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A woman who interviewed for a job I’m trying to fill, asked me about the cost of living in Connecticut, where I live. I said it was really high. She asked if that made it a bad place to live. I told her it was a good place to live while you’re working, with high salaries and good benefits, but a lousy place to retire. I cited examples of people who had worked in CT, saved for retirement, and retired somewhere with a lower cost of living, like a southern state. 

I first became aware of differences in cost of living and salaries decades ago while I was living in Arkansas, but being paid by a company headquartered in the northeast. I was able to live better than a lot of Arkansans and save aggressively for retirement because my salary was relatively high compared to the cost of living.  

I know of American expats, who live abroad in countries where the cost of living is lower than in the US. They can save much of their salary and some can afford servants. Nice! 

I have friends who quit their Connecticut jobs and moved to South Carolina before they were ready to retire. They would have been better off waiting till retirement age. They are struggling to find and keep jobs with good benefits, and to save for retirement. 

So, if you have a choice, work where you can make the most money and retire where it’s cheap to live. Life is hard. Don’t make it harder. 

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It is very tempting to stop investing (e.g., buying new stocks and bonds) when you are afraid, when the news is terrible, or when your portfolio drops in value. It is tempting to sell your investments and stop buying new ones, when you think the president or congress are crazy, or horrible natural disasters seem rampant, or stocks and bonds seem way too expensive, or experts are recommending that you sell. But the only good reason to sell your investments is if you need the money, say if you are retiring soon or buying a house. But even then, you are unwise to sell all of your investments because, if you live for decades after you retire, the returns on cash don’t keep up with inflation, leaving you poorer over time.

At various times during my investing life, I have thought that selling many or all of my investments was wise. In almost all cases, I resisted the urge. In hindsight, it was never wise to sell everything. Even if I concluded that it was necessary to sell, how could I be sure it was the best time to sell? And how could I know that I wouldn’t regret selling? And how would I figure out the best time to get back in the market?

Most of us are terrible market-timers, unable to pick the best time to buy and sell. So, unless you are the next Warren Buffet, you will make far more costly mistakes than good decisions, if you try to decide the best times to buy and sell.

What is the answer? Start investing at the earliest age possible, invest as much as you possibly can regularly, and just keep doing it until you retire.

Letting your emotions drive your investing decisions is a recipe for disaster. If you set up an investing plan that enables you to invest as much as you can regularly, paycheck after paycheck, you will easily outperform most investors.

But, what If you can’t sleep at night? Spread your money around to different investments and ignore the news, experts, and your portfolio. Don’t buy the hottest stock; invest in mutual funds and exchange traded funds, which automatically spread your money around, reducing risk a lot.

Good luck!

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OLD-TIMERS MAY NOT BE BETTER INVESTORS THAN YOUNGER PEOPLE

Unfortunately, the wisdom we keep accumulating, during our lives, does not necessarily make us better investors. A recent study (Li, Liu, and Wu, 2024) found that middle-aged investors earned the best investment returns, while older investors earned lower returns. It appears that, after peaking at middle-age, our investing prowess may slip and slide as we age.

WHAT HURTS OLDER INVESTORS’ INVESTMENT PERFORMANCE?

Most likely cognitive decline is at work. Also, decades of experience may lead to overconfidence. Plus, mental shortcuts may lead to mistakes as older investors make faulty assumptions and trust their instincts and habits instead of facts.

AS YOU AGE, HOW CAN YOU LIMIT THE RISKS TO YOUR PORTFOLIO?

Take steps to maintain good health and slow cognitive decline. Keep learning all you can about money and investing. Learn about the risks of cognitive decline and mental shortcuts and how to limit the damage they may cause. Finally, get professional help, especially if your performance is sub-par.

Source: “Older investors at a loss: Cognitive aging and funds returns,” by Zhongtai Li, Jia Liu, and Yanran Wu; SSRN, November 12, 2024.

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The 1990s were an exciting time to invest. I bought and sold stocks frequently, checked my portfolio often, and was obsessed with the stock market and journalists who spewed forth endless analyses, predictions, and recommendations. However, I would have been better off dollar-cost averaging into mutual funds and buying and holding, not trading. 

I get better results now and it takes almost no time to maintain my investment portfolio even though it is much larger than 30 years ago. I learned that, regarding investing, less is more; the less I do, the better my results, as long as I dump a big chunk of every paycheck into index mutual funds. 

