Investing

Most of the web pages in this section are referenced in my book about investing which is entitled How to Get Rich Surely* But Slowly (*Probably). You can read the first chapter of the book here or you can purchase it at Amazon.

Chapter 1 Who Wants To Be A Millionaire?

A Harvard economics professor explains in this article why he believes investing is too complicated. I do not believe that investing needs to be complicated, and my class and book provide you with a reasonably simple approach. The Harvard professor complains about performance chasing. You can learn about the negative consequences of performance chasing.

You can use this longevity calculator to calculate your life expectancy. Knowing your life expectancy is useful when you approach retirement, and want to determine whether you have enough money to last you for the remainder of your life.

If the rise in inflation concerns you this web site can be helpful.

This website offers guidance on how much income a child must earn before he has to file a tax return.

Chapter 2 Stocks

You can call any of the following brokers on the phone to buy or sell stock, but it will cost you more to do so over the phone than online where the cost is zero. As long as you trade online you can purchase any number of shares of a stock for free from the following brokers: Firstrade, Vanguard, Schwab, Scottrade and Fidelity. Robinhood started the process of selling stocks without a commission in 2015. They were investigated by the SEC for other matters in 2020 and fined $65 million.

When buying or selling stocks there are several types of orders including market, limit, stop, stop loss and stop limit. They are described here.

Over the long run, stock returns generally correlate with stock earnings. This chart shows the close relationship between the S+P 500 total stock return and earnings per share.

Many theories are offered to predict whether a stock is headed higher or lower. Most of these theories use backtesting to "prove" the theory works. While backtesting can be useful, backtesting also shows that the Superbowl winner will forecast stock market performance. This article offers a good overview of backtesting.

This web site gives you 317 data points about every stock in the U.S. and the world. They offer you a 7 day free trial, or if you don't sign up for that, you can see a much smaller set of data.

This short game is based on actual stock market prices. By playing the game, you are able to see whether you can successfully time the market.

This table lists which preferred stocks qualify for the 15% or 20% tax rate on dividends. While preferred stocks can pay you a handsome dividend, they have several disadvantages compared to bonds.

Chapter 3 Bonds

In my book I explain how to choose among corporate bonds (which are fully taxable), Maryland municipal bonds (which escape federal and state tax if you are a Md resident), or U.S. government bonds (which escape state tax). Part of this decision is based on your marginal tax bracket for state and federal taxes, which you can find here. (Look for "marginal tax rate calculator" part way down the page) There are many tax phaseouts or phaseins which can make calculating your marginal tax rate complicated. You can use this website to compare the after tax yield of a corporate, federal government or municipal bond, in order to determine which one is right for you. That same website can help you choose which type of money market account is right for you: corporate, federal government, or municipal. This page will also help you choose among the various types of bonds.

If you are planning to purchase individual municipal bonds be cautious. Under certain circumstances a portion of the return you receive may be taxable.

If you determine that government bonds are appropriate for your portfolio, visit this U.S. government website, where you can buy EE and I savings bonds, TIPS, Treasury bills, Treasury notes and Treasury bonds without paying any commission. Additional information is available about TIPS bonds here, here, here, here and here. This article and this one compare the two types of bonds that protect you from inflation, I Bonds and TIPS. This article looks at the long term prognosis for I bonds.

Although many people believe the U.S. Government has never defaulted on its bonds, in 4 obscure cases it has defaulted.

Chapter 4 Cash Equivalents

BestCashCow or DepositAccounts can provide you with the banks paying the highest interest rate on money market accounts, CDs, checking accounts and savings accounts.

There are several online savings accounts that enable you to earn interest on money that would otherwise be in a checking account earning little or no interest. All of these online savings accounts are insured by the FDIC. Synchrony Bank, Marcus, American Express, Ally Bank and Barclay Bank.

In July 2014, the SEC voted to impose additional restrictions on money market funds to make them more secure.

If you are investing more than $250,000 in a money market account or a certificate of deposit, you should investigate an IntraFi Network Deposit for CDs or IntraFI Network Deposit for money markets.

Chapter 5 REITs

REITs are a good investment because they provide diversification. However, you should avoid purchasing Nontraded REITs. You can read more about them here.

