Thank you, American consumers, for propping up the economy and making the nation safe for those of us who save.
IT ISN’T EVERY personal finance book that includes a chapter entitled, “You Will Lose Money.” But that’s Ben Carlson laying down the harsh truth for inexperienced investors in his self-published fourth book, Everything You Need to Know About Saving for Retirement.
I interviewed Carlson recently because I find his A Wealth of Common Sense blog among the most useful for a small investor like me—someone with an intermediate level of market knowledge.
ONE OF THE KEY skills I quickly learned as a new parent: how to curb some of my emotions. Take last night. We were enjoying our normal bedtime routine, including bath time, bottles and a few favorite books.
Then I was vomited all over.
Being vomited on was just another evening with our 16-month-old twins. If you dial up or down your emotions too much in response, they have you. Dial them a bit too high,
BASEBALL USED TO BE a game where managers would go with their “gut.” But Brad Pitt changed everything. In the movie Moneyball, Pitt played Billy Beane, the first baseball general manager to use data analytics to great success—and suddenly it was all the rage.
Today, from a typical game, seven terabytes of data are gathered, everything from the arm angle of every single pitch to the exit velocity of hit balls.
PREFERRED SHARES are mighty tempting right now because their yields are so much higher than most bond yields. For instance, iShares Preferred and Income Securities ETF currently boasts a yield of 4.4%, while Invesco Preferred ETF is kicking off almost 5% and SPDR Wells Fargo Preferred Stock ETF yields 4.5%.
But the reason is simple: They’re risky. Whether you invest in individual preferred shares or preferred stock ETFs, here are five risks to consider before investing:
1.
THE CAPITOL WAS invaded by an angry mob 11 days ago. A week later, the House of Representatives voted to impeach the president. But if you’d been looking only at the stock market, you would have no idea.
Not only is the market higher today than it was the day before this all started, but also the VIX—the market’s “fear gauge”—is lower. From the perspective of the stock market, it’s been an ordinary few weeks.
I’VE LONG BEEN flummoxed by the difficulty people have managing money. It all seems so intuitive: Save, invest, repeat. Buy more when the market falls and a lot more when it crashes. Rebalance by adding more to losing asset classes—which today means buying value and international stocks.
Now, don’t get me wrong: I’m no financial genius. I’ve made my share of blunders. But I also know that being a do-it-yourself investor has saved me boatloads of money.
NO. 25: BEFORE we invest, we should ask why we’re investing. Stocks are a great choice if we’re long-term investors—and a terrible investment if we’ll need to spend our money in the next five years.
NO. 73: MOST TAX deductions will cost you dearly. If you’re able to itemize your deductions and you’re in the 22% income tax bracket, $100 of mortgage interest or medical expenses might save you $22 in taxes, leaving you $78 poorer. A crucial exception: If you contribute $100 to a tax-deductible retirement account, you save the $22, but still retain your $100.
ADD UP YOUR FIXED living costs. Include mortgage or rent, car payments, property taxes, insurance premiums and other recurring monthly expenses. How long could you cover these costs if you lost your job? Are these expenses so high you find it tough to save—and suffer constant stress? Our advice: Keep fixed costs below 50% of pretax monthly income.
EFFICIENT FRONTIER. What mix of investments offers the highest expected return for a given level of risk—or the lowest risk for a target return? In theory, these optimal portfolios can be found on the “efficient frontier.” Their key attribute: broad diversification. By combining investments that don’t always move in sync, we can reduce volatility.
MY FATHER-IN-LAW William retired from Duke University after teaching there for more than 30 years. He had a good pension, which—along with Social Security—covered all his expenses at the continuing care retirement community (CCRC) where he spent most of his retirement. Almost to the end, he was mentally sharp. I saw no need to inquire about his finances. I was mistaken.
In summer 2014, my wife noticed that William, then age 96, had left a large check for a matured life insurance policy on his desk for a couple of months.
MANY OF MY CLIENTS are freelancers who are legally required to make estimated tax payments. I remind them that the IRS takes a dim view of freelancers, self-employed individuals and others who miss deadlines for making those quarterly payments. Miss just one, says the IRS, and it might exact a sizable, nondeductible penalty.
Who are in the IRS’s crosshairs? Individuals who receive income from sources not subject to withholding and whose tax liability exceeds $1,000,
I LOVE the questions that kids ask. This week, my first grader told me he had heard the word “caricature” and wanted to know what it meant. I explained it and then we went online to see some examples. In our highly politicized culture, we didn’t have to look far to see some exaggerated cartoon depictions of various political leaders.
It occurred to me, though, that our posture toward investments isn’t all that different.
I’VE BEEN READING about how people aren’t saving enough money, and how almost half of all Americans carry a balance on their credit cards. Looking to be more financially prudent? Here are 10 pointers on how to build wealth and gain financial security over your lifetime:
1. Save—for a reason. Saving money is the key to building a substantial portfolio. One secret to being a good saver: Have something worthwhile to save for. It might be homeownership or early financial independence.
WHY DO WE MAKE spending decisions that we later regret? Yes, we tend to live for today and give scant thought to tomorrow. But it’s more complicated than that—which brings me to four insights from psychology.
