Happiness researchers are constantly asking whether money can buy happiness, and the research suggests that the answer is yes—but up to a point.  Once a person’s basic needs are comfortably met, more money doesn’t necessarily make people happier—and at some point it can lead to a decline in the pleasure one takes from life.

Now we have perhaps the most comprehensive study of happiness vs. external circumstances ever undertaken: two British researchers have examined millions of books and newspaper articles published since 1820 in four countries—America, Britain, Germany and Italy—and they found that wealth is not the most important factor in the happiness equation.

The simplest summation of what they found is similar to what researchers found before: that basic needs are a key to rising happiness.  By comparing aggregate happiness against history, they found that certain time periods were “happier in aggregate” than others—and that periods of aggregate unhappiness came during times of economic and sometimes physical pain—including wartime, market crashes, revolutions and steep depressions.

Per the findings, the U.S. appears to be climbing out of a deep trough of relative unhappiness; indeed, for the past 40 years, people appear to have been less happy, in aggregate, than they had been during the Second World War—until quite recently.  The war in Vietnam and the market downturn from 1973-75, plus stagflation seems to have started this less than joyful period.  Looking abroad, people in Britain were generally happier during the Victorian era than they have ever been since, and, predictably, the European countries saw a decline in overall happiness during World Wars I and II—and a sharp recovery in happiness took place when the wars were over.

The good news is that people are relatively as happy today in the U.S. as they have ever been. 

It’s pretty common knowledge these days that every time any one of us participates in Social Media (and “likes,” “retweets” or “posts,”) and whenever we buy something online, log onto an app or view an ad on our phones or computer, that information is collected, stored—and used.  The music you download gives a strong clue about your age.  Living in certain census tracts hints at your racial or ethnic heritage

The collective data about you and everyone else is processed using algorithms—a fancy term for computer programs that look for patterns in the data.  A simple example is: if you buy a few romance novels at Amazon, Amazon will recommend other romance novels.  The algorithm draws not only on your reading preference, but also the most best-selling books within your reading preference, and perhaps also the type of romance novels you’ve purchased.

A more complex example is when you click on an article about anything, and suddenly you see advertisements on your browser pages about whatever you clicked on, and the ads follow you around.  When Facebook sold user data to Cambridge Analytics, the firm was able to determine not just voter preferences, but also the issues that would turn on or off the voter’s enthusiasm for voting for a particular candidate, and target advertisements to individuals that would raise or lower those enthusiasm levels.

The point here is that algorithms play a huge role not only in helping us make decisions, but in influencing those decisions—and some people are alarmed about the potential for misuse.  They have good reason.  Facebook famously blocked many Native Americans from signing up for accounts because the software thought their names—including Lance Browneyes and Dana Lone Hill—were fake.  An Amazon artificial intelligence algorithm that was designed to screen job applicants managed to teach itself to weed out women by looking for certain keywords on their resumes.  Researchers recently found that job-finding searches are less likely to refer opportunities for high-paying positions to women?  Why?  Because these job seekers don’t match the typical profile of people already holding those jobs—mostly white men. 

Algorithmic lending systems have tended to charge higher interest rates to Latin and African-American borrowers, not because they can detect the color of the borrower’s skin, but because of ethnic purchasing patterns.  Those demographic cohorts have been, in the past, less likely to shop online than their white anglo peers.

How should you invest in a down market?  If you want a guidepost, let’s look back to the terrible, traumatic down market of 2008-2009.  You’re going through relentless, daily and weekly losses (remember that?), and the feeling at the time was that the global economy had suffered a mortal blow.  So, you get to the bottom in March of 2009, and what do you have to look forward to?

Ben Carlson, of Ritholtz Wealth Management in New York, has recently helped us with this trip down memory lane.  You are looking forward to the longest-running economic expansion in modern U.S. history, with a stock market that has quadrupled.  Inflation is basically non-existent despite unprecedented monetary policy actions from the Fed, and the unemployment rate has fallen from a scary 10% down to 3.7%. 

The period following the Great Recession, when the future looked so gloomy, was actually pretty bright.

Of course, you’re worried about the next recession and major market downturn—as are we all.  But history so far has rewarded investors who are willing to remain invested through the declines.  Recessions come and go, but they don’t typically last as long as our memories might lead us to think.  The economy has been in a recession roughly 15% of the years since the last world war, and in expansion 85% of the time.  If we spend 85% of our time focusing on events that happen 15% of the time, instead of the other way around, it can lead to terrible investment behavior. 

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice. 

It’s fun to think about what the future will look like, but of course we’re usually wrong.  Looking ahead from the 1960s and 1970s, movies like Back to the Future and cartoon shows like the Jetson’s had us flying around in our cars, while still talking on land line phones and faxing documents from place to place.  The Internet was undreamed of, and who imagined there would be computers in every home?

Today, the sneaky advances in our way of life seem to be coming from biotechnology—basically using DNA as a programming language for growing new types of materials.  A recent article in Forbes magazine laid out some of the areas where synthetic biotechnology is already making an impact.

The first is the $212 billion fertilizer industry that services farmers.  Today, making synthetic fertilizer consumes between one and two percent of the world’s total energy output, and massive fertilizer runoff poisons rivers and lakes that we depend on for fresh water.  New biology techniques are creating non-polluting, low-energy fertilizer solutions. 

At the same time, a California-based startup has created new skin care collagen products that contain actual human collagen—replacing animal products with a sustainable solution that can be grown in the lab.  Meanwhile, companies called Conagen and Codexis are creating a new generation of zero-calorie sweeteners, along with a broad range of enzymes that provide exotic food flavors.  And a Japanese company is growing spider silk using precision-engineered microbes, which might produce lightweight clothing out of fabrics that are much stronger and more flexible than anything on the market today.

This, of course, is only the very early hint of products that will come out of biotech laboratories in the future.  In fact, a new CRISPR-based genome engineering machine has recently been launched, which will make the costs of wide-spread gene editing as easy as writing software code.