I learned the hard way that the more I traded, the poorer my investing returns were. Why? Because the more frequently I checked the markets or my portfolio, the more likely I was to trade, often making mistakes. I often sold a great company’s stock (taking profits) and then bought a lousy company’s stock. Investing mistakes can be costly and they pile up, costing you more and more.  

Warren Buffett, a highly successful investor, buys and sells infrequently. He may go months or years without making a trade. When he buys a company’s stock, he tends to hold it for years or even decades.  

So, the best approach for most of us is not to trade frequently, but to buy and hold forever (or until we need the money). Since we are highly unlikely to pick stocks as well as Buffett, the best approach is not to buy individual stocks, but to buy index mutual funds or exchange-traded funds regularly. Buy them like clockwork, every week or two weeks, or every paycheck and then just hold on to them. 

If you find investing thrilling, check your results, and consider another approach. A boring approach like dollar-cost averaging will likely yield much better results. 

Do you find investing boring or thrilling? How regularly do you save and invest? 

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Sometimes financial headlines are horrific. Perhaps the stock market is tumbling and every expert seems to predict that things will only get worse. But when everyone seems to have lost hope, we may have reached maximum pessimism. That’s when everything seems so bad that it can’t get any worse. Fortunately, when everything seems terrible and everyone is in the depths of despair, better times may be ahead.

When the stock market gyrates violently, headlines may proclaim how terrible things are and prescribe what you should do about it. But no one knows for sure what’s going to happen next and it’s hard to know whose advice can be trusted. Journalists crave eyeballs; that’s why they sensationalize. Don’t trust them with your future.

So, what must you do if the news is awful or full of predictions for a stock market crash or recovery? Nothing. On any given day experts are likely to predict a crash, a recovery, or both. But they are wrong much of the time and, even if they are right, following their advice may mess up your plans and steer you off course.

So, what should you do? Nothing. If you have a retirement savings/investment plan in place, stick with it. Don’t let headlines or others’ opinions throw a wrench in your plans; stay the course. If you feel like you just have to act, then increase the amount you save per paycheck, especially if you’re really afraid. That takes guts, but it makes great sense because you will buy stocks on sale since their prices have been beaten down. And the more terrified you are, the lower the sale prices are likely to be. That will pay off big when the market rebounds and the stocks you bought on sale bounce back.

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According to a Brookings Institution analysis, it costs $310,605 to raise a child to the age of 18. If the child has a disease, it will likely cost much more. And at 18, the college years often begin, and they can cost a fortune.

Children are not just expensive; they come with risks. For most parents, children will almost certainly affect how, when, and if they retire.

Clearly, most of us won’t stop having children. But consider the costs, risks, and consequences. Then plan and save.

Start a family if you wish, but look ahead and prepare. Start saving for college (and retirement) before your children are born. Otherwise, they’ll soon be ready for college, but you won’t be.

Do you have children? If so, do you regret that you didn’t save more or start saving earlier?

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I got a mailing from a realtor informing me that: there are relatively few homes for sale, home prices are at record highs, and buyers are waiting to pounce. Is this hyperbole? No. This is an accurate depiction of the real estate market. Sellers are in command and many buyers, facing challenging conditions, are desperate. Not only are houses in short supply, mortgage rates are much higher than they have been in years. Plus, buyers face competition from investors who can often make more attractive offers. 

I remember well trying to buy a house in a sellers’ market. It’s easy to panic as you submit one failed bid after another. It can lead you to spend too much. And it could result in a winner’s curse; making the winning bid, but later regretting it. After we bought, my wife complained for many years that we had overpaid. Finally, after nearly 15 years, Zillow said our house was worth what we paid for it. 

If you are in the market for a house, expect to be frustrated. Set a limit on how much you’ll pay and stick to it. It could help you avoid years of regret. 

Are you house-hunting? Are you frustrated? 

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Planning for retirement is a crucial aspect of financial management that requires careful consideration and preparation. Here’s a general outline of steps you can take to plan for your retirement:

Set Retirement Goals: Determine what you want your retirement to look like. Consider factors such as lifestyle, travel plans, healthcare needs, and any other expenses you anticipate.

Assess Current Finances: Take stock of your current financial situation, including savings, investments, assets, and liabilities.

Calculate Retirement Expenses: Estimate your retirement expenses, including living costs, healthcare, travel, hobbies, and any other anticipated expenses.

