BONDS SHOULD BE BORING—and that’s how I usually manage my portfolio. My taste typically runs to low-cost short-term corporate-bond funds, supplemented with occasional purchases of certificates of deposit.
But there’s one major exception: I have roughly 3% of my overall portfolio in a low-cost emerging-market debt fund. This is not a low-risk investment. According to Morningstar, emerging-market bond funds lost an average 18% in 2008, before bouncing back 32% in 2009. Clearly, owning emerging-market debt is more akin to investing in stocks.
So why did I buy? The fund doesn’t fit neatly into my portfolio’s design and I doubt it’ll add much diversification. Still, here’s my (self) justification: The fund has a yield of almost 5% and—unlike, say, a high-yield junk-bond fund—I’m not so fearful of defaults. Indeed, I suspect the credit rating of emerging-market debt will be upgraded over time, as emerging-market economies continue to mature. Meanwhile, over the next 10 years, the 5% yield may rival the total return from blue-chip U.S. stocks, especially given today’s lofty stock-market valuations, plus I’m getting the return in relatively assured yield, rather counting on share-price gains. My hope: The fund will give me close to stock-market returns with somewhat lower risk.
“HOW TO THINK ABOUT MONEY.” That’s the tentative title for a new book I’m working on. It probably won’t see the light of day until early next year, after I get the 2016 edition of the Money Guide out the door.
What’s the new book about? My goal is to pull together five strands that define my financial philosophy. First, the connection between money and happiness is surprisingly tenuous. That means we need to think carefully about how we spend and what goals we pursue. Second, our long life expectancy should change the way we handle money, including preparing for midlife career changes, and worrying less about dying young and more about how we’ll cope if we live an astonishingly long time.
Third, we regularly make mental mistakes and seem hardwired for financial failure. Result: Getting and staying on track financially takes great discipline, much self-awareness—and a little trickery. Fourth, we ought to take a broad view of our finances, one that encompasses our human capital, debts, investments and more, and which involves thoughtfully trading off one goal against another. Finally, the surest way to win the financial game is to focus less on scoring big gains and more on limiting losses, whether it’s the corrosive impact of investment costs and taxes or the devastation caused by panic selling during a market decline.
MOST OF US WILL ENJOY wonderfully long lives. For those born in 2000, the average life expectancy at birth was age 80 for men and 84 for women. That’s a vast improvement since 1900, when life expectancy was age 52 for men and 58 for women. The bad news: While men can now expect to live 28 years longer and women 26 years longer, the bulk of the improvement—20 years—came in the first half of the 20th century. Indeed, the Social Security Administration projects that, for men born in 2100, life expectancy will be just seven years longer than it was in 2000, while women’s life expectancy will be just six years longer. Medical advances could change that, of course, but it seems the biggest improvements in life expectancy are now behind us. Maybe our great-great-grandchildren won't be regularly living to 100.
But there’s also good news: The longer we live, the longer we can expect to live. When today’s 65-year-olds were born in 1950, the life expectancy was age 72 for men and age 78 for women. But those figures include all the unfortunate individuals who never made it to age 65. Among those still alive today at age 65, the life expectancy is 84 for men and 87 for women. Moreover, these are just medians. Half of all folks will live longer. Among today’s 65-year-olds, roughly 25 percent will live to at least age 90 and 10 percent to at least age 95. With that long life comes two key issues. First, we need to figure out what will keep us happily employed for four decades and perhaps longer. One career may not be enough. Second, we need to pay for a retirement of uncertain length, but which might last 20 or 30 years.
ESTATE PLANNING IS EASY for most folks—but many don’t bother. Surveys regularly find that half of all adults don’t have a will. Yet a will, the right beneficiaries listed on retirement accounts and life insurance, and correct titling on property (such as the house you own jointly with your spouse with right of survivorship) are all most of us need.
