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Basements are badly curated museums dedicated to the purchases we regret, but can’t yet bring ourselves to trash.

Family Inc.

WHAT’S THE MOST important financial decision you’ll make in your life? Is it when to take Social Security? Choosing the right asset allocation for your investment portfolio? How about the decision to rent or buy a place to live?
I believe that, for many people, it’s who they choose to be their significant other. Together, you’ll decide how you spend your money and how much to set aside for retirement. There will be endless decisions dealing with money—and some will have a huge impact on your financial wellbeing.

Read more »

Clueless

I WAS RECENTLY looking at one of those “whatever happened to” top 10 lists. In this case, it was about a select group of celebrities and their money—or lack thereof. The point of the list: All of these people, who had made millions, were broke or worse. Several had filed for bankruptcy more than once. Others were deep in debt and most owed hundreds of thousands to the IRS. One former star, who once earned several million dollars a year,

Read more »

Five Messy Steps

RECENT WEEKS have been challenging for our country. We’ve seen horrific terrorist attacks. The midterm elections suggest the U.S. is deeply divided. While the economy has been doing well, the stock market has started to wobble. October, in fact, was the market’s worst month since 2011.
For all these reasons, folks have been asking me whether they should steer clear of the stock market for a while, until the dust settles. That sounds sensible—until you realize the difficult steps involved:
Step 1: Predict what’s going to happen and when.

Read more »

Newsletter No. 36

IS SAVING MONEY a bad thing? You might conclude that is indeed the case, based on all the criticism that’s recently been directed at the Financial Independence/Retire Early movement, otherwise known as FIRE. I take a look at the controversy in HumbleDollar’s latest newsletter.
The newsletter also includes brief descriptions—and links to—all the blogs that have appeared since the last newsletter. In addition, I’ve included details on how to get signed copies of my latest book,

Read more »

Seven Deadly Sins

MANY FINANCIAL advisors are allowed to recommend investments that are great moneymakers for their own retirement—but not so good for those who buy them.
These salespeople are incentivized to push clients into investments that pay the highest commissions. It’s a system that jeopardizes the retirement of millions of Americans. Billions are spent annually on unnecessary fees. While the industry has many decent people, the sinners outnumber the saints. Here are just seven of their transgressions:

Variable annuities in retirement accounts.

Read more »

Money Guide

Financial Aid Methodologies

THE FEDERAL FINANCIAL AID formula and the institutional formula used by many private colleges differ in notable ways, including how heavily they assess the income and assets of parents and students. But you should pay particular attention to two key differences.

Read more »

Numbers

TWO-THIRDS of Americans are aiming to curb their spending, according to a Bankrate survey. What’s motivating them? Top reasons include the need to save more (36%), stagnant income (24%), too much debt (17%) and worries about the economy (11%).

Newsletter

Fanning the Flames

WHAT COULD POSSIBLY be wrong with saving like crazy, so you can retire early? That’s the notion behind the Financial Independence/Retire Early, or FIRE, movement. Yet lately, I’ve read a lot of carping about FIRE, both in articles and in the emails I receive.
Just last week, those complaints got yet another airing in The Wall Street Journal. Earlier, Suze Orman weighed in, arguing you need at least $5 million to retire early.

Read More »

Archive

Nerd Gone Wild

IT’S LONG BEEN AN IDEA that’s captured my imagination: Get a child invested in the stock market at a young age and then leave compounding to work its magic. If stocks notch four percentage points a year more than inflation—which many would consider a conservative estimate—$10,000 invested at birth would be worth $230,500 at age 80. That sort of success would, I suspect, give a significant boost to parental popularity. When my kids were born, I set out to turn this nerdy financial dream into reality. I was on a junior reporter’s salary, with a wife in graduate school, so it took a few years to get rolling. But eventually, I settled on a five-part plan to help Hannah, now age 28, and Henry, now 24. What were the five parts? I would make sure Hannah and Henry graduated college debt-free, and give them $5,000 upon graduation, $20,000 for a house down payment, $25,000 for retirement and $5,000 toward a wedding or at age 30, whichever came first. I didn’t have this sort of money lying around, so it took many years of regular savings to hit these targets. Earlier this year, I wrote about Hannah’s engagement—and mentioned my five financial commitments. That blog prompted a slew of emails. How, readers asked, did I go about doing all of this? For the graduation and wedding money, I didn’t set up separate accounts. Instead, those sums sat in my money-market fund. Meanwhile, college costs were partly covered by money I had socked away first in custodial accounts and later 529 college savings plans, once those became available. Still, I probably paid three-quarters of college costs out of current income. What about the $20,000 in house money? Hannah’s future down payment went into Vanguard Target Retirement 2010 Fund, while Henry got Vanguard Target Retirement 2015. The target funds kept things simple, offering a diversified portfolio in a single mutual fund. On top of that, I knew the funds would become less risky over time—an appealing attribute, because I wanted the money easing out of stocks as the day approached when the kids might purchase a home. I bought both funds in custodial accounts. That wouldn’t be a smart move if you thought your children had a shot at receiving college financial aid, because custodial accounts weigh heavily against you in the aid formulas. But I was confident our family wouldn’t qualify. Hannah cashed in her target date fund in 2015, when she bought her house in Philadelphia. I provided additional help by writing a private mortgage for her. What about the $25,000 in retirement money? That was trickier. To contribute to an individual retirement account, you need earned income. I’ve heard of parents who have funded Roth IRAs for their children, based on income that the kids earned from babysitting and mowing lawns. Neither of my children earned much money until they were well into their teenage years, so I went hunting for a tax-deferred account that didn’t require earned income. Result: When Hannah was age nine and Henry was five, I opened a Vanguard Group variable annuity for each of them. Variable annuities, of course, have horribly high investment expenses. But Vanguard’s offering is an exception, with an average all-in cost of 0.54% a year, versus a 2.27% industry average. The minimum investment for Vanguard’s variable annuity is $5,000. There’s a $25 annual account fee if the balance is below $25,000—which is why I settled on that as my target gift. The variable annuities were set up as custodial accounts, with me as custodian. Once Hannah and Henry turned 21, I transferred the accounts into their names. Later, when they started earning money, I opened Roth IRAs for them. A Roth is obviously preferable—expenses should be lower and you get tax-free growth, versus the variable annuity’s tax-deferred growth. Still, for younger kids, a low-cost variable annuity strikes me as an intriguing option: They’ll enjoy tax deferral on a grand scale—and the tax penalty will discourage them from cashing in the account before age 59½. One additional feature I like: Vanguard’s variable annuity allows you to set up automatic rebalancing. That means Hannah and Henry’s accounts will likely stay on the course that I set many years ago—without any further involvement on my part.
Read more »

