Jonathan Clements's Blog, page 304
December 13, 2020
Help Today’s Self
SO MUCH OF PERSONAL finance is focused on our future self—and that’s a challenge. Think about the standard prescriptions: Open an IRA. Maximize your 401(k). Save for college. Save for retirement. Build an estate plan.
These are all about the future—often the very distant future. An enormous amount of time and energy is spent planning for “someday.” But it's equally important to focus on things that can be done to benefit you today. As we head into year-end, it's a good time to conduct some financial housekeeping along those lines. Here are eight recommendations:
1. Organization. Over the course of a career, it’s not uncommon to wind up with a collection of financial accounts, including multiple IRAs and 401(k)s from old jobs. Often these can be combined, making your finances simpler to monitor and manage. But this doesn’t always happen—and not just because folks are deterred by the paperwork involved. Another reason: Many people don’t even realize it’s possible. Fortunately, the IRS provides this handy chart showing exactly which accounts can and can’t be merged together.
2. Spending (part I). In his 1758 book, The Way to Wealth, Ben Franklin wrote, “Beware of little expenses. A small leak will sink a great ship.” He was ahead of his time. In recent years, more and more companies have refashioned their business models around small, recurring charges. Think Netflix and Spotify. Many of these services are great, but it’s easy to lose track of the little charges and to continue paying for services you no longer use. Fortunately, there’s a growing number of solutions. Credit cards like Discover offer a “recurring payments dashboard.” A number of apps can help you identify and cancel old accounts.
3. Charitable giving. A few years back, a longstanding pillar of the tax code changed. As of 2018, deductions for state and local taxes were curtailed, while the standard deduction was substantially increased. Result? Many people who used to itemize deductions, and therefore receive a deduction for every dollar given to charity, are now covered by the standard deduction. This means they no longer receive an incremental tax benefit from charitable donations. This has led many people to adopt an every-other-year strategy for donations.
This year is an exception, however. A provision in the coronavirus-related CARES Act offers a special onetime “above the line” deduction for a cash donation of up to $300. “Above the line” means that everyone can benefit. The upshot: Even if you no longer itemize your deductions on your tax return, be sure to let your accountant know if you’ve made charitable contributions.
4. Interest on debt. As I’m sure you know, interest rates are at historic lows. This has prompted a flood of mortgage refinancings. That’s a good thing. But don't overlook other, smaller debts. If they carry high interest rates, you may want to pay them off or replace them with lower-cost debt. Very few personal finance decisions carry such easily measurable results.
5. Interest on savings. If you have cash savings, you've probably also noticed the impact of lower rates. Some banks are now paying an insultingly low 0.01%. But you can do much better. There are lots of online banks that offer 0.5% or more. Some banks have banded together into a network called IntraFi that provides both higher rates and virtually unlimited FDIC coverage.
6. Asset allocation. The greatest catch-22 of personal finance has to do with risk tolerance. When they construct a portfolio, most people don’t have a sense of their risk tolerance. That’s because you have to live through a downturn to truly know how you’d react. But when that downturn comes, it may be too late.
A silver lining of this less-than-wonderful year: It has offered a test lab for assessing risk tolerance. Now that the market has recovered, this is a good opportunity to think back to how you felt in February and March, when the market dropped more than 30%. If you lost a lot of sleep, you may want to dial back your portfolio’s risk level.
7. Information security. The internet is both a blessing and a curse. Financial fraud is an ongoing concern. That’s why I urge you to set up two-factor authentication on as many of your accounts as possible. I also recommend the use of a password manager.
8. Spending (part II). Week in and week out, I write articles with recommendations on saving and investing. That’s important, of course, but this is also a good time of year to take a step back. In recent weeks, I’ve been asking folks about the items they would recommend as holiday gifts. The list ranges from ever-popular Apple and Bose products to items such as the Solo Stove that have taken on new importance in this era of social distancing. None of these items is terribly expensive.
It’s a good reminder that another key pillar of personal finance is spending. Sure, we all enjoy the story of Ronald Read. But I know few people who would actually want to follow that model. At the end of the day, the route to maximizing happiness isn’t all about accumulating the greatest number of dollars. Instead, it requires a healthy balance between saving and spending.
Adam M. Grossman’s previous articles include Split the Difference, Game Theory and Trends That End. Adam is the founder of Mayport, a fixed-fee wealth management firm. In his series of free e-books, Adam advocates an evidence-based approach to personal finance. Follow Adam on Twitter @AdamMGrossman.
These are all about the future—often the very distant future. An enormous amount of time and energy is spent planning for “someday.” But it's equally important to focus on things that can be done to benefit you today. As we head into year-end, it's a good time to conduct some financial housekeeping along those lines. Here are eight recommendations:
1. Organization. Over the course of a career, it’s not uncommon to wind up with a collection of financial accounts, including multiple IRAs and 401(k)s from old jobs. Often these can be combined, making your finances simpler to monitor and manage. But this doesn’t always happen—and not just because folks are deterred by the paperwork involved. Another reason: Many people don’t even realize it’s possible. Fortunately, the IRS provides this handy chart showing exactly which accounts can and can’t be merged together.
2. Spending (part I). In his 1758 book, The Way to Wealth, Ben Franklin wrote, “Beware of little expenses. A small leak will sink a great ship.” He was ahead of his time. In recent years, more and more companies have refashioned their business models around small, recurring charges. Think Netflix and Spotify. Many of these services are great, but it’s easy to lose track of the little charges and to continue paying for services you no longer use. Fortunately, there’s a growing number of solutions. Credit cards like Discover offer a “recurring payments dashboard.” A number of apps can help you identify and cancel old accounts.
3. Charitable giving. A few years back, a longstanding pillar of the tax code changed. As of 2018, deductions for state and local taxes were curtailed, while the standard deduction was substantially increased. Result? Many people who used to itemize deductions, and therefore receive a deduction for every dollar given to charity, are now covered by the standard deduction. This means they no longer receive an incremental tax benefit from charitable donations. This has led many people to adopt an every-other-year strategy for donations.
This year is an exception, however. A provision in the coronavirus-related CARES Act offers a special onetime “above the line” deduction for a cash donation of up to $300. “Above the line” means that everyone can benefit. The upshot: Even if you no longer itemize your deductions on your tax return, be sure to let your accountant know if you’ve made charitable contributions.
4. Interest on debt. As I’m sure you know, interest rates are at historic lows. This has prompted a flood of mortgage refinancings. That’s a good thing. But don't overlook other, smaller debts. If they carry high interest rates, you may want to pay them off or replace them with lower-cost debt. Very few personal finance decisions carry such easily measurable results.
5. Interest on savings. If you have cash savings, you've probably also noticed the impact of lower rates. Some banks are now paying an insultingly low 0.01%. But you can do much better. There are lots of online banks that offer 0.5% or more. Some banks have banded together into a network called IntraFi that provides both higher rates and virtually unlimited FDIC coverage.
6. Asset allocation. The greatest catch-22 of personal finance has to do with risk tolerance. When they construct a portfolio, most people don’t have a sense of their risk tolerance. That’s because you have to live through a downturn to truly know how you’d react. But when that downturn comes, it may be too late.
A silver lining of this less-than-wonderful year: It has offered a test lab for assessing risk tolerance. Now that the market has recovered, this is a good opportunity to think back to how you felt in February and March, when the market dropped more than 30%. If you lost a lot of sleep, you may want to dial back your portfolio’s risk level.
7. Information security. The internet is both a blessing and a curse. Financial fraud is an ongoing concern. That’s why I urge you to set up two-factor authentication on as many of your accounts as possible. I also recommend the use of a password manager.
8. Spending (part II). Week in and week out, I write articles with recommendations on saving and investing. That’s important, of course, but this is also a good time of year to take a step back. In recent weeks, I’ve been asking folks about the items they would recommend as holiday gifts. The list ranges from ever-popular Apple and Bose products to items such as the Solo Stove that have taken on new importance in this era of social distancing. None of these items is terribly expensive.
It’s a good reminder that another key pillar of personal finance is spending. Sure, we all enjoy the story of Ronald Read. But I know few people who would actually want to follow that model. At the end of the day, the route to maximizing happiness isn’t all about accumulating the greatest number of dollars. Instead, it requires a healthy balance between saving and spending.
Adam M. Grossman’s previous articles include Split the Difference, Game Theory and Trends That End. Adam is the founder of Mayport, a fixed-fee wealth management firm. In his series of free e-books, Adam advocates an evidence-based approach to personal finance. Follow Adam on Twitter @AdamMGrossman.The post Help Today’s Self appeared first on HumbleDollar.
December 12, 2020
Long Time Coming
IF MONEY ISSUES had the urgency of a broken air-conditioning system on a 100-degree day, we’d all be in great financial shape.
But all too often, financial troubles are years in the making. We bumble along, vaguely aware that things aren’t quite right. Sure enough, one day, the red lights are flashing and the alarm bells are ringing. But by then, it’s usually way too late to fix the problem—because the fix required taking action years earlier. Consider seven examples:
1. Living precariously. This may not be an issue for HumbleDollar readers, but it’s a big issue for most Americans. All too many families live paycheck to paycheck, with little or no financial safety net. We’re talking about folks such as the 37% of Americans who can’t handle a $400 financial emergency. One result: When the economy shut down earlier this year and unemployment spiked to 14.7%, millions of Americans immediately found themselves in dire financial straits.
I appreciate that those on the lowest incomes find it hugely difficult to save. But for everybody else, I wish there was greater thought given to the tradeoff between spending on baubles today and not spending so we’re better prepared for tomorrow. The baubles will provide only fleeting pleasure, while money in the bank can deliver an enduring sense of financial security.
2. Punting on retirement. Paying for retirement may be our final financial goal, but we should make it a priority from the day we enter the workforce. Why? If we’re aiming to retire at, say, age 65 with today’s equivalent of $1 million and our portfolio earns three percentage points a year more than inflation, we need to save an inflation-adjusted $11,700 every year if we start at age 22. What if we wait until 35 to begin saving? The required annual sum soars some 80% to $21,000.
