IN AN EFFORT TO identify the simplest, most resilient lifetime investment portfolio, author and investment analyst Chris Pedersen concluded that a minimum of two funds is required. His recent book, 2 Funds for Life, summarizes his back-testing study to find a simple yet effective portfolio. The book is available free at PaulMerriman.com.
Pedersen found that a 90% allocation to a Vanguard Group target-date fund coupled with a 10% allocation to a small-cap value fund provides meaningful diversification across stocks and bonds,
IN MY ONGOING EFFORT to reduce our accumulated stuff, I was trolling through our collection of old thumb drives to see what I should download, save or toss. Among them, I discovered the 258-page presentation from a two-day retirement course that my old employer sponsored in 2006.
I wondered how the advice had—17 years on—stood the test of time. As I reviewed it, I found some excellent suggestions and some that were lacking, though I hesitate to fault the presentation’s authors.
JEFF BEZOS ONCE asked Warren Buffett why everyone doesn’t just copy his example when investing. Buffett famously replied, “Because nobody wants to get rich slowly.”
The magic of saving diligently, coupled with decades of compounding inside tax-advantaged accounts, can ensure financial freedom. In fact, young married couples today have an outside chance of accumulating $10 million by the time they reach the new required minimum distribution age of 75.
To reach the $10 million jackpot,
WHAT DO BEN FRANKLIN, Charles Darwin and David Cassidy all have in common? All have advised us not to waste life’s precious time.
Almost everything about money translates into time. Money can buy us time—either more free time or more time spent on higher-value activities. Money can purchase a nicer house or car, a luxury vacation, greater financial support for our children, fun toys or experiences, reduced financial stress—and, eventually, a comfortable retirement. The financial independence-retire early,
AS IF WE DIDN’T already have enough evidence, here’s further proof that stock market predictions have little value: A year ago, 24 highly regarded stock market pundits forecasted that the S&P 500 would close out 2022 at 4,904, according to data posted by CNBC’s Brian Sullivan. That 4,904 was the average, with their predictions ranging from a low of 4,400 to a high of 5,330. The S&P 500’s actual 2022 close was 3,840.
THE TWO SECURE ACTS—2019’s and 2022’s—may inadvertently increase the federal and state tax rates on tax-deferred retirement accounts, such as 401(k)s, 403(b)s and IRAs. While well-intentioned, the laws result in required withdrawals being bunched into fewer years—which could push people into higher tax brackets. But there are ways this tax toll might be lightened or avoided, as you’ll see.
With tax-deferred accounts, the normal advice is to delay taxable distributions for as long as possible to give more time for investment growth.
THREE YEARS AGO, I wrote an article suggesting I had 7,000 days to go, at least according to the Social Security Administration’s life expectancy calculator. The 1,000 days since then represented a significant 14% share of my remaining actuarial life.
The good news is, the Social Security calculator now estimates that my life expectancy is about 6,400 days. I’ve enjoyed 1,000 days of life but only used up 600 days of life expectancy. That’s like a 40% return on life over the past three years.
OVER THE PAST FEW weeks, my wife and I did something we hadn’t done in four years: We bought bonds.
Specifically, we parked some money in one- to two-year Treasurys paying 4.3% to 4.6%—the highest rates in 15 years. Our portfolio now approaches 5% bonds, and we plan to buy more. We’re waiting to capture higher rates following the expected Federal Reserve rate increases.
Bonds represent a seismic shift for us. In early 2020,
IN MY FIRST ARTICLE for HumbleDollar nearly four years ago, I said I’d claim Social Security benefits at my full retirement age of 66 and two months. By claiming mid-way between 62 and 70, I intended to hedge my bets, because I couldn’t know such relevant variables as my lifespan or future tax rates, inflation rates and investment returns.
And I did indeed claim Social Security recently, though—full disclosure—it was nine months after my full retirement age.
THE WILLS, POWERS of attorney and advance directives drawn up for my wife and me were drafted according to the laws of another state—and were badly out-of-date.
For example, these various documents included guardianships for our then-young children, with a trust to make gradual payouts until they turned age 35. Both our children have since graduated college, become professionally employed and demonstrated they’re financially responsible.
Despite all that, I’m embarrassed to admit that we procrastinated over getting new wills.
IN AN EARLIER ARTICLE, I noted that my savings journey began in 1960 with a couple of jars of pennies that I started collecting at age five. I was following family ancestor Ben Franklin’s maxim that “a penny saved is a penny earned.”
One of my uncles also had an interest in coin collecting. He and I began to actively search through countless penny rolls to find pennies with dates that we didn’t have.
NEW HAMPSHIRE’S state motto is “live free or die.” But for my wife and me, the first part might be better expressed as “live tax-free.”
We just moved to New Hampshire from Maryland. The move’s main purpose is to be near our kids, enjoy lake and mountain activities, and experience cooler summers. But New Hampshire’s zero tax rate on earned income, pensions and capital gains is a major bonus.
Eight states have no tax on personal income,
WE NEEDED MONEY to close on a new home. The mortgage process progressed smoothly—until the underwriters suddenly rejected the property right before closing. To get together the money needed to close, my wife and I had to resort to loan sharks—ourselves.
We borrowed from our IRAs. The rules allow tax-free distributions for either a 60-day rollover to a new IRA or reinvestment back into the same IRA. When we called Vanguard Group to execute our “rollovers,” the phone reps were well-versed on this short-term,
I LEARNED A LOT about finance and life from my uncle. He was an early investment advisor and published a book on wealth management. Even though he was not a registered investment advisor or a Certified Financial Planner, our family proudly extolled his ideas when I was growing up.
My family first introduced me to my uncle’s doctrines when I was a child of five or six. I had been given a small piggybank to store my life’s savings.
I’M DEBATING whether my life is better described by Tom Cochrane’s Life Is a Highway or Eddie Rabbitt’s Driving My Life Away. In a recent article, I noted that our family has driven our cars about 1.9 million miles. Since I’m the family’s King of the Road, I’ve been along for at least two-thirds of that ride.
I’m also, alas, the king of lost time.
The average commuting speed in the Washington,