FREE NEWSLETTER

Financial wisdom is the realization that our first reaction often needs to be second-guessed.

Latest PostsAll Discussions »

Rethinking the “Right” Time for Social Security

"Same. Waiting til 70 for the highest possible COLA-adjusted benefit. Spouse will probably take hers at 62. If she were to predecease me I’d still plan to wait for 70."
- Michael1
Read more »

Lonely Island (Correct Edit)

"I have to say that I'm impressed, because if I were writing an article mainly read in Ireland, I wouldn't begin to know how to infuse it with Irish flavor, I mean flavour."
- DAN SMITH
Read more »

How it all pencils out–or at least, we hope so! (Our Big “Little” Move, Part 3)

"Yup — stuff wears out and repairs can be pricey. But so far you've gotten 20 years with that a/c. I doubt a new unit will last that long. My son in law replaced his in a new house after 10 years. i think Dana has the right attitude. She and her husband saved for retirement. Now that it’s here, she’s willing to spend on what seems her best alternative."
- Marilyn Lavin
Read more »

Fixing Social Security once and for all

"Many in those age groups call SS a scam, see Medicare as socialized medicine. They don’t have a clue and get their info from absurd social media memes. It will indeed be interesting and perhaps disastrous."
- R Quinn
Read more »

Hidden Surcharge

"I remember this one now. Thanks, John"
- DAN SMITH
Read more »

A Life You Build

"Jeff, thank you for sharing your story, I found it very inspiring. Chris"
- baldscreen
Read more »

Staying Rational

IT'S BEEN MORE than six years since Covid first entered our vocabulary. It goes without saying that investors have experienced a lot, and for better or worse, recent market events provide some useful lessons. The first has to do with the nature of the stock market. What drives stock prices? Open a finance textbook, and the answer will be clear: The value of a stock should equal the sum of the company’s future profits. This idea is known as intrinsic value, and it’s the textbook explanation of how stock prices work. But there’s clearly a disconnect, since stock prices bounce around far more than the math suggests they should.  How can we square this circle? Over the long term, the data tell us that intrinsic value is a valid idea. Chart the price of any given stock, then overlay the company’s profits, and there will often be a reasonably close relationship. But only if you’re Rip Van Winkle. Over shorter periods of time, anything can happen. Stocks often move far above or far below their intrinsic values in response to the news of the day.  Especially during times of economic uncertainty, intrinsic value analysis is typically cast aside and replaced by some combination of emotion, conjecture, speculation and storytelling. That’s what we saw in the early months of 2020. Stores were closed, employees had been sent home and the economy went into recession. And since no one had a crystal ball, that’s when storytellers were able to step in with their extreme predictions, causing the stock market to drop more than 30% in the space of six weeks. The lesson for investors: No one can predict when the next crisis will roll around or what form it will take. But there is one very reasonable way to be able to keep it in perspective: by remembering that, at the end of the day, intrinsic value is what matters, and ultimately that’s what drives stock prices. Basic arithmetic illustrates how this can help us manage through the next crisis. Consider that the price-to-earnings ratio of the U.S. stock market has historically averaged around 16. The average company’s total stock market value, in other words, has been equal to about 16 times its annual profits.  Now let’s imagine that the next crisis results in every company in America losing an entire year of earnings. That’s extreme and hasn’t happened since the Depression, but it’s useful as a thought experiment. In that scenario, what would be the impact to those companies’ intrinsic value? In simple terms, it would be just one-sixteenth, or a modest 6%. What if a crisis were so severe that a company lost two years of earnings? Using this simple model, the impact would be about 12%. This is meaningful, I believe, because crises typically result in stock price declines that are far more severe than just 6% or 12%. In 2000 and in 2008, the market dropped more than 50%. While every crisis is different, I think it’s useful to keep these numbers in mind whenever the next geopolitical event causes stocks to drop. When that occurs, storytellers will inevitably take over, and the news will be downbeat. But if stocks drop to an extreme degree, as they have in the past, we can probably view it as an overreaction. That won’t help anyone’s portfolio recover any faster, but it should help us tune out the worst of the forecasters and maintain our equanimity. How else can you maintain an even keel during a market crisis? It’s important to understand the impact of recency bias. This bias is the tendency to extrapolate from current conditions, to assume that the future will look like the present, and to downplay the possibility that things might change. That tendency is what contributed to the cycle of negative news during the depths of 2020, and this is why I think it’s so important for investors to be aware of market history.  Again, extensive analysis isn’t required. We need only look back across some of the crises the country has weathered, from the Civil War to the Depression to World War II. In each case, the economy recovered and went on to become larger and stronger than before. The lesson for investors: In the depths of a crisis, it’s very difficult to know when or how it will end. But a sense of history can help carry us through. Those are ways to manage through a crisis. Covid also provided a lesson on how to prepare—specifically, how to prepare our portfolios—for a future downturn. In 2022, investors were caught flat-footed when popular total-bond market funds delivered surprising losses. These funds are one pillar of the well-known three-fund portfolio and have traditionally been viewed as the default choice for a set-it-and-forget-it bond allocation. But in 2022, when the Federal Reserve hiked interest rates, these funds dropped a surprising 13%. That was during the same year that the U.S. stock market dropped nearly 20%, creating a very difficult situation for those in retirement and needing to withdraw from their portfolios. The lesson for investors: Total-bond market funds may be well diversified, but they carry risk along another very important dimension known as duration. This is a bond metric that measures, in simple terms, how long it will take for bondholders to be repaid, and it’s a key determinant of risk. The longer the duration, the greater the risk of loss when rates rise. While total-bond market funds have holdings across a broad range of durations, they average out to nearly six years. That’s why they lost so much value in 2022. What’s the alternative? Short-term bond funds tend to have a duration in the neighborhood of just two years. As a result, in 2022, short-term government bond funds like Vanguard’s Short-Term Treasury ETF (ticker: VGSH) lost a far more manageable 4% of their value. To be sure, every crisis is different, and it’s easy to rationalize about the past once it’s in the past. But these lessons, I think, can help us better prepare both our emotions and our portfolios for whatever comes next.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Read more »

