For investors that are anxious about the market volatility, investing legend and Vanguard founder Jack Bogle has a very good advice: “Just stay the course. Don’t do something, just stand there.” By speculating and responding to the current market turmoil, investors can hurt the return of their portfolio in the long run. Miranda Marquit on personal finance site Money Ning points out that loss aversion and overconfidence lead to investing mistakes. “Take the recent market volatility for example. I know a few guys who were scared of the downturn and moved some money into cash in February, only to see the market zoom back up a good 10% in the last four weeks. The worst part is that these people don’t really track their performances, so they will likely do this over and over again. There’s a reason why we urge everybody to stay the course. Doing nothing is actually not easy, but it’s often the most profitable non-action you can ever take.” Stick with your investment policy statement and stay the course. (moneyning.com)
Young People Choose Internet Connection Over Daylight
“Come out and get some fresh air.” Young people might hear that a lot, but many 18- to 25-year-olds prefer an internet connection to daylight. As The Huffington Post reported, 69 percent of the surveyed youths picked an Internet connection as an essential, whereas only 64 percent chose daylight. Some parents might be outraged that an Internet connection is seen as so vital, but young people would rather spend their time in the dark with just their gadgets to connect with the world. (huffingtonpost.co.uk)
Why You Should Not Fear Frugality
Frugality doesn’t have to be misery. The money you save from frugality is the money you can invest for the future. Trent Hamm on The Simple Dollar writes: “If you’re giving up stuff that you truly care about, then you’re not being frugal. You’re being cheap. Frugality is about getting maximum value for your dollar. It’s not about self-deprivation, at least not regarding anything that holds true value in your life. It is about cutting out the things that aren’t actually important to you. It is about seeking out less expensive ways to have the things that are important to you.” Some of the misleading reasons people fear frugality includes: “It’s a lot of extra work. I don’t want to live like a weirdo. The store brand is terrible.” (thesimpledollar.com)
Law Graduate Sues School After Huge Debt and Failing to Get a Job
After borrowing $100,000 to get her law degree at Thomas Jefferson School of Law, Anna Alaburda still couldn’t find a job as an attorney three years after graduating. So she sued the school for fraud. The law school reported that 80% of its recent graduates found jobs within nine months. But Alaburda claims the school inflated the number of its students who found jobs after graduating since not all reported jobs are law-related. Judge Joel Pressman allowed the case to go to trial and agreed that the employment figure is “meaningless in the context of a legal education.” (cnn.com)
Why You Should Second Guess Your Financial Adviser
As reported earlier, unscrupulous financial advisers often prey on the elderly and poorly educated. According to a research by the University of Chicago, about 7 percent of advisers have been disciplined for misconduct, such as selling unsuitable investments to clients or making trades without their input. Investors should wisely investigate their adviser’s background. Even when those advisers got fired, nearly half found work with a different firm in less than a year. Advisers disciplined once were also “very likely to act up again,” with nearly 40 percent becoming repeat offenders. Investors can use the U.S. Commodity Futures Trading Commission (CFTC) search tool called SmartCheck to do a background check on their advisers. (washingtonpost.com)
Earn An Extra $15,500 By Not Procrastinating
According to a 2013 study by the Investment Company Institute, about 40 percent of U.S. households own an IRA, holding more than $5.7 trillion in these accounts. Normally investors have a 16-month window between January and the following year’s April to make an IRA contribution for a given tax year. Many IRA investors wait until the last minute to make contributions. Vanguard completed an anlysis and found that over 30 years period you could earn an extra $15,500 by contributing early in January instead of procrastinating until April of the following year to contribute. The extra $15,500 assumes each investor contributes $5,500 for 30 years and earns 4% annually after inflation. Procrastination has a cost by missing out on a year’s worth of tax-advantaged compounding. To reduce procrastination, investors should set up automatic investments to make it easy to contribute regularly. (vanguard.com)
Why Don’t People Manage Debt Better?
Emory Nelms and Dan Ariely at Scientific American noted that even financially savvy people have a hard time juggling debt. The most cost-effective way to pay off multiple debts is to focus on loans with the highest interest rates first. But evidence shows that consumers consistently pay off smaller debts first, in a bid to reduce their total number of outstanding balances, even if it means racking up greater long-term costs. In a suboptimal method, Dave Ramsey often urges his listeners to ignore the interest rates and to attack the smallest debt first. This strategy of paying off the smaller debts first is a planned strategy rooted in psychology. “Consumers with multiple debts are motivated to reduce the total number of debts rather than reducing the total of their associated costs.” To counteract our natural tendency to approach debt irrationally, you can set up automatic payments to the debt with the highest interest.
What To Do If You Did An Unplanned Backdoor Roth
Roth IRA is a great, tax-efficient way to save for your retirement. Your contributions can grow tax-free and you can generally make withdrawals tax-free and penalty-free after you reach age 59½. If your income is too high, you can still do a planned backdoor Roth IRA. In certain situation when you contribute to Roth IRA but later find out that your income is too high. Harry Sit at The Finance Buff has a guide on what to do if you did an unplanned backdoor Roth. First, you have to recharacterize your ineligible contribution and gain to traditional IRA and then convert it. Next, you split your tax reporting since you contribute for one year and convert in a different year. Harry Sit recommends: “If there is any chance that your income may be too high again, resolve that you will become proactive and do a planned backdoor Roth from this year forward. When in doubt, do the planned backdoor. Don’t wait after the year-end.”
