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Indexing is for those wise enough to realize that they aren’t wiser than the collective wisdom of all investors.

Eight Questions

MONEY MAY SEEM important—and it is. But it isn’t nearly as important as we imagine. Want a little perspective on your money? First, think about your net worth or how much you earn. Then ask yourself these eight questions. How much would you give:

To have your current life, but be 10 years younger?
To have a deceased friend or family member back in your life?
To avoid the parts of your job you dislike?

Read more »

College or Not?

SEVERAL MILLION households every year deal with a crucial decision involving their teenage children. Will their kids head to college, enter the labor force, join the military or perhaps do something different entirely? Often, this involves weighing the costs and benefits of a college education vs. the immediate income from getting a job.
About two-thirds of high school graduates end up being college freshmen. The remaining third defer or never go to college, but they can still end up earning above-average incomes.

Read more »

Other People’s Stuff

WE’VE ALL GOT stuff. Too much stuff. George Carlin was among the first to highlight our obsession with stuff in his 1980s standup comedy routines. I hadn’t thought much about Carlin or stuff for decades—until 2015, when I inherited my parents’ stuff.
Not only did I inherit their stuff, I inherited some of their parents’ stuff and their grandparents’ stuff. Boxes, drawers and shelves full of unlabeled stuff. I wouldn’t call my parents hoarders.

Read more »

Cut It Out

IT ISN’T EASY sticking to a budget. I get it. Surprise expenses pop up all the time. How can you possibly be expected to live on a strict dollar amount each and every month?
The answer is, you don’t. But the key is to make sure you have enough financial breathing room, so you aren’t living paycheck to paycheck. That brings me to three common budget busters. These areas of your financial life, if ignored,

Read more »

Under the Influence

WE LIKE TO THINK we’re rational, especially when it comes to spending and investing. But in truth, all of us are susceptible to impulsive decision-making and unconscious persuasion. Result? We often end up wasting our hard-earned money.
According to traditional economics—which depicts humans as conscious, rational decision-makers—this shouldn’t happen. But this traditional view has been under attack since the late 1800s, when Thorstein Veblen explored conscious irrational decisions, such as buying items simply to impress others.

Read more »

Little Jack

I SUBSCRIBE to a number of financial magazines, as well as a daily newspaper. Lately, they’ve been piling up in my garage unread. I scan the front cover of the magazines and the headlines of the newspaper, but I’m not that interested. I don’t care about “Where to Invest Your Money in 2019” or “The Best Stocks for the Long Run.”
I guess it’s because I’m no longer in charge of my investment portfolio.

Read more »

Money Guide

Bypass Trusts

SUPPOSE YOU and your partner have substantial wealth, but you aren’t legally married. To ensure you both take advantage of the federal estate tax exclusion, you might use a bypass trust, which is funded upon your death under the terms of your will or living trust. Let’s say you die first. Upon your death, your will might direct that a sum equal to the federal estate tax exclusion—$11.4 million in 2019—should go into a bypass trust, with the money perhaps earmarked for your favorite niece but with your partner still able to receive income from that money. This will use your estate tax exclusion. Upon your partner’s death, another $11.4 million (though likely more, thanks to inflation adjustments) would pass free of federal estate taxes, for a total of some $22.8 million. Thanks to the portability of the federal estate tax exclusion, wealthy married couples have less need to use bypass trusts. Many couples—who built bypass trusts into their estate plan when the estate tax exclusion was far lower—should probably revisit their plan, and will likely need to revise their wills and living trusts. Still, bypass trusts could make sense for some married couples. By stashing assets in a bypass trust upon the death of the first spouse, you sidestep the risk that those assets might appreciate substantially in the years between the first spouse’s death and the second. If that happens and the bypass trust is not used, federal estate taxes may be an issue upon the death of the second spouse, even though the second spouse’s estate gets to make use of both spouses’ estate tax exclusions, thanks to portability. On the other hand, if the assets are held in a trust and they increase substantially in value, your beneficiaries may have a different problem: capital gains taxes. That problem would be avoided if you simply leave the money to your spouse, because the assets would have their cost basis stepped up to the current market value upon your spouse’s death. Your estate planning attorney can help you figure out whether capital gains taxes or estate taxes are the bigger issue. The answer will hinge partly on the size of your estate and how assets are invested. A bypass trust could also help with state estate taxes, where portability may not be allowed. In addition, a bypass trust might make sense if you’re remarried and have children from an earlier marriage. Even if the trust doesn’t deliver big tax savings, it could ensure that your wishes are followed. The trust might provide income to your new spouse after your death, while ensuring that your children ultimately inherit the assets involved. Often, this is also the motivation behind setting up a QTIP trust. Next: QTIP Trusts Previous: Insurance Trusts
Read more »