3. Failing to diversify. Risk isn’t what happens, but rather what could potentially happen. If we own a lopsided portfolio—one that’s heavily skewed toward our employer’s stock, or to health care companies, or that includes only U.S. shares—perhaps all will be fine and we’ll roll along merrily for years with no ill effects.
But maybe our luck won’t hold. What if our employer turns out to be the next Enron, or health care is nationalized, or the U.S. suffers a malaise similar to Japan? This is a reason to own a globally diversified portfolio, preferably one built using total market index funds.
4. Overlooking inflation. Over the past decade, inflation has run at a modest 1.7% a year. That hardly seems worth worrying about and, in any given year, that’s probably the right reaction.
Yet the longer-term consequences could be dire. Suppose we favor cash investments and high-quality bonds. Based on today’s yields, there’s a decent chance our money won’t grow once inflation and taxes are figured in. What if we’re retired with a fixed monthly pension? After 25 years of 1.7% annual inflation, the spending power of that pension would be slashed by 34%—which is why we might also want to own some stocks, so we have a pot of money that has a decent shot at growing faster than inflation.
5. Discounting longevity risk. Many folks are aware that, at age 65, they can reasonably expect to live another two decades or so. What they fail to appreciate is how much variation there is around this median. Roughly speaking, a quarter of retirees won’t make it to age 80—but another quarter will live to their early 90s or beyond.
But where will each of us fall within this range? We won’t find out until we get there, which is why relying on average life expectancies is so dangerous. I hate to sound callous, but dying early in retirement is not a financial risk. In fact, at that juncture, all of our financial problems would be over. Instead, the big financial risk is living far longer than average and potentially exhausting our savings, hence my fondness for delaying Social Security to get a larger monthly check and buying immediate fixed annuities that pay lifetime income.
6. Ignoring long-term care. Among seniors, 44% of men and 58% of women will need long-term care (LTC). But it usually isn’t for that long, with stays at an LTC facility averaging less than a year for men and less than a year and a half for women. Still, a minority of seniors will spend many years in a nursing home—and the cost is potentially astronomical.
To be sure, there’s an element of moral hazard here: If we don’t have a plan for covering LTC costs, we can always fall back on Medicaid. But that will mean first spending down much of our wealth, plus we’re more likely to end up in a low-rated facility.
Don’t like that idea? We might decide we can shoulder the cost on our own, assuming we have a seven-figure portfolio. We might opt to buy LTC insurance, either the traditional or the hybrid variety. Or we could plan to apply for Medicaid, in which case we might want to give away a chunk of our money years before. Whatever the case, we should probably be thinking about how to handle LTC costs in our 50s—more than two decades before we’re likely to need long-term care.
7. Avoiding estate planning. There’s a good chance that death will arrive without much warning—and, to the extent we know our demise is imminent, we probably won’t want to spend any of our remaining days meeting with a lawyer. The upshot: We should get that will and those powers of attorney drawn up today. We should check those beneficiary designations. And, for both our own sake and the sake of our heirs, we should get our financial affairs in order.
Latest Articles
HERE ARE THE SIX other articles published by HumbleDollar this week:
"In September, we received an unsolicited offer for our home," recounts Rick Connor. "Our simple suburban neighborhood has become a hot commodity, as city dwellers seek more space and large backyards."
What does it take to succeed financially? You need two soft skills, says Anika Hedstrom: spending discipline and investment humility. Her father possessed both.
Math skills are sadly lacking, laments Dick Quinn. "While shopping, a person—who shall remain nameless—frequently asks me if a $10 coupon on a $25 purchase is better than 30% off the same amount."
Struggling with a personal finance decision? "Often the best approach is—for lack of a better term—to split the difference," says Adam Grossman.
Got money you don’t currently want to invest or don’t yet need to spend? Tom Welsh recommends a short-term barbell—one that combines an online savings account with ultra-short bonds.
"Imagine your best friend was facing the same decision," writes Michael Flack. "What advice would you give? This allows you to attain distance and look at the situation from a different perspective."
Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Next Year Foretold, Dialed In and Ain't Everything.
But all too often, financial troubles are years in the making. We bumble along, vaguely aware that things aren’t quite right. Sure enough, one day, the red lights are flashing and the alarm bells are ringing. But by then, it’s usually way too late to fix the problem—because the fix required taking action years earlier. Consider seven examples:
1. Living precariously. This may not be an issue for HumbleDollar readers, but it’s a big issue for most Americans. All too many families live paycheck to paycheck, with little or no financial safety net. We’re talking about folks such as the 37% of Americans who can’t handle a $400 financial emergency. One result: When the economy shut down earlier this year and unemployment spiked to 14.7%, millions of Americans immediately found themselves in dire financial straits.
I appreciate that those on the lowest incomes find it hugely difficult to save. But for everybody else, I wish there was greater thought given to the tradeoff between spending on baubles today and not spending so we’re better prepared for tomorrow. The baubles will provide only fleeting pleasure, while money in the bank can deliver an enduring sense of financial security.
2. Punting on retirement. Paying for retirement may be our final financial goal, but we should make it a priority from the day we enter the workforce. Why? If we’re aiming to retire at, say, age 65 with today’s equivalent of $1 million and our portfolio earns three percentage points a year more than inflation, we need to save an inflation-adjusted $11,700 every year if we start at age 22. What if we wait until 35 to begin saving? The required annual sum soars some 80% to $21,000.
3. Failing to diversify. Risk isn’t what happens, but rather what could potentially happen. If we own a lopsided portfolio—one that’s heavily skewed toward our employer’s stock, or to health care companies, or that includes only U.S. shares—perhaps all will be fine and we’ll roll along merrily for years with no ill effects.
But maybe our luck won’t hold. What if our employer turns out to be the next Enron, or health care is nationalized, or the U.S. suffers a malaise similar to Japan? This is a reason to own a globally diversified portfolio, preferably one built using total market index funds.
4. Overlooking inflation. Over the past decade, inflation has run at a modest 1.7% a year. That hardly seems worth worrying about and, in any given year, that’s probably the right reaction.
Yet the longer-term consequences could be dire. Suppose we favor cash investments and high-quality bonds. Based on today’s yields, there’s a decent chance our money won’t grow once inflation and taxes are figured in. What if we’re retired with a fixed monthly pension? After 25 years of 1.7% annual inflation, the spending power of that pension would be slashed by 34%—which is why we might also want to own some stocks, so we have a pot of money that has a decent shot at growing faster than inflation.
5. Discounting longevity risk. Many folks are aware that, at age 65, they can reasonably expect to live another two decades or so. What they fail to appreciate is how much variation there is around this median. Roughly speaking, a quarter of retirees won’t make it to age 80—but another quarter will live to their early 90s or beyond.
But where will each of us fall within this range? We won’t find out until we get there, which is why relying on average life expectancies is so dangerous. I hate to sound callous, but dying early in retirement is not a financial risk. In fact, at that juncture, all of our financial problems would be over. Instead, the big financial risk is living far longer than average and potentially exhausting our savings, hence my fondness for delaying Social Security to get a larger monthly check and buying immediate fixed annuities that pay lifetime income.
6. Ignoring long-term care. Among seniors, 44% of men and 58% of women will need long-term care (LTC). But it usually isn’t for that long, with stays at an LTC facility averaging less than a year for men and less than a year and a half for women. Still, a minority of seniors will spend many years in a nursing home—and the cost is potentially astronomical.
To be sure, there’s an element of moral hazard here: If we don’t have a plan for covering LTC costs, we can always fall back on Medicaid. But that will mean first spending down much of our wealth, plus we’re more likely to end up in a low-rated facility.
Don’t like that idea? We might decide we can shoulder the cost on our own, assuming we have a seven-figure portfolio. We might opt to buy LTC insurance, either the traditional or the hybrid variety. Or we could plan to apply for Medicaid, in which case we might want to give away a chunk of our money years before. Whatever the case, we should probably be thinking about how to handle LTC costs in our 50s—more than two decades before we’re likely to need long-term care.
7. Avoiding estate planning. There’s a good chance that death will arrive without much warning—and, to the extent we know our demise is imminent, we probably won’t want to spend any of our remaining days meeting with a lawyer. The upshot: We should get that will and those powers of attorney drawn up today. We should check those beneficiary designations. And, for both our own sake and the sake of our heirs, we should get our financial affairs in order.
Latest Articles
HERE ARE THE SIX other articles published by HumbleDollar this week:
"In September, we received an unsolicited offer for our home," recounts Rick Connor. "Our simple suburban neighborhood has become a hot commodity, as city dwellers seek more space and large backyards."
What does it take to succeed financially? You need two soft skills, says Anika Hedstrom: spending discipline and investment humility. Her father possessed both.
Math skills are sadly lacking, laments Dick Quinn. "While shopping, a person—who shall remain nameless—frequently asks me if a $10 coupon on a $25 purchase is better than 30% off the same amount."
Struggling with a personal finance decision? "Often the best approach is—for lack of a better term—to split the difference," says Adam Grossman.
Got money you don’t currently want to invest or don’t yet need to spend? Tom Welsh recommends a short-term barbell—one that combines an online savings account with ultra-short bonds.
"Imagine your best friend was facing the same decision," writes Michael Flack. "What advice would you give? This allows you to attain distance and look at the situation from a different perspective."
Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Next Year Foretold, Dialed In and Ain't Everything.The post Long Time Coming appeared first on HumbleDollar.
December 11, 2020
Boredwalk
I AM THE FIRST to admit that I’m no star when it comes to math. I was so enthralled with calculus in college that I took it twice. To make matters worse, math keeps changing. Just ask a 10-year-old to show you how to multiply.
I am not alone. At the high school from which I graduated in 1961, the current math proficiency rate is 2% The national average is 46%. The lowest ranked state is at 22%. With those numbers, is there any hope for financial literacy?
The lack of basic math skills is not new. Some years ago, before I retired, I was working on budgets with some employees. I was shocked when they couldn’t calculate percentages. If you don’t know that 10 is 10% of 100, how well are you going to do with rates of return, let alone compounding? While shopping, a person—who shall remain nameless—frequently asks me if a $10 coupon on a $25 purchase is better than 30% off the same amount.
Could this state of affairs have anything to do with why so many people mismanage their money, including spending too much and saving too little? I think so—and I think it’s going to get worse. Which brings me to Monopoly.
