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If you want to retire in comfort, retire your debts first.

Not So Different

THE ECONOMY IS recovering and the stock market has recovered. The pandemic isn’t over, but it seems we’re past the worst, at least in the U.S. Feeling better? Take a deep breath, take a step back—and think about the past two decades.
Since early 2000, we’ve had three major stock market declines, or roughly one every decade:

In 2000-02, the S&P 500 tumbled 49%, excluding dividends. The first leg down was triggered by the bursting of the dot-com bubble.

Read more »

Three Other Legs

THE THREE-LEGGED stool is a metaphor for how the post-Second World War generation looked at retirement. The legs represented Social Security, an employer pension and personal savings. All three legs were viewed as necessary for a solid retirement plan.
Today, that notion seems quaint. Pension plans continue to be phased out. The number of employees covered by a defined benefit pension has been declining for decades, falling to 26% as of 2019, according to the Bureau of Labor Statistics.

Read more »

Sleeping with Cash

HERE AT HUMBLEDOLLAR and in many other places, this point has been made: The best investment portfolio isn’t the one that’s theoretically or empirically superior. Rather, it’s the one that lets you sleep at night.
What I’ve found, as far as my portfolio goes, is that the necessary prerequisite for a good night’s sleep is one thing above all else: an oversized cash reserve. By that, I mean a cash hoard that can handle not only the most likely contingencies,

Read more »

Moving Right Along

MANY DREAM of retiring to the beach. My wife and I just did it. We recently sold our primary home outside Philadelphia and moved to our vacation home on the New Jersey Shore. The decision wasn’t easy. It was the result of a number of events coming together, including the pandemic, the hot real estate market and an attractive, but unexpected offer on our primary home.
We’d lived in our old home since 1994.

Read more »

April’s Hits

WHAT CAUGHT YOUR attention last month? Here are the seven most popular articles that we published in April:

“You need a mix of stocks, bonds and other asset classes that aren’t tightly correlated,” writes Adam Grossman. “As you think about the risk posed by today’s stock prices, this is, I think, the most important thing.”
Mike Drak says there are three types of retiree. “What type are you?” he asks. “If you can answer that question,

Read more »

What’s Up?

ALMOST EVERYTHING on Wall Street went up in April, including some of 2021’s laggards, such as gold, bonds and growth stocks.
Investors may not like President Biden’s capital gains and corporate tax hike proposals. But despite the president’s somewhat stealthy pursuit of policies worthy of Franklin D. Roosevelt, stock investors could be forgiven for breaking out into FDR’s 1932 campaign song, Happy Days Are Here Again. Consider:

Stocks have risen more in Biden’s first 100 days (symbol: SPY +9.8%) than in the same period of any president’s term since—guess who—FDR’s fourth.

Read more »

Voices

When does it make sense to buy the extended warranty, if ever?

"Normally never, and of course just found the exception to the rule. Helped my daughter purchase a new car (new car purchases should be an entirely separate topic!), and on top of this a new car in its first production year. Although I was fully supportive of her choice, I think there was a greater-than-average risk that there could be something amiss beyond the normal expected interval. Icing on the cake was that the manufacturer was offering the extended warranty at a discount ($1000 off, it seemed a solid deal). Then if that weren't enough, I wrapped the cost into the 0%, 0 down financing, so all in all I think we'll all sleep better."
- medhat
Read more »

Is it okay not to leave a tip at a full-service restaurant?

"Maybe if your waiter is actively hostile or rude, but otherwise no. If you’re too cheap to tip, you probably shouldn’t eat in a restaurant. That’s my approach. 😁"
- Thomas
Read more »

What purchase do you most regret?

