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Cash-value life insurance isn’t an investment, it’s a religion—and you’ll never meet a more prickly group of disciples.

Late to the Rescue

MY FATHER-IN-LAW William retired from Duke University after teaching there for more than 30 years. He had a good pension, which—along with Social Security—covered all his expenses at the continuing care retirement community (CCRC) where he spent most of his retirement. Almost to the end, he was mentally sharp. I saw no need to inquire about his finances. I was mistaken.
In summer 2014, my wife noticed that William, then age 96, had left a large check for a matured life insurance policy on his desk for a couple of months.

Read more »

Last Stop

I GREW UP in a small apartment. Truth be told, I was never enthusiastic about maintaining a house, but I did so for 45 years. Eight years after I retired in 2010, the house and its stairs became too much for my wife and me.
We considered moving to a smaller one-story house and briefly flirted with a continuing care community. We even looked at one community and found it too expensive, especially having to hand over a partially refundable $900,000 upfront fee,

Read more »

Evasive Action

DEAR FAMILY, you know I don’t typically give unsolicited investment advice. But today, I’m breaking that rule, because I don’t want you to get hurt financially.
I can’t promise that, by following my advice, you’ll be better off in the short run. But I firmly believe that you’ll be better off in the long run, by which I mean in the next five to 10 years. Please take this letter for what it is,

Read more »

Trends That End

CONGRATULATIONS are in order for Jay and Kateri Schwandt, a Michigan couple who recently welcomed a new baby girl. This might not seem like an event that’s worthy of national news, except this is the Schwandt’s 15th child—and the first 14 are all boys. In an interview, Jay Schwandt said he didn’t think a girl was even possible: “You know after 14 boys, we just assumed perhaps medically it just wasn’t meant to be.”
The Schwandt’s new baby illustrates a point that’s often debated in the world of personal finance: When you see a pattern,

Read more »

Bad Influence

KEEP AN EYE on the neighbors. They could be the reason you’re poor and unhappy.
We all like to think we’re independent thinkers who weigh the evidence and reach our own conclusions—and yet there’s ample evidence that our views are heavily influenced by those around us, whether we’re choosing presidential candidates, bottled water or mayonnaise. This extends to financial matters, sometimes with grim consequences.
Stocking up. Studies have found that those who live near one another tend to invest in a similar fashion.

Read more »

For Goodness Sake

AS YOU STRIVE to do well, should you also strive to do good?
We’re seeing a boom in environmental, social and governance (ESG) investing. For instance, according to a recent Morningstar report, there are now 534 index mutual funds and exchange-traded funds (ETFs) around the world that screen their holdings using ESG criteria. Together, these funds have almost $250 billion in assets—more than twice the sum they had three years earlier.
ESG investing offers a way to invest in funds that consider issues such as the use of natural resources,

Read more »

Money Guide

What Stock-Bond Mix?

OUR PORTFOLIO’S asset allocation—its basic split between stocks and more conservative investments—is the most important investment decision we make. Too often, folks make this fundamental choice based on some hunch about the stock market’s short-term direction. Alternatively, they back into the decision, buying a hodgepodge of investments and never formally settling on an asset allocation. Want to do it right? We should think about how much risk we can reasonably take and how much risk we can stomach. In Wall Street speak, this is sometimes referred to as “risk capacity” and “risk tolerance.” Risk capacity is an objective assessment of our ability to shoulder risk. It’s usually based heavily on how far off our goals lie—if we have decades until retirement, stocks should figure prominently in our portfolio—but other factors also come into play, most notably our job security. If there’s a chance we’ll lose our job and need to tap our portfolio earlier than expected, we should probably take less investment risk. Meanwhile, risk tolerance is about how much risk we’re comfortable taking. That’s far harder to figure out, especially if we’re new to investing. The portfolio we’re happy to hold during a booming stock market may give us sleepless nights when share prices turn lower. Often, to get a good handle on how much risk we can tolerate, we need to live through a bear market, and perhaps more than one. Is there any way to increase our risk tolerance, so we’re less fretful during falling markets? Consider two strategies. First, when share prices plunge, we might focus not only on the amount we currently have invested in bonds and other conservative investments, but also on the cash that we’ll be investing in the years ahead. Suppose you’re age 40 and have a $100,000 portfolio, all in stocks. Risky? Let’s say you earn $60,000 and save 12% of income, or $7,200 a year. Between now and age 65, you’ll add $180,000 in new cash to your portfolio, dwarfing the sum you currently have in stocks and arguably making your financial situation quite conservative. What’s the second strategy? We should own stock investments in which we have great conviction. When the market plunges, there’s no guarantee that any particular stock or industry sector will bounce back. But history tells us that the global stock market eventually recovers and goes higher. In other words, the more diversified our stock portfolio, the more confidence we should have. Want the broadest possible stock diversification? Consider purchasing total stock market index funds that give you broad exposure to both U.S. and international stock markets. Next: Fast or Slow? Previous: How Much Cash?
Read more »

