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If it’s an effort to set up the coffeemaker the night before, maybe it’s no surprise folks struggle to save for goals that are decades away.

Solomon on Money

THE MOST WIDELY read book of all time, the Bible, has a lot to say about money. According to biblical scholars, money and wealth are mentioned more than 2,000 times. Out of the roughly 40 parables Jesus told, nearly half speak of money.
Why does the Bible make such a big deal about money? The answer belongs in a Sunday sermon, not here. Still, I believe there’s a great deal to be learned from what the Bible says about money.

Read more »

Bet Your Life

INCOME ANNUITIES are a simple, cost-efficient way to generate guaranteed retirement income, and yet they account for just 5% of overall annuity sales. My contention: They can play a unique role in a portfolio—and deserve serious consideration by anyone planning for retirement.
Full disclosure: I’m co-founder of Saturday Insurance, an online company that offers income annuities and other insurance products directly to consumers. I also know that, when most people hear the word “annuity,” they cringe,

Read more »

Under Attack

THE FINANCIAL site MarketWatch has been running a series about the lives and budgets of Americans who retire abroad. My wife Jiab and I—who moved from Texas to Spain—were one of the first couples featured, along with a husband and wife who now live in Chile. Both articles made clear there were plusses and minuses to such a move—experiencing new things, but also being away from family—and that we weren’t advocating this for everyone.

Read more »

Out of Stock

A NEW FIRM called Life + Liberty Indexes has created what it calls the Freedom 100 index of emerging markets stocks. Unlike other indexes, which typically weight stocks by their market value, the Freedom 100 weights countries by measures of freedom. These include freedom of religion, freedom of the press and freedom of assembly, among others. In short, the Freedom 100 looks like it could have been created by the authors of our Declaration of Independence.

Read more »

A Penny Saved

CALL IT THE NEW conventional wisdom: Forget trying to spend less—and instead focus on earning more.
This change in thinking is no great surprise. We have endless opportunities to make an extra buck, thanks to all the “side hustles” available in our “gig economy.” Meanwhile, many folks bristle at the admonitions to spend less on lattes, happy hours and avocado toast. Let’s face it, will eliminating such expenses really put us on the fast track to financial freedom?

Read more »

Get Me a Margarita

I HAVE LONG admired my good friend Nick for his generosity with friends—but also for his inspiring ability to pinch a penny. The man can pinch so hard he makes Lincoln cry, so I knew the world was changing fast when he installed a Ring video doorbell. Really? Pinch me.
A decade ago, new technologies inspired fantasies of living in a Jetsons-style “smart home.” There was a nascent market for internet-connected products,

Read more »

Money Guide

Asset Protection

WHAT DOES “asset protection” mean? It’s about fending off creditors who have a legal claim on your assets. That claim might arise because you took on too much debt or because you ended up on the wrong end of a lawsuit. While these might seem like two quite different problems, in both cases you could end up filing for bankruptcy.

Read more »

