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If you don’t know what you’re paying in investments costs, Wall Street couldn’t be happier.
MICHAEL BURRY IS a hedge fund manager who gained fame betting against the housing market in 2008. When that market collapsed, Burry made a fortune, and that cemented his reputation as a market seer. Burry was later portrayed as the central character in Michael Lewis’s The Big Short.
But in the years since, Burry’s predictions haven’t turned out as well. Five years ago, he spooked index-fund investors when he argued that they might have trouble accessing their funds.
RETIREES ENDLESSLY debate how best to draw down their retirement savings, and yet it all comes down to two simple rules: Don’t spend too much each year, and don’t sell stocks during down markets.
How do we put these two rules into action? Retirees can pick from a host of withdrawal strategies, including the five popular choices listed below. You’d likely fare just fine with any of the five strategies—but that doesn’t mean you shouldn’t pick carefully.
STOCKS, BONDS, CASH—and a house owned free and clear. For many, that’s the recipe for a financially successful retirement. Our homes represent a central pillar of middle-class status. With a paid-off mortgage, we have an affordable place to spend our old age.
Yet signing up for decades of house payments has become controversial for its high opportunity cost—what you give up to pay the mortgage. Has a home mortgage, with its long, slow road to payoff,
MY SON IS A FRESHMAN in high school, and I’m beginning to be more purposeful about his baseball aspirations. But after dropping $85 on a one-hour pitching lesson, I was wondering, was my money well spent?
My search for an answer began with the Netflix series Receiver. I tuned in to see football player George Kittle, a former University of Iowa Hawkeye and bigtime professional wrestling fan. Kittle was kind enough to send autographed memorabilia for a softball fundraiser we had a few years ago.
THERE ARE TWO TYPES of mistake I make: those that are unintentional and those where I should have known what would happen.
After an unintentional mistake, I’m perplexed by what went wrong. I might say to myself “I’ll never do that again” or perhaps “what the heck just happened?” These are genuine mistakes, and I try to learn from them.
By contrast, stupid mistakes are those that I should have known would occur. No matter how many college degrees we have or how many years on the job,
ONE SPRING DAY IN 2022, an elderly woman entered Paris’s Picasso Museum to see a new exhibit. Among the items on display was a decorative blue jacket, which was positioned on a wall next to a portrait of Picasso.
The woman liked the look of the jacket, so she took it down from its hook, put it in her bag and quietly walked out the front door. Only later did the museum discover the theft,
RANK THE FINANCIAL accounts available to you. For instance, if your employer’s 401(k) or 403(b) offers a matching contribution, that will be the most attractive place to save. Meanwhile, a health savings account offers compelling tax advantages. Next, you might consider funding a traditional or Roth IRA or, alternatively, using extra money to pay down debt.
HINDSIGHT BIAS. Looking back, what happened in the financial markets seems entirely predictable. Indeed, it seems so obvious that we forget the uncertainty that existed at the time—and the erroneous forecasts we made—and we assume we foresaw what happened or could easily have done so. This hindsight bias makes us too willing to act on today’s predictions.
NO. 1: WE'RE SURE money can buy happiness—and, if we’re wise, it can. Use money to create special times with friends and family. Favor experiences over possessions. Build up savings to get the happiness that comes with financial security and so one day you can have the freedom to devote your days to activities you’re most passionate about.
NO. 30: INVESTING is best when it is simplest. If we own costly, complicated products, we’re filling Wall Street’s coffers—at our own expense. Don’t understand an investment? Don’t buy it.
IS A STORM COMING? Long before I discovered HumbleDollar, I regularly read articles by Scott Burns. Now in his 80s, Burns was a popular financial columnist who wrote for the Boston Herald and later The Dallas Morning News. He’s a graduate of Massachusetts Institute of Technology, so he’s comfortable presenting quantitative arguments. Burns is an advocate of low-cost index funds, and he helped popularize couch potato investing,
I GRADUATED FROM the University of Central Florida in 2001 with a degree in information management systems. Thanks to academic scholarships, working part-time and family support, I graduated debt-free and, indeed, had some $15,000 in savings. Amid the economic turmoil of the dot-com bust and subsequent recession, I was fortunate to land a fulltime job at Fiserv, a banking software company.
That’s where I met my wife. We were engaged six months later and married in 2002.
