Save Yourself

Jonathan Clements  |  August 11, 2015

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,

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Silly Headline Alert

Jonathan Clements  |  July 29, 2015

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.

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Truly Taxing

Jonathan Clements  |  July 16, 2015

THE FEDERAL TAX system punishes the middle class, who have earned income and fund retirement accounts. Meanwhile, it favors the wealthy, who are more likely to have substantial sums in taxable accounts and then bequeath those assets.
Okay, now I need to explain myself.
First, there’s the question of earned versus unearned income. Tax rates on wages are higher than those on long-term capital gains and qualified dividends, plus workers also have to pay Social Security payroll taxes.

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Feels Right, Goes Wrong

Jonathan Clements  |  July 5, 2015

MEIR STATMAN, a finance professor at California’s Santa Clara University, argues that financial decisions—like everyday consumer purchases—have three benefits: utilitarian (what it does for me), expressive (what it says about me) and emotional (how it makes me feel).
As we manage our finances, we insist our goal is strictly utilitarian, and that all we want to do is make money. But in truth, we often make decisions for expressive or emotional reasons—and these other motivations can hurt our stated goal of greater wealth,

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Genius+High Expenses=Mediocrity

Jonathan Clements  |  July 1, 2015

MEB FABER’S “GLOBAL ASSET ALLOCATION,” available free this week through if you buy the e-book, offers a look at the historical performance of a fistful of portfolios, such as those recommended by Rob Arnott, Harry Browne and Ray Dalio. It’s a quick read, with just 129 pages, much of it consumed by charts.
The book’s biggest surprise? How unsurprising the results are. “As long as you have some of the main ingredients—stocks, bonds,

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Buying Happiness

Jonathan Clements  |  June 16, 2015

“MONEY IS an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t,” write Elizabeth Dunn, Daniel Gilbert and Timothy Wilson in an article in the Journal of Consumer Psychology that appeared April 2011—and which, needless to say, I only just got around to reading. It’s arguably the best academic article on money and happiness for the general public,

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Make It Memorable

Jonathan Clements  |  June 9, 2015

THIS PAST SATURDAY, we visited my daughter in Philadelphia, where she just bought her first home. The trip included moving furniture, heading to Lowe’s, spackling walls and fixing a toilet seat. We also stopped by Ikea, where Hannah bought two sofas, one for $399 and the other for $379.
Think about that: less than $400 for a sofa. In a major city, for that same $400, you might get a 90-minute visit by a plumber.

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Not So Bad

Jonathan Clements  |  June 5, 2015

I LOVE CORRESPONDING with readers, because I find out what’s on ordinary investors’ minds and hence what might make for a good article. And, occasionally, I learn something unexpected.
This week’s lesson: The potential return on EE savings bonds is much higher than I thought. If you look on, you’ll learn that the current interest rate is a meager 0.3%. After 20 years, that would give you a cumulative total return of just 6.2%.

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Something’s Got to Give

Jonathan Clements  |  May 28, 2015

IF YOU BUY BONDS that pay a fixed rate of interest, your annual investment income will be stable—but the price of your bonds will fluctuate. With cash investments, it’s the reverse: You should never lose money with a savings account or a money-market fund, but the interest you receive will fluctuate along with short-term interest rates.
What about stocks? At first blush, there doesn’t seem to be any stability. Neither the price of your shares,

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Richer But No Happier

Jonathan Clements  |  May 22, 2015

“TAKEN ALL together, how would you say things were these days? Would you say that you are very happy, pretty happy or not too happy?” We now have the latest answers to this question, thanks to the release last month of results from the 2014 General Social Survey.
In 2014, 32.5% of Americans said they were very happy, versus a 42-year average of 33.3%. Meanwhile, 27% said they were satisfied with their financial situation,

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What Women (Supposedly) Want

Jonathan Clements  |  May 19, 2015

WALL STREET LOVES women—or, at least, it loves to pitch them products through special marketing campaigns. While women’s financial needs differ somewhat from men’s—for instance, they live longer and they’re more likely to need nursing-home care—it’s always struck me that these programs are more about selling than substance.
For further proof, check out this delightful email I received last week: “I recently went to a workshop called ‘Retirement Strategies for Women’ that was put on by Valic. 

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Everyone In the Pool

Jonathan Clements  |  May 16, 2015

RISK POOLING is a great way to handle life’s financial pitfalls, and we’re happy to do it—most of the time. When we buy life insurance or we purchase a homeowner’s policy, an insurance company may be selling us the coverage. But what we’re essentially doing is tossing our dollars into a pot with other people. Those who see their homes burn down, and the families of those who die, collect big checks. Those of us who remain standing—and whose homes remain standing—don’t collect on our insurance policies.

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Stats to Die For

Jonathan Clements  |  May 13, 2015

I JUST FINISHED reading the Society of Actuaries’ summary of key findings from its “2011 Risks and Process of Retirement Survey Report.” From this, you might conclude two things. One, I’m way behind on my reading. Two, I don’t have a very exciting life. Both may be true. Still, I found the report fascinating. Here are three excerpts.
First, according to the report, “the two major factors in determining longevity are genetics and lifestyle choices.

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Ruled by Rules

Jonathan Clements  |  May 10, 2015

MOST OF US STRUGGLE with self-control. We eat too much, exercise too little and spend excessively. One solution: Adopt rigid rules of behavior. For instance, I make it a rule to exercise every morning for at least 40 minutes, always buy whole wheat bread, avoid caffeine after 9 a.m. and eat fruit as a midmorning snack. I’ve followed these rules for so long that they’re no longer rules, but rather ingrained, unquestioned habits.
Not surprisingly,

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Tips for Grads

Jonathan Clements  |  May 7, 2015

THIS IS GRADUATION season at colleges across America. That prompted me to write a column this week about human capital—which is our income-earning ability—and why it should be central to how we think about our finances.
Got a kid graduating this year? Here are three additional pieces of advice you might pass along.
First, deal with your financial goals concurrently, not consecutively. In other words, don’t save for the house down payment in your 30s,

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