Archive

My One and Only

IS IT TIME TO STOP messing around with our portfolios—and go for radical simplicity? I've been asking myself that question in recent months, as I eye the growing list of funds that offer broadly diversified "one-stop shopping" portfolios built solely with low-cost index funds. Take Vanguard Target Retirement 2050 Fund, which invests its assets in four Vanguard index funds and is geared toward those retiring in 2050 or thereabouts. The 2050 fund has a $1,000 investment minimum and charges just 0.15% a year, equal to 15 cents for every $100 invested. What does that get you? Pretty much the entire world: 55% U.S. stocks, 35% foreign stocks, 7% U.S. bonds and 3% foreign bonds. On my recommendation, my daughter owns that fund in her Roth IRA. I've also bought Vanguard target-date funds for my son and two stepdaughters. But I don't own target-date funds myself, except in two small accounts, where I'm trying to keep things simple. Still, I'm tempted. Which funds are tempting me? One-stop shopping index funds fall into two camps. First, there are target-date retirement funds, which become more conservative as they approach the year specified in their fund name. Here are three of the lowest-cost providers, with their funds' annual expenses shown in parentheses: Keep in mind that both Fidelity and Schwab also have target-date funds built around actively managed funds. I would avoid those. Also note that there are other fund companies with target-date index funds, but often the truly low-cost versions of these funds are only available in larger 401(k) plans. Prefer something that offers a static mix of stocks and more conservative investments? Check out these choices: Vanguard's LifeStrategy series consists of four funds, with stock allocations of 20%, 40%, 60% and 80%. BlackRock's iShares unit also offers four asset allocation funds that take varying  levels of risk, such as the iShares Core Growth Allocation ETF, which has 60% in stocks. But at 0.25% a year, the iShares funds are a tad expensive. And because they are exchange-traded funds, not mutual funds, you'll also incur trading costs, which could prove significant if you're regularly adding fresh savings or making frequent sales. What's the appeal of these one-stop shopping index funds? You get simplicity and a mix of assets chosen by investment experts. You're also relieved of the need to rebalance, because you have everything in a single fund that's continuously rebalancing its investment mix. On top of that, there's a large emotional benefit: While you can always sell your one-stop shopping fund, you can't meddle with the underlying portfolio. In fact, you may be blissfully unaware of the market turmoil affecting the fund's investments, because all you see is a single share price that moves relatively sedately. Set against those advantages are four drawbacks. First, you may be able to purchase the fund's component parts for less than the fund itself is charging. For instance, those with relatively modest sums to invest will find Vanguard's target-date and LifeStrategy funds are as cheap as anything they could put together on their own using the underlying Vanguard funds. But those with larger portfolios can save money by buying what Vanguard calls Admiral shares, which have lower expenses but typically require a $10,000 minimum investment. Still, the savings aren't huge, unless you have a huge portfolio. My daughter's 2050 fund charges 0.15% a year. Using Admiral shares, she could replicate the fund's mix for 0.07% a year—an $800 annual savings on a $1 million portfolio.
"The virtue of a one-stop shopping fund is also its vice: You get a preset investment mix—and maybe it isn't quite what you wanted."
Second, if you buy one of these funds in a regular taxable account, rather than a retirement account, there's the potential for larger tax bills. One-stop shopping funds invest in taxable bond funds, which kick off taxable income distributions each year. Investors could avoid those tax bills if they own the component parts, and either hold the taxable bonds in their retirement account or—if their tax bracket justifies it—purchase tax-free municipal bonds in their taxable account. On top of that, one-stop shopping funds may make capital gain distributions each year, as they realize taxable gains when rebalancing their investment mix. I eyeballed the various funds and this seems to be at least a modest issue: Many of the funds have made capital gains distributions, something that's rare among broad market index funds. Third, when you sell a one-stop shopping fund, you sell out of every market segment owned by the fund. But suppose stocks are in the midst of a brutal bear market and you'd rather leave them to recover, while selling only from the bond side of your portfolio. With a one-stop shopping fund, that isn't a choice. True, you could aways repair the damage by immediately reinvesting part of the sale proceeds in a pure stock fund. But that, of course, means introducing complexity into a portfolio whose goal was simplicity. Finally, the virtue of a one-stop shopping fund is also its vice: You get a preset investment mix—and maybe it isn't quite what you wanted. As I look at the investment mixes on offer, I'd want more of the stock market money invested abroad, especially in emerging markets, and I'd like a tilt toward smaller-company stocks and value stocks. I could, of course, pursue a core-and-explore strategy, dumping maybe 80% of my money in a target-date fund and then adding smaller stakes in funds that provide the investment weightings I want. But again, that seems to defeat the object of the exercise, which is simplicity. Which way am I leaning? For now, I plan to stick wth my current portfolio. But if Vanguard ever introduced target-date funds with Admiral pricing, I might make the switch. And even if the firm doesn't, I could see dumping everything in a one-stop shopping fund as I grow older and decide I want a less complicated financial life.

