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,
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,
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.
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,
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,
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.
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,
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,
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.
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.
IT’S JANUARY 1—a day of great hope. Those New Year’s resolutions to save more still seem achievable. Nobody’s investment results have yet fallen behind the market averages. Market pundits can still fantasize that this year they’ll be proven right. In this spirit of optimism, check out my 16 ways to improve your life in 2016. Below, you’ll also find some thoughts on bond-market risk.
16 Ways to Improve Your Life in 2016
OUR FINANCIAL irrationality has been well documented by academics focused on behavioral finance. But we aren’t just irrational. We’re also inconsistent in our irrationality. Here are five examples which, while somewhat amusing, can also have dire financial consequences:
Employees will work for 30 years at a job they hate to qualify for a traditional defined benefit pension, but they wouldn’t dream of delaying Social Security for a few years to get a larger monthly check.
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.
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 discussed recently.
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,
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,