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The results speak for themselves—and that’s a problem for active money managers.

Hammered Home

ALMOST 20 YEARS AGO, we renovated our entire Washington, DC, home. The memory is still quite fresh. If you’ve ever renovated a house, you’ll understand.
A home renovation has similarities to personal finance: You can do it yourself (DIY), you can pay someone to do it for you, or you can do something in between. This last approach has worked well for me—both with renovations and financial matters.
Our home consisted of a three-level townhouse.

Read more »

My SPAC Experience

SHAQ AND A-ROD have gotten involved in special purpose acquisition companies, or SPACs, one of the hottest products on Wall Street over the past year. I got there a few years earlier.
In 2018, I invested $5,000 in a SPAC that has since underperformed the market. Still, I got some hands-on experience ahead of the 2020-21 boom. Thinking of buying a SPAC? Based on my investment, here’s what you can expect.
Tom Farley isn’t a household name like Shaq or A-Rod,

Read more »

Best Buys

MY SPRING CLEANING this year was less eventful than last year’s, except I found my fanny pack. I bought it in the early 1990s but misplaced it some years ago. It was so handy for air travel, especially international trips, that I ignored all fashion worries.
I forgot what I paid for the fanny pack, but it was certainly one of my best buys. Frankly, only a few such purchases stand out. Here’s my list of half-a-dozen similar items.

Read more »

Beyond Saving

I’M CONSERVATIVE, but sometimes even I see the need to change. For instance, I belonged to a high-profile service organization for many years. They’re very proud of their tradition of raising money to give a Webster’s dictionary to each fifth grader in our city.
Let’s face it: These days, no self-respecting fifth grader is going to be caught dead with a hardcopy dictionary. Doesn’t everyone know that kids look up everything online? Traditions die hard—even when they no longer make sense.

Read more »

Taking Precautions

THE FEDERAL RESERVE caught the market by surprise this past week. In fact, it seemed like Fed policymakers caught even themselves by surprise.

Previously, they had been forecasting that interest rates would stay near zero through 2023, on the assumption that inflation would remain manageable. But as the country has emerged from hibernation, inflation has run much hotter than expected. As a result, an increasing number of Fed officials now expect they’ll have to raise rates much sooner.

Read more »

What Goes Down

IT MIGHT SEEM LIKE an obscure academic question: Do stocks truly follow a random walk or can we count on them reverting to the mean? Depending on which side we favor in this debate, it can make a huge difference to how we invest—and to our confidence as investors.
Like me, many HumbleDollar readers have most or all their investment dollars in index funds. A key reason we invest this way: It’s impossible to predict which stocks will shine because they follow a random walk.

Read more »

Voices

What do other people spend too much money on?

"On anything they can’t afford"
- R Quinn
Read more »

Is it okay to retire with debt?

"Debt any time for any reason drives me nuts. I can’t even stand credit card balances when I know they will be paid in full by month end. Retirement makes it worse. Any logical argument notwithstanding, I say avoid debt."
- R Quinn
Read more »

Are annuities ever worth buying—and, if so, which type?

"SPIAs are a good choice. QLACs mentioned in the thread are also effective. I think the most important thing is to work with a fiduciary financial planner to ensure you are buying the right product at the right price for your situation. Annuities are perhaps among the riskiest products, but not for the risks we often talk about. Annuities' risk lies in buying the wrong type -- and that's easy to do given the complexity of the products. Ensuring an individual does not outlive their money is very important. That's where a good annuity can show its mettle. In addition to delaying taking Social Security to age 70, the right annuity can bolster financial security later in life."
- Mike Zaccardi
Read more »

