Investing – Matt About Money Simple. Meaningful. Success. Thu, 17 Oct 2019 21:01:06 -0400 en-US hourly 1 9092505 Profitable Ideas: Finishing Rich Isn’t About the Lattes, Finding Your Financial Focus, and More Fri, 25 Oct 2019 13:30:55 +0000

Weekly roundup of some of the best personal finance articles from around the web.

All you need to do to finish rich (The Irrelevant Investor). It isn’t about lattes. 

Can self-employed people ever actually retire? (MarketWatch). In short, yes, but it’ll take discipline and an awareness of the unique retirement accounts available to the self-employed.

How I paid off $100,000 of student loans in 3 years (Mr. Money Wizard). It wasn’t magic, but it’s inspiring nonetheless.

Only one in five Americans achieves this key financial goal for a comfortable retirement (USA Today). How to make the most of your retirement plan.

Even with the best advice, people can still mess up (Washington Post). Can you help the people around you if they don’t seem to want help?

Where you kid goes to college doesn’t matter as much as you think (CNN). What factors to look for when choosing a school.

It’s open enrollment. Are you making the most of your employee benefits? (Schwab). Some of the key decisions you’ll need to make, along with some helpful guidance.

To change your financial circumstances, choose focus (Becoming Minimalist). Finding the one thing would make the biggest difference in your financial life.

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Tough Money Conversations With Kids Tue, 01 Oct 2019 13:30:12 +0000

If you’re going to help your kids learn about money, getting them started is one thing; keeping them going is another. Motivation can wane.

That’s what seemed to be happening the other night with our 15-year-old when he opened up a conversation about investing. Don’t get me wrong. It’s not like the wheels have come off, with him wanting to cash out in favor of buying some stuff right now. But I can tell that some hard realities are setting in. Like the Long time he may have to wait for the payoff.

As I’ve written before (see What If Your Kids Had Their Retirement Funded Before They Finish High School?), we helped each of our three kids open investment accounts last fall and encouraged them to follow the most aggressive strategy offered by Sound Mind Investing, where I work. While we encourage older investors to devote no more than 20% of the equity portion of their optimal asset allocation to the Sector Rotation strategy, I explained to our kids that they have time on their side. As long as they can handle the volatility they’ll likely experience, their long time horizon should give them a great chance of generating impressive long-term average annual returns. (The strategy has averaged over 17% per year since it was launched in 2003.)

Last fall turned out to be a tough time to start investing since the market—and therefore, our kids’ investments—tanked in the fourth quarter of 2018. But I’d far rather have them experience their first steep market decline while they’re still living at home, where we can easily talk about it. And they handled it just fine.  

This year, things have gone better so far. But the other night, our oldest asked me some questions about his account. He wanted to know how long he’d have to wait before he could use some of the money. And then he asked how certain it was that the strategy would generate great returns long term.

The questions caught me a little off guard, and honestly, I was worried that he was rethinking this whole investment thing. It surprised me because he’s been so diligent about adding to his account. On a recent weekend, he earned $70 and asked me to add all of it to his investment account.

I told him he could take his money out right now if he wanted to. It’s his money. And it’s not in an IRA, so there would be no penalty. (Eventually, I’d like them to convert their accounts to Roth IRAs.) I also explained, as I have before, that the returns are not guaranteed. The 17% figure we’ve talked about is an average of how the strategy has performed over the past 16 years. It could perform better than that, and it could perform worse. Either way, there will likely be some very good years and some very bad years.

I then tried to remind him of some of the long-term benefits of starting this investment account at such a young age. If he could build the account to $3,000 by the time he’s 18 and then never added another penny, and if it continued generating a 17% average annual return, by the time he’s 70, it would be worth more than $14 million! Even accounting for inflation, it would be worth about $3.7 million—far more than the average person retires with.

I also told him that when he’s working a full-time job, having this account set up would take away a lot of pressure to set aside so much for his later years. If his company offered a match on a 401(k) plan, which I explained, he should absolutely invest enough to get the full match. But beyond that, he’d be free to save and invest for other things, such as a house or maybe his own business. It would give him options that a lot of other people don’t have.