Numbers

FOURTEEN of the 20 highest-paying occupations—including all of the top 10—involve medicine or dentistry, according to the Bureau of Labor Statistics. Aspire to be a chief executive? That only ranks 12th on the list.

Newsletter

Out of the Swamp

WE CAN MEASURE our financial progress by the size of our net worth. But that’s hardly the only gauge. Equally important, I’d argue, is the evolution in how we think about money—and how we use it to improve our lives.
What does this journey look like? I picture it as having five stages:
1. Head above water. This is when you emerge from the primordial financial swamp and begin to walk upright.

Read More »

Archive

More for Your Money

AT SEVEN O'CLOCK this morning, as my wife and I tried in vain to wake our children for school, we heard a similar response as we went from room to room: “My head hurts.” Nobody wanted to get up. I have to say, I don’t blame them. It’s the middle of winter here in Boston. The sky is gray and the thermometer seems stuck below zero. It can be hard for anyone to feel motivated, let alone kids facing another day in school. But for parents, there is one thing that can make this time of year a little less unpleasant: year-end bonuses. If you are the fortunate recipient of a bonus—or if you just received a pay raise or the new tax rules have put more in your paycheck—here are 10 ideas for allocating those funds in ways that might lift both your spirits and your finances: 1. Give yourself a gift. Everyone knows the old expression that “money doesn't buy happiness.” I generally agree with that. But recent research has shown that certain types of spending do indeed boost happiness. Among them: Buy experiences, not things. In fact, there’s an entire book devoted to the topic: Happy Money by Elizabeth Dunn and Michael Norton. 2. Give to others. It is important to give, but unfortunately the new tax rules will limit many taxpayers' ability to deduct charitable donations. Here's one solution: Make a big onetime contribution to a charitable gift fund, so you’re able to itemize. From that account, you can then slowly dole out money to your favorite charities. 3. Jumpstart a new account. If your household budget is stretched, it can be hard to save. That's why year-end bonuses provide the perfect opportunity to build momentum with a new account. This might be a simple household emergency fund, a Roth IRA or a 529 education savings account for your children. An added bonus: The new tax rules now allow you to use 529s for K-12 expenses. 4. Invest in your house. Your own home is a unique investment because it’s an asset that usually grows in value over time, while also providing you with a place to live. For that reason, I see home improvements as worthwhile, because they deliver value on both counts. 5. Invest in your health. Everyone knows that health clubs love January. That's when New Year's resolutions cause people to buy new memberships that they end up rarely using. Why do so many people give up on the gym? One reason is the inconvenience of getting there. That's why I think it's smart to invest in something like a treadmill or a bicycle for your home. Yes, the price tag might seem high, but you'll pick up valuable time in your day and I'm confident you'll use it far more than your abandoned gym membership. 6. Invest in your skills. One of the ironies of life is that all of our education is crammed into the first 20 or so years. But it doesn't need to be that way. These days, you can take online courses at little or no cost. Your town probably also has its own adult education program, offering hundreds of learning opportunities for nominal fees. 7. Make a dent in your most annoying debt. There are lots of strategies for paying down debt. Here's where I like to start: with the one that you dislike the most. Maybe that's the high-interest credit card or store credit card that hits you with $35 late fees when you forget to pay your $30 balance. Or maybe it's your student loans at 7% or 8%. Pick one to eliminate from your life and I think you'll experience an instant boost in happiness. 8. Put things on your calendar. According to happiness researchers, you derive tangible enjoyment from looking forward to things. If you're planning a trip for next summer, book it now, or if you're having a hard time getting through the winter, plan some daytrips to get you through February. 9. Get a root canal. I'm not kidding. It's so easy to put off such things. But if you have a medical problem that's been giving you aches and pains, sacrifice a vacation day to take care of it. 10. Get a coach. Another irony of life is that we get all kinds of coaching as kids, but rarely get any as adults. Sure, you might have a boss, but that's not the same. If you don't have a trusted mentor, try to find a career coach. Unlike your family and friends, who probably know you too well, an objective professional will take the time to look at you holistically and give you honest feedback. I have seen this work wonders for people. Adam M. Grossman’s previous blogs include First Things First, Grossman's Eleven and Ten Financial Principles. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
Read more »

