got other travel tips? I’d love to hear them. Please share them in the comments section below. Zach Blattner’s previous blogs include Zeroing In and Money Pit. Zach is a former teacher and school leader who now teaches teachers across the Philly/Camden region as a faculty member at Relay GSE. He is a self-taught finance nerd who dispenses advice to his wife, friends, family and anyone else willing to listen.
Read more »