One winter day in 2016, I jotted down a few comments about the market and emailed them to a group of clients. I received a few responses—some of them positive—so I did the same thing the following week and have continued that practice each week since. For better or worse, when it comes to investment markets, there’s always something new to discuss. But it can also be helpful to pause and revisit key investment principles from time to time. To that end, below are the 10 articles that readers have said they’ve found the most useful.
A Smart Move – Most investors are aware of the Roth IRA as a tax-advantaged savings vehicle. But certain aspects are often misunderstood. Among them: There is no minimum age to open a Roth IRA. Even if a young person doesn’t have a formal job but has income from babysitting, for example, he or she can still contribute to a Roth. And there is a way that higher-income taxpayers, who are ineligible to contribute to Roth IRAs directly, can still contribute indirectly.
The John Cleese Way – When you’re early in your career, many people struggle with a financial conundrum: We know that we need to save for the future. But since we don’t know what the future will look like, it’s hard to know how much to save. The solution? I recommend an approach to financial planning I call the John Cleese method.
Wayne Sabaj – If one person spends an extra $100,000 on a house while another spends that same amount on a boat, can we necessarily say that one is right and one is wrong? Financial “efficiency” may be in the eye of the beholder.
Jane’s Story – Sometimes I feel like a broken record when I argue in favor of index funds. But that’s because actively-managed funds, in my opinion, carry such a long list of flaws. Among them: They can be extremely tax-inefficient. I know an investor, “Jane,” who, years ago, purchased a mutual fund for $19,000 and later sold it for $287,000. Despite this obvious profit, Jane nonetheless realized a tax loss on this investment. Her story is a cautionary tale for mutual fund investors.
A Single-Digit Tax Rate – In retirement, many things change. Among them is the fact that we have a lot more control over our tax bills in retirement than in our working years. Indeed, effective tax planning might allow a retiree to draw $100,000 from a portfolio while incurring a Federal tax of just 3%. While everyone is different, certain tax strategies are somewhat universal.
A Less Taxing Retirement – Despite retirees having greater control over their tax bills, one obstacle looms large for many: required minimum distributions (RMDs). Congress has been helping by nudging up the age at which RMDs must begin. That provides more of a window to strategize on minimizing RMDs, but it’s important to begin this task early and not wait until RMDs begin.
The Roth Conversion Question – You’ve probably heard about the tax strategy called a Roth conversion, and it may sound appealing. This is one of the more effective tools in minimizing future RMDs. The challenge, though, is that it can be difficult to know when, or how much, to convert. I recommend a five-step process for answering these questions.
A Careful Look at Private Funds – A discouraging reality about private funds, such as hedge funds, is that the difference between the best and the worst is much wider than it is among publicly available investment funds. That’s one of the reasons I urge individual investors to stay away from them, but it’s not the only reason. Private funds carry many other potential pitfalls.
Choosing an Umbrella – In my work as a financial planner, I have, unfortunately, seen many different types of financial disasters. That’s why I urge virtually everyone to secure umbrella insurance. There are many questions, though. Among them: Which carrier to choose? And how much coverage to secure?
The Five Minds of the Investor – In theory, investing is easy. But because markets are so unpredictable, it’s often not as easy as it seems. To help navigate the world of personal finance, I suggest adopting a five-faceted mindset—that of an optimist, a pessimist, an analyst, an economist and a psychologist.