Navigating a Turbulent Career

A RECENT article by Adam Grossman relayed an interesting story of the 2015 merger of Kraft and Heinz.  One of the aspects that made this merger unique was the involvement of Warren Buffet. Adam’s story is a cautionary tale for investors – research shows that, more often than not, the hoped-for corporate synergies and growth are elusive. The story provides more evidence for the benefits of indexing to investors. There is, however, another side to this story that is very important to an individual’s personal financial life. In addition to being investors, most of us are, or were, employees of a corporation.  What if you are an employee of a company that is acquiring another company, being acquired by another company, or part of a merger?  How do you navigate the challenges of this significant career event? In late November 1985, I interviewed with RCA’s Astro Space division in East Windsor, NJ.  Several weeks later I interviewed with GE Aerospace in King of Prussia, PA.  In between those 2 interviews it was announced that GE was acquiring RCA. I received an offer for a position in the thermal engineering group of both companies. The GE offer was for $32,000, $4,000 more than the RCA offer.  The GE plant was about 8 miles from our home; the RCA plant was 62 miles from our home.   I accepted the GE offer.  When I called the RCA manager to tell him my decision, he was professional and understanding.  He remarked that “who knows, we may end up working together and you got a better deal out of it”. Four months later that RCA manager became the senior manager of the merged thermal engineering organization – my new boss’s boss. Seven years later my division was sold to Martin Marietta, whose space operations were based in Denver, CO. Two years later Martin Marietta merged with Lockheed, in Sunnyvale, CA, to form Lockheed Martin.  Later that year it was announced that the company was closing its 2 east coast plants and moving the work to Sunnyvale and Denver.   Over the 31 years starting in 1986, I was part of numerous acquisitions, mergers, two plant shut-downs, and being sold to a private equity company. Somehow, I managed to stay employed, and grow my career. I wasn’t special – hundreds of colleagues trod the same path. When I look back I can identify some of the attributes that helped me navigate a turbulent career. Build your Reputation: Be someone that people want to hire. If you move up, be someone that people want to work for. My first senior manager position came about because the hiring team remembered me from 4 years previous  Maintain Flexibility: Are you willing to travel or relocate? Would you take a lateral position, or even a step down, if it meant keeping a job?  During my career I traveled extensively, commuted 62 miles for four years, and took new positions that challenged me and my family.  Focus on your Skills: What are the skills and behaviors that are valued by your company, and differentiate successful employees? These include technical, leadership, managerial, and interpersonal skills. My first GE manager provided a sound technical base, but also taught me just as much about work ethic, and professionalism. Focus on the Culture:  Combing organizations means combining cultures, just as much as products or processes.  This may require you to be open to a different way of doing things. It requires a willingness to learn and grow.  It will also likely require some diplomacy skills.  Change is hard for employees, and nobody enjoys being told their processes or products are inferior.  When we merged with RCA, we found there was a significant difference in the way that managers and senior technical leaders challenged their employees in public forums, in front of customers.  GE preferred to work out technical differences and approaches in-house, and present a united front to customers. This took some time to resolve into a shared approach. Focus on the People:  When my first GE manager retired, we held a group luncheon. He was universally liked and respected.  Someone described him as the best “BTU chaser” he’d ever seen, which was high praise. He gave a short speech at his retirement, where he discussed the exciting space programs he had supported. He ended that the thing that made his career special wasn’t the projects and technology, it was the people.   I was also fortunate to work on some exciting, ground-breaking projects.  It wasn’t always easy, and the path certainly wasn’t straight.  Looking back, it is the people I think of most, and I miss the most.    Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.
Read more »

