Regular pre-tax deductions toward a retirement plan balance figure into a lot of employees’ paychecks, but many people don’t fully understand how the fund they’re contributing to works. Tim Maurer debunks ten common myths about 401(k) plans.
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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2016, The BAM ALLIANCE
My wife and I are setting up a customs screening station in our driveway. No, we’re not starting an international airport. And it’s not for solicitors, strangers or gift-bearing guests.
It’s for us and our stuff.
From now on, before anything new comes into the house, resident buyers will need to answer a series of questions. How much did it cost? Are you replacing something you already own? Why do you think it’s amazing? And if it’s food, are you sure you’ll eat it?
We’re doing this because stuff is taking over our home. And right now we’re in the process of getting rid of things we never use. We’re organizing, sorting and throwing things out from one end of the house to the other. And it feels. So. Good.
You know what I’m talking about, right? That moment of sheer relief when that thing you no longer need or even really want finally leaves your home. Marie Kondo, the guru of clearing clutter, has built a global community around this catharsis. Her name has become a verb.
But here’s the catch: Throwing stuff away is only half the battle. You have to stop stuff from coming into the house in the first place.
Consider, for example, what customs might have said about the super precision gyroscope with gimbals (trust me, click the link) that I bought more than a year ago and used precisely once: Cost? $250. Is it replacing something? No. Why is it amazing? Because of the gimbals! But $250 for gimbals? Denied.
Don’t get me wrong, the gyroscope is incredible. It works perfectly, so it’s not the gyroscope’s fault it sat around in a box for a year. It’s my fault for buying it in the first place. It never should have slipped through customs.
I recommend a stuff quarantine of seven days, particularly if we’re talking about anything that costs more than $50. Anything that you’re considering ought to sit in your head for at least a week, and you should test it out on your fellow customer officers. I’m writing from experience, because just as we’ve been getting rid of stuff, I’ve fallen in love with lululemon’s ABC pants for men. I bought a pair, and now I really want them in another color. Of course, it’s a cool, refined color that I’m sure I’ll wear all the time. So I ran the idea by my wife.
“Are you kidding me?” she said. “You’re going to buy pants that you’ll wear two or three times, and then will just hang in the closet?” She’s taking her screening duties seriously.
It’s hard to admit that there’s a slight chance she’s right. But in reality, she probably is. So the camo pants will go in the quarantine bin — for now.
Look, I know that buying things feels good. So does tossing out stuff that you don’t use. But wouldn’t it feel so much better to spend that time and money on something you’ll actually use or enjoy instead?
The answer is not to throw away the junk. The answer is the customs gate and the quarantine bin. Otherwise, if you’re not careful, the stuff you buy today will be the junk you throw away tomorrow.
This commentary originally appeared July 5 on NYTimes.com
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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2016, The BAM ALLIANCE
It’s been well-documented that, in equity investing, assets have earned premiums because they are exposed to the risks of a certain factor. Given that the literature provides us with a veritable factor “zoo” (there are more than 300), for investors to consider adding exposure to a factor, it should meet the following criteria:
The advantage of using a parsimonious factor approach is that it provides a framework for assessing risk and, thus, is helpful in designing portfolios. Another benefit of factor models is that they allow us to determine if the returns earned by active managers are the result of alpha, or if they are due to exposure to common factors (exposure that can be obtained more cheaply through low-cost, passively managed vehicles such as index funds and ETFs).
Among the equity factors that meet these criteria are market beta, value, size, momentum and profitability/quality. In fixed-income investing, two of the most well-known factors are term and credit (default).
Factors In Fixed-Income Study
Ramu Thiagarajan, Douglas Peebles, Sonam Leki Dorji, Jiho Han and Chris Wilson have contributed to the literature on factor-based investing with the paper “Factor Approach to Fixed Income Allocation,” which appears in the Spring 2016 issue of The Journal of Investing. Following is a summary of their findings:
Conclusions
Just as in the case with equities, investors have a wide variety of alternative assets from which to choose when allocating the fixed-income portion of their portfolio. Given that there can be dramatic differences in exposure to economic growth, rates and volatility among the various alternatives, it is critical that investors understand the risks to which the alternative exposes them.
Only then can investors evaluate how the addition of an alternative impacts the risk and expected return of the entire portfolio. Remember, it’s not how an asset performs in isolation that matters. Instead, the important element is how its addition impacts the entire portfolio. The factor approach outlined in the authors’ study is an important tool in creating the proper balance.
This commentary originally appeared June 27 on ETF.com
By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.
The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2016, The BAM ALLIANCE