"I bought a Hot Tub a couple of years ago and have only been it in a couple of times. The purchase is an embarrassment, I have to clean it all the time and spend money on expensive chemicals. I might make a flower planter out of it!"
- Mike Drak
Read more »

Money Guide

Disclaiming

YOU CAN DISCLAIM assets that are left to you in a will. At that point, the money disclaimed passes to the other heirs as though you had predeceased the person who had just died. A will might even have a disclaimer clause that specifies what will happen if money is disclaimed. When disclaiming, you can’t specify who should receive your portion of the inheritance, so the wording of the will is critical. What’s the advantage of disclaiming? Let’s say your mother leaves you $100,000. You don’t need the money and, indeed, you fear the money will be subject to federal or state estate taxes when you die and leave it to your kids. Depending on how your mother’s will is written, you may be able to disclaim the inheritance, with the money going directly to your children. Similarly, you might disclaim part of the inheritance from your spouse, perhaps so the money ends up with your children now, while also reducing the risk that estate taxes will be due upon your death. You might do this if your spouse hadn’t taken steps to use his or her estate tax exclusion—though you could also take advantage of the portable estate tax exclusion, discussed later in this chapter. Next: Planning When Married Previous: Wills
Read more »

Manifesto

NO. 54: WE NEED to be great savers to amass enough for retirement. But we shouldn’t get so good at saving money that, once we’re financially successful, we can’t bring ourselves to spend.

Truths

NO. 37: IF INFORMATION is publicly available, it’s hard to make money from it. As soon as news breaks—whether it’s economic or otherwise—investors trade on the information, so it’s almost instantly reflected in stock and bond prices. True, you could get an edge by better analyzing that public information than other investors. But how likely is that?

Act

INVESTIGATE a reverse mortgage. Once you’re retired, borrowing against your home’s value shouldn’t be a first choice, but a last resort. Still, it’s helpful—and comforting—to know what that last resort might be worth. To that end, try playing with a reverse mortgage calculator. Pay attention to the money you’ll receive—and to the hefty fees you will incur.

Think

EXPECTATIONS. Investment losses are most distressing when they’re least expected. For instance, many investors expect their stock portfolios to fall occasionally by 20% or more. But they’d be horrified if their money-market mutual fund—which they consider a haven of safety—“broke the buck” and slipped 1% from the standard $1 share price to 99 cents.

Second Look

Retirement

Late Fee

I’M JUST A FEW years from age 65—and being eligible for Medicare. One of my concerns: making a mistake that could trigger penalties.
If you file for Social Security before age 65, you’ll be automatically enrolled in Medicare Part A and B. What if you’re still working at 65? Ask your human resources department for advice. Your coverage at work will dictate whether you should file for Medicare.
If you aren’t covered by an employer’s health insurance plan and you aren’t yet collecting Social Security benefits,

Read more »

Family Finance

Zeroing In

BY THE TIME WE REACH our late 20s, we’ve made a set of fairly inflexible choices that dictate our ability to spend and save. Our career arc and earnings potential are established. Our debt from undergraduate and graduate programs has been accumulated. The number of dependents we’ll support is getting clearer. Changing any of these decisions is either impossible or mighty tough.
But there’s a second tier of financial choices that are in constant flux—and where we have the greatest flexibility to influence our spending and saving.

Read more »

Investing

Price Still Slight

DO THE CHEAPEST index funds always win? A year ago, I tackled that question—and the results for 2017 were mixed. Since then, the question has become even more intriguing. Last year, Fidelity Investments launched four index-mutual funds with zero annual expenses, while also slashing the expenses on its existing index funds.
Those zero-cost funds have only been around for a handful of months, so it’s a little early to gauge their performance. Ditto for the price cuts for other Fidelity index funds;

Read more »

Lists

Third Rail

IF I’M EVER FEELING lonely, all I need to do is write about certain financial topics—and soon enough my inbox is brimming with emails, some vehemently disagreeing, others offering vigorous nods of assent.
A dozen of those topics are covered in HumbleDollar’s new chapter devoted to great debates—issues like whether money buys happiness, when to claim Social Security and whether individual bonds are superior to bond mutual funds. But those subjects aren’t the only ones that stir up readers.

Read more »
Home Call to Action

Mindset

Don’t Overthink

IMAGINE YOU’RE trying to guess the winner of a basketball or ice hockey game. Which of these methods do you think would work best?

Flip a coin.
Make an educated guess.
Gather data and conduct an informed analysis.