When people want to protect important papers like their wills and trust documents, or valuables like rare coins or precious jewelry, they understand that it’s not generally wise to keep them laying around the house.  Much better—so goes the conventional wisdom—to put those items in one of the 25 million safe deposit boxes at local bank branch offices around the U.S.  There, they’ll be protected by a foot-thick steel door and a system with two keys, one kept by the customer, one by the bank.

Alas, it appears that safe deposit boxes are not quite as safe as they appear.  A recent article in the New York Times highlights the case of an international expert in rare watches who stored some of his merchandise, 92 watches in all, plus rare coins, in a safe deposit box at a Wells Fargo bank branch in New Jersey.  In a later reconstruction of events, it was discovered that Wells Fargo had tried to evict another customer for not keeping up with payments and had drilled open the wrong safe deposit box.  The customer returned to find that his “safe” deposit box was empty, missing millions of dollars worth of merchandise, and went to the management for an explanation.  Wells Fargo executives looked around for the lost items in its storage and found some but not all of the merchandise stored away in a separate location, shrugged their shoulders and told him that the loss had nothing to do with them.  Oddly, they also offered the customer five watches that didn’t belong to him, which had never appeared on the bank’s own inventory of valuables in the box.

You would think that the contents would be insured or guaranteed by the bank, or that there would be laws that protect the customers who trustingly store their most precious valuables in safe deposit boxes.  But apparently these “safe” repositories of peoples’ most valuable possessions are far from foolproof.  Worse, they exist in a kind of legal gray zone.  If you carefully read the leases, you discover that you, the renter, assume all risks of leaving property in the box.  Wells Fargo’s safe deposit box contract caps the bank’s liability at $500.  Citigroup limits it to 500 times the box’s annual rent.  JPMorgan Chase has a $25,000 ceiling on its liability.

Meanwhile, the losses are quietly mounting up.  In the last five years, there have been 44 safe deposit-related robberies, and uncounted number of bank errors, where boxes were mistakenly relocated, evicted or misplaced.  In Maryland, a large bank closed several branches and lost hundreds of safe deposit boxes, costing one customer $500,000 worth of lost gold and gems.  In each case, banks vigorously fight any requirement to make their customers whole, and bank regulators seem uninterested in getting involved, since (this might surprise you) no provision of federal banking law regulates safe deposit boxes. 

The Wells Fargo case seemed cut-and-dried: the bank’s own inventory listed 92 watches in the safe deposit box, and only 85 were recovered.  The bank freely admitted in court that its employees had mistakenly drilled into and terminated the box.  One of the lost watches had an estimated value near $1 million, and there were missing gold coins.  Yet after years of litigation and appeals, Wells Fargo has offered no restitution.  The bank is apparently free, by law, to fight not to protect the assets in its “safe” deposit boxes.

When you improve your home by making renovations, you’re increasing its value and can expect to get your investment back in the form of a higher resale.  Right?

A recent article in Forbes suggests that this is not always the case, and it offers some tips on what kinds of renovations will NOT allow you to recoup your costs.  In general, these tend to be highly personal customizations that make the home more attractive to you, but do not provide much value or benefit to a future homeowner who may not share your tastes or preferences.

Start with making major changes to the layout of the home.  One example is eliminating a bedroom in order to create a large master suite.  The problem here is that some buyers are going to want a certain number of bedrooms in their next home and might eliminate yours from consideration.  Or they may want that huge bedroom split back apart so they can have a guest bedroom for older kids who might be visiting.

Another example is eliminating a bathtub in order to create a large luxurious shower.  The article says that getting rid of all the bathtubs in your home can turn off potential buyers.  Why?  Families with small children most likely want a bathtub in the house. 

The article is particularly hard on hobby rooms, where you display your passion for jewelry making or woodworking.  The obvious message: it is unlikely that the next buyer will share your same exact passion. 

If you want to see how the “other half” manages its money, turn to the National Association of College and University Business Officers, which surveys college endowments across the country.  These portfolios tend to be a bit larger than yours and mine: Harvard University’s 2018 endowment, the largest in the country, came out to more than $38 billion.  In second place, the University of Texas is managing an endowment portfolio of just under $31 billion.

In all, the survey uncovered $616 billion managed by 104 American colleges and universities, and the top ten accounted for one-third of the total.

How do these institutions invest their assets?  U.S. stocks made up just 13% of the largest endowments, foreign stocks made up 19%, and bonds added another 7% of the total.  Three percent was allocated to cash, and a whopping 58% were devoted to “alternative strategies”—meaning private equity, hedge funds, derivatives, venture capital, investment real estate, timber farms and distressed debt.  Looking over all public institutions, these alternative strategies made up 46% of the universities’ total investments.

Of course, the reason that universities invest in those alternative strategies is that they have enough scale (total dollars) and enough money to hire smart investment managers who know how to make real money there—right?  Interestingly, the average return for all the endowments ranged from 5.6% to 6.1% a year over the last ten years.  That’s considerably lower than the colleges and universities would have gotten if they’d simply put all their money in the S&P 500 index—which was up 10.2% a year over the same time period.  The lesson here may be that all the high-priced talent hired by some of the world’s largest investors may have outsmarted themselves when a simple investment approach would have worked out  better.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice. 

Chances are that you know that the Social Security trust fund is due to run out of money—or “deplete its reserves” as economists put it—by the year 2035.  The actual time frame depends on some forecasts, including economic growth, number of workers who remain in the workforce and the number who retire—but the clear point is that Congress is going to have to take action in the next few years if it wants to prevent a lot of angry seniors from heading vengefully to the polls.

What would happen if no action was taken and the trust fund were depleted?  Right now, there is a surplus of funds above what is needed to pay current retirees.  Each year, the Social Security system collects FICA taxes from American workers, which comes to about 10.6% of earnings, and pays out somewhat more than that amount to Social Security beneficiaries—in the form of the checks that were promised.  It is the difference between the amount collected and the amount being paid out—currently about 3.7 percentage points—that is moving us toward a crisis. 