INTEREST RATES HAVE been low for years, with 10-year Treasury notes now yielding some 1.4%. How about dividend-paying stocks instead? Many pay twice what Treasurys currently yield, though obviously with more risk. My strategy: Instead of a classic 60% stock-40% bond mix, I’ve landed at roughly 70% stocks, with another 15% to 25% in individual stocks against which I’ve written call options.
By selling call options, I give the buyers the right to purchase the underlying stock from me at a specified price—the so-called strike price—at any time between now and when the options expire.
LOOKING BACK OVER the past two years, one word comes to mind: extreme. It’s been a period of extremes in the market and the economy. Many have benefitted, but we’ve also seen excesses that aren’t necessarily healthy—from the rise in NFTs to the craze in SPACs to the boom in day trading. That’s why, as you look ahead to the coming year, the theme I recommend is moderation.
TODAY WAS PAINFUL. How painful? Think of the financial losses:
Homeowners who closed on their house sale might have lost as much as 6% of the proceeds to real-estate commissions.
Car buyers who picked up their new vehicle probably gave up more than 10% of the purchase price just by driving off the dealership lot.
Those who signed separation agreements with their soon-to-be-ex spouse likely surrendered 50%.
Investors who bought load funds might have been nicked for 5.75%.
NO. 30: INVESTING is best when it is simplest. If we own costly, complicated products, we’re filling Wall Street’s coffers—at our own expense. Don’t understand an investment? Don’t buy it.
RANK THE FINANCIAL accounts available to you. For instance, if your employer’s 401(k) or 403(b) offers a matching contribution, that will be the most attractive place to save. Meanwhile, a health savings account offers compelling tax advantages. Next, you might consider funding a traditional or Roth IRA or, alternatively, using extra money to pay down debt.
HINDSIGHT BIAS. Looking back, what happened in the financial markets seems entirely predictable. Indeed, it seems so obvious that we forget the uncertainty that existed at the time—and the erroneous forecasts we made—and we assume we foresaw what happened or could easily have done so. This hindsight bias makes us too willing to act on today’s predictions.
NO. 1: WE'RE SURE money can buy happiness—and, if we’re wise, it can. Use money to create special times with friends and family. Favor experiences over possessions. Build up savings to get the happiness that comes with financial security and so one day you can have the freedom to devote your days to activities you’re most passionate about.
IS A STORM COMING? Long before I discovered HumbleDollar, I regularly read articles by Scott Burns. Now in his 80s, Burns was a popular financial columnist who wrote for the Boston Herald and later The Dallas Morning News. He’s a graduate of Massachusetts Institute of Technology, so he’s comfortable presenting quantitative arguments. Burns is an advocate of low-cost index funds, and he helped popularize couch potato investing,
I GRADUATED FROM the University of Central Florida in 2001 with a degree in information management systems. Thanks to academic scholarships, working part-time and family support, I graduated debt-free and, indeed, had some $15,000 in savings. Amid the economic turmoil of the dot-com bust and subsequent recession, I was fortunate to land a fulltime job at Fiserv, a banking software company.
That’s where I met my wife. We were engaged six months later and married in 2002.
INTEREST RATES HAVE been low for years, with 10-year Treasury notes now yielding some 1.4%. How about dividend-paying stocks instead? Many pay twice what Treasurys currently yield, though obviously with more risk. My strategy: Instead of a classic 60% stock-40% bond mix, I’ve landed at roughly 70% stocks, with another 15% to 25% in individual stocks against which I’ve written call options.
By selling call options, I give the buyers the right to purchase the underlying stock from me at a specified price—the so-called strike price—at any time between now and when the options expire.
LOOKING BACK OVER the past two years, one word comes to mind: extreme. It’s been a period of extremes in the market and the economy. Many have benefitted, but we’ve also seen excesses that aren’t necessarily healthy—from the rise in NFTs to the craze in SPACs to the boom in day trading. That’s why, as you look ahead to the coming year, the theme I recommend is moderation.
TODAY WAS PAINFUL. How painful? Think of the financial losses:
Homeowners who closed on their house sale might have lost as much as 6% of the proceeds to real-estate commissions.
Car buyers who picked up their new vehicle probably gave up more than 10% of the purchase price just by driving off the dealership lot.
Those who signed separation agreements with their soon-to-be-ex spouse likely surrendered 50%.
Investors who bought load funds might have been nicked for 5.75%.
The Que sera, sera retirement planning strategy.
Retirement Realignment by Ken Cutler
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