Venturing Abroad

AFTER THE U.S. SUCCESS of How to Think About Money, I struck a deal with Harriman House in the U.K. to publish an international edition, which will be available everywhere in October, except the U.S. and Canada. Look below to see the original U.S. cover—and to the right to see the new cover created by Harriman. The book can now be preordered from Amazon in the U.K. and directly from Harriman. As I revamped the book for an international audience, I looked at the index funds on offer around the world and reviewed other personal finance issues. My surprise: While tax laws, government retirement benefits, the social safety net and the investment products available vary from one country to the next, the similarities are greater than the differences—and hence the rules of smart financial behavior don't change all that much, no matter where you live.

June's Greatest Hits

HERE ARE THE SEVEN most popular blogs that HumbleDollar published last month: Last month's most popular blogs also included Old Story, which was published in late May. In addition, check out the list of the best-read blogs from 2018's first six months. Follow Jonathan on Twitter @ClementsMoney and on Facebook.
Read more »

Numbers

CONSUMERS with credit card debt outspend those without card debt in seven out of nine discretionary spending categories, including dining out, clothes and accessories, and entertainment, according to a CreditCards.com survey.

Home Call to Action

Manifesto

NO. 20: FRUGALITY isn’t just the key to financial success. It’s also no great sacrifice, because spending often brings only fleeting happiness—and sometimes even pangs of regret.

Truths

NO. 44: GOOD COMPANIES are often bad stocks. Why? Investors bid up the value of widely admired, fast-growing companies—and the companies often end up disappointing investors. Meanwhile, investors shun troubled, slower-growing companies, so even so-so corporate performance can result in strong market returns.

Act

CHECK YOUR portfolio percentages. In 2019, stocks have outpaced bonds, U.S. growth companies are ahead of bargain-priced value shares, real estate stocks have sparkled and foreign stock markets have fallen behind. All this may have pushed your portfolio away from your target asset allocation—and it could be time to rebalance.

Think

ASSET LOCATION. After deciding what investments to buy, we should consider asset location. What’s that? It involves divvying up investments between taxable and retirement accounts. If investments generate large annual tax bills—think taxable bonds and actively managed funds—we’ll typically want to hold them in a retirement account.

Solomon on Money

THE MOST WIDELY read book of all time, the Bible, has a lot to say about money. According to biblical scholars, money and wealth are mentioned more than 2,000 times. Out of the roughly 40 parables Jesus told, nearly half speak of money.
Why does the Bible make such a big deal about money? The answer belongs in a Sunday sermon, not here. Still, I believe there’s a great deal to be learned from what the Bible says about money.

Read more »

Bet Your Life

INCOME ANNUITIES are a simple, cost-efficient way to generate guaranteed retirement income, and yet they account for just 5% of overall annuity sales. My contention: They can play a unique role in a portfolio—and deserve serious consideration by anyone planning for retirement.
Full disclosure: I’m co-founder of Saturday Insurance, an online company that offers income annuities and other insurance products directly to consumers. I also know that, when most people hear the word “annuity,” they cringe,

Read more »

Under Attack

THE FINANCIAL site MarketWatch has been running a series about the lives and budgets of Americans who retire abroad. My wife Jiab and I—who moved from Texas to Spain—were one of the first couples featured, along with a husband and wife who now live in Chile. Both articles made clear there were plusses and minuses to such a move—experiencing new things, but also being away from family—and that we weren’t advocating this for everyone.

Read more »

Out of Stock

A NEW FIRM called Life + Liberty Indexes has created what it calls the Freedom 100 index of emerging markets stocks. Unlike other indexes, which typically weight stocks by their market value, the Freedom 100 weights countries by measures of freedom. These include freedom of religion, freedom of the press and freedom of assembly, among others. In short, the Freedom 100 looks like it could have been created by the authors of our Declaration of Independence.

Read more »

A Penny Saved

CALL IT THE NEW conventional wisdom: Forget trying to spend less—and instead focus on earning more.
This change in thinking is no great surprise. We have endless opportunities to make an extra buck, thanks to all the “side hustles” available in our “gig economy.” Meanwhile, many folks bristle at the admonitions to spend less on lattes, happy hours and avocado toast. Let’s face it, will eliminating such expenses really put us on the fast track to financial freedom?

