Personal finance is more personal than it is finance. This is a message, grounded in science, that I’m privileged to share in various forms speaking for various audiences. Whether for an association of financial planners, a Fortune 500 company, an academic institution or a non-profit, my strategy is to ENGAGE, ENTERTAIN and EDUCATE your audience, giving attendees tangible takeaways to improve their lives and work.
Unless you made a resolution not to read, listen to or watch the news in 2016, you’ve likely noticed that “the market” is off to a stumbling start. Indeed, one glance at the headlines, at least the ones that don’t involve the presidential election, quickly reveals that the market is having one of its worst starts to any new year. This is a dubious distinction, to be sure.
The factors involved appear similar to those credited for causing the extreme volatility we saw in the fall of 2015—slower growth in China, falling oil prices, geopolitical instability and the threat of bankruptcies in junk bonds. But the optimist’s case seems equally compelling—high-quality bonds (the only kind I recommend) are performing very well, falling oil prices are good for consumers, the Fed’s interest rate rise signals a strengthening U.S. economy and the most recent jobs report was positive.
An objective view of the market reminds us that on every trading day in history, there have been compelling cases to be made for both optimism and pessimism—for purchases or sales. (Remember that every single security transaction involves a buyer and a seller, each of whom believes he or she is getting the better end of the deal.)
Ultimately, there is only one sufficient answer to the question, “Why is the market so volatile?” The market exhibits volatility because that is its nature.
Life insurance is one of the pillars of personal finance, deserving of consideration by every household. I’d even go so far as to say it’s vital for most. Yet, despite its nearly universal applicability, there remains a great deal of confusion, and even skepticism, regarding life insurance.
Perhaps this is due to life insurance’s complexity, the posture of those who sell it or merely our preference for avoiding the topic of our own demise. But armed with the proper information, you can simplify the decision-making process and arrive at the right choice for you and your family.
To help, here are 10 things you absolutely need to know about life insurance:
- If anyone relies on you financially, you need life insurance. It’s virtually obligatory if you are a spouse or the parent of dependent children. But you may also require life insurance if you are someone’s ex-spouse, life partner, a child of dependent parents, the sibling of a dependent adult, an employee, an employer or a business partner. If you are stably retired or financially independent, and no one would suffer financially if you were to be no more, then you don’t need life insurance. You may, however, consider using life insurance as a strategic financial tool.
I think we’ve been looking at Social Security retirement benefits all wrong. In the long-running debate about when to take Social Security — as early as age 62 or as late as age 70 — the focus has been on timing your claim to get the most money, in total, out of the social safety net.
This is a circular argument that will never be fully decided until the Social Security recipient in question dies. So let’s shift the focus from the question “How do we get the most out of Social Security?” to “How do we get Social Security when we need it most?”
Simply put, you’re more likely to run out of money at the end of retirement than at the beginning.
In my hometown of Baltimore, there’s an oft-heard saying that seems especially applicable when, like now, the seasons are changing: “If you don’t like the weather today, just wait until tomorrow.” For whatever meteorological reason, it’s not uncommon for an absolutely miserable Monday to turn into a gorgeous Tuesday. Temperatures have been known to swing as much as 20 degrees inside of an afternoon.
A scientific view of stock market history, unfortunately, shows us an even greater propensity for unpredictability and volatility.
Even the years that we refer to as the “good” ones, in retrospect, test our mettle. For example, between 1950 and 2014, a span of 65 years, the S&P 500 ended the year with a gain 51 times (or in almost 80% of them). Not bad. But in how many of those up years do you think investors would’ve found themselves in a “losing” position at some point in the year?
Every. Single. One.
Last week, the world of retirement planning experienced the financial equivalent of a deafening record scratch, courtesy of a Congressional move to end two well-used Social Security claiming strategies. In a matter of months, “File-and-Suspend” and “Restricted Application,” which were on the verge of retirement planning rock-star status, will only be referred to in the past tense.
“File-and-Suspend” and “Restricted Application” — let’s just call them “FASRA,” because it’s not like there aren’t already enough government-related acronyms — were, Congress argues, unintended consequences of the Senior Citizens Freedom to Work Act.
Then Richard Thaler and Cass Sunstein applied the lessons of behavioral economics to everyday life with their book Nudge. The duo nudged so successfully that in recent years, their prescriptions have been put to work in corporate retirement plans—and even public policy—on a global scale.
When I spoke to Thaler to discuss his newest book, Misbehaving, a series of stories documenting the rise of behavioral economics, he told me that he has a message for those who seek to employ his methods:
“Nudge, for good.”
And why does he say that?
“It was totally worth it.” In this case, “it” referred to a Vitamix blender that a friend recently had purchased. He wasn’t the first. Indeed, I don’t know anyone who has purchased a Vitamix blender and didn’t share my friend’s effusive sentiment, even after spending between $429 and $719 (for the new line of G-Series models). For a blender.
But despite my appreciation for these friends and their opinions, I can’t help but notice their errors in judgment, explained by behavioral science, that, if followed, could lead to an unwise purchase for you or me.
To be clear, it’s not their purchase of the blender that I’m questioning. Rather, it’s their insistence that said purchase is a universal must. Worth, you see, is relative. What is “worth it” for you may not be “worth it” for me. Ultimately, determining the worthiness of your next purchase depends on many factors, but chief among them are 1) the joy you receive from using the product, 2) your personal cash flow, 3) how much you will use the product, and 4) the cost of available alternatives.
Anthony Anderson is a funny dude. The Emmy-nominated actor has been making people laugh on television and in film for 20 years. But now he’s bringing his sense of humor to a surprisingly unfunny topic—the need for life insurance.
The big question I had for him was: Why? Why, with your career exploding and recent Emmy nomination (for lead actor in the show Black-ish), are you investing time and effort to be the spokesperson for Life Insurance Awareness Month?
“I know firsthand from friends and other family members who’ve never had a policy, who’ve never thought about having a policy. And then all of a sudden someone passes in their family and they don’t know what to do,” Anderson told me.
Fair enough. Many people aren’t even aware of the need for life insurance, and that lack of education is a big concern for Anderson, and a major driver of his dedication to public awareness. But as we continued our conversation, it shifted focus. What it seemed to begin revealing were some of the tragically comic, ridiculous reasons that many people choose not to buy life insurance. Here are the Top 5:
5) I’ve got more important things to insure.
“People insure their flat screen televisions, they insure their cars, they insure jewelry, but they don’t insure themselves,” says Anderson with a chuckle. He’s also evidently frustrated by this reality. “If it weren’t for themselves, they would have none of those things to insure.”
A friend of mine had a lifelong dream of opening up a coffee shop and was willing to put a highly successful career on the line to pursue it. Fortunately, he was presented with an amazing opportunity to test-drive his grass-is-greener ideal, and the results might surprise you and offer guidance that you can apply to your next big decision.
Dave had it all planned out, even down to the lighting and indie musicians that would be playing on Thursday nights in his vision of the perfect coffeehouse.
Then he got an opportunity that most of us don’t have before we make the plunge: He got to learn the ropes working at the best café in Chicago. He immersed himself in coffee culture for a week of training that was nothing short of blissful. Then, he got a chance to put it to work for another few weeks.
His findings? In an average eight-hour day, he got to interact with customers and craft their coffee concoctions for approximately 20 minutes. The remaining seven hours and 40 minutes were spent with dirty dishes. Lots of dirty dishes.