He took it all in and seemed satisfied with the conversation. Not excited, but perhaps at least content to stay the course.

It’s tough. I get it. It’s a long time to wait for the payoff. But all of this—the questions, the disappointment, the grappling with the patience required—is why it’s so important to get kids in the conversation about money, and in the game with actual money, early. I want them to wrestle with this stuff while they’re still living at home.

I’ve heard that the reason so much of the financial literacy efforts taking place in schools hasn’t been effective is that it’s too theoretical, too abstract. Kids need to have real money involved if lessons are going to stick.

Yes, we need to teach. And we need to do our best to be good role models, which is why we talk about things we’re saving and investing for—things we’re waiting for. But the regular conversations—the opportunities for kids to ask questions and wrestle out loud with some of the things they’re sorting out—may be the most important part of the process. 

What are some steps you’re taking to teach your kids about money? How are you helping them cultivate a long-term perspective? 

Profitable Ideas: Secrets of Superstar Savers, A Richer Level of Happiness, and More Fri, 27 Sep 2019 13:30:06 +0000

Weekly roundup of some of the best personal finance articles from around the web.

The No. 1 thing people with fat savings accounts scrimp on that you likely don’t (MarketWatch). The importance of getting the big things right.

Parents, don’t sacrifice yourselves on the altar of your children’s education (Tim Mauer). Sacrificing to save is wise. Sacrificing by taking on debt? Not so much.

The cost of selling your home (A Wealth of Common Sense). Before buying, make sure you plan to be there a while.

Young people are starving for classes on finance, tips on taxes (MSN). Whether kids grow up learning about wise money management depends heavily on whether their parents are willing and able to teach them.

Marrying money (Humble Dollar). If you know anyone who’s engaged or newly married, may I also recommend the book, Money & Marriage?

We have to let go (Liberty Wealth). The comparison game — it’s hard to avoid, and impossible to win.

Millennials are bullish on Roth IRAs. Many wish they started earlier (CNBC). Is there a young person in your life that you should introduce to a Roth IRA?

Choosing a richer, fuller level of happiness (Becoming Minimalist). A good reminder about where happiness is found.

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Profitable Ideas: Whether Your College Kid Needs a Credit Card, The Market Will Crash, and More Fri, 20 Sep 2019 13:30:05 +0000

Weekly roundup of some of the best personal finance articles from around the web.

Can your college kid handle a credit card? (Independent Advisors). Be sure to teach them the rules of the road for wise credit card use.

My biggest FI demon — status anxiety (Monevator). Great article that expresses what so many of us experience as we try to manage money wisely and counter-culturally.

The only benchmark that matters (Reirement Field Guide). Why comparing your investment returns to “the market” can be a mistake.

Why did my car insurance go up? (Clark Howard). Did you know that using roadside assistance can count against you?

Yes, the stock market is going to crash (A Wealth of Common Sense). It’s just what the market does every now and then.

Financially supporting your adult children? Don’t let it jeopardize your retirement (Kiplinger). For parents of young kids, this is why to give them increasing levels of financial responsibility. 

Here’s when buying in bulk is really worth it (US News). I’m not sold on the “benefits” of warehouse clubs? How about you?

Can you get cancer from tap water? New study says even ‘safe’ drinking water poses risk (USA TODAY). Oh, man. There goes one frugal solution down the drain.

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Success Goes to the Steady, Not the Speedy Tue, 10 Sep 2019 13:30:19 +0000

We’re all drawn to stories of people who achieve “overnight success.” They make for great headlines and sell a lot of magazines and books. Problem is, they’re a myth.

In the business classic, “Good to Great,” author Jim Collins explored the reasons why some companies break away from their pack of competitors and achieve remarkable, sustained success. While there was usually a point in time when they did, in fact, break away, it was not at all about some new idea that suddenly rocketed them to the top. It was the result of steadily doing the right things over a long period of time.

Steady plodding brings prosperity; hasty speculation brings poverty. – Proverbs 21:5

Collins calls it, “turning the flywheel,” and there’s an important lesson here for all who want to achieve uncommon financial success.

Steady Progress in the Right Direction

A flywheel is a heavy disk that helps to maintain a constant speed of rotation in a machine or to store energy. Collins describes it as “a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds.”