The IRA Decision That Affects Your Kids

"My understanding is yes if the state specific rules are followed and the disclaimer is filed timely. Dr. Dahle's post in the above linked post lists six key general aspects for a disclaimer to be valid. I think the need to file a disclaimer could often be eliminated with appropriate planning and action during life."
- William Perry
Read more »

Financial Tension

"Curry is smart… he will figure out how to invest."
- William Housley
Read more »

Driving a Bargain

"NEVER BORROW MONEY to buy a depreciating asset." This personal finance tip is often used to dissuade folks from taking out car loans. But does a car really leave folks poorer?
When we value an asset, it’s typically thought of as its dollar value on a balance sheet. The monetary value of my car might indeed decline, and quickly at that, but it has far more usefulness than my personal balance sheet shows. When I consider my car’s true value, I think of how much it improves my life.
I made a major change in 2018, moving from Philadelphia to Scottsdale, Arizona. I landed with two suitcases, a backpack and my cat. I had a job starting in three weeks in the heart of Old Town Scottsdale—a pricey area.
In Philadelphia, I’d never needed a car. There’s great public transportation and I could get almost anywhere by walking or taking the train. If you’ve ever been to Phoenix and its surrounding suburbs, it’s a different story. It sprawls in every direction and lacks decent public transportation.
As a young professional 2,000 miles from home, I needed to travel this big expanse. I also wanted to do some exploring in the West, so I took out a loan to buy a new car.
I don’t imagine I’ll ever recoup the money I paid for the vehicle. In fact, I suspect that my car will always be asking me for more money—for maintenance and repairs—even after I’ve paid off the loan. That’s fine. My expectations are set on this because I see so much additional value in owning a car.
Monetary benefits. Old Town Scottsdale’s rents are at least 20% higher than some surrounding areas. I can live less expensively nearby as long as I can handle a 10- to 15-minute commute.
My car also provides me access to a larger pool of jobs. On top of that, I have reliable transportation, which makes me a more dependable employee. Finally, in this gig economy, a car opens up opportunities for self-employment, a side gig or temporary income during a gap in employment. This could come from signing on with services like Uber, DoorDash and Instacart.
Emotional benefits. My car is truly liberating. It can buy me time by making travel more convenient. It allows me to live where I want and gain happiness through new experiences outside of my neighborhood. The ability to go anywhere at any time is hugely appealing.
If it takes a loan to realize these benefits, I’m willing to bear that cost. I think most Americans would agree with me. Even when you’ve decided that a car is worth buying, however, another financial argument breaks out. It’s about whether it’s better to buy a new car or a used one. [xyz-ihs snippet="Mobile-Subscribe"]
This is where I find the biggest ridicule from finance influencers. They advise never to buy a new car, and especially never to buy a new car with a loan. That’s because the moment you drive a new car off the dealer lot, it takes a big hit, thanks to depreciation.
Perhaps, in an ideal world, we’d all buy a good used car with cash. But that option isn’t available to many people. Moreover, even if you can afford to pay cash, there can be a good reason to buck the conventional wisdom. The benefit I’ve received from buying a new car can be summarized in one word: reliability.
A new car brings me peace of mind, knowing it’s unlikely I’ll be waiting on the side of the road for AAA. I don’t have to leave an extra hour early for work in case my car doesn’t get me there. I also knew I’d be traveling along dirt roads and across state lines to do some exploring, so reliability was nonnegotiable with my car purchase.
A new car works out well for me on another level. I’m not a car guy. I lack the understanding of how to take care of one. The new car warranty typically covers the scheduled service for the first few years. I’m happy to pay more to get that responsibility off my plate.
My goal has never been to turn around and sell my car for a decent sum when I’m done using it. Instead, I want to pull out all the value I can along the way. I’ll increase both my life experiences and my financial wealth through its use—and not by selling it at the end. Logan Murray is a solo financial advisor. His company Pocket Project offers subscription-based financial planning services to young professionals. For more financial insights, read Logan’s blog, connect with him on LinkedIn and check out his earlier articles. [xyz-ihs snippet="Donate"]
Read more »