Money Guide

Retirement Readiness

WHAT'S THE STATE of America's retirement readiness? Here’s a quick look at some worrisome statistics—as well as at some key notions that should concern both those saving for retirement and those who have already quit the workforce:
  • For households approaching retirement age, the typical net worth is $776,000, calculates Boston College’s Center for Retirement Research. That might sound impressive—but 60% of this figure is represented by the value assigned to Social Security benefits, and another 17% by traditional pension plans, which are fast disappearing.
  • You can get a glimpse of America’s retirement readiness from the Federal Reserve’s 2019 Survey of Consumer Finances. Among households headed by someone age 65 to 74, 78.4% owned their home, down from 85.8% six years earlier. Moreover, 70% were carrying some form of debt, including 37.6% who had debt secured by a home. Just 48.2% of this group had an IRA or similar retirement account.
  • Among households headed by someone age 55 and older, 29% had neither savings in a retirement account, like an IRA or 401(k) plan, nor were they covered by a defined benefit pension plan, according to a 2015 Government Accountability Office study.
  • Just 11% of private sector workers were covered by a defined benefit pension plan as of 2017, down from 38% in 1979, according to the Employee Benefit Research Institute. Over this stretch, those in 401(k) and similar plans rose to 46% from 17%.
  • The National Institute on Retirement Security found that a quarter of households headed by someone age 55 to 64 had a net worth—the value of all assets, including their home, minus all debts—that was less than their annual income. By contrast, experts often suggest amassing a sum equal to 8 to 12 times income by retirement, and that sum doesn't include home equity.
  • Households approaching retirement age had a median $135,000 in their 401(k) and IRA combined as of 2016, up from $111,000 in 2013, according to Boston College's Center for Retirement Research. That’s enough to generate just $600 a month in retirement income.
  • Even if most folks aren’t in good shape for retirement, presumably some are. How many? Phoenix Marketing International regularly calculates how many U.S. households have $1 million or more in investable assets. Based on a 4% portfolio withdrawal rate, $1 million would give you $40,000 in first-year retirement income, on top of whatever you might receive from Social Security and any pension plans. That should be enough for a comfortable, though hardly lavish, retirement. Phoenix calculates that 8.4 million U.S. households had $1 million or more in investable assets as of 2019. New Jersey, Maryland, Connecticut, Massachusetts and Hawaii had the highest concentration of millionaire households, at more than 9%.
  • According to the Employee Benefit Research Institute’s 2020 Retirement Confidence Survey, workers on average expect to retire at age 65. But it turns out the actual retirement age is typically 62. The study also found that 74% expect to work for pay once they retire, but only 27% of retirees report doing so.
  • Those quitting the workforce in 2020 will spend more than 19 years in retirement, on average, up from less than 14 years in 1970, says Boston College's Center for Retirement Research.
  • Nebraska, Iowa, Missouri, South Dakota and Florida are the best states to retire, says Bankrate. The ranking is based on five criteria, with the biggest weight given to affordability. Meanwhile, WalletHub says the best states to retire are Florida, Colorado and Delaware, while the worst states are New Jersey, New York and Mississippi. The WalletHub ranking considers affordability, health care and overall quality of life.
  • Social Security retirement benefits average $18,500 a year and replace 38% of past earnings. An estimated 97% of seniors either receive Social Security or will receive it. Social Security benefits provide half or more of the income for 51.8% of folks age 65 and older. For 24.7% of seniors, Social Security accounts for 90% or more of their income.
  • Inflation, which can be a major headache for retirees, ran at 1.3% in 2020, 2.3% in 2019 and 1.9% in 2018.
Next: Three-Legged Stool Previous: Retirement Articles: The Other HalfRetiring: 10 Question and Ten Commandments
Read more »

Manifesto

NO. 63: WE CAN’T time the stock market—but we can rebalance our portfolios. There’s no way to guess the market’s direction. But by regularly rebalancing, we can profit from those price swings.

Truths

NO. 38: IN EFFICIENT markets, stock and bond prices reflect all known information. That makes it tough for smart investors to find bargains and earn market-beating returns. But that market efficiency also protects ignorant investors, who are less likely to overpay for stocks and bonds, and hence they should do okay—provided they diversify.

Act

TAKE STOCK of your bonds. Our financial lives are chock-full of bond lookalikes, including our paycheck, Social Security and any defined benefit pension—all paying us regular income now or in the future. Set against this income is a big income drain: our debts. Result: Our finances may be more or less risky than our bond position alone suggests.

Think

MONTE CARLO analysis. Suppose you wrote down all annual historical stock market returns on index cards and randomly selected 30 cards—to get a hypothetical 30-year return—and did so 10,000 times. You’d have a sense of the range of possible 30-year returns and their likelihood. To see Monte Carlo analysis in action, try Vanguard Group’s calculator.

