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Diligent savers are admirable. Even more admirable: Retirees who transform themselves from great savers to happy spenders.

It’s All Relative

YOUR INVESTMENT holdings might include an asset that’s dropped in value since you bought it. Still, you have great hopes for the investment: While you’d like to sell and get the tax loss, you really hate to part with your old friend. Should you instead sell it to your spouse or your child?
You can usually claim losses on investments when you sell them. But IRS code section 267 generally disallows deductions for losses on sales to certain family members and other related parties.

Read more »

Saving Ourselves

FRANKLIN ROOSEVELT said on Aug. 14, 1935, that the new Social Security program would provide “some measure of protection to the average citizen… against poverty-ridden old age.”
Nancy Altman, president of Social Security Works and chair of the Strengthen Social Security coalition, opined this year that “after a lifetime of work Americans should have enough guaranteed Social Security to maintain their standard of living.”
Make no mistake: There’s a vast gap between Roosevelt’s notion of protecting against poverty and Altman’s goal of guaranteeing one’s standard of living.

Read more »

What Matters Most

PABLO PICASSO was one of the most influential, prolific and financially successful artists of the 20th century. Yet, if you had visited his studio at the peak of his career, you might have guessed otherwise: It was a mess and his work schedule was, at best, leisurely.
On a normal day, Picasso would stay in bed all morning and only get to work around 2 p.m. When he did work, according to a biographer,

Read more »

Just in Case

A YEAR AGO, I was worried about the stock market. Today, I’m concerned about the job market.
In December 2017, I penned an article entitled Best Investment 2018, which turned out to be surprisingly prescient. That wasn’t really my goal. At the time, I was simply pondering rich stock market valuations, tiny bond yields and the new tax law, with its higher standard deduction and limits on itemized deductions. Putting it all together, it struck me that paying down debt—even mortgage debt—seemed like an awfully smart move.

Read more »

Starting Young

I BEGAN WORKING for my father at age 12. He and his brothers run a sign manufacturing business that was co-founded in 1947 by my grandfather. The first few years, I cleaned pickup trucks, swept floors and took out the trash. When I got my driver’s license in high school, I started running errands for the business—better known as a gopher. As a finance major in college, I was able to work my way into the office,

Read more »

Money Guide

Leaving Your Employer

IF YOU'RE CHANGING jobs, take two steps to protect your retirement. First, if you have an outstanding loan from your 401(k) or 403(b) plan, get it paid off. If you don’t and you leave your job, the loan will be considered a distribution, triggering income taxes and probably tax penalties. There’s more on 401(k) loans in the chapter on borrowing. Second, if there’s a vesting schedule for your employer’s contribution to the retirement plan, see when the next vesting occurs and, if it’s soon, consider delaying your departure so you collect the extra money. Once you leave your employer, you’ll have a choice: You may be able to leave your retirement plan balance in your old employer’s plan, move it to your new employer’s plan or transfer it to an IRA. What’s the right choice? You’ll probably want to move the money if your old employer’s plan offers a limited selection of high-cost investment options. This, unfortunately, is often the case with small-business plans. You may also want to consolidate your retirement money in an IRA if simplifying your finances is a priority. Make sure you move the money using a trustee-to-trustee transfer or you could find yourself caught in a nasty tax trap. In addition, if you own your employer’s stock in the plan, investigate the “net unrealized appreciation” strategy, which we discuss later in this chapter. While consolidating in an IRA sometimes makes sense, there are three reasons to keep your retirement money where it is or move it to your new employer’s plan. First, it could mean a smaller tax bill if you have an IRA with nondeductible contributions that you plan to convert to a Roth IRA. Second, you might keep money in a 401(k) or similar employer plan—and out of an IRA—if you’re worried about lawsuits, a topic we discuss elsewhere. While both IRAs and 401(k) plans enjoy some creditor protection, the protection is greater for 401(k) and similar plans. Third, some employer plans are particularly well-designed—and you could find it tough to do better with an IRA. A good plan may include a small but diverse list of institutional funds with rock-bottom annual expenses, making it relatively easy for employees to build sensible portfolios. In addition, an employer’s plan may include a stable-value fund that offers a combination of fixed share price and moderate yield that’s hard to find outside a 401(k). Next: Trustee-to-Trustee Transfers Previous: Matching Contributions
Read more »

Numbers

U.S. HOME PRICES climbed 4.3% a year over the 40 years through October 2018, according to Freddie Mac. That isn’t much above the 3.4% inflation rate. On top of the 4.3%, homeowners would have collected rent or imputed rent.

