Jonathan Clements's Blog, page 409

Second Childhood

IN COLLEGE, I WAS THE KID who swore he would never get married and never have children. A year later, I was engaged. Two years later, I was married. Three years later, I had a newborn.

And three decades later, I’m 55 years old, with a daughter who will turn 30 later this year.

I have no regrets about having children so young. Far from it. But it does mean I missed out on the romancing, bar-hopping, commitment-free years that many in their 20s enjoy. But in return for that sacrifice, I have had my reward over the past four years—a period I’ve come to think of as my second childhood.

Because I was thrust so quickly into the adult world, I was compelled to get serious about money at a relatively early age. I paid off my credit card debt from college, started saving regularly for retirement, bought a house, took on freelance work whenever I could, wrote books at the weekend, and began socking away money for my own children’s college.

By age 51, my two kids had their bachelor’s, my nest egg was large enough for a comfortable retirement and I had lost all enthusiasm for my job at Citigroup, so I quit.

Today, I think of myself as semi-retired: My various ventures earn me roughly a third of what I made as Director of Financial Education for Citi’s U.S. wealth management business and, indeed, I spend modestly more than I earn.

Yet I have never worked harder. Over the past four years, I’ve tackled all manner of projects. In addition to launching this website, I have authored four books, joined the investment committee and advisory board of Creative Planning, given speeches, worked on a concept for a personal finance app, consulted for Wall Street firms, taught a college course on personal finance for two semesters, written a regular column for first The Wall Street Journal and then Financial Planning magazine, and penned freelance articles.

When I left Citi, I didn’t expect to be so busy, but I have no regrets. I have viewed the past four years as my chance to try new things without worrying about what they paid me, and I’ve wanted to make the most of the opportunity.

What have I learned along the way? Five lessons come to mind—and I think they have implications for others venturing into retirement or semi-retirement.

1. It’s hard to know what will make you happy. I enjoy giving speeches and talking to folks about their finances, so I figured I’d love teaching. I was wrong. I expected great things of my students, but most seemed to expect very little of themselves—and I had neither the patience nor the teaching skills needed to bridge that gap.

2. There’s great pleasure in working hard at something you’re passionate about. I have the financial wherewithal to ditch my various projects and retreat to the couch, but I have no desire. Even in my semi-retirement, I get enormous satisfaction from wrestling with financial questions and writing projects.

3. I wish it were otherwise, but I find it isn’t quite enough to help others and do work I consider important. I still enjoy the extra validation that comes with making money and hearing applause. These things aren’t as important to me as they once were, but I can’t shake them entirely.

4. When you’re always home, it’s hard to leave it all behind. Entire days can pass without me going outside, especially during winter. The gym is downstairs, my laptop offers seductively easy access to work and to the larger world, and life’s necessities—food, booze, toothpaste and toilet paper—can all be delivered.

Problem is, remaining rooted in one spot makes it difficult to escape worries and work pressures. Lately, I have been trying to get out of the apartment more, if only for a brief walk, but I’m not as good about it as I should be.

5. The markets look riskier when you aren’t regularly adding new savings to your portfolio. I have always invested heavily in the stock market, and still do. But now that I’m more likely to pull money from my portfolio than add to it, I’m less sanguine about the possibility of a large stock market decline.

As a gut check, I use the strategy I recommend to others: Occasionally, I will take my portfolio and assume the stock portion loses 35%, which is the typical decline during a bear market. I’ll then look at the resulting hit to my overall portfolio’s value and ask myself, “Would you be okay with that?” As the market has climbed over the past year, I’ve found myself answering “no”—and that’s prompted me to ease up somewhat on stocks.

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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The Last Word

I FREQUENTLY FIELD INQUIRIES from people who know they ought to get a will. Others have wills, but may need to revise them because they’ve moved to a new state, entered into a marriage or ended one. But either way, most folks—in my experience—never get beyond that simple first step.

