If owning foreign stocks is especially risky for U.S. investors, is owning U.S. shares especially risky for foreigners?
FIFTY YEARS AGO, when the first index funds were getting started, critics wasted no time attacking the idea. They called it “un-American” and a “sure path to mediocrity.”
But over time, indexing has grown to the point where it now accounts for more than half of all U.S. mutual fund assets. Last year, research firm Morningstar declared that “index funds have officially won.” But this victory seems to have only increased the level of criticism.
WHICH FINANCIAL dangers should we focus on? The possibilities seem pretty much endless. In fact, five years ago, I decided to make a list—and ended up offering readers 50 shades of risk.
Yet our notion of risk used to be far more circumscribed.
In the late 1980s, when I started writing about personal finance, insurance was considered important, but it wasn’t much discussed. Instead, the only risk that seemed to merit serious analysis was investment risk,
TED BENNA IS OFTEN called the “father of the 401(k).” In 1980, he implemented the first 401(k) plan based on his somewhat bold interpretation of the Revenue Act of 1978. He certainly couldn’t have envisioned the $11.4 trillion in “defined contribution” 401(k) and 403(b) accounts that we have today.
Individual retirement accounts also took off in the early 1980s, and traditional IRAs now hold an additional $11.3 trillion. Combined, that’s an impressive $23 trillion in tax-deferred retirement assets.
WHO OWNS TIME? WE speak of “my time” and “your time” as if it were a possession we hold in our hands. But we can’t stash it away for future use, nor can we trade or transfer our allotment to another person. Is it truly ours? For the moment, let’s say that it is.
Appraising time. How much do we value our time? Some days, we treat it as a precious commodity. On those days,
FORD MOTOR COMPANY introduced the world to the convertible hard top in 1957 with a car called the Skyliner. It was a marvel of engineering.
To retract, the Skyliner hard top first tilted up and away from the front windshield. Then the top folded in half overhead. The trunk lid opened wide. The folded hard top swung into the trunk, which then closed. All by flipping a single dashboard switch. You can see it in operation in this commercial featuring Lucille Ball and Desi Arnaz.
MARVIN STEINBERG was a psychologist who founded the Connecticut Council on Problem Gambling. During his career, he made some uncomfortable observations about the behavior of stock market investors. In many cases, he felt, investors’ behavior veered awfully close to gambling.
This is the sort of observation that seems like it could be true, but it also seems difficult to quantify. That’s why a recent study by Morningstar analyst Jeffrey Ptak caught my eye.
Ptak wanted to examine investors’ experience with so-called thematic funds.
RISK VS. REWARD. To earn high returns, we need to take high risk. Over the long haul, someone with 80% stocks will likely earn far higher returns than an investor with 80% bonds. Still, it’s called risk for a reason: The extra reward isn’t guaranteed—especially if we take unnecessary risk, such as betting on a handful of stocks rather than a diversified portfolio.
NO. 68: WE SPEND our days focused on goals, but achieving them rarely delivers the happiness we imagine. Instead, it’s the journey we truly enjoy. This is captured by psychologist Mihaly Csikszentmihalyi’s notion of flow. We’re often happiest when engaged in challenging activities we’re passionate about, consider important and feel we’re good at.
THROW STUFF OUT. Almost all of us have too many possessions. Those possessions come with an ongoing cost if, say, we rent a storage locker or we feel compelled to own a larger home. A suggestion: Make it a rule that, for every item of clothing or every tchotchke you buy, you have to give away at least one—and perhaps two—items that you already own.
OUR RETIREMENT INCOME is built on a slew of financial products and strategies. But we should think less about the gory details of each—and more about the role they play in our overall retirement finances.
The fact is, while each of us comes to retirement with different levels of wealth and different desires, we all want both a sense of financial security today and confidence about our financial future. How can we best meet those twin goals?
AS A PARENT, IT’S my responsibility to teach my children good financial habits. Core among these are deferring gratification, saving diligently, giving generously and making sensible spending choices. I feel it’s also important to make my children aware of financial pitfalls. Succeeding financially—and in life generally—seems to be as much about avoiding self-destructive habits as it is about cultivating good ones.
My wife and I have been homeschooling our children for the last couple of years.
WE MET IN THE GALLEY, the cafeteria in Vanguard Group’s nautical lexicon. Jack Bogle shook my hand. My pulse raced.
I’d learned about Vanguard’s founder while working at Morningstar. I’d read about him in Jonathan Clements’s Wall Street Journal columns. And I’d devoured his first book, Bogle on Mutual Funds.