Truths

NO. 27: COST-CONSCIOUS investors can save thousands over their lifetime. Take two investors who salt away $5,000 a year for 40 years. One pays 1% in annual costs, while the other incurs 0.1%. If both earn 5% a year before expenses, the cost-conscious investor will amass $618,000, while the high-cost investor garners $494,000.

Act

FUND YOUR IRA—FOR 2019. This time of year, folks are exhorted to get their IRAs funded for 2018 before the mid-April tax-filing deadline. That’s a good idea. But if you want to get the most out of your IRA, you should also make your 2019 contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.

Think

NEUROECONOMICS. To understand why we often make poor decisions, neuroeconomics studies how the brain reacts to financial situations. The research has confirmed insights first uncovered by behavioral finance, such as our strong aversion to losses, our fondness for long-shot investments and our preference for small rewards now over larger rewards later.

About Jonathan

Jonathan Clements

HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.

Home Call to Action

Eight Questions

MONEY MAY SEEM important—and it is. But it isn’t nearly as important as we imagine. Want a little perspective on your money? First, think about your net worth or how much you earn. Then ask yourself these eight questions. How much would you give:

To have your current life, but be 10 years younger?
To have a deceased friend or family member back in your life?
To avoid the parts of your job you dislike?

Read more »

College or Not?

SEVERAL MILLION households every year deal with a crucial decision involving their teenage children. Will their kids head to college, enter the labor force, join the military or perhaps do something different entirely? Often, this involves weighing the costs and benefits of a college education vs. the immediate income from getting a job.
About two-thirds of high school graduates end up being college freshmen. The remaining third defer or never go to college, but they can still end up earning above-average incomes.

Read more »

Other People’s Stuff

WE’VE ALL GOT stuff. Too much stuff. George Carlin was among the first to highlight our obsession with stuff in his 1980s standup comedy routines. I hadn’t thought much about Carlin or stuff for decades—until 2015, when I inherited my parents’ stuff.
Not only did I inherit their stuff, I inherited some of their parents’ stuff and their grandparents’ stuff. Boxes, drawers and shelves full of unlabeled stuff. I wouldn’t call my parents hoarders.

Read more »

Cut It Out

IT ISN’T EASY sticking to a budget. I get it. Surprise expenses pop up all the time. How can you possibly be expected to live on a strict dollar amount each and every month?
The answer is, you don’t. But the key is to make sure you have enough financial breathing room, so you aren’t living paycheck to paycheck. That brings me to three common budget busters. These areas of your financial life, if ignored,

Read more »

Under the Influence

WE LIKE TO THINK we’re rational, especially when it comes to spending and investing. But in truth, all of us are susceptible to impulsive decision-making and unconscious persuasion. Result? We often end up wasting our hard-earned money.
According to traditional economics—which depicts humans as conscious, rational decision-makers—this shouldn’t happen. But this traditional view has been under attack since the late 1800s, when Thorstein Veblen explored conscious irrational decisions, such as buying items simply to impress others.