Rethinking the “Right” Time for Social Security

"Same. Waiting til 70 for the highest possible COLA-adjusted benefit. Spouse will probably take hers at 62. If she were to predecease me I’d still plan to wait for 70."
- Michael1
Read more »

Lonely Island (Correct Edit)

"I have to say that I'm impressed, because if I were writing an article mainly read in Ireland, I wouldn't begin to know how to infuse it with Irish flavor, I mean flavour."
- DAN SMITH
Read more »

How it all pencils out–or at least, we hope so! (Our Big “Little” Move, Part 3)

"Yup — stuff wears out and repairs can be pricey. But so far you've gotten 20 years with that a/c. I doubt a new unit will last that long. My son in law replaced his in a new house after 10 years. i think Dana has the right attitude. She and her husband saved for retirement. Now that it’s here, she’s willing to spend on what seems her best alternative."
- Marilyn Lavin
Read more »

Fixing Social Security once and for all

"Many in those age groups call SS a scam, see Medicare as socialized medicine. They don’t have a clue and get their info from absurd social media memes. It will indeed be interesting and perhaps disastrous."
- R Quinn
Read more »

Hidden Surcharge

"I remember this one now. Thanks, John"
- DAN SMITH
Read more »

A Life You Build

"Jeff, thank you for sharing your story, I found it very inspiring. Chris"
- baldscreen
Read more »

Staying Rational

IT'S BEEN MORE than six years since Covid first entered our vocabulary. It goes without saying that investors have experienced a lot, and for better or worse, recent market events provide some useful lessons. The first has to do with the nature of the stock market. What drives stock prices? Open a finance textbook, and the answer will be clear: The value of a stock should equal the sum of the company’s future profits. This idea is known as intrinsic value, and it’s the textbook explanation of how stock prices work. But there’s clearly a disconnect, since stock prices bounce around far more than the math suggests they should.  How can we square this circle? Over the long term, the data tell us that intrinsic value is a valid idea. Chart the price of any given stock, then overlay the company’s profits, and there will often be a reasonably close relationship. But only if you’re Rip Van Winkle. Over shorter periods of time, anything can happen. Stocks often move far above or far below their intrinsic values in response to the news of the day.  Especially during times of economic uncertainty, intrinsic value analysis is typically cast aside and replaced by some combination of emotion, conjecture, speculation and storytelling. That’s what we saw in the early months of 2020. Stores were closed, employees had been sent home and the economy went into recession. And since no one had a crystal ball, that’s when storytellers were able to step in with their extreme predictions, causing the stock market to drop more than 30% in the space of six weeks. The lesson for investors: No one can predict when the next crisis will roll around or what form it will take. But there is one very reasonable way to be able to keep it in perspective: by remembering that, at the end of the day, intrinsic value is what matters, and ultimately that’s what drives stock prices. Basic arithmetic illustrates how this can help us manage through the next crisis. Consider that the price-to-earnings ratio of the U.S. stock market has historically averaged around 16. The average company’s total stock market value, in other words, has been equal to about 16 times its annual profits.  Now let’s imagine that the next crisis results in every company in America losing an entire year of earnings. That’s extreme and hasn’t happened since the Depression, but it’s useful as a thought experiment. In that scenario, what would be the impact to those companies’ intrinsic value? In simple terms, it would be just one-sixteenth, or a modest 6%. What if a crisis were so severe that a company lost two years of earnings? Using this simple model, the impact would be about 12%. This is meaningful, I believe, because crises typically result in stock price declines that are far more severe than just 6% or 12%. In 2000 and in 2008, the market dropped more than 50%. While every crisis is different, I think it’s useful to keep these numbers in mind whenever the next geopolitical event causes stocks to drop. When that occurs, storytellers will inevitably take over, and the news will be downbeat. But if stocks drop to an extreme degree, as they have in the past, we can probably view it as an overreaction. That won’t help anyone’s portfolio recover any faster, but it should help us tune out the worst of the forecasters and maintain our equanimity. How else can you maintain an even keel during a market crisis? It’s important to understand the impact of recency bias. This bias is the tendency to extrapolate from current conditions, to assume that the future will look like the present, and to downplay the possibility that things might change. That tendency is what contributed to the cycle of negative news during the depths of 2020, and this is why I think it’s so important for investors to be aware of market history.  Again, extensive analysis isn’t required. We need only look back across some of the crises the country has weathered, from the Civil War to the Depression to World War II. In each case, the economy recovered and went on to become larger and stronger than before. The lesson for investors: In the depths of a crisis, it’s very difficult to know when or how it will end. But a sense of history can help carry us through. Those are ways to manage through a crisis. Covid also provided a lesson on how to prepare—specifically, how to prepare our portfolios—for a future downturn. In 2022, investors were caught flat-footed when popular total-bond market funds delivered surprising losses. These funds are one pillar of the well-known three-fund portfolio and have traditionally been viewed as the default choice for a set-it-and-forget-it bond allocation. But in 2022, when the Federal Reserve hiked interest rates, these funds dropped a surprising 13%. That was during the same year that the U.S. stock market dropped nearly 20%, creating a very difficult situation for those in retirement and needing to withdraw from their portfolios. The lesson for investors: Total-bond market funds may be well diversified, but they carry risk along another very important dimension known as duration. This is a bond metric that measures, in simple terms, how long it will take for bondholders to be repaid, and it’s a key determinant of risk. The longer the duration, the greater the risk of loss when rates rise. While total-bond market funds have holdings across a broad range of durations, they average out to nearly six years. That’s why they lost so much value in 2022. What’s the alternative? Short-term bond funds tend to have a duration in the neighborhood of just two years. As a result, in 2022, short-term government bond funds like Vanguard’s Short-Term Treasury ETF (ticker: VGSH) lost a far more manageable 4% of their value. To be sure, every crisis is different, and it’s easy to rationalize about the past once it’s in the past. But these lessons, I think, can help us better prepare both our emotions and our portfolios for whatever comes next.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Read more »

