Jonathan Clements's Blog, page 407

The Price Is Slight

I LOVE THE PRICE-CUTTING WAR among index-fund providers, because it puts pressure on all money managers to lower fees. But I don’t think investors should pay much heed to differences in annual expenses that amount to just 0.01% or 0.02% a year, equal to 1 or 2 cents for every $100 invested—and they certainly shouldn’t switch funds for those potential cost savings.

To check I wasn’t missing something, I set out to do apples-to-apples comparisons among index funds in four highly competitively segments of the indexing market: large-cap U.S. stocks, total U.S. stock market, total international stock market and total U.S. bond market. Everything else being equal, you’d expect the funds with the lowest costs to have the best performance.

But did they? Finding out was trickier than I expected. Like boxers trying to avoid fighting their toughest contenders, it seems index-fund providers almost deliberately opt to track different indexes, making it impossible to do a straight comparison.

That said, two indexes do see fierce head-to-head competition: the S&P 500 index of large-cap U.S. stocks and the Bloomberg Barclays U.S. Aggregate Bond Index of high-quality U.S. bonds. In the case of S&P 500 funds, four of the five cheapest funds fought to a draw in 2017, all posting exactly the same total return, despite tiny differences in annual expenses:

Fidelity 500 Index Fund Premium Class

Annual Expenses: 0.035%
2017 Return: 21.79%

iShares Core S&P 500 ETF

Annual Expenses: 0.04%
2017 Return: 21.79%

Schwab S&P 500 Index Fund

Annual Expenses: 0.03%
2017 Return: 21.79%

Vanguard 500 Index Fund Admiral Shares

Annual Expenses: 0.04%
2017 Return: 21.79%

Vanguard S&P 500 ETF

Annual Expenses: 0.04%
2017 Return: 21.78%

S&P 500’s 2017 Total Return: 21.83%

The iShares fund and one of the two Vanguard Group offerings are exchange-traded funds, or ETFs, so investors need to buy the stock market-listed shares. By contrast, the other three funds are mutual funds, meaning you purchase shares directly from the fund company involved. An ETF’s share price performance can vary slightly from the performance of its underlying portfolio. Still, the results shown above are the total return for the underlying portfolio, because the goal here is to look at the impact of expenses on performance, plus it allows for a clean comparison between competing ETFs and mutual funds.

It’s no great surprise that the 2017 results for four of the five S&P 500 funds turned out to be exactly the same: Not only do the funds have very similar expenses, but also they’re replicating an index fund that contains just 500 stocks. By contrast, the Bloomberg Barclays U.S. Aggregate Bond Index is a tougher benchmark to track, because it contains almost 10,000 different issues. With such broad indexes, funds are more likely to use sampling techniques, rather than buying every security, so there’s a greater chance of tracking error. Sure enough, results for three of the lowest-cost funds differed somewhat—and expenses weren’t the deciding factor:

Fidelity U.S. Bond Index Premium Class

Annual Expenses: 0.045%
2017 Return: 3.47%

iShares Core U.S. Aggregate Bond ETF

Annual Expenses: 0.05%
2017 Return: 3.53%

Schwab U.S. Aggregate Bond ETF

Annual Expenses: 0.04%
2017 Return: 3.46%

Bloomberg Barclays U.S. Aggregate’s 2017 Total Return: 3.54%

Vanguard has both a mutual fund and an ETF that also tracks the Bloomberg Barclays U.S. Aggregate Bond Index, but they track a “free float” version of the index that gives less weight to a bond if part of the issue isn’t available to trade. In 2017, the free float index fared slightly better, and thus so too did Vanguard’s funds.

What about total U.S. stock market index funds and total international stock index funds? These funds—like total bond market funds—track indexes with thousands of securities, so there’s more chance for slippage.

Among the lowest-cost funds, you usually can’t see this slippage by comparing one with another, because they almost all track different indexes. What to do? I looked at how each fund’s total return compared to its own benchmark index.

You would expect funds to trail their benchmark by the amount of their annual expenses. But often, performance relative to the index bore little relationship to fund expenses. For instance, as you’ll see below, Schwab’s Total Stock Market Index Fund—a mutual fund—lagged behind its index by 0.1% in 2017, despite being one of the category’s cheapest funds, with expenses of 0.03% a year.