Imagine trying to get it to turn.

It takes every bit of muscle you can muster. You push and push. After several hours you get it to make one full rotation. You keep pushing. Eventually it moves a little faster — a little faster. Hours later you’re getting that crazy contraption to make two rotations per hour.

People laugh at you. They tell you to stop. They say whatever you’re striving for isn’t working.

But the flywheel represents the steps you’re taking in pursuit of your dream or a goal that matters to you. So you keep going, and finally it becomes easier. In fact, at some point you notice that the wheel is moving from its own momentum.

Collins found that in all of the companies he studied — the ones that achieved unusual success — this was their pattern. They found one thing that mattered to them, focused all of their energy on that one organizing idea (their “hedgehog concept”), and they just… kept… going.

In the early years, no one noticed. There were no media articles, no shareholder parties. Just a lot of steady plodding, until one day they realized it wasn’t taking so much effort. Sales went up, and kept going up. The distance between them and their competitors became greater and greater.

The media started calling. Headlines were written about the company’s “overnight success.” But there was nothing overnight about it. They had been pushing the flywheel — for a long time.

This is a perfect illustration of how things work with money.

The Financial Flywheel

Look at the chart below. It shows the result of someone — let’s call her Jean — steadily putting $100 into an investment that generated an average annual return of 7 percent. The red represents Jean’s money. The blue represents the money she earned.

During the first 10 years, it’s pretty much all red. After 20 years, it’s about even. It would be easy for doubt to creep in. Or fatigue.

But then there’s a breakthrough. After 30 years, earnings are now greater than principal. But look at 40 years, and 50. The earnings tower over the principal.

This is the financial flywheel in action. Lots of steady plodding. Compounding doing its thing. Eventually, momentum.

Beware the Doom Loop

Over the years, Jean stayed the course. She followed an unbiased investing process she understood and trusted. Along the way, cousins talked over Thanksgiving dinner about a stock that was destined to take off. Conversations were heard around the water cooler about a “can’t miss” real estate deal.

Collins has a term for such ideas: “The Doom Loop.” It’s the company that bets it all on a big win. Or the leaders who doubted their direction, so they changed course, and then changed again.

Jean listened politely to her cousins and those around the water cooler. And she kept investing her $100 each month — stayed with her strategy, her process — one turn of the flywheel at a time.

She did it during good times, and she did it during bad times.

Seems like I heard this lesson somewhere else. Something about the race not being to the swift.

There are many applications beyond investing. Getting out of debt. Saving for the down payment on a house. Living within your means. Having monthly conversations about money with your spouse.

Steady plodding. Little steps in the right direction for a long time. It isn’t glamorous, but it’s what it takes to achieve uncommon success.

Where do you see the flywheel in action in your finances?

Profitable Ideas: Millionaire Regrets, Avoiding a Guaranteed Way to Overspend, and More Fri, 09 Aug 2019 13:30:38 +0000

Weekly roundup of some of the best personal finance articles from around the web.

The five biggest millionaire regrets (ESI Money). When people look back on a long life or the accomplishment of a goal, their insights can help those who are still on the journey.

4 reasons parents don’t discuss money (and why they should) (NY Times). Families that had preserved their wealth past the third generation “talked early and often about it with their children.”

Doing this one thing almost guarantees you’ll spend more money than you want to (CNBC). Parents profit when screen time is reduced — their own screen time, that is.

Are you taking the false first step (Break the Twitch). You can’t buy the accomplishment of your goals.

Why you need a home fix-it fund (Clark Howard). I recommend allocating even more for home maintenance and repairs—at least $200 per month. 

Feeling the burn rate (The Simple Dollar). …and the importance of keeping your burn rate low.

Unexpected benefits of downsizing your home to save money (Educator FI). It’s a big, expensive, inconvenient step, but it sure can pay off.

Don’t assume the default 401(k) contribution is enough (Life Hacker). Automation can be helpful, but this article highlights one of its more important dangers.

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Profitable Ideas: Buying a Little More Happiness, You Might Be Owed Some Money, and More Fri, 26 Jul 2019 13:30:34 +0000

Weekly roundup of some of the best personal finance articles from around the web.