Manifesto

NO. 49: WE SHOULD ensure our family will be okay financially, even if we aren’t around. That means making sure there’s enough money—and making sure our affairs are well-organized.

Truths

NO. 124: THE WORLD’S net bond position is zero. For every dollar that someone owes, there’s a dollar owed to someone. In other words, if we eliminated all debt, the world would be no wealthier—because, for every debtor who is now debt-free, there would be a lender who’s now poorer. That said, an economy can suffer if some folks end up too deeply in debt.

Act

BE THANKFUL. Great vacations, thrilling sports events and fun family reunions fade from memory. We also get used to material improvements in our life, such as the new car and the remodeled kitchen. To counteract this adaptation, pause for a moment and ponder the major purchases you’ve made in recent years and the great experiences you’ve had.

Think

BOUNDED RATIONALITY. There are limits on how much information we can process, because of time constraints and cognitive limitations, so we take mental shortcuts. We’re more likely to buy stocks that are in the news, we rely on rules of thumb and we only make financial decisions when issues are brought to our attention. Result: Our choices often aren’t optimal.

Second Look

Retirement

One Cheer

ANNUITIES ARE OFTEN dismissed as costly, complicated contraptions that are more lucrative for Wall Street than investors. And I’m half-inclined to stick with that blanket condemnation, rather than muddy the waters by offering a more nuanced view. I hate the idea that somebody might read this blog and then buy the wrong type of annuity—and end up making a horribly expensive mistake.
Still, I believe there are four types of annuity that can make sense for investors. 

Read more »

Family Finance

Get a Life

IN MY ROLE as a financial planner, I hear a lot of stories. By far the most appalling and upsetting relate to life insurance. All too often, insurance salespeople leave clients with policies that are simultaneously overpriced, inadequate and inappropriate.
Are you evaluating a policy? Here’s a quick summary of the most important considerations:
What type of coverage should I have? Life insurance comes in two primary flavors: term and permanent. Term insurance,

Read more »

Investing

Four Questions

AFTER YEARS of handwringing, you finally concede that it’s all but impossible to beat the market over the long haul, so you shift your portfolio into index funds. Next up: the truly tough decisions.
Almost every writer for—and reader of—HumbleDollar is a fan of indexing, and there’s no doubt that index funds are a wonderful financial tool. But how will you use that tool? Let the bickering begin.
The differences of opinion show up among the articles we run on HumbleDollar.

Read more »

Lists

Five Freedoms

FOR THREE YEARS, I lived on Roosevelt Island, in the middle of New York City’s East River. It’s a wonderful place—a quiet, friendly, low-crime oasis in the middle of one of the world’s largest, most frenetic cities.
During my time there, the Franklin D. Roosevelt Four Freedoms Park opened on the island’s southern tip. The park is named after a 1941 FDR speech, where he articulated “four essential human freedoms”: freedom of speech, of worship,

Read more »
Home Call to Action

Mindset

Getting Better

TO IMPROVE OUR behavior, we first need to realize we’re on the wrong path and then figure out the right way forward. Often, this isn’t especially difficult. If we have no savings, obviously we need to sock away some money. If we’re overweight, we should cut back on the calories. If we’re out of shape, we need to hit the gym.
Instead, the real problem is getting ourselves to act.