Meanwhile, iShares’s international fund outperformed by 0.27%, a surprisingly large margin. Indeed, the margin of outperformance would have been 0.38% if we add back the fund’s 0.11% annual expenses. That index-beating gain was a nice bonus for the fund’s shareholders. But it isn’t clear whether this outperformance resulted from skillful trade execution by the fund’s managers and gains from securities lending, or whether it was due to some lucky break, perhaps resulting from the sample of stocks bought or the timing of share purchases.

An added complication: In all four categories we’re analyzing here, Vanguard has both ETFs and so-called Admiral Shares, which is its lowest-cost mutual fund share class. In every case, there was a slight performance difference between the ETF and the mutual fund. To simplify things, I’ve listed only Vanguard’s ETFs below.

Fidelity Global ex U.S. Index Premium Class

Annual Expenses: 0.1%
Fund vs. Index: -0.05%

Fidelity Total Market Index Premium Class

Annual Expenses: 0.035%
Fund vs. Index: -0.01%

iShares Core MSCI Total International Stock ETF

Annual Expenses: 0.11%
Fund vs. Index: +0.27%

iShares Core S&P Total U.S. Stock Market ETF

Annual Expenses: 0.03%
Fund vs. Index: +0.07%

Schwab Total Stock Market Index Fund

Annual Expenses: 0.03%
Fund vs. Index: -0.1%

Schwab U.S. Broad Market ETF

Annual Expenses: 0.03%
Fund vs. Index: -0.02%

Vanguard FTSE All-World ex-U.S. ETF

Annual Expenses: 0.11%
Fund vs. Index: +0.13%

Vanguard Total International Stock ETF

Annual Expenses: 0.11%
Fund vs. Index: +0.11%

Vanguard Total Stock Market ETF

Annual Expenses: 0.04%
Fund vs. Index: -0.03%

What’s the lesson here? If you’re paying 1% a year, it’s a huge win to swap to a fund charging 0.1% or less. But once you’ve narrowed your shopping list to funds with that sort of cost, you should probably focus less on differences in annual expenses and instead pay attention to other issues.

Questions you might ask: Does a funds buy most or all of the securities in the underlying index, so there’s less risk of tracking error? When comparing funds, what are the differences in the underlying indexes, such as the array of countries included or the market capitalization of the typical stock bought? If you’re buying a mutual fund, does the fund company offer other funds or services you find appealing? If you’re purchasing an ETF, can you buy shares commission-free and how wide is the typical bid-ask spread—the gap between the price at which you can currently sell and the higher price at which you can buy? If you’re buying through a taxable account, has the fund triggered tax bills for shareholders by making capital-gains distributions in recent years?

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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Perking Up

EACH SPRING, I WATCH a fresh crop of college graduates transition from the world of fulltime academics to the world of fulltime employment. Eager to begin “adulting,” many of them focus on the salaries offered by their employer-of-choice and give little consideration to the various benefits that supplement that salary.

That’s a mistake. As someone who’s been employed fulltime for the last 26 years, I’ve learned the importance of performing a cost-benefit analysis on the perks offered by various employers. I’ve had three different jobs—and three different employers—during my working life. Each one offered its own unique blend of salary and benefits.

My first job was at a state-run educational institution. The salary wasn’t great; I made some $16,000 a year. But the job came with a lucrative benefits package, including the opportunity to participate in the state pension plan. I worked there just long enough to become vested in the plan, before moving on to a higher paying job. That pension, when I start drawing it at age 70, will provide me with roughly $1,500 a month for life.

My second job came with higher wages. I made more than $34,000 a year, but the benefits were limited. The 403(b) plan didn’t kick in until I’d been employed for 12 months and the matching dollar amounts were meager. The job also entailed mandatory overtime and weekend hours. The time-and-a-half wages were nice—until it came time to pay taxes. After 18 months, I began looking for another job.

Twenty years ago, I accepted my current position at a small, private liberal arts college. I took a $5,000-a-year pay cut to take the job, but it provided a generous retirement plan and a substantial number of paid days off, as well as a tuition remission program for dependents—a benefit worth tens of thousands of dollars, but which I was never able to take advantage of.

