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Your kids will grow up to imitate your financial habits. Will you like what you see?

Easy Street

A FEW YEARS AGO, my future husband and I took a trip to southern Utah to participate in a pistol shooting competition. We were taken by the area’s beauty and easy access to outdoor recreational activities. While there, we looked at a few homes and were pleasantly surprised to find the prices quite reasonable. We decided Utah would be high on our list of places to relocate to once I retired from my job.

Read more »

State of Taxation

ONE OF MY FAVORITE things to do is sit on our local beach with a cold beverage on a beautiful day, and talk finance with interested friends and family members. This past Labor Day weekend, I did just that with a soon-to-be retiree.
One of the big issues facing him and his wife: where to live. He had been relocated to New York by his employer. But he and his wife are natives of the Philadelphia region,

Read more »

Make the Connection

FOR A LIFE to be meaningful, it doesn’t need to be unique—and yet many of us believe that’s necessary. We’re convinced we lack something special, and that paralyzes us. This is a mistake, says the philosopher Iddo Landau, who argues that everybody already possesses what they need for a meaningful existence. We just need to look harder.
I’ve spent years researching and educating myself on how to find and cultivate purpose. This helped me to develop a process to guide clients,

Read more »

Shooting Stars

THEY WERE GURUS and gunslingers. Market mavens. Stock pickers and sector bettors. Over in the bond market, there was even a king. They were star fund managers—but most were shooting stars, destined to crash.
Yes, we’ve had managers like Peter Lynch, Will Danoff and Bill Gross, whose long-term returns did indeed beat the indexes. But for every winner like them, there have been—statistically speaking—seven who failed. Between 74% and 93% of funds in a variety of broad categories—small-cap,

Read more »

Follow the Fed

STOCKS WENT INTO a freefall earlier this year, as I’m sure you recall. But all of a sudden, on March 23, everything changed. The market turned around and, just as quickly as it had dropped, it rebounded. Remarkably, the U.S. stock market is now in positive territory for the year.
What happened on March 23? The situation with the virus didn’t get any better. And it wasn’t Congress or the White House. What happened was that the Federal Reserve issued a statement.

Read more »

Where We Stand

THIS YEAR’S PANDEMIC has unleashed financial turmoil for many American families, so data from last year might seem irrelevant. Still, there’s one set of 2019 data that deserves our attention—the Federal Reserve’s latest Survey of Consumer Finances, which was released last month.
Conducted every three years, the survey is perhaps the most in-depth look we get at the state of America’s personal finances. For the 2019 survey, 5,783 families (who may be individuals living alone) were interviewed at length about their income,

Read more »

Money Guide

Taxed vs. Tax-Deferred

BY USING RETIREMENT accounts, or by pursuing tax-efficient strategies in a taxable account, you can get tax-deferred growth. How valuable is this growth? Imagine a husband and wife. Both invest $1,000 for 40 years and earn 6% a year before taxes. The husband pays 22% in taxes every year on his entire 6% investment gain, so his $1,000 grows annually at an after-tax 4.68%. If you earn 4.68% a year for 40 years, your cumulative gain would be 523.1%. (On your financial calculator, this would show up as 6.231 before you subtract 1 and multiply by 100.) That means the husband’s $1,000 grows to $6,231. Meanwhile, the wife puts her $1,000 into a nondeductible retirement account, where her money grows tax-deferred at 6% annually. After 40 years, she cashes out the account and pays 22% in taxes on her four decades of investment gains. Before taxes, her $1,000 would grow to $10,286. What’s her after-tax gain? Remember, her contribution to the retirement account was nondeductible, meaning she didn’t get an initial tax deduction for her $1,000 contribution and hence she doesn’t have to pay tax on that $1,000 when she withdraws it. Instead, only the $9,286 in gains is taxable. Knock off 22% from that sum for taxes, add back the $1,000 nondeductible contribution and the wife would be left with $8,243, compared with $6,231 for her husband. Next: Taxables vs. Munis Previous: Rebalancing
Read more »

Manifesto

NO. 64: AS WE GROW wealthier, we should seize the chance to save on insurance—by raising deductibles, lengthening elimination periods and perhaps dropping some policies entirely.

Truths

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.

Act

GIVE AWAY MONEY. You might be considering a large financial gift to your favorite charity or to your children. Charitable contributions aren’t limited, though their tax-deductibility can be. Meanwhile, with your kids, you might take advantage of the $15,000 annual gift-tax exclusion. But before you do, check you have plenty for your own retirement.