And those who do often overlook an additional step that’s almost as necessary: drawing up a “letter of final instructions” that provides their heirs with an informal personal financial inventory. While it isn’t legally binding like a will, a letter of final instructions offers the chance to list exactly where you keep your important personal papers, what assets you have and who gets them.

Intrigued? For starters, make sure the letter is current and accessible. It can include certain important details, like funeral arrangements or care of pets, which can change and thus are usually impractical to put into your will. Who should get copies of your letter? Typically, the list would include your spouse, one or more of your adult children, your lawyer and your executor.

At a minimum, the letter may alert your family to the existence of assets that otherwise might prove difficult or even impossible to find when death, a serious illness or another crisis leave you unexpectedly unable to handle your financial affairs. Without the letter, it’s frequently a daunting task for heirs to track down assets, resulting in situations that can be nightmarish and trigger epic family donnybrooks that could’ve been prevented. Indeed, the absence of a letter could significantly increase the fees charged by me and other advice-givers who bill by the hour.

Include in the letter where you keep copies of checks, credit card slips and other documents that you rely on at tax time to justify the amounts shown as income, deductions and exemptions on your tax returns. You should keep records for the past three years or so.

What could happen if the IRS disputes those figures after your death—and the necessary substantiating records are unavailable? The wealth that winds up with your heirs could be drastically diminished by assessments for additional taxes, interest charges and perhaps penalties. Ditto for any applicable state taxes.

Your letter of final instructions should also detail all your tax-deferred retirement accounts, such as 401(k)s and individual retirement plans. IRAs come in several flavors: traditional deductible, Roth and traditional nondeductible.

You might use your letter to remind your heirs of this difference: Like you, heirs have to pay income taxes on their withdrawals from traditional deductible accounts. Like you, heirs generally aren’t taxed on removals from Roth IRAs or the portions of withdrawals from traditional nondeductible accounts that are attributable to nondeductible contributions. These distinctions may be misunderstood or overlooked—and could end up costing your heirs dearly.

Julian Block writes and practices law in Larchmont, NY, and was formerly with the IRS as a special agent (criminal investigator). His previous blogs include Lost Items, Losing Interest and Capital Punishment. This article is excerpted from Julian Block’s Year-Round Tax Savings, available at JulianBlockTaxExpert.com. Follow Julian on Twitter @BlockJulian.

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Your Loss, Their Gain

A FEW YEARS BACK, a fellow named Wylie Tollette faced uncomfortable questions as he sat before the public oversight committee of the California Public Employees Retirement System (CalPERS). Tollette, the pension fund’s Chief Operating Investment Officer, was responsible for updating the committee on the status of its massive $350 billion portfolio.

But when a committee member asked about the fees CalPERS was paying to a particular group of investment managers, Tollette did not have a ready answer. “It’s not explicitly disclosed or accounted for,” he said. “We can’t track it.” CalPERS, the largest pension fund in the United States, was being kept in the dark by some of the money managers it had hired.

In his defense, Tollette noted that CalPERS was not alone in its inability to know what it was paying. “It’s an industry challenge,” he said.

It is indeed a challenge. Still, when you are trying to build wealth, it is critically important to understand and manage the fees that you are paying. According to multiple studies by the research firm Morningstar, fees are “the most proven predictor of future fund returns.” With that in mind, here are four steps you can take to audit your investment costs:

1. Check your mutual fund “expense ratios.” That represents the percentage of a fund that investment managers deduct to compensate themselves. For mutual funds holding domestic stocks, look for an expense ratio under 0.1% (that is, one-tenth of 1%), which is what the lowest-cost index funds charge. For a fund holding international stocks, expect to pay more, but no more than 0.15%. If a fund is charging much more than that, you want to be skeptical. You can find out a fund’s expense ratio on the fund company’s own website or at Morningstar.com.