Read more »

Little Jack

I SUBSCRIBE to a number of financial magazines, as well as a daily newspaper. Lately, they’ve been piling up in my garage unread. I scan the front cover of the magazines and the headlines of the newspaper, but I’m not that interested. I don’t care about “Where to Invest Your Money in 2019” or “The Best Stocks for the Long Run.”
I guess it’s because I’m no longer in charge of my investment portfolio.

Read more »

Numbers

FOURTEEN of the 20 highest-paying occupations—including all of the top 10—involve medicine or dentistry, according to the Bureau of Labor Statistics. Aspire to be a chief executive? That only ranks 12th on the list.

Act

FUND YOUR IRA—FOR 2019. This time of year, folks are exhorted to get their IRAs funded for 2018 before the mid-April tax-filing deadline. That’s a good idea. But if you want to get the most out of your IRA, you should also make your 2019 contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.

Truths

NO. 27: COST-CONSCIOUS investors can save thousands over their lifetime. Take two investors who salt away $5,000 a year for 40 years. One pays 1% in annual costs, while the other incurs 0.1%. If both earn 5% a year before expenses, the cost-conscious investor will amass $618,000, while the high-cost investor garners $494,000.

Think

NEUROECONOMICS. To understand why we often make poor decisions, neuroeconomics studies how the brain reacts to financial situations. The research has confirmed insights first uncovered by behavioral finance, such as our strong aversion to losses, our fondness for long-shot investments and our preference for small rewards now over larger rewards later.

Home Call to Action

Free Newsletter

Out of the Swamp

WE CAN MEASURE our financial progress by the size of our net worth. But that’s hardly the only gauge. Equally important, I’d argue, is the evolution in how we think about money—and how we use it to improve our lives.
What does this journey look like? I picture it as having five stages:
1. Head above water. This is when you emerge from the primordial financial swamp and begin to walk upright.

Read More »

Money Guide

Start Here

Bypass Trusts

SUPPOSE YOU and your partner have substantial wealth, but you aren’t legally married. To ensure you both take advantage of the federal estate tax exclusion, you might use a bypass trust, which is funded upon your death under the terms of your will or living trust. Let’s say you die first. Upon your death, your will might direct that a sum equal to the federal estate tax exclusion—$11.4 million in 2019—should go into a bypass trust, with the money perhaps earmarked for your favorite niece but with your partner still able to receive income from that money. This will use your estate tax exclusion. Upon your partner’s death, another $11.4 million (though likely more, thanks to inflation adjustments) would pass free of federal estate taxes, for a total of some $22.8 million. Thanks to the portability of the federal estate tax exclusion, wealthy married couples have less need to use bypass trusts. Many couples—who built bypass trusts into their estate plan when the estate tax exclusion was far lower—should probably revisit their plan, and will likely need to revise their wills and living trusts. Still, bypass trusts could make sense for some married couples. By stashing assets in a bypass trust upon the death of the first spouse, you sidestep the risk that those assets might appreciate substantially in the years between the first spouse’s death and the second. If that happens and the bypass trust is not used, federal estate taxes may be an issue upon the death of the second spouse, even though the second spouse’s estate gets to make use of both spouses’ estate tax exclusions, thanks to portability. On the other hand, if the assets are held in a trust and they increase substantially in value, your beneficiaries may have a different problem: capital gains taxes. That problem would be avoided if you simply leave the money to your spouse, because the assets would have their cost basis stepped up to the current market value upon your spouse’s death. Your estate planning attorney can help you figure out whether capital gains taxes or estate taxes are the bigger issue. The answer will hinge partly on the size of your estate and how assets are invested. A bypass trust could also help with state estate taxes, where portability may not be allowed. In addition, a bypass trust might make sense if you’re remarried and have children from an earlier marriage. Even if the trust doesn’t deliver big tax savings, it could ensure that your wishes are followed. The trust might provide income to your new spouse after your death, while ensuring that your children ultimately inherit the assets involved. Often, this is also the motivation behind setting up a QTIP trust. Next: QTIP Trusts Previous: Insurance Trusts
Read more »

