Exchange-traded index funds offer minimal costs and superb tax efficiency—advantages that investors merrily toss away with wild trading.
WHEN I STARTED flying for American Airlines in 1978, the industry was regulated. Routes, fares, airline size, pretty much everything the airlines did was controlled by the Civil Aeronautics Board. Then, later that year, the Airline Deregulation Act became law. Overnight, rules governing the industry changed.
This had far-reaching effects. But the biggest change was the cost of airline tickets. They became a lot cheaper.
Over the next 40 years, established carriers went bankrupt and disappeared.
WHEN FOLKS TALK about their best financial decisions, they’ll often mention the investments they bought. But my list is quite different. Here are the five best money moves I’ve made during my dozen years in retirement:
1. Updating my estate plan. When I was my mother’s primary caregiver, she was the major beneficiary of my estate. If something happened to me, I wanted to make sure she could afford the care she needed.
BACK IN NOVEMBER, I wrote about using options to bet that shares of Peloton Interactive would decline. This was my first options trade. I purchased the put option when Peloton was trading in the low $50s. The option cost me $200, and it gave me the right to sell 100 shares at $35 per share in March 2022.
Since then, Peloton’s shares have indeed tumbled. It was recently announced that the stock will be booted from the Nasdaq-100 index,
OVER CHRISTMAS, I got the sort of question I love to answer. My daughter’s thoughtful boyfriend had set aside some money for his niece’s college education. What was the best way to invest it?
I said that we’d paid for much of our children’s education with money invested in 529 college savings plans. The investment gains went untaxed because we’d spent the money on tuition, room and board. On top of that, our 529 contributions were deductible against our state-income tax in Pennsylvania,
LAST WEEK SAW additional gains for value stocks, while shares of once highflying growth companies continued to struggle. Meanwhile, foreign markets again rallied. Vanguard FTSE All-World ex-U.S. ETF (symbol: VEU) rose more than 1% last week, even as Vanguard Total Stock Market ETF (VTI) slipped 0.5%.
Let’s further unpack these trends.
The Nasdaq Composite has endured its worst start to a year since 2009. At the same time, blue chip stocks and some of last year’s losers are suddenly in favor.
CRYPTOCURRENCIES have come under selling pressure over the past few months. That might have some readers thinking about buying the dip in, say, bitcoin or ethereum. Those two cryptos, the largest by market capitalization, are off more than 30% from their all-time highs.
I’ve been dabbling in digital assets, but not in the way you might imagine. I put about 3% of my portfolio into stablecoins. Stablecoins differ from the well-known cryptocurrencies we often hear about.
LET’S START WITH TWO definitions:
Specʹtrum, n. a trade name of Charter Communications used to market avaricious cable television, internet, telephone and wireless services.
Vig’or•ish, n.[via Yid., from R. výigryš, lit., gain, winnings.] interest owed a loan shark in consideration for credit. Abbrev: vig.
I bought a home a few months back and, besides trying to meet the neighbors, I had the pleasure of trying to arrange internet service.
CLUTTER IS DEFINED as “things lying in heaps or crowded confusion.” Its origin as a word dates to the 1570s. More than four centuries later, you might imagine we would have got the problem under control, but it seems not.
I had a friend in high school who lived like a monk. He had nothing on his bedroom dressers except lamps and a record player. I wish I could achieve such a pristine state in my condo.
MANY FOLKS SPEND December frantically hunting for ways to cut their taxes, whether it’s realizing losses in their taxable investment accounts, making charitable donations or raising their 401(k) contributions for the year’s final few paychecks.
A better strategy: Manage your taxes year-round rather than just at year-end. Filing a tax return is a reactive process—a record of income and deductions that have already occurred. It takes foresight and action to shape what those lines will look like on next year’s tax return.
THIS PAST YEAR marked my 50th anniversary of driving. Over that time, our family has owned 19 cars and driven them roughly 1.9 million miles. While latte purchases frequently evoke financial debate, cars seem less discussed, despite being Americans’ second-largest expenditure after housing. The purchase, ownership, maintenance and sale of cars can all get pretty complicated.
Cars are considered a depreciating asset, but not always. My first car was a 1967 Mercury Comet, which I bought for $400 in 1973.
I’LL ACKNOWLEDGE THAT today’s topic isn’t the most upbeat. I want to talk about risk—and, specifically, some of the underappreciated risks related to retirement.
In thinking about risk, the hardest part—in my view—is that it defies a single definition. Because of that, there’s no uniform yardstick for measuring it and thus no single strategy for managing it. As Howard Marks states in his book The Most Important Thing, “Much of risk is subjective,
JUST AS ANYONE around on Sept. 11, 2001, Nov. 22, 1963, or Dec. 7, 1941, remembers where they were when they first heard the news, one date resonates for investors of a certain age: Oct. 19, 1987.