Think

WINNER’S CURSE. If you’re in a bidding war for a house and come out on top, you may suffer the winner’s curse: In beating out other possibly more prudent and knowledgeable bidders, there’s a risk you overpaid. The winner’s curse can also afflict other buyers, such as corporations that win takeover battles or the highest bidders at an art auction.

Second Look

Retirement

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 »

Family Finance

Refi or Not?

MY WIFE AND I bought our first home in the mid-1980s. We were thrilled to get an 8% mortgage, though we had to pay three points—an upfront fee equal to 3% of the loan amount—to get that rate. Many of our friends had bought a few years earlier and were paying 14%, a common occurrence back then, according to Freddie Mac data.
We kept our eyes open for opportunities to refinance our high rate.

Read more »

Investing

Passive Stampede?

LAST WEEK, investment manager Michael Burry made waves when he issued an apocalyptic forecast: Index funds, he said, are in a bubble similar to the housing bubble that ended very badly in 2008. Burry couldn’t say when the crash would come, but noted ominously that, “the longer it goes on, the worse the crash will be.”
Burry acknowledged that he’s “100% focused on stock picking,” so—at first glance—his criticism seems not unlike other active fund managers’ criticisms of index funds,

Read more »

Lists

Building Wealth

I’VE BEEN READING about how people aren’t saving enough money, and how almost half of all Americans carry a balance on their credit cards. Looking to be more financially prudent? Here are 10 pointers on how to build wealth and gain financial security over your lifetime:
1. Save—for a reason. Saving money is the key to building a substantial portfolio. One secret to being a good saver: Have something worthwhile to save for. It might be homeownership or early financial independence.

Read more »
Home Call to Action

Mindset

Happy Compromises

A LITTLE WHILE back, a friend—let’s call him Paul—recommended a book with an unusual title: How Not to Die. As you might guess, it’s about health, nutrition and longevity. Since Paul is a cardiologist and knows a thing or two about what can land people in hospital, I took his recommendation seriously and immediately ordered a copy.
When the book arrived, I learned that the prescription for not dying isn’t so simple.

Read more »

Easy Street

A FEW YEARS AGO, my future husband and I took a trip to southern Utah to participate in a pistol shooting competition. We were taken by the area’s beauty and easy access to outdoor recreational activities. While there, we looked at a few homes and were pleasantly surprised to find the prices quite reasonable. We decided Utah would be high on our list of places to relocate to once I retired from my job.

Read more »

State of Taxation

ONE OF MY FAVORITE things to do is sit on our local beach with a cold beverage on a beautiful day, and talk finance with interested friends and family members. This past Labor Day weekend, I did just that with a soon-to-be retiree.
One of the big issues facing him and his wife: where to live. He had been relocated to New York by his employer. But he and his wife are natives of the Philadelphia region,

Read more »

Make the Connection

FOR A LIFE to be meaningful, it doesn’t need to be unique—and yet many of us believe that’s necessary. We’re convinced we lack something special, and that paralyzes us. This is a mistake, says the philosopher Iddo Landau, who argues that everybody already possesses what they need for a meaningful existence. We just need to look harder.
I’ve spent years researching and educating myself on how to find and cultivate purpose. This helped me to develop a process to guide clients,

Read more »

Shooting Stars

THEY WERE GURUS and gunslingers. Market mavens. Stock pickers and sector bettors. Over in the bond market, there was even a king. They were star fund managers—but most were shooting stars, destined to crash.
Yes, we’ve had managers like Peter Lynch, Will Danoff and Bill Gross, whose long-term returns did indeed beat the indexes. But for every winner like them, there have been—statistically speaking—seven who failed. Between 74% and 93% of funds in a variety of broad categories—small-cap,

Read more »

Follow the Fed

STOCKS WENT INTO a freefall earlier this year, as I’m sure you recall. But all of a sudden, on March 23, everything changed. The market turned around and, just as quickly as it had dropped, it rebounded. Remarkably, the U.S. stock market is now in positive territory for the year.
What happened on March 23? The situation with the virus didn’t get any better. And it wasn’t Congress or the White House. What happened was that the Federal Reserve issued a statement.