Archive

More for Your Money

AT SEVEN O'CLOCK this morning, as my wife and I tried in vain to wake our children for school, we heard a similar response as we went from room to room: “My head hurts.” Nobody wanted to get up. I have to say, I don’t blame them. It’s the middle of winter here in Boston. The sky is gray and the thermometer seems stuck below zero. It can be hard for anyone to feel motivated, let alone kids facing another day in school. But for parents, there is one thing that can make this time of year a little less unpleasant: year-end bonuses. If you are the fortunate recipient of a bonus—or if you just received a pay raise or the new tax rules have put more in your paycheck—here are 10 ideas for allocating those funds in ways that might lift both your spirits and your finances: 1. Give yourself a gift. Everyone knows the old expression that “money doesn't buy happiness.” I generally agree with that. But recent research has shown that certain types of spending do indeed boost happiness. Among them: Buy experiences, not things. In fact, there’s an entire book devoted to the topic: Happy Money by Elizabeth Dunn and Michael Norton. 2. Give to others. It is important to give, but unfortunately the new tax rules will limit many taxpayers' ability to deduct charitable donations. Here's one solution: Make a big onetime contribution to a charitable gift fund, so you’re able to itemize. From that account, you can then slowly dole out money to your favorite charities. 3. Jumpstart a new account. If your household budget is stretched, it can be hard to save. That's why year-end bonuses provide the perfect opportunity to build momentum with a new account. This might be a simple household emergency fund, a Roth IRA or a 529 education savings account for your children. An added bonus: The new tax rules now allow you to use 529s for K-12 expenses. 4. Invest in your house. Your own home is a unique investment because it’s an asset that usually grows in value over time, while also providing you with a place to live. For that reason, I see home improvements as worthwhile, because they deliver value on both counts. 5. Invest in your health. Everyone knows that health clubs love January. That's when New Year's resolutions cause people to buy new memberships that they end up rarely using. Why do so many people give up on the gym? One reason is the inconvenience of getting there. That's why I think it's smart to invest in something like a treadmill or a bicycle for your home. Yes, the price tag might seem high, but you'll pick up valuable time in your day and I'm confident you'll use it far more than your abandoned gym membership. 6. Invest in your skills. One of the ironies of life is that all of our education is crammed into the first 20 or so years. But it doesn't need to be that way. These days, you can take online courses at little or no cost. Your town probably also has its own adult education program, offering hundreds of learning opportunities for nominal fees. 7. Make a dent in your most annoying debt. There are lots of strategies for paying down debt. Here's where I like to start: with the one that you dislike the most. Maybe that's the high-interest credit card or store credit card that hits you with $35 late fees when you forget to pay your $30 balance. Or maybe it's your student loans at 7% or 8%. Pick one to eliminate from your life and I think you'll experience an instant boost in happiness. 8. Put things on your calendar. According to happiness researchers, you derive tangible enjoyment from looking forward to things. If you're planning a trip for next summer, book it now, or if you're having a hard time getting through the winter, plan some daytrips to get you through February. 9. Get a root canal. I'm not kidding. It's so easy to put off such things. But if you have a medical problem that's been giving you aches and pains, sacrifice a vacation day to take care of it. 10. Get a coach. Another irony of life is that we get all kinds of coaching as kids, but rarely get any as adults. Sure, you might have a boss, but that's not the same. If you don't have a trusted mentor, try to find a career coach. Unlike your family and friends, who probably know you too well, an objective professional will take the time to look at you holistically and give you honest feedback. I have seen this work wonders for people. Adam M. Grossman’s previous blogs include First Things First, Grossman's Eleven and Ten Financial Principles. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
Read more »
Jonathan Clements

About Jonathan

HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.