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The harder we try to beat the market, the more likely we are to fail, thanks to the hefty investment costs we incur.

Where It Goes

I HAVE ONLY A VAGUE idea of how much I spend. I figured it was time to find out.
I’ve never budgeted because I’ve never seen the need. From my early 20s until three-plus years ago, I kept an iron grip on my wallet, spending with the utmost care and saving great heaps of money. Over those 35 years of fierce frugality, I don’t feel like I deprived myself, but I do feel like I thought about money far too much—and tracking my spending would only have made that worse.

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Gift to Myself

LATE LAST OCTOBER, I was one of the first to move into the new building at my chosen continuing care retirement community, or CCRC. Now, more than five months later, I’m more confident than ever that I made a good decision.
I’m in my mid-70s, single and childless, with relatives 3,000 miles distant in both directions. Both bathrooms at my old home were up 15 stairs. Aging in place was not a good option.

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Recent Writing

A Dirty Business

I’M SLOWLY LEARNING not to let frugality prevent me from doing the things I love.
One of my favorite pastimes is cooking outdoors during the heat of the summer. Nothing pairs better with steelhead trout than a homegrown, freshly picked Hungarian hot wax pepper, softened by the grill’s intense heat. The aroma of the pepper’s lightly scorched skin, complete with grill marks, is enough to make any mouth water. Simply pick the largest, throw it directly on the burner and wait patiently for the magic to occur.

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Testing My Faith

THOU SHALL NOT TIME the market. Thou shall not consider macroeconomic trends when allocating capital. Thou shall not listen to pundits on CNBC. Thou shall not engage in security analysis. Thou shall not dabble in options or individual stocks. Thou shall not shoot for the moon.

These are just some of the commandments sent down from on high to today’s index-fund investors.

As one of those investors, I assume that financial markets are more or less efficient,

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An Ordinary Life

MY GRANDFATHER FALLS into the category of folks who are “not long remembered.” He died more than 75 years ago. None of his children or their spouses is alive. The one grandchild alive at the time of his death was only a few months old. It’s safe to say his memory has been all but erased, and yet his story offers a glimpse into what working life was like in the first half of the 1900s.

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Aging With Others

IF SOMEONE TOLD ME 10 years ago that I’d end up living in a 55-plus community, I would have laughed. Our plan was to stay in the home we loved and age in place.
What happened? Our initial move to a 55-plus community was driven solely by convenience. My company transferred me to Atlanta in 2021. We wanted to downsize to an apartment, but finding one close to work was challenging. Our son pointed out that there was a 55-plus apartment community close to my workplace.

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Home Call to Action

Acting Our Age

I CHUCKLE WHEN I read Lucille Ball’s gentle admonishment that “the secret to staying young is to live honestly, eat slowly, and lie about your age.” That’s not so easy anymore, ever since the internet outed us all.
But I’m not above using a little subterfuge. After all, forced disclosure is never comfortable. When asked how old I am, my usual reply is “any woman who will tell her age will tell anything”—a remark sometimes attributed to Mary Kay Ash.

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Avoiding or Evading?

OUR INCOME TAX SYSTEM is based on voluntary compliance. Taxpayers are responsible for reporting all their income and paying the required taxes.
In assessing tax returns, the IRS differentiates between tax avoidance and tax evasion. Tax avoidance is “an action taken to lessen tax liability and maximize after-tax income,” while tax evasion is “the failure to pay or a deliberate underpayment of taxes.”
What are the major sources of tax evasion? Under-reporting income seems to be No.

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Eat Sleep Move

WHEN I WAS A KID, I would hear “old people” say, “If you have your health, you have just about everything.” I heard it. I understood it. But in truth, I didn’t really understand it—until I joined the “old people” category.
Looking back, I realize I’ve been blessed with good health. I’ve never broken any bones. I’ve never spent a night in the hospital. I’ve never had any long-lasting illnesses. I don’t regularly take medication,

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Stories We Tell

YALE UNIVERSITY economist Robert Shiller, in his book Narrative Economics, argues that storytelling has more of an impact on economic events than we might imagine. It might seem like the financial world ought to be driven by facts and data, and yet stories often take on a life of their own.
For instance, financial narratives often play a key role in stock market bubbles and busts. More generally, financial myths and misperceptions are widespread,

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Get Educated

Truths

NO. 47: STRIVING to preserve principal often destroys it. As you aim to maintain your portfolio’s nominal value, you’ll likely buy bonds and cash investments—and could find yourself losing ground to inflation. Worse still, you may chase yield, buying supposedly safe investments that promise big payouts, but which may instead suffer sharp price drops.

Act

FREEZE YOUR CREDIT—which you can now do at no cost. This will prevent data thieves from taking out loans and credit cards using your identity. But it also means you’ll need to contact the three credit bureaus and unfreeze your credit temporarily whenever applying for credit. Sound like a hassle? As an alternative, consider setting up a fraud alert.

Think

CONFLICTS of interest. It’s hard to get unbiased financial advice. Insurance agents collect bigger commissions if we buy cash-value instead of term life insurance. Brokers make more if we trade frequently and buy high-commission products. Advisors who charge a percent of assets earn more if we keep money in our portfolios, rather than paying down debt.

