In part 1 of this article, I explored how you can estimate how much college will cost and how much you need to save, going forward, to accumulate enough savings to cover the amount that you plan to contribute towards your child’s college costs. One of the major variables in this calculation is what you assume about how you will invest the money that you save. While you can design a portfolio yourself, it is also worth looking at funds that combine the major asset classes into portfolios at various risk levels. Continue reading
As we enter autumn, the leaves start to change and students arrive at college campuses across the country. For parents, as well as for students, the start of the academic year raises the specter of some of the largest costs that a family incurs. Hopefully, families have started to prepare for college costs far ahead of the years of attendance, but the sheer size of the expenses may be pretty daunting even for those who have saved since their children are very young. Continue reading
April is financial literacy month. I believe that lack of financial knowledge is one of the most critical problems that our country faces. Continue reading
I am now at an age at which many of my friends have kids preparing for, or going to, college. I have a few more years to figure out the details, but this is an issue that I have followed for a long time. My local in-state university, the University of Colorado at Boulder (CU), estimates the all-in cost of attendance at $26,000 per year. This varies a bit, based on which program you choose. Tuition, fees, and books cost about $14,000 per year (though this varies by program) and the estimated cost of room and board is about $12,000 per year. Continue reading
There is currently $5 Trillion invested in Individual Retirement Accounts (IRAs), $4.7 Trillion invested in self-directed retirement plans provided by employers (401(k), 457, and 403(b) plans), and $2.3 Trillion invested in traditional pension plans offered by private companies. These numbers are stunning for a number of reasons. First, self-directed retirement plans (IRAs, 401(k)’s, etc.) dramatically dwarf the amounts invested in traditional pensions. This is part of a long-term trend, as employers move away from traditional pensions, but the magnitude of the shift is striking. With the assets in IRA’s surpassing the $5 Trillion mark earlier this year, the amount of money in individual accounts is moving ahead of employer-sponsored plans. What’s more, it is anticipated that IRA’s will continue to grow relative to employer-sponsored plans as people retire and roll their savings from their ex-employer’s plan into an IRA. This matters because investors in IRA’s have even less help in creating and maintaining their portfolios than investors in employer-sponsored plans. Continue reading
Guest post by Contributing Editor, Matthew Amster-Burton, Mint.com.
Anyone who has read my previous columns about paying for college knows that I’m a student debt hawk. Student loans in their current form are dangerous: it’s too easy to borrow massive quantities; they can almost never be discharged in bankruptcy; and students and parents rarely understand what kind of quicksand they’re getting into.
At the same time, a “buy now, pay later” system makes sense. We have all sorts of public subsidies for college tuition, including the federal student loan program, because having an educated population benefits everyone. Continue reading
The question of how to safely generate income from a retirement portfolio is one of the most challenging in financial planning. In the days when people had traditional pensions, their employers simply promised them a constant inflation-adjusted income for the duration of their retirements. As we have moved away from traditional pensions and into self-directed savings plans such as 401(k)’s and IRA’s, investors and advisors must create their own customized income plans. New research from Morningstar highlights what appears to be a better approach to creating a stable income stream from an investment portfolio. Continue reading
Today, the yields on ten-year Treasury bonds are at a fifty-year low, and no period prior to the last few years reflects yields that even come close. From 1962 to 2005, the lowest the 10-year Treasury bond yield ever got to was just below 4%, more than twice the current yield.
The chart below shows how unusual our current environment is. The vertical axis is the yield from 10-year Treasury Bonds and the horizontal axis is time and we are looking at a period from 1962 to present. From 1980 to today, we have seen the yield of 10-year Treasury bonds go from about 12% per year to below 2%. The 10-year Treasury yield is considered a benchmark measure of bond yield and interest rates. The Fed funds rate and the 10-year bond yield are very closely tied to one another. For another illustration of how interest rates, the Fed funds rate and 10-year bond yield are related, see here. Continue reading
Real Estate Investment Trusts (REITs) are companies that own and, typically, manage real estate investments to generate income. REITs may also invest in mortgage securities (these are called mortgage REITs or mREITs). REITs may specialize in specific types of properties. The Folio Investing Retail REIT Folio holds equal-weight allocations to the largest publicly-listed REITs that own and manage shopping centers, outlet malls, and urban retail property. Retail stores lease space from the REITs and the leases are the primary source of income. Continue reading
Bob Huebscher just published an outstanding article on the sustained high level of unemployment in the United States. The question that he seeks to address is whether we are in the recovery phase of a major recession or we are actually in the midst of a long-term shift in the economy. The article calls these two possible explanations ‘cyclical’ and ‘structural.’ It is worth understanding the key factors that have resulted in the current persistent unemployment levels in order to put the recent modest reduction in unemployment into context. Are we seeing signs of the long-awaited recovery that will bring us back to full employment or is the recent growth in employment simply variability around a long-term shift in the U.S. economy in which unemployment will remain well-above historical levels? Continue reading