I was, however, fortunate to get grandfathered into a particularly lucrative retirement health-care program. It’s a benefit no longer offered to new employees. If I leave my job after turning age 55, the college will continue to pick up the employer-paid portion of my health insurance premiums until I reach 65. Then, at 65, the college will provide me with a generous stipend to cover any Medicare supplemental plan I choose to purchase. That coverage will continue for the rest of my life.

Kristine Hayes is a departmental manager at a college in Portland, Oregon. Her previous blogs include Aiming High, Hidden Gems and Keeping It Private .

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About That 22%

THE STOCK MARKET HAD A GREAT 2017, gaining more than 20%. But was that kind of gain justified—or should it worry us, especially after the market had already tripled in recent years? I think it’s useful to understand the range of viewpoints, so we’re better prepared for 2018 and beyond. Here are the bull and bear cases:

Bull Case. As measured by the S&P 500 index, the U.S. market gained nearly 22% last year. While this may seem like a lot, you can argue that it makes perfect sense. At the end of December, Congress overhauled our tax system, reducing the corporate tax rate from 35% to 21%.

To understand how this might affect stock prices, let’s look at a simplified example. Suppose ABC Corp. earned a $100 profit last year and expects to earn another $100 this year. In 2017, under the old rules, the company’s tax bill would have been 35%, or $35, leaving it with after-tax income of $65. This year, under the new law, this same company’s tax bill will be just 21%, or $21, making its after-tax income $79.

If you do the math, you’ll notice that this profit increase, from $65 in 2017 to $79 in 2018, works out to roughly 22%. That is virtually identical to the stock market’s gain last year. Bulls would thus argue that last year’s rally was entirely rational: If a company’s profits increase 22%, its stock price should also appreciate 22%.

Bear Case. The bear case starts by noting that there is a fair amount of coincidence in these two 22% numbers. Yes, I do believe the market rose in anticipation of tax cuts. But the math isn’t as simple as I made it out to be.

Even under the old regime, only a minority of companies paid the statutory 35% rate. Last year, for example, Apple paid just 25%, Alphabet (a.k.a. Google) paid 22% and General Electric paid no tax at all. Moreover, at an individual company level, there was no relationship between the size of the tax cut and the size of the stock move.

On top of that, a change to U.S. corporate tax rates doesn’t explain why last year an index of emerging markets stocks—including Brazil, Russia and China—rose nearly 40%. Those countries didn’t benefit from our tax cuts.

Finally, an objective measure of the market points to significant overvaluation. Bob Shiller, a Yale professor with a better-than-average track record predicting economic cycles, maintains a measure called the cyclically adjusted price-earnings ratio, or CAPE, and it doesn’t look good.

Right now, it’s higher than it was in 1929, just before the Great Depression. Look online and you’ll quickly turn up headlines like this: “The ‘CAPE To Saving Rate’ Ratio Signals A Terrible 2018 For U.S. Stocks.”

Where does this leave us? As a former colleague used to say, it’s all “clear as mud.” While that conclusion might seem unsatisfying, I think it teaches us two important realities about the stock market.

First, there is no one universal measure of value. Yes, there are some dire headlines about the CAPE Ratio, but opinions do differ. You can also find headlines like this: “Why the Shiller CAPE Ratio Is Misleading Right Now” and “CAPE Has a Dismal Record as Predictor of Stock Performance.”

In other words, reasonable people disagree, no one can say with scientific certainty that the market is overvalued, and none of us knows what will happen next to share prices. The most important thing for your investments: Be sure you aren’t dependent on a stable or rising stock market to meet your upcoming living expenses. If you worry that you are, you should immediately revisit your portfolio’s asset allocation—your mix of stocks and more conservative investments.

Second reality: Markets are forward-looking. Wall Street is staffed by armies of investment analysts who track every development that could possibly impact the market. In an effort to get ahead of each other, they usually start placing their bets well in advance of important events. That’s why the market started to turn around early in 2009, for example, even while unemployment was still rising. Traders were looking ahead.