Once the trust fund can no longer make up the difference, Social Security recipients would simply receive, collectively, however much was collected by workers.  Based on those same complex economic projections, economists’ guesstimate that this will be about 25% lower than the Social Security benefits that people had been promised and expecting. 

A new paper prepared by the Center for Retirement Research at Boston College offers Congress a few choices when they finally decide to perform surgery on the nation’s retirement program.  The paper focuses on the difference between what is paid out and what is collected, and says that this difference is due to “Social Security’s Missing Trust Fund”—a pool of assets that should have been set aside at the outset to generate enough interest to make up the difference.  The paper suggests various ways to create a Missing Trust Fund of roughly $2.7 trillion.

You’ve probably heard, from various media sources, that almost half of all Americans couldn’t cover a $400 emergency expense.  The idea is that many of us couldn’t afford to pay for a flat tire or fix our water heaters—but in the real world these expenses crop up all the times and most of us seem to get along fine.

A recent article in Bloomberg traces the $400 claim to a single line in the Federal Reserve Board’s annual “Report on the Economic Well-Being of U.S. Households.  It tells us that 61% of adults would cover a $400 unexpected expense using cash or its equivalent.  Ergo, that means 39% cannot come up with the money they’d need to handle this situation.

However, the Fed report makes clear that “the remaining 4 in 10 adults” would be able to make it work by carrying a credit card balance or borrowing from their friends and family.  It goes on to say that “Twelve percent of adults would be unable to pay the expense by any means.”  That’s 12%, not 39%.  In a footnote, the report cites a 2016 study finding that 76% of households have $400 in liquid assets, even after considering monthly expenses.

Other questions in the survey also suggest that Americans are not as poverty-stricken as that first question indicates.  Respondents were asked whether they are able to pay all of their bills in full.  Only 17% said they cannot pay some bills.  Presumably at least some of those hold credit card balances.  The Fed also asked how a $400 emergency expense would affect respondents’ ability to pay their other bills.  85% reported that they would still be able to pay all their bills.

The new tax law made it hard to know how much to withhold from your paycheck every few weeks.  As a result, many people withheld less than they might otherwise have, and either received a smaller refund than expected or had to pay additional taxes in April.

Now the tax agency has released a proposed new updated Form W-4, which reflects the changes from the Tax Cuts and Jobs Act—including the doubling of the standard deduction, eliminating personal exemptions and limits on certain itemized deductions.  You can find it here: https://www.irs.gov/pub/irs-dft/fw4--dft.pdf, and the plan is for everyone to use some version of this in 2020. 

The current W-4 asks taxpayers to note the total amount of allowances they’re claiming (the more, the less tax withheld), and any additional amount they want taken from each paycheck.  The new form will ask you to account for multiple jobs within your household, and to spell out the details of any other income that didn’t have taxes withheld, including interest, dividends and retirement income.  An additional section asks taxpayers to claim their dependents, and to factor in the $2,000 child tax credit for those under 17, or the $500 credit for other qualifying dependents.

Retirees also need to reevaluate their withholding amounts.  They can use Form W-4V to withhold a flat rate from their Social Security check or Form W-4P to withhold from their pension.

You know that online technologies are turning whole industries upside down.  Think Uber vs. the taxi industry, or Airbnb vs. hotels.  But has anybody assembled a comprehensive look at the new platforms and what are threatened by platform technologies?

An article in the Harvard Business Review concludes that the companies susceptible to disruption by online platforms are not manufacturing enterprises like General Motors or Coca Cola.  Instead, they tend to be matchmaker businesses that connect different groups of customers.

The article lists online platforms that are threatening traditional businesses.  Oddly enough, the list doesn’t mention how Apple’s iTunes platform has basically eliminated the music/CD industry, but it does say that Alphabet (Google), Yahoo! and Facebook, with their ad-supported search capabilities, are disrupting advertising supported media like magazines.  Amazon, meanwhile, is disrupting shopping malls and department stores.  Uber threatens the taxi and limousine companies, while Snapchat threatens traditional communications.

The conclusion?  Any business whose value comes from serving as an intermediary between manufacturers or service providers and customers has a target on its back.

One of the oldest tricks in the investment book is dollar-cost averaging (DCA). This technique suggests that investors will do well over time by slowly investing fixed sums of money into the markets at regular periods.

By doing so they will take advantage of the low buying points while not putting too much money in at any one market top.

This is how many employees end up investing through their employers’ savings plans - a specific percentage is deducted from each of their paychecks and invested into their accounts.

Although many investors have been taught to invest this way over the years, its value is now being questioned by research conducted by the Vanguard Group, which runs the nation’s second largest mutual fund company.

While partisan politics rages everywhere in sight, the U.S. House of Representatives quietly—and nearly unanimously—passed a bill that would reform various aspects of America’s retirement laws.  The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was approved by a 417-3 majority of legislators, and the Senate is expected to pass a similar bill by a similar margin in the fairly near future.

The bill contains 29 new provisions, including allowing people who work past age 70 to continue making IRA contributions while they’re earning an income, and pushing out the start date to take required minimum distributions from IRAs or 401(k) plans from age 70 1/2 to age 72.  (The Senate version would push out the start date to when the IRA owner turns age 75.)  The bill would also expand employers’ ability to create 401(k) plans in conjunction with other (probably small) businesses, allowing them to share and therefore reduce costs. 

Also: there would be a $500 tax credit to smaller employers who encourage automatic enrollment in their retirement plan.  Studies show that employees save more under automatic enrollment than when they have to affirmatively opt in.  The bill increases how much workers can have automatically deducted from their paychecks to go into the retirement account, from the current 10% to a proposed 15%.