The contemplative side of our brain is fully aware we ought to eat and spend less,

Read more »

Late to the Rescue

MY FATHER-IN-LAW William retired from Duke University after teaching there for more than 30 years. He had a good pension, which—along with Social Security—covered all his expenses at the continuing care retirement community (CCRC) where he spent most of his retirement. Almost to the end, he was mentally sharp. I saw no need to inquire about his finances. I was mistaken.
In summer 2014, my wife noticed that William, then age 96, had left a large check for a matured life insurance policy on his desk for a couple of months.

Read more »

Last Stop

I GREW UP in a small apartment. Truth be told, I was never enthusiastic about maintaining a house, but I did so for 45 years. Eight years after I retired in 2010, the house and its stairs became too much for my wife and me.
We considered moving to a smaller one-story house and briefly flirted with a continuing care community. We even looked at one community and found it too expensive, especially having to hand over a partially refundable $900,000 upfront fee,

Read more »

Evasive Action

DEAR FAMILY, you know I don’t typically give unsolicited investment advice. But today, I’m breaking that rule, because I don’t want you to get hurt financially.
I can’t promise that, by following my advice, you’ll be better off in the short run. But I firmly believe that you’ll be better off in the long run, by which I mean in the next five to 10 years. Please take this letter for what it is,

Read more »

Trends That End

CONGRATULATIONS are in order for Jay and Kateri Schwandt, a Michigan couple who recently welcomed a new baby girl. This might not seem like an event that’s worthy of national news, except this is the Schwandt’s 15th child—and the first 14 are all boys. In an interview, Jay Schwandt said he didn’t think a girl was even possible: “You know after 14 boys, we just assumed perhaps medically it just wasn’t meant to be.”
The Schwandt’s new baby illustrates a point that’s often debated in the world of personal finance: When you see a pattern,

Read more »

Bad Influence

KEEP AN EYE on the neighbors. They could be the reason you’re poor and unhappy.
We all like to think we’re independent thinkers who weigh the evidence and reach our own conclusions—and yet there’s ample evidence that our views are heavily influenced by those around us, whether we’re choosing presidential candidates, bottled water or mayonnaise. This extends to financial matters, sometimes with grim consequences.
Stocking up. Studies have found that those who live near one another tend to invest in a similar fashion.

Read more »

For Goodness Sake

AS YOU STRIVE to do well, should you also strive to do good?
We’re seeing a boom in environmental, social and governance (ESG) investing. For instance, according to a recent Morningstar report, there are now 534 index mutual funds and exchange-traded funds (ETFs) around the world that screen their holdings using ESG criteria. Together, these funds have almost $250 billion in assets—more than twice the sum they had three years earlier.
ESG investing offers a way to invest in funds that consider issues such as the use of natural resources,

Read more »

Free Newsletter

Home Call to Action

Manifesto

NO. 49: WE SHOULD ensure our family will be okay financially, even if we aren’t around. That means making sure there’s enough money—and making sure our affairs are well-organized.

Act

BE THANKFUL. Great vacations, thrilling sports events and fun family reunions fade from memory. We also get used to material improvements in our life, such as the new car and the remodeled kitchen. To counteract this adaptation, pause for a moment and ponder the major purchases you’ve made in recent years and the great experiences you’ve had.

Truths

NO. 124: THE WORLD’S net bond position is zero. For every dollar that someone owes, there’s a dollar owed to someone. In other words, if we eliminated all debt, the world would be no wealthier—because, for every debtor who is now debt-free, there would be a lender who’s now poorer. That said, an economy can suffer if some folks end up too deeply in debt.

Think

BOUNDED RATIONALITY. There are limits on how much information we can process, because of time constraints and cognitive limitations, so we take mental shortcuts. We’re more likely to buy stocks that are in the news, we rely on rules of thumb and we only make financial decisions when issues are brought to our attention. Result: Our choices often aren’t optimal.

Money Guide

Start Here

What Stock-Bond Mix?

