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MY PORTFOLIO HAS evolved over my 35 years as an investor, as I’ve learned more and as new funds have become available. A total stock market index fund? Sure, I’ll consolidate money in that. An emerging markets index fund? Yeah, a modest stake looks promising. How about a small-cap value index fund? The academic literature says that makes sense.
Today, I own a dozen different Vanguard Group mutual funds, each giving me exposure to a different part of the global financial markets.
A RECENT ARTICLE from Morningstar suggested that the 4% rule for sustainable retirement withdrawals should be revised downward to 3.3%. This lower rate, the researchers argued, is safer given today’s rich stock market valuations and low bond yields.
The article also recommended being flexible with withdrawals, by taking larger amounts in good markets and smaller withdrawals during down periods. This strategy could provide more lifetime income than fixing a withdrawal amount in the first year and then automatically increasing that sum each year with inflation.
A FRIEND DESCRIBED his recent experience trying to buy a new car. “I had two choices,” he said. “One dealer wanted full sticker price. The other wanted even more. It wasn’t much of a choice.”
The inflation situation in the car market is well understood. A shortage of components is limiting car makers’ output, driving up prices. But inflationary pressures aren’t limited to cars. The most recent reading for the Consumer Price Index was higher than it’s been in 30 years.
OPEN ENROLLMENT begins in early November for many employees. This is a great time to see if you’re making the most of your workplace benefits, especially flexible spending accounts, or FSAs.
FSAs allow you to deduct pretax dollars from your paycheck for medical, adoption, commuting and dependent-care expenses. There are some new rules for the accounts this year in response to the pandemic.
First, the basics: During open enrollment, you tell your employer how many dollars you want deducted for these accounts over the next year.
HEALTH SAVINGS accounts are frequently praised on HumbleDollar—with good reason. A lesser-known benefit: Health savings accounts, or HSAs, can be a boon for new employees, thanks to the last-month rule.
What’s that? If you have a qualifying high deductible health plan (HDHP) as of Dec. 1, you’re eligible to make a full-year HSA contribution, even if you only just bought an HDHP. On top of that, if you continue HDHP coverage,
THE 2017 TAX CUTS and Jobs Act doubled the standard deduction. It’s estimated that 90% of households took the standard deduction in 2018, rather than itemizing, up from 69% in 2017.
The tax-code overhaul essentially means it costs more to donate to your favorite qualifying charities—unless you’re among the 10% whose itemized deductions exceed their standard deduction. To be sure, we shouldn’t give to charity solely for the potential tax benefit. Even if you itemize and hence you can deduct your gift,
THE NEWSPAPERS ARE full of reports that a new tax on billionaires may be uncorked. The Washington Post even ran an article estimating what the 10 richest Americans would pay over the next five years should it pass.
I take no stand on the politics of the proposal. But I have seen enough trial balloons to be skeptical that Elon Musk will soon write a 10-digit check to the U.S. Treasury. As Chuck Collins has written in The Wealth Hoarders,
TIME AND AGAIN, we’re reminded to fully understand a question—particularly when the question is complex—before acting or deciding not to act.
“Johnny pushed me” may have been the whole story, but not likely. Why did Johnny push David? What was the context? How are the two boys connected? What’s their history? Was it a big push? Did it do harm?
Ideally, we want to know the whole situation before we decide what to say or do.
EARLIER THIS MONTH, The Wall Street Journal carried a seemingly innocuous article by Derek Horstmeyer, a finance professor at George Mason University. Horstmeyer described an analysis he and his research assistant had recently conducted. The question they sought to answer: Could investors achieve better results in their 401(k)s by avoiding target-date funds and instead constructing their own portfolios?
If you aren’t familiar with them, target-date funds are intended as all-in-one solutions for investors.
QUITTING CREDIT CARDS might be more difficult than quitting cigarettes. I’ve done both. I’ve not smoked in 36 years. But it wasn’t until 11 months ago that I stopped charging on my credit cards.
I got my first card at age 15 from the biggest department store in my hometown. It was 1971, and my card’s limit was $50. The store was locally owned, so perhaps it was easier to obtain credit as a minor without steady income.
THE DEEPER I SETTLE into semi-retirement, the more I miss something that I didn’t realize was important to me: working with and learning from a diverse group of people. I was lucky that, for most of my four-decade career, I was employed by profit-making and nonprofit organizations that were committed to workforce diversity.
I miss how easy it was to be challenged and changed by difference. Sometimes, it was on pop culture. Sometimes, it was on something much more important.
I HAVE A RELATIVE—let’s call her Jane. Last year, in the early days of the pandemic, Jane had the foresight to buy shares in vaccine maker Moderna. With the benefit of hindsight, it was a smart decision.
But it wasn’t a difficult one, in Jane’s view. It was no secret that the company was working on a COVID-19 vaccine. It was also clear that vaccines would be in high demand. That made the investment case clear.
Style Guide
BELOW ISN’T MEANT to be a comprehensive style manual, but rather a list of writing practices that HumbleDollar contributors should strive to follow:
Good writing takes time. Try the three-day method. Day No. 1: Draft the article. Day No. 2: Polish. Day No. 3: Give a final read, and check all facts and for grammatical mistakes. One trick: Have your computer read your article out loud. Errors in the piece will leap out at you.
I’M NOT A RULE BREAKER. In the nearly 40 years I’ve had a driver’s license, I’ve received just one traffic citation. I follow all the laboratory safety rules when I’m at work. When I fly, I’m the person who removes the card from the seatback pocket and follows along with the flight attendants as they do their safety briefing.
But when it comes to finances, I don’t always follow the rules laid down by accountants,
THE MUCH-DEBATED 4% rule—which I wrote about back in July—is a popular way to think about portfolio withdrawals in retirement. But it isn’t the only way. Another approach, called the bucket system, is also worth understanding. Below is some background.
What is the bucket system? As its name suggests, an investor divides his or her portfolio into multiple containers. Each container, or bucket, is then assigned a different role.
The most popular implementation of the bucket system involves three containers: The first is earmarked for a year or two of spending and is held entirely in cash.