Meanwhile, the bill decrees that all defined contribution plans (including 401(k)s) would be required to estimate how much income would be generated by each plan participant’s current account value—though how, exactly that calculation would be made is still up in the air.  Experts have plenty of questions about how this would even be possible.  What return assumption would you make over the next 30 years?  Over how many years would the income assumption be made for a 20-year-old staffer vs. somebody who’s in her 50s?

If it is true that you can improve your performance by learning from the past, then the weak link in this process is our memory, the findings of recent neuroscientific research assert. Investors  should heed these research findings before going on to repeat past mistakes. 

A bad memory will distort our recollection of our past financial decisions and outcomes, making it likely we will not be able to learn the proper lessons from them. 

Neuroscience experiments have identified two memory flaws. First, we often do not properly store information. Second, the stored information is often distorted by common cognitive biases when it is recalled.

Too much information

When you want to know what’s going to happen in the markets or in our increasingly complex future, it’s best to go to the experts to get the answer.  Right? 

A recent article in The Atlantic suggests that this may be the worst possible strategy.  It doesn’t delve into the well-known problems that experts have had in predicting market twists and turns or even the movements of interest rates, much less the next recession.  Instead, it looks at research which suggests that so-called “experts,” with decades of experience and deep knowledge in a subject, may be the worst sources of accurate predictions about any aspect of the future—and particularly in their own field.

One study looked at more than 80,000 predictions, many of them about the Soviet Union during the Cold War.  It found that where experts declared that future events were impossible or nearly so, 15% actually occurred, nonetheless.  When they declared events to be a sure thing, 25% of them failed to happen.  When faced with their results, many of the experts doubled down on their predictions, instead of admitting flaws in their judgment. 

Another study compiled a decade of yearly predictions about the value of the dollar against the euro, made by experts at 22 large international banks.  Every year, the economist at every bank predicted what the exchange rate would be at the end of that year.  Over ten years, the banking experts missed every single change of direction in the exchange rate, and in six of those ten years, the true exchange rate fell outside the entire range of all 22 forecasts.

The old saying about not worrying about things we can’t control and concentrating on those we can applies to retirement planning.

Vanguard conducted a study of market returns, savings rates, and investment horizons as they relate to retirement success. It found that savings rates are very important.

“Our conclusions reinforce that the two levers an investor can directly control—savings time horizon and savings rates, will provide a higher probability of success, rather than relying on the possibility for higher portfolio returns,” Vanguard said.

Starting to save early in a career makes a big difference in retirement wealth, the study found. For instance, someone who makes $64,090 and saves 6 percent of salary beginning at 45 years old, and who puts half of their savings in stocks and half in bonds, ends up with a hypothetical $128,000 at age 65, Vanguard found.

But someone who starts saving 6 percent of a $30,000 salary at age 25 ends up with $359,000 at retirement, nearly three times the amount saved by the late starter. In order to catch up, the late starter would either have to increase his savings rate, or delay retirement to age 70, Vanguard said.

A novel study of optimistic feeling suggests that moderate optimism is key to making reasonable financial decisions.  However, too much optimism leads to imprudence, said the study by Duke University professors David T. Robinson and Manju Puri.  “This paper suggests that optimism is a bit like red wine: too much is clearly bad, but a little each day can be good for one’s health,” they wrote.  The researchers used an unlikely source to compile an index of optimism among American households—the Federal Reserve’s triennial survey of consumer finance.

Big expectations

They identified optimists and extreme optimists by comparing each person’s estimate of his or her own life expectancy to actuarial average life expectancies.  Those who thought they would live longer than the ages indicated on actuarial tables were pegged as optimists. The 5% most optimistic—some of whom expected to live 20 years past the expected average—were labeled as super optimists.  In general, it appears that some optimism leads to better work and life choices. Optimists are generally harder workers, expect to retire later, are more likely to remarry after divorce, invest more in individual stocks, paid credit card bills more promptly, and saved more, the study found.

Prudent or not?

The most interesting finding related to levels of optimism: a little optimism is a financial asset, while excessive optimism can work against financial success, the researchers said.  “Moderate optimists seem to have prudent financial habits, while extreme optimists do not,” they wrote.  Moderate optimists are more likely to pay off their credit card balances and have long planning horizons. Extreme optimists have shorter horizons and are less likely to save money.

They also found that moderate optimists are more likely to work harder and less likely to be day traders in stocks. However, extreme optimists are more likely to work fewer hours, and hold a larger proportion of individual stocks in their portfolios. Moderate optimists may have better self control: they have more liquid assets, and are less likely to smoke, than are extreme optimists.

Most of us think of the cost of transportation as the monthly payment on our car, perhaps with gasoline prices factored in.  But when you add insurance, maintenance, registration fees, taxes and depreciation (that is, having to buy a new car when your current one collapses into repair hell), you may actually be spending thousands of dollars a year on personal mobility. 

Is there any way to bring down these costs?  A recent financial blog post suggests that you can save in a number of ways by buying a used car instead of a new one.  The savings start with the sticker price.  Edmunds, the car pricing service, estimates that the average total cost of a new compact SUV is $33,682, while the average total cost of a 3-4-year-old used compact SUV is $24,966.  That difference of $8,716 should be added to the likelihood that you’ll be paying less for insurance coverage and lower vehicle taxation.  Choosing a used car that is easy on gas, like a hybrid, and a car that the Consumer Reports website deems to be reliably free of defects and costly repairs, can lower your transportation costs still further.

It is worth it to even question whether some families need to be two-car families.  Much of the time, only one person is traveling. If the other needs to run an errand like going to the grocery store while the car is out of the garage, that person could simply use the services of Lyft, Uber or a local Taxi service (if available in their area)—and pay a few dollars per trip, instead of thousands to have a car waiting in the garage for their convenience.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as indiviidualized legal or investment advice.

You’re likely to read a lot of articles about how to be a better investor, and they will tout everything from watching complicated charts looking for patterns to more mainstream dollar-cost-averaging, to buying only the stocks of companies that you know. 