In a classic study, researchers Paul Slovic and Bernard Corrigan attempted to answer this question. Instead of basketball or ice hockey, they looked at horse racing, but the results are equally applicable.
In their study, Slovic and Corrigan asked expert handicappers to make predictions using varying amounts of data about the horses in a race.

Read more »

Not So Different

THE ECONOMY IS recovering and the stock market has recovered. The pandemic isn’t over, but it seems we’re past the worst, at least in the U.S. Feeling better? Take a deep breath, take a step back—and think about the past two decades.
Since early 2000, we’ve had three major stock market declines, or roughly one every decade:

In 2000-02, the S&P 500 tumbled 49%, excluding dividends. The first leg down was triggered by the bursting of the dot-com bubble.

Read more »

Three Other Legs

THE THREE-LEGGED stool is a metaphor for how the post-Second World War generation looked at retirement. The legs represented Social Security, an employer pension and personal savings. All three legs were viewed as necessary for a solid retirement plan.
Today, that notion seems quaint. Pension plans continue to be phased out. The number of employees covered by a defined benefit pension has been declining for decades, falling to 26% as of 2019, according to the Bureau of Labor Statistics.

Read more »

Sleeping with Cash

HERE AT HUMBLEDOLLAR and in many other places, this point has been made: The best investment portfolio isn’t the one that’s theoretically or empirically superior. Rather, it’s the one that lets you sleep at night.
What I’ve found, as far as my portfolio goes, is that the necessary prerequisite for a good night’s sleep is one thing above all else: an oversized cash reserve. By that, I mean a cash hoard that can handle not only the most likely contingencies,

Read more »

Moving Right Along

MANY DREAM of retiring to the beach. My wife and I just did it. We recently sold our primary home outside Philadelphia and moved to our vacation home on the New Jersey Shore. The decision wasn’t easy. It was the result of a number of events coming together, including the pandemic, the hot real estate market and an attractive, but unexpected offer on our primary home.
We’d lived in our old home since 1994.

Read more »

April’s Hits

WHAT CAUGHT YOUR attention last month? Here are the seven most popular articles that we published in April:

“You need a mix of stocks, bonds and other asset classes that aren’t tightly correlated,” writes Adam Grossman. “As you think about the risk posed by today’s stock prices, this is, I think, the most important thing.”
Mike Drak says there are three types of retiree. “What type are you?” he asks. “If you can answer that question,

Read more »

What’s Up?

ALMOST EVERYTHING on Wall Street went up in April, including some of 2021’s laggards, such as gold, bonds and growth stocks.
Investors may not like President Biden’s capital gains and corporate tax hike proposals. But despite the president’s somewhat stealthy pursuit of policies worthy of Franklin D. Roosevelt, stock investors could be forgiven for breaking out into FDR’s 1932 campaign song, Happy Days Are Here Again. Consider:

Stocks have risen more in Biden’s first 100 days (symbol: SPY +9.8%) than in the same period of any president’s term since—guess who—FDR’s fourth.

Read more »

Free Newsletter

Voices

How has your financial thinking changed over the past year?

"Diversification (across equities) is overrated. When the stock market crashes there are few hiding places. Nevertheless, in spite of market crashes or perhaps because of them equities are the place to be. A good business is capable of adjusting to changing economic environments and therefore is most likely to be the best all weather investment."
- Richard Gore
Read more »

If you inherited $5 million, how would you use the money?

"I wish I could say that I would donate a lot to charity; however, the truth is I would invest it and keep it in the family."
- Richard Gore
Read more »

Is it wise for everyday investors to buy individual stocks?

"I think it’s a personal question. My issue with owing stocks are when to sell, which I’ve never figured out so mutual funds for me."
- Edwin Belen
Read more »
Home Call to Action

Manifesto

NO. 54: WE NEED to be great savers to amass enough for retirement. But we shouldn’t get so good at saving money that, once we’re financially successful, we can’t bring ourselves to spend.

Act

INVESTIGATE a reverse mortgage. Once you’re retired, borrowing against your home’s value shouldn’t be a first choice, but a last resort. Still, it’s helpful—and comforting—to know what that last resort might be worth. To that end, try playing with a reverse mortgage calculator. Pay attention to the money you’ll receive—and to the hefty fees you will incur.