Money Guide

Step 4: Aim to Retire

YES, WE'RE ONLY ON step No. 4—and we’re already talking about retirement. There’s a host of reasons saving for retirement should be a top priority. But two reasons stand out. First, retirement is easily our most expensive goal, and it takes decades of saving diligently and earning investment returns to amass enough. By starting to save for retirement as soon as we enter the workforce, the sum we need to sock away each month will be far more manageable. Second, if we have a 401(k), 403(b) or similar plan at work that offers an employer match, we should make sure we collect that full matching contribution—because it’s the best deal in savings. Suppose our employer kicks 50 cents into the plan for every $1 we contribute. That’s like an immediate 50% return on our money. Throw in the tax advantages, including either an initial tax deduction from funding a traditional 401(k) or the tax-free growth offered by a Roth 401(k), and failing to contribute to a 401(k) is probably the biggest financial mistake we can make. What if our employer doesn’t offer a 401(k) or 403(b)? We should strive to save on our own, including funding either a tax-deductible or Roth IRA. If we’re early in our career, with a relatively modest income, a Roth—with its tax-free growth—will likely be the best option. But if we find ourselves in the 22% or higher federal tax bracket, we might favor a tax-deductible IRA, assuming we’re eligible. The reason: Given our higher tax bracket, the deduction will deliver handsome immediate tax savings, plus there’s a greater likelihood our tax bracket will be lower once we’re retired. Next: Step 5: Shed Bad Debt Previous: Step 3: Doctor’s Orders
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.

Voices

Traditional Medicare or Medicare Advantage?

"Insurance should first cover catastrophic health issues. Medicare will do a much better job of that than most MA plans. If I have a very serious health issue, I want to pick the best medical resource I can for that. I can do that with Medicare, but I am limited to the medical resources in my MA plan, so I am rolling the dice. I think seniors are at greater risk of catastrophic health issues, so its seems a no brainer to me that Medicare is best."
- jerry pinkard
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What should investors do about possible higher interest rates?

"I hold 15% of my fixed income in four- and eight-week T-Bills. The remainder is in an intermediate-term treasury index fund. I think the large allocation to cash equivalents in this higher yield environment isn't terrible and will give me some protection if interest rates go higher. Cash does reasonably well in a rising interest rate environment. And rates may indeed rise. The future is absolutely unknowable."
- Brian Kelly
Read more »

What’s the best financial book you’ve ever read?

"Following the detailed instructions in Harry Sits "My Financial Toolbox" book and his blog to take simple actions to save money. And using Harry's advice of "set and forget" and "good enough" to make sure I do not overdo it and forget to enjoy life and my family and friends."
- Dennis Hurley
Read more »

Second Look

Retirement

Solo Effort

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,

Read more »

Family Finance

Working the Numbers

THIS YEAR’S TAX DAY was the strangest I can remember. Amid the pandemic, the filing deadline had been pushed back to July 15, three months later than usual. And for me, it was our most complicated tax year ever. I had both retirement income and income from various in-state and out-of-state consulting gigs.
But the biggest complication stemmed from last year’s sale of our second home. This was a vacation home that we rented part-time and also used ourselves.

Read more »

Investing

Factored In?

WELL, IT SOUNDED good. Academic theory and nearly a century of investment experience supported the argument that small-cap value is the most promising market segment over the long term, since it offers the superior risk-adjusted return that comes with owning both neglected small-cap shares and shunned value stocks.
But as legendary economist John Maynard Keynes observed, in the long run, we are all dead. In my 36-year investment career, both small- and large-cap value have lagged large-cap growth.

Read more »

Lists

Not Just Irrational

OUR FINANCIAL irrationality has been well documented by academics focused on behavioral finance. But we aren’t just irrational. We’re also inconsistent in our irrationality. Here are five examples which, while somewhat amusing, can also have dire financial consequences:

Employees will work for 30 years at a job they hate to qualify for a traditional defined benefit pension, but they wouldn’t dream of delaying Social Security for a few years to get a larger monthly check.

Read more »
Home Call to Action

Mindset

Magic Number

MY MOM AND DAD split up when I was seven years old. Money was an issue for the rest of my childhood. Mom was rarely able to work fulltime and, according to her, child support and alimony were never enough.

When I started working a newspaper stand at age 12, I was expected to give 25% of my daily take for rent. Mom also demanded that I save at least 10%. Depending on the headlines,

Read more »

Free Newsletter

Get Educated

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

FREEZE YOUR CREDIT—which you can now do at no cost. This will prevent data thieves from taking out loans and credit cards using your identity. But it also means you’ll need to contact the three credit bureaus and unfreeze your credit temporarily whenever applying for credit. Sound like a hassle? As an alternative, consider setting up a fraud alert.

Truths

NO. 47: STRIVING to preserve principal often destroys it. As you aim to maintain your portfolio’s nominal value, you’ll likely buy bonds and cash investments—and could find yourself losing ground to inflation. Worse still, you may chase yield, buying supposedly safe investments that promise big payouts, but which may instead suffer sharp price drops.

