If you want to retire in comfort, retire your debts first.
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.
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.
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,
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.
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,
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.
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.
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?
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.
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.
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,
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.
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;
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.
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.
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.
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.
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,
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.
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,
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.
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.
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.
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?
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.
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,
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.
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;
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.
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.
When does it make sense to buy the extended warranty, if ever?
Is it okay not to leave a tip at a full-service restaurant?
What purchase do you most regret?