Active Investors In Aggregate Earn Less Than Passive Investors
There is universal truth such as 1 + 1 = 2. Using basic arithmetic, Nobel Prize winner William Sharpe shows us another eternal truth to answer the question: Do active investors in aggregate earn a higher expected return than passive investors? The answer is that “the average actively managed dollar must underperform the average passively managed dollar, net of costs.” Consider the portfolio of U.S. common stocks weighted according to the total market value of their outstanding shares. Passive investors earn the return on the market minus their fees and expenses. Active investors in aggregate also earn the market return minus their fees and expenses. The fees and expenses of active investors are higher than those of passive investors so active investors in aggregate must lose to passive investors. The basic arithmetic is very obvious to any personal finance readers. Whenever there’s any argument about active investing vs passive investing, please include this link to settle the matter. The eternal truth is that active investors in aggregate lose to passive investors now and forever. Don’t play a negative sum game and avoid active investing in your retirement accounts. (stanford.edu)
IRS Warns About New Scam Tactics
The IRS reminds you that IRS representatives will not call you to verify your tax information. The memo states:
Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, but now the IRS is receiving new reports of scammers calling under the guise of verifying tax return information over the phone. The latest variation being seen in the last few weeks tries to play off the current tax season. Scam artists call saying they have your tax return, and they just need to verify a few details to process your return. The scam tries to get you to give up personal information such as a Social Security number or personal financial information, such as bank numbers or credit cards. “These schemes continue to adapt and evolve in an attempt to catch people off guard just as they are preparing their tax returns,” said IRS Commissioner John Koskinen. “Don’t be fooled. The IRS won’t be calling you out of the blue asking you to verify your personal tax information or aggressively threatening you to make an immediate payment.”
(irs.gov)
Due to Financial Difficulties US Tourist Tried to Steal and Got Jailed for 15 Years in North Korea
Otto Warmbier, a University of Virginia undergraduate, was convicted and sentenced to 15 years in prison with hard labor by North Korea. Before the trial, the 21-year-old said he had tried to steal a propaganda banner as a trophy for a friend’s mother who said she wanted to put it up in her church. He said he was offered a used car worth $10,000 if he could get a banner and, if he got arrested and didn’t return, his mother would be paid $200,000 in the form form of a charitable donation. Warmbier said he accepted the offer because his family was “suffering from very severe financial difficulties.” The AP also reports that “in previous cases, people who have been detained in North Korea and made a public confession often recant those statements after their release.”
More Than Half Of Americans Are Just $500 Away From Financial Disaster
According to a study by Bankrate.com, more than half of Americans cannot financially handle a bill of $500 or more. The people in the report include 28% with $0 balance, 21% with no saving account and 9% with just the minimum balance requirement. “It’s worrisome that such a large percentage of Americans have so little set aside in a savings account,” said personal finance expert Cameron Huddleston. “It suggests that they likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends, and family, or even their retirement accounts to cover unexpected expenses.” In fact, 63 percent said they would be unable to handle an unexpected expense. If you have less than $1,000 in saving it’s time to apply 29 easy ways to build emergency fund. As a general advice, you should tuck away a few months of expenses in case you happen to lose your job or if something unexpected comes up. (gobankingrates.com)
Why Trading in Retirement Is a Bad Idea
Market timing is a sucker’s game, and trading in retirement is a very bad idea. Mr. Naples, described in The New York Times, “learned that it’s hard for an individual investor — even a retired one with lots of spare time — to outdo the pros and beat the market’s maddening volatility.” Researchers Odean, Andrade and Lin completed a study and found that “investors naturally get excited by investing during bubbles and are often blinded by emotion. If they’re excited about, say, tech stocks, they buy more of them. Because no one quite knows when it’s time to leave an inflated market or when to return and shop for bargains, millions of people guess wrong or follow the current trend.” During retirement, it’s best to put your investment in a passively managed portfolio so you have more time spending with your loved ones and on important stuff in lives. Just don’t follow any day trading program during retirement. (nytimes.com)
You Need to Earn $147,996 to Afford a Home Here
You need an annual salary of $51,115 to afford the national median home price of $222,700. But how much do you need to earn to afford a house in certain metro areas? HSH.com did a study to see how much salary you would need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in 27 metro areas. Here’s the salary needed to buy a home in certain markets:
- San Francisco: $147,996 salary needed to buy median home price of $781,600
- Los Angeles: $95,040 salary needed to buy median home price of $481,900
- New York City: $86,770 salary needed to buy median home price of $384,600
- Denver: $68,436 salary needed to buy median home price of $353,500
- Houston: $52,164 salary needed to buy median home price of $209,200
- Orlando: $47,811 salary needed to buy median home price of $205,000
(hsh.com)
How To Easily Do A Backdoor Roth IRA
Roth IRA is better than a taxable account since the you don’t pay taxes on interest, dividends and capital gains. If your income is too high, $116,000 for single and $183,000 for married filing jointly, you aren’t allowed to contribute to a Roth IRA. However, there’s a way to do a backdoor Roth IRA that suits high-income individuals. The maximum contribution is $5,500 for individual and $6,500 for those 50 or over. Here’s how to easily do a backdoor Roth IRA to minimize taxes in retirement:
- Rollover pre-tax IRA account into employer if possible
- Make a non-deductible contribution to traditional IRA
- Convert traditional IRA to Roth IRA
- Report on the tax return
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