Chapter 6 Investments Not Recommended

Immediate annuities can be good investments, but there are a large number of annuities that are terrible investments. Unfortunately, distinguishing one annuity from another can be complicated, because the companies that sell annuities use many different names for the same product.

Gold has generally not been a good investment since it became legal to buy gold in the U.S. in 1975, although there have been periods of time when gold has shot up in value. This article provides a lot of very useful information about commodities.

Chapter 7 Mutual Funds

In addition to the annual expense ratio, you pay a lot of additional fees to your mutual fund company each year. These fees are not included in the expense ratio, and it is exceedingly hard to find out how much you actually are paying, because all mutual funds bury these charges.

If you are about to purchase a mutual fund, be sure to find out how much it will cost you on an annual basis. All mutual funds charge investors an annual fee. This fee, known as the expense ratio, is stated as a percentage. Most funds charge between .1% and 3% of the amount you have invested with the fund. While 1% or 2% or 3% doesn't sound like much, it can add up to thousands of dollars over a period of several years. The FINRA website will allow you to determine how much the fund's expense ratio will cost you each year in dollars.

My favorite mutual fund company is Vanguard. They consistently charge less for their investments than any other mutual fund company. See this article, which explains many of the advantages that Vanguard offers investors. Also see this article. Another Vanguard advantage is their patented way they reduce capital gains taxes in 14 of its mutual funds. The method Vanguard uses to reduce capital gains taxes is described in this article. To demonstrate the tax savings, the article compares 3 Vanguard index funds with 6 similar index funds from other companies. The difference in capital gains tax is dramatic.

In August 2018, Fidelity dramatically lowered the expense ratios it charges on 21 index mutual funds, and created 4 new funds with an expense ratio of zero. In addition, Fidelity reduced the minimum investment for most of their mutual funds to zero. These developments were excellent news for investors.

Chapter 8 Index Funds

Most index mutual funds and ETFs are weighted by market cap. These mutual funds and ETFs have low turnover, and therefore will generally be tax efficient, and cost you little in taxes. However, a few index mutual funds and ETFs use alternative methods to weight how much they buy of each stock and/or bond. These mutual funds and ETFs use what is known as fundamental weighting. They do not inherently have low turnover, and therefore they do not inherently cost you little in taxes. You can learn more about this subject.

If you are thinking about purchasing an actively managed fund, you may wish to visit this web site. You can see data about the active funds offered by 15 different mutual fund companies Performance, Expense ratios and turnover data are shown for many of the active funds that these 15 companies offer.

Some have argued that indexing is becoming too big, and that as a result there will not be enough active mutual funds to keep the stock market efficient. This article disputes that argument.

Chapter 9 Morningstar

Morningstar is the single best website for locating information about mutual funds in particular and investing in general. On the Morningstar home page, enter the the trading symbol of your mutual fund, and you can instantly see its Morningstar star rating, which tells you how well the fund has performed (excluding tax costs) since it was created. After considering both risk and return, one star goes to the worst performing funds, and 5 stars is awarded to the best performing funds. If you are searching for good mutual funds to own, you can find some options by using this basic mutual fund screener from Morningstar. They also offer a premium mutual fund screener, which is available to their premium (paid) subscribers. However, if you have a Montgomery County Library card, you can use the premium screener for free. A DC Public library card will also allow you to use Morningstar for free.

I strongly recommend index funds. However, if you want to purchase a managed fund, a good place to start looking is with a list compiled called Morningstar Medalists. These are Morningstar's favorite funds out of more than 26,000. You can find the list called "Fund Favorites" by using the Montgomery County Public Library site, and then click on "Funds" at the top of the page. Scroll down a bit, and on the right side of the page, find the heading that says "Morningstar Medalists." Morningstar divides their Medalist funds into multiple categories, e.g. large cap growth, mid cap growth, long term bonds, etc. At the top of the Medalist list, on the right side there is an icon that looks like a partial circle with an arrow on the end of it. Click this icon repeatedly to see various Morningstar categories, and pick the category in which you are most interested. Alternatively, use the DC Public library Morningstar page and follow the same directions I gave for the Montgomery County Public Library.