Even someone whose finances are a mess can teach you something valuable about money management (CBNB). People are opening up about their financial lives, and you can learn from them, even if they don’t have it all together.

Return on equity (ROE): Real estate’s secret formula for success (Wealthy Nickel). If you own rental property, or aspire to one day, this is a helpful look at how to run the numbers.

Is the U.S. on its way to becoming a cashless society? (Harvard Business Review). How often do you use cash?

These colleges give you the best bang for your buck (MarketWatch). For parents of academically talented students who are leaning toward a pricey private school, an honors college can make state schools more appealing. Am I the only one who hasn’t been familiar with this “school within a school” concept?

4 ways to use your money to buy a little more happiness (Money Ning). Good simple tips for getting more joy for your money.

Should I worry about Christmas in July? (She Picks Up Pennies). This is a great idea. In our household, we transfer one-twelfth of our annual Christmas gift budget into a dedicated savings account each month. It really does make for a better Christmas.

70% of rich families lose their wealth by the second generation (Money). This cautionary tale isn’t just for the super rich.

Equifax data breach settlement: How to file a claim for $125 or free credit reporting (USA Today). There’s an easy way to see if you were impacted, and if so, there’s an easy way to sign up for your $125.

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When Using a Target-Date Mutual Fund, Buyer Beware Tue, 16 Jul 2019 13:30:30 +0000

Investing is arguably the most complicated and intimidating aspect of managing money. That’s one reason why target-date mutual funds have become so popular. Such funds, offered by many mutual fund companies, handle some of the most important investment tasks for you. They are now the default choice in many workplace retirement plans.

But is using a target-date fund the best way for you to invest? And if you’re using a target-date fund, are you using the right one? Let’s take a closer look.

A simple way to invest

The appeal of target-date funds is easy to understand.

All you have to do is choose a fund that contains as part of its name the year closest to the year of your intended retirement date. If you’re 30 years old and plan to retire when you’re 70, you’d choose a 2060 fund (they’re usually offered in five-year increments).

The fund’s asset allocation—that is, its mix of stocks and bonds—is designed with that target retirement date in mind. A 2025 fund, for example, would be relatively conservatively invested since it’s designed for someone who intends to retire in the year 2025. By contrast, a 2060 fund would be more aggressive.

That’s a core principle of asset allocation. The more time you have until your intended retirement, the more risk you can afford to take in a quest for a better return. The less time you have, the less risk you can afford to take.

Another key benefit of target-date funds is that they automatically adjust their asset allocation over time, becoming more conservative as their target date draws closer.

All target-date funds are not created equal

A major watch-out with target-date funds is that different fund companies may use very different asset allocations for funds designed for the same target retirement date. The companies simply have different philosophies. One may believe that a person who plans to retire in five years should still have 70% of their portfolio in stocks. Another may believe such a person should have 50% in stocks. Of course, these different portfolio designs lead to different outcomes.

The table below shows how three leading mutual fund companies’ 2010 funds performed in 2008, a year when the market fell by nearly 40%. As you can see, all suffered significant losses even though they were designed for people right on the cusp of retirement.

2008 Performance

Stock Market


Fidelity 2010 Fund


Vanguard 2010 Fund


T. Rowe Price 2010 Fund


By contrast, let’s take a closer look at how target-date funds performed in 2013, an especially strong year in the market. For this comparison, let’s look at funds that should have a very aggressive asset allocation—those designed for people who plan to retire around the year 2055.

The table below shows the performance of the same companies’ 2055 funds. While all three had good years, they also significantly under-performed the market.

2013 Performance

Stock Market


Fidelity 2055 Fund


Vanguard 2055 Fund


T. Rowe Price 2055 Fund


So, keep in mind that target-date funds may not provide the protection you assume during bear markets, nor are they designed to outperform during bull markets.

Finding the ideal target-date fund for you

If you’re going to use a target-date fund, be sure to take the following steps.

First, figure out your optimal asset allocation by completing an asset allocation questionnaire.

Then, compare your optimal asset allocation with the allocation used by the target-date fund you are using or considering.

