Adam M. Grossman

IN BEHAVIORAL FINANCE, there’s an important concept that doesn’t get a lot of attention: It’s called temporal discounting. The idea is that we view our current and future selves, to some degree, as different people—and there’s a tendency to discount the needs of the “other” person. It’s an interesting idea because, even for the most diligent planners and savers, there’s an inherent tension between the financial needs of today and those of tomorrow.

Take the “latte factor,” which argues that a young person could accumulate nearly $1 million in savings simply by forgoing a daily coffee and muffin.

IN A TYPICAL YEAR, the bond market doesn’t attract much interest. That’s by design. The role of bonds in a portfolio is to serve as a bulwark against the unpredictability of stocks. They’re supposed to be boring.

All that changed this year. Thanks to rising interest rates, the most common total bond market index, the Bloomberg Aggregate, has lost about 11%. To put that in perspective, this index has delivered a negative return in only three of the past 25 years.

PERSONAL FINANCE books don’t exactly rank as the most sought-after holiday gifts. Still, if there’s a money nerd in your life—or someone who aspires to be one—below are 10 personal finance book recommendations.
Why Does the Stock Market Go Up? by Brian Feroldi. This book seeks to answer 60 of the most commonly asked questions in personal finance. In so doing, it demystifies many of the concepts, terms and acronyms that we often ​hear but may not fully understand.

WHEN ROSS PEROT RAN for president in 1992, a pillar of his campaign was tax reform. Federal tax rules, he pointed out, had grown to more than 80,000 pages. His proposal: Start over and replace everything with a simple flat tax.

Perot’s campaign for tax reform didn’t make much progress, but many can sympathize with his frustration. Because of the complexity of tax rules, financial planning often ends up feeling like the children’s game Operation—with penalties for even the slightest misstep and confusion around every corner.

A UNIVERSAL TRUTH about market bubbles is that they’re​ masters of disguise. Each new bubble appears different enough, at least on the surface, to reel in unsuspecting investors. While bubbles are almost as old as the market itself, the latest example—centered around the cryptocurrency exchange FTX—is particularly impressive. At this point, no one is 100% sure what happened, but this is what we know so far.
Back in 2017, a 25-year-old MIT graduate named Sam Bankman-Fried started a hedge fund to trade cryptocurrencies.

THERE ARE USUALLY TWO answers to every personal-finance question: There’s what the calculator says—and then there’s how you feel about it. What does that mean in practice? Let’s look at an example.

Suppose you’re considering when to claim Social Security. Many retirees struggle with this question. On the one hand, the government offers a strong incentive to wait: For each year you forgo Social Security—up to age 70—your future benefit will grow by some 8%.

I DON’T ENVY THE FOLKS in Washington. Last year, many accused Federal Reserve policymakers of being asleep at the wheel as they downplayed the risk of rising inflation. This year, of course, it’s been the opposite: The Fed has been in overdrive, raising interest rates aggressively. So far, the Fed has pushed through six increases in a row, totaling 3.75 percentage points. Many are now criticizing the Fed for moving too quickly.
This is in contrast to the challenge the Fed had been dealing with before COVID.

I’VE TALKED IN EARLIER articles about asset-liability matching. It’s ​a concept popular with insurance companies to manage investment risk. It’s a very formal approach and not one I would expect an individual investor to follow too literally. But it’s a notion that, in general, can help individuals make asset allocation decisions.
In his book, The Outsiders, William Thorndike highlights another well-known principle in corporate finance that can also be applied to personal finance: It’s called capital allocation.

WHEN I WAS IN SCHOOL, corporate executives often visited for guest lectures. Two of these presentations still stand out in my mind.
The first was the CEO of a company then called Flextronics—now simply Flex. It’s a contract manufacturer that assembles products for other companies. Apple, for example, doesn’t have factories of its own and instead relies on outsourcers like Flex to build its products, usually in Asia.
You might wonder why a presentation like this would be memorable.

WARREN BUFFETT HAS said that, when he’s in his office, he spends about 80% of his time reading—​as much as 500 pages each week. And for good reason. One of his mottos is that “knowledge compounds.”

Judging by his track record, this approach seems to work. Even in his 90s, Buffett believes there’s always more to learn and that more knowledge will lead to better investment results.

At the same time, investors often invoke expressions that suggest otherwise: No one has a crystal ball.

FOR ELON MUSK, IT HAS—to use his own words—been a “very intense seven days.” Just over a week ago, Tesla demonstrated a new prototype product, a robot called Optimus. A week ago, it announced that it had delivered a record number of new vehicles in the third quarter. And, on Wednesday, a rocket built by SpaceX, one of Musk’s other companies, completed a successful launch from Cape Canaveral, carrying astronauts to the International Space Station.

A FAVORITE QUOTE in the world of personal finance comes from Ernest Hemingway’s 1926 novel The Sun Also Rises.
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually, then suddenly.”
Money troubles are a common theme throughout literature. Charles Dickens probably summed it up best. In David Copperfield, a fellow named Micawber laments: “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds,

INFLATION THIS YEAR has been running at more than four times the Federal Reserve’s target of 2%, forcing the central bank to raise interest rates multiple times. As a result, both the stock market and the bond market have been struggling. This has investors searching for alternatives.

At the top of the list for many people is gold, which gained a reputation as a bulwark against inflation in the 1970s. During that decade, when inflation was running hot,

INSURANCE COMPANIES are disproportionately represented among the world’s oldest companies. John Hancock was founded in the 1860s. Cigna dates to the 1700s. Some insurers are even older. Why is that?

In my opinion, it’s because they employ a strategy called asset-liability matching. In simple terms, insurers organize their finances so cash is always available when they need it.

Let’s say each winter typically results in $100 million of auto claims for a particular insurer.

JAMES J. CHOI is a finance professor at Yale University. But in a recent paper titled “Popular Personal Financial Advice versus the Professors,” Choi played the role of (somewhat) neutral arbiter. The question he sought to answer: Do popular—that is, non-academic—personal finance books offer advice consistent with the academic literature? And if not, is that a problem?

To conduct his study, Choi looked at 50 personal finance titles including The Millionaire Next Door,