Read more »

Get Me a Margarita

I HAVE LONG admired my good friend Nick for his generosity with friends—but also for his inspiring ability to pinch a penny. The man can pinch so hard he makes Lincoln cry, so I knew the world was changing fast when he installed a Ring video doorbell. Really? Pinch me.
A decade ago, new technologies inspired fantasies of living in a Jetsons-style “smart home.” There was a nascent market for internet-connected products,

Read more »

Free Newsletter

Numbers

CONSUMERS with credit card debt outspend those without card debt in seven out of nine discretionary spending categories, including dining out, clothes and accessories, and entertainment, according to a CreditCards.com survey.

Manifesto

NO. 20: FRUGALITY isn’t just the key to financial success. It’s also no great sacrifice, because spending often brings only fleeting happiness—and sometimes even pangs of regret.

Home Call to Action

Act

CHECK YOUR portfolio percentages. In 2019, stocks have outpaced bonds, U.S. growth companies are ahead of bargain-priced value shares, real estate stocks have sparkled and foreign stock markets have fallen behind. All this may have pushed your portfolio away from your target asset allocation—and it could be time to rebalance.

Truths

NO. 44: GOOD COMPANIES are often bad stocks. Why? Investors bid up the value of widely admired, fast-growing companies—and the companies often end up disappointing investors. Meanwhile, investors shun troubled, slower-growing companies, so even so-so corporate performance can result in strong market returns.

Think

ASSET LOCATION. After deciding what investments to buy, we should consider asset location. What’s that? It involves divvying up investments between taxable and retirement accounts. If investments generate large annual tax bills—think taxable bonds and actively managed funds—we’ll typically want to hold them in a retirement account.

Money Guide

Start Here

Asset Protection

WHAT DOES “asset protection” mean? It’s about fending off creditors who have a legal claim on your assets. That claim might arise because you took on too much debt or because you ended up on the wrong end of a lawsuit. While these might seem like two quite different problems, in both cases you could end up filing for bankruptcy.

Read more »