Monopoly is a strategy game that involves buying, investing, selling and keeping track of money. There’s a banker who oversees transactions. After you purchased all the lots on a block, you can buy houses and then a hotel. The rent charged soars with the number of buildings owned. The game can go on for hours, sometimes days. Making the wrong moves can result in bankruptcy, not unlike in the real world. Along the way, there are subtle lessons to be learned about simple math, the value of money, risk-taking, strategy and negotiating. As fellow HumbleDollar contributor Adam Grossman noted a few weeks ago, Monopoly can be a great way to teach kids about money.
Unless, that is, you're playing the newfangled, high-tech version of Monopoly. No math, buying and selling, or money-handling skills are required. They have even done away with the banker, the money, the houses and the hotels. Just roll the dice. No thinking required.
The cards and the titles to properties have bar codes. You simply scan the cards and the scanner does all the math, calculates the rent due, tells you what to do and, presumably, will even tell you if you’re bankrupt. You can’t figure out your financial state on your own, because you can’t see if you’re out of the nonexistent money.
I recently played this high-tech version with my grandchildren. They think it’s cool. I think it’s boring. The only skill required is correctly placing a card on the scanner. It took me a few times to get that right and then only with the assistance of an eight-year-old.
Hey, I’m all for technology, I use my phone to check out groceries as I pick them off the supermarket shelf and I use my Google Nest Hub to find recipes. I even check my heart rate via my phone. Which, incidentally, did not increase while I was playing Monopoly.
Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Last Stop, The Late Show and For Your Benefit. Follow Dick on Twitter @QuinnsComments.
The post Boredwalk appeared first on HumbleDollar.
December 10, 2020
Going Soft
MORGAN HOUSEL’S new book, The Psychology of Money, covers a host of topics related to money and emotion. I was especially drawn to his notion that “how you behave is more important than what you know.” I’ve been a student of behavioral finance for some time and know this to be true academically—but it also made me think of my father, Ole.
My father was born in 1948 into extreme poverty. His family of seven lived at times with no running water or electricity. They also shared an outhouse, which was not particularly warm in the cold Montana winters. My grandfather had dropped out of high school and worked on the railroad. My grandmother was a grocery store clerk.
Would you believe me if I told you that Ole grew up to be better at investing than 85% of active mutual fund managers? In other words, better than professionals with fancy educations and privileged upbringings?
That's the funny thing about finance. It’s taught—and largely regarded—as a hard science, incorporating a plethora of complex formulas, concepts, jargon and rules. But if this were truly the ticket to financial success, why would individual investors like Ole, with no training, background or connections, outperform experts?
The answer: Because so much of financial success is actually related to behavior. That's exactly the premise of Housel's book. In it, he argues that financial success is less a hard science and more a soft skill. There were two soft skills that Ole possessed that set him up for financial freedom.
Wealth is what you don’t see. Ole was both a sports enthusiast and a total nerd. During the work week, his attire would mainly consist of Clarks dress shoes, Wrangler pants, a belt—which often missed at least one belt loop—and a collared shirt. He was the king of brown bag lunches and DIY. Ole's fashion sense reflected his unassuming nature.
Wealth accumulates by not spending money you could. This behavior shows up by practicing restraint and discipline, even as your income rises. It’s about forgoing upgrades and more stuff. It’s choosing Wrangler and Clarks over more expensive brands at one level of income, and choosing two homes over four at another. It’s intentionally living a simpler life.
What you didn’t see about Ole was his savings, contributions to charity and freedom from debt. You also didn’t see an ego.
Victory lies in humility. As a tenured veterinary pathology professor, Ole earned a good living. Despite his academic and professional achievements, he never forgot his humble upbringing. He insisted that colleagues and students call him by his first name, forgoing the doctor and professor prefix.
By all accounts, he had already hit the lottery. He bootstrapped his way out of poverty and abuse into a stable, loving environment. He had a career he loved and daughters who looked up to him. He didn’t need or want to jeopardize what took so long to build. So he played the long game financially, beginning with what he knew best—research.
This took him to Jack Bogle, founder of Vanguard Group. Bogle was the pioneer of low-cost investing, benefiting the everyday investor by drastically reducing unnecessary fees and barriers. Ole dug into the costs associated with investing, and the research and evidence on which Vanguard was built. He was able to construct a portfolio with low-cost index funds. That not only earned him returns that outpaced the vast majority of active fund managers, but also gave him more time with his family and less time pretending to know more than he actually did. Simple, but not easy.
Ole was able to build financial security for his family through his prodigious savings rate and his investment humility. As Housel notes, when it comes to investing, perhaps the most important behavioral concept to understand is “that there is little correlation between investment effort and investment results.”
Anika Hedstrom, MBA, CFP, is a personal finance expert and advisor. Her previous articles include Make the Connection, Effort Counts Twice and Stay in Your Lane. Anika writes on motivational and behavioral aspects of financial planning, and has been featured in USA Today, MarketWatch, Huffington Post, Business Insider and NPR. Always up for adventure, Anika can be found exploring new countries, whitewater rafting and chasing after her twins. Follow her on Twitter
@AnikaHedstrom
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My father was born in 1948 into extreme poverty. His family of seven lived at times with no running water or electricity. They also shared an outhouse, which was not particularly warm in the cold Montana winters. My grandfather had dropped out of high school and worked on the railroad. My grandmother was a grocery store clerk.
Would you believe me if I told you that Ole grew up to be better at investing than 85% of active mutual fund managers? In other words, better than professionals with fancy educations and privileged upbringings?
That's the funny thing about finance. It’s taught—and largely regarded—as a hard science, incorporating a plethora of complex formulas, concepts, jargon and rules. But if this were truly the ticket to financial success, why would individual investors like Ole, with no training, background or connections, outperform experts?
The answer: Because so much of financial success is actually related to behavior. That's exactly the premise of Housel's book. In it, he argues that financial success is less a hard science and more a soft skill. There were two soft skills that Ole possessed that set him up for financial freedom.
Wealth is what you don’t see. Ole was both a sports enthusiast and a total nerd. During the work week, his attire would mainly consist of Clarks dress shoes, Wrangler pants, a belt—which often missed at least one belt loop—and a collared shirt. He was the king of brown bag lunches and DIY. Ole's fashion sense reflected his unassuming nature.
Wealth accumulates by not spending money you could. This behavior shows up by practicing restraint and discipline, even as your income rises. It’s about forgoing upgrades and more stuff. It’s choosing Wrangler and Clarks over more expensive brands at one level of income, and choosing two homes over four at another. It’s intentionally living a simpler life.
What you didn’t see about Ole was his savings, contributions to charity and freedom from debt. You also didn’t see an ego.
Victory lies in humility. As a tenured veterinary pathology professor, Ole earned a good living. Despite his academic and professional achievements, he never forgot his humble upbringing. He insisted that colleagues and students call him by his first name, forgoing the doctor and professor prefix.
By all accounts, he had already hit the lottery. He bootstrapped his way out of poverty and abuse into a stable, loving environment. He had a career he loved and daughters who looked up to him. He didn’t need or want to jeopardize what took so long to build. So he played the long game financially, beginning with what he knew best—research.
This took him to Jack Bogle, founder of Vanguard Group. Bogle was the pioneer of low-cost investing, benefiting the everyday investor by drastically reducing unnecessary fees and barriers. Ole dug into the costs associated with investing, and the research and evidence on which Vanguard was built. He was able to construct a portfolio with low-cost index funds. That not only earned him returns that outpaced the vast majority of active fund managers, but also gave him more time with his family and less time pretending to know more than he actually did. Simple, but not easy.
Ole was able to build financial security for his family through his prodigious savings rate and his investment humility. As Housel notes, when it comes to investing, perhaps the most important behavioral concept to understand is “that there is little correlation between investment effort and investment results.”
Anika Hedstrom, MBA, CFP, is a personal finance expert and advisor. Her previous articles include Make the Connection, Effort Counts Twice and Stay in Your Lane. Anika writes on motivational and behavioral aspects of financial planning, and has been featured in USA Today, MarketWatch, Huffington Post, Business Insider and NPR. Always up for adventure, Anika can be found exploring new countries, whitewater rafting and chasing after her twins. Follow her on Twitter
@AnikaHedstrom
.The post Going Soft appeared first on HumbleDollar.
December 9, 2020
Better Than Nothing
MONEY MARKET funds and other cash investments are paying interest rates close to zero. This is at a time of turmoil in society and in the economy. This is at a time when both stock and bond markets are at high prices. It seems like we have to choose between collecting very low yields on cash or buying investments with far greater risk.
An alternative to these extremes: How about a “short-term barbell” to hold money you don’t currently want to invest or don’t yet need to spend? Among bond investors, barbells are a popular strategy. The idea is to split a bond portfolio between short-term and long-term bonds, in an attempt to balance yield with interest rate risk. By combining the extra yield offered by long-term bonds with the stability offered by short-term bonds, the holder of a bond barbell hopes to earn a slightly higher return than that offered by intermediate-term bonds.
A short-term barbell involves a similar balancing act. It sticks to short-term maturities, thereby reducing the potential price hit from a rise in interest rates. But it also holds different types of short-term securities, so it fares reasonably well whether interest rates rise or fall. The barbell has short-term variable interest rate debt investments at one end and short-term fixed rate debt at the other.
What kind of securities are we talking about? The variable rate end might hold online savings accounts, where the interest rate paid will change in line with market conditions. Most are insured up to $250,000 by the FDIC. An online FDIC-insured savings account is kind of like a Treasury money market fund, but with income subject to state income taxes along with federal taxes. The good news: Online savings accounts are currently paying noticeably higher rates than money market funds.
The fixed rate end of a short-term barbell holds ultra-short bonds. These are available as mutual funds or exchange-traded index funds. We’re talking about funds holding taxable or tax-exempt fixed-rate bonds with an average maturity of around one year. Favor funds with low annual expenses, which should pay you a higher after-tax yield than an online savings account. Ultra-short bond funds will suffer some price fluctuations, but these will be modest.
The balancing of online savings accounts with ultra-short bond funds provides a bit of interest rate hedging. If rates rise, income will likely rise from online savings accounts, helping to offset the price drop on the fixed rate ultra-short bond funds. If rates fall, income will fall from online savings accounts, while ultra-short bond funds should enjoy a modest rise in price. The net result should be less volatility in your total short-term bond portfolio’s value.