Similarly, I believe this is what happened last year, in advance of the tax cuts. This is not to say that 2018 won’t see stock market gains. But it’s important to recognize that professional investors are always looking forward and will react well in advance of whatever they see coming next. Do you rely on regular withdrawals from your portfolio to cover your living costs? This is another reason it’s vital to have an asset allocation that provides protection against future, unexpected events.

Adam M. Grossman’s previous blogs include More for Your Money, First Things First and Grossman’s Eleven . Adam is the founder of  Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter  @AdamMGrossman .

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DaveRamsey.com

MY FIRST ENCOUNTER WITH DAVE RAMSEY was in 2010, when I stumbled across a radio broadcast featuring one of his recorded presentations. His style was funny and engaging, and I thought he might be helpful in teaching my kids about money.

I bought each of them his book The Total Money Makeover and gave them reading assignments, which were followed by group discussions in the weeks that followed. Later, I also attended his local Financial Peace University (FPU) classes with daughter Karah. In terms of stamping the financial ignorance out of my kids, results have been mixed. Still, I consider myself a fan.

Mention Dave Ramsey and there will be the full spectrum of responses. Those who consider themselves highly literate in personal finance will scoff with indignation, including many who read this blog, I suspect. This is not Ramsey’s audience. There will be others who have applied his “seven baby steps” formula and have rescued themselves from the brink of financial, and sometimes marital, disaster. They will pronounce their everlasting gratitude. I know enough of these people to have respect for the market that Ramsey serves.

His site’s landing page has plenty of links to simple but free tools and motivational anecdotes that might encourage those wanting to get a grip on their finances. It also provides links to help you find Ramsey’s daily radio broadcast and local FPU classes.

To be sure, there are plenty of opportunities to purchase books, DVDs and other items on the website, but Ramsey practices what he preaches with regard to credit cards: You cannot use them to purchase anything directly from the site. Credit cards and debt are anathema to his financial roadmap, and are to be dispatched with swift and brutal efficiency. Ramsey also uses his powerful brand to promote a number of financial products. In addition, there are tools to find “endorsed local providers” for real estate, insurance and tax services. This is a for-profit enterprise, after all.

Ramsey’s teachings include advice and financial projections that are disputed, and may even cause you to scratch your head from time to time. In one very public dustup, Ramsey’s investment and retirement income guidelines were challenged by a group of financial planners. Ramsey did not back down. When providing sample numbers in his FPU presentation, he uses the question, “What if I’m half wrong?” His point: Even if his projections are incorrect, the principles behind them are not.

The site also includes a blog that takes on financial topics of a fairly elementary nature. Again, for his target audience, discussions are probably best kept well out of the weeds. The content on the site may seem rudimentary and incomplete to some of us, but I believe it holds real value for those struggling to come to grips with the world of personal finance.

If I had a friend who needed some basic guidelines on budgeting and money management, I wouldn’t hesitate to send them to the site. Ramsey gives simple advice that is easy to grasp for even the most financially challenged among us. He is likely to leave his followers in far better financial shape than he found them. The anecdotes and encouragement on offer may inspire readers to overcome their fears—and instill the necessary confidence to take those first “baby steps” toward financial freedom.

When not paddling, biking or shooting, Phil Dawson provides technical services for a global auto manufacturer. He, his sweetheart Donna and their four extraordinary daughters live in and around Jarrettsville, Maryland. His previous blogs include Making Your Case , Course Correction and  A Thanksgiving Prayer . You can contact Phil via LinkedIn .

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This Week/Jan. 14-20

SET UP TWO-FACTOR AUTHENTICATION. If a thief gets online access to your financial accounts, your life’s savings could be at risk. What to do? If your bank, brokerage firm or fund company offers it, set up two-factor authentication. The firm will text you a special access code every time you log on or when you log on from an unrecognized computer.

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Price vs. Value

WE CAN THINK OF INVESTING as an argument between two competing opinions: What we think an investment ought to be worth—and what the market currently says. It’s an argument the market usually wins.

While we can be highly confident what, say, a certificate of deposit or a Treasury note is worth, it’s much harder to put a value on stocks, gold, high-yield junk bonds and other riskier investments (and, I’d argue, all but impossible with bitcoin). Even most money managers, who devote their professional lives to scouring the markets, aren’t skilled enough at spotting undervalued investments to overcome the investment costs they incur and the management fees they charge, and thereby deliver market-beating returns.