Determine Retirement Income Sources: Identify potential sources of retirement income, such as Social Security benefits, pensions, savings, investments, and any other sources.

Develop a Retirement Savings Plan: Based on your retirement goals and income needs, create a savings plan that outlines how much you need to save each month/year to reach your retirement goals.

Maximize Retirement Accounts: Take advantage of retirement savings accounts such as 401(k)s, IRAs, Roth IRAs, or other employer-sponsored retirement plans. Contribute as much as you can afford, especially if your employer offers matching contributions.

Invest Wisely: Choose appropriate investment vehicles based on your risk tolerance, time horizon, and retirement goals. Diversify your investments to spread risk and optimize returns.

Manage Debt: Pay down high-interest debt before retirement to reduce financial burdens during your retirement years.

Plan for Healthcare Costs: Understand healthcare expenses in retirement and explore options such as Medicare, supplemental insurance, or health savings accounts (HSAs) to cover medical expenses.

Consider Long-Term Care: Evaluate the need for long-term care insurance to protect against potential high costs associated with assisted living or nursing care.

Review and Adjust Regularly: Regularly review your retirement plan to track progress, adjust goals, and make any necessary changes based on life events or economic conditions.

Seek Professional Advice: Consider consulting with a financial advisor or retirement planner to help you develop and implement a comprehensive retirement plan tailored to your individual needs and circumstances.

Remember, the key to successful retirement planning is to start early, stay disciplined, and regularly review and adjust your plan as needed. By taking proactive steps now, you can work towards achieving a financially secure and fulfilling retirement.

Source: Chatgpt

Have you begun planning for retirement?

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Small-cap stocks (shares of small companies) went on a tear at the end of 2023. Although the Russell 2000, a small-cap index, showed few signs of life earlier in 2023, it gained 44.65% in December, 2023, according to Microsoft Bing. Large-caps have outperformed small-caps for years, especially large-cap tech stocks.

Thanks to what’s known as the “January effect”, small-cap stocks tend to perform well in January, with the Russell 2000 averaging a 1.4% gain in January since 1979, according to Nasdaq.com. On top of that, small-cap stocks have historically outperformed large-cap stocks over the long term, according to the American Association of Individual Investors. In recent years, though, as Andy Hyer, of Nasdaq Dorsey Wright, points out, small-caps have underperformed.

In 2023 the S&P 500 gained 24% while the Russell 2000 gained 15.1%. according to Investopedia.com. Through February 12th, 2024, the Russell 2000 has gained 2.53%. year to date (YTD), according to the Wall Street Journal. No one knows for sure if small-caps will perform well or poorly either now or in the future. That means it’s wise to diversify, as always. You may well get burned if you just buy the hottest stocks. They often go cold as soon as you buy them.

Should you invest in small-caps or avoid them? Given their underperformance in recent years, it might seem wise to buy only large-caps, or perhaps only large-cap tech stocks like Nvidia and Microsoft. But it is very difficult to predict which companies will perform best in the future. So, diversify; buy them all, big, small, and medium-sized, from different industries, as well as tech stocks and non-tech stocks. In other words, buy indexes, like the S&P 500 and the Russell 2000. Peter Lynch, one of the most successful investors of all time, is said to have never met a stock he didn’t like. Now that’s diversification.

Do you own stocks of all shapes and sizes? Do you think your portfolio is sufficiently diversified?

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The stock market is having a good 2024, setting record highs, thanks, in part, to an economy that just keeps humming along. You might feel like a genius, smart enough to invest in the stock market at a good time.

But what should you do now? The stock market has had a nice run, so is it best to keep riding the wave or to sell before the economy turns sour and the stock market crashes?

It’s a common (and often very costly) mistake to try to time the market; trying to get into the market when it is likely to rise and to get out when it is likely to fall. The problem is that even the experts find it almost impossible to time the market. What makes you think you can do it? And what if you are wrong; what if you get in and out at the wrong times? And what if you get out and then are too fearful to get back, maybe for years? These are ways to severely damage your investment returns.

So, what should you do? Invest as much as you can in the stock market each paycheck. Then just keep investing and never stop. Now, that is a great way to accumulate wealth.

So, don’t sabotage yourself. Save and invest regularly and just keep doing it. Don’t stop and start. Don’t think you can outsmart the market or other investors. Don’t pull your money out of the market when things look grim. Just keep saving and investing like clockwork. The easiest thing to do is also the smartest.

Are you sticking to a proven method, as you save and invest?

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