A short-term barbell with limited risk can improve your income compared to bank cash accounts and money market funds. Think of it as a “shelter in place” for your investable cash until you need to spend the money involved or you’re ready to buy riskier investments.
Tom Welsh is a certified management accountant in Raleigh, North Carolina. He has been the chief financial officer at several manufacturing companies and is founder of
Value Point Accounting
, where he helps businesses manage product and customer profitability. His previous articles were Five Lives and
Pay to Play
. Tom can be reached at
tomgwelsh@valuepointaccounting.com
.
An alternative to these extremes: How about a “short-term barbell” to hold money you don’t currently want to invest or don’t yet need to spend? Among bond investors, barbells are a popular strategy. The idea is to split a bond portfolio between short-term and long-term bonds, in an attempt to balance yield with interest rate risk. By combining the extra yield offered by long-term bonds with the stability offered by short-term bonds, the holder of a bond barbell hopes to earn a slightly higher return than that offered by intermediate-term bonds.
A short-term barbell involves a similar balancing act. It sticks to short-term maturities, thereby reducing the potential price hit from a rise in interest rates. But it also holds different types of short-term securities, so it fares reasonably well whether interest rates rise or fall. The barbell has short-term variable interest rate debt investments at one end and short-term fixed rate debt at the other.
What kind of securities are we talking about? The variable rate end might hold online savings accounts, where the interest rate paid will change in line with market conditions. Most are insured up to $250,000 by the FDIC. An online FDIC-insured savings account is kind of like a Treasury money market fund, but with income subject to state income taxes along with federal taxes. The good news: Online savings accounts are currently paying noticeably higher rates than money market funds.
The fixed rate end of a short-term barbell holds ultra-short bonds. These are available as mutual funds or exchange-traded index funds. We’re talking about funds holding taxable or tax-exempt fixed-rate bonds with an average maturity of around one year. Favor funds with low annual expenses, which should pay you a higher after-tax yield than an online savings account. Ultra-short bond funds will suffer some price fluctuations, but these will be modest.
The balancing of online savings accounts with ultra-short bond funds provides a bit of interest rate hedging. If rates rise, income will likely rise from online savings accounts, helping to offset the price drop on the fixed rate ultra-short bond funds. If rates fall, income will fall from online savings accounts, while ultra-short bond funds should enjoy a modest rise in price. The net result should be less volatility in your total short-term bond portfolio’s value.
A short-term barbell with limited risk can improve your income compared to bank cash accounts and money market funds. Think of it as a “shelter in place” for your investable cash until you need to spend the money involved or you’re ready to buy riskier investments.
Tom Welsh is a certified management accountant in Raleigh, North Carolina. He has been the chief financial officer at several manufacturing companies and is founder of
Value Point Accounting
, where he helps businesses manage product and customer profitability. His previous articles were Five Lives and
Pay to Play
. Tom can be reached at
tomgwelsh@valuepointaccounting.com
.The post Better Than Nothing appeared first on HumbleDollar.
December 8, 2020
Making the Call
WHEN I NOTICED my iPhone 3—that’s not a typo—had a small black spot on its screen, I started thinking that maybe I needed to replace it. Maybe. It was a difficult decision. It was the first smartphone I’d ever owned and, since 2010, it had served me well.
I liked it because it was small. It had a cool retro steampunk vibe that occasionally turned heads. “Is that an iPhone? That’s the smallest phone I….” Best of all, I didn’t have to worry about it getting stolen. Who would steal a 10-year-old cellphone, especially one with a black spot on the screen? Also, because it was so old, I metaphysically couldn’t lose it, because you only lose things that are expensive. It’s like the $20 sunglasses you bought at the mall kiosk. You never lose those. Instead, you lose the $200 Ray-Ban Aviators.
An added benefit of being retired is having spare time, which I used to think long and hard about this issue. I perused a multitude of Amazon listings, reviewed T-Mobile’s current deals and took the missus’s iPhone SE (second generation) for a test drive. I even tried to understand what caused the black spot disease (some impact had caused leakage from the liquid crystal display), if it would become fatal (maybe, maybe not) and how to fix it economically (it appeared to be incurable).
The problem was that all this analysis brought me no closer to a decision. In fact, the more I thought about it, the more paralyzed I became. Then I remembered a book I read many years ago entitled Decisive : How to Make Better Choices in Life and Work by Chip and Dan Heath. It mentioned that, when faced with a decision, short-term emotions can get the better of you, causing you continually to review the details of the decision, which doesn’t lead to a better outcome, just more stress and worry.
To overcome your short-term emotions, the book states that you need to “attain distance before deciding.” One way to do this: Imagine your best friend was facing the same decision. What advice would you give him or her? This allows you to attain distance and to look at the situation from a different perspective.
Well, when I thought about it from a best friend’s perspective, I said to myself, “You travel a lot, using your phone to book hotels and flights, and to keep in touch with your wife. If your phone completely succumbs to the black spot disease, you’re screwed. You need to get a new phone, ya cheapskate!”
So that’s what I did. Not a brand new iPhone, mind you. Going from an iPhone 3 to an iPhone 12 Pro Max could have irreparably shocked the system (mine, not the iPhone’s). After a thorough review of what was out there, I determined an iPhone 6s would be a good fit. Physically, it wasn’t much bigger than my current iPhone, and it had a bigger screen (4.7" vs. 3.5"), a better camera (12 vs. 2 megapixel) and a headphone jack.
I went back to Amazon to purchase a preowned one but was disappointed. The listings weren’t very organized, the inventory was somewhat limited, and I didn’t get a warm and fuzzy feeling. Then I remembered a website I used to sell a Blackberry (many) years ago called Gazelle.com. Its listings we’re well organized, and they mentioned a rigorous testing and inspection protocol. I quickly identified an iPhone 6s in excellent condition for $95, with free shipping and a 30-day money back guarantee.
I’ve been using my iPhone 6s for a few weeks now. It’s taken a little while to get used to its bigger size, but the larger screen and improved camera have been quite useful.
Note: Prior to making any decision, you need to realize that you most likely won’t make a perfect choice. If a less-than-perfect decision is made, you need to learn from it and then move on. In my case, while writing this article, I realized that the iPhone SE (first generation) would have been a better selection, because it’s a little smaller and newer than the 6s. I’ll need to keep that in mind, hopefully for about a decade.
Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. His previous article was Trading Places.
I liked it because it was small. It had a cool retro steampunk vibe that occasionally turned heads. “Is that an iPhone? That’s the smallest phone I….” Best of all, I didn’t have to worry about it getting stolen. Who would steal a 10-year-old cellphone, especially one with a black spot on the screen? Also, because it was so old, I metaphysically couldn’t lose it, because you only lose things that are expensive. It’s like the $20 sunglasses you bought at the mall kiosk. You never lose those. Instead, you lose the $200 Ray-Ban Aviators.
An added benefit of being retired is having spare time, which I used to think long and hard about this issue. I perused a multitude of Amazon listings, reviewed T-Mobile’s current deals and took the missus’s iPhone SE (second generation) for a test drive. I even tried to understand what caused the black spot disease (some impact had caused leakage from the liquid crystal display), if it would become fatal (maybe, maybe not) and how to fix it economically (it appeared to be incurable).
The problem was that all this analysis brought me no closer to a decision. In fact, the more I thought about it, the more paralyzed I became. Then I remembered a book I read many years ago entitled Decisive : How to Make Better Choices in Life and Work by Chip and Dan Heath. It mentioned that, when faced with a decision, short-term emotions can get the better of you, causing you continually to review the details of the decision, which doesn’t lead to a better outcome, just more stress and worry.
To overcome your short-term emotions, the book states that you need to “attain distance before deciding.” One way to do this: Imagine your best friend was facing the same decision. What advice would you give him or her? This allows you to attain distance and to look at the situation from a different perspective.
Well, when I thought about it from a best friend’s perspective, I said to myself, “You travel a lot, using your phone to book hotels and flights, and to keep in touch with your wife. If your phone completely succumbs to the black spot disease, you’re screwed. You need to get a new phone, ya cheapskate!”
So that’s what I did. Not a brand new iPhone, mind you. Going from an iPhone 3 to an iPhone 12 Pro Max could have irreparably shocked the system (mine, not the iPhone’s). After a thorough review of what was out there, I determined an iPhone 6s would be a good fit. Physically, it wasn’t much bigger than my current iPhone, and it had a bigger screen (4.7" vs. 3.5"), a better camera (12 vs. 2 megapixel) and a headphone jack.
I went back to Amazon to purchase a preowned one but was disappointed. The listings weren’t very organized, the inventory was somewhat limited, and I didn’t get a warm and fuzzy feeling. Then I remembered a website I used to sell a Blackberry (many) years ago called Gazelle.com. Its listings we’re well organized, and they mentioned a rigorous testing and inspection protocol. I quickly identified an iPhone 6s in excellent condition for $95, with free shipping and a 30-day money back guarantee.
I’ve been using my iPhone 6s for a few weeks now. It’s taken a little while to get used to its bigger size, but the larger screen and improved camera have been quite useful.
Note: Prior to making any decision, you need to realize that you most likely won’t make a perfect choice. If a less-than-perfect decision is made, you need to learn from it and then move on. In my case, while writing this article, I realized that the iPhone SE (first generation) would have been a better selection, because it’s a little smaller and newer than the 6s. I’ll need to keep that in mind, hopefully for about a decade.
Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. His previous article was Trading Places.The post Making the Call appeared first on HumbleDollar.
December 7, 2020
Lucky Strikes
WHEN OPPORTUNITY knocks, will you be ready? In the past 15 months, my wife and I have had two attractive but completely unexpected opportunities presented to us.
On Labor Day 2019, a neighbor at our New Jersey shore house told us they were selling their home. They had bought a lot nearby and were planning to build a larger house to accommodate their growing brood of grandchildren. They knew my wife and I had a third grandson on the way, and they correctly guessed we were outgrowing our current three-bedroom house. Their home was newer by three years, 400-square-feet bigger and had an additional bedroom. They were willing to sell it to us directly, thus avoiding the 6% sales commission.