That’s why I start by assuming that the current price for stocks, bonds and other securities is probably pretty close to the fundamental value for these investments. I don’t subscribe to the extreme version of the efficient market hypothesis, which says securities are always correctly priced. But I do believe that the market is sufficiently efficient that it’s extraordinarily difficult for investors to earn market-beating returns over the long run, and thus most of us should steer clear of picking individual stocks and buying actively managed funds, and instead purchase market-tracking index funds.

This conflating of price and value, however, has its dangers. If investors assume price equals value, they may become overly enthusiastic about stocks during bull markets—and overly pessimistic during market declines.

Cast your mind back to March 2009, when the S&P 500 was 57% below its October 2007 high. If you had bought a collection of stocks for $1,000, and now honestly believed that their true value was just $430, dumping your holdings wouldn’t be an unreasonable response. After all, given the shocking loss of value in just 18 months, who knows what your shares might be worth if you stuck with them for another few months? But selling in March 2009 would, of course, have been a terrible mistake—which is why we need some sense of stocks’ value that is distinct from their price.

Even bull markets, like the one we’ve enjoyed for the past nine years, can be dangerous. If investors assume that stocks are just as good value today as they were in early 2009, they may allocate more to stocks than they can reasonably stomach, without appreciating the potential downside.

What to do? My advice: Imagine a line climbing steadily at 6% a year, with 2% from dividends and 4% from share price appreciation, as stocks rise along with 4% growth in earnings per share. That’s my expectation for the long-run return from a globally diversified stock portfolio.

Stocks will vary from this 6% line, as investors’ enthusiasm waxes and wanes. When stocks earn less than that 6% in a year, I assume we’ll see catching up at some point in the future and that my tenacity will eventually be rewarded. What happens if stocks race ahead of that 6%, as they did in 2017? I assume we’re likely borrowing gains from the future. Even as I admire my fattened portfolio, I brace myself for lower returns in the years ahead—and do a little rebalancing.

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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More for Your Money

AT SEVEN O’CLOCK THIS MORNING, as my wife and I tried in vain to wake our children for school, we heard a similar response as we went from room to room: “My head hurts.” Nobody wanted to get up.

I have to say, I don’t blame them. It’s the middle of winter here in Boston. The sky is gray and the thermometer seems stuck below zero. It can be hard for anyone to feel motivated, let alone kids facing another day in school.

But for parents, there is one thing that can make this time of year a little less unpleasant: year-end bonuses. If you are the fortunate recipient of a bonus—or if you just received a pay raise or the new tax rules have put more in your paycheck—here are 10 ideas for allocating those funds in ways that might lift both your spirits and your finances:

1. Give yourself a gift. Everyone knows the old expression that “money doesn’t buy happiness.” I generally agree with that. But recent research has shown that certain types of spending do indeed boost happiness. Among them: Buy experiences, not things. In fact, there’s an entire book devoted to the topic: Happy Money by Elizabeth Dunn and Michael Norton.

2. Give to others. It is important to give, but unfortunately the new tax rules will limit many taxpayers’ ability to deduct charitable donations. Here’s one solution: Make a big onetime contribution to a charitable gift fund, so you’re able to itemize. From that account, you can then slowly dole out money to your favorite charities.

3. Jumpstart a new account. If your household budget is stretched, it can be hard to save. That’s why year-end bonuses provide the perfect opportunity to build momentum with a new account. This might be a simple household emergency fund, a Roth IRA or a 529 education savings account for your children. An added bonus: The new tax rules now allow you to use 529s for K-12 expenses.

4. Invest in your house. Your own home is a unique investment because it’s an asset that usually grows in value over time, while also providing you with a place to live. For that reason, I see home improvements as worthwhile, because they deliver value on both counts.

5. Invest in your health. Everyone knows that health clubs love January. That’s when New Year’s resolutions cause people to buy new memberships that they end up rarely using. Why do so many people give up on the gym? One reason is the inconvenience of getting there. That’s why I think it’s smart to invest in something like a treadmill or a bicycle for your home. Yes, the price tag might seem high, but you’ll pick up valuable time in your day and I’m confident you’ll use it far more than your abandoned gym membership.