Read more »

Where We Stand

THIS YEAR’S PANDEMIC has unleashed financial turmoil for many American families, so data from last year might seem irrelevant. Still, there’s one set of 2019 data that deserves our attention—the Federal Reserve’s latest Survey of Consumer Finances, which was released last month.
Conducted every three years, the survey is perhaps the most in-depth look we get at the state of America’s personal finances. For the 2019 survey, 5,783 families (who may be individuals living alone) were interviewed at length about their income,

Read more »

Free Newsletter

Home Call to Action

Manifesto

NO. 64: AS WE GROW wealthier, we should seize the chance to save on insurance—by raising deductibles, lengthening elimination periods and perhaps dropping some policies entirely.

Act

GIVE AWAY MONEY. You might be considering a large financial gift to your favorite charity or to your children. Charitable contributions aren’t limited, though their tax-deductibility can be. Meanwhile, with your kids, you might take advantage of the $15,000 annual gift-tax exclusion. But before you do, check you have plenty for your own retirement.

Truths

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.

Think

WINNER’S CURSE. If you’re in a bidding war for a house and come out on top, you may suffer the winner’s curse: In beating out other possibly more prudent and knowledgeable bidders, there’s a risk you overpaid. The winner’s curse can also afflict other buyers, such as corporations that win takeover battles or the highest bidders at an art auction.

Money Guide

Start Here

Taxed vs. Tax-Deferred

BY USING RETIREMENT accounts, or by pursuing tax-efficient strategies in a taxable account, you can get tax-deferred growth. How valuable is this growth? Imagine a husband and wife. Both invest $1,000 for 40 years and earn 6% a year before taxes. The husband pays 22% in taxes every year on his entire 6% investment gain, so his $1,000 grows annually at an after-tax 4.68%. If you earn 4.68% a year for 40 years, your cumulative gain would be 523.1%. (On your financial calculator, this would show up as 6.231 before you subtract 1 and multiply by 100.) That means the husband’s $1,000 grows to $6,231. Meanwhile, the wife puts her $1,000 into a nondeductible retirement account, where her money grows tax-deferred at 6% annually. After 40 years, she cashes out the account and pays 22% in taxes on her four decades of investment gains. Before taxes, her $1,000 would grow to $10,286. What’s her after-tax gain? Remember, her contribution to the retirement account was nondeductible, meaning she didn’t get an initial tax deduction for her $1,000 contribution and hence she doesn’t have to pay tax on that $1,000 when she withdraws it. Instead, only the $9,286 in gains is taxable. Knock off 22% from that sum for taxes, add back the $1,000 nondeductible contribution and the wife would be left with $8,243, compared with $6,231 for her husband. Next: Taxables vs. Munis Previous: Rebalancing
Read more »

Second Look

Retirement

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 »

Family Finance

Refi or Not?

MY WIFE AND I bought our first home in the mid-1980s. We were thrilled to get an 8% mortgage, though we had to pay three points—an upfront fee equal to 3% of the loan amount—to get that rate. Many of our friends had bought a few years earlier and were paying 14%, a common occurrence back then, according to Freddie Mac data.
We kept our eyes open for opportunities to refinance our high rate.

Read more »

Investing

Passive Stampede?

LAST WEEK, investment manager Michael Burry made waves when he issued an apocalyptic forecast: Index funds, he said, are in a bubble similar to the housing bubble that ended very badly in 2008. Burry couldn’t say when the crash would come, but noted ominously that, “the longer it goes on, the worse the crash will be.”
Burry acknowledged that he’s “100% focused on stock picking,” so—at first glance—his criticism seems not unlike other active fund managers’ criticisms of index funds,

Read more »

Lists

Building Wealth

I’VE BEEN READING about how people aren’t saving enough money, and how almost half of all Americans carry a balance on their credit cards. Looking to be more financially prudent? Here are 10 pointers on how to build wealth and gain financial security over your lifetime:
1. Save—for a reason. Saving money is the key to building a substantial portfolio. One secret to being a good saver: Have something worthwhile to save for. It might be homeownership or early financial independence.

Read more »

Mindset

Happy Compromises

A LITTLE WHILE back, a friend—let’s call him Paul—recommended a book with an unusual title: How Not to Die. As you might guess, it’s about health, nutrition and longevity. Since Paul is a cardiologist and knows a thing or two about what can land people in hospital, I took his recommendation seriously and immediately ordered a copy.
When the book arrived, I learned that the prescription for not dying isn’t so simple.

Read more »