Never believe brokers when their lips are moving.
I’VE LATELY BEEN having a hard time sleeping—and I have a pretty good idea why. It has to do with two words that keep bouncing around inside my head. If you let them, those two words will also keep you up at night. They’re powerful because there’s no end to them. You ask, “What are the two terrible words?” The answer: what if.
What ifs are about what could happen in the future and,
A LOT OF INVESTMENT math focuses on how money grows over time. But as an attorney who’s worked with many clients hoping to retire in comfort, I find myself thinking more about risk—and how the math can work against us. Consider five sets of numbers:
Inflation’s toll: 0.98
Got cash? If you multiply that sum by 0.98, you’ll see your money’s purchasing power a year from now. This assumes 2% inflation, which is the Federal Reserve’s stated target.
IS THE STOCK MARKET too high? It’s a question I’ve heard a lot recently. Each time, I’ve offered this recommendation: It’s impossible to predict where the market will go next, so your best defense is to have an appropriate asset allocation. But how exactly can you determine an ideal allocation?
The textbook method originated in the 1950s, with the work of a PhD student named Harry Markowitz. Up until that point, investors had mostly picked stocks and bonds in a vacuum,
WARREN BUFFETT doesn’t have the best investment record over the past three decades. That accolade apparently belongs to Jim Simons. Buffett also isn’t the world’s richest person. In fact, he hasn’t held that title for the past dozen years and currently ranks No. 6, with barely half the wealth of today’s richest person, Jeff Bezos.
I doubt Buffett feels bad about this. Is your surname neither Simons nor Bezos? I don’t think you should feel bad,
I WAS 24 YEARS OLD when I started working fulltime. My salary at that first job wasn’t great—I was making about $16,000 a year—but the retirement benefits were stellar. As a government employee, I was entitled to enroll in the state’s pension plan. Every month, the government contributed an amount equal to some 17% of my salary. The money was guaranteed to never earn less than 8% interest a year. Most years, the rate of return was much higher.
THE PRODUCERS of retirement commercials would like us to believe that all retirees are the same. They aren’t. To be happy in retirement, we need a good handle on what our needs are—financially and otherwise—and then find ways to satisfy them each and every day.
That might sound difficult, but it isn’t. To help get you started, here are the three general types of retiree I discovered during my research on retirement:
1.
NO. 64: AS WE GROW wealthier, we should seize the chance to save on insurance—by raising deductibles, lengthening elimination periods and perhaps dropping some policies entirely.
NO. 47: STRIVING to preserve principal often destroys it. As you aim to maintain your portfolio’s nominal value, you’ll likely buy bonds and cash investments—and could find yourself losing ground to inflation. Worse still, you may chase yield, buying supposedly safe investments that promise big payouts, but which may instead suffer sharp price drops.
FREEZE YOUR CREDIT—which you can now do at no cost. This will prevent data thieves from taking out loans and credit cards using your identity. But it also means you’ll need to contact the three credit bureaus and unfreeze your credit temporarily whenever applying for credit. Sound like a hassle? As an alternative, consider setting up a fraud alert.
CONFLICTS of interest. It’s hard to get unbiased financial advice. Insurance agents collect bigger commissions if we buy cash-value instead of term life insurance. Brokers make more if we trade frequently and buy high-commission products. Advisors who charge a percent of assets earn more if we keep money in our portfolios, rather than paying down debt.
FUNDING A ROTH—and enjoying tax-free growth—may not have been an option for many high-income baby boomers when they were working. But these folks can still get money into a Roth IRA by converting their traditional retirement accounts—and often there’s a great opportunity to do so if they retire early and find themselves in a lower tax bracket.
The first thing to know: Converting from traditional tax-deferred accounts to a Roth IRA will generate ordinary income equal to the taxable sum converted.
ONCE UPON A TIME, I thought it was a little unseemly to pay a lot of attention to costs. My father grew up in a farm family with little money. He was the first to attend college and, indeed, went on to law school from there. He did well in his profession and, when I was growing up, we lived a comfortable—though far from luxurious—life.
Maybe because he’d spent his youth worried about money,
AFTER TAKING the Series 65 exam in February, I set a goal for 2019: Help 10 friends and family members with their finances. Instead of giving specific investment advice, I wanted to educate them on money matters. I knew that they would benefit from one-on-one discussions, well-regarded books, educational videos and credible websites. But I also suspected that some might hesitate to talk to me about their finances. Nonetheless, I gave it a try.
SAVING ENOUGH for retirement, and then turning those savings into a reliable stream of retirement income, together constitute our life’s great financial task. Want to make sure you’re on track? Here are 10 questions to ask:
Are you shortchanging your retirement by devoting too much of your income to other goals? For instance, can you truly afford private school for the kids? Do you really have the financial wherewithal to buy a second home?
MORGAN HOUSEL’S new book, The Psychology of Money, covers a host of topics related to money and emotion. I was especially drawn to his notion that “how you behave is more important than what you know.” I’ve been a student of behavioral finance for some time and know this to be true academically—but it also made me think of my father, Ole.
My father was born in 1948 into extreme poverty.