“Where’d you go to college?” he asked. “Good board scores?”
We sat down, tucked into our meals—some sort of industrial casserole for me,
IT’S JANUARY 1—A DAY of great hope. Those New Year’s resolutions to save more still seem achievable. Nobody’s investment results have yet fallen behind the market averages. Market pundits can still fantasize that this year they’ll be proven right. In this spirit of optimism, check out my 16 ways to improve your life in 2016. Below, you’ll also find some thoughts on bond-market risk.
16 Ways to Improve Your Life in 2016
1.
MANY BELIEVE WE’VE raised a bunch of financial illiterates. If people were better educated about personal finance, the argument goes, they’d make smarter money decisions.
North Carolina this year became the 20th state to require high schoolers to take a financial literacy class. Its Lieutenant Governor, Dan Forest, said the new law would “ensure future students, prior to graduating high school, will be more financially literate and economically sound in their decision making as adults.”
But many aren’t sold on the idea that a personal finance class in high school is going to make much of a difference.
NO. 43: IF OUR GOAL is investment growth, we should almost never buy insurance products. That means no cash-value life insurance, costly variable annuities or indexed annuities.
RISK VS. REWARD. To earn high returns, we need to take high risk. Over the long haul, someone with 80% stocks will likely earn far higher returns than an investor with 80% bonds. Still, it’s called risk for a reason: The extra reward isn’t guaranteed—especially if we take unnecessary risk, such as betting on a handful of stocks rather than a diversified portfolio.
NO. 68: WE SPEND our days focused on goals, but achieving them rarely delivers the happiness we imagine. Instead, it’s the journey we truly enjoy. This is captured by psychologist Mihaly Csikszentmihalyi’s notion of flow. We’re often happiest when engaged in challenging activities we’re passionate about, consider important and feel we’re good at.
THROW STUFF OUT. Almost all of us have too many possessions. Those possessions come with an ongoing cost if, say, we rent a storage locker or we feel compelled to own a larger home. A suggestion: Make it a rule that, for every item of clothing or every tchotchke you buy, you have to give away at least one—and perhaps two—items that you already own.
OUR RETIREMENT INCOME is built on a slew of financial products and strategies. But we should think less about the gory details of each—and more about the role they play in our overall retirement finances.
The fact is, while each of us comes to retirement with different levels of wealth and different desires, we all want both a sense of financial security today and confidence about our financial future. How can we best meet those twin goals?
AS A PARENT, IT’S my responsibility to teach my children good financial habits. Core among these are deferring gratification, saving diligently, giving generously and making sensible spending choices. I feel it’s also important to make my children aware of financial pitfalls. Succeeding financially—and in life generally—seems to be as much about avoiding self-destructive habits as it is about cultivating good ones.
My wife and I have been homeschooling our children for the last couple of years.
WE MET IN THE GALLEY, the cafeteria in Vanguard Group’s nautical lexicon. Jack Bogle shook my hand. My pulse raced.
I’d learned about Vanguard’s founder while working at Morningstar. I’d read about him in Jonathan Clements’s Wall Street Journal columns. And I’d devoured his first book, Bogle on Mutual Funds.
“Where’d you go to college?” he asked. “Good board scores?”
We sat down, tucked into our meals—some sort of industrial casserole for me,
IT’S JANUARY 1—A DAY of great hope. Those New Year’s resolutions to save more still seem achievable. Nobody’s investment results have yet fallen behind the market averages. Market pundits can still fantasize that this year they’ll be proven right. In this spirit of optimism, check out my 16 ways to improve your life in 2016. Below, you’ll also find some thoughts on bond-market risk.
16 Ways to Improve Your Life in 2016
1.
MANY BELIEVE WE’VE raised a bunch of financial illiterates. If people were better educated about personal finance, the argument goes, they’d make smarter money decisions.
North Carolina this year became the 20th state to require high schoolers to take a financial literacy class. Its Lieutenant Governor, Dan Forest, said the new law would “ensure future students, prior to graduating high school, will be more financially literate and economically sound in their decision making as adults.”
But many aren’t sold on the idea that a personal finance class in high school is going to make much of a difference.
How Are You Planning to Pay for Potential Long Term Care Expenses?
Sports Fan by Scott Martin
Do you commit Medicare fraud? Hopefully not intentionally.
Quinn ponders taxes, laws, freebies and the future of retirement. Logic need not apply.
What wisdom can you share?
Fidelity ZERO Funds