Act

SET A FLOOR for financial pain. Suppose you have $400,000 saved. What’s the minimum below which you never want your portfolio to fall? Let’s say it’s $300,000, or $100,000 less. Divide that $100,000 by 0.35 and you get $286,000. That’s the maximum you should have in stocks. Why 0.35? In a bear market, the average loss is 35%.

Truths

NO. 50: SHORT-TERM BONDS give you much of the yield of longer-term bonds, but with far less price volatility. Because you don’t greatly boost a portfolio’s expected return by venturing into longer-term bonds, many experts advocate playing it safe with bonds and instead taking risk on the stock side of a portfolio.

Think

CONFIRMATION BIAS. We like to imagine that we objectively assess information and reach unbiased conclusions. The reality: We often start with an opinion—and then latch onto information that confirms what we believe. Those bullish on stocks, for instance, will devour optimistic news reports, while ignoring those that are troubling.

About Jonathan

Jonathan Clements

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

Home Call to Action

Latest Blogs

Family Inc.

WHAT’S THE MOST important financial decision you’ll make in your life? Is it when to take Social Security? Choosing the right asset allocation for your investment portfolio? How about the decision to rent or buy a place to live?
I believe that, for many people, it’s who they choose to be their significant other. Together, you’ll decide how you spend your money and how much to set aside for retirement. There will be endless decisions dealing with money—and some will have a huge impact on your financial wellbeing.

Read more »

Clueless

I WAS RECENTLY looking at one of those “whatever happened to” top 10 lists. In this case, it was about a select group of celebrities and their money—or lack thereof. The point of the list: All of these people, who had made millions, were broke or worse. Several had filed for bankruptcy more than once. Others were deep in debt and most owed hundreds of thousands to the IRS. One former star, who once earned several million dollars a year,

Read more »

Five Messy Steps

RECENT WEEKS have been challenging for our country. We’ve seen horrific terrorist attacks. The midterm elections suggest the U.S. is deeply divided. While the economy has been doing well, the stock market has started to wobble. October, in fact, was the market’s worst month since 2011.
For all these reasons, folks have been asking me whether they should steer clear of the stock market for a while, until the dust settles. That sounds sensible—until you realize the difficult steps involved:
Step 1: Predict what’s going to happen and when.

Read more »

Newsletter No. 36

IS SAVING MONEY a bad thing? You might conclude that is indeed the case, based on all the criticism that’s recently been directed at the Financial Independence/Retire Early movement, otherwise known as FIRE. I take a look at the controversy in HumbleDollar’s latest newsletter.
The newsletter also includes brief descriptions—and links to—all the blogs that have appeared since the last newsletter. In addition, I’ve included details on how to get signed copies of my latest book,

Read more »

Seven Deadly Sins

MANY FINANCIAL advisors are allowed to recommend investments that are great moneymakers for their own retirement—but not so good for those who buy them.
These salespeople are incentivized to push clients into investments that pay the highest commissions. It’s a system that jeopardizes the retirement of millions of Americans. Billions are spent annually on unnecessary fees. While the industry has many decent people, the sinners outnumber the saints. Here are just seven of their transgressions:

Variable annuities in retirement accounts.

Read more »

Numbers

TWO-THIRDS of Americans are aiming to curb their spending, according to a Bankrate survey. What’s motivating them? Top reasons include the need to save more (36%), stagnant income (24%), too much debt (17%) and worries about the economy (11%).

