Jonathan Clements's Blog, page 449

Fewer Commissions, Less Nonsense

WALL STREET HAS CHANGED remarkably during my three decades of writing and thinking about money—mostly for the better. For instance, financial advisors now earn an estimated 64% of their compensation from asset-based fees, rather than from commissions. That eliminates many of the worst conflicts-of-interest, including the incentive to churn a client’s account and sell products that pay the highest commission. Today, you also see many advisors making heavy use of index funds, a topic I discuss in my column this week.

Along the way, I’ve stopped hearing some of the nonsense that financial advisors used to spout. This nonsense went far beyond the unsubstantiated boasts that, with their help, their clients regularly beat the market.

Examples? In the late 1980s, advisors used to claim that load mutual funds (those that charge a commission) were inherently superior to no-load funds. They’d argue that you got what you pay for—and that low mutual-fund annual expenses were a sign of a second-rate product. I even remember advisors claiming that the load on a mutual fund created an incentive for the fund’s manager to perform better. Three decades later, I’m still puzzling over that one.

Upton Put-Down

REAL-ESTATE BROKERS COMPLAIN when I write about housing, and proclaim that there’s no better investment than a home. Insurance agents whine when I discuss insurance issues, and trumpet cash-value life insurance and tax-deferred annuities as the best things since slice bread. Financial advisors fire off fiery emails when I write about the advice business, and insist that the building blocks of financial success are stocks, bonds and an advisor’s wise counsel.

Maybe one of these groups is correct—but they can’t all be. As Upton Sinclair wrote, “It is difficult to get a man to understand something when his salary depends on his not understanding it.” Let’s face it: Would salesmen really be so enamored of equity-indexed annuities if they couldn’t earn double-digit commissions?

(More) Shameless Self-Promotion

AS I TRY TO DRUM UP interest in the Jonathan Clements Money Guide 2015, I spoke today to theStreet.com's Gregg Greenberg for a video interview, recently answered questions from Vanguard and talked to a writer for the AARP blog.

Plus Ca Change

WHAT COUNTS AS GOOD financial advice doesn’t change much from one year to the next. In 2014, you should have owned a globally diversified portfolio, kept investment costs low, avoided credit-card debt, maxed your 401(k) and avoided annuity salesmen. Ditto for 2015.

So why do folks read the business section every day, buy personal-finance books and subscribe to business magazines? There’s an entertainment aspect: We like feeling engaged with the wider world.

But there’s also a practical reason: Even if good financial advice doesn’t change much from one year to the next, our personal situation often changes a lot—and reading widely can remind us to tweak our finances to reflect our new circumstances.

Shameless Self-Promotion

THE FUN PART--writing the book--is over. Now, it's time to generate sales. This is the part that authors hate, which is hardly a surprise: Why would folks who spends their days staring at a screen and tapping at a keyboard be any good at standing in the middle of the road, pounding their chests and declaring their own virtue?

Fortunately, a bunch of longtime friends have saved the Jonathan Clements Money Guide 2015 from obscurity. Back in early December, Consuelo Mack, anchor of Consuelo Mack WealthTrack, interviewed me for her weekly podcast. Ron Lieber of the New York Times mentioned the Money Guide in his most recent column. An excerpt from the book is running this weekend in both Wall Street Journal Sunday and on MarketWatch.com. Chuck Jaffe interviewed me for his radio show. The Oblivious Investor's Mike Piper, who has authored a great collection of relatively short books on financial topics, put in a good word for the Money Guide.

It's Alive

IT HAS BEEN A WILD 48 HOURS--but the Jonathan Clements Money Guide 2015 is available for sale, with all data updated as of the Dec. 31 market close. To be sure, it wasn't the most exciting New Year's Eve.  Around 4:30 p.m., I started pulling market data and updating numbers throughout the book. By shortly after 7, I had submitted copy for the Kindle, Nook and paperback editions.

Then the waiting began. The Kindle version was live by early morning on Jan. 1 and the Nook version was available at lunchtime. But it wasn't until 4 p.m. that I got the email from Amazon, saying the paperback edition was ready to go. With that final piece of the puzzle in place, I hit the send button at 5 p.m. and inflicted a promotional email on 4,500 lucky recipients (22 of whom immediately declared it spam).

Now comes the hope for publicity. This morning's pleasant surprise: The book got a mention in the latest column by top-notch New York Times personal-finance columnist Ron Lieber. 

Make Your Retirement Less Taxing

HERE'S ANOTHER REASON TO LOVE retirement: You get the chance to save big money by managing your annual tax bill. I recently discussed this notion with the folks at Bottom Line/Personal. For more, check out the full article.

Betting the House

NEAR THE PEAK of the real-estate bubble, I wrote a column about how I had fared financially with the house I then owned in New Jersey. It wasn’t the first time I argued that a home shouldn’t be considered an investment. But that 2005 column triggered the biggest reaction by far.

In addition to a deluge of scornful emails, I came across an online forum where the article was discussed. The first person who posted had read my column. The next 200 folks clearly hadn’t, but that didn’t stop them from opining not only about the article, but also about my intelligence, or lack thereof.

I revisit the topic in this weekend’s column, once again discussing my own experience. Real-estate prices are still 9% below their mid-2006 peak, so one assumes the real-estate junkies remain somewhat chastened—and the online comments will be a tad less vociferous. 

Eat, Drink And Obfuscate

WE MIGHT OVERINDUGLE this holiday season—but we probably won’t be honest about it. For my Money Guide, I took a look at how America spends. There are two key sources: the Commerce Department and the Labor Department. The Commerce Department relies on top-down economic data, while the Labor Department surveys consumers.

It turns out that consumers aren’t entirely honest. The Commerce Department found that, in 2013, U.S. households spent an average $900 on tobacco, $1,100 on beer, wine and spirits, and another $700 on alcohol when eating out. But households that were surveyed by the Labor Department admitted to spending just $330 on tobacco and $445 on alcohol.

Don't Look Now

IN OCTOBER, LUCINDA and I spent a week in Venice. We rented an apartment with no Wi-Fi, so every day for 30 minutes we’d settle into a café with Internet access. While my wife dealt with work issues, I’d catch up on the news, check email, see how the markets were performing and look at the Amazon rankings for my various books.

There was nothing extraordinary about this—except that I was doing it just once a day. By contrast, when I’m home in New York, I’m constantly checking the news, markets, email and my book sales.

But there’s a difference between information and insight. Here at home, I may be getting a lot more information. But it also chews up a heap of time and I doubt it’s making me any wiser. In fact, I suspect the constant flow of financial information is bad for investors, prompting them to fret too much over their investments and make too many trades.