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Weekly Review

Review: When to Switch from a Roth IRA to a Traditional 401(k)

By | Retirement Income Funding, Weekly Review | No Comments

Most people don’t really know whether they should use a traditional or Roth IRA or 401(k). It often simply comes down to the path of least resistance (or nothing at all). The standard advice is pretty straightforward – if you think your tax rate will be lower in retirement than it currently is then you should use a traditional IRA or 401(k). If you think your tax rate will go up in retirement, then you should put your money into a Roth account. What retirement accounts essentially do is allow you to choose when you want to pay taxes on your investments, so you want to pick whenever (you think) you will pay the lowest rate. But this article brings up an interesting wrinkle that I hadn’t considered before – for a lot of investors having wide open investment choices is not actually a good thing. When you can choose anything, a lot of people end up choosing nothing because they either get confused or just don’t want to deal with trying to sort everything out. If these types of folks stick with their company’s 401(k) plan (and the vast majority of 401(k) plans don’t offer the option of Roth […]

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Review: 6 Things You Can Do to Retire by 40, According to People Who Did It

By | Retirement Income Funding, Retirement Spending Goals, Weekly Review | No Comments

Retiring early – especially by 40 – may not be easy, but it’s no more complicated than retiring at any other age. It’s still “just” funding your income for the rest of your life. Of course, when you retire at 40, that means you add another 25 years to your retirement, and take away 25 years from the time you have to prepare for retirement. But it’s doable. Just like any financial plan, it’s a question of how much you want to spend, and how much you can save. That first part – how much you want to spend – takes on an even bigger role when you retire early. Figuring out your goals is incredibly important for any financial plan. Those goals are the foundation the plan is built on. But, for most people, it’s incredibly hard to accurately predict what they want to spend in retirement. You’ll pick up a new hobby, or realize you forgot to account for something, or your priorities change through time. And this is just for a typical thirty-year retirement. It gets even harder when you double the length of your retirement – especially since you’ll be young and active for so much […]

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Review: Think Bitcoin Is a Bubble? 5 Ways to Short It

By | Investing, Diversified Portfolio, Weekly Review | No Comments

We’ve seen increasing interest in the media about bitcoin and other cryptocurrencies lately. And we’ve already talked about  whether it makes sense for most people to include them in their investment portfolios (short answer: no). Now, I have no idea whether there’s a bitcoin bubble. Bubbles are slippery things. If you ask financial academics, you can get an interesting conversation going about whether bubbles even exist, or if it’s just “rapid discounting of risk.” In financial media, calling something a bubble usually just means that something has been going up for a while, and you want to write a story about why it “has to” go down. It would be nice if we could call when a bubble will pop, but there’s just no evidence that anyone can effectively time the market. Plus, the article points out that there’s not really a good way to short bitcoin right now anyway. But I want to stop for a minute and defend the poor, helpless short sellers of the world. While it’s easy to vilify them – and they often make it so easy – they are crucial to a well-functioning market. No one really likes people who profit off other people’s […]

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Review: How to build wealth: 10 rules backed by science

By | Investing, Diversified Portfolio, Weekly Review | No Comments

I spend a lot of time complaining about the financial media, but occasionally something good sneaks through the cracks. This is one of those times. Everything in this article is something I would agree with. I want to expand on one point in particular: you shouldn’t focus on past returns. It’s easy to say past performance is not indicative of future returns (as the SEC dictates), but it’s another thing to follow through on it. How else are you supposed to figure out which are the good or bad funds? At the end of the day, you invest so that you’ll have more money in the future. So, it stands to reason that you want to invest with someone who has made money for their investors. The problem is that risk and return are related. To get higher returns, you need to take on more risk. There don’t seem to be many folks out there who can consistently beat the market. As nice as it would be to pick the best funds from the past couple years, it just doesn’t work. The funds that won last year are no more likely to win again this year. You need to focus […]

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Review: Wealth-building strategies financial advisers won’t talk about

By | Diversified Portfolio, Weekly Review | No Comments

Most financial advisors are pretty investment-centric. This is understandable – the financial advisory industry evolved from (the bad old days of) old-school stock brokers. While it’s understandable, it’s not a good situation. Preparing for retirement is a complex and multifaceted problem. You can’t just focus in on your investments. There are all sorts of other things that you need to be considering: what are your different goals? What about your different sources of reliable income – Social Security, Annuities, Reverse Mortgage, etc? How about your reserves and insurance needs? Your investments are a really big part of your retirement income plan, but it’s a whole tapestry that you need to be weaving. The strategies listed in the article I linked above are all pretty good things to think about – especially the one about using a fiduciary advisor (like McLean). But for an article about strategies advisors “won’t talk about,” this article sure features a lot of advisors talking about them. The fact is, these are all things that good advisors talk about with their clients. You can certainly find folks who just want to sell you something, but thankfully they’re becoming (slightly) less common. A good advisor will approach […]

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Review: Your Confidence About Your Retirement Planning Is Probably Misplaced

By | Retirement Income Funding, Weekly Review, Social Security | No Comments

Most people don’t really understand how to prepare for a successful retirement. There are a lot of moving parts, and a lot of what you should be doing is not very obvious. For most people, the best they can do is throw money at the problem and hope that everything turns out okay (and a lot of people don’t even get here.) There are all sorts of reasons we have a retirement savings crisis, but one of the big reasons is that most people are just not financially literate. The article I linked above mentions a survey done by Financial Engines in which only 8 percent of respondents got six out of ten questions about financial topics right. I don’t know how tough those questions were, but any way you slice it, an 8 percent pass rate is not so hot. If you’re curious how you stack up, you can take our twenty-question retirement literacy test and find out. One of the areas they specifically called out was understanding Social Security. Only about a third of respondents knew that they could delay taking their benefits until they turned seventy. Deciding when to take your Social Security benefits is one of the […]

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