As someone who has lived internationally, I can promise you that other countries are not interested in ceremonial certificates, only the legal, properly authenticated, government documents :-). Some of our US procedures are a bit quirky, perhaps due to our "federal" form of government.
As a financial coach, not an advisor, I often explain that it is necessary for advisors to provide a great enough level of complexity and activity to convince their clients they are doing something worthwhile. I find that tends to be about 10 funds for a fund-based advisor and at least 10 transactions a year. Generally they also generate PR/educational materials that arrive at least that often, indicating or inferring that ongoing adjustments are needed.
Since these are practice-building activities, I would suggest they are more essential to successful advisors than things like simplicity and inaction people are recommending in these comments.
When I was in my 20s we bought a charitable gift annuity, which provides lifetime income along with some charitable giving, another way of pooling risk. It was a great deal for us as the rates were quite favorable in the early 1980s. My recollection is that the internal rate of return was 6%. Of course we only had a limited amount of money to commit to it. But it goes back to the point several have made in this discussion, including Jonathan, that people don't actually understand annuities.
One way of looking at it is that annuities bet you will die while life insurance bets you won't. They both provide some protection from uncertainty at the cost of some return.
In both cases, the cash products can have lower fees and offer simpler propositions. Of course, people also don't understand that insurance companies and their contracts offer different levels of financial security, and very few people even consider the rating of the insurance company when they are comparing contracts.
As others have said, having the ability to understand and compare such things is not common to all people and whatever ability we have is a gift, in my opinion. I am grateful although I don't always what to do with whatever gift I have.
A note about the tax implications of losing a spouse. It was a surprise to me to realize that having fully funded the tax liability on the joint return provided no protection against underpayment penalties on the single return because it was viewed as "a different taxpayer." Maybe there was a way around that, but if so I missed it and was surprised when my family member incurred a small underpayment penalty the next year.
I think if we had IRS Free File, which it looks like we won't, we could assist people with filing their returns online and both provide that direct help as well as increase their comfort and understanding. Since many people regrettably don't understand finances they are unlikely to understand taxes, but an annual consultation might help them make better decisions about both.
I like starting from a baseline using the single life expectancy table the IRS publishes. Here's a copy from Fidelity https://www.fidelity.com/retirement-ira/irs-single-life-expectancy-table It's about 4% around age 62-63. You get that by dividing 100 by the number of years in the table for a given age. And that age is around when most people think about the 4% guideline.
Where it helps is that each year going forward I reset based on my actual investment experience, my actual age, and what I have actually already spent. And of course it's still just a guideline.
In most cases, the people actually asking this question are the ones spending way less than this guideline would suggest. That would be us.
It seems to me the point of diversification is to avoid concentration. Easy examples of concentration are the employee who never sells his company stock grants and the business owner who never takes money out of the business.
I say this because playing multiple games (stocks, bonds, foreign, domestic, real estate, crypto, precious metals) is more of a game for fund advisors or institutional investors in my mind. This is way past concentration, and sufficient diversification was likely achieved in most dimensions far sooner that that.
Rather I would say that an S&P 500 fund is mildly concentrated because the biggest companies are over 5%. Owning one other fund of almost any kind except a market capitalization weighted fund in a proportion as low as 25% will solve this problem. Anything more is more than sufficient diversification.
So taking Adam's thought about many kinds of diversification I would ask, do I have one or more areas of concentration? If so, what can I do to reduce that or balance it with something else [that is also good, but not perfect.]
My own biggest area of concentration is quite obvious--Colorado Springs real estate. It's not having 4% of the remaining investment portfolio in some multi-national corporation with offices around the world.
I don't know. I find grandparenting is as great as parenting, but with a lot less angst :-). If (or when) something goes wrong, there comes a caring parent ready to take over! Last time we were watching them, the parents came back early to sit around and visit with us--even better!
I actually did three things, maybe even four.
1) I stayed fully invested, keeping in cash approximately one month of expenses.
2) I rebalanced more frequently. When there is high volatility, one investment is frequently "on sale" compared to another. I sell the relative winners back down to allocation and use the proceeds to raise the losers back up. In fact, I tilt my allocations slightly to the current losers--by about 1% by shorting the current winners by about 1%.
3) I wrote some friends and family that I talk to about investing reminding them that life goes on, etc., copying them an email from Vanguard that said something similar.
4) (Maybe even!) I pondered the possibility that life might become much harder in various ways because of vain ambition and human hubris that both now and in the future characterizes human leaders. I'm praying about this, but I'm not sure how to pray!
I'd like to see more discussion of managing risk as opposed to minimizing or eliminating risk. As someone once said, the sluggard turns over in bed and says, "There are lions out there."
Comments
As someone who has lived internationally, I can promise you that other countries are not interested in ceremonial certificates, only the legal, properly authenticated, government documents :-). Some of our US procedures are a bit quirky, perhaps due to our "federal" form of government.
Post: Am I Really Married?