Think

CONFLICTS of interest. It’s hard to get unbiased financial advice. Insurance agents collect bigger commissions if we buy cash-value instead of term life insurance. Brokers make more if we trade frequently and buy high-commission products. Advisors who charge a percent of assets earn more if we keep money in our portfolios, rather than paying down debt.

Money Guide

Begin Here

Step 4: Aim to Retire

YES, WE'RE ONLY ON step No. 4—and we’re already talking about retirement. There’s a host of reasons saving for retirement should be a top priority. But two reasons stand out. First, retirement is easily our most expensive goal, and it takes decades of saving diligently and earning investment returns to amass enough. By starting to save for retirement as soon as we enter the workforce, the sum we need to sock away each month will be far more manageable. Second, if we have a 401(k), 403(b) or similar plan at work that offers an employer match, we should make sure we collect that full matching contribution—because it’s the best deal in savings. Suppose our employer kicks 50 cents into the plan for every $1 we contribute. That’s like an immediate 50% return on our money. Throw in the tax advantages, including either an initial tax deduction from funding a traditional 401(k) or the tax-free growth offered by a Roth 401(k), and failing to contribute to a 401(k) is probably the biggest financial mistake we can make. What if our employer doesn’t offer a 401(k) or 403(b)? We should strive to save on our own, including funding either a tax-deductible or Roth IRA. If we’re early in our career, with a relatively modest income, a Roth—with its tax-free growth—will likely be the best option. But if we find ourselves in the 22% or higher federal tax bracket, we might favor a tax-deductible IRA, assuming we’re eligible. The reason: Given our higher tax bracket, the deduction will deliver handsome immediate tax savings, plus there’s a greater likelihood our tax bracket will be lower once we’re retired. Next: Step 5: Shed Bad Debt Previous: Step 3: Doctor’s Orders
Read more »

Voices

Which financial markets are in a bubble, if any?

"Ask me this question in 10 years. We see bubbles in the rearview mirror."
- Kurt S
Read more »

What's your favorite tax-savings strategy?

"I keep all my income producing assets, like short term bond ETF’s or money markets, in my IRA. All my equities are in my joint brokerage at VG. We will not sell any equities because the gains are too high. I give part of my IRA withdrawal as QCD’s to my college. That keeps taxes down"
- Boomerst3
Read more »

Will tax rates increase—and, if so, how should we prepare?

"Income tax rates will never go up for that huge proportion of the citizenry that doesn't pay taxes now - I expect they will get even more money back from the government. But I expect income tax rates to increase for higher-income taxpayers in future years, and that presents a tricky problem for people looking at seriously high IRA and SEP withdrawals and conversions. I also expect the estate tax exemption to revert to a lower amount when its current term expires. No one can predict the future, but I think the most likely case is that the political parties will engage in their typical brinksmanship and somehow come up with an alternative for higher-income tax rates that will lift them a bit, but not as high as some activists want it to be, and an estate tax exemption that is higher than those activists want, perhaps a lot higher, but not as high as it is now. (Of course, we will all pay all sorts of higher fees and one-time charges, and also higher taxes indirectly as corporate taxes flow through.) Wage and other inflation, along with higher interest rates, is bumping more and more taxpayers into higher brackets, so the perception that we have only "haves" and "have nots" is getting murkier and less and less true. It is those people in the middle who will provide the leverage one way or another."
- Martin McCue
Read more »

Second Look

Retirement

Solo Effort

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,

Read more »

Family Finance

Working the Numbers

THIS YEAR’S TAX DAY was the strangest I can remember. Amid the pandemic, the filing deadline had been pushed back to July 15, three months later than usual. And for me, it was our most complicated tax year ever. I had both retirement income and income from various in-state and out-of-state consulting gigs.
But the biggest complication stemmed from last year’s sale of our second home. This was a vacation home that we rented part-time and also used ourselves.

Read more »

Investing

Factored In?

WELL, IT SOUNDED good. Academic theory and nearly a century of investment experience supported the argument that small-cap value is the most promising market segment over the long term, since it offers the superior risk-adjusted return that comes with owning both neglected small-cap shares and shunned value stocks.
But as legendary economist John Maynard Keynes observed, in the long run, we are all dead. In my 36-year investment career, both small- and large-cap value have lagged large-cap growth.

Read more »
Home Call to Action

Lists

Not Just Irrational

OUR FINANCIAL irrationality has been well documented by academics focused on behavioral finance. But we aren’t just irrational. We’re also inconsistent in our irrationality. Here are five examples which, while somewhat amusing, can also have dire financial consequences:

Employees will work for 30 years at a job they hate to qualify for a traditional defined benefit pension, but they wouldn’t dream of delaying Social Security for a few years to get a larger monthly check.

Read more »

Mindset

Magic Number

MY MOM AND DAD split up when I was seven years old. Money was an issue for the rest of my childhood. Mom was rarely able to work fulltime and, according to her, child support and alimony were never enough.

When I started working a newspaper stand at age 12, I was expected to give 25% of my daily take for rent. Mom also demanded that I save at least 10%. Depending on the headlines,

Read more »