There are two other excellent investing websites: Yahoo and MSN. The latter is particularly good for researching stocks.

Chapter 10 ETFs

Another excellent type of investment is an Exchange Traded Fund (ETF). They are similar to index mutual funds. Here's an excellent article that compares index mutual funds with ETFs. If you are holding your ETF in a taxable account, they will generally cost you less in taxes than a comparable mutual fund. While ETFs are generally very good investments, certain ETFs that are organized as partnerships, trust, or corporations can have significant and costly tax implications for you. This is a complicated subject. For more information see this site and this one and finally this one. Exchange Traded Notes can be taxed very differently than Exchange Traded Funds. This article explains some of the potential dangers of purchasing Exchange Traded Notes (ETN) and Structured Notes.

Chapter 11 Goal of Investing: Highest Return With Least Risk

There are a number of choices you must consider when investing. Some of them are how much risk are you willing to take vs the return you will earn, how much should you spend vs how much should you save, should you purchase a new investment or should you pay off some debt, etc. This article discusses the pros and cons of 18 tradeoffs including those just mentioned.

Chapter 12 Diversification and Correlation

A diversified portfolio enables you to increase the expected return and decrease your risk. In order to build a diversified portfolio, you must find investments whose returns don't correlate with the returns of your portfolio. You can view correlations between two or more stocks, ETFs or mutual funds. This website will provide you with a list of correlations among major types of investments.

Chapter 13 Building A Diversified Portfolio

The American Association of Individual Investors has been surveying their readers for 30+ years to determine whether they are bullish or bearish at the moment. When investors are most bullish the stock market does its worst. When investors are most bearish, the stock market does its best.

If you are considering purchasing an international stock fund/ETF or an international bond fund/ETF, you also need to decide whether to hedge or not to hedge against currency changes. This article offers some guidance.

Chapter 14 Taxes

Taxes are a very complicated subject. One of the decisions you must make is what type of investments belong in taxable accounts and what type belong in retirement accounts that are protected from taxation as long as your investment remains in the retirement account. Morningstar has an excellent article that can help you with this decision.

You can find many tax tips covering a variety of subjects at this Morningstar site. You can learn more about the Morningstar mutual fund tax data.

Some mutual funds are inherently tax efficient, while others are inherently tax inefficient. This article can provide you with recommendations on which investments should not be held in taxable accounts. This article provides you with the names of mutual funds and ETFs that are particularly tax efficient.

If you are thinking about selling an investment that has capital gains, this calculator can provide an estimate of what your capital gains will be when you sell the investment. The calculator includes federal and state taxes. If you live in Washington DC, enter "District of Columbia County" in the Location field.

If you are a Maryland resident who is age 65+, you and your spouse may qualify for the Md Pension exclusion that allows you to deduct up to $31,100 (in 2020) from pension income or when you withdraw money from a 401k, 403b, or 457b. The exclusion does not apply to withdrawals from IRA, Roth IRA, SEP or Keogh accounts.

A Qualified Charitable Distribution (QCD) can save you a substantial amount in taxes. The rules governing QCDs can be complex, and are described here. You can learn more about QCDs.

If you're looking for a good Health Savings Account (HSA) to invest in, this web site offers reviews of a large number of options.

The taxation on international investments including stocks, mutual funds, and ETFs can be rather complicated.

Chapter 15 Asset Allocation

When you build a diversified portfolio, you must allocate your investments among the many alternatives that are available to you. This should be done based on your age, when you need to withdraw your money, and your willingness to take financial risks. This web site offers 3 different asset allocation recommendations depending on when you plan to retire and whether you are conservative, moderate or aggressive investor. After you have determined your asset allocation, you can use this website to estimate the expected return from your portfolio over time.

Chapter 16 Retirement Issues Before Retirement

As you approach retirement you'll want to know whether your nest egg will last you throughout retirement. One of the first questions you need to answer is how long your retirement will last, i.e. how long will you live. This tool can estimate an answer to that question for you and/or your spouse.

