Walk into your financial adviser’s or broker’s office, and the conversation inevitably leads to your portfolio’s “asset allocation” and “total return.”
Financial planners, the media, investors – we’ve been under Wall Street’s spell for three decades. But a small chorus of skeptics, bucking the orthodoxy, argues that brokers and planners don’t always match investments with an individual’s goals and needs. The human gets lost – in more ways than one.
“People are being guided by the asset management industry,” said Boston University finance professor Zvi Bodie, co-author, with consultant Rachelle Taqqu, of “Risk Less and Prosper: Your Guide to Safer Investing.”
The industry’s premise is that “you can’t afford not to take risk,” he said, referring to the tenet that more risk means a larger potential return. But what happens if you roll the dice and lose? “They never say that,” he said.
Keen to this critique, Barclays in London and a few other large investment houses have started pitching wealthy clients by focusing on their “unique” circumstances.Learn More
Collectibles purchased online range from Russel Wright dinnerware (shown here) to songs and video. Source: backhomeagainvintage.
Credit cards and malls are so yesterday.
Young adults move easily among an array of online payment and shopping options unimaginable a decade ago: PayPal, Groupon, telephone bill payment, smartphone apps that pay for store purchases, online retailers galore, automatic bank payments, and online gift cards.
Technology is moving fast: Amazon recently released an app called “Flow” that will recognize a product — from a book to a jar of Nutella — and then send the price, user reviews and a “Buy It Now” option to your smartphone.
It’s time to take stock of how easy it has become to overspend and how difficult saving is for young adults weaned on e-transactions.
“When it doesn’t feel like money, people don’t treat it like money,” said Priya Raghubir, a professor at the New York University Stern School of Business, neatly summing up her 2008 paper, “Monopoly Money: The Effect on Payment Coupling and Form on Spending Behavior.”
It’s extremely hard for young adults to change their behavior, “because they aren’t used to any other way of paying,” said Raghubir, 48, who remembers the old paper-transaction days when cash was king and checks were reserved for the big purchases…Learn More
It’s common knowledge that women save less in their retirement plans than men do. This is a major problem, because they live longer, are more likely to require nursing home care, and need more money.
To learn why women save less, Karen Holden and Sara Kock at the University of Wisconsin, Madison, recently conducted focus groups with state employees and analyzed data for the Wisconsin Deferred Compensation Program. Similar to a 401k, the program for Wisconsin government workers also allows tax-deductible, voluntary contributions, though there is no employer match. Squared Awayinterviewed Holden about their findings.
Q: Do women save less, because they earn less?
Holden: Average lower earnings are a factor but more surprising is that, at any specific salary level, women contribute a lower percentage of their earnings than do men. Women on average contribute 6.28 percent of gross pay, compared with 7.03 percent for men. While lower pay and age differences accounted for some of that, being a woman led to lower contribution rates. …Learn More
This blog’s mission is to explain financial behavior – why we do what we do. It is not to provide personal financial advice about what to do. The mere mention of a “Target Date Fund” was a conversation stopper for me.
No longer. The Center for Retirement Research, which sponsors Squared Away, explains them simply and clearly in a new booklet. The name is inscrutable but the concept isn’t. In fact, your employer’s target date fund, if it is well designed, should make investing easier, not more difficult.
Squared Away keeps hammering away at this point in various ways, because it seems so central to our financial well-being: we can’t fully relate to our future selves, which makes it difficult to save money.
This is the psychologist’s take on what mainstream economists would call “discounting” the future – that is, the future is less important than what’s going on today. Buying a new pair of shoes or an ice cream cone is a lot more fun than saving money for a future utility bill or a distant retirement date.
In this humorous Ted video, London Business School professor Dan Goldstein explains that all humans are engaged in an “unequal battle” between our present self (the consumer) and our distant self (the saver).
“The future self doesn’t even have a lawyer present,” he said. Goldstein entertains as he proposes ways to intervene in our inner battle.Learn More
New parents: you have been warned. Mainstream media have rolled out one horror story after another about college graduates and their parents burdened with $40,000, $50,000, even $100,000 in student loans.
Not everyone plans to pay for their children’s education. But those who do need to think early about saving, because college has become extremely expensive – tuition costs are rising much faster than inflation.
The good news is that figuring how much to save for college is not nearly as complex as planning for retirement. While retirement strategies fill hundreds of books and fuel vigorous academic debates, new parents can be reasonably certain about one major factor in calculating how much they’ll need: when the child will attend – age 18.
“There are a lot fewer moving parts” to calculating college costs, said New Orleans financial planner H. Jude Boudreaux, who has been thinking about this issue more since his daughter, Lucy, was born about 15 months ago. …Learn More