From the category archives:
Austin Frakt at The Incidental Economist recently wrote an intriguing post using Charles B. Hatcher’s work to rationally set the size of an emergency fund.
The basic idea of the post is that the ratio of the annual opportunity cost of forgoing a higher investment return to the cost of [...]
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One question I’m asked regularly–presumably because of the high turnover in our economy–is whether it’s better to roll an old 401(k) account into an IRA or into the 401(k) plan at your new job.
Typically, the benefits packet you receive when you’re hired will encourage you to rollover your prior 401(k) into your new 401(k). The [...]
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Most of us have a huge portion of our assets invested via mutual funds, so it’s important to know how to choose them. Unfortunately, there’s a lot of misinformation out there. Keep the following facts in mind, and you should do just fine.
Past Performance
1. Past performance is not indicative of future results. The disclaimer you [...]
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A commonly-given piece of financial advice is to use a Roth IRA to save for your children’s college. For the most part, however, this isn’t a great idea.
Yes, it’s true that money inside a Roth IRA grows tax-deferred, and yes it’s true that money withdrawn from a Roth IRA will be free from the 10% [...]
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“What is the best mutual fund?”
To financial advisors and experienced investors, it’s a silly question. But it’s one that I’ve been asked–very much in earnest–by young people on several occasions. (Actually, it’s usually more along the lines of “So, like…what’s the best mutual fund?”)
For the sake of any investors asking Google that very question, I [...]
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People like to simplify. We like easy-to-follow guidelines and easy-to-implement instructions. That’s why rules of thumb are so popular. The two investing rules of thumb that I see quoted most frequently are to:
Set your bond allocation (as a percentage of your portfolio) equal to your age, and
Save and invest 10% of your income.
I really like [...]
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Often, after making a financial turnaround, people have one big question: Where should the extra money go? Should I pay down debt, or should I invest?
Mathematically, the analysis is simple: Put money toward whatever option will earn the greatest after-tax rate of return. Once you’ve exhausted that option, move on to the next best.
Of course, [...]
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We tag certain pools of money for certain purposes. We have emergency funds, opportunity funds, new car funds, etc.
Similarly, most of us tend to see retirement accounts and taxable accounts as separate entities. We think of retirement accounts as intended for long-term goals and taxable accounts as intended (at least partially) for short-term goals.
The natural [...]
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The topic of “emergency funds” is popular in the realm of personal finance. The general idea is that things come up (car repairs, medical bills, job losses, etc.), and you need some accessible funds (savings account or money market most likely) so that you’re prepared for such scenarios.
Typically, the discussion is focused on avoiding debt. [...]
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Readers often email me to ask what to do when you have asset that you’d like to sell, but which has a large unrealized capital gain. The two most common examples being:
Shares of a given stock which now make up far too high a percentage of their overall net worth, or
An actively managed mutual fund [...]
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People often ask me for advice about what to do with an investment that has performed poorly. Other times, people tell me that they’ve been convinced of the benefits of index funds, but they’re reluctant to sell their current holdings that have decreased in price because they don’t want to “sell low.”
My suggestion is usually [...]
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