As a young practicing physician, I was just finishing up the day’s charting when I took a call from one of my colleagues: “Did the Dow fall enough for you today?” Indeed it had, by 508 points,
WE OFTEN WRITE at HumbleDollar that saving and investing aren’t everything. Spending money on the right things—such as fulfilling experiences—can also be a great investment, especially if the dollars bring ample happiness.
Nearly seven years ago, I thought I’d wasted $4,000 on a foreign trip. But the law of unintended consequences has since worked in my favor.
The 2015 trip was supposed to be an investment in my career. I thought I could make a difference in the world and become a freelance foreign correspondent.
COULD I BE WRONG about indexing?
Every investor soon learns that being wrong is a frequent malady, particularly on the day-to-day decisions of when to buy. Those minor errors are, as we also learn, part of the “game” of investing and are best ignored. But what if there’s evidence that conflicts with your longer-term thinking and expectations? What if evidence conflicts with your central beliefs?
I suspect it could happen to me.
After 60 years of experience and study of investing,
NO. 22: IF WE’RE saving enough each month for retirement and other goals, it doesn’t much matter how we spend our remaining money—and there’s likely no need to budget.
NO. 48: RISING interest rates hurt your bond portfolio’s value—and raise its long-run return. As interest rates climb, existing bonds drop in price. But thanks to the rise in rates, you can reinvest your interest payments at higher yields, boosting long-run performance. This reinvestment is easy with bond funds—a reason to favor them over individual bonds.
SET PRIORITIES for the year ahead. What are your most important financial goals? Your priorities might include saving for retirement, funding college accounts, buying a house, paying down debt and building up your emergency fund. Also think more broadly—pondering whether, say, you need to tweak your estate plan or your insurance coverage.
SELF-ATTRIBUTION. We tend to ascribe our investment successes to our own talents, while blaming our failures on bad luck, bad markets or the advice of others. This makes it harder to learn from our mistakes, while also causing overconfidence. That, in turn, can lead us to trade too much and make big investment bets that hurt our portfolio’s results.
USE THE RIGHT TOOL for the job and you’ll get the best result. If you need to connect two boards, you could use a hammer and a nail or a screwdriver and a screw. Either methods work—and they’re certainly better than banging in a screw with a hammer, which I’ve seen tried. It was not effective.
Participants in 401(k) plans, alas, display similar behavior with target date funds, or TDFs. A TDF offers a diversified portfolio in a single fund,
I FREQUENTLY FIELD inquiries from people who know they ought to get a will. Others have wills, but may need to revise them because they’ve moved to a new state, entered into a marriage or ended one. But either way, most folks—in my experience—never get beyond that simple first step.
And those who do often overlook an additional step that’s almost as necessary: drawing up a “letter of final instructions” that provides their heirs with an informal personal financial inventory.
ECONOMIST JOHN Maynard Keynes once observed that, “It is better for reputation to fail conventionally than to succeed unconventionally.” This is probably true in many realms. It’s certainly true in the investment world.
As the last 12 months have demonstrated, extreme and unexpected events can and do happen. But analysts whose job it is to make economic forecasts rarely go too far out on a limb. Sure, there are some forecasters who will take a chance with a view that’s far outside the consensus.
ON JAN. 10, 2000, America Online co-founder Steve Case stood on stage in New York to announce the largest corporate takeover in American history, buying venerable Time Warner for $165 billion. At the time, commentators called it the merger of the century. But just five years later, Case acknowledged that it was actually “the worst merger in history” and argued that it was time “to take it apart.”
Making financial decisions is difficult even in good times.
I WAS 51-YEARS-OLD when I ate prime rib for the first time. As it turned out, it was a life-changing moment. It might be difficult to believe eating a choice cut of beef could lead to an altered understanding of financial priorities, but it did.
I grew up in a fairly typical 1970s middle class family. Hamburger Helper, tuna casserole and peanut butter sandwiches made up the bulk of my diet. Our family rarely ate out and,
MANY FOLKS SPEND December frantically hunting for ways to cut their taxes, whether it’s realizing losses in their taxable investment accounts, making charitable donations or raising their 401(k) contributions for the year’s final few paychecks.
A better strategy: Manage your taxes year-round rather than just at year-end. Filing a tax return is a reactive process—a record of income and deductions that have already occurred. It takes foresight and action to shape what those lines will look like on next year’s tax return.
THIS PAST YEAR marked my 50th anniversary of driving. Over that time, our family has owned 19 cars and driven them roughly 1.9 million miles. While latte purchases frequently evoke financial debate, cars seem less discussed, despite being Americans’ second-largest expenditure after housing. The purchase, ownership, maintenance and sale of cars can all get pretty complicated.