I find the insights below fascinating, in part because they describe how I behave with uncanny accuracy. Many readers, I suspect, will also catch a glimpse of their own behavior:
Moral licensing. If we do something good—exercise,
IT ISN’T EVERY personal finance book that includes a chapter entitled, “You Will Lose Money.” But that’s Ben Carlson laying down the harsh truth for inexperienced investors in his self-published fourth book, Everything You Need to Know About Saving for Retirement.
I interviewed Carlson recently because I find his A Wealth of Common Sense blog among the most useful for a small investor like me—someone with an intermediate level of market knowledge.
ONE OF THE KEY skills I quickly learned as a new parent: how to curb some of my emotions. Take last night. We were enjoying our normal bedtime routine, including bath time, bottles and a few favorite books.
Then I was vomited all over.
Being vomited on was just another evening with our 16-month-old twins. If you dial up or down your emotions too much in response, they have you. Dial them a bit too high,
BASEBALL USED TO BE a game where managers would go with their “gut.” But Brad Pitt changed everything. In the movie Moneyball, Pitt played Billy Beane, the first baseball general manager to use data analytics to great success—and suddenly it was all the rage.
Today, from a typical game, seven terabytes of data are gathered, everything from the arm angle of every single pitch to the exit velocity of hit balls.
PREFERRED SHARES are mighty tempting right now because their yields are so much higher than most bond yields. For instance, iShares Preferred and Income Securities ETF currently boasts a yield of 4.4%, while Invesco Preferred ETF is kicking off almost 5% and SPDR Wells Fargo Preferred Stock ETF yields 4.5%.
But the reason is simple: They’re risky. Whether you invest in individual preferred shares or preferred stock ETFs, here are five risks to consider before investing:
1.
THE CAPITOL WAS invaded by an angry mob 11 days ago. A week later, the House of Representatives voted to impeach the president. But if you’d been looking only at the stock market, you would have no idea.
Not only is the market higher today than it was the day before this all started, but also the VIX—the market’s “fear gauge”—is lower. From the perspective of the stock market, it’s been an ordinary few weeks.
I’VE LONG BEEN flummoxed by the difficulty people have managing money. It all seems so intuitive: Save, invest, repeat. Buy more when the market falls and a lot more when it crashes. Rebalance by adding more to losing asset classes—which today means buying value and international stocks.
Now, don’t get me wrong: I’m no financial genius. I’ve made my share of blunders. But I also know that being a do-it-yourself investor has saved me boatloads of money.
NO. 25: BEFORE we invest, we should ask why we’re investing. Stocks are a great choice if we’re long-term investors—and a terrible investment if we’ll need to spend our money in the next five years.
ADD UP YOUR FIXED living costs. Include mortgage or rent, car payments, property taxes, insurance premiums and other recurring monthly expenses. How long could you cover these costs if you lost your job? Are these expenses so high you find it tough to save—and suffer constant stress? Our advice: Keep fixed costs below 50% of pretax monthly income.
NO. 73: MOST TAX deductions will cost you dearly. If you’re able to itemize your deductions and you’re in the 22% income tax bracket, $100 of mortgage interest or medical expenses might save you $22 in taxes, leaving you $78 poorer. A crucial exception: If you contribute $100 to a tax-deductible retirement account, you save the $22, but still retain your $100.
EFFICIENT FRONTIER. What mix of investments offers the highest expected return for a given level of risk—or the lowest risk for a target return? In theory, these optimal portfolios can be found on the “efficient frontier.” Their key attribute: broad diversification. By combining investments that don’t always move in sync, we can reduce volatility.
MY FATHER-IN-LAW William retired from Duke University after teaching there for more than 30 years. He had a good pension, which—along with Social Security—covered all his expenses at the continuing care retirement community (CCRC) where he spent most of his retirement. Almost to the end, he was mentally sharp. I saw no need to inquire about his finances. I was mistaken.
In summer 2014, my wife noticed that William, then age 96, had left a large check for a matured life insurance policy on his desk for a couple of months.
MANY OF MY CLIENTS are freelancers who are legally required to make estimated tax payments. I remind them that the IRS takes a dim view of freelancers, self-employed individuals and others who miss deadlines for making those quarterly payments. Miss just one, says the IRS, and it might exact a sizable, nondeductible penalty.
Who are in the IRS’s crosshairs? Individuals who receive income from sources not subject to withholding and whose tax liability exceeds $1,000,
I LOVE the questions that kids ask. This week, my first grader told me he had heard the word “caricature” and wanted to know what it meant. I explained it and then we went online to see some examples. In our highly politicized culture, we didn’t have to look far to see some exaggerated cartoon depictions of various political leaders.
It occurred to me, though, that our posture toward investments isn’t all that different.
I’VE BEEN READING about how people aren’t saving enough money, and how almost half of all Americans carry a balance on their credit cards. Looking to be more financially prudent? Here are 10 pointers on how to build wealth and gain financial security over your lifetime:
1. Save—for a reason. Saving money is the key to building a substantial portfolio. One secret to being a good saver: Have something worthwhile to save for. It might be homeownership or early financial independence.
WHY DO WE MAKE spending decisions that we later regret? Yes, we tend to live for today and give scant thought to tomorrow. But it’s more complicated than that—which brings me to four insights from psychology.
I find the insights below fascinating, in part because they describe how I behave with uncanny accuracy. Many readers, I suspect, will also catch a glimpse of their own behavior:
Moral licensing. If we do something good—exercise,