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Thank you, American consumers, for propping up the economy and making the nation safe for those of us who save.

Carlson’s Way

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.

Read more »

Going Neutral

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,

Read more »

Whole New Game

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.

Read more »

Not Preferred

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.

Read more »

Riot? What Riot?

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.

Read more »

Why We Go Wrong

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.

Read more »

Money Guide

Protecting Yourself

THERE ARE FIVE key scenarios where hackers could potentially wreak havoc with your financial life. Data thieves could:
  • Rack up charges on your credit cards.
  • Apply for a loan or credit card using your identity.
  • Steal money from your financial accounts.
  • File a false tax return claiming a refund.
  • Steal your medical information and then use it to, say, fraudulently fill prescriptions or submit medical expenses for insurance reimbursement.
How can you defend yourself? In addition to the precautions described in the previous section, there are three specific steps you might take. First, if it’s offered by the financial institutions you use, set up two-factor authentication for your accounts. With two-factor authentication, your financial institution will text you a special code to use every time you log on or every time you log on from an unrecognized computer. This is crucial protection—because a big chunk of your wealth is likely sitting in your investment accounts. Second, consider freezing your credit with the three major credit bureaus. This will prevent someone from taking out a loan or credit card in your name. Alternatively, you might contact one of the credit bureaus and set up a fraud alert. A fraud alert requires lenders to take extra steps to confirm your identity. Both credit freezes and fraud alerts are discussed in the next section. What about credit monitoring instead? The problem is, by the time you hear that someone has applied for credit in your name, you already have a problem. Still, if you want to monitor changes to your credit report, there are free services now available, including those offered by CreditKarma.com and WalletHub.com. What's the third step? You should regularly check your credit reports for errors and for accounts you don't recognize. Once every 12 months, you can get your reports for free from each of the three major credit bureaus by going to AnnualCreditReport.com. A popular strategy: Rotate through the three credit bureaus, checking one report every four months. Even with the above steps, you’ll likely find someone occasionally steals your credit card information and charges items to your account. This seems to be an unavoidable reality of modern financial life—though credit card companies appear to be pretty good about detecting questionable charges and reimbursing those that slip through. Want to monitor your cards closely? See if your bank will send you texts every time there's a new charge on one of your credit cards. If someone has your personal information, there’s no way to prevent them filing a fraudulent tax return. This, however, is an area where early filers have an edge: If your return reaches the IRS first, the fraudulent return will be the one rejected. You might also aim to owe taxes each year, so a fraudulent return doesn't temporarily leave you out of pocket by delaying the refund you expect. What if you are a victim of tax identity theft? The IRS will issue a special personal identification number to use thereafter. Meanwhile, there doesn’t seem to be much defense against theft of health care information—beyond staying vigilant with your personal information and keeping an eye out for suspicious health care charges. Next: Credit Freezes Previous: Identity Theft Articles: Don't Fall for ItBeat the CheatsNothing to ChanceBeefing Up Security and Playing Defense
Read more »

Manifesto

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.

Truths

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.

Act

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.

Think

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.

Second Look

Retirement

Late to the Rescue

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.

Read more »

Family Finance

Rendering Unto Caesar

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,

Read more »

Investing

On the Other Hand

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.

Read more »

Lists

Building Wealth

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.

Read more »
Home Call to Action

Mindset

Future Shock

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,

Read more »

Carlson’s Way

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.

Read more »

Going Neutral

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,

Read more »

Whole New Game

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.

Read more »

Not Preferred

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.

Read more »

Riot? What Riot?

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.

Read more »

Why We Go Wrong

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.

Read more »

Free Newsletter

Home Call to Action

Manifesto

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.

Act

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.

Truths

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.

Think

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.

Money Guide

Start Exploring

Protecting Yourself

THERE ARE FIVE key scenarios where hackers could potentially wreak havoc with your financial life. Data thieves could:
  • Rack up charges on your credit cards.
  • Apply for a loan or credit card using your identity.
  • Steal money from your financial accounts.
  • File a false tax return claiming a refund.
  • Steal your medical information and then use it to, say, fraudulently fill prescriptions or submit medical expenses for insurance reimbursement.
How can you defend yourself? In addition to the precautions described in the previous section, there are three specific steps you might take. First, if it’s offered by the financial institutions you use, set up two-factor authentication for your accounts. With two-factor authentication, your financial institution will text you a special code to use every time you log on or every time you log on from an unrecognized computer. This is crucial protection—because a big chunk of your wealth is likely sitting in your investment accounts. Second, consider freezing your credit with the three major credit bureaus. This will prevent someone from taking out a loan or credit card in your name. Alternatively, you might contact one of the credit bureaus and set up a fraud alert. A fraud alert requires lenders to take extra steps to confirm your identity. Both credit freezes and fraud alerts are discussed in the next section. What about credit monitoring instead? The problem is, by the time you hear that someone has applied for credit in your name, you already have a problem. Still, if you want to monitor changes to your credit report, there are free services now available, including those offered by CreditKarma.com and WalletHub.com. What's the third step? You should regularly check your credit reports for errors and for accounts you don't recognize. Once every 12 months, you can get your reports for free from each of the three major credit bureaus by going to AnnualCreditReport.com. A popular strategy: Rotate through the three credit bureaus, checking one report every four months. Even with the above steps, you’ll likely find someone occasionally steals your credit card information and charges items to your account. This seems to be an unavoidable reality of modern financial life—though credit card companies appear to be pretty good about detecting questionable charges and reimbursing those that slip through. Want to monitor your cards closely? See if your bank will send you texts every time there's a new charge on one of your credit cards. If someone has your personal information, there’s no way to prevent them filing a fraudulent tax return. This, however, is an area where early filers have an edge: If your return reaches the IRS first, the fraudulent return will be the one rejected. You might also aim to owe taxes each year, so a fraudulent return doesn't temporarily leave you out of pocket by delaying the refund you expect. What if you are a victim of tax identity theft? The IRS will issue a special personal identification number to use thereafter. Meanwhile, there doesn’t seem to be much defense against theft of health care information—beyond staying vigilant with your personal information and keeping an eye out for suspicious health care charges. Next: Credit Freezes Previous: Identity Theft Articles: Don't Fall for ItBeat the CheatsNothing to ChanceBeefing Up Security and Playing Defense
Read more »

Second Look

Retirement

Late to the Rescue

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.

Read more »

Family Finance

Rendering Unto Caesar

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,

Read more »

Investing

On the Other Hand

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.

Read more »

Lists

Building Wealth

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.

Read more »

Mindset

Future Shock

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,

Read more »