What’s in a Name?

Jonathan Clements  |  April 13, 2016

WHO WON? Last week, the Department of Labor issued new rules, saying financial advisors have a fiduciary duty when advising clients on how to handle their retirement accounts, such as 401(k) plans and individual retirement accounts. This fiduciary duty means advisors must act in a client’s best interest.
For registered investment advisors, or RIAs, this wasn’t an issue: These advisors, who typically get compensated through fees, were already held to a fiduciary standard. But it was a big deal for brokers,

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New Stats, Old Story

Jonathan Clements  |  April 6, 2016

DISCUSSING AMERICA’S retirement readiness is almost always dispiriting. A minority are in good shape, but most folks are just muddling along—and many aren’t even managing that. Here are some numbers from the Employee Benefit Research Institute’s 2016 Retirement Confidence Survey:

26% of workers say they have $100,000 or more in savings, excluding their home and any defined benefit pension. But the same percentage—26%—say they have less than $1,000. The picture is cheerier if you look at workers age 55 and older,

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Control What You Can

Jonathan Clements  |  April 2, 2016

ASK NOT WHAT the markets can do for you. Ask what you can do for your portfolio.
After 15 turbulent months for stocks, many folks feel they’re at the mercy of the financial markets. But in truth, we’re far from powerless. We may not be able to control the direction of share prices. But here are seven crucial financial levers over which we have a lot of control:
1. We can figure out how much cash we’ll need from our portfolio over the next five years,

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Fistful of Trouble

Jonathan Clements  |  March 26, 2016

CONFRONTED BY a complicated financial world, the temptation is to fall back on rules of thumb. But are these rules any good? Here are five of the most popular:
1. Save 10% every year. There are two knocks on this rule of thumb. First, the 10% of pretax income is the sum you’re meant to save for retirement—which means those who have other goals, like buying a house and paying for a child’s college education,

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Not So Pure

Jonathan Clements  |  March 12, 2016

THE LATEST MUTUAL FUND SCORECARD from S&P Dow Jones Indices had sobering news for buyers of actively managed funds: Just 17% of U.S. stock funds beat the broad market over the past 10 years. But for those who dug into the numbers, there seemed to be a glimmer of hope.
The so-called SPIVA scorecard analyzes actively managed U.S. stock funds in 13 style boxes. There are four categories for value funds, four for growth funds and four for funds that straddle these two investment styles.

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Tobin’s Q

Jonathan Clements  |  March 10, 2016

THE FEDERAL RESERVE just released its latest “Financial Accounts of the United States”—which sent nerdy stock market analysts scrambling to look at table B. 103, which details the “Balance Sheet of Nonfinancial Corporate Business,” and especially line 44. That line compares the stock market’s overall value to the current value of assets owned by corporations. Some of these corporate assets are listed at their market price, while others are valued at their replacement cost.

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Muddling Along

Jonathan Clements  |  March 4, 2016

TEN-YEAR TREASURY notes are currently yielding 1.9%. That means today’s buyers will likely lose money, once inflation and taxes are figured in—and yet demand remains robust, as evidenced by 2016’s rise in Treasury bond prices. The healthy appetite for Treasurys partly reflects the vast amount of excess capital sloshing around the global financial markets, as well as the tiny payouts on alternatives such as money-market funds and savings accounts. But it also reflects the current fear engendered by both stocks and lower-quality bonds.

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The $686 Million Man

Jonathan Clements  |  February 26, 2016

EXXONMOBIL RECENTLY ANNOUNCED 2015 earnings of $16.2 billion, just half of 2014’s level. That news sent me scurrying around the Internet in search of a decade-old article I vaguely recalled.
At year-end 2005, Lee R. Raymond retired as ExxonMobil’s chairman and chief executive after 13 years at the helm. The following April, The New York Times reported that Raymond earned $686 million during that stretch, equal to $144,573 a day. The article noted that,

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We the Problem

Jonathan Clements  |  February 19, 2016

WHY IS THE U.S. economy growing so slowly? Should we bar new immigrants—and toss out some of those already here? Can we afford today’s Social Security retirement benefits? These three huge public policy issues might seem unrelated, but they are connected by two demographic realities: The workforce is growing too slowly—and the retiree population is growing too quickly.
Over the next decade, the U.S. civilian workforce is projected to grow at 0.5% a year,

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Weighing Risk

Jonathan Clements  |  February 11, 2016

WITH STOCKS in turmoil, investors are once again fretting over risk. But what aspect of risk should we worry about? Whenever the notion arises, it’s worth contemplating three questions.
What are the odds of success or failure? Over the past 50 years, the S&P 500 (with dividends reinvested) has lost money in 11 calendar years, equal to once every four or five years. With odds like that, an occasional losing year should be no great surprise.

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Worth the Wait

Jonathan Clements  |  February 7, 2016

THE DEBATE over when to claim Social Security reminds me of the debate over index funds. On one side, there are those who have studied the issue—and on the other side are crackpots and those with a not-so-hidden agenda. Yes, you should index. Yes, most folks should delay claiming Social Security retirement benefits.
Elsewhere, I’ve written about the breakeven age for claiming Social Security, assuming you took your benefit and invested it. The upshot: Taking benefits at age 66 or age 70 is typically a better bet than taking benefits at 62,

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A Hollow Victory?

Jonathan Clements  |  February 1, 2016

VANGUARD GROUP founder John C. Bogle has an article in the latest Financial Analysts Journal where he reviews the growth of index funds over the 40 years since the launch of Vanguard’s first index mutual fund—and where he makes pointed remarks about their upstart cousins, exchange-traded index funds.
First, consider the phenomenal growth of index funds. They surged from 4% of stock fund assets in 1995 to 16% in 2005, and then kept barreling right along,

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Make It Important

Jonathan Clements  |  January 28, 2016

A HAPPY LIFE can’t be built solely on relaxing, having fun and doing exciting things. To be sure, there’s pleasure to be found in all of these. But I have come to believe that, to lead a life that’s full and satisfying, there is an ingredient that is even more crucial: We need to devote our days to activities that we think are important.
Or, to frame it slightly differently, we want our life to count for something.

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Special Edition

Jonathan Clements  |  January 20, 2016

WELCOME TO THIS special edition of my newsletter. I hadn’t planned to put out another of these free newsletters until March. But with the S&P 500-stock index down 13% from its May 2015 high, it seems like an apt time to address market valuations and discuss what folks ought to do with their portfolio.
What’s Happening
Stocks started 2016 with a thud—and there’s been almost nowhere to hide.

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Financial Wellness

Jonathan Clements  |  January 8, 2016

RON LIEBER of the New York Times emailed me earlier in the week, asking for help with a special online feature. The task: Grab a 4×6 index card and, in Ron’s words, “write whatever you want on the *lined* side. A list of 10 things. Or 20 if you write small. A picture. A quote. Whatever. But it should add up to Clements’s guide to financial wellness.”
This was trickier than it seemed.

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