In no particular order, here’s a few interesting things I read recently that I wanted to share:
5 money — and life — lessons learned from dads (Marketwatch’s Outside the Box, by Ben Luthi)
Because I am a father of two young girls, I am more observant to articles written that pertain to Father’s Day weekend than I ever was. The spirit of this referenced article is what did your dad teach you about finances growing up, and what can you teach your kids about finances now. I am sure we all have some type of money lesson that we picked up from dad, but here’s a memory that I remember. I used to get a weekly allowance, and I remember it being $1 a week. I was about 10 years old and I earned my $1 by doing things like helping clean up the table after dinner and taking out the trash. I was a pretty reliable young fella, and that earned me a quarter increase every year (better than inflation!). I recall getting $1.50 a week at age 12 and thinking I was rich! But unlike most kids who spent their allowance on candy and toys, I never wanted to spend my money. When an opportunity arose in the mall, I chose not to get anything. Rather than spend $.10 on a lollipop – nope – I wanted to build up my savings! At Christmas time one year, a group of us kids went around town singing carols at neighborhood houses. We went to get pizza afterwards and I chipped in $5 bucks for pizza/soda and remember feeling like I just lost a fortune. Man, I was tight…didn’t want to let go of the Benjamins! So, I have to credit my dad (a teacher raising our family of four) with teaching me to be frugal with my money. He also took me to invest the money once I saved up a couple grand…and that’s pretty much how I got into the business that I am in. Fast forward thirty years and I hope to teach my kids MANY lessons about money, including how to have balance, discipline, responsibility. And I hope all you dads out there do the same – the lessons can be priceless, and memorable!
Retirement Planning When There’s an Age Gap (Morningstar, by Christine Benz)
Statistics show that up to 20% of couples have an age gap of 10+ years, so there is a decent chance that you (or someone you know) might have some particular nuances when it comes to their financial planning. In some recent work I was doing, I had to provide some unique advice to a couple who happens to be 20 years apart in age. This article lists many of the topics, but the gist is that the younger person (the female in my case) will almost always have a longer life expectancy and will need money to last for a longer period of time. Certain strategies need to be evaluated when it comes to social security planning, health care, and RMDs from IRAs. This particular couple that I was working with also had to make a decision on his pension, whether to collect it based on his single life or their combined joint life. In some cases, the numbers may dictate taking a single-life pension and with the higher payments the older person would take out a life insurance policy on himself. Another interesting consideration will be “when” to retire, because as you can imagine the husband in this case will be retired at age 65 but she will be 45…so what if he wants to travel? Does she keep working until age 65 and when he is in his 80s? Lot to think about, consider, and prioritize. Let me know if you know someone who needs to talk through some of these issues together. At the very least, have them read up on the subject and become better informed.
Why TIPS are an oldie-but-goodie play on inflation (Financial Planning magazine, by Miriam Rozen)
I have been hearing about TIPS a lot lately, and it’s because interest rates have been creeping higher and the Fed is closely monitoring inflation. For those who don’t know, “TIPS” stands for “treasury inflation-protected securities”, and they are a specific type of bond. Since they are offered by the United States Treasury, they are presumed to be of high quality (i.e. the U.S. can’t default on their debt, can they?). These particular bonds have an inflation protection built in, so theoretically they could do pretty well in periods of high (or rising) inflation. In their 20 years of existence, where inflation was high, these bonds did tend to outperform. But – because they are safe(r) and have inflation protection (insurance) they tend to underperform other types of bonds over longer periods of time. One thing I caution investors is that even though we might be in a rising RATE environment, we might not be in a rising INFLATIONARY environment…so we cannot always assume they both move hand-in-hand. And inflation would need to move more than interest rates to have the greatest impact, so that’s not always a given either. The message I would relay to investors is this: inflation is nearly impossible to predict, so I wouldn’t buy TIPS for that purpose alone unless you have that magical crystal ball. However if you want to balance out your fixed income allocation, diversifying into TIPS may not be a bad thing especially if you like the idea of a hedge from any unexpected rise in inflation. But just like any other asset class, there are pros/cons and multiple considerations needed to asses if TIPS are right for your portfolio.
Enjoy the light reading!