As you save for retirement, you will want to know whether you are saving enough each year. There are four web sites that can help you with this analysis. Each of them makes different assumptions, and therefore each of them will give you a different answer. I suggest you to try more than one of them. They are offered by Fidelity, Vanguard 1, Vanguard 2, and AARP.

There are 3 types of IRAs to which you may contribute: Deductible IRAs, Non-deductible IRAs and Roth IRAs. Which type you can contribute to is determined by a series of very complicated rules. However, you can instantly see how much you are allowed to contribute to each type of IRA by using this website. Click on the Eligibility tab near the top of the page. Alternatively choose this site. Once you know how much you may contribute, the next question becomes, "which type of IRA is the most beneficial to you?" This will vary from person to person, depending on a series of facts. This website provides guidelines that can help you choose between a Roth and a regular IRA. The first website that I listed in this paragraph can help you with this decision as well. Scroll down a bit on the website's screen, you'll see 3 tabs labeled "IRA Comparison, Roth Conversion and Eligibility." Click on the "IRA Comparison" tab to learn which type of IRA is best for you. To find out whether it makes sense to convert your traditional IRA to a Roth IRA, use the "Roth Conversion" tab. This site can give you general guidelines that can help you decide whether to convert your IRA to a Roth IRA.

Another type of retirement plan is a Roth 401k. If you are trying to decide whether it is better to contribute to a traditional 401k or a Roth 401k, you should use this website. You must begin to take RMDs from a Roth 401k at age 72. However, you are not required to take any RMDs from a Roth IRA. If you don't need the RMD, you may wish to roll some or all of your Roth 401k into a Roth IRA, but this is complicated because the Roth IRA must be open for 5 years before you can begin to take any distributions. This site provides more information about this decision.

Chapter 17 Retirement Issues After Retirement

As you near retirement you will want to know approximately how much money you can withdraw from your retirement savings each year, and be confident that you won't run out of money. There are many websites that tell you how much your nest egg will earn each year, but only a few websites use a Monte Carlo analysis including the following: Monte Carlo Retirement Calculator, Vanguard, T Rowe Price Portfoliovisualizer and FireCalc. (For the FireCalc site, be sure to click on each of the tabs at the very top of the screen (other income/spending, not retired, etc. It is easy to miss these). Each of the 4 websites will tell you the likelihood that your nest egg will last you X years, e.g. there is a 90% likelihood that your nest egg will last for 30 years, Some of the sites will also tell you that there is only a 50% likelihood that your nest egg will last 40 years. Each of the sites above may give you a somewhat different answer.

Another answer to the question, "Do I have enough money to retire?" is the 4% Rule. This article provides alternatives to using the 4% rule. Morningstar wrote a very detailed report that examines different ways of answering the question, "Do I have enough money to retire?"

Morningstar created a series of valuable articles specifically aimed at retirees.

If you're trying to decide whether to convert an IRA to a Roth IRA, this site can help with that decision.

In my book, I urge investors to avoid purchasing tax deferred annuities for many reasons, not the least of which is the fact that they are extraordinarily expensive to buy. A salesperson earns up to $1000 on a tax deferred annuity of $10,000. Compare that to buying stock at many brokers, which now charge you nothing.

One special type of deferred annuity is a Qualified Longevity Annuity Contract (QLAC). Buying these can provide income for life, and they can help to reduce your tax bill from RMDs. You can learn more about QLACs.

There is another type of investment known as a lump sum annuity AKA immediate annuity. These sound a bit like tax deferred annuities, but they are very different. Immediate annuities are perfectly fine investments. This site is good for comparing options for purchasing immediate annuities. If you are buying an immediate annuity, be sure to check the rating of the insurance company before purchasing your policy. You can learn more about all types of annuities here, here and here. This article discusses several issues you should consider when purchasing an annuity.

Insurance policies are guaranteed in every state by a State Insurance company. The guarantee in Maryland is for $250,000 in present value of annuity benefits.