Truths

NO. 37: IF INFORMATION is publicly available, it’s hard to make money from it. As soon as news breaks—whether it’s economic or otherwise—investors trade on the information, so it’s almost instantly reflected in stock and bond prices. True, you could get an edge by better analyzing that public information than other investors. But how likely is that?

Think

EXPECTATIONS. Investment losses are most distressing when they’re least expected. For instance, many investors expect their stock portfolios to fall occasionally by 20% or more. But they’d be horrified if their money-market mutual fund—which they consider a haven of safety—“broke the buck” and slipped 1% from the standard $1 share price to 99 cents.

Money Guide

Start Here

Disclaiming

YOU CAN DISCLAIM assets that are left to you in a will. At that point, the money disclaimed passes to the other heirs as though you had predeceased the person who had just died. A will might even have a disclaimer clause that specifies what will happen if money is disclaimed. When disclaiming, you can’t specify who should receive your portion of the inheritance, so the wording of the will is critical. What’s the advantage of disclaiming? Let’s say your mother leaves you $100,000. You don’t need the money and, indeed, you fear the money will be subject to federal or state estate taxes when you die and leave it to your kids. Depending on how your mother’s will is written, you may be able to disclaim the inheritance, with the money going directly to your children. Similarly, you might disclaim part of the inheritance from your spouse, perhaps so the money ends up with your children now, while also reducing the risk that estate taxes will be due upon your death. You might do this if your spouse hadn’t taken steps to use his or her estate tax exclusion—though you could also take advantage of the portable estate tax exclusion, discussed later in this chapter. Next: Planning When Married Previous: Wills
Read more »

Second Look

Retirement

Late Fee

I’M JUST A FEW years from age 65—and being eligible for Medicare. One of my concerns: making a mistake that could trigger penalties.
If you file for Social Security before age 65, you’ll be automatically enrolled in Medicare Part A and B. What if you’re still working at 65? Ask your human resources department for advice. Your coverage at work will dictate whether you should file for Medicare.
If you aren’t covered by an employer’s health insurance plan and you aren’t yet collecting Social Security benefits,

Read more »

Family Finance

Zeroing In

BY THE TIME WE REACH our late 20s, we’ve made a set of fairly inflexible choices that dictate our ability to spend and save. Our career arc and earnings potential are established. Our debt from undergraduate and graduate programs has been accumulated. The number of dependents we’ll support is getting clearer. Changing any of these decisions is either impossible or mighty tough.
But there’s a second tier of financial choices that are in constant flux—and where we have the greatest flexibility to influence our spending and saving.

Read more »

Investing

Price Still Slight

DO THE CHEAPEST index funds always win? A year ago, I tackled that question—and the results for 2017 were mixed. Since then, the question has become even more intriguing. Last year, Fidelity Investments launched four index-mutual funds with zero annual expenses, while also slashing the expenses on its existing index funds.
Those zero-cost funds have only been around for a handful of months, so it’s a little early to gauge their performance. Ditto for the price cuts for other Fidelity index funds;

Read more »

Lists

Third Rail

IF I’M EVER FEELING lonely, all I need to do is write about certain financial topics—and soon enough my inbox is brimming with emails, some vehemently disagreeing, others offering vigorous nods of assent.
A dozen of those topics are covered in HumbleDollar’s new chapter devoted to great debates—issues like whether money buys happiness, when to claim Social Security and whether individual bonds are superior to bond mutual funds. But those subjects aren’t the only ones that stir up readers.

Read more »

Mindset

Don’t Overthink

IMAGINE YOU’RE trying to guess the winner of a basketball or ice hockey game. Which of these methods do you think would work best?

Flip a coin.
Make an educated guess.
Gather data and conduct an informed analysis.

In a classic study, researchers Paul Slovic and Bernard Corrigan attempted to answer this question. Instead of basketball or ice hockey, they looked at horse racing, but the results are equally applicable.
In their study, Slovic and Corrigan asked expert handicappers to make predictions using varying amounts of data about the horses in a race.

Read more »