Newsletter

No Kidding

DO CHILDREN BRING happiness? As someone who has invested heavily in small people over the years—I have two children and two stepchildren—I want to believe the answer is “yes.” But the evidence suggests otherwise.
This, I realize, is a touchy subject, so let me offer a few crucial caveats before you fire off that fiery email. The studies cited here offer conclusions based on broad averages. Your experience could be entirely different. Moreover, it may be that children give special meaning to our lives,

Read More »

Archive

Looking Bad

AS I THINK BACK over the past three decades, I have one overriding investment regret. No, it has nothing to do with the investments I bought. For much of the past 30 years, I’ve owned a globally diversified portfolio, with 100% in stocks when I was younger and closer to 70% now that I’m in my mid-50s. Initially, I owned actively managed funds and a few individual stocks, but I substituted index funds as they became available, so my stock performance has been what you would expect—very similar to the broad market. To be sure, I could have done better if, say, I hadn’t allocated so much to foreign stocks. But that’s the nature of a diversified portfolio. There will always be laggards, but we only know their identity with hindsight. If my big regret isn’t the investments I bought, what is it? More than anything, I wish I hadn’t spent so much time watching the markets. Admittedly, this was partly professional necessity. I was occasionally called upon to write about the markets, so I needed to know what was going on. Still, I could have spent a lot less time looking at the daily ups and downs, and yet I didn’t. Why not? I suspect there are three reasons. First, like a whiny child that throws the occasional tantrum, the stock market demands our attention. All the turmoil is hard to ignore—and it’s becoming harder. Today, with a quick glance at our phones or our computers, we can find out what’s happening to stocks and where things stand with our portfolio. This is not helpful: We receive far too much short-term feedback on our long-term investments, and with that comes the risk that we will act hastily. Second, watching the markets can be entertaining, but much of the time it’s mindless entertainment. Indeed, I follow the ups and downs with the same curiosity that I follow the results of the Baltimore Orioles, Brooklyn Nets, Plymouth Argyle and Washington Redskins. It’s been years since I’ve visited a stadium to see any of these teams play or even watched an entire game on TV, and yet I feel a tad happier when they win and a little sadder when they don’t. (For those who don’t immediately recognize the name Plymouth Argyle, it’s a minor English soccer team to which I pledged undying allegiance when I was 10 years old—and which recently brought modest joy to my 54-year-old heart by gaining promotion from League Two to League One.) Third, and perhaps most important, watching offers the illusion of control. If the stock market plunges, I feel it’s important that I know right away—even though my awareness won’t stem the market’s losses and, indeed, I won’t do much with the information. These days, I mostly content myself with rebalancing and occasionally buying a new index fund. If the market rose or fell 10% from here, I’d rebalance yet again, but that would probably be it. I don't just follow market and sports results. Every day, I spend hours checking email, Twitter, Facebook, LinkedIn, my website’s traffic, my book sales, engagement with my monthly newsletter, and more. I love the ease of communication offered by email, the interesting articles I discover through Twitter, and the news about friends and family on Facebook. Instead, what bothers me is the endless stream of numbers that grabs my attention today, but which is forgotten tomorrow, when there’s another round of meaningless numbers to ponder. It’s information without insight, and yet it gobbles up time—a loss I feel more acutely as I age. The upshot: I’m trying to train myself to look less, but it’s a struggle. Did you know the English soccer season starts in a few weeks?
Read more »

Truths

NO. 39: IN INEFFICIENT markets, winners are easier to find—and harder to profit from. You’re more likely to find mispriced shares among microcap stocks and in emerging markets. A big reason: the high cost of trading. Indeed, because active management is so costly in these inefficient markets, indexing can be an especially smart strategy.

Act

MAKE QUALIFIED charitable distributions. Over age 70½ and planning to give to charity? Consider donating directly from your retirement account. You won’t get a tax deduction. But you also won’t owe taxes on the distribution, which will likely mean a smaller tax bill and lower Medicare premiums, plus the sum donated counts toward your required minimum distribution.

Think

LAND VS. DWELLING. As you ponder potential real-estate returns, it helps to distinguish the dwelling from the land underneath. You can be fairly confident the land will appreciate over time. By contrast, the dwelling will deteriorate, requiring maintenance and occasional upgrades. The dwelling, however, also provides you with shelter—the key reason to own a home.

About Jonathan

Jonathan Clements

HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.

