I RECENTLY attended a retirement readiness seminar sponsored by the financial firm that holds most of my retirement savings. The first question the presenter asked was, “How many of you think you’ll be able to retire comfortably living off just your Social Security benefits?” I was surprised to see how many people in the audience raised their hands. But maybe I shouldn’t have been surprised: It turns many of these same people couldn’t guess the average monthly Social Security benefit—and most thought it was far higher than it really is.
AS A YOUNG reporter in the late 1980s, trying to learn about investing, I read a slim 81-page volume with an unassuming title: Investment Policy. It remains one of the best investment books I’ve ever read.
Investment Policy was later reissued with a somewhat catchier title, Winning the Loser’s Game, and it’s now widely considered to be an investment classic. Over the years, the book has also been greatly expanded and the 2017 edition runs to 286 pages.
IN TODAY’S POLITICAL environment, discourse has become ever more fractious. The investment world, in my view, isn’t much better. Those who disagree generally talk past—rather than listen to—one another.
That is why, in my work as an investment advisor, I maintain a “team of rivals” approach, reading and listening to diverse opinions. Behavioral scientists often talk about confirmation bias—the tendency to seek out only information that confirms our preconceived notions. To counteract this bias,
TO BE PRUDENT managers of our own money, we need to read the small print—but we also need to keep an eye on the big picture.
To that end, whenever we make a financial decision, we should ponder three key questions: What’s the tradeoff, does the choice make sense given our broader financial life, and will we feel as good about the decision tomorrow as we do today?
Trading Off. Suppose we remodel the bathroom,
SPENDING DIDN’T always come easy to me. As a child, I had a small weekly allowance, the spending of which I carefully controlled. In boarding school, a treat for me was a Mars bar from the school “tuck shop”—a British term for a small candy store. As I entered my mid-teens and started to earn my own money, more often than not it went into my savings account. Only when I turned 16, and had my first car,
WHEN I REACHED my mid-40s and realized I was halfway through my working life, I figured it was time to get serious about retirement planning. A scientist by training, I began to dissect the details of my retirement accounts, including how my money was invested and at what age I could begin penalty-free withdrawals. I discovered retirement at age 55 might be a viable option, but only if I started saving a larger percentage of my income and made intelligent investment decisions.
IT’S LONG BEEN an idea that’s captured my imagination: Get a child invested in the stock market at a young age and then leave compounding to work its magic. If stocks notch four percentage points a year more than inflation—which many would consider a conservative estimate—$10,000 invested at birth would be worth $230,500 at age 80. That sort of success would, I suspect, give a significant boost to parental popularity.
When my kids were born,
AFTER SHARING my best investment in my previous post, it’s only fair that I follow up with my biggest blunder. I was 22 and working my first real job, as a high school English teacher in south Texas. Thanks to the job, I quickly kick-started my “adult” life: learning about health insurance, taxes and retirement savings.
A colleague introduced me to his brother, who worked as an investment advisor. We scheduled a meeting to talk about my retirement plan.
MAKING SMART personal finance decisions involves lots of homework. Fortunately, there are plenty of great resources out there, both aspirational and practical, to help us figure out what to do. Here are my four favorite money blogs:
The Simple Dollar is my blog of choice when getting up to speed on practical money issues, like picking a savings account or insurance company. If you could only have one resource to help with your overall financial planning,
IT’S ONE OF WALL Street’s more galling rituals: its regular dismissal of everyday investors as stupid. They’re the “dumb money” you should watch so you know what not to buy—the sheep that the “smart money” regularly fleeces.
This narrative was bolstered by early behavioral finance research, which detailed our many mental mistakes: In our overconfidence, we trade too much and make large investment bets. We’re overly influenced by recent returns. We assume our investments perform better than they really do.
WHEN WE MAKE investment mistakes, often bad advice is to blame. Someone recommends a stock or annuity or no-risk rental property, and we’re so tantalized by the upside that we completely miss the pitfalls. Sound familiar? As a counterpoint to this common trope, I wanted to share my best investment—one I never would have made if I hadn’t listened to those around me.
Before I officially closed on my house in Philadelphia, my parents drove by,
IN MY HOMETOWN of Boston, there’s an old joke about our dismal winter weather. “February,” they say, “is the longest month of the year.” I don’t disagree and so, each year at Presidents’ Day, my family tries to get away for a warm weather vacation.
On these trips, we often stay at the same hotel and, because of that, we have noticed certain patterns. Among them: Most years, there is the same large corporate gathering.
IF YOU WANT to beat the market, you need to pick stocks that perform well enough to overcome the investment costs you incur. That task is made harder not only by the market’s efficiency, but also by another hurdle: skewness.
What’s that? The most a stock can lose is 100% of its value, but the possible gain is far greater than 100% and potentially infinite (though no stock has got there yet). In any given year,
WHAT’S THE BIGGEST challenge facing investors? Forget politics, low interest rates or high stock market valuations. I would argue there’s an even bigger challenge: How do you find financial advisors who are worth their fee?
On offer are brokerage firms, insurance companies, banks, mutual funds, accountants and independent advisory firms, all of them employing charming people who would love to help you. Problem is, there isn’t a lot of uniformity in the products and services they offer,
IN 1934, when I was age one, a federal income tax return was one page, and came with two pages of instructions. It was hand carried to the house by a live postman. The IRS regulations were 200 pages—though some say it was 400—all of which were memorized by the tax author J. K. Lasser.
When I was a young man in the workforce, we still got the several-page income tax form by mail,