Archive

My One and Only

IS IT TIME TO STOP messing around with our portfolios—and go for radical simplicity? I've been asking myself that question in recent months, as I eye the growing list of funds that offer broadly diversified "one-stop shopping" portfolios built solely with low-cost index funds. Take Vanguard Target Retirement 2050 Fund, which invests its assets in four Vanguard index funds and is geared toward those retiring in 2050 or thereabouts. The 2050 fund has a $1,000 investment minimum and charges just 0.15% a year, equal to 15 cents for every $100 invested. What does that get you? Pretty much the entire world: 55% U.S. stocks, 35% foreign stocks, 7% U.S. bonds and 3% foreign bonds. On my recommendation, my daughter owns that fund in her Roth IRA. I've also bought Vanguard target-date funds for my son and two stepdaughters. But I don't own target-date funds myself, except in two small accounts, where I'm trying to keep things simple. Still, I'm tempted. Which funds are tempting me? One-stop shopping index funds fall into two camps. First, there are target-date retirement funds, which become more conservative as they approach the year specified in their fund name. Here are three of the lowest-cost providers, with their funds' annual expenses shown in parentheses: Keep in mind that both Fidelity and Schwab also have target-date funds built around actively managed funds. I would avoid those. Also note that there are other fund companies with target-date index funds, but often the truly low-cost versions of these funds are only available in larger 401(k) plans. Prefer something that offers a static mix of stocks and more conservative investments? Check out these choices: Vanguard's LifeStrategy series consists of four funds, with stock allocations of 20%, 40%, 60% and 80%. BlackRock's iShares unit also offers four asset allocation funds that take varying  levels of risk, such as the iShares Core Growth Allocation ETF, which has 60% in stocks. But at 0.25% a year, the iShares funds are a tad expensive. And because they are exchange-traded funds, not mutual funds, you'll also incur trading costs, which could prove significant if you're regularly adding fresh savings or making frequent sales. What's the appeal of these one-stop shopping index funds? You get simplicity and a mix of assets chosen by investment experts. You're also relieved of the need to rebalance, because you have everything in a single fund that's continuously rebalancing its investment mix. On top of that, there's a large emotional benefit: While you can always sell your one-stop shopping fund, you can't meddle with the underlying portfolio. In fact, you may be blissfully unaware of the market turmoil affecting the fund's investments, because all you see is a single share price that moves relatively sedately. Set against those advantages are four drawbacks. First, you may be able to purchase the fund's component parts for less than the fund itself is charging. For instance, those with relatively modest sums to invest will find Vanguard's target-date and LifeStrategy funds are as cheap as anything they could put together on their own using the underlying Vanguard funds. But those with larger portfolios can save money by buying what Vanguard calls Admiral shares, which have lower expenses but typically require a $10,000 minimum investment. Still, the savings aren't huge, unless you have a huge portfolio. My daughter's 2050 fund charges 0.15% a year. Using Admiral shares, she could replicate the fund's mix for 0.07% a year—an $800 annual savings on a $1 million portfolio.
"The virtue of a one-stop shopping fund is also its vice: You get a preset investment mix—and maybe it isn't quite what you wanted."
Second, if you buy one of these funds in a regular taxable account, rather than a retirement account, there's the potential for larger tax bills. One-stop shopping funds invest in taxable bond funds, which kick off taxable income distributions each year. Investors could avoid those tax bills if they own the component parts, and either hold the taxable bonds in their retirement account or—if their tax bracket justifies it—purchase tax-free municipal bonds in their taxable account. On top of that, one-stop shopping funds may make capital gain distributions each year, as they realize taxable gains when rebalancing their investment mix. I eyeballed the various funds and this seems to be at least a modest issue: Many of the funds have made capital gains distributions, something that's rare among broad market index funds. Third, when you sell a one-stop shopping fund, you sell out of every market segment owned by the fund. But suppose stocks are in the midst of a brutal bear market and you'd rather leave them to recover, while selling only from the bond side of your portfolio. With a one-stop shopping fund, that isn't a choice. True, you could aways repair the damage by immediately reinvesting part of the sale proceeds in a pure stock fund. But that, of course, means introducing complexity into a portfolio whose goal was simplicity. Finally, the virtue of a one-stop shopping fund is also its vice: You get a preset investment mix—and maybe it isn't quite what you wanted. As I look at the investment mixes on offer, I'd want more of the stock market money invested abroad, especially in emerging markets, and I'd like a tilt toward smaller-company stocks and value stocks. I could, of course, pursue a core-and-explore strategy, dumping maybe 80% of my money in a target-date fund and then adding smaller stakes in funds that provide the investment weightings I want. But again, that seems to defeat the object of the exercise, which is simplicity. Which way am I leaning? For now, I plan to stick wth my current portfolio. But if Vanguard ever introduced target-date funds with Admiral pricing, I might make the switch. And even if the firm doesn't, I could see dumping everything in a one-stop shopping fund as I grow older and decide I want a less complicated financial life.

Venturing Abroad

AFTER THE U.S. SUCCESS of How to Think About Money, I struck a deal with Harriman House in the U.K. to publish an international edition, which will be available everywhere in October, except the U.S. and Canada. Look below to see the original U.S. cover—and to the right to see the new cover created by Harriman. The book can now be preordered from Amazon in the U.K. and directly from Harriman. As I revamped the book for an international audience, I looked at the index funds on offer around the world and reviewed other personal finance issues. My surprise: While tax laws, government retirement benefits, the social safety net and the investment products available vary from one country to the next, the similarities are greater than the differences—and hence the rules of smart financial behavior don't change all that much, no matter where you live.

June's Greatest Hits

HERE ARE THE SEVEN most popular blogs that HumbleDollar published last month: Last month's most popular blogs also included Old Story, which was published in late May. In addition, check out the list of the best-read blogs from 2018's first six months. Follow Jonathan on Twitter @ClementsMoney and on Facebook.
Read more »