Saving is gratification delayed. Borrowing is pain postponed.
IT’S IRONIC that we often shortchange retirement savings during the first half of our working lives, because that’s when we can buy future retirement dollars at a huge discount—thanks to investment compounding.
How can we hammer home this point? My proposal: We should adopt a simple mental math rule that allows us to weigh today’s spending against future retirement dollars. That brings me to my ”6 to 2 times 200” rule. The rule covers five age groups: early 20s,
SHORTLY AFTER I retired in March 2017, I was asked to consult on some projects. I knew it was going to be a more complex tax year than I’d faced before. I had earned income from my previous employer, pension income and self-employment income from my consulting.
On top of all that, my wife started a new fulltime job the Monday after I retired. We switched to her benefits, but her company didn’t have a high-deductible health plan with an HSA,
I FEEL LIKE a broken record when I talk about the benefits of index funds. Indeed, index fund advocates—myself included—sometimes get a little preachy, so I won’t bore you with the same facts I’ve cited before.
Instead, I want to focus on a more subtle reason to index, which has been highlighted by the stock market’s behavior over the past year. You’ve probably heard the expression “a rising tide lifts all boats.” When it comes to the stock market,
WE HEAR ABOUT highflying stocks and hotshot money managers, and it’s easy to imagine the streets of lower Manhattan are paved with gold. But the truth is a tad more mundane.
Want some reasonable assurance of investment success? We should shun the excitement of trying to pick winners and instead focus on more prosaic portfolio tweaks. The overriding goal: ensure the compounding of our investment dollars encounters as little friction as possible.
Minimizing this friction will,
BALANCED FUNDS are a great first investment for those with a moderate risk tolerance. But which fund? Vanguard Balanced Index Fund Admiral Shares, with its incredibly low 0.07% expense ratio, $3,000 investment minimum and mix of 60% stocks and 40% bonds, is the standard by which all balanced funds should be judged—and it’s likely your best choice.
But if it isn’t one of your 401(k) options, chances are you’ll find the plan includes one or more of the other five funds in the accompanying chart.
WORDS AND PHRASES have a powerful impact. They motivate and mislead. They’re subject to perceptions and preconceived notions. They come and go in fashion. Whatever happened to the word “gobbledygook”? Okay, I admit it, I’m also a fan of “curmudgeon.”
Today, there are several words and phrases in fashion that pack an emotional punch, but sometimes they’re misunderstood or go unquestioned. When you hear the following 10 words and phrases, I’d advise you to put them under a magnifying glass:
1.
agree on a fix.
Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include Get Me the Doctor, Running in Place and Tortoises Needed. Follow Dick on Twitter @QuinnsComments.AMONG RECENT graduates, 21% wish they’d chosen a less expensive college and just 14% feel their education was worth more than the money they spent, found a survey for Fidelity Investments.
NO. 60: WE SHOULDN’T necessarily be investment contrarians, but we should be leery of crowds. When “everybody” is buying, that’s a warning sign—and we should resist joining the stampede.
NO. 29: BROKERAGE commissions aren’t your only trading cost. When you buy and sell individual stocks and bonds, or a fund manager does so on your behalf, you lose money to the bid-ask spread—the gap between the lower price at which you can currently sell and the higher price at which you can buy. Wall Street’s market makers pocket the difference.
WHEN MAKING a purchase, ponder not just its virtues, but also the maintenance, repairs and other hassles involved—because those’ll eventually loom large. Take the country home. It may initially seem like a great escape. But soon enough, you’ll be just as focused on the drive back and forth, and on the chores you’ll have to do once you’re there.
WEIGHTING RETURNS. Typically, we see time-weighted returns, which reflect our gain over, say, 10 years, assuming we bought at the start of the period and never made any further trades. A dollar-weighted return, by contrast, factors in when we bought and sold. If the market dipped during the 10 years and we invested more, that would boost our dollar-weighted return.
IT’S IRONIC that we often shortchange retirement savings during the first half of our working lives, because that’s when we can buy future retirement dollars at a huge discount—thanks to investment compounding.
How can we hammer home this point? My proposal: We should adopt a simple mental math rule that allows us to weigh today’s spending against future retirement dollars. That brings me to my ”6 to 2 times 200” rule. The rule covers five age groups: early 20s,
SHORTLY AFTER I retired in March 2017, I was asked to consult on some projects. I knew it was going to be a more complex tax year than I’d faced before. I had earned income from my previous employer, pension income and self-employment income from my consulting.
On top of all that, my wife started a new fulltime job the Monday after I retired. We switched to her benefits, but her company didn’t have a high-deductible health plan with an HSA,
I FEEL LIKE a broken record when I talk about the benefits of index funds. Indeed, index fund advocates—myself included—sometimes get a little preachy, so I won’t bore you with the same facts I’ve cited before.
Instead, I want to focus on a more subtle reason to index, which has been highlighted by the stock market’s behavior over the past year. You’ve probably heard the expression “a rising tide lifts all boats.” When it comes to the stock market,
WE HEAR ABOUT highflying stocks and hotshot money managers, and it’s easy to imagine the streets of lower Manhattan are paved with gold. But the truth is a tad more mundane.
Want some reasonable assurance of investment success? We should shun the excitement of trying to pick winners and instead focus on more prosaic portfolio tweaks. The overriding goal: ensure the compounding of our investment dollars encounters as little friction as possible.
Minimizing this friction will,
BALANCED FUNDS are a great first investment for those with a moderate risk tolerance. But which fund? Vanguard Balanced Index Fund Admiral Shares, with its incredibly low 0.07% expense ratio, $3,000 investment minimum and mix of 60% stocks and 40% bonds, is the standard by which all balanced funds should be judged—and it’s likely your best choice.
But if it isn’t one of your 401(k) options, chances are you’ll find the plan includes one or more of the other five funds in the accompanying chart.
WORDS AND PHRASES have a powerful impact. They motivate and mislead. They’re subject to perceptions and preconceived notions. They come and go in fashion. Whatever happened to the word “gobbledygook”? Okay, I admit it, I’m also a fan of “curmudgeon.”
Today, there are several words and phrases in fashion that pack an emotional punch, but sometimes they’re misunderstood or go unquestioned. When you hear the following 10 words and phrases, I’d advise you to put them under a magnifying glass:
1.
AMONG RECENT graduates, 21% wish they’d chosen a less expensive college and just 14% feel their education was worth more than the money they spent, found a survey for Fidelity Investments.
NO. 60: WE SHOULDN’T necessarily be investment contrarians, but we should be leery of crowds. When “everybody” is buying, that’s a warning sign—and we should resist joining the stampede.
WHEN MAKING a purchase, ponder not just its virtues, but also the maintenance, repairs and other hassles involved—because those’ll eventually loom large. Take the country home. It may initially seem like a great escape. But soon enough, you’ll be just as focused on the drive back and forth, and on the chores you’ll have to do once you’re there.
NO. 29: BROKERAGE commissions aren’t your only trading cost. When you buy and sell individual stocks and bonds, or a fund manager does so on your behalf, you lose money to the bid-ask spread—the gap between the lower price at which you can currently sell and the higher price at which you can buy. Wall Street’s market makers pocket the difference.
WEIGHTING RETURNS. Typically, we see time-weighted returns, which reflect our gain over, say, 10 years, assuming we bought at the start of the period and never made any further trades. A dollar-weighted return, by contrast, factors in when we bought and sold. If the market dipped during the 10 years and we invested more, that would boost our dollar-weighted return.
agree on a fix.
Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include Get Me the Doctor, Running in Place and Tortoises Needed. Follow Dick on Twitter @QuinnsComments.