WE FIGHT ABOUT money all the time. Politicians argue over how to spend the stuff and who should pay. Couples argue about why there isn’t enough and who’s to blame. And nerdy folks—that would include me—bicker over which investments to buy, when to claim Social Security, the virtues of homeownership and countless other topics.
These debates may amuse others, but I often find them frustrating—because they’re never just about facts and logic. Instead, far too many people come to these arguments with baggage that borders on cargo.
THIS YEAR’S PANDEMIC has unleashed financial turmoil for many American families, so data from last year might seem irrelevant. Still, there’s one set of 2019 data that deserves our attention—the Federal Reserve’s latest Survey of Consumer Finances, which was released last month.
Conducted every three years, the survey is perhaps the most in-depth look we get at the state of America’s personal finances. For the 2019 survey, 5,783 families (who may be individuals living alone) were interviewed at length about their income,
LET’S START WITH the obvious: If you buy high-quality bonds today, you’ll collect very little yield—and there’s an excellent chance you’ll lose money once inflation and taxes are figured in.
Take Vanguard Total Bond Market ETF, which aims to track U.S. high-quality taxable bonds. It yields some 1.2%, which is below the 1.7% expected annual inflation rate for the next 10 years, and the amount you pocket will be even less after deducting taxes.
MINDFUL. INTENTIONAL. Purposeful. These are the buzzwords of our time—and they make me slightly queasy, with their whiff of self-centered, self-satisfied self-indulgence.
Yet it seems those are my goals.
On Monday, a moving van will arrive to take my worldly possessions to a house in Philadelphia that, I hope, will be my last. All this has made me ponder what I want from the years that remain. Three items top my wish list:
Do good work.
THERE ARE FINANCIAL issues on which reasonable people can disagree. This article is not about those issues. Instead, it’s about issues where people disagree—because one side has a fundamental misunderstanding.
These misunderstandings, I fear, are leading folks to shortchange themselves financially—and we’re talking here about some of the most important money decisions we make. Examples? Based on the comments I’ve received, here are three widespread misconceptions:
1. Commissions equal trading costs. If you think it’s free to trade stocks because you aren’t paying a brokerage commission,
MANAGING MONEY is ridiculously simple—and unbelievably hard.
Figuring out what we should do with our dollars is typically straightforward: We should save regularly, diversify broadly, rebalance occasionally and so on. Instead, the tough part is getting ourselves to do what we intellectually know is right.
Take the notion of buying low and selling high. Every investor knows that’s the goal—and yet, when the S&P 500 slumped 34% earlier this year, many folks just couldn’t bring themselves to buy stocks.
EVERY SO OFTEN, I’m asked about my biggest investment mistakes—and I really don’t have much to say. Yes, like many others, I dabbled in individual stocks and actively managed mutual funds early in my investing career. Yes, like everybody who’s truly diversified, there are always parts of my portfolio that are generating disappointing short-term results. But such things don’t cause me any regrets.
Instead, as I look back, my big financial regrets fall into four buckets:
TO MANAGE OUR money better, often we don’t need to know more. Instead, we need to unlearn what we think we already know.
Here are just some of the things that, at various points in my 35-year investing career, I’ve thought I’ve known:
Which fund managers will outperform.
Which way the economy is headed.
What’s next for interest rates and share prices.
Whether the overall stock market is overvalued or not.
Which individual stocks will beat the market.
TODAY, I SING the praises of spending—on the little things in life.
We fiercely resist the suggestion that money doesn’t buy happiness. Commentators will often trot out the quote—which has been attributed to all kinds of folks—that, “I’ve been poor and I’ve been rich. Rich is better!”
I think that’s true. But it isn’t proportionally true. If you went from earning $100,000 a year to earning $200,000, or your portfolio grew from $500,000 to $1 million,
IT SEEMS QUAINT now, but a quarter century ago conversations would often degenerate into arguments over facts. How much do homes typically appreciate? How much does the average American have saved by retirement? What does a nursing home cost? Such questions would trigger tedious debates built on anecdotal evidence and half-remembered newspaper articles.
But as my father—who died in 2009—often remarked during the final decade of his life, there’s no point anymore in arguing over facts.
FOR THOSE WHO know their A.A. Milne, they’ll recall Eeyore as Winnie the Pooh’s perennially gloomy donkey friend. Which brings me to my inner Eeyore—and a thought provoked by the stock market’s astonishing recovery.
Now that the S&P 500 is once again hitting new highs, it’s time to prepare for the next bear market. No, I haven’t reduced my stock holdings as share prices have bounced back and, no, I’m not predicting that another crash is imminent.
WHEN A FAMILY OPTS to purchase a Mercedes rather than a Subaru, the rest of us might think they’re being extravagant. But you likely won’t find many people saying, “How stupid is that? They could’ve got around town for half the price.” We accept that a car isn’t a strictly utilitarian purchase.
But we aren’t nearly so forgiving when it comes to “suboptimal” investment and personal finance decisions. Today’s contention: We shouldn’t be too quick to deride the money choices made by others—and,
THREE WEEKS AGO, I wrote about my plan for generating retirement income, including my intention to make a series of immediate fixed annuity purchases. Immediate annuities are a profoundly unpopular product, so I was surprised when the article generated a slew of questions from readers.
Perhaps that interest reflects today’s miserably low bond yields, which have left immediate annuities as one of the few ways to generate a safe and sizable income stream. Intrigued?
“BUYING THE DIP.” It’s a phrase often uttered with contempt by Wall Street strategists and money managers, who look down their nose at everyday investors who instinctively shovel more money into stocks simply because share prices have fallen.
Commentators “caution against” it, dismiss it as “not an investment strategy,” predict it’s going to “die,” argue it could get “very, very nasty” and contend that—when everyday investors buy on dips—it’s a “contrarian signal.” And I got all that based on a quick internet search.
WELCOME TO OUR new daily market report, which we’re going to run exactly once, which is probably once too many. In market action yesterday, stock prices fluctuated—a development that shocked market observers who noted they hadn’t seen anything like that since the day before.
“If we can stay above the psychologically important 3,200 barrier, that’ll create an important support level that could build a base for a new bull market,” opined market strategist Ross Nodamus,