WE TEND TO BE a self-confident lot, believing we’re above-average drivers, smarter than most and better looking. This isn’t necessarily a bad trait. Self-confident, optimistic individuals tend to be happier, more resilient and enjoy greater career success. But when our excessive confidence spills over into investing, it can hurt our portfolio’s performance.
As a group, investors will inevitably trail the market averages, once investment costs are figured in. Could you and I do better?

IN THE BATTLE BETWEEN our current self and our future self, it’s no contest: We overwhelmingly favor today. We spend excessively and take on too much debt, while giving scant thought to how we’ll service these debts or how we’ll pay for distant goals like retirement and the children’s college education. We also procrastinate over buying insurance and organizing our estate, thereby putting our family and our future self at risk.
What explains this behavior?

AMERICANS MAY celebrate the notion of rugged individualism. But in truth, we’re social creatures. Want a better life? The more robust our network of friends and family, the happier we’re likely to be.
This is one reason spending money on experiences tends to deliver more happiness than spending on possessions. When we go on vacation, attend a concert or go out to dinner, we typically do these things with others. An added bonus: The pleasure extends beyond the experience itself.

OUR LIVES ARE AN endless cycle of desire and dissatisfaction. We might have our eye on a promotion and the accompanying pay raise, or we might hanker after a new car. We muse about how much better our life will be once we start collecting that larger paycheck and once we drive off the dealership lot in the new sedan.
But even if our wishes come true, they often prove to be a letdown.

EVEN IF YOU FOLLOW all the pointers in the previous section, there’s a good chance the actively managed funds you pick will turn out to be duds. Let’s say you bought the large-cap, mid-cap, small-cap and multi-cap stock funds that ranked in the top 25% of performers over the five years through year-end 2019. What percentage of these top performers remained in the top 25% over the subsequent five years—the period through year-end 2024?

AN INVESTMENT’S volatility is often assessed using two different yardsticks: standard deviation and beta. Standard deviation looks at how erratically an investment performs compared to its own history. For instance, it might measure how much a mutual fund’s monthly results stray from its average monthly performance over the past five years.
Meanwhile, beta measures how much an investment fluctuates relative to a market index. Suppose the benchmark used is the S&P 500. If an individual stock has a beta of 1,

YIELDS ON SAVINGS accounts, money market deposit accounts and certificates of deposit were so modest for so many years that it was tempting to opt for the convenience of the local bank, even if you knew you could do better elsewhere. But today, yields are much higher—and a little effort could be richly rewarded.
Suppose that, by shopping around for an online savings account, you can earn perhaps 4%, rather than settling for 1% at the nearby bank you already use.

ARE YOU A HIGH school or college instructor? If you’re using our guide with students, here are six tips:

Consider teaching one of the chapters each week. Because retirement is such a crucial topic, you might devote two weeks to it, focusing first on saving for retirement and then on generating retirement income.
The chapter on investment math was written with students in mind. Understanding compounding is central to understanding personal finance. You might introduce this notion in the first week.

WHEN SHOULD WE consider ourselves rich? Sure, income and wealth are important. But don’t focus just on dollar signs. Instead, think about money in terms of how it makes you feel, what it allows you to do and what your lifestyle costs. Here are eight possible definitions of rich:
1. You almost never worry about money. This is a good one—but it probably has more to do with you than with the sum involved.

“PRACTICAL MEN, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist,” wrote John Maynard Keynes in his 1936 classic, The General Theory of Employment, Interest and Money.
The same can be said of U.S. investors. We grow up repeatedly hearing the same standard financial advice—and often we never question it. Yet there’s much conventional financial wisdom that isn’t especially wise. Consider seven examples:
1.

HOW SHOULD WE spend our time and money? This is a question we all wrestle with. Indeed, it’s an issue that’s become an increasing preoccupation for me as I’ve grown older. Partly, that’s because time is shorter and hence seems more precious. Partly, it’s because money is less of a constraint and hence I have more choice.
In all this, my thinking has been heavily influenced by academic studies. Here are five insights that have been highlighted by the research—and what they’ve meant for me:
1.

TODAY’S FINANCIAL advice: Just say no. You can probably think of instances when an individual ought to ignore one or two of the suggestions below. Still, if most folks followed these rules, they’d be far better off financially. Want a brighter financial future? Here are 51 things you shouldn’t do:

Don’t buy cash-value life insurance.
Don’t envy hedge fund investors.
Don’t write frequent checks against bond funds held in a taxable account.
Don’t carry a credit card balance.

INVESTORS ARE HUMANS, too. In the rest of our life, we readily acknowledge that emotions play a huge role. But when handling money, we insist we’re entirely rational. Really? Here are 10 headscratchers that suggest otherwise:

Why do we concede that the car sitting out in the rain is a depreciating asset, and yet we’re convinced that the house sitting in the rain is a great investment?
Why do people, who are so optimistic about everything else,

WHAT DOES IT TAKE to succeed financially? Here are the 10 most important choices you’ll ever make:
1. How much you borrow for college. Planning to become a journalist or a social worker? The lower your likely lifetime earnings, the less sense it makes to take on a heap of education loans.
2. What career you pursue. Obviously, the more you earn, the easier things should be financially—though this advantage is often frittered away through excessive spending.

NEXT TIME YOU ALL sit down to dinner, here are seven lines to try out on your children:
1. That new toy you desperately want? Wait a week, and you’ll be desperate for something else.
2. Folks who appear rich often aren’t.
3. Just because you aren’t paying doesn’t mean it’s free.
4. Mom and Dad might earn lots of money. But financial obligations probably devour 90 cents out of every dollar.
5. If you were paying the electricity bill,