FINANCIaL
FIELd NOTES
Short-Term vs. Long-Term Market Forecasts
I don’t believe in trying to time the market because of the weighty evidence against it. However, I do regularly cite the institutional 10-year market outlooks. I don’t expect these outlooks to be perfect by any means.
Vanguard, one of the sources, often gives ranges of 4-5% per year even on their long-term outlooks. But there is data to support the accuracy of 10-year market outlooks when compared to shorter time frames…
How to Encourage Young Workers to Start Saving
Getting young savers to make the initial commitment to start saving can be difficult. Consider a recent college graduate making $50,000 per year. If they save the recommended 10-15% of their income, that may leave very little for fun spending. The likelihood of them continuing to save decreases if they can't enjoy much of their income, especially during the years with lower income.
If they do give up on savings early, it can be a tough habit to regain, even as their income increases over their career. Because of this, I think it's great to encourage young investors to get started, no matter how small the amount. The power of making a commitment and being able to stick to it is significant…
The Cost of Poorly Timing the Market
One of the most challenging aspects of long-term investing is that years of growth can be wiped out in days or weeks. While every stock market cycle is different, over the past 100 years, it generally has looked something like this -
Small incremental growth followed by a few small waves of panic resulting in declines of 5-10% each year, a few shocks of 20-30% every decade, and a complete meltdown every few decades. It can be tempting to try to avoid the big shocks or meltdowns because the reward for doing so is large. But what if you are wrong and what you think is a meltdown is only a shock, or what you think is a shock is only a small panic? What is the cost?
Go-Go vs. Slow-Go Spending in Retirement
Oftentimes as retirees head into retirement there is some uncertainty about what monthly expenses will be. Pre-retirees may assume their spending will drop, at least to some extent. That may be the case for the average US retiree because they don’t have the income to support their pre-retirement lifestyle. But a retiree who has saved a nice nest egg may want to spend in a similar fashion, if not more.
The data shows that most retirees with $1-$3M in a nest egg spend 100% of their pre-retirement spending until roughly age 75. It then begins to decline by 20-30% until age 85, at which point it may decline by an additional 10% but there may be increased healthcare costs to consider…
Why Average Life Expectancy Is Deceptive
There’s an old financial planning joke about asking a retiree when they would like for us to plan their funeral. It’s a bad joke but the reality is that when we are planning for a lifetime, we do have to make an educated guess on when that life might end.
I often get pushback when I suggest as late as 90 or 95. That pushback is fair given that the average life expectancy is about 77 – 15 to 20 years less than I would typically plan for. But average life expectancy can be deceiving. ..
Tax Reporting for Venmo and Other Transaction Services
Last year the IRS began announcing changes to the tax reporting requirements for transactions on services like Venmo, Paypal, CASH, and others. Their concern was that businesses were not reporting the income that they received on these services.
They were planning to reduce the tax reporting threshold for 2022 goods and services received from $20,000/year to $600/year, which would dramatically increase the number of people subject to the reporting requirements…