With this blog post I’d like to share some thoughts about investment risk tolerance.
Generally, we think about risk as a bad thing – something we want to avoid. “I won’t drive faster and risk a speeding ticket”, and, “No, baby, that dress doesn’t make you look fat,” are two examples of conscious choices made to avoid unpleasant consequences.
The context for risk in this post is investment risk – I put money out there in some type of vehicle, and expect it to be returned to me, and then some. And then some can be interest, dividends, capital gains, and lottery winnings.
I’m here to tell you once and for all.
Yes, I know . . . this is a little off the beaten path for me.
I usually write about financial topics, given that I’m a professional financial planner. But occasionally some NIGO aspect of the world (that’s Not in Good Order, in my professional parlance) comes to my notice with such frequency that I just can’t take it anymore. Sort of like the crescendo in Lucy in the Sky with Diamonds. It builds and builds, and you know that a climax is coming.
Well, today it peaked, and I’m seized with great generosity of spirit (and indeed, humility) to set the English-speaking world right.
Ready? Here it is: data is the plural of the singular datum. There is your pronunciation: dāta with a long a. Not dăta with a short a. Never Ever EVER.
Now that that’s settled, let’s turn...
Channeling David Letterman and all those Top Ten lists. I thought it might be fun to compile one of my own. To wit:
This is a list compiled after about 25 years of experience.
You eat out way too much. This is what your kitchen is for! If you get a sandwich and a coffee in Miami on a daily basis, you’ve spent ($10/day * 20 days) $200 in a month! How about all that fast food? I’m seeing families who spend several hundred dollars each month eating out, when a little planning and Publix time could save much of that money and everyone would be healthier and richer for it.
You don’t have enough life insurance. What happens if you get hit by a bus? Are your existing savings enough for your surviving spouse and children? Term insurance is relatively cheap and easy to obtain. No excuses. See Mistake #5.
You don’t have an emergency fund....
We usually understand the time value of money in two contexts: the growth rate of an investment, and the inflation rate. Nonetheless, the TVM is a topic that should be understood by everyone serious about financial planning.
To conceptualize this, sketch out a timeline of your life. At the leftmost point is your date of birth. The rightmost point is your date of death. In between, mark your retirement date, and today’s date. If you are not yet retired, then the time value of an investment pertains to you in particular.
Let’s look at investment growth rates. On your timeline you have 10 years before your retirement. You're interested in projecting out your IRA balance over these 10 years, assuming an 8% annual rate of return, compounded monthly. Your current balance is $250,000, and you are depositing $300/month – less than what is permissible by law. I make...
By early 2015, the amount of outstanding student loan debt in the U.S. exceeded $1.2 trillion. What a staggering number! Tens of millions of young professionals carry significant student debt balances. The payments may be stiff. It can take years to pay off many of these loans. Consequently, other financial priorities get postponed. Commonly we see saving for retirement pushed ahead into the future. Does this describe you?
The good news is, there are federal programs for income-based repayment and even loan forgiveness. Before you get too excited, though: only certain kinds of federal student loans qualify. These include Stafford and Grad PLUS loans. Each year, program participants verify their income and family size. The loan servicer then calculates a new required monthly payment amount. Loan payments go up or down as appropriate. The intent is to assist borrowers in making on-time payments. These payments, however, may...
In this blog post I want to go just a little bit beyond the basics of traditional IRAs and how they work.
An IRA is an individual retirement account by definition, with the emphasis on individual. One IRA means one owner, so there can be no joint titling. In order to contribute to an IRA you must have earned income. That is, income from compensation defined as wages, salaries, tips, alimony, and separate maintenance payments. These are all earned income. Income from capital gains, dividends, and interest is not considered earned income by the IRS – they classify it as investment income.
Your contribution limit is $6000 per year (2020). If you’re over 50 an additional $1000 catch up contribution is allowed, so the limit becomes $7000. Age limits on contributions have been repealed in the 2020 CARES Act, so as long as you have earned income you can contribute.
Nobody plans for a disability. In our experience, people are more willing to incorporate life insurance into their financial plan than disability insurance. Why is this? Let’s first get into the differences between disability and life insurance.
Here are a few key differences between these two types of insurance:
I’ve been pondering this.
It sort of hit me one day after having noticed This Page is Intentionally Left Blank in clients’ brokerage account statements.
Seems to me that if there’s printing on the page, it is not blank, is it? Brokerage statements go on for pages and pages. Who formats these things? Why not print on it and save a tree?
Sometimes business written communication makes me crazy. Why not say use instead of utilize? Or even worse, why not say complete instead of effectualize? Seems the more jargon the better. Or how about our deliverables? Deliverables indeed! We sell deliverables? I though we sold planning and investment management.
Personally, I’d rather eschew obfuscation. (That’s a joke.)
Ok, I'm ranting. I guess we should close the flight plan on this. (Really? Why not simply conclude?)
(Note to the reader: I originally posted this piece in mid-March of 2020. Now I'm reviewing it at the end of April 2020. Hit the nail on the head, didn't I?)
I’m sure you’ve heard the term before: asset bubble. Sounds ominous, because a bubble is generally something that’s going to pop. On the other hand, I think of bubbles with champagne. So there are two images, both conjuring up a party that has to end at some time.
What does the term refer to in terms of market valuations? It means simply that at some point assets will be trading at a price that’s too high, and that the price will come down – maybe gradually, or maybe by a pop. Why is there so much in the financial literature today about asset bubbles? Because there appears to be a big asset bubble in the making.
Before I go on, let me define two terms:
Student loans are often top of mind for many people in the early stages of a professional career. You’ve made an investment in yourself by getting a great education, and now you’ve got to make enough money to build a life, but also to repay those loans. The main piece of advice we give most of our clients with student loans is not about numbers. It’s about overcoming the feeling that this debt is very heavy burden. So if you’re in that camp, we have some thought to share:
Taking out these loans was ultimately your choice, so own it. You DID in fact have other options – you could have gone to a cheaper school, or stretched your education out as you worked your way through. Whatever the case, ultimately it is your signature on the loan form. Take responsibility.