Navigating a Turbulent Career

A RECENT article by Adam Grossman relayed an interesting story of the 2015 merger of Kraft and Heinz.  One of the aspects that made this merger unique was the involvement of Warren Buffet. Adam’s story is a cautionary tale for investors – research shows that, more often than not, the hoped-for corporate synergies and growth are elusive. The story provides more evidence for the benefits of indexing to investors. There is, however, another side to this story that is very important to an individual’s personal financial life. In addition to being investors, most of us are, or were, employees of a corporation.  What if you are an employee of a company that is acquiring another company, being acquired by another company, or part of a merger?  How do you navigate the challenges of this significant career event? In late November 1985, I interviewed with RCA’s Astro Space division in East Windsor, NJ.  Several weeks later I interviewed with GE Aerospace in King of Prussia, PA.  In between those 2 interviews it was announced that GE was acquiring RCA. I received an offer for a position in the thermal engineering group of both companies. The GE offer was for $32,000, $4,000 more than the RCA offer.  The GE plant was about 8 miles from our home; the RCA plant was 62 miles from our home.   I accepted the GE offer.  When I called the RCA manager to tell him my decision, he was professional and understanding.  He remarked that “who knows, we may end up working together and you got a better deal out of it”. Four months later that RCA manager became the senior manager of the merged thermal engineering organization – my new boss’s boss. Seven years later my division was sold to Martin Marietta, whose space operations were based in Denver, CO. Two years later Martin Marietta merged with Lockheed, in Sunnyvale, CA, to form Lockheed Martin.  Later that year it was announced that the company was closing its 2 east coast plants and moving the work to Sunnyvale and Denver.   Over the 31 years starting in 1986, I was part of numerous acquisitions, mergers, two plant shut-downs, and being sold to a private equity company. Somehow, I managed to stay employed, and grow my career. I wasn’t special – hundreds of colleagues trod the same path. When I look back I can identify some of the attributes that helped me navigate a turbulent career. Build your Reputation: Be someone that people want to hire. If you move up, be someone that people want to work for. My first senior manager position came about because the hiring team remembered me from 4 years previous  Maintain Flexibility: Are you willing to travel or relocate? Would you take a lateral position, or even a step down, if it meant keeping a job?  During my career I traveled extensively, commuted 62 miles for four years, and took new positions that challenged me and my family.  Focus on your Skills: What are the skills and behaviors that are valued by your company, and differentiate successful employees? These include technical, leadership, managerial, and interpersonal skills. My first GE manager provided a sound technical base, but also taught me just as much about work ethic, and professionalism. Focus on the Culture:  Combing organizations means combining cultures, just as much as products or processes.  This may require you to be open to a different way of doing things. It requires a willingness to learn and grow.  It will also likely require some diplomacy skills.  Change is hard for employees, and nobody enjoys being told their processes or products are inferior.  When we merged with RCA, we found there was a significant difference in the way that managers and senior technical leaders challenged their employees in public forums, in front of customers.  GE preferred to work out technical differences and approaches in-house, and present a united front to customers. This took some time to resolve into a shared approach. Focus on the People:  When my first GE manager retired, we held a group luncheon. He was universally liked and respected.  Someone described him as the best “BTU chaser” he’d ever seen, which was high praise. He gave a short speech at his retirement, where he discussed the exciting space programs he had supported. He ended that the thing that made his career special wasn’t the projects and technology, it was the people.   I was also fortunate to work on some exciting, ground-breaking projects.  It wasn’t always easy, and the path certainly wasn’t straight.  Looking back, it is the people I think of most, and I miss the most.    Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.
Read more »

