AS THE STOCK MARKET YO-YOS up and down, I figured it was worth taking a step back and talking about how investors should behave. Below is an excerpt from the Jonathan Clements Money Guide. What does it mean to be a seasoned investor? Here are eight signposts:
You have mixed feelings about rising markets. Yes, it’s great that your portfolio has grown fatter. But it also means future returns will be lower.
IT’S ONE OF THOSE INDELIBLE teenage memories: visiting the Bank of Baltimore in suburban Washington, DC, in the late 1970s. I would hand over my babysitting or lawn-mowing money to the bank clerk, who would slide my green bank book into some magic typewriter. After a joyous clatter of keys, my bank book would be returned, and there would be recorded not just my deposit, but also the latest quarterly interest payment.
My children and stepchildren—ages 10 to 27—all have bank accounts.
AFTER A TURBULENT few months for stock prices and with 2015 winding down, talk will soon turn to tax-loss harvesting. The notion: You sell losing stocks in your taxable account, and then use the realized capital losses to offset realized capital gains and up to $3,000 in ordinary income, thus trimming your 2015 tax bill.
Sound like a smart strategy? If you trade individual stocks actively or you’re a really bad investor, tax-loss harvesting might make sense.
“SOMETIMES, YOU HAVE TO GO BACKWARD to go forward.” That’s my advice to financial advisors in my latest article for Financial Planning. The advice is equally applicable to the typical investor. To get the most out of your money, occasionally you may want to take steps that trim your portfolio’s value in the short-term.
Examples? It often makes sense to live entirely off savings in your early retirement years, while delaying Social Security benefits to get a larger monthly check.
SOMETHING HAD TO GO. The final chapter of the Jonathan Clements Money Guide 2015 was devoted to 31 rules for the financial road ahead. For the Money Guide 2016, I’m replacing that chapter with a new final chapter, which details how to create your own financial plan in 18 easy steps.
But even as I axed the 31 rules from the manuscript, I figured they deserved a permanent home.
IF WE WORK LIKE DOGS for 40 years, we’ll get our reward, which is the chance to sit around and do nothing for 20 or 30 years. That’s the definition of a successful life, according to conventional financial wisdom. But it doesn’t sound like a whole lot of fun, does it?
My contention: It’s time to rethink the crazy distinction between work and retirement and, in the process, redefine what counts as a successful life.
THIS MORNING, I hit send on my inaugural newsletter. What’s next for the markets? How can you get your kids started as investors? How can you get a little extra yield without getting whacked by tumbling bond prices? Those are some of the topics I cover. My next newsletter will go out in early December. If you want to be on the distribution list for that issue, shoot me an email.
CHRONOLOGICALLY, RETIREMENT may be our final financial goal, but we should always put it first. Partly, that’s because retirement is so much more expensive than, say, buying a house or putting the kids through college, so it takes many decades of saving and investing to amass enough for a comfortable retirement. But among financial goals, retirement is also unique in two other ways: It isn’t optional—and we can’t pay for it out of current income.
HOW CAN TRADITIONAL FINANCIAL ADVISORS fend off the threat from low-cost robo-advisors? I tackle that topic in my first regular monthly column for Financial Planning magazine. With the appearance of that column, and the demise of my Wall Street Journal column, I decided to revamp my articles page. That page–which previously just housed my Journal columns–now includes all articles I have written since my return to journalism in April 2014,
AS THE SOUND OF SUMMER CRICKETS gives way to the din of investors wailing, I’ve had two relevant articles appear. I helped Bottom Line/Personal put together a piece on “7 lies investors tell themselves.” The article was wrapped up weeks ago, but it seems timely in the wake of the recent market turmoil.
Meanwhile, I am now writing occasionally for Financial Planning, a publication geared to financial advisors. Check out the article posted this morning on five strategies for staying calm in the face of market mayhem.
WHAT SHOULD INVESTORS make of the stock market’s decline? Start with three ideas. First, the S&P 500 has fallen a mere 7.5% from its all-time high, set in May, so the “global market rout” looks more like a mild case of market indigestion.
Second, while the S&P 500 declined 5.8% last week, we can be confident that the underlying, fundamental value of these 500 corporations didn’t deteriorate 5.8%. As usual, investors are trying to figure out the future,
THE PUBLISHERS of my 2003 and 2009 books wanted the manuscripts quickly, so I wrote both books in roughly four months. My strategy: Bang out 1,000 words a day for the first 30 days or so, without paying much attention to the quality of the writing. I then spent the next three months checking facts and polishing the manuscript. In both cases, I was working a fulltime job while writing the books, so by the end of the four months I was pretty much wrecked.
THE GREAT RECESSION may have been a financial wakeup call for American families. But many have since drifted back to sleep.
The official savings rate averaged 10.6% in the 1950s, 11.1% in the 1960s and 11.8% in the 1970s. From there, it started to slide, averaging 9.3% in the 1980s, 6.7% in the 1990s and just 4.3% in the 2000s. Panicked by the Great Recession, many Americans made a fleeting return to frugality: During the first five calendar years of the current decade,
INFLATION ROSE JUST 0.1% over the 12 months through June, as measured by CPI-U, the most popular inflation measure. But that tiny increase is a bad guide to the future, because it’s held down by the 15% plunge in energy prices over the past year.
So what should we expect? A better guide is CPI-U with food and energy excluded, which rose 1.8% over the past 12 months. Better still, take your cues from the Treasury market.
IF YOU STILL BELIEVE PAST PERFORMANCE is a good guide to future results, check out the latest S&P Persistence Scorecard from S&P Dow Jones Indices. The study tracks top-performing mutual funds from one 12-month stretch to the next, to see whether they were able to hold their position among the better-performing funds.
No large-cap, mid-cap or small-cap stock fund managed to remain among the top 25% of performers over the five consecutive 12-month periods ending March 2015.