For example, here are the current allocations used by the same three companies in their 2025 funds (just search on the name of the fund company and the target retirement date — “Vanguard 2025 fund,” for example—and then click on a tab that says “composition” or “portfolio.”)




Fidelity 2025




Vanguard 2025




T. Rowe Price 2025




These three funds are fairly similar. Still, if you’re planning to retire in or around 2025, which one most closely matches your optimal asset allocation?

As another example, here are the current allocations used by the same companies for their 2060 funds.




Fidelity 2060




Vanguard 2060




T. Rowe Price 2060




If you’re planning to retire in or around 2060, which one most closely matches your optimal asset allocation?

Lastly, if there is a difference between your optimal asset allocation and the one used by the fund you are currently invested in, there are two options.

First, if you have access to funds from various mutual fund companies, see if one of those companies offers a fund with your target retirement date that uses an allocation that matches or is close to your optimal asset allocation.

Second, if you are limited to funds from one company, consider using a fund with a different target date than the one closest to your intended retirement date. That may help you find a fund that uses an allocation that more closely matches your optimal asset allocation.

The bottom line on target-date funds

Target-date funds provide the benefits of setting the asset allocation for you based on your intended retirement date and then automatically changing that allocation as you near that date. Keep in mind, though, that all target-date funds are not same, so it’s important to know your optimal asset allocation and match it to a target-date fund that’s designed similarly.

Also keep in mind that target-date funds may not provide the downside protection you assumed during bear markets and are not designed to capture all of the upside in bull markets.

Do you use a target-date fund? How careful have you been to choose a fund that most closely mirrors your optimal asset allocation?

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Profitable Ideas: How to Up Your Investment Game, Keeping the Financial Peace in Your Family, and More Fri, 12 Jul 2019 13:30:23 +0000

Weekly roundup of some of the best personal finance articles from around the web.

Why are we such poor investors (The Financial Bodyguard). How our brains, and our hearts, often lead us astray.

The thing that’s probably blowing a hole in your budget (A Wealth of Common Sense). It drives more of your financial life than you probably realize.

Your best tips for managing the family money (NY Times). I don’t agree with all of these ideas (and neither will you) but there are some good nuggets here.

The new Millennial obsession (Gartner L2). Oddly, pay-by-installment is the new credit card.

Why things break: Easy causes of business and investing failure (Collaborative Fund). Not a quick how-to article, but an interesting read, as is usually the case with Morgan Housel’s writing.

Here’s an example of the perfect résumé, according to Harvard career experts (CNBC). If you’re in the job market, here’s how to put your best foot forward.

Storm prep: How to keep your documents safe from a natural disaster (USA TODAY). This might be too late for the folks in New Orleans, but what if an especially bad storm hits your town?

5 tips on managing the ‘boomerang generation’ (NY Times). Lots of adult ‘kids’ are moving back home. Here’s how to keep the peace.

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Profitable Ideas: Seven Money Conflicts in Marriage, Popular Money Apps Put to the Test, and More Fri, 28 Jun 2019 13:30:19 +0000

Weekly roundup of some of the best personal finance articles from around the web.

7 common money conflicts in marriage and how to solve them (Kiplinger). What to watch out for and how to resolve these issues if they come up in your marriage.

Being satisfied with what we have (Seed Time). It’s counter-cultural and even counter-intuitive, but it does have the advantage of being biblical!

Benefits of assigning kids chores (Smart Parent Advice). Oftentimes, it seems easier to just do it yourself, but your kids will benefit (and so will you) if you get them more involved in helping out.

How I sold my car online for the most money possible (Bible Money Matters). Okay, you’ve done the right thing and kept your car for 15 years (right?). Here’s how to get top dollar when it’s time to part with your faithful ride.

How to make better (and quicker) decisions (Get Rich Slowly). Whether buying a car or a can of soup, there are endless choices. Here’s how to choose wisely.

Get happy (Humble Dollar). Time has a way of putting things in perspective.

One-third of workers are making a big mistake with their 401(k) (Money). Free is good, so why aren’t more people taking full advantage?

Mint vs. Personal Capital: Which money app is best? (Four Pillar Freedom). It turns out both are best, for different purposes.

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