Free Newsletter

Get Educated

Manifesto

NO. 77: TO BUY ourselves happiness, often the best strategy is to not buy anything at all. That can leave us with a plump bank account and the sense of financial security it offers.

humans

NO. 51: WE FAVOR the familiar, such as stocks of local companies and makers of goods we buy. This “home bias” can be risky. Folks often bet big on their employer’s shares, so both their paycheck and portfolio hinge on the company’s prosperity. Many U.S. investors also shun foreign stocks, even though there’s no guarantee U.S. shares will outperform long-term.

Truths

NO. 87: A LONG LIFE is a big risk. On average, 65-year-olds live until their mid-80s. But that’s the average—and half of all 65-year-olds will live longer. How can you cope with this longevity risk, especially given the threat from inflation? Your financial arsenal might include stocks, delayed Social Security benefits, and immediate and deferred income annuities.

think

RISK POOLING. When we purchase health, life, auto and other insurance, we contribute to a pool of money overseen by an insurance company. Those who crash their car or suffer ill-health collect from the pool. Those who get through the year unscathed pay their premiums and get nothing in return—which is what you want, because it means life is good.

Help others

Manifesto

NO. 77: TO BUY ourselves happiness, often the best strategy is to not buy anything at all. That can leave us with a plump bank account and the sense of financial security it offers.

Spotlight: Abuse

Don’t Pick Up

I WAS A VICTIM OF identity theft. It wasn’t anything I did. Rather, it was what my former employer did.
During the pandemic, many employees were working remotely, including a member of the human resources department. She received an email from the CEO requesting that she send him the W-2s for all employees. So she did. Unfortunately, the email wasn’t from the CEO. It was sent from a shopping mall in Saudi Arabia.
As soon as she hit send,

Read more »

Headache for Rent

FOR THE PAST SIX years, we’ve rented a house in Florida for a month or so. We used VRBO, and all went well. Even minor problems with a house were quickly addressed by the owners or their rental agents.

Not this year.

In September 2023, we rented a condo on the beach in Hillsboro Beach for February 2024. In December, I received an e-mail from the rental agent, Houzlet, Inc., saying the owner had financial problems and was selling the place,

Read more »

Avoiding Bad Guys

MONEY MANAGERS Raj Rajaratnam and Joel Greenblatt share a number of similarities. They’re almost exactly the same age. Both received business degrees from the University of Pennsylvania, and both started well-known hedge funds. But the similarities end there.
During the 10 years that Greenblatt operated his fund, Gotham Capital, it delivered returns averaging 50% a year, versus 10% for the S&P 500. Thanks to his success, Greenblatt retired from full-time work in 1994 at age 37.

Read more »

Low-Cost Protection

I’VE BEEN IN LOVE with index funds for a long time, especially for a reason that doesn’t get enough attention. Lots of financial writers correctly praise index funds for their low costs, low turnover, low drama, massive and easy diversification, and numerous other good attributes.
But the No. 1 reason you should love index funds is they will keep you out of the hands of pushy, unethical financial salespeople. If Wall Street knows you’re committed to index funds,

Read more »

On Guard Online

IN AN ARTICLE last year, I wrote about the importance of strong online account security wherever you keep your savings and investments. I shared habits that should help you avoid the potentially huge financial losses caused by a cybercrime. I also urged readers to weigh a company’s commitment to security when choosing a home for their money.
I’d like to give kudos to Bank of America for providing a good example of this commitment.

Read more »

How to protect your retirement savings from scammers?

I was reading this New York Times Article today titled: ” How one man lost $740,000 to scammers targeting his retirement savings”. See this link.
This is a shocking reminder that scammers are getting more and more sophisticated. It is going to get worse. Criminals on the internet are increasingly going after Americans over 60 for their retirement savings. Potential losses last year were over $3.4 billion.
Here’s another link that’s relevant.
What steps should we take to protect our assets from scammers?