Sure, there are other niceties, like drawing up durable powers of attorney for financial and health-care matters, getting a revocable living trust to avoid probate, and writing a letter of last instruction. But in terms of making sure your stuff ends up with the right people, everything should be in order if you have a will, the right beneficiary designations and correct titling on jointly owned property. And getting a will is neither expensive nor difficult. You can create one online for less than the cost of dinner out. Once you’ve drawn up a will, you’ll need to get it notarized. I went to the local UPS Store. It cost a whopping $2.
Tomorrow is the 805th weekly edition of The Wall Street Journal Sunday, a publication carried in 67 newspapers with a combined circulation of 6.2 million—and, I’m sad to report, also the last. I wrote columns for 423 of those editions, including both the inaugural publication, which appeared Sept. 12, 1999, and tomorrow’s final paper.
You can get an early look at my last column on MarketWatch.com. In that column, I discuss five notions that—I believe—are indispensable to a happier financial life.
While Wall Street Journal Sunday is disappearing, I’m not. Starting next Saturday, I’ll be writing a column for the regular Wall Street Journal. Still, I am sorry to see Wall Street Journal Sunday die. It was a publication packed with great financial information—and had an audience I loved writing for.
STAT OF THE DAY: In 2012, 27% of Americans said they were satisfied with their financial situation, versus 32.2% in 1972, according to the General Social Survey. That 27% was the third lowest reading ever for the survey, which has typically been conducted every two years, though sometimes more often. Meanwhile, over that same 40-year stretch, inflation-adjusted per-capita disposable income grew 108%.
INVESTORS SHOULD VIEW THEMSELVES not as pursuers of performance, but as managers of risk. The fact is, nobody has a clue what will happen next in the financial markets, so we shouldn't waste time fretting over something we can't control. Instead, we should focus on the stuff we can influence--how much we save, our portfolio's tax bill, our investment costs and how much risk we take.
I tackle the topic of risk in this weekend's column. Investors seem increasingly obsessed with performance, but risk remains my big worry: The benchmark 10-year Treasury is yielding no more than the core inflation rate, while the S&P 500's cyclically adjusted price-earnings ratio is above 26, versus a 50-year average of 19.6.
MY NEW BOOK was mentioned in two recent articles. In the Chicago Tribune, Carolyn Bigda discusses the Money Guide’s suggestion that folks look back at 2014, recall what spending brought them the most pleasure, and then use that to guide their spending in 2015. My hunch: Most people will find they got the most happiness not from new possessions, but from money spent on experiences—things like vacations, dinners out and going to concerts.
Meanwhile, in the Sarasota Herald-Tribune, Elliot Raphaelson gave the Jonathan Clements Money Guide a thorough review. The book, he says, is “informative, concise, up-to-date and easy-to-understand.”
In designing the Money Guide, I was heavily focused on the e-book edition. I divvied up the financial world into short, 250-to-350 word sections, which I figured would be more appealing to those reading the Money Guide on a tablet, phone or e-book reader. I embedded a slew of hyperlinks, not only to related sections within the book, but also to useful websites and online calculators. I inserted a detailed, interactive table of contents at the back of the book, which works similar to an index. Result? To my surprise, the paperback has easily outsold the e-book.
MANY FOLKS CAN’T WAIT to retire. I hope to avoid it—at least in the traditional sense. I can’t imagine having endless days with no clear purpose, other than to “relax” and “have fun.” I much prefer devoting at least part of every day to work, whether it’s banging out my next column or writing my next book.
If you’re retired, this daily sense of purpose doesn’t have to generate income, but it’s sure helpful if it does. As I point out in this week’s column, if retirees can find part-time work that simply covers the bills, and lets them delay Social Security benefits and avoid drawing down their portfolio, it can make a huge financial difference. An added bonus: It can give retirees a reason to get out of bed in the morning—something, I believe, that we all need.
DINOSAURS AREN’T MAKING A COMEBACK, but one of the last survivors is trying to avoid extinction. After prodding from readers, I’ve set up a Facebook page for my various writings and created a Twitter account, so you can follow me @ClementsMoney. My blog posts also now appear on my Amazon author’s page and on Goodreads.com.
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.
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?
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.
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.
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.