Truths

NO. 50: SHORT-TERM BONDS give you much of the yield of longer-term bonds, but with far less price volatility. Because you don’t greatly boost a portfolio’s expected return by venturing into longer-term bonds, many experts advocate playing it safe with bonds and instead taking risk on the stock side of a portfolio.

Act

SET A FLOOR for financial pain. Suppose you have $400,000 saved. What’s the minimum below which you never want your portfolio to fall? Let’s say it’s $300,000, or $100,000 less. Divide that $100,000 by 0.35 and you get $286,000. That’s the maximum you should have in stocks. Why 0.35? In a bear market, the average loss is 35%.

Think

CONFIRMATION BIAS. We like to imagine that we objectively assess information and reach unbiased conclusions. The reality: We often start with an opinion—and then latch onto information that confirms what we believe. Those bullish on stocks, for instance, will devour optimistic news reports, while ignoring those that are troubling.

Home Call to Action

Free Newsletter

Fanning the Flames

WHAT COULD POSSIBLY be wrong with saving like crazy, so you can retire early? That’s the notion behind the Financial Independence/Retire Early, or FIRE, movement. Yet lately, I’ve read a lot of carping about FIRE, both in articles and in the emails I receive.
Just last week, those complaints got yet another airing in The Wall Street Journal. Earlier, Suze Orman weighed in, arguing you need at least $5 million to retire early.

Read More »

Money Guide

Start Here

Financial Aid Methodologies

THE FEDERAL FINANCIAL AID formula and the institutional formula used by many private colleges differ in notable ways, including how heavily they assess the income and assets of parents and students. But you should pay particular attention to two key differences.

Read more »

Archive

Nerd Gone Wild

IT’S LONG BEEN AN IDEA that’s captured my imagination: Get a child invested in the stock market at a young age and then leave compounding to work its magic. If stocks notch four percentage points a year more than inflation—which many would consider a conservative estimate—$10,000 invested at birth would be worth $230,500 at age 80. That sort of success would, I suspect, give a significant boost to parental popularity. When my kids were born, I set out to turn this nerdy financial dream into reality. I was on a junior reporter’s salary, with a wife in graduate school, so it took a few years to get rolling. But eventually, I settled on a five-part plan to help Hannah, now age 28, and Henry, now 24. What were the five parts? I would make sure Hannah and Henry graduated college debt-free, and give them $5,000 upon graduation, $20,000 for a house down payment, $25,000 for retirement and $5,000 toward a wedding or at age 30, whichever came first. I didn’t have this sort of money lying around, so it took many years of regular savings to hit these targets. Earlier this year, I wrote about Hannah’s engagement—and mentioned my five financial commitments. That blog prompted a slew of emails. How, readers asked, did I go about doing all of this? For the graduation and wedding money, I didn’t set up separate accounts. Instead, those sums sat in my money-market fund. Meanwhile, college costs were partly covered by money I had socked away first in custodial accounts and later 529 college savings plans, once those became available. Still, I probably paid three-quarters of college costs out of current income. What about the $20,000 in house money? Hannah’s future down payment went into Vanguard Target Retirement 2010 Fund, while Henry got Vanguard Target Retirement 2015. The target funds kept things simple, offering a diversified portfolio in a single mutual fund. On top of that, I knew the funds would become less risky over time—an appealing attribute, because I wanted the money easing out of stocks as the day approached when the kids might purchase a home. I bought both funds in custodial accounts. That wouldn’t be a smart move if you thought your children had a shot at receiving college financial aid, because custodial accounts weigh heavily against you in the aid formulas. But I was confident our family wouldn’t qualify. Hannah cashed in her target date fund in 2015, when she bought her house in Philadelphia. I provided additional help by writing a private mortgage for her. What about the $25,000 in retirement money? That was trickier. To contribute to an individual retirement account, you need earned income. I’ve heard of parents who have funded Roth IRAs for their children, based on income that the kids earned from babysitting and mowing lawns. Neither of my children earned much money until they were well into their teenage years, so I went hunting for a tax-deferred account that didn’t require earned income. Result: When Hannah was age nine and Henry was five, I opened a Vanguard Group variable annuity for each of them. Variable annuities, of course, have horribly high investment expenses. But Vanguard’s offering is an exception, with an average all-in cost of 0.54% a year, versus a 2.27% industry average. The minimum investment for Vanguard’s variable annuity is $5,000. There’s a $25 annual account fee if the balance is below $25,000—which is why I settled on that as my target gift. The variable annuities were set up as custodial accounts, with me as custodian. Once Hannah and Henry turned 21, I transferred the accounts into their names. Later, when they started earning money, I opened Roth IRAs for them. A Roth is obviously preferable—expenses should be lower and you get tax-free growth, versus the variable annuity’s tax-deferred growth. Still, for younger kids, a low-cost variable annuity strikes me as an intriguing option: They’ll enjoy tax deferral on a grand scale—and the tax penalty will discourage them from cashing in the account before age 59½. One additional feature I like: Vanguard’s variable annuity allows you to set up automatic rebalancing. That means Hannah and Henry’s accounts will likely stay on the course that I set many years ago—without any further involvement on my part.
Read more »
Jonathan Clements

About Jonathan

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