I’VE LATELY BEEN having a hard time sleeping—and I have a pretty good idea why. It has to do with two words that keep bouncing around inside my head. If you let them, those two words will also keep you up at night. They’re powerful because there’s no end to them. You ask, “What are the two terrible words?” The answer: what if.
What ifs are about what could happen in the future and,
A LOT OF INVESTMENT math focuses on how money grows over time. But as an attorney who’s worked with many clients hoping to retire in comfort, I find myself thinking more about risk—and how the math can work against us. Consider five sets of numbers:
Inflation’s toll: 0.98
Got cash? If you multiply that sum by 0.98, you’ll see your money’s purchasing power a year from now. This assumes 2% inflation, which is the Federal Reserve’s stated target.
IS THE STOCK MARKET too high? It’s a question I’ve heard a lot recently. Each time, I’ve offered this recommendation: It’s impossible to predict where the market will go next, so your best defense is to have an appropriate asset allocation. But how exactly can you determine an ideal allocation?
The textbook method originated in the 1950s, with the work of a PhD student named Harry Markowitz. Up until that point, investors had mostly picked stocks and bonds in a vacuum,
WARREN BUFFETT doesn’t have the best investment record over the past three decades. That accolade apparently belongs to Jim Simons. Buffett also isn’t the world’s richest person. In fact, he hasn’t held that title for the past dozen years and currently ranks No. 6, with barely half the wealth of today’s richest person, Jeff Bezos.
I doubt Buffett feels bad about this. Is your surname neither Simons nor Bezos? I don’t think you should feel bad,
I WAS 24 YEARS OLD when I started working fulltime. My salary at that first job wasn’t great—I was making about $16,000 a year—but the retirement benefits were stellar. As a government employee, I was entitled to enroll in the state’s pension plan. Every month, the government contributed an amount equal to some 17% of my salary. The money was guaranteed to never earn less than 8% interest a year. Most years, the rate of return was much higher.
THE PRODUCERS of retirement commercials would like us to believe that all retirees are the same. They aren’t. To be happy in retirement, we need a good handle on what our needs are—financially and otherwise—and then find ways to satisfy them each and every day.
That might sound difficult, but it isn’t. To help get you started, here are the three general types of retiree I discovered during my research on retirement:
1.
NO. 64: AS WE GROW wealthier, we should seize the chance to save on insurance—by raising deductibles, lengthening elimination periods and perhaps dropping some policies entirely.
FREEZE YOUR CREDIT—which you can now do at no cost. This will prevent data thieves from taking out loans and credit cards using your identity. But it also means you’ll need to contact the three credit bureaus and unfreeze your credit temporarily whenever applying for credit. Sound like a hassle? As an alternative, consider setting up a fraud alert.
NO. 47: STRIVING to preserve principal often destroys it. As you aim to maintain your portfolio’s nominal value, you’ll likely buy bonds and cash investments—and could find yourself losing ground to inflation. Worse still, you may chase yield, buying supposedly safe investments that promise big payouts, but which may instead suffer sharp price drops.
CONFLICTS of interest. It’s hard to get unbiased financial advice. Insurance agents collect bigger commissions if we buy cash-value instead of term life insurance. Brokers make more if we trade frequently and buy high-commission products. Advisors who charge a percent of assets earn more if we keep money in our portfolios, rather than paying down debt.
FUNDING A ROTH—and enjoying tax-free growth—may not have been an option for many high-income baby boomers when they were working. But these folks can still get money into a Roth IRA by converting their traditional retirement accounts—and often there’s a great opportunity to do so if they retire early and find themselves in a lower tax bracket.
The first thing to know: Converting from traditional tax-deferred accounts to a Roth IRA will generate ordinary income equal to the taxable sum converted.
ONCE UPON A TIME, I thought it was a little unseemly to pay a lot of attention to costs. My father grew up in a farm family with little money. He was the first to attend college and, indeed, went on to law school from there. He did well in his profession and, when I was growing up, we lived a comfortable—though far from luxurious—life.
Maybe because he’d spent his youth worried about money,
AFTER TAKING the Series 65 exam in February, I set a goal for 2019: Help 10 friends and family members with their finances. Instead of giving specific investment advice, I wanted to educate them on money matters. I knew that they would benefit from one-on-one discussions, well-regarded books, educational videos and credible websites. But I also suspected that some might hesitate to talk to me about their finances. Nonetheless, I gave it a try.
SAVING ENOUGH for retirement, and then turning those savings into a reliable stream of retirement income, together constitute our life’s great financial task. Want to make sure you’re on track? Here are 10 questions to ask:
Are you shortchanging your retirement by devoting too much of your income to other goals? For instance, can you truly afford private school for the kids? Do you really have the financial wherewithal to buy a second home?
MORGAN HOUSEL’S new book, The Psychology of Money, covers a host of topics related to money and emotion. I was especially drawn to his notion that “how you behave is more important than what you know.” I’ve been a student of behavioral finance for some time and know this to be true academically—but it also made me think of my father, Ole.
My father was born in 1948 into extreme poverty.
What costs are you most loath to pay?
When were you happiest—and what role did money play?
When is it okay to go into debt?