My first instinct was to say “no.” Along with being newer, bigger and nicer, it was also 25% more expensive than our current home. Selling the old house and buying the new home would mean a bigger mortgage. That didn’t make sense to me. I was about to turn age 62.
But I checked with some realtors and they encouraged me to reconsider. They thought it was a good price for a well-maintained house in a great neighborhood. They also thought our current home would sell easily. I ran some numbers and determined we could afford it without really changing our financial plans. My wife and I felt it would be a big plus to have enough bedrooms for our adult sons, their wives and the grandkids. No more need for the pullout couch.
We decided to take the plunge. The realtor had a buyer for our home within a week. We sold at the end of October 2019 and bought the new house two weeks later. We made some modest upgrades and renovations over the winter, excited for the next summer.
Flash forward to March. Our younger son and his wife live across the Hudson River from New York City in a beautifully renovated two-bedroom condo. Both work in Manhattan. They had their first child in early March. The first COVID-19 patient at New Jersey’s Hackensack Medical Center was admitted the day they left the hospital with their newborn. Within 10 days, both their employers had shut down their offices. My son and daughter-in-law had planned on spending several weeks at home, so the initial lockdown didn’t impact them much. But their little urban oasis got smaller and scarier as the virus spread.
At the end of April, they came to our new shore house for a long weekend. They’re still there. Their employers don’t anticipate opening their Manhattan offices until summer 2021 at the earliest and they’ve indicated they will support telework for the foreseeable future. Our son and daughter-in-law are really enjoying life at the shore. Our decision to buy the bigger house turned out to be a timely move, allowing all of us to spend time together without being on top of one another. An added bonus: My son and daughter-in-law have been able to rent out their condo.
Meanwhile, in September, we received an unsolicited offer for our primary home in Pennsylvania. Like much of the nation, our simple suburban neighborhood has become a hot commodity, as city dwellers seek more space and large backyards. Houses in our 55-year-old complex are selling within days at surprisingly high prices.
Although my wife and I had talked about selling our main residence and downsizing to our shore home, we hadn’t planned to take that step for a few years. Then the unsolicited offer arrived. The prospective buyers are the niece and husband of neighbors. They made an attractive offer with a six-month settlement period.
My wife and I were initially inclined to take a pass, feeling it was too soon. But we kept talking and realized this was a great opportunity for us. We could get a good price for the house without having to show it—and we could sell directly to a nice young couple, saving the large commission. The house is in good shape, but there will be the usual upgrades required in the next five to 10 years. And we already have another home to move to. The timing also aligns with my wife’s plan to either retire or cut back on work. We agreed to sell.
When I think of the two opportunities, I wonder whether we were just lucky. But I also think you can do things to prepare yourself for when opportunities arise:
Be open to new possibilities. I tend to say “no” too quickly. Listen to the opportunity, think about it and make a considered decision.
Show interest in other people and their lives. Both of these opportunities came from neighbors. We knew each other’s family situations and future plans.
Educate yourself on important topics. I’m interested in financial and real estate markets. This kind of knowledge helps you to make timely decisions.
Save some of your powder. Taking advantage of an opportunity may require easy access to cash.
Be open and honest with yourself and family. Big changes impact many people. Before we decided to sell the family home, we spoke at length with our children. It was our decision, but it would have at least some impact on them. We wanted to make sure there weren’t issues we hadn’t considered.
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Rate Debate, For Goodness Sake and That Monthly Check. Follow Rick on Twitter @RConnor609.
On Labor Day 2019, a neighbor at our New Jersey shore house told us they were selling their home. They had bought a lot nearby and were planning to build a larger house to accommodate their growing brood of grandchildren. They knew my wife and I had a third grandson on the way, and they correctly guessed we were outgrowing our current three-bedroom house. Their home was newer by three years, 400-square-feet bigger and had an additional bedroom. They were willing to sell it to us directly, thus avoiding the 6% sales commission.
My first instinct was to say “no.” Along with being newer, bigger and nicer, it was also 25% more expensive than our current home. Selling the old house and buying the new home would mean a bigger mortgage. That didn’t make sense to me. I was about to turn age 62.
But I checked with some realtors and they encouraged me to reconsider. They thought it was a good price for a well-maintained house in a great neighborhood. They also thought our current home would sell easily. I ran some numbers and determined we could afford it without really changing our financial plans. My wife and I felt it would be a big plus to have enough bedrooms for our adult sons, their wives and the grandkids. No more need for the pullout couch.
We decided to take the plunge. The realtor had a buyer for our home within a week. We sold at the end of October 2019 and bought the new house two weeks later. We made some modest upgrades and renovations over the winter, excited for the next summer.
Flash forward to March. Our younger son and his wife live across the Hudson River from New York City in a beautifully renovated two-bedroom condo. Both work in Manhattan. They had their first child in early March. The first COVID-19 patient at New Jersey’s Hackensack Medical Center was admitted the day they left the hospital with their newborn. Within 10 days, both their employers had shut down their offices. My son and daughter-in-law had planned on spending several weeks at home, so the initial lockdown didn’t impact them much. But their little urban oasis got smaller and scarier as the virus spread.
At the end of April, they came to our new shore house for a long weekend. They’re still there. Their employers don’t anticipate opening their Manhattan offices until summer 2021 at the earliest and they’ve indicated they will support telework for the foreseeable future. Our son and daughter-in-law are really enjoying life at the shore. Our decision to buy the bigger house turned out to be a timely move, allowing all of us to spend time together without being on top of one another. An added bonus: My son and daughter-in-law have been able to rent out their condo.
Meanwhile, in September, we received an unsolicited offer for our primary home in Pennsylvania. Like much of the nation, our simple suburban neighborhood has become a hot commodity, as city dwellers seek more space and large backyards. Houses in our 55-year-old complex are selling within days at surprisingly high prices.
Although my wife and I had talked about selling our main residence and downsizing to our shore home, we hadn’t planned to take that step for a few years. Then the unsolicited offer arrived. The prospective buyers are the niece and husband of neighbors. They made an attractive offer with a six-month settlement period.
My wife and I were initially inclined to take a pass, feeling it was too soon. But we kept talking and realized this was a great opportunity for us. We could get a good price for the house without having to show it—and we could sell directly to a nice young couple, saving the large commission. The house is in good shape, but there will be the usual upgrades required in the next five to 10 years. And we already have another home to move to. The timing also aligns with my wife’s plan to either retire or cut back on work. We agreed to sell.
When I think of the two opportunities, I wonder whether we were just lucky. But I also think you can do things to prepare yourself for when opportunities arise:
Be open to new possibilities. I tend to say “no” too quickly. Listen to the opportunity, think about it and make a considered decision.
Show interest in other people and their lives. Both of these opportunities came from neighbors. We knew each other’s family situations and future plans.
Educate yourself on important topics. I’m interested in financial and real estate markets. This kind of knowledge helps you to make timely decisions.
Save some of your powder. Taking advantage of an opportunity may require easy access to cash.
Be open and honest with yourself and family. Big changes impact many people. Before we decided to sell the family home, we spoke at length with our children. It was our decision, but it would have at least some impact on them. We wanted to make sure there weren’t issues we hadn’t considered.
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Rate Debate, For Goodness Sake and That Monthly Check. Follow Rick on Twitter @RConnor609.The post Lucky Strikes appeared first on HumbleDollar.
December 6, 2020
Split the Difference
IT’S THAT TIME of year again, when Wall Street strategists begin publishing their market forecasts for next year. If you’re wondering whether to put any stock in those glossy publications, here’s my recommendation: Think back a year to the forecasts issued at the end of 2019. Did any of them predict that a virus would come out of left field, throwing the economy into recession, triggering a bear market and killing more than a million people worldwide?
This is just the latest illustration of the reality that, for better or worse, personal finance is not a science. To be sure, finance involves mathematical analysis. But anyone who’s being honest about it will acknowledge that, in most cases, financial analysis requires making one or more assumptions. The result, as you might imagine, is that it’s easy for an analysis to provide two conflicting answers to a given question.
Consider a simple example: If you want to make a charitable contribution, should you do it now or wait until 2021? The answer depends on where tax rates are headed. If you believe the new administration will raise tax rates, you’d certainly want to wait, because your deduction will be worth more when rates are higher. But if you think the politicians won’t raise taxes until the economy improves, you’d want to go ahead and claim the deduction this year.
These kinds of questions can be frustrating. In the absence of a crystal ball, many people rely on one of the following approaches—neither of which is ideal—for decision-making.
Option No. 1: Do nothing. When an analysis doesn’t provide a clear answer, it’s natural to want to shelve a decision. In a lot of ways, that makes sense: If you feel like there isn’t a tangible basis for making a decision, maybe it’s best to defer it.
Option No. 2: Do something. If you don’t like the idea of shelving a decision, but you still don’t have enough information to go on, you might just take a guess or go with your gut, figuring that any decision is better than indecision.
I’d like to offer another alternative: When there’s no quantitative way to make a definitive decision, often the best approach is—for lack of a better term—to split the difference. While this might not seem like a rigorous way to make important decisions, I believe it’s better than the alternatives. Where can you apply this split-the-difference principle? Here are seven examples:
1. Roth vs. traditional 401(k). If there’s a Roth option in your 401(k), is it worth making Roth contributions, even though it means forgoing the tax deduction offered by the traditional 401(k)? If so, should you allocate your entire contribution to the Roth account or just a portion? This, of course, depends on a comparison between your current income (which you know) and your future income (which you can only estimate), and also on whether Congress will raise tax rates (which no one knows). My advice: Even if you’re in a high tax bracket today, you might still split the difference with your contributions.
2. Roth conversions. If you’re currently in the early years of retirement and have an IRA you’re considering converting to a Roth IRA, you’ll be asking similar questions about tax rates. But it might be more urgent. The tax cuts implemented by the 2017 Tax Cuts and Jobs Act aren’t set to expire for another five years, but Congress and the new administration might agree to raise them sooner.
Will that happen? That depends on how quickly the economy recovers and on which party controls the Senate. There are probably other political considerations. No one knows where this will all end up. In other words, tax rates might go up, making accelerated Roth conversions more attractive. But they might not, in which case accelerated conversions might end up costing you more. Again, a sensible strategy might be to convert some, but not all, of your IRA funds this year, and then take it year by year thereafter.