2. Look for other mutual fund fees. A fund may also levy two other costs, both of which are cloaked in jargon and difficult to spot. The first is called a “12b-1” or “marketing” fee, which is included in the expense ratio and may explain why it’s unusually high. This is a fee that the fund company may pay to the advisor who sells you one of its funds. What makes these fees particularly distasteful is that they are not simply one-time commissions. Instead, they are subtracted from your investment every year.

The other type of fee to watch out for is called a “load.” This is similar to a 12b-1, except that it is a one-time payment. Unfortunately, however, loads can be sizable, eating up maybe 5% of your investment before you even get started. I would unequivocally advise against any fund carrying either of these fees.

3. Pay attention to “turnover.” This represents the percentage of a portfolio that is bought and sold each year. Whether you are looking at a mutual fund or at an advisor who manages a portfolio of stocks for you, turnover is important because it not only represents an additional investment cost, but also it can have a serious impact on your tax return, as winning investments are sold, triggering capital gains taxes.

If you look at a simple index fund like Vanguard Group’s S&P 500 fund, you will find turnover of perhaps 4%. Look at actively managed funds and you’ll often see turnover of 50% or 100%. If you are unsure of the tax impact of turnover, check your tax return or see if your accountant can help you.

4. Ask about “soft dollars.” If you work with an investment advisor, does the firm have any “soft dollar” arrangements with its brokers? Soft dollars are an opaque practice whereby a brokerage firm charges an investment advisor’s clients more to trade and the investment advisor then receives benefits in return, such as help paying for “research services.” The result is that you could end up—indirectly and invisibly—paying your advisor more than you realize.

Does all this sound like a lot of homework? If you want to hold down investment costs, here’s the best strategy: Opt for simplicity in your investment life. Yes, complex investments may pay off. But in my opinion, you put yourself in a much better position to succeed when you keep it simple.

Adam M. Grossman’s previous blogs include About That 22%, More for Your Money and First Things First . 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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USAFacts.org

I SPENT THE FIRST THREE YEARS of my college career pursuing a degree in journalism. Any time I submitted an assignment that had even a hint of my own opinion inserted into it, my advisor would sternly remind me to report “just the facts and only the facts.”

These days, it’s increasingly difficult to find a piece of journalism that doesn’t have a personal edge to it. Between fake news and political propaganda, the distance between fact and fiction feels like it’s narrowing. Finding unbiased information, especially when it comes to government spending and taxation, seems nearly impossible.

Thankfully, USAFacts.org—a website developed and financed by former Microsoft CEO Steve Ballmer—has come to the rescue. Ballmer started USAFacts after his wife Connie asked him to become more involved in philanthropic work. Unable to find easily accessible, unbiased information about government spending and revenue, he set about creating a nonpartisan website to provide this data to the public. The site provides volumes of information in an easy-to-digest graphical interface. Visitors can explore a multitude of data generated by the U.S. government in a way that’s completely devoid of opinion.

I regularly explore the website just to see how well my own perceptions mesh with the facts. Want to know if property crime rates have increased or decreased over the last decade? USAFacts will show you. Want to know whether the number of structurally deficient bridges in the country has increased or decreased since 1990? That’s there as well.

The diversity of data included on the site makes it easy to spend hours surfing around. Whether you want information about obesity rates, mortgage rates or the national volunteering rate, you can find the information on the site. Links to the sources used to generate the graphs, charts and reports on USAFacts are included on each page. Options to download data, or share the pages on social media, are readily accessible as well.

Kristine Hayes is a departmental manager at a small, liberal arts college in Portland, Oregon. Her previous blogs include Perking Up, Aiming High and Hidden Gems .

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This Week/Jan. 21-27

GET SPENDING MONEY OUT OF STOCKS. Calculate how much cash you’ll need from your portfolio over the next five years. That money should be out of stocks and invested in nothing more volatile than high-quality short-term bonds. You don’t want to be forced to sell stocks at depressed prices—and that could happen if your time horizon is less than five years.

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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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