Link to comment from May 13, 2025
As a financial coach, not an advisor, I often explain that it is necessary for advisors to provide a great enough level of complexity and activity to convince their clients they are doing something worthwhile. I find that tends to be about 10 funds for a fund-based advisor and at least 10 transactions a year. Generally they also generate PR/educational materials that arrive at least that often, indicating or inferring that ongoing adjustments are needed. Since these are practice-building activities, I would suggest they are more essential to successful advisors than things like simplicity and inaction people are recommending in these comments.
Post: Financial Advisor – NEVER AGAIN
Link to comment from May 13, 2025
When I was in my 20s we bought a charitable gift annuity, which provides lifetime income along with some charitable giving, another way of pooling risk. It was a great deal for us as the rates were quite favorable in the early 1980s. My recollection is that the internal rate of return was 6%. Of course we only had a limited amount of money to commit to it. But it goes back to the point several have made in this discussion, including Jonathan, that people don't actually understand annuities. One way of looking at it is that annuities bet you will die while life insurance bets you won't. They both provide some protection from uncertainty at the cost of some return. In both cases, the cash products can have lower fees and offer simpler propositions. Of course, people also don't understand that insurance companies and their contracts offer different levels of financial security, and very few people even consider the rating of the insurance company when they are comparing contracts. As others have said, having the ability to understand and compare such things is not common to all people and whatever ability we have is a gift, in my opinion. I am grateful although I don't always what to do with whatever gift I have.
Post: RDQ Sorry folks, I still see annuities, including deferred annuities, as a viable option for creating steady retirement income.
Link to comment from April 26, 2025
A note about the tax implications of losing a spouse. It was a surprise to me to realize that having fully funded the tax liability on the joint return provided no protection against underpayment penalties on the single return because it was viewed as "a different taxpayer." Maybe there was a way around that, but if so I missed it and was surprised when my family member incurred a small underpayment penalty the next year.
Post: Taxing Situations
Link to comment from April 26, 2025
I think if we had IRS Free File, which it looks like we won't, we could assist people with filing their returns online and both provide that direct help as well as increase their comfort and understanding. Since many people regrettably don't understand finances they are unlikely to understand taxes, but an annual consultation might help them make better decisions about both.
Post: Taxing Situations
Link to comment from April 26, 2025
I like starting from a baseline using the single life expectancy table the IRS publishes. Here's a copy from Fidelity https://www.fidelity.com/retirement-ira/irs-single-life-expectancy-table It's about 4% around age 62-63. You get that by dividing 100 by the number of years in the table for a given age. And that age is around when most people think about the 4% guideline. Where it helps is that each year going forward I reset based on my actual investment experience, my actual age, and what I have actually already spent. And of course it's still just a guideline. In most cases, the people actually asking this question are the ones spending way less than this guideline would suggest. That would be us.
Post: 4% every year? even this one?
Link to comment from April 14, 2025
It seems to me the point of diversification is to avoid concentration. Easy examples of concentration are the employee who never sells his company stock grants and the business owner who never takes money out of the business. I say this because playing multiple games (stocks, bonds, foreign, domestic, real estate, crypto, precious metals) is more of a game for fund advisors or institutional investors in my mind. This is way past concentration, and sufficient diversification was likely achieved in most dimensions far sooner that that. Rather I would say that an S&P 500 fund is mildly concentrated because the biggest companies are over 5%. Owning one other fund of almost any kind except a market capitalization weighted fund in a proportion as low as 25% will solve this problem. Anything more is more than sufficient diversification. So taking Adam's thought about many kinds of diversification I would ask, do I have one or more areas of concentration? If so, what can I do to reduce that or balance it with something else [that is also good, but not perfect.] My own biggest area of concentration is quite obvious--Colorado Springs real estate. It's not having 4% of the remaining investment portfolio in some multi-national corporation with offices around the world.
Post: Spreading Your Bets
Link to comment from April 14, 2025
I don't know. I find grandparenting is as great as parenting, but with a lot less angst :-). If (or when) something goes wrong, there comes a caring parent ready to take over! Last time we were watching them, the parents came back early to sit around and visit with us--even better!
Post: Hitting Repeat by Jonathan Clements
Link to comment from April 5, 2025
I actually did three things, maybe even four. 1) I stayed fully invested, keeping in cash approximately one month of expenses. 2) I rebalanced more frequently. When there is high volatility, one investment is frequently "on sale" compared to another. I sell the relative winners back down to allocation and use the proceeds to raise the losers back up. In fact, I tilt my allocations slightly to the current losers--by about 1% by shorting the current winners by about 1%. 3) I wrote some friends and family that I talk to about investing reminding them that life goes on, etc., copying them an email from Vanguard that said something similar. 4) (Maybe even!) I pondered the possibility that life might become much harder in various ways because of vain ambition and human hubris that both now and in the future characterizes human leaders. I'm praying about this, but I'm not sure how to pray!
Post: Tariffs and our retirement assets
Link to comment from April 5, 2025
I'd like to see more discussion of managing risk as opposed to minimizing or eliminating risk. As someone once said, the sluggard turns over in bed and says, "There are lions out there."
Post: Seeking Certainty
Link to comment from March 29, 2025