But surprisingly, the easiest route to improving your investment performance may also be the laziest.

A recent article notes that all of us are wired to experience the pain of loss more than we feel the joy of gain.  Translated into investment behavior, that means that we have an innate instinct to stop the pain by selling out of a portfolio whenever it goes down—and that is usually a poor idea when the markets are generating normal volatility.  Trying to time the market is a loser’s game, even if it is driven by instinct rather than intent.

So the solution is…?  The less you monitor (or watch) your portfolio’s ups and downs, the fewer times you will experience the pain of (temporary) loss.  The fewer times you will have an instinct to sell or change something, and the more likely you are to receive the benefits of the market’s long-term growth in value.

This is not, obviously, a perfect solution; you will still experience times when the markets are down, when you’re fighting the urge to make a change.  But instincts are harder to control than habits.  If you can make a habit of looking at your investment returns less often, your instincts won’t have as great a chance to undermine your long-term results.

You want to feel happy, right?  Doesn’t everybody?

Research has shown that once you get past providing for your basic needs, additional money doesn’t materially increase your happiness level.  Are there any other strategies that can move the needle on our happiness scale?

A recent article online in Forbes looked at some research and found a few tricks and habits that might induce more happiness in our lives.  The first is exercise.  Cardiovascular exercise (that is, a strenuous workout) functions almost like a wonder drug with regard to a person’s overall well-being and has recently been associated with the growth of new neurons in the hippocampus, the part of the brain known to be affected by depression.

You probably already know that processed sugars can cause unhappy moods, but until recently the reasons have been unclear.  A growing body of evidence indicates that our gut microbes affect our mental health in significant ways, and the foods we eat can select for or reduce certain strains of bacteria.  Eating a plant-based diet, low in sugar and processed foods, may help promote the body chemistry associated with happiness. 

In addition, there is evidence that people who maintain a structured schedule are better at avoiding depression than their unstructured peers.  A daily routine in itself is comforting when you’re down or depressed, and the habits you form ensure that you will get out and be social (and maybe get exercise) even if you don’t feel like it.

When you hear that the workplace of the future is going to dramatically change (due to automation and artificial intelligence), do you ever wonder how the jobs picture has changed over the past 165 years? 

Recently, the McKinsey Global Institute pored over old records dating back to 1850 and thereafter, to see how the U.S. employment has changed when measured by industrial sector.  The biggest employment decline was in agriculture and farming.  Mechanization like tractors, combines and harvesters destroyed so many farming jobs over the 165-year period that agriculture’s share of the workforce has declined 55.9%—which is another way of saying that we are getting a lot more crops with a lot less human labor.

Due to automation and more efficient production, and outsourcing abroad, manufacturing jobs have declined as well, but you might be surprised that total manufacturing employment is down just 3.6% (in terms of total workforce participation) from 150 years ago. But that’s misleading; in 1960, factory jobs made up 26% of all American employment.  As the U.S. became the world’s leading economy, manufacturing became one of its largest job producers, and has since declined.  If robots and factory floor automation take hold, this trend should continue even if more goods are produced domestically.

The biggest gains in U.S. employment have come from trade (wholesale and retail), which has gained 12.8% share of the labor force over the past 16 and a half decades, followed by education (9.9%), health care (9.3%), business and repair services (6.1%), financial services (5.9%), professional services (5.0%) and government (4.9%).  Entertainment makes up a 2.2% greater share of the workforce than it did back in 1850, and there were modest gains in utilities, telecommunications, construction and transportation, while mining declined a bit.

If you’re a dedicated market geek with plenty of time on your hands, you can uncover some really interesting things about stock market history and—perhaps—learn some interesting lessons from them. Thus Michael Batnick, of Ritholtz Wealth Management in New York, took a deep dive into the numbers, and these are some of the things that he found. 

Since 1916, the Dow Jones Industrial Average reached new all-time highs on fewer than 5% of all market days.  Think about that: during a time period when the index has delivered 25,568% positive returns, investors have been under-water 95% of the time.  Since 1970, the Dow has grown at less than .03% a day—but through the powerful magic of compounding, that has resulted in a 3,000% total gain.

If you’re the sort of person who might be inclined to bail out during a market decline, then Batnick points out that 20.6% of the time—while these incredible long-term returns were being generated—the Dow was down 40% or more from its highs.  His comment: “no pain, no gain.”

One time period when you might have been inclined to bail out was during the 1970s.  Over that entire decade, from January 1, 1970 to December 31, 1979, the Dow gained just 38 points.  (It’s over 25,800 today.) 

There’s an ancient question in the investment markets, which is affecting the marketplace in a variety of ways: is an active manager’s investment performance the result of luck or skill? 

The layperson’s answer would be obvious: anybody who has expertise and works hard at something should, eventually, produce results superior to what is achieved randomly.  An example is the many tennis players who enter a tournament.  Chances are, you know that one of a particular five players will win the tournament, because they’ve been proven winners in the past.  They have superior skill levels, and if an average person were to devote his/her life to mastering the skills of tennis, that person would tend to beat people who aren’t working as hard at it.

Right?

Many investment professionals reject this logic when it comes to the investment markets.  Yes, it would seem that people who put a lot of time and energy into investigating the fundamentals of stocks and bonds should outperform those who indiscriminately buy stocks or bonds that happen to be part of an index. However, research has shown that, when you account for their fees and other costs, and calibrate their investments to comparable indices, actively-managed mutual funds have stubbornly tended to underperform those indices over 10-year time horizons.  Indiscriminate buying coupled with lower costs has, on average, beaten the skills of thousands of diligent, sometimes brilliant professional fund managers.

Virgin Group founder and self-made billionaire Richard Branson dropped out of school at the age of 16 to start Student Magazine, and later founded Virgin Records—and a few other businesses along the way.  Over time and various blog posts, he has recorded some thoughts on how to be successful in business and in life, apparently without taking himself too seriously.