Home Call to Action

Latest Blogs

It’s All Relative

YOUR INVESTMENT holdings might include an asset that’s dropped in value since you bought it. Still, you have great hopes for the investment: While you’d like to sell and get the tax loss, you really hate to part with your old friend. Should you instead sell it to your spouse or your child?
You can usually claim losses on investments when you sell them. But IRS code section 267 generally disallows deductions for losses on sales to certain family members and other related parties.

Read more »

Saving Ourselves

FRANKLIN ROOSEVELT said on Aug. 14, 1935, that the new Social Security program would provide “some measure of protection to the average citizen… against poverty-ridden old age.”
Nancy Altman, president of Social Security Works and chair of the Strengthen Social Security coalition, opined this year that “after a lifetime of work Americans should have enough guaranteed Social Security to maintain their standard of living.”
Make no mistake: There’s a vast gap between Roosevelt’s notion of protecting against poverty and Altman’s goal of guaranteeing one’s standard of living.

Read more »

What Matters Most

PABLO PICASSO was one of the most influential, prolific and financially successful artists of the 20th century. Yet, if you had visited his studio at the peak of his career, you might have guessed otherwise: It was a mess and his work schedule was, at best, leisurely.
On a normal day, Picasso would stay in bed all morning and only get to work around 2 p.m. When he did work, according to a biographer,

Read more »

Just in Case

A YEAR AGO, I was worried about the stock market. Today, I’m concerned about the job market.
In December 2017, I penned an article entitled Best Investment 2018, which turned out to be surprisingly prescient. That wasn’t really my goal. At the time, I was simply pondering rich stock market valuations, tiny bond yields and the new tax law, with its higher standard deduction and limits on itemized deductions. Putting it all together, it struck me that paying down debt—even mortgage debt—seemed like an awfully smart move.

Read more »

Starting Young

I BEGAN WORKING for my father at age 12. He and his brothers run a sign manufacturing business that was co-founded in 1947 by my grandfather. The first few years, I cleaned pickup trucks, swept floors and took out the trash. When I got my driver’s license in high school, I started running errands for the business—better known as a gopher. As a finance major in college, I was able to work my way into the office,

Read more »

Numbers

U.S. HOME PRICES climbed 4.3% a year over the 40 years through October 2018, according to Freddie Mac. That isn’t much above the 3.4% inflation rate. On top of the 4.3%, homeowners would have collected rent or imputed rent.

Act

MAKE QUALIFIED charitable distributions. Over age 70½ and planning to give to charity? Consider donating directly from your retirement account. You won’t get a tax deduction. But you also won’t owe taxes on the distribution, which will likely mean a smaller tax bill and lower Medicare premiums, plus the sum donated counts toward your required minimum distribution.

Truths

NO. 39: IN INEFFICIENT markets, winners are easier to find—and harder to profit from. You’re more likely to find mispriced shares among microcap stocks and in emerging markets. A big reason: the high cost of trading. Indeed, because active management is so costly in these inefficient markets, indexing can be an especially smart strategy.

Think

LAND VS. DWELLING. As you ponder potential real-estate returns, it helps to distinguish the dwelling from the land underneath. You can be fairly confident the land will appreciate over time. By contrast, the dwelling will deteriorate, requiring maintenance and occasional upgrades. The dwelling, however, also provides you with shelter—the key reason to own a home.

Home Call to Action

Free Newsletter

No Kidding

DO CHILDREN BRING happiness? As someone who has invested heavily in small people over the years—I have two children and two stepchildren—I want to believe the answer is “yes.” But the evidence suggests otherwise.
This, I realize, is a touchy subject, so let me offer a few crucial caveats before you fire off that fiery email. The studies cited here offer conclusions based on broad averages. Your experience could be entirely different. Moreover, it may be that children give special meaning to our lives,

Read More »

