I kept changing my mind, because this refinancing was about so much more than whether to go with a 15- or a 30-year fixed rate. Now that the loan is about to close, I worry that I made the wrong decision.
As a baby boomer, all financial decisions suddenly spin around retirement. Many boomers now own their homes free and clear. I am not one of them, and it seems critical to get this refinancing right, since mortgage interest rates may not hit these historic lows again for a long time. For this reason, and because house prices have plummeted, the 15-30 dilemma may prove important for cash-strapped, first-time homebuyers too.
“I don’t think [rates] are going to race up in the next 6 months, or even year and a half, but things are definitely headed upwards,” predicted Susan Honig, owner of Veritana Financial Planning Inc. in Burbank, Calif. “And after that I think rates are going to fly.” …Learn More
Evidence, though scant, suggests that financial shortcomings may be related to birth order.
But there’s plenty of non-financial research indicating that the stereotypes linked to first-borns and “later-borns” are often on target. First children who are best-positioned to relate to their parents often become high achievers (Abraham Lincoln or Warren G. Harding), while their attention-seeking youngest siblings tend to be more creative, social, or funny (Jay Leno or Stephen Colbert, who is the youngest of 11 children).
To get at financial behaviors linked specifically to each ranking in the birth order, a 2011 study found that later-borns tend to be the big risk takers. And a February Bankrate.com article featured psychologists and financial advisers who said that they have observed clients’ money problems that they believe are linked to birth order. Below are excerpts from the Bankrate.com article:
Responsible first born: “More often than not, being a perfectionist leads to burnout and giving up or setting unrealistic financial goals,” says Derrick Kinney, an Ameriprise financial adviser at Derrick Kinney & Associates in Arlington, Texas. “That may sabotage your finances.” …Learn More
Odds, outliers, random – such terms are batted around like gnats among the economists and statisticians here at the Boston College research center that sponsors this blog. Recently, we tossed around some parallels between the art of NCAA Basketball Bracketology and picking stocks or actively managed mutual funds.
Here’s our Final Four:
A fresh printout of an unscrawled bracket is like a new pool of money to invest – it engenders the hope of winning big. The thrill can give way to defeat — very suddenly.
Admit it: Most people fill in their bracket winners without doing any research on the teams they’re selecting. (And who reads a prospectus?)
A team (or stock) on a winning streak is a prime candidate for losing – and it takes only one in the single-elimination championship.
Past performance is not a reliable predictor of playoff results. Remember the 2011 NCAA basketball champion? UConn lost last week. And I won’t even mention the Duke Blue Devils.
Send in your own ideas to Squared Away! To do so, click “Learn More.”Learn More
When an investor selects a mutual fund that’s hot, it usually backfires.
Morningstar Inc. generated the evidence for Squared Away: it essentially analyzed returns for two types of investors in the nation’s 25 largest fund companies – from PIMCO, Fidelity Investments and Vanguard Group on down. Using fund flow and performance data, it compared returns to a theoretical investor who stayed put for an entire decade to the returns that investors in funds actually experienced, given that they move into and out of funds.
Investors earned 3.8 percent per year, on average, over the decade ending Dec. 31, 2011, the Chicago fund tracker said. If they had stayed put, they would’ve earned 5.3 percent. The results were not equal, because some of us make brilliant moves but more of us make dumb moves, such as buying high and selling low.
The gap – 1.5 percentage points – “is bigger than [fund] expense ratios,” said Don Phillips, Morningstar president of fund research. Investors “really hurt themselves that much.”
To be fair to 401(k) investors, their inertia is great. Those who select funds from employer-run plans typically buy and hold. But more money – about $1 trillion more – sits in Individual Retirement Accounts, where investors are more likely to trade on their own or to have brokers or advisers recommending new funds, whether motivated by their own commissions or their clients’ goals.
To try to improve returns, Phillips listed three types of funds investors should avoid: …Learn More
Tried-and-true financial frauds – Ponzi schemes, high-yield investments, and “pump and dump” stock scams – have victimized unsuspecting targets for decades, even centuries.
These well-known frauds are effective, because con men change their disguises so they won’t be recognized. Six common disguises are detailed in a report I wrote for the Financial Security Project at Boston College’s Center for Retirement Research, which hosts this blog.
Squared Away readers responded strongly to a recent post, “For Elderly, Little Left as Life Ends.” New research showed that half of the elderly living alone and one-third of couples have less than $10,000 left in savings in the years before they leave this world.
A comment that came in from Susan Weiner, a Boston-area chartered financial analyst, said, “This study is disturbing no matter how you read it.”
John Graves added a skeptical note: “As always, it all depends on how you read the statistics. I read this as, ‘nearly 50 percent had more than $50,000 in assets when they died.’ ”
Do you read the glass as half empty or half full? What are the difficulties of making your savings last through all the phases of retirement? To read more comments, click here. Better yet, keep the conversation going by commenting below or on our Facebook page!
In this video, a senior fellow at the Brookings Institution talks about his latest book and offers a clear-sighted explanation for complex macro-economic forces that shape all Americans’ saving habits and financial security.
Starting in the early 1980s, stock markets boomed and housing prices increased year after year, and Americans “thought they were getting rich,” explains economist Barry Bosworth. “So they thought, ‘Let’s spend a little bit of it.’ “
Billions of dollars of wealth vanished in the 2008 financial market collapse, marking what may be the end of a golden era of wealth formation and undermining plans laid by workers and retirees, he said. Bosworth’s book was released last month: “A Decline in Saving: A Threat to America’s Prosperity.”
Full disclosure: The book incorporates research funded by the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government.
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