Branson starts every day by getting his blood pumping, either with an hour of tennis or kitesurfing.  He says that this gets his endorphins going, triggering a positive attitude and reducing stress.  He also takes frequent breaks throughout the day, drinking about 20 cups of tea a day, not just to stay energized, but also to reflect.  These breaks, he wrote, help him see new ideas and reflect on the solutions to problems that are bedeviling one of his companies.

Branson is also a big believer in talking notes throughout the day, believing that the act of writing down ideas and what he wants to accomplish each day is an often-undervalued key to success.  He sets short-term and long-term goals; achieving the short-term ones helps him keep morale up and encourages him to keep working on the long-term goals. 

Branson also suggests that we cultivate the bravery to identify what we really want and then go for it, rather than sitting around waiting for things to happen.  Working hard, and taking chances, and seizing opportunities helped him create his businesses despite the perpetual fear and self-doubt that plague us all.

Along the way, Branson recommends that you be generous at work, and try to have a positive impact on the people around you.  Sharing credit where it is due and giving compliments and “Thank-yous” can help build trust and create mood-boosting friendships with your co-workers and staff.

Many people wait too long to create advance health directives and designate a health care surrogate, and the results can be tragic.  A recent article, by a physician who is also a financial planner, illustrates a not-uncommon situation that nobody wants to find themselves in.

The story begins with a woman suddenly becoming acutely ill and uncommunicative.  She’s rushed to the emergency room by ambulance, while her partner scrambles to get to the hospital.  The patient’s condition quickly worsens.  By the time her partner arrives, it has been determined that the patient will need to be placed on a ventilator, or she’ll die.  But her death appears to be inevitable, so this will only prolong her time in a hospital bed.

 Who is going to make that decision?

The partner had been designated as the patient’s health care surrogate, but in this case, couldn’t remember how to find the documentation.  The woman, unconscious in the hospital, had been adamant in her conversations about advance directives—which serve as a record of someone’s health preferences—that if she had a serious health event that was going to kill her, she wanted to be kept comfortable and have as peaceful a death as possible.  Her partner had participated in these meetings, had been named the health care surrogate, and had been involved in drawing up the advance directive.

Investors who reacted emotionally to market movements have been humbled yet again.  When U.S. stocks (measured by the S&P 500 index) fell 13.97% in last year’s fourth quarter, some of us felt in our gut like the market was in the midst of a major bear market collapse.  The downturn could continue into the new year and take some or (worst case scenario) all of the 9+ year bull market profits with it.

Fortunately, we make decisions with our brains instead of our guts, and our brains might have noticed that the economy was not declining, companies were not going out of business, and there was no sign of blood in the streets.  And sure enough, the markets turned around.  So far, the S&P 500 index is up for the year, and anybody who sold out last year missed the rally and the profits thereof.

Of course, that doesn’t mean that the current rally will continue through this month, this quarter or this year, but that’s the point.  From day to day, month to month, year to year, past returns don’t tell us anything about the future, and anybody who thinks they can guess whether a downturn will continue or whether a good month means more ahead is likely to guess wrong and lose out on the long-term benefits of being an investor. 

Let’s chalk the 2018 fourth quarter and first days of 2019 to yet another lesson learned.  We can’t stop listening to our gut, but we can make a vow not to always act on what it says.  With investing, it’s been wrong too many times before.

The lessons of Wall Street rarely change.  What does change are the memories of investors, which are notoriously short-term and seem to easily discard sound advice when a market mania takes hold.

Investors trying to make their way through the stock market’s thickets today could find much of what they need to know from “How to Make Money in Wall Street” by George Frederick, a 50-page pamphlet published by Little Blue Books in 1926.

It’s not easy

Despite the convenience of online trading, instant stock quotes, and cheap commissions, investors today need to remember that individual stock investing isn’t easy.

Buying and selling individual stocks requires personal qualities that include “courage, coolness, caution, judgment.”  It is not a business designed for “people of very small means or lack of analytical powers”,  Frederick wrote in 1926.

Chances are, you’ve already heard or read endless predictions about…everything.  The direction of interest rates.  Market returns and whether the markets will go down or up.  When the next recession will hit.  The movements of the cryptocurrency markets.

If the market gurus were being honest, they wouldn’t give us definitive answers to any of the questions that are posed to them.  Does anybody really have a working crystal ball?  If they did, would they share what they’ve seen in it?

A recent article in the financial services press offered up some realistic answers to the questions that financial journalists and cable tv hosts typically ask.  Here are some examples:

Would you like to lower the volatility of your investment portfolio?  There’s an easy solution.

No, the solution we’re thinking of is not to retreat to cash—which, even in times of low inflation, is a strategy doomed to steadily lose the buying power of your portfolio.  All that does is guarantee a downside.

Diversification will only get you so far.  Downside risk doesn’t go away just because you’re holding multiple asset classes, as everyone learned all over again in 2008-9.

The actual answer is: look at your portfolio less often.

Come again?  Volatility is actually a time-based concept.  Your portfolio goes up or down literally several times a second during every day, and of course you would go crazy if you watched it second-by-second.  So maybe instead you check daily.  But why daily?  Why not monthly?  Or, since you know it’s a bad idea to sell out when the markets go down, why tempt fate and look even that often?

Here’s a trick question: what is the biggest danger to your long-term investment results?  If you answered something like “market downturns” or “downside volatility,” you’re not only missing a bigger danger, you may be missing the way investment markets work.

There have been a lot of market setbacks since 1896, and yet the overall trajectory of the market (as you undoubtedly already knew) has been a steady rise.

So, what’s a bigger danger than something awful like the Great Recession?  Investment experts talk about a human failing called “policy abandonment,” which is a fancy way of saying that the investor bailed on the markets, generally at the wrong time.  Suffering a significant decline in the Great Recession was temporarily painful, but what about the people who abandoned their portfolio allocations and retreated to cash at or near the bottom, because they just got too nervous about what the market would do the next day or the day after?  They locked in those losses, moved to the sidelines and found themselves with permanent—rather than temporary—portfolio losses.