Second Look

Retirement

He Gets, She Gets

IF YOU DESIGNATE beneficiaries for your retirement accounts, that’s usually a surefire way to pass those assets directly to your desired heirs without going through probate—but not always.
Because those beneficiary designations are so important, you should verify your choices every year in case there’s a change due to, say, marriage, birth, divorce or death. Especially marriage and divorce. Which brings me to a crucial issue: When dealing with IRA and 401(k) beneficiary designations,

Read more »

Family Finance

Keeping It Going

AFTER YOU’VE BECOME successful and accumulated wealth, what comes next? Americans are facing this question more often than ever before. CNBC notes that the number of millionaire U.S. households grew by more than 700,000 in 2017. This affluence can create a disconnect between parent and child: One generation created the wealth, while the other grows up surrounded by it.
As a financial planner, I’ve learned the younger generation has two options: They can either destroy the wealth or they can add to the family’s legacy.

Read more »

Investing

Back When

I BEGAN MY CAREER in investments as a junior analyst at a public endowment fund. It was 1980 and I’d just finished my last investment class at college, where I learned about Modern Portfolio Theory. Why, decades later, is it still called “Modern”?
The Dow Jones Industrial Average was below 1000, versus today’s 27000. Men wore suits in 100-degree Texas heat. We had individual offices. We researched companies by reading brokerage reports, talking to brokers and requesting annual reports from companies.

Read more »

Lists

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 »
Home Call to Action

Mindset

Summer School

WHEN I WAS a teenager, I couldn’t wait to get a summer job. Just the thought of it would give me goose bumps. Why? I could earn my own money and buy the car I desperately wanted: a two-tone 1956 Chevrolet Bel Air with a big steering wheel that looked like it belonged on a bus.
My dream was to gain some independence and drive myself wherever I needed to go. After working a number of summer jobs,

Read more »

Hammered Home

ALMOST 20 YEARS AGO, we renovated our entire Washington, DC, home. The memory is still quite fresh. If you’ve ever renovated a house, you’ll understand.
A home renovation has similarities to personal finance: You can do it yourself (DIY), you can pay someone to do it for you, or you can do something in between. This last approach has worked well for me—both with renovations and financial matters.
Our home consisted of a three-level townhouse.

Read more »

My SPAC Experience

SHAQ AND A-ROD have gotten involved in special purpose acquisition companies, or SPACs, one of the hottest products on Wall Street over the past year. I got there a few years earlier.
In 2018, I invested $5,000 in a SPAC that has since underperformed the market. Still, I got some hands-on experience ahead of the 2020-21 boom. Thinking of buying a SPAC? Based on my investment, here’s what you can expect.
Tom Farley isn’t a household name like Shaq or A-Rod,

Read more »

Best Buys

MY SPRING CLEANING this year was less eventful than last year’s, except I found my fanny pack. I bought it in the early 1990s but misplaced it some years ago. It was so handy for air travel, especially international trips, that I ignored all fashion worries.
I forgot what I paid for the fanny pack, but it was certainly one of my best buys. Frankly, only a few such purchases stand out. Here’s my list of half-a-dozen similar items.

Read more »

Beyond Saving

I’M CONSERVATIVE, but sometimes even I see the need to change. For instance, I belonged to a high-profile service organization for many years. They’re very proud of their tradition of raising money to give a Webster’s dictionary to each fifth grader in our city.
Let’s face it: These days, no self-respecting fifth grader is going to be caught dead with a hardcopy dictionary. Doesn’t everyone know that kids look up everything online? Traditions die hard—even when they no longer make sense.

Read more »

Taking Precautions

THE FEDERAL RESERVE caught the market by surprise this past week. In fact, it seemed like Fed policymakers caught even themselves by surprise.

Previously, they had been forecasting that interest rates would stay near zero through 2023, on the assumption that inflation would remain manageable. But as the country has emerged from hibernation, inflation has run much hotter than expected. As a result, an increasing number of Fed officials now expect they’ll have to raise rates much sooner.