Read more »

Spotlight: Ehart

Bad News Bonds

EXPERTS HAVE LATELY been recommending that investors shift some money from short-term bonds—which offer the highest yield these days—to longer-term issues, whose prices are more sensitive to interest rates. Had I followed this advice—and I almost did—I’d have quickly lost money in what’s supposed to be the safe part of my portfolio. Bonds did indeed rally from their October 2022 lows, but have pulled back since early May. Vanguard Intermediate-Term Treasury ETF (symbol: VGIT) was down 4.2% from its May 4 peak through last Friday, while iShares 20+ Year Treasury Bond ETF (TLT) was off 8.8% during that stretch. The “smart money” said prepare to profit if interest rates fall, perhaps because the economy slips into a recession. But that’s a big “if.” The flipside: You lose if rates rise. That’s why I’ve generally preferred short-term Treasurys in my portfolio. That limits my exposure to interest-rate fluctuations and provides a hedge against the risk of falling stock prices. Short-term Treasury prices won’t decline much if rates keep rising, though they also won’t gain much if rates fall from here. An added bonus: Today, we’re enjoying generous yields on short-term bonds and cash investments, including some guaranteed by the federal government. Indeed, those high rates have lately drawn me to money market funds and certificates of deposit (CDs). The bond market got a bad case of the willies in August, burning those who hold interest-sensitive assets. Now, Wall Street is gripped by the fear of rising rates. Budget deficits and the national debt really do matter—finally—or so some are saying. On top of that, the U.S. Treasury must issue a lot of new debt at higher rates, while foreign countries are reducing their Treasury holdings. Prepare for interest rates to be “higher for longer,” some experts are predicting. I prefer not…
Read more »

Durn Furriners

A BURNING QUESTION has only gotten hotter as foreign stocks have lagged disastrously over the past dozen years: Should any of your stock market money be overseas? Most experts say “yes.” Vanguard Group, for one, recommends investors allocate 40% of their stock investments to foreign markets. In fact, some pundits have smugly derided what they call the “home bias” of those U.S. investors who avoid or underweight foreign stocks. Those stocks currently make up about 45% of world market capitalization. That smugness has waned considerably since 2007, as the S&P 500 Index has delivered a compound annual growth rate of 8%, versus 2% for MSCI’s Europe, Australasia and Far East (EAFE) index of developed country stocks. That’s a lot of opportunity cost. If emerging markets were included, the picture would look even worse. Vanguard Emerging Markets Index Fund is up a cumulative 10% over the past 12 years, compared with 29% for EAFE and 163% for the S&P 500. For this article and in the accompanying chart, I compare the S&P 500 and EAFE. The latter index goes back to 1970. By contrast, emerging markets indexes are relatively new, so it’s hard to do long-term comparisons. The data in the chart suggests investors can’t expect a “free lunch” by diversifying into foreign stocks. That phrase was used by Harry Markowitz, who introduced Modern Portfolio Theory in 1952. According to MPT, combining assets with similar long-term return potential but low correlations can boost portfolio returns while reducing volatility. Trouble is, foreign stocks have offered neither low correlations nor comparable returns for 12 years—and they didn’t in the 1990s, either. The only sustained period of foreign outperformance since 1989 was in 2002-07. Since the EAFE index’s inception in 1970, the S&P 500’s cumulative return has been double that of EAFE. But don’t…
Read more »

April Fool

HERE IS WHY I DON'T trade, and don’t make big market bets, and why you shouldn’t, either. Headlines last Monday at 6 a.m.: Nation Braces for Brutal Week, At Least a Fourth of U.S. Economy Goes Idle, British Prime Minister Boris Johnson Hospitalized. Headline at 9:30 a.m.: Dow Surges as Tech Stocks Rally I got spooked last weekend. It was epic. I was actually scared after days of hearing about the bungled federal response to the pandemic and about states fighting over medical supplies. I wasn’t about to sell stocks—I knew that would be a dangerous emotional reaction—but I felt compelled to warn family and readers that things would be even worse than most people expected. In initial drafts of this column, penned early on Monday morning, I wrote that I was preparing mentally for the worst bear market of my lifetime. Three hours later, the market bolted to its sixth-best percentage gain in 87 years. In the spirit of Stephanie Grisham announcing that she was stepping down as White House press secretary after never holding a single briefing, I can confirm here that I am no longer Wall Street’s most influential market strategist. It’s so seductive and ego gratifying to believe we know something others don’t. I was bent sideways all day Monday, desperate to avoid admitting what I’ve actually known for a long time: I’m a reliable contrarian indicator. My thought process was thoroughly corrupted as I went through the stages of grief—on a day when I was making thousands of dollars, thanks to my portfolio’s 76% allocation to stocks. Of course, one day’s or week’s market action doesn’t sound the all-clear. What if I really, really believe things are going to be much worse than the market expects? Frankly, my investment stance shouldn’t change much. Our individual market…
Read more »