The stock market in the long-term is driven by the intelligence, creativity, innovation and hard work that people working in various companies put into their jobs every day.  The value of companies tends to rise but fear sometimes makes people sell their stock at lower prices which, up to now, have always recovered to reflect that growing value.

The recent turmoil in the markets is certainly unsettling, but it’s nothing compared with the Great Recession, the Great Depression—or, probably, the next significant bear market, whenever it comes.  That next downturn will present us with the illusion of danger (a temporary market decline) and some will take the opportunity to embrace real danger—the danger of “policy abandonment” that makes temporary losses permanent.

We’re about to enter that exciting time of year when all sorts of market predictions are made by people who are mostly claiming that they knew the future and have accurately predicted it over a great track record.  If you’re smart, you’ll turn off the TV or move on to the next article.

The truth is that none of us can accurately predict the movements of the markets.  If we could, then we would always make trades ahead of market moves, and it wouldn’t take long before that amazing prognosticator with the working crystal ball would have amassed billions off of his or her stock market trades.  Have you read about anybody doing that lately?

Most of these people are employed at think tanks or sell their predictions to credulous investors.  Would they need that salary check or your hard-earned subscription dollars if they had the ability to make billions just by checking the ‘ol crystal ball a couple of times a day?

A recent article by frequent blogger Barry Ritholtz offers some rather amazing data on people in the prediction business.  You may know that the cryptocurrency known as “bitcoin” is now worth about $3,500—way WAY down from the start of the year.  So how well did the people in the prediction business foresee that downturn?

Not well.  In his article, Ritholtz noted that Pantera Capital predicted that Bitcoin would be selling for $20,000 by the end of this year.  Tom Lee of Fundstrat was more bullish, forecasting that bitcoin would breach $25,000 by now.  Prognostications by Anthony Pompliano, of Morgan Creek Digital Partners, were still more bullish, predicting bitcoins worth $50,000 by the end of this year.  John Pfeffer, who describes himself online as “an entrepreneur and investor,” anticipated $75,000 bitcoins by now, and Kay Van-Petersen, Global Macro-Strategist at Saxo Bank, one-upped everybody with his prediction that bitcoins would be worth $100,000 by December 31 of this year.

If you’re the kind of person who likes to worry, then October has given you plenty of stimulus.  After a dip in the popular S&P 500 index for the month, all the gains that we’ve enjoyed this year have been wiped out, putting the index slightly into negative territory. 

In times when the markets are dropping, even if they haven’t hit correction territory yet (that would be a 10% drop), the media needs to find a narrative, and you hear all sorts of theories.  Corporate earnings have nowhere to go but down.  The tariffs are slowing down economic activity.  Interest rates are rising.

All of that is true, but none of it has anything to do with why the markets are falling.  The only true headline, and one you will never read, is that stocks are falling because some people are losing faith in their investments and selling out to bargain hunters.  Sometimes this activity feeds on itself; when people see the market falling, they, too, begin to panic.

The stock markets periodically deliver losses for reasons which are not always obvious even after the fact.  Bear markets are a normal part of investing, and this is a good thing, because it allows real investors to periodically buy stocks at discounted prices.  Research has shown that there is a gap between the return that most investors get from their stock investments and the actual returns delivered by those stock investments.  This is, of course, because they sell this or that fund before it goes up – or sell out and then wait to get back in until the market has gone up past where they sold.  Getting the full return of the markets is relatively easy: just hang on during those periodic downturns.

Every year, the U.S. government changes a variety of investment and benefits thresholds based on the inflation rate.  But since inflation has been relatively tame, most of the changes have been modest these past ten years.

That changes this coming year. 

Start with tax-deferred savings thresholds.  The limit for 401(k) or 403(b) contributions will rise from $18,500 to $19,000—and employees 50 and older will continue to be able to contribute an additional $6,000 as a ‘catch-up’ provision.  The overall limit for defined-contribution plans increased from $55,000 to $56,000.

Meanwhile, the IRS has raised the contribution limit for IRA accounts—that is, the maximum amount that can be contributed—for the first time in six years, from $5,500 to $6,000.  Traditional IRA contributions are tax-free (you get a deduction on your tax return) if you aren’t contributing to an employer-sponsored plan.  If you are, then the deduction for contributing is phased out starting at $64,000 in income (single) or $103,000 (filing jointly)—or $10,000 for someone married filing individually.

We are now in open enrollment on the government (39 states) or state health insurance exchanges (11 states and the District of Columbia)—so this is the time of year when consumers can buy health insurance coverage under the Affordable Care Act.  In most states, the enrollment season lasts six weeks—half as long as it used to—and many people are wondering whether the ACA is still viable.  Hasn’t the Trump administration taken steps to make it easier for healthy individuals to opt out of ACA and buy cheaper coverage that lacks certain popular consumer protections?  Doesn’t the economics of covering preexisting conditions require that all insurance buyers participate in the overall pool of insurance premiums?

There is no question that the alternative, cheaper policies endanger preexisting coverage in the long term, and many insurance carriers are publicly rethinking their rate policies.  But the Affordable Care Act has been surprisingly resilient so far, with 11.8 million Americans signed up for coverage.  Insurance companies, for the first time, have reinforced their commitment to the existing system by dropping their rates by an average of 1.5%—though there is wide variation among states.  Residents of Tennessee will see a 26% overall decline in the benchmark silver plans, while Pennsylvania residents will experience a 16% decrease.  In North Dakota, rates will rise an average of 21%.

In 15 states, insurance companies are returning or entering for the first time, and the total number of providers is up to 155, from 132 last year.  That means consumers will have more options.  Established insurers like Anthem, and startups like Oscar and Bright are providing coverage because, thanks to a big increase in premiums last year and the possibility that Congress will stall a full ACA repeal going forward, they believe they can scratch out a profit.