OUR PORTFOLIO’S asset allocation—its basic split between stocks and more conservative investments—is the most important investment decision we make. Too often, folks make this fundamental choice based on some hunch about the stock market’s short-term direction. Alternatively, they back into the decision, buying a hodgepodge of investments and never formally settling on an asset allocation. Want to do it right? We should think about how much risk we can reasonably take and how much risk we can stomach. In Wall Street speak, this is sometimes referred to as “risk capacity” and “risk tolerance.” Risk capacity is an objective assessment of our ability to shoulder risk. It’s usually based heavily on how far off our goals lie—if we have decades until retirement, stocks should figure prominently in our portfolio—but other factors also come into play, most notably our job security. If there’s a chance we’ll lose our job and need to tap our portfolio earlier than expected, we should probably take less investment risk. Meanwhile, risk tolerance is about how much risk we’re comfortable taking. That’s far harder to figure out, especially if we’re new to investing. The portfolio we’re happy to hold during a booming stock market may give us sleepless nights when share prices turn lower. Often, to get a good handle on how much risk we can tolerate, we need to live through a bear market, and perhaps more than one. Is there any way to increase our risk tolerance, so we’re less fretful during falling markets? Consider two strategies. First, when share prices plunge, we might focus not only on the amount we currently have invested in bonds and other conservative investments, but also on the cash that we’ll be investing in the years ahead. Suppose you’re age 40 and have a $100,000 portfolio, all in stocks. Risky? Let’s say you earn $60,000 and save 12% of income, or $7,200 a year. Between now and age 65, you’ll add $180,000 in new cash to your portfolio, dwarfing the sum you currently have in stocks and arguably making your financial situation quite conservative. What’s the second strategy? We should own stock investments in which we have great conviction. When the market plunges, there’s no guarantee that any particular stock or industry sector will bounce back. But history tells us that the global stock market eventually recovers and goes higher. In other words, the more diversified our stock portfolio, the more confidence we should have. Want the broadest possible stock diversification? Consider purchasing total stock market index funds that give you broad exposure to both U.S. and international stock markets. Next: Fast or Slow? Previous: How Much Cash?
Read more »

Second Look

Retirement

One Cheer

ANNUITIES ARE OFTEN dismissed as costly, complicated contraptions that are more lucrative for Wall Street than investors. And I’m half-inclined to stick with that blanket condemnation, rather than muddy the waters by offering a more nuanced view. I hate the idea that somebody might read this blog and then buy the wrong type of annuity—and end up making a horribly expensive mistake.
Still, I believe there are four types of annuity that can make sense for investors. 

Read more »

Family Finance

Get a Life

IN MY ROLE as a financial planner, I hear a lot of stories. By far the most appalling and upsetting relate to life insurance. All too often, insurance salespeople leave clients with policies that are simultaneously overpriced, inadequate and inappropriate.
Are you evaluating a policy? Here’s a quick summary of the most important considerations:
What type of coverage should I have? Life insurance comes in two primary flavors: term and permanent. Term insurance,

Read more »

Investing

Four Questions

AFTER YEARS of handwringing, you finally concede that it’s all but impossible to beat the market over the long haul, so you shift your portfolio into index funds. Next up: the truly tough decisions.
Almost every writer for—and reader of—HumbleDollar is a fan of indexing, and there’s no doubt that index funds are a wonderful financial tool. But how will you use that tool? Let the bickering begin.
The differences of opinion show up among the articles we run on HumbleDollar.

Read more »

Lists

Five Freedoms

FOR THREE YEARS, I lived on Roosevelt Island, in the middle of New York City’s East River. It’s a wonderful place—a quiet, friendly, low-crime oasis in the middle of one of the world’s largest, most frenetic cities.
During my time there, the Franklin D. Roosevelt Four Freedoms Park opened on the island’s southern tip. The park is named after a 1941 FDR speech, where he articulated “four essential human freedoms”: freedom of speech, of worship,

Read more »

Mindset

Getting Better

TO IMPROVE OUR behavior, we first need to realize we’re on the wrong path and then figure out the right way forward. Often, this isn’t especially difficult. If we have no savings, obviously we need to sock away some money. If we’re overweight, we should cut back on the calories. If we’re out of shape, we need to hit the gym.
Instead, the real problem is getting ourselves to act.

The contemplative side of our brain is fully aware we ought to eat and spend less,

Read more »