April’s Newsletter

Jonathan Clements  |  April 1, 2018

WALL STREET’S SECOND GREAT LOVE—after making money—is arguing over how best to do so. That brings me to April’s newsletter, which looks at four enduring questions:

What’s a retiree’s best strategy for drawing down a portfolio?
Is factor investing destined to fail?
Do U.S. stocks face a great reckoning?
How much should we invest abroad?

What do these four questions have in common? They’re debates that are almost impossible to settle, in part because they necessitate forecasting market performance.

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Four Pillars of Investing

Jonathan Clements  |  March 31, 2018

SUCCESSFUL INVESTING IS SIMPLE, but it’s rarely easy. Yet millions of investors, both professional and amateur, assume they know what they’re doing. “We live in this mystical state where everybody thinks they can practice finance,” notes William Bernstein, retired neurologist and author of a fistful of acclaimed finance books. “But you shouldn’t practice without understanding the science of finance.”
What science? Bernstein, whom I’ve known for more than two decades, says it has four elements: investment theory,

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Face Plant

Adam M. Grossman  |  March 29, 2018

UNIVERSITY OF CALIFORNIA FINANCE PROFESSORS Brad Barber and Terrance Odean published a research paper on investor behavior in early 2000. The results weren’t pretty. By their reckoning, individual investors lagged the overall market by an average of almost four percentage points a year. The culprit: the costs involved in trading individual stocks.
It isn’t just individuals who struggle with stock-picking. Professional money managers, on average, also trail behind the overall market. Over the past five years,

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Eye on the Ball

Adam M. Grossman  |  March 28, 2018

ON THE AFTERNOON OF SUNDAY, Sept. 28, 1941, it was cool and damp in Philadelphia. Inside Shibe Park, where the hometown Athletics were suiting up to face the Red Sox, all eyes were on Boston’s 23-year-old slugger, Ted Williams. It was the last day of the regular season, and Williams’s average stood just a hair short of .400, at .39955.
According to baseball’s official rules, this would have rounded up to an even .400 in the record books,

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Right on Schedule

Julian Block  |  March 27, 2018

I HAVE ADVISED MANY CLIENTS on divorce and the related tax issues. The vast majority have been women, and they generally fall into three categories.
First, there are those who strive to obtain divorces that will finally end their agony. They ask for advice on things like property transfers, deductibility of legal fees and alimony payments.
Second, there are those who are already divorced. They need guidance on how to compel their former husbands to cough up overdue payments of alimony or child support.

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Life Lesson

Jonathan Clements  |  March 26, 2018

A COLLEGE EDUCATION BOOSTS a graduate’s lifetime earnings by an average $1 million. But at what price? There’s mounting evidence that young adults with hefty student loans put less in retirement accounts, are slower to buy homes and are even postponing marriage. Will your college-bound kids need to take out loans? It’s time to have the talk—about how much debt makes sense, given their likely career earnings. That’s the topic of my latest client letter for Creative Planning,

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Pascal’s Retirement

Jonathan Clements  |  March 24, 2018

LIFE MAY HAVE BEEN NASTY, brutish and short at one time, but it sure isn’t today. Thinking ahead to retirement? Forget the famous quote by 17th century English philosopher Thomas Hobbes—and ponder the famous wager suggested by 17th century French philosopher Blaise Pascal.
As Pascal saw it, it’s rational to believe in God. If you believe and it turns out God doesn’t exist, the price is modest: an hour lost from every Sunday morning and a little less immorality.

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Jonathan Clements  |  March 23, 2018

IN MY NERDY PERSONAL FINANCE WORLD, there are perhaps two dozen folks I pay close attention to—and one of them is Mike Piper, the blogger behind ObliviousInvestor.com. He’s also written nine books in his “made simple” series, which offer great primers on financial subjects like taxes, Social Security and retirement, all in 100 pages or less.
An accountant by training, Piper brings his analytical mind and detailed knowledge of government rules to the topics he tackles.

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Independence Day

Kristine Hayes  |  March 22, 2018

WHEN I FIRST ENCOUNTERED the acronym FIRE on Bogleheads.org, I had no idea what it stood for. It didn’t take me long to decipher the wordplay. More problematic: Figuring out what FIRE—Financial Independence/Retire Early—is all about.
Studies show over two-thirds of Americans have left behind fulltime work by the time they’re age 66. But many retirees continue to work part-time because they don’t have the financial resources to avoid working altogether. A 2015 GAO study found that 52% of households age 65 to 74 had no retirement savings—and,

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Phil Dawson  |  March 21, 2018

BACK IN THE EARLY 1990s, Donna and I were raising a young family, buying our first home and running a small business. We didn’t have a dime in any proper investment vehicles, as there weren’t an awful lot of dimes to spare. Somewhere in the fire and smoke, I received a copy of the Sound Mind Investing Handbook by Austin Pryor.
The book was easy to read and put a number of basic investing concepts within my feeble grasp.

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Pouring Cold Water

Adam M. Grossman  |  March 20, 2018

SOMETIMES WE DON’T GIVE KIDS enough credit. Last week, my first-grader reminded me of this fact. On a trip to CVS, he was looking through the drink cooler, when he asked, “What’s Smartwater?” Before I could answer, he started with his own commentary. Seeing the price tag—which was more than double that of the regular water next to it—he wondered, “Why’s it smart? It’s just water. Is it really going to make me smart?”
This made me realize something: As consumers,

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The Unasked Question

Jonathan Clements  |  March 17, 2018

WHEN WE MAKE FINANCIAL DECISIONS, we usually have a pretty good idea what we’re getting. But what are we giving up? That, I believe, is the crucial, unasked question.
Think about any financial choice, whether it’s the shoes we buy, the stock we purchase or the kids’ college degree we promise to pay for. All too often, these are snap decisions. Captivated by the bright shiny object in front of our eyes, we make an isolated choice—and fail to grapple with the bigger picture.

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Tax Time Robbery

Adam M. Grossman  |  March 16, 2018

THERE’S A NEW TYPE OF FINANCIAL FRAUD on the rise: tax refund theft. All an identify thief needs are an individual’s name and Social Security number. This information, unfortunately, is readily available. In a single incident in 2017, thieves stole information on almost half of all Americans from credit reporting agency Equifax.
Using this information, thieves then prepare and file a fake tax return in such a way that it appears a large refund is due.

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Case Closed

Kristine Hayes  |  March 15, 2018

I’VE ALWAYS BEEN A METICULOUS record keeper. As a child, my 4-H record book often won top honors at the county fair. As an adult, my career as a laboratory manager requires me to keep detailed records about budgets, lab prep and equipment maintenance. All that recordkeeping has bled over into my personal life as well. I have drawers full of neatly-labeled file folders filled with receipts, tax returns and other personal documents.
It’s probably no surprise,

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Jonathan Clements  |  March 14, 2018

WANT TO DOUBLE-CHECK your retirement readiness? There’s a slew of online calculators available, but one of the best is NewRetirement.com. The site strives to deliver great content and foster an active community, and it does a decent job on those two fronts. But the site’s heart and soul is its super-sophisticated, comprehensive retirement calculator.
Truth be told, my preference usually runs to calculators that don’t require registration and don’t involve many inputs, so I was initially reluctant to create an account at NewRetirement.com.

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