Money Guide

Start Here

Leaving Your Employer

IF YOU'RE CHANGING jobs, take two steps to protect your retirement. First, if you have an outstanding loan from your 401(k) or 403(b) plan, get it paid off. If you don’t and you leave your job, the loan will be considered a distribution, triggering income taxes and probably tax penalties. There’s more on 401(k) loans in the chapter on borrowing. Second, if there’s a vesting schedule for your employer’s contribution to the retirement plan, see when the next vesting occurs and, if it’s soon, consider delaying your departure so you collect the extra money. Once you leave your employer, you’ll have a choice: You may be able to leave your retirement plan balance in your old employer’s plan, move it to your new employer’s plan or transfer it to an IRA. What’s the right choice? You’ll probably want to move the money if your old employer’s plan offers a limited selection of high-cost investment options. This, unfortunately, is often the case with small-business plans. You may also want to consolidate your retirement money in an IRA if simplifying your finances is a priority. Make sure you move the money using a trustee-to-trustee transfer or you could find yourself caught in a nasty tax trap. In addition, if you own your employer’s stock in the plan, investigate the “net unrealized appreciation” strategy, which we discuss later in this chapter. While consolidating in an IRA sometimes makes sense, there are three reasons to keep your retirement money where it is or move it to your new employer’s plan. First, it could mean a smaller tax bill if you have an IRA with nondeductible contributions that you plan to convert to a Roth IRA. Second, you might keep money in a 401(k) or similar employer plan—and out of an IRA—if you’re worried about lawsuits, a topic we discuss elsewhere. While both IRAs and 401(k) plans enjoy some creditor protection, the protection is greater for 401(k) and similar plans. Third, some employer plans are particularly well-designed—and you could find it tough to do better with an IRA. A good plan may include a small but diverse list of institutional funds with rock-bottom annual expenses, making it relatively easy for employees to build sensible portfolios. In addition, an employer’s plan may include a stable-value fund that offers a combination of fixed share price and moderate yield that’s hard to find outside a 401(k). Next: Trustee-to-Trustee Transfers Previous: Matching Contributions
Read more »

Archive

Looking Bad

AS I THINK BACK over the past three decades, I have one overriding investment regret. No, it has nothing to do with the investments I bought. For much of the past 30 years, I’ve owned a globally diversified portfolio, with 100% in stocks when I was younger and closer to 70% now that I’m in my mid-50s. Initially, I owned actively managed funds and a few individual stocks, but I substituted index funds as they became available, so my stock performance has been what you would expect—very similar to the broad market. To be sure, I could have done better if, say, I hadn’t allocated so much to foreign stocks. But that’s the nature of a diversified portfolio. There will always be laggards, but we only know their identity with hindsight. If my big regret isn’t the investments I bought, what is it? More than anything, I wish I hadn’t spent so much time watching the markets. Admittedly, this was partly professional necessity. I was occasionally called upon to write about the markets, so I needed to know what was going on. Still, I could have spent a lot less time looking at the daily ups and downs, and yet I didn’t. Why not? I suspect there are three reasons. First, like a whiny child that throws the occasional tantrum, the stock market demands our attention. All the turmoil is hard to ignore—and it’s becoming harder. Today, with a quick glance at our phones or our computers, we can find out what’s happening to stocks and where things stand with our portfolio. This is not helpful: We receive far too much short-term feedback on our long-term investments, and with that comes the risk that we will act hastily. Second, watching the markets can be entertaining, but much of the time it’s mindless entertainment. Indeed, I follow the ups and downs with the same curiosity that I follow the results of the Baltimore Orioles, Brooklyn Nets, Plymouth Argyle and Washington Redskins. It’s been years since I’ve visited a stadium to see any of these teams play or even watched an entire game on TV, and yet I feel a tad happier when they win and a little sadder when they don’t. (For those who don’t immediately recognize the name Plymouth Argyle, it’s a minor English soccer team to which I pledged undying allegiance when I was 10 years old—and which recently brought modest joy to my 54-year-old heart by gaining promotion from League Two to League One.) Third, and perhaps most important, watching offers the illusion of control. If the stock market plunges, I feel it’s important that I know right away—even though my awareness won’t stem the market’s losses and, indeed, I won’t do much with the information. These days, I mostly content myself with rebalancing and occasionally buying a new index fund. If the market rose or fell 10% from here, I’d rebalance yet again, but that would probably be it. I don't just follow market and sports results. Every day, I spend hours checking email, Twitter, Facebook, LinkedIn, my website’s traffic, my book sales, engagement with my monthly newsletter, and more. I love the ease of communication offered by email, the interesting articles I discover through Twitter, and the news about friends and family on Facebook. Instead, what bothers me is the endless stream of numbers that grabs my attention today, but which is forgotten tomorrow, when there’s another round of meaningless numbers to ponder. It’s information without insight, and yet it gobbles up time—a loss I feel more acutely as I age. The upshot: I’m trying to train myself to look less, but it’s a struggle. Did you know the English soccer season starts in a few weeks?
Read more »
Jonathan Clements

About Jonathan

HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.