WHEN I WORKED FOR a personal finance magazine in the mid-1990s, I wrote a story about conmen who met their marks in internet chat rooms devoted to stock investing. One of the slickest tricksters went by the name of Josef von Habsburg. He told people he was descended from Austrian royalty.
In researching the story, I called the police in von Habsburg’s hometown of Birmingham, Michigan, a suburb of Detroit. The local police knew him as Josef Meyers and said he was about as royal as you or me.
WE BUY LOBSTERS from the backdoor of a fisherman who we know here in Maine. On Tuesday, my wife texted him to say she’d left $35 in cash for the four lobsters he’d set aside for us in a cooler. He texted back to say $25 was more than enough.
In a year of spiking inflation, I have a morsel of good news. The wholesale price of lobster has crashed since March, down 45% according to the Federal Reserve Bank of St.
I RECENTLY LEFT A BID for a set of old, dusty chairs at a country auction. The next morning when I called the auctioneer, he told me I was the high bidder and the chairs’ new owner. As an economist, I immediately thought, “Wait—am I the winner or the loser here?”
The auction was held at the Elks Lodge in Rockland, Maine, where old furniture tends to go for a song. I had been drawn there by a picture of six Chippendale dining chairs supposedly made in Philadelphia in the 18th century.
WHEN OUR KIDS applied to colleges, the smallest detail of each campus visit mattered a lot. If our daughter admired the student leading our tour, the school skyrocketed in her estimation. If the class our son attended to “get a feel for the place” turned out to be a test period, Grandpa’s alma mater was forever struck from consideration.
In economic terms, the college decision features asymmetric information. Colleges know a lot about us from our detailed personal and financial applications.
BORROWING FROM MY 401(k) helped my wife and me buy our home in 1997. I’m grateful I was able to reach inside my retirement plan for the money we needed for the house down payment.
Experts often warn against 401(k) loans because, even if the loan is repaid, the money borrowed can miss out on investment gains. That’s certainly a risk. Still, there’s a second way of taking money out of a 401(k)—and it’s far more harmful to retirement savings.
WHEN WE MOVED to Pennsylvania in 1996, I wanted to buy an old house. After months of looking, we found a stone farmhouse close to my new job and in a good school district. There was just one problem: We didn’t know if we could afford it.
We hadn’t been able to sell our home in Maryland, so we didn’t have any home equity to bring to the table. When our real estate agent saw the asking price,
WE PUT OUR TWO KIDS through college using 529 plans—and I estimate the accounts easily added 10% to the value of our college savings, compared to what we would have accumulated if we’d invested through a regular taxable account. Yet only 37% of families use 529s to help pay for college, according to a 2021 survey by Sallie Mae.
Like an IRA, a 529 plan gives you a tax break for saving for a specific goal—but,
I JUST REACHED my full Social Security retirement age of 66 and four months. Funny, I don’t feel a bit older. Still, I am now entitled to 100% of the benefit that I’ve earned since I started working.
Conventional wisdom says to delay filing. Each month that I wait will add 2/3rds of 1% to my eventual benefit. That adds up to a risk-free 8% a year. If I were to wait until I turn 70,
I CAN’T CALL THE BOOKS I buy “beach reads” because, honestly, they can get dense. Still, if—like me—you enjoy learning about investing, economics or even the religious overtones of capitalism, here are five books that might make for insightful summer reading or, perhaps, induce napping in the hammock.
The Physics of Wall Street by James Owen Weatherall. This book begins with the assertion that “Warren Buffett isn’t the best money manager in the world” and then spends the next 224 pages introducing us to genius PhDs who’ve whipped the S&P 500 by anticipating the prices of securities.
AS MY OLD NEWSPAPER company slid toward bankruptcy, it signed over the deeds to its newspaper buildings to the pension plan in an effort to meet its obligations. It was like burning the furniture to keep the house warm—and it worked about as well as you might expect.
When the company finally filed for bankruptcy in 2020, it laid the blame on its unfunded pension obligations. The pension fund was short by $1 billion,
PEOPLE TEND TO attribute their investment gains to skill and their losses to bad luck. To these two categories, I’d like to suggest a third: making a fortune—thanks to good luck. Let me give you an example.
I’m a member of the National Press Club in Washington, D.C. It’s a downtown club where reporters went for a drink and a bite to eat after they filed their stories. As you might expect, business was rocky during the pandemic.
FOR THE FIRST TIME, retail investors have more money in index funds than actively managed funds. This is based on March 31 figures compiled by Morningstar and reported by columnist Allan Sloan.
Twenty-five years ago, Vanguard Group founder Jack Bogle published his remembrance of the 1970s launch of the first index fund geared to main street investors. As I page through the book again, I’m reminded of how close indexing came to failing.
Bogle recounts going on a 12-city roadshow,
WHEN I ASKED MY college class this spring how many had been taught personal finance before, just a single hand went up. That’s why I teach Franco Modigliani’s lifecycle hypothesis of savings to my behavioral economics class.
A brilliant student born to a Jewish family in Rome, Modigliani was awarded first prize in a national economics contest by Mussolini himself. Warned to flee Italy while he still could, Modigliani soon after booked a zig-zagging trip through Switzerland and France before landing in New York in 1939.
WHEN I GOT MY FIRST job in 1976, my employer didn’t offer a 401(k) for one simple reason—the plans didn’t exist. By 1985, a new employer did offer one, so I signed on.
Where had the 401(k) come from? Well, I met the man who put the K into the tax code, and he was beyond humble about it. In fact, he’d forgotten all about it.
Barber Conable Jr. graduated at age 19 from Cornell University to join the Marines Corps in World War II.
EVERY YEAR, I READ somewhere that it’s going to be a stock picker’s market. These stories suggest I need an active manager to nimbly skip down Wall Street, picking the daisies and avoiding the weeds.
Then the annual results roll in. That unmoving and unmanaged S&P 500 Index fund has somehow, unaccountably, beaten those deft active managers at their game.
The S&P 500’s return of 28.7% in 2021 beat 85% of actively managed large-cap U.S.