Cars are considered a depreciating asset, but not always. My first car was a 1967 Mercury Comet, which I bought for $400 in 1973.
I’LL ACKNOWLEDGE THAT today’s topic isn’t the most upbeat. I want to talk about risk—and, specifically, some of the underappreciated risks related to retirement.
In thinking about risk, the hardest part—in my view—is that it defies a single definition. Because of that, there’s no uniform yardstick for measuring it and thus no single strategy for managing it. As Howard Marks states in his book The Most Important Thing, “Much of risk is subjective,
JUST AS ANYONE around on Sept. 11, 2001, Nov. 22, 1963, or Dec. 7, 1941, remembers where they were when they first heard the news, one date resonates for investors of a certain age: Oct. 19, 1987.
As a young practicing physician, I was just finishing up the day’s charting when I took a call from one of my colleagues: “Did the Dow fall enough for you today?” Indeed it had, by 508 points,
WE OFTEN WRITE at HumbleDollar that saving and investing aren’t everything. Spending money on the right things—such as fulfilling experiences—can also be a great investment, especially if the dollars bring ample happiness.
Nearly seven years ago, I thought I’d wasted $4,000 on a foreign trip. But the law of unintended consequences has since worked in my favor.
The 2015 trip was supposed to be an investment in my career. I thought I could make a difference in the world and become a freelance foreign correspondent.
COULD I BE WRONG about indexing?
Every investor soon learns that being wrong is a frequent malady, particularly on the day-to-day decisions of when to buy. Those minor errors are, as we also learn, part of the “game” of investing and are best ignored. But what if there’s evidence that conflicts with your longer-term thinking and expectations? What if evidence conflicts with your central beliefs?
I suspect it could happen to me.
After 60 years of experience and study of investing,
NO. 22: IF WE’RE saving enough each month for retirement and other goals, it doesn’t much matter how we spend our remaining money—and there’s likely no need to budget.
SET PRIORITIES for the year ahead. What are your most important financial goals? Your priorities might include saving for retirement, funding college accounts, buying a house, paying down debt and building up your emergency fund. Also think more broadly—pondering whether, say, you need to tweak your estate plan or your insurance coverage.
NO. 48: RISING interest rates hurt your bond portfolio’s value—and raise its long-run return. As interest rates climb, existing bonds drop in price. But thanks to the rise in rates, you can reinvest your interest payments at higher yields, boosting long-run performance. This reinvestment is easy with bond funds—a reason to favor them over individual bonds.
SELF-ATTRIBUTION. We tend to ascribe our investment successes to our own talents, while blaming our failures on bad luck, bad markets or the advice of others. This makes it harder to learn from our mistakes, while also causing overconfidence. That, in turn, can lead us to trade too much and make big investment bets that hurt our portfolio’s results.
USE THE RIGHT TOOL for the job and you’ll get the best result. If you need to connect two boards, you could use a hammer and a nail or a screwdriver and a screw. Either methods work—and they’re certainly better than banging in a screw with a hammer, which I’ve seen tried. It was not effective.
Participants in 401(k) plans, alas, display similar behavior with target date funds, or TDFs. A TDF offers a diversified portfolio in a single fund,
I FREQUENTLY FIELD inquiries from people who know they ought to get a will. Others have wills, but may need to revise them because they’ve moved to a new state, entered into a marriage or ended one. But either way, most folks—in my experience—never get beyond that simple first step.
And those who do often overlook an additional step that’s almost as necessary: drawing up a “letter of final instructions” that provides their heirs with an informal personal financial inventory.
ECONOMIST JOHN Maynard Keynes once observed that, “It is better for reputation to fail conventionally than to succeed unconventionally.” This is probably true in many realms. It’s certainly true in the investment world.
As the last 12 months have demonstrated, extreme and unexpected events can and do happen. But analysts whose job it is to make economic forecasts rarely go too far out on a limb. Sure, there are some forecasters who will take a chance with a view that’s far outside the consensus.
ON JAN. 10, 2000, America Online co-founder Steve Case stood on stage in New York to announce the largest corporate takeover in American history, buying venerable Time Warner for $165 billion. At the time, commentators called it the merger of the century. But just five years later, Case acknowledged that it was actually “the worst merger in history” and argued that it was time “to take it apart.”
Making financial decisions is difficult even in good times.
I WAS 51-YEARS-OLD when I ate prime rib for the first time. As it turned out, it was a life-changing moment. It might be difficult to believe eating a choice cut of beef could lead to an altered understanding of financial priorities, but it did.
I grew up in a fairly typical 1970s middle class family. Hamburger Helper, tuna casserole and peanut butter sandwiches made up the bulk of my diet. Our family rarely ate out and,
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