3. Mortgage term. In general, if you go with a 15-year mortgage instead of a 30-year, you’ll pay a lower rate and you’ll be done with the loan a whole lot sooner. But your payments will be much higher. How can you split the difference on this? One way is to take out a 30-year mortgage to preserve flexibility, but then commit to making larger payments in months when your cash flow permits.
4. Paying off debt. Suppose you’re in a position to pay off your mortgage or other loans. With rates at all-time lows, is it worth it? This depends on what you would otherwise do with the funds. If you invest it in the stock market, your returns will probably be higher on average, but not necessarily every year, so it might be a good idea or it might not. That’s why you might split the difference, maybe using a third of your cash to pay down debt, investing a third in the stock market and keeping the remaining third in the bank for flexibility.
5. Buying investments. Last week, someone asked me to research options for investing in Israel. I found two funds that fit the bill. I liked them both, but they were different. I couldn’t say that one was necessarily going to be better than the other, so I recommended buying both in a 50-50 split.
6. Selling investments. Do you own overpriced mutual funds or underperforming stocks? Ideally, you would sell them, but that might entail a tax bill. Then again, the cost of underperformance might outweigh the tax bill. Fortunately, it doesn’t need to be all or nothing. You could sell a little bit each year.
7. Claiming Social Security. Do the math on Social Security strategies, and the answer is usually that high-income individuals should wait as long as possible to claim their benefit. But that assumes you’ll live as long as a life expectancy calculator predicts. My advice: In light of this uncertainty, it’s not heretical to at least consider claiming at age 68 or 69.
Adam M. Grossman’s previous articles include Game Theory, Trends That End and Getting Personal. Adam is the founder of Mayport, a fixed-fee wealth management firm. In his series of free e-books, Adam advocates an evidence-based approach to personal finance. Follow Adam on Twitter @AdamMGrossman.
This is just the latest illustration of the reality that, for better or worse, personal finance is not a science. To be sure, finance involves mathematical analysis. But anyone who’s being honest about it will acknowledge that, in most cases, financial analysis requires making one or more assumptions. The result, as you might imagine, is that it’s easy for an analysis to provide two conflicting answers to a given question.
Consider a simple example: If you want to make a charitable contribution, should you do it now or wait until 2021? The answer depends on where tax rates are headed. If you believe the new administration will raise tax rates, you’d certainly want to wait, because your deduction will be worth more when rates are higher. But if you think the politicians won’t raise taxes until the economy improves, you’d want to go ahead and claim the deduction this year.
These kinds of questions can be frustrating. In the absence of a crystal ball, many people rely on one of the following approaches—neither of which is ideal—for decision-making.
Option No. 1: Do nothing. When an analysis doesn’t provide a clear answer, it’s natural to want to shelve a decision. In a lot of ways, that makes sense: If you feel like there isn’t a tangible basis for making a decision, maybe it’s best to defer it.
Option No. 2: Do something. If you don’t like the idea of shelving a decision, but you still don’t have enough information to go on, you might just take a guess or go with your gut, figuring that any decision is better than indecision.
I’d like to offer another alternative: When there’s no quantitative way to make a definitive decision, often the best approach is—for lack of a better term—to split the difference. While this might not seem like a rigorous way to make important decisions, I believe it’s better than the alternatives. Where can you apply this split-the-difference principle? Here are seven examples:
1. Roth vs. traditional 401(k). If there’s a Roth option in your 401(k), is it worth making Roth contributions, even though it means forgoing the tax deduction offered by the traditional 401(k)? If so, should you allocate your entire contribution to the Roth account or just a portion? This, of course, depends on a comparison between your current income (which you know) and your future income (which you can only estimate), and also on whether Congress will raise tax rates (which no one knows). My advice: Even if you’re in a high tax bracket today, you might still split the difference with your contributions.
2. Roth conversions. If you’re currently in the early years of retirement and have an IRA you’re considering converting to a Roth IRA, you’ll be asking similar questions about tax rates. But it might be more urgent. The tax cuts implemented by the 2017 Tax Cuts and Jobs Act aren’t set to expire for another five years, but Congress and the new administration might agree to raise them sooner.
Will that happen? That depends on how quickly the economy recovers and on which party controls the Senate. There are probably other political considerations. No one knows where this will all end up. In other words, tax rates might go up, making accelerated Roth conversions more attractive. But they might not, in which case accelerated conversions might end up costing you more. Again, a sensible strategy might be to convert some, but not all, of your IRA funds this year, and then take it year by year thereafter.
3. Mortgage term. In general, if you go with a 15-year mortgage instead of a 30-year, you’ll pay a lower rate and you’ll be done with the loan a whole lot sooner. But your payments will be much higher. How can you split the difference on this? One way is to take out a 30-year mortgage to preserve flexibility, but then commit to making larger payments in months when your cash flow permits.
4. Paying off debt. Suppose you’re in a position to pay off your mortgage or other loans. With rates at all-time lows, is it worth it? This depends on what you would otherwise do with the funds. If you invest it in the stock market, your returns will probably be higher on average, but not necessarily every year, so it might be a good idea or it might not. That’s why you might split the difference, maybe using a third of your cash to pay down debt, investing a third in the stock market and keeping the remaining third in the bank for flexibility.
5. Buying investments. Last week, someone asked me to research options for investing in Israel. I found two funds that fit the bill. I liked them both, but they were different. I couldn’t say that one was necessarily going to be better than the other, so I recommended buying both in a 50-50 split.
6. Selling investments. Do you own overpriced mutual funds or underperforming stocks? Ideally, you would sell them, but that might entail a tax bill. Then again, the cost of underperformance might outweigh the tax bill. Fortunately, it doesn’t need to be all or nothing. You could sell a little bit each year.
7. Claiming Social Security. Do the math on Social Security strategies, and the answer is usually that high-income individuals should wait as long as possible to claim their benefit. But that assumes you’ll live as long as a life expectancy calculator predicts. My advice: In light of this uncertainty, it’s not heretical to at least consider claiming at age 68 or 69.
Adam M. Grossman’s previous articles include Game Theory, Trends That End and Getting Personal. Adam is the founder of Mayport, a fixed-fee wealth management firm. In his series of free e-books, Adam advocates an evidence-based approach to personal finance. Follow Adam on Twitter @AdamMGrossman.The post Split the Difference appeared first on HumbleDollar.
December 5, 2020
Next Year Foretold
THE MARKETS AREN’T predictable—but the talking heads sure are. Like a dog with a favorite fire hydrant, financial commentators return to the same themes again and again.
The silver lining: There’s no need to waste hundreds of hours in 2021 reading the business section and watching financial news channels, because we already know what the pundits will be saying next year—and probably the year after that and the year after that. Look for these seven stories in 2021:
1. Stocks are going to crash. We all know nobody can predict the stock market’s short-term direction, so why do some pundits insist on making frightening market forecasts? They know it’ll get them media attention—and the more extreme the prediction, the more likely they are to get coverage.
The more intriguing question: Why do we listen to these folks, even though we know they’re almost certain to be wrong? Partly, it’s because optimism strikes us as naïve, while pessimism seems sophisticated. But perhaps more important, such dire predictions trigger our hardwired fear of losses—and we can’t help but sit up and take notice, even though we know better.
2. Interest rates are set to soar. I remember a financial advisor telling me that he liked immediate fixed annuities, but he’d like them even more if interest rates were higher. “I could see buying them for clients,” the advisor said. “But I’d want to wait for higher interest rates.”
That might seem like a reasonable thing to say—except the advisor told me that more than two decades ago, when I was writing for The Wall Street Journal. At the time, 10-year Treasury note yields were six times higher than today’s level.
The implication: Instead of acting on predictions of higher interest rates—which may or may not come to pass—we should each allow for that risk in our portfolio’s design. My advice: Make sure the time to maturity of your bonds—or, better still, their duration—bears some relationship to your investment time horizon. Fund company websites often report the maturity and duration for the bonds held in their funds.
If you’ll need money from your portfolio in the next five years, favor bonds and bond funds with a duration of five years or less for that chunk of money. What if you’ll need money in the next 12 months? Go for cash investments.
3. Inflation will come roaring back. Like rising interest rates, the return of inflation is frequently forecast—and yet consumer prices stubbornly refuse to cooperate. To be sure, we have a ballooning federal budget deficit and we’ve seen huge increases in the money supply. But despite that, inflation has remained quiescent.
More important, the collective opinion of investors, as reflected in the difference between the yield on 10-year Treasury notes and that on 10-year inflation-indexed Treasurys, suggests folks see scant signs of inflation’s return. Right now, that yield difference indicates inflation will run at 1.9% a year over the next 10 years. What if investors are collectively wrong? In all likelihood, your portfolio is already well-prepared, because you have a healthy allocation to stocks—and stocks have a proven history of outpacing inflation over the long run.
4. Target-date funds are terrible. Yes, these funds—which offer a diversified portfolio in a single mutual fund—can suffer steep short-term losses, just like any other investment exposed to stock market swings. Yes, by putting together your own investment mix, you may be able to build a lower-cost, more tax-efficient portfolio that’s better suited to your personal situation. Yes, some fund companies load up their target-date retirement funds with actively managed funds with steep expense ratios.
Still, a target-date fund—especially if it’s one of the low-cost, index fund-based offerings from Charles Schwab, Fidelity Investments or Vanguard Group—is a great option for folks who aren’t interested in investing and don’t have enough wealth to command the attention of a talented, fee-based financial advisor. So why do financial advisors regularly deride target-date funds? They fear losing clients to these funds—and the fact is, they should be fearful if all they’re doing for clients is building portfolios of mutual funds, without offering robust help with insurance, estate planning, taxes, financial planning and other aspect of a client’s broader financial life.
I don’t own any target-date retirement funds, except in one small account. But if Vanguard ever offers Admiral pricing on its target-date funds, I’d likely swap over much or all of my retirement accounts to a Vanguard target fund and thereafter leave the driving to the fine folks in Malvern, Pennsylvania.
