Not Worthless

Jonathan Clements  |  December 22, 2015

INSURANCE IS a way to get others to shoulder devastating financial risks that it would be foolish to shoulder on your own. That’s why young parents with few assets need heaps of life insurance—but also why buyers of televisions shouldn’t get the extended warranty. Because the potential financial loss is modest, I’ve often argued that folks should skip not only extended warranties, but also trip-cancellation insurance.
But readers have pushed back, arguing that both types of insurance can make sense—in two particular situations.

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Getting Up There

Jonathan Clements  |  December 17, 2015

LIFE EXPECTANCY has increased sharply over the past century—if you consider life expectancy as of birth. But if you look at life expectancy as of age 65, which is what matters for retirees, the improvement for the broad U.S. population hasn’t been nearly so impressive, as I discuss in my latest newsletter.
But it’s a different story if you look at more affluent Americans, notes one of my e-mail correspondents, Bob Frey, a financial planner in Bozeman,

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Targeting Lower Costs

Jonathan Clements  |  December 12, 2015

IN A WORLD overflowing with mutual funds, I’d like to see Vanguard Group add a few more. How about 12?
I’m a fan of target-date retirement funds, which offer diversified portfolios geared toward folks retiring at or near the year specified in the fund’s name. But Vanguard’s existing 12 funds have a big problem: their annual expenses.
To be sure, the funds’ costs are tiny compared to most others available. Suppose you buy Vanguard Target Retirement 2030,

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Smarter But Homeless

Jonathan Clements  |  December 5, 2015

SOARING STUDENT DEBT is putting the kibosh on another major financial goal: buying a home. According to a study by researchers at the Federal Reserve Bank of Cleveland, 40% of those age 18 to 30 have student debt, up from 27% in 2005. For these borrowers, the debt burden is staggering, with student loan payments estimated to devour more than 20% of their income in 2015.
With so much of their income devoted to servicing student loans,

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Sprechen Sie Dividend?

Jonathan Clements  |  December 1, 2015

I DON’T TRADE very often, let alone buy new funds. But there’s a good chance I’ll purchase the no-load Vanguard International High Dividend Yield Index Fund, which is slated to be launched this month. It will charge 0.3% in annual expenses for the Admiral Shares, which require a $10,000 minimum investment, and 0.4% for the Investor Shares, which will have a $3,000 minimum.
In theory, it shouldn’t matter whether a stock pays a dividend.

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It’s Twins

Jonathan Clements  |  December 1, 2015

THIS IS A DOUBLE birth announcement. First, my latest newsletter is available. It discusses how to measure global wealth, longevity risk, tax extenders, psychic income, Vanguard’s new international dividend fund, and more.
Second, the Jonathan Clements Money Guide 2016 is now on sale through I created this early paperback edition, with data through yesterday’s market close, so that it would be available for holiday gift-giving.  An updated version, with market and economic data through Dec.

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Numbers to Live By

Jonathan Clements  |  November 26, 2015

CYNICS SAY there are three kinds of falsehood: lies, damned lies and statistics. Yet the right number can pack a mighty punch—and the financial world is full of them. Here are five examples:
1. Most folks don’t beat the market. Consider the miserable performance of most mutual funds. Standard & Poor’s found that 75% of actively managed U.S. stock funds failed to beat the market over the decade through June 30.

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Yielding Nothing

Jonathan Clements  |  November 21, 2015

IT’S BEEN A ROUGH YEAR for yield chasers. But the damage can’t be blamed on a general rise in interest rates, which would have driven down the price of existing bonds. Today, the yield on the benchmark 10-year Treasury note is barely above where it stood at year-end 2014.
Instead, the dreary results stem from concerns about credit quality. Those drawn to the fat yields on Puerto Rican municipals have been rewarded with tumbling bond prices and the threat of default.

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Bonds and More Bonds

Jonathan Clements  |  November 17, 2015

STOCKS GET ALL the attention, which seems a tad unfair. The value of bonds worldwide is some 35% greater than the value of all stocks—plus many other parts of our financial life look suspiciously like bonds. How so? Think about all the streams of steady income that folks collect.
We pull in interest from bank products like savings accounts and certificates of deposit. We collect Social Security retirement benefits. If we’re lucky, we are the recipients of a traditional employer pension plan.

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Settling for Six

Jonathan Clements  |  November 11, 2015

SINCE RETURNING to life as an ink-stained wretch early last year, I have been talking about the likelihood of modest stock returns. My best guess: A global stock portfolio might notch 6% a year over the next decade, while inflation runs at 2%.
It turns out that the person I admire most on Wall Street, Vanguard Group founder John Bogle, also has modest expectations. This is no great surprise: How I think about stock returns has been greatly influenced by Jack’s writing.

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Keeping It Private

Jonathan Clements  |  November 8, 2015

FAMILY CAN BE A WONDERFUL ASSET. Your parents, siblings and adult children might help with home repairs, offer free advice based on their professional expertise and take care of the dog while you’re on vacation.
When the circumstances are right, I think there’s an opportunity to take this even further. For instance, earlier this year, I provided my daughter with a private mortgage, which allowed her to purchase her first home. There aren’t many people I’d strike that deal with,

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Benefits Revised

Jonathan Clements  |  November 2, 2015

TWO KEY CHANGES to Social Security retirement benefits were wrapped into the budget bill passed by Congress last week. The changes have big implications for married couples.
First, after April 2016, if you suspend your benefit, any family members collecting benefits on your earnings record will also have their benefit suspended. Second, those who aren’t age 62 by Jan. 1, 2016, will lose the right to file a restricted application, where you claim just spousal benefits,

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Wasting Time

Jonathan Clements  |  October 27, 2015

STOCK MARKET GYRATIONS since mid-August have investors focusing intently on short-run returns. But if you can drag your gaze away from the daily turmoil, you’ll realize this is a colossal waste of time—and a huge distraction from the big story.
This thought occurred to me as I was playing around with the data available at Take the MSCI World index, which includes 23 developed markets, including the U.S.  From the index’s year-end 1969 inception through Sept.

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Social Insecurity

Jonathan Clements  |  October 21, 2015

SOCIAL SECURITY retirement benefits may eventually get cut. But it shouldn’t influence when today’s retirees claim benefits.
I have argued frequently that it makes sense to delay Social Security, especially if you’re the family’s main breadwinner. By postponing benefits from age 62 to age 70, you can lock in a lifetime stream of inflation-indexed income that’s 76% or 77% larger. That income stream could salvage your retirement if you outlive your nest egg, while also providing a handsome survivor benefit to your spouse,

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Mistakes Compounded

Jonathan Clements  |  October 14, 2015

A GOOD GRASP of compounding is fundamental to managing money. Without an understanding of the way money grows and shrinks over time, folks can’t fully appreciate the value of starting to save when they’re young, the damage done by large investment losses or the true cost of carrying credit-card debt.
Yet I fear compounding isn’t well understood. This has dawned on me over the past month, as I’ve been teaching an undergraduate course on personal finance.

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