Read more »

What Goes Down

IT MIGHT SEEM LIKE an obscure academic question: Do stocks truly follow a random walk or can we count on them reverting to the mean? Depending on which side we favor in this debate, it can make a huge difference to how we invest—and to our confidence as investors.
Like me, many HumbleDollar readers have most or all their investment dollars in index funds. A key reason we invest this way: It’s impossible to predict which stocks will shine because they follow a random walk.

Read more »

Free Newsletter

Voices

What’s the wisest financial advice you’ve ever been given?

"I have to go way back to high school in 2005 when I listened to Clark Howard on the radio. He would constantly preach to open a Roth IRA at Vanguard and invest in a Target Date Retirement Fund. I finally saved up enough to follow his wise words. It was December 2005 when I invested $3,000 into VTIVX (the 2045 fund). I enjoyed tracking the performance each day as I learned more about the investing world. It really got me on the path to making finance my career. I thoroughly enjoy savings and investing (maybe to a fault because I am so thrifty now). The fact that it was simple advice given to me at a young age made all the difference. Of course, my interest in making the most of my hard-earned grocery store cashiering money played a role too."
- Mike Zaccardi
Read more »

How would you define "enough"?

"John D. Rockefeller was asked, how much is enough? "Just a little bit more" he replied."
- Scrooge_McDuck88
Read more »

What’s the best strategy for selling a house?

"Based on my recent experience selling two homes, be lucky is the best strategy. We sold in a low interest rate environment, during a pandemic, which drove housing prices and demand sky high. The one strategy that worked for my wife and I for all the houses we have sold is to use your network. The three houses we sold were all bought by someone who found about the sale through a friend, neighbor, or business associate. Let people know you are selling and ask them to let potential buyers know it is available."
- Rick Connor
Read more »
Home Call to Action

Manifesto

NO. 63: WE CAN’T time the stock market—but we can rebalance our portfolios. There’s no way to guess the market’s direction. But by regularly rebalancing, we can profit from those price swings.

Act

TAKE STOCK of your bonds. Our financial lives are chock-full of bond lookalikes, including our paycheck, Social Security and any defined benefit pension—all paying us regular income now or in the future. Set against this income is a big income drain: our debts. Result: Our finances may be more or less risky than our bond position alone suggests.

Truths

NO. 38: IN EFFICIENT markets, stock and bond prices reflect all known information. That makes it tough for smart investors to find bargains and earn market-beating returns. But that market efficiency also protects ignorant investors, who are less likely to overpay for stocks and bonds, and hence they should do okay—provided they diversify.

Think

MONTE CARLO analysis. Suppose you wrote down all annual historical stock market returns on index cards and randomly selected 30 cards—to get a hypothetical 30-year return—and did so 10,000 times. You’d have a sense of the range of possible 30-year returns and their likelihood. To see Monte Carlo analysis in action, try Vanguard Group’s calculator.

