The authors of “Freakonomics: A Rogue Economist Explores the Hidden Side of Everything” maintain a blog. University of Chicago economist Steven Levitt and New York Times journalist Stephen J. Dubner use statistics to test many social ideas. I found their recent podcast titled “The Folly of Prediction” to be quite interesting, especially as it relates to investing.
The gist of the podcast is something like this:
Human beings love to predict the future.
Human beings are not very good at predicting the future.
Because the incentives to predict are quite imperfect – bad predictions are rarely punished – this situation is unlikely to change.
Are you a participant in a 401(k) or similar retirement plan? If so, do you know what that plan is costing you? Ron Lieber of the New York Times thinks you don’t, and I think he is right. In a recent article, he says there’s really no way you could know what your plan is costing you – but the total might add up to thousands of dollars in hidden fees over the years while you work and (if you leave your money in the plan) after you retire.
To understand the issue, it helps to know that employee retirement plans typically have four players. The first is you, the employee. The second is your employer, who offers to withhold money from your pay and (sometimes) to match part or all of what you contribute. The third is a corporate administrator hired by your employer to operate the plan and choose investment options. The fourth player consists of the mutual funds, brokerages and insurance companies that provide those options. (more…)
Several articles on your site refer to taxable and non-taxable portfolios. I don’t see examples of how to allocate taxable accounts. I have approximately equal amounts in taxable and tax-deferred accounts, and I’m looking for help in allocating the taxable one. I am in my middle 50s and plan to work for at least another 10 years. How should I allocate the taxable portfolio?
Of course we believe that taxable accounts should have the appropriate allocation to fixed-income funds. We do not make specific bond-fund recommendations due to the many variables involved in choosing the best mix for any individual investor. For example, municipal bonds are appropriate for some investors and not for others, depending on their tax brackets; and if you’re going to invest in muni bonds, the best funds depend on your state of residence. (more…)
I am saving money for two children who are heading for college. One will start this year, and the other will start in six years. I have saved approximately $20,000. What asset allocations would you recommend in these 529 accounts at Vanguard?
First, I have to say your children are very fortunate to have a parent who supports them in this way.
To address your question, I assume you have two separate 529 accounts, one for each child.
With a total of $20,000 saved for two presumably four-year college educations, I do not believe you can afford the risk of losing what you have set aside. Some people might be tempted to invest in equities for a student, who is starting this year, in the hope of growing those savings over the next three years.
However, I believe you should expect any growth in that account to come from additional savings you can add, not from market gains. (more…)