5. Index funds are doomed. Do you recall investment manager Michael Burry’s 2019 claim that index funds are in a bubble? Apocalyptic predictions like that have been made for decades, and yet index funds keep trucking along and active managers keep lagging behind. But have no fear: The facts won’t prevail—and 2021 will surely bring yet another self-interested screed against index funds from an active manager hoping for 15 minutes of fame.
Before you get too bothered by such nonsense, think on this: An index fund that weights stocks by their market capitalization owns those stocks in the exact same percentage as all active investors. In other words, as the owner of market cap-weighted index funds, you're invested in the same stocks as these other folks—only you own them for a fraction of the cost, which is why you’re guaranteed to beat most active investors over the long haul.
6. Everyday investors are buying—so you shouldn’t. Remember all the handwringing earlier this year over millennials buying and selling stocks in their Robinhood accounts? According to the talking heads, this supposedly was a sign that the market was frothy and soon to crash.
Such commentary might have made sense decades ago, when individual investors were a big trading presence in the stock market. But it makes no sense today, now that professional investors account for perhaps 90% of daily trading volume and probably more. Cboe Global Markets puts total U.S. stock market trading at around $500 billion a day. Set against that, your delusional nephew with his $2,000 Robinhood account may not be doing himself any good—but he sure isn’t driving share prices to silly heights or telling you anything about the market’s likely direction.
Indeed, it seems the overriding goal of Wall Street’s talking heads is to belittle everyday investors, no matter what we’re doing. In one breath, the pundits tell us that everyday investors are being stupid in the way they actively manage their investments. In the next breath, the pundits tell us that everyday investors are hurting the market’s efficiency by not actively managing their portfolios and instead indexing. C’mon, boys and girls, how about a little intellectual consistency?
7. Social Security recipients won’t be getting much of a raise. Every year, media outlets report how much Social Security benefits will rise in the year ahead. The stories are usually accompanied by the suggestion that seniors are somehow being shortchanged—and, in the social media commentary that follows, there are often political attacks on Congress and the president.
This is beyond silly. The annual increase in Social Security benefits is determined by a formula, not a political vote. More important, it’s designed to ensure benefits keep up with inflation. What if the increase in benefits is modest? That means inflation is modest—and thus seniors are simply being made whole, nothing more, nothing less.
Latest Articles
HERE ARE THE SIX other articles published by HumbleDollar this week:
Trying to get 20-somethings to think a little about their financial future? Joe Kesler offers four strategies.
Stock market valuations may be rich, but inflation is subdued. One implication: The safe retirement withdrawal rate could be 5%, not the often-recommended 4%. Rick Connor explains.
Want to teach your kids about money? Adam Grossman says the game Monopoly is a great place to start, because it offers five key lessons—but also differs from the real world in two crucial ways.
If you're looking to stream movies and television shows, but not looking to pay a lot of money, check out the recommendations from Jannette Collins.
Want to purchase $1 of assets for 90 cents—and notch bond yields that are unusually high? The world of closed-end funds can offer both, says Sanjib Saha, but make sure you understand what you're buying.
What you read: Here are the seven most popular articles published by HumbleDollar last month—five of which were devoted to retirement issues.
Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Dialed In, Ain't Everything and Bad Influence.
The silver lining: There’s no need to waste hundreds of hours in 2021 reading the business section and watching financial news channels, because we already know what the pundits will be saying next year—and probably the year after that and the year after that. Look for these seven stories in 2021:
1. Stocks are going to crash. We all know nobody can predict the stock market’s short-term direction, so why do some pundits insist on making frightening market forecasts? They know it’ll get them media attention—and the more extreme the prediction, the more likely they are to get coverage.
The more intriguing question: Why do we listen to these folks, even though we know they’re almost certain to be wrong? Partly, it’s because optimism strikes us as naïve, while pessimism seems sophisticated. But perhaps more important, such dire predictions trigger our hardwired fear of losses—and we can’t help but sit up and take notice, even though we know better.
2. Interest rates are set to soar. I remember a financial advisor telling me that he liked immediate fixed annuities, but he’d like them even more if interest rates were higher. “I could see buying them for clients,” the advisor said. “But I’d want to wait for higher interest rates.”
That might seem like a reasonable thing to say—except the advisor told me that more than two decades ago, when I was writing for The Wall Street Journal. At the time, 10-year Treasury note yields were six times higher than today’s level.
The implication: Instead of acting on predictions of higher interest rates—which may or may not come to pass—we should each allow for that risk in our portfolio’s design. My advice: Make sure the time to maturity of your bonds—or, better still, their duration—bears some relationship to your investment time horizon. Fund company websites often report the maturity and duration for the bonds held in their funds.
If you’ll need money from your portfolio in the next five years, favor bonds and bond funds with a duration of five years or less for that chunk of money. What if you’ll need money in the next 12 months? Go for cash investments.
3. Inflation will come roaring back. Like rising interest rates, the return of inflation is frequently forecast—and yet consumer prices stubbornly refuse to cooperate. To be sure, we have a ballooning federal budget deficit and we’ve seen huge increases in the money supply. But despite that, inflation has remained quiescent.
More important, the collective opinion of investors, as reflected in the difference between the yield on 10-year Treasury notes and that on 10-year inflation-indexed Treasurys, suggests folks see scant signs of inflation’s return. Right now, that yield difference indicates inflation will run at 1.9% a year over the next 10 years. What if investors are collectively wrong? In all likelihood, your portfolio is already well-prepared, because you have a healthy allocation to stocks—and stocks have a proven history of outpacing inflation over the long run.
4. Target-date funds are terrible. Yes, these funds—which offer a diversified portfolio in a single mutual fund—can suffer steep short-term losses, just like any other investment exposed to stock market swings. Yes, by putting together your own investment mix, you may be able to build a lower-cost, more tax-efficient portfolio that’s better suited to your personal situation. Yes, some fund companies load up their target-date retirement funds with actively managed funds with steep expense ratios.
Still, a target-date fund—especially if it’s one of the low-cost, index fund-based offerings from Charles Schwab, Fidelity Investments or Vanguard Group—is a great option for folks who aren’t interested in investing and don’t have enough wealth to command the attention of a talented, fee-based financial advisor. So why do financial advisors regularly deride target-date funds? They fear losing clients to these funds—and the fact is, they should be fearful if all they’re doing for clients is building portfolios of mutual funds, without offering robust help with insurance, estate planning, taxes, financial planning and other aspect of a client’s broader financial life.
I don’t own any target-date retirement funds, except in one small account. But if Vanguard ever offers Admiral pricing on its target-date funds, I’d likely swap over much or all of my retirement accounts to a Vanguard target fund and thereafter leave the driving to the fine folks in Malvern, Pennsylvania.
5. Index funds are doomed. Do you recall investment manager Michael Burry’s 2019 claim that index funds are in a bubble? Apocalyptic predictions like that have been made for decades, and yet index funds keep trucking along and active managers keep lagging behind. But have no fear: The facts won’t prevail—and 2021 will surely bring yet another self-interested screed against index funds from an active manager hoping for 15 minutes of fame.
Before you get too bothered by such nonsense, think on this: An index fund that weights stocks by their market capitalization owns those stocks in the exact same percentage as all active investors. In other words, as the owner of market cap-weighted index funds, you're invested in the same stocks as these other folks—only you own them for a fraction of the cost, which is why you’re guaranteed to beat most active investors over the long haul.
6. Everyday investors are buying—so you shouldn’t. Remember all the handwringing earlier this year over millennials buying and selling stocks in their Robinhood accounts? According to the talking heads, this supposedly was a sign that the market was frothy and soon to crash.
Such commentary might have made sense decades ago, when individual investors were a big trading presence in the stock market. But it makes no sense today, now that professional investors account for perhaps 90% of daily trading volume and probably more. Cboe Global Markets puts total U.S. stock market trading at around $500 billion a day. Set against that, your delusional nephew with his $2,000 Robinhood account may not be doing himself any good—but he sure isn’t driving share prices to silly heights or telling you anything about the market’s likely direction.
Indeed, it seems the overriding goal of Wall Street’s talking heads is to belittle everyday investors, no matter what we’re doing. In one breath, the pundits tell us that everyday investors are being stupid in the way they actively manage their investments. In the next breath, the pundits tell us that everyday investors are hurting the market’s efficiency by not actively managing their portfolios and instead indexing. C’mon, boys and girls, how about a little intellectual consistency?
7. Social Security recipients won’t be getting much of a raise. Every year, media outlets report how much Social Security benefits will rise in the year ahead. The stories are usually accompanied by the suggestion that seniors are somehow being shortchanged—and, in the social media commentary that follows, there are often political attacks on Congress and the president.
This is beyond silly. The annual increase in Social Security benefits is determined by a formula, not a political vote. More important, it’s designed to ensure benefits keep up with inflation. What if the increase in benefits is modest? That means inflation is modest—and thus seniors are simply being made whole, nothing more, nothing less.
Latest Articles
HERE ARE THE SIX other articles published by HumbleDollar this week:
Trying to get 20-somethings to think a little about their financial future? Joe Kesler offers four strategies.
Stock market valuations may be rich, but inflation is subdued. One implication: The safe retirement withdrawal rate could be 5%, not the often-recommended 4%. Rick Connor explains.
Want to teach your kids about money? Adam Grossman says the game Monopoly is a great place to start, because it offers five key lessons—but also differs from the real world in two crucial ways.
If you're looking to stream movies and television shows, but not looking to pay a lot of money, check out the recommendations from Jannette Collins.
Want to purchase $1 of assets for 90 cents—and notch bond yields that are unusually high? The world of closed-end funds can offer both, says Sanjib Saha, but make sure you understand what you're buying.
What you read: Here are the seven most popular articles published by HumbleDollar last month—five of which were devoted to retirement issues.
Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Dialed In, Ain't Everything and Bad Influence.The post Next Year Foretold appeared first on HumbleDollar.
December 4, 2020
Screening Choices
I STREAM, you stream, we all stream. Okay, not all of us. But 74% of U.S. homes had a video streaming service in 2019, up from 52% in 2015. Odds are you live in one of those homes. At the beginning of the pandemic, as Americans sheltered in place, consumption of all forms of in-home media shot up.