Money Guide

Start Here

Retirement Readiness

WHAT'S THE STATE of America's retirement readiness? Here’s a quick look at some worrisome statistics—as well as at some key notions that should concern both those saving for retirement and those who have already quit the workforce:
  • For households approaching retirement age, the typical net worth is $776,000, calculates Boston College’s Center for Retirement Research. That might sound impressive—but 60% of this figure is represented by the value assigned to Social Security benefits, and another 17% by traditional pension plans, which are fast disappearing.
  • You can get a glimpse of America’s retirement readiness from the Federal Reserve’s 2019 Survey of Consumer Finances. Among households headed by someone age 65 to 74, 78.4% owned their home, down from 85.8% six years earlier. Moreover, 70% were carrying some form of debt, including 37.6% who had debt secured by a home. Just 48.2% of this group had an IRA or similar retirement account.
  • Among households headed by someone age 55 and older, 29% had neither savings in a retirement account, like an IRA or 401(k) plan, nor were they covered by a defined benefit pension plan, according to a 2015 Government Accountability Office study.
  • Just 11% of private sector workers were covered by a defined benefit pension plan as of 2017, down from 38% in 1979, according to the Employee Benefit Research Institute. Over this stretch, those in 401(k) and similar plans rose to 46% from 17%.
  • The National Institute on Retirement Security found that a quarter of households headed by someone age 55 to 64 had a net worth—the value of all assets, including their home, minus all debts—that was less than their annual income. By contrast, experts often suggest amassing a sum equal to 8 to 12 times income by retirement, and that sum doesn't include home equity.
  • Households approaching retirement age had a median $135,000 in their 401(k) and IRA combined as of 2016, up from $111,000 in 2013, according to Boston College's Center for Retirement Research. That’s enough to generate just $600 a month in retirement income.
  • Even if most folks aren’t in good shape for retirement, presumably some are. How many? Phoenix Marketing International regularly calculates how many U.S. households have $1 million or more in investable assets. Based on a 4% portfolio withdrawal rate, $1 million would give you $40,000 in first-year retirement income, on top of whatever you might receive from Social Security and any pension plans. That should be enough for a comfortable, though hardly lavish, retirement. Phoenix calculates that 8.4 million U.S. households had $1 million or more in investable assets as of 2019. New Jersey, Maryland, Connecticut, Massachusetts and Hawaii had the highest concentration of millionaire households, at more than 9%.
  • According to the Employee Benefit Research Institute’s 2020 Retirement Confidence Survey, workers on average expect to retire at age 65. But it turns out the actual retirement age is typically 62. The study also found that 74% expect to work for pay once they retire, but only 27% of retirees report doing so.
  • Those quitting the workforce in 2020 will spend more than 19 years in retirement, on average, up from less than 14 years in 1970, says Boston College's Center for Retirement Research.
  • Nebraska, Iowa, Missouri, South Dakota and Florida are the best states to retire, says Bankrate. The ranking is based on five criteria, with the biggest weight given to affordability. Meanwhile, WalletHub says the best states to retire are Florida, Colorado and Delaware, while the worst states are New Jersey, New York and Mississippi. The WalletHub ranking considers affordability, health care and overall quality of life.
  • Social Security retirement benefits average $18,500 a year and replace 38% of past earnings. An estimated 97% of seniors either receive Social Security or will receive it. Social Security benefits provide half or more of the income for 51.8% of folks age 65 and older. For 24.7% of seniors, Social Security accounts for 90% or more of their income.
  • Inflation, which can be a major headache for retirees, ran at 1.3% in 2020, 2.3% in 2019 and 1.9% in 2018.
Next: Three-Legged Stool Previous: Retirement Articles: The Other HalfRetiring: 10 Question and Ten Commandments
Read more »

Second Look

Retirement

He Gets, She Gets

IF YOU DESIGNATE beneficiaries for your retirement accounts, that’s usually a surefire way to pass those assets directly to your desired heirs without going through probate—but not always.
Because those beneficiary designations are so important, you should verify your choices every year in case there’s a change due to, say, marriage, birth, divorce or death. Especially marriage and divorce. Which brings me to a crucial issue: When dealing with IRA and 401(k) beneficiary designations,

Read more »

Family Finance

Keeping It Going

AFTER YOU’VE BECOME successful and accumulated wealth, what comes next? Americans are facing this question more often than ever before. CNBC notes that the number of millionaire U.S. households grew by more than 700,000 in 2017. This affluence can create a disconnect between parent and child: One generation created the wealth, while the other grows up surrounded by it.
As a financial planner, I’ve learned the younger generation has two options: They can either destroy the wealth or they can add to the family’s legacy.

Read more »

Investing

Back When

I BEGAN MY CAREER in investments as a junior analyst at a public endowment fund. It was 1980 and I’d just finished my last investment class at college, where I learned about Modern Portfolio Theory. Why, decades later, is it still called “Modern”?
The Dow Jones Industrial Average was below 1000, versus today’s 27000. Men wore suits in 100-degree Texas heat. We had individual offices. We researched companies by reading brokerage reports, talking to brokers and requesting annual reports from companies.

Read more »

Lists

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 »

Mindset

Summer School

WHEN I WAS a teenager, I couldn’t wait to get a summer job. Just the thought of it would give me goose bumps. Why? I could earn my own money and buy the car I desperately wanted: a two-tone 1956 Chevrolet Bel Air with a big steering wheel that looked like it belonged on a bus.
My dream was to gain some independence and drive myself wherever I needed to go. After working a number of summer jobs,

Read more »