Resolve to Rebalance

I CAN TELL I’M a little squishy on my investment plan, because the thought of making a public New Year’s resolution fills me with all the dread of a reluctant groom. As I linger outside my metaphorical church, I imagine my bride wants to shackle me to allocation targets and rebalancing rules that I announce to the whole congregation. My aversion to such commitments competes with my realization that—without them—I’ll be back to my free-wandering self. But freedom’s just another word for… never getting to kiss the bride. It can mean wondering every darn day whether it’s time to take profits, buy the dip or indulge my latest get-rich-quicker scheme. Freedom allows us to respond to our emotions, which rarely leads to sound decisions. I have asset allocation targets, such as 20% developed foreign stocks, 7% emerging markets, 5% real estate investment trusts, 3% inflation-indexed Treasury bonds—and 5% for a satellite position that allows me to make a small bet on any asset I think might outperform, which is currently foreign small-cap value stocks. But I haven’t set hard and fast triggers for rebalancing. Do I bring the portfolio back to all targets every year-end? Every two years? Or adjust each asset class when it strays too much from my target percentage? What if it’s a long-suffering asset class? Wouldn’t I want to let it run above target for a bit before rebalancing? How about my satellite position—when do I take profits there, assuming I realize any? How long do I stick with the original bet before making a new one? Meanwhile, what about my overall stock allocation target, which—at age 58—is currently 72% of my overall portfolio? Do I reduce that by a percentage point every year as I age, as I tentatively plan to do? Or do I…
Read more »

Needing to Know

YEARS AGO, WHEN THE kids were teenagers, single Dad here was cooking dinner. You guessed it, hot dogs. I skillfully picked one up from the hot pan with my fingers and tossed it in a bun. When my daughter began to imitate me, I nearly shrieked. She lacked my years of experience in gauging exactly how hot the sides of the dog would be, how far from the splattering grease I needed to position my fingers, how many milliseconds I had to release the dog into the waiting bun. But something else was behind my horror and sense of guilt. It wasn’t just that my hands already had been cut and smashed and scalded many a time and that I wanted better for my little girl’s precious fingers. Rather, it’s that we make decisions differently when loved ones are involved. By ourselves, we may jaywalk, drive aggressively and invest with borrowed money. I’m guilty on all counts. We are willing to take greater risks for ourselves than for our children. The hot dog incident came to mind as I helped my daughter with her Roth IRA. I was recommending a 2060 target-date fund comprised of index funds, but thought about mixing it up a bit. How about a modest small-cap value stake, like Daddy has? That would reduce her exposure to the foreign stocks I’m skeptical of and to the runaway mega-cap tech stocks that scare me, both heavily represented in the target-date fund. But in my effort to guide her financial future, I fell into old, bad habits of thought. I was tempted to act like a know-it-all. Since I wanted to protect her, I had to know what small caps would do next, didn’t I? I wanted to trot out the charts, look at the moving averages, gauge…
Read more »

Gut Reaction

BEHAVIORAL ECONOMISTS long ago discovered that the pain we feel from a $1,000 loss is about twice as great as the joy we feel from a $1,000 gain. Daniel Kahneman and Amos Tversky documented the phenomenon and coined the term “loss aversion” in 1979. That was just a few years before I began investing. Since then, I’ve made a discovery about my own psychology: I’d rather underperform in out-of-favor stocks than risk losses in glamorous ones—because my gut tells me that the more something is celebrated, the harder it’ll fall. I feel like I was a contrarian even before 1992, when Eugene Fama and Kenneth French advanced their three-factor model. They showed that neglected value stocks, especially those of smaller companies, were the best performers going back to 1926. Their model purports to explain why that happened and why this outperformance should continue. Maybe if I’d been Mr. Popular in high school, I’d feel more at home in a crowd, more comfortable buying stocks others are bragging about. If my Little League team hadn’t sucked, I might not gravitate so much to the underdog. If I weren’t so egotistical, I might not feel this overwhelming desire to win by betting against everyone else. In other words, I need to admit that my preference for unloved stocks might be driven more by my gut than my brain. It’s probably as much a hunch as it is a conclusion based on historical research. If Fama and French had said in the 1990s to buy popular shares like Microsoft, Walmart and Home Depot, I might have ignored them. Today, the Fama-French model has more doubters than ever. There’s serious debate about whether the valuation metric they used—price-to-book value—is still useful. Book value doesn’t capture intangible factors that can add to a company’s worth, such…
Read more »