6. Invest in your skills. One of the ironies of life is that all of our education is crammed into the first 20 or so years. But it doesn’t need to be that way. These days, you can take online courses at little or no cost. Your town probably also has its own adult education program, offering hundreds of learning opportunities for nominal fees.

7. Make a dent in your most annoying debt. There are lots of strategies for paying down debt. Here’s where I like to start: with the one that you dislike the most. Maybe that’s the high-interest credit card or store credit card that hits you with $35 late fees when you forget to pay your $30 balance. Or maybe it’s your student loans at 7% or 8%. Pick one to eliminate from your life and I think you’ll experience an instant boost in happiness.

8. Put things on your calendar. According to happiness researchers, you derive tangible enjoyment from looking forward to things. If you’re planning a trip for next summer, book it now, or if you’re having a hard time getting through the winter, plan some daytrips to get you through February.

9. Get a root canal. I’m not kidding. It’s so easy to put off such things. But if you have a medical problem that’s been giving you aches and pains, sacrifice a vacation day to take care of it.

10. Get a coach. Another irony of life is that we get all kinds of coaching as kids, but rarely get any as adults. Sure, you might have a boss, but that’s not the same. If you don’t have a trusted mentor, try to find a career coach. Unlike your family and friends, who probably know you too well, an objective professional will take the time to look at you holistically and give you honest feedback. I have seen this work wonders for people.

Adam M. Grossman’s previous blogs include First Things First, Grossman’s Eleven  and Ten Financial Principles . Adam is the founder of  Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter  @AdamMGrossman .

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This Week/Jan. 7-13

REGAIN YOUR BALANCE. Calculate your portfolio’s split between U.S. stocks, developed foreign markets, emerging markets, bonds and so on. Compare your current allocation to your target portfolio percentages. Buy and sell to bring your portfolio back into line with your target weights—but try to trade in a retirement account, so you avoid triggering taxes.

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January’s Newsletter

WE’RE AN IMPATIENT LOT—and increasingly so. Who has time to read long articles, let alone entire books? Much of the time, all we want is the one- or two-line summary. Faced with that challenge, I’ve taken to boiling down my financial ideas to 140 characters or less.

HumbleDollar’s latest newsletter includes 41 of those ideas, which I hope will inspire, amuse and guide you as we sally forth into 2018. January’s newsletter also offers three financial steps to take in response to the new tax law, plus our usual listing of last month’s most popular blogs.

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Short and Sweet

AS I WAS PREPARING for HumbleDollar’s January 2017 launch, my web developer suggested I add a mission statement to the top of the homepage. That mission statement morphed into a daily insight, which then became a daily Tweet that also found its way onto my Facebook page. Like the family that moves from a three-bedroom house to a one-bedroom apartment, I embraced the challenge of shoehorning financial ideas into 140 characters or less.

Twitter has since expanded the allowable character count to 280, but I try to stick to the old 140 limit. I keep a running list of my daily comments and have vague plans to turn them into a book. But for now, here are 41 of those comments—some published, some yet-to-be published—that I hope will inspire, amuse and guide you as we begin 2018:

We get just one shot at making the journey from birth to retirement. Flirting with financial disaster is not advisable.
If you waste money, you can make more. If you waste time, life gets old really fast.
Picking superior investments is a crowded trade. Saving more is an easy win.
What’s the difference between an equity-indexed annuity and an index fund? One needs an army of salespeople. The other sells itself.
Want to feel short? Hang out with people who are tall. Want to feel poor? Hang out with folks who are rich.
If your kids can borrow it or your friends can admire it, it doesn’t count as an investment.
Draw up a list of your greatest pleasures in life. Then ask yourself: Do you need great wealth to enjoy any of them?
If your portfolio isn’t built around broad market index funds, you’ve got to ask yourself one question, “Do I feel lucky?” Well, do ya, punk?
When you’re ill, you realize how great it is to feel healthy. Money’s similar: When you’re broke, you realize how great it is to be solvent.
If you think money managers are overpaid, imagine how much they’d charge if they actually beat the market.
You want investments that you boast about when you sell—but you’re too nervous to discuss when you buy.
A boat is not your financial friend, but a friend with a boat is.
If you keep investing simple and make it understandable, you’ll lose half your audience, who assume success lies in their own befuddlement.
Never confuse the appearance of affluence with affluence. One is the mortal enemy of the other.
We are voracious acquirers of financial information, but mostly to buttress opinions we already hold.
If your children want for nothing, they have too much.
A quick way to lose half your wealth: Get divorced. The slower route: Marry someone with bad financial habits.
If folks claim their home has been a great investment, ask to see their detailed financial records—and their degree in advanced mathematics.
Whenever you open your wallet, you’re voting for one thing, but also voting against something else.
Invest based on dinner seminars, glossy brochures and TV advertisements, and you foot the bill for your own fleecing.
If you think today’s purchase will make you happy forever, you need to spend more time looking through your closets.
Everybody’s a long-term investor when the market is going up.
Is it time to have the talk with your kids? You know, the important one—about how much you’ll help with college costs.
Trying to beat the market is a game for the rich. Only they can afford the inevitable disappointing results.
Want to be free of financial worries? That hinges on the size of your bank account—and the magnitude of your wants and anxieties.
Cash value life insurance isn’t an investment, it’s a religion—and you’ll never meet a more prickly group of disciples.
If you save $5 a day for 40 years by not buying coffee, you’ll miss out on an awful lot of caffeine.
Overconfident investors trade too much, damaging their returns. But heartened by their brokers’ applause, they courageously carry on.
Dollar-cost averaging is for wimps. You’d be amazed how many rich wimps there are.
Forget this year’s stock market angst—and ponder the riches that will accrue to those who can ignore it.
Another year passes and still there are no inductees to the market-timing hall of fame.
It’s hard to know who is less truthful, teenage boys boasting of their sexual conquests—or middle-aged men touting their investment prowess.
What would happen if everybody indexed? Seriously? Are we really worried about a global outbreak of financial prudence?
Good news is bad news: When markets rally, our portfolios may grow fatter—but future returns will likely be lower.
We might retire from the workforce, but we should never retire from the pursuit of a fulfilling life.
Gold is like your crazy uncle at the wedding: He dances wildly—and he dances alone.
Your kids will grow up to imitate your financial habits. Will you like what you see?
If the answer necessitates making a short-term market prediction, you’re asking the wrong question.
The results speak for themselves—and that’s a problem for active money managers.
The big financial risk isn’t dying early in retirement but, rather, living longer than we ever imagined.
Our only earthly immortality will be the recollection of others. Make sure those memories are good.

A morbid aside: I’m able to schedule the new content for HumbleDollar’s homepage well in advance. This allows me to publish updates, even if I’m traveling or on vacation. One result: Should I go under the next bus, new insights will continue to appear at the top of the homepage—as well as on Twitter and Facebook—for months afterward. Thanks to the miracle of technology, it seems we’re now able to be productive, even in death.

Taxing Matters

SHOULD YOU MAKE ANY CHANGES to your finances in response to the new tax law? Three steps come to mind:

Make extra-principal payments on your mortgage. With the standard deduction now so much higher, and the itemized deduction for state, local and property taxes capped at $10,000, all that mortgage interest is likely saving you little or nothing in taxes, as I explained in a recent blog.
Rethink your strategy for charitable giving. Bunching two or three years’ worth of charitable gifts into a single year may allow you to itemize and get some tax benefit from your generosity. If you’re charitably inclined and over age 70½, also consider qualified charitable distributions from your IRA.
Revisit your estate plan. The federal estate tax exclusion has climbed from $675,000 in 2001 to $11.2 million in 2018, plus that exclusion is now “portable,” meaning married couples can potentially bequeath $22.4 million tax-free. Got an estate plan that’s designed to avoid federal estate taxes? There’s a good chance it needs to be revised—or there could be unintended consequences.

December’s Greatest Hits

HERE ARE THE SEVEN most popular blogs from last month:

Worse Than Marxism?
Courtside Seat (Part II)
Crisis? What Crisis?
Changing Seats
Hidden Gems
First Things First
Best Investment 2018

Also check out the most popular blogs for the fourth quarter and for all of 2017, as well as a slew of site updates I made at the end of December, including revisions to reflect the new tax law.

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