Chapter 18 Estate Issues

Chapter 19 Charting Your Financial Progress

Chapter 20 Dollar Cost Averaging and Rebalancing

Chapter 21 Cahn's Financial Truths

Finding a good financial adviser can be just as difficult as finding a good investment. My book offers a number of methods for selecting a good adviser. There are two criteria you can use to increase the odds of finding a good adviser. Use an advisor who is a Certified Financial Planner (CFP) or a Chartered Financial Analyst (CFA). Second, use a fee only adviser. You can locate CFPs here. You can also find fee-only advisers. Garrett Planning Network offers fee-only advisers who only bill by the hour or on a fixed contract basis.

This article from the New York Times offers excellent advice on selecting advisers to help you with your financial affairs. The SEC offers a web site that allows you to look up individual advisers or companies that offer advice, and determine whether a legal action has ever been filed against them. The site also provides a lot of additional valuable advice about financial advisers. The SEC offers another web site that allows you to see a list of all Registered Investment Advisers, including information about their firm. Go to this page, and scroll down until you find the report labeled "Information About Registered Investment Advisers and exempt reporting advisers." Click on that, and then download the Zip file for the current month. FINRA also offers a web site that allows you to look up individual advisers or companies that offer advice. The Washington Post ran an excellent column that can help you determine whether you need to hire a financial adviser. The New York Times compiled a list of 20+ online "wealth managers" who will manage your money for reasonably low fees.

In June 2019, the SEC issued Regulation Best Interest. It is a 700+ page document that contained new regulations that apply to all types of financial advisers. While the regulation made some improvements, it also made some regulations that used to be clear, much less clear. The New York Times has an excellent article that explains the impact of Regulation Best Interest. You can read more about the Regulation here or here or here.

You should try to avoid overly expensive financial advisers. Overly expensive mutual funds and other investment products should also be avoided. This excellent article details several investment traps to avoid.

If you are trying to decide when to begin taking social security benefits, this simple calculator can help you. With a few simple inputs, you can determine whether it is better to begin receiving your benefits at age 62, 64, 66 or some later age. This is a far more sophisticated Social Security calculator. It can tell you when you and your spouse should file for Social Security in order to receive the maximum benefit for both of you. It takes survivor benefits into consideration.

One of my favorite financial writers is Jason Zweig. He has written many columns for Money Magazine. This was one my favorite columns written by Zweig: Funds You Can Trust

This column also appeared in Money magazine, although it was not written by Zweig. It contains 101 Things to Know for Investors, and it is a must read.

Two more financial writers I trust 100% are William Bernstein and Jonathan Clements. The latter has a financial guide, that is at the top of his home page. It is an extremely comprehensive guide to all financial matters, and it covers many subjects I don't cover in my book or on this web site.

ESG Investing

ESG (Environmental, Social, Governance) investing has become increasingly popular in recent years. At various times it has been called sustainable investing, or socially responsible investing or ethical investing.

Here's an introduction to ESG investing. One of the ways Morningstar analyzes mutual funds and ETFs is on an ESG basis. Morningstar offers an ESG screener that allows you to find the highest rated ESG funds, and learn a great deal of information about them. You can see this analysis in their Sustainability Rating section. For additional information, take a look at these three articles:
https://www.morningstar.com/articles/1032486/how-to-find-the-right-esg-fund
https://www.morningstar.com/articles/1032901/how-to-build-an-esg-portfolio
https://www.morningstar.com/articles/958840/esg-etf-portfolios-for-retirement-savers

Another company that offers ESG ratings is MSCI. They offer both ratings of individual stocks and mutual funds/ETFs.

This web site offers lots of information about every facet of ESG investing. There are 3 major organizations that rate companies on ESG criteria. Unfortunately, the 3 organizations don't agree on which criteria to use, which leads to very different ESG ratings from each of them.

Some investors who are interested in ESG investing may also find that Direct Indexing is useful.

Miscellaneous

Inflation: This article offers investments that may provide you with a hedge against inflation. These four investments are supposed to protect you from inflation but have failed. If you are concerned about inflation, you might wish to consider some of these options. Some people believe that gold can help protect you against inflation, but that is generally not the case. Gold often protects you from bear markets, but over the long run it substantially underperforms stocks, and therefore owning gold is typically not a very good idea.

There are a wide variety of web sites that will offer to help you with budgeting, improving your financial situation, improving your credit score, and much more. Each site mentioned in this article takes a different approach.