It's Not 529's (Or 401k's) Fault
Ever since I switched from reading Financial Times to Wall Street Journal (FT subscription ran out; no option to use airline miles), I started encountering more and more sob stories. If this continues, I'll be like Frank at Bad Money Advice.
On Tuesday I mentioned the story about laid-off employees burning through their severance and turning down job offers. On Wednesday I read this article about people stopping using 529 plans because of market losses:
Burning Through Severance, Turning Down Job Offers
While on the commute train this morning, I read this article on Wall Street Journal:
* Link goes to Google. WSJ will display full article if you come from a link through Google.
It tells us stories about how some people coped with unemployment while on severance pay. The subjects in the article spent just like before, burning through their severance. They also turned down job offers because they didn't like the job description.
How Much Should Unbiased Financial Advice Cost?
How many times have you heard "before you make any big money decisions, check with your own financial advisor"? NPR's Marketplace Money program says that all the time. It can't be taken at face value because it assumes that everyone has a financial advisor.
I've never had a financial advisor. I'm guessing the percentage of the population who have a financial advisor isn't that high. If they all say people should check with their financial advisor, why don't most people have one?
1. Too many sharks. For those who have a financial advisor, I'm guessing again that most are not working with a fee-only advisor who acts as a fiduciary and only gives advice in the best interest of the client.
Austin Frakt on NPR
Remember The Incidental Economist (TIE) who used to co-blog with me here? His real name is Austin Frakt. He's famous now. His blog posts, which I still help host under his own domain name, have been cited in Washington Post, Mother Jones, The Atlantic, and many other high profile places. He's been quoted in Business Week twice. He got a 15-second sound byte on NPR today.
Lesson from the Recession: Keep Your Job
In The Right Lessons and The Wrong Lessons, I said the right lessons from the recession and the bear market are "so simple they don't need any further explanation." A reader Mark suggested that I shouldn't be so dismissive.
"If you tell him/her it's so simple that he should be ashamed of himself for failing to grasp your full meaning, then your are negating that investors desire to learn – in effect saying 'do it because I said so.'"
After thinking about it for a little longer, I agree with Mark. So I decided to write down what exactly I learned personally from the recession. These will serve as notes to myself in the future. I apologize if the lessons look so obvious. I hope there is enough personal flavor to make them more interesting.
Financial Times Business Book of the Year 2009 Shortlists
Every year, Financial Times newspaper gives out a Business Book of the Year award. It's officially known as the Financial Times and Goldman Sachs Business Book of Year Award. Last year's winner was When Markets Collide by Mohamed El-Erian of PIMCO.
The shortlist of candidates for the 2009 award includes:
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Animal Spirits by George Akerlof and Robert Shiller, economics professors at Berkeley and Yale, about how human psychology affects macroeconomics. |
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Good Value by Stephen Green, CEO of HSBC, about money and morality. |
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Imagining India by Nandan Nilekani, co-chairman of InfoSys, a large IT outsourcing company in India, about India and globalization. |
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In Fed We Trust by David Wessel about the recent financial crisis. |
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Lords of Finance by Liaquat Ahamed, an investment manager, about the Great Depression. |
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The Match King by Frank Partnoy about a fraud in 1920s. |
Feel-Good Retirement Savings Initiatives
Over the Labor Day weekend, the Obama administration announced some new retirement savings initiatives that are supposed to help Americans save money for their retirement. Although they are all well intentioned, I doubt they will have a material impact on the overall picture of retirement savings in America. I call them feel-good measures because the new initiatives merely clarify existing laws and regulations. Let's look at them one by one.
1. Sample language for 401k plan auto-enrollment. The IRS gave employers some sample language for adding auto-enrollment to their 401k or SIMPLE IRA plans. The IRS also made it clear it's legal to automatically increase the employees' contribution percentages.
Half of the workforce does not have a retirement savings plan at work. Auto-enrollment can't help if you don't have a plan to begin with. For the other half, the employers will still have to take the trouble to add auto-enrollment. After that, auto-enrollment usually only covers new employees. Employers very rarely re-auto-enroll existing employees if they are not already enrolled. So we are only talking about a low single digit percent of the workforce here.
Stable Value Funds, Money Market Funds, and Saving Too Much
I read Stable value funds: they look good until you look closer from The Investment Fiduciary. Stable value funds look like money market funds, until there are systematic withdrawals. When that happens, the insurance company can make a negative "market value adjustment" to the fund. If you invest in a stable value fund, make sure you are not among the last ones out.
Speaking of money market funds, Marketplace Money Economic Editor Chris Farrell declared in Fall of the Money Market
Call Out Bad Money Advice
If you like this blog, you will probably also like Bad Money Advice. I recently came across it and I really like it.
At times I like to set the records straight on some popular myths in the media: missing the 10 best days in the stock market, 401k loan double taxation, Roth 401k, credit score, and so on. In addition to recommending good books, I also report bad books: Elliott Wave, Magic Formula, Rule #1, Strapped.
Sometimes I feel frustrated because there is so much bad advice out there. I'm also afraid calling out personal finance gurus, journalists, and other bloggers may make me appear smug, aloof, or mean-spirited.
Selection Bias, The Wanting Mind, Bank CDs, and Socially Responsible Investing
Here are some of the blog posts I enjoyed this week:
Profiles in Selection Bias at The Incidental Economist – Be careful when you read media reports about statistics drawn from different population.
TIE says the media love selection bias and don't know it. I say they don't care whether there is selection bias because they love the attention-grabbing headlines. Think about the audience. Who has time to really think about it?
Understanding and Conquering "the Wanting Mind" at AllFinancialMatters – How do you fight with getting drawn into the latest and greatest? JLP says "STOP LOOKING for a replacement of what you currently have!"
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