For a long time, the streaming choices were fairly limited, but not anymore. Giants such as Amazon Prime, Hulu and Netflix have been joined by dozens of others, including Apple TV+, Disney+, HBO Max and Peacock from NBCUniversal.
Some services, like Hulu + Live TV and YouTube TV, offer live TV channels just like cable TV. Many others, such as Acorn and BritBox, provide niche movies and television series. One thing they all have in common is that you have to pay a subscription fee—and just about all of them have been raising prices.
Most streaming video services offer free trial periods. In 2020, a number of companies have extended the length of those free trial periods. I typically avoid them because, unless you make a point of canceling, charges start automatically once the free trial is over. I don’t trust that the process of doing so will be hassle-free.
Budget-conscious consumers can also stream movies free from services that are usually supported by ads. Some of the best options include Crackle, Kanopy, Pluto TV, Roku Channel, Tubi, Vudu and Xumo.
I can’t share a personal experience about every streaming service. I don’t spend that much time bingeing on TV shows and movies. But I have saved some money by negotiating reduced rates or by finding shows on free services that I’d otherwise have had to pay for.
Apple TV+. The company I work for gave me new iPad mini—to be used for business purposes, of course. If that wasn’t a big enough windfall, it came with a complimentary year of Apple TV+. I’m not a big spender and wouldn’t have bought access. But if you’re lucky enough to buy or be given an Apple product that comes with a free subscription, I recommend Defending Jacob (Michelle Dockery), Greyhound (Tom Hanks) and The Banker (Samuel L. Jackson).
Prime Video. My husband signed up for Amazon Prime eons ago to get free shipping. It wasn’t until years later that we started watching movies and TV shows on Amazon Prime as a “free perk” of our subscription, which now costs $112 a year. Although it offers a lot of good programming, it isn’t all free, even with a subscription. These shows are free and worth watching: Goliath (Billy Bob Thornton), Downton Abbey (British historical drama), Red Rock (Dublin crime-drama soap opera), Grantchester (British detective drama) and Poldark (BBC Masterpiece series).
Hulu. I would have said that I’m too cheap to pay for Hulu. But a few years ago, it offered a one-year subscription for 99 cents a month. I was willing to pay $11.88 plus tax to try out The Handmaid’s Tale and the rest of a large entertainment library for a year. When I cancelled at the end of the year, Hulu offered me six months for $1.99 a month. I decided it was worth it to watch Fargo (the TV series), Mayans MC (try it if you liked Sons of Anarchy) and Normal People (the series does the book justice). Hulu does make it easy to cancel. By now, it must know that I’m not willing to pay $5.99 a month (with ads), so it keeps offering me a better deal. I currently pay $2.99 a month.
Hoopla Digital. This is a digital streaming service for library users to access eBooks, eAudiobooks, music, movies and TV shows using portable devices like smartphones and tablets. It gives you access to tons of content via a free digital app and a library card number. I don’t use it often because the shows are generally older. But once in a while I discover that Hoopla has something I’m specifically looking for. Case in point: I recently started watching Mystery Road, a terrific mystery that takes place in the Australian outback. After one episode, it was no longer available on Amazon Prime for free. Instead, I would’ve had to pay $2.99 an episode. I checked Hoopla on a whim and found that it had all the episodes I was looking for.
Tubi. I’d never heard of this until I watched several episodes of The Man from Snowy River: The McGregor Saga. It was free on Amazon Prime—until I got to season three, episode 15, and found out that it would now cost $1.99 an episode. I was enjoying the show but not enough to pay for it. When I Googled “how can I watch McGregor Saga free,” I discovered Tubi. I downloaded the free app and was watching the show within minutes—at no cost. Tubi has ads, but they aren’t as intrusive as the ads on Hulu’s ad-subscription service.
Kanopy. Like Hoopla, Kanopy can be accessed via a free digital app and a library card number. It’s also free to university students and faculty. The content includes a diverse catalog of more than 30,000 critically acclaimed world cinema, documentary, classic and independent movies. New titles are added every month. There are no ads. Libraries provide the service, paid for with tax dollars or tuition. Access is offered by 4,000 libraries in the U.S., U.K., Canada, Australia and New Zealand. My husband and I enjoyed Bicycle Thieves, a 1948 Academy Award-winning movie hailed around the world as one of the greatest ever made. You can also watch Lady Bird (Saoirse Ronan and Timothee Chalamet), Moonlight (Mahershala Ali) and The Florida Project (Willem Dafoe).
Bottom line? Here’s what I’ve learned about streaming services:
After canceling a service, if you wait a while, there’s a good chance you’ll be offered a discount rate to come back.
If you’re interested in a particular show that isn’t offered for free on your subscription service, try Googling the title. You might find it’s available on Hoopla, Tubi or another free service.
Are you wondering why the behemoth Netflix isn’t on my list? I’m too cheap to pay for it.
Jannette Collins, MD, MEd, FACR is a radiologist and former chair of a university radiology department. Her passions are finance and education. She is Director of Medical Content for
MRI Online
, an educational platform for radiologists, and blogs about radiology jobs, finance and education for
The Reading Room
. Follow Janni on Twitter
@JanniMD
.
For a long time, the streaming choices were fairly limited, but not anymore. Giants such as Amazon Prime, Hulu and Netflix have been joined by dozens of others, including Apple TV+, Disney+, HBO Max and Peacock from NBCUniversal.
Some services, like Hulu + Live TV and YouTube TV, offer live TV channels just like cable TV. Many others, such as Acorn and BritBox, provide niche movies and television series. One thing they all have in common is that you have to pay a subscription fee—and just about all of them have been raising prices.
Most streaming video services offer free trial periods. In 2020, a number of companies have extended the length of those free trial periods. I typically avoid them because, unless you make a point of canceling, charges start automatically once the free trial is over. I don’t trust that the process of doing so will be hassle-free.
Budget-conscious consumers can also stream movies free from services that are usually supported by ads. Some of the best options include Crackle, Kanopy, Pluto TV, Roku Channel, Tubi, Vudu and Xumo.
I can’t share a personal experience about every streaming service. I don’t spend that much time bingeing on TV shows and movies. But I have saved some money by negotiating reduced rates or by finding shows on free services that I’d otherwise have had to pay for.
Apple TV+. The company I work for gave me new iPad mini—to be used for business purposes, of course. If that wasn’t a big enough windfall, it came with a complimentary year of Apple TV+. I’m not a big spender and wouldn’t have bought access. But if you’re lucky enough to buy or be given an Apple product that comes with a free subscription, I recommend Defending Jacob (Michelle Dockery), Greyhound (Tom Hanks) and The Banker (Samuel L. Jackson).
Prime Video. My husband signed up for Amazon Prime eons ago to get free shipping. It wasn’t until years later that we started watching movies and TV shows on Amazon Prime as a “free perk” of our subscription, which now costs $112 a year. Although it offers a lot of good programming, it isn’t all free, even with a subscription. These shows are free and worth watching: Goliath (Billy Bob Thornton), Downton Abbey (British historical drama), Red Rock (Dublin crime-drama soap opera), Grantchester (British detective drama) and Poldark (BBC Masterpiece series).
Hulu. I would have said that I’m too cheap to pay for Hulu. But a few years ago, it offered a one-year subscription for 99 cents a month. I was willing to pay $11.88 plus tax to try out The Handmaid’s Tale and the rest of a large entertainment library for a year. When I cancelled at the end of the year, Hulu offered me six months for $1.99 a month. I decided it was worth it to watch Fargo (the TV series), Mayans MC (try it if you liked Sons of Anarchy) and Normal People (the series does the book justice). Hulu does make it easy to cancel. By now, it must know that I’m not willing to pay $5.99 a month (with ads), so it keeps offering me a better deal. I currently pay $2.99 a month.
Hoopla Digital. This is a digital streaming service for library users to access eBooks, eAudiobooks, music, movies and TV shows using portable devices like smartphones and tablets. It gives you access to tons of content via a free digital app and a library card number. I don’t use it often because the shows are generally older. But once in a while I discover that Hoopla has something I’m specifically looking for. Case in point: I recently started watching Mystery Road, a terrific mystery that takes place in the Australian outback. After one episode, it was no longer available on Amazon Prime for free. Instead, I would’ve had to pay $2.99 an episode. I checked Hoopla on a whim and found that it had all the episodes I was looking for.
Tubi. I’d never heard of this until I watched several episodes of The Man from Snowy River: The McGregor Saga. It was free on Amazon Prime—until I got to season three, episode 15, and found out that it would now cost $1.99 an episode. I was enjoying the show but not enough to pay for it. When I Googled “how can I watch McGregor Saga free,” I discovered Tubi. I downloaded the free app and was watching the show within minutes—at no cost. Tubi has ads, but they aren’t as intrusive as the ads on Hulu’s ad-subscription service.
Kanopy. Like Hoopla, Kanopy can be accessed via a free digital app and a library card number. It’s also free to university students and faculty. The content includes a diverse catalog of more than 30,000 critically acclaimed world cinema, documentary, classic and independent movies. New titles are added every month. There are no ads. Libraries provide the service, paid for with tax dollars or tuition. Access is offered by 4,000 libraries in the U.S., U.K., Canada, Australia and New Zealand. My husband and I enjoyed Bicycle Thieves, a 1948 Academy Award-winning movie hailed around the world as one of the greatest ever made. You can also watch Lady Bird (Saoirse Ronan and Timothee Chalamet), Moonlight (Mahershala Ali) and The Florida Project (Willem Dafoe).
Bottom line? Here’s what I’ve learned about streaming services:
After canceling a service, if you wait a while, there’s a good chance you’ll be offered a discount rate to come back.
If you’re interested in a particular show that isn’t offered for free on your subscription service, try Googling the title. You might find it’s available on Hoopla, Tubi or another free service.
Are you wondering why the behemoth Netflix isn’t on my list? I’m too cheap to pay for it.
Jannette Collins, MD, MEd, FACR is a radiologist and former chair of a university radiology department. Her passions are finance and education. She is Director of Medical Content for
MRI Online
, an educational platform for radiologists, and blogs about radiology jobs, finance and education for
The Reading Room
. Follow Janni on Twitter
@JanniMD
.The post Screening Choices appeared first on HumbleDollar.