Taking the time to navigate the different options can save some consumers thousands of dollars.  For instance, many companies are offsetting their rising costs by offering high-deductible, low-premium plans along with health savings accounts (HSAs).  An HSA contribution is triple-tax-advantaged: it is deductible when you make the contribution, the money grows tax-deferred, and if you take the money out to pay for medical costs, it comes out tax-free.  Any money not used in a calendar year is rolled to the next.

At the other end of the spectrum, people who have developed a chronic condition, or who are older, might fare better with a low-deductible plan.  They pay a higher premium each month, but the lower deductible will reduce the amount they will have to pay out-of-pocket for medical procedures.  If you buy insurance through an employer, the low-deductible policy can be combined with a flexible spending account, or FSA, where a policyholder contributes pre-tax dollars to pay qualified medical expenses during the year.  Any FSA money left over will be forfeited.

High-achieving people will tell you that they sacrificed to get where they are, but what, exactly, did they sacrifice?  An article in Forbes magazine lists 18 things that high-achieving people routinely give up—and many of them are not what you would expect.

Number one on the list: a fear of uncertainty.  The article notes that there really are no guarantees in life, so when you start a new business, you aren’t really giving up certainty for the reckless unknown.  You’re giving up one kind of uncertainty for another—and the old one, which feels more certain, may be holding you back.

Two: Ignoring your feelings.  Your feelings actually give you a lot of clues about your situation.  Anger tells you where you feel powerless.  Anxiety tells you when something in your life is off-balance.  Fear tells you what you care about.  If you treat your feelings as messengers, you might learn what you need to do next to move ahead.

Three: Pretending your problems don’t exist.  The advice: make a spreadsheet of your debt, and list the habits you now are detrimental to your health. Think of who you owe apologies to and address your problems rather than sticking your head in the sand.

Four: Avoiding discomfort.  This is kind of like number one: if you build your life around just the things that make you feel at ease, that is a fast track to complacency.

We hear about how artificial intelligence is going to change the workforce, and how computers are taking over the world; but perhaps the biggest shift in our industrial lives has been flying under the radar: rather than making things, we will soon be “printing” them.

A new “metal printing press” developed by Desktop Metal, uses a variety of metal powders to lay down many thin layers of material in rapid succession, according to the specifications in a digital file, to build three-dimensional objects.  It employs more than 32,000 juts in conjunction with powder spreaders to jet millions of droplets per second, creating metal parts in minutes instead of hours.   The one-million-dollar printing device is designed to replace metal fabrication activities, many of which are currently handled by hand.  Among the early customers: Ford, Caterpillar and Google’s advanced technology and project group.  BMW has tested a steel prototype of a water impeller pump that costs $80 to make currently.  It can be 3D “printed” for just over $5, and the printed version is 50% lighter.

The goal is to have a “factory” of 3D metal printing units that can print parts and products on demand, with no minimum order size.  The parts will be lighter, cheaper and more efficient than what could have been fabricated in the past.  One analyst is forecasting that sales of industrial 3D printers could reach $18 billion by 2021.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice. 

A roundtable of prominent CEOs was asked an intriguing question: what makes an irreplaceable employee?  How would you describe this person?  You might think their answer would cite extraordinary skills, a great educational background or industry certifications.  But instead, the CEOs listed three different attributes:

A drama-free personality.  The idea here is that people who create drama are essentially selfish, and low-drama employees typically have a high commitment to perform their job well without needing a lot of personal attention, without needing people to know what a great job they’re doing. 

Operational focus.  This means they are committed to great execution of whatever it is that needs to be done. There are people who talk about ideas, but ideas are everywhere.  There is a huge difference between coming up with thoughts and ideas, or having great intention, and actually getting things done.  The most irreplaceable employees know that nothing matters until it is implemented and achieving results.  They are masters of follow-through.

Confidence and internal motivation.  Okay, those are two things, but they kind of overlap.  The irreplaceable employees are confident enough to receive and internalize positive or negative feedback and alter their actions as a result.  They are self-motivated to be the best at whatever they’re doing, and they don’t allow anything to get in their way.

The CEOs were asked why they don’t just hire only people with these traits, but the problem is that they’re not easy to spot in an interview process.  Words, and saying the right thing, isn’t necessarily an indicator that the person sitting across the desk is drama-free, focused on operational excellence, confident and internally motivated.  Everybody pretends to have those traits; you only know if they do when they’re let loose in the workplace.  And those people, alas, also seem to be kind of rare.

It’s interesting to watch economists and tech prognosticators go back and forth over whether artificial intelligence, robots and other thinking machines will kill or create jobs.  Most recently, the McKinsey Global Institute and India’s Tata Communications have come out with reports that are more optimistic about our ability to earn a living in a world where machines are doing a lot of the thinking.

Today, a remarkable 61% of all businesses are implementing artificial intelligence, up from 38% in 2016.  The artificial thinkers are engaging in computer vision and creating natural language; they are becoming virtual assistants and facilitating machine learning and better decision making.  McKinsey expects the world to experience an additional 1.2% a year in GDP growth over the next ten years due to these enhanced business capabilities—equating to $13 trillion in additional wealth for the global citizens.  At the same time, skilled jobs will be in higher demand—and therefore, skilled workers will be able to demand higher income, and the companies will be able to pay it.

Tata’s report predicts that, just like software did, the AI-enhanced computers will create a lot of new ways of working—essentially meaning new jobs and careers. The McKinsey report basically agrees, but says that there will be a challenge for today’s less-computer-literate workers; they will need to be retrained to use or work alongside automation—called “reskilling” in the HR lingo.  Otherwise, their opportunities will fall to 30% of all jobs, down from 40% of all jobs today held by people who are not computer literate. 

To take an example, chances are you’ve waited in an endless line to return an item at your favorite store, and there was a lot of time and trouble once you got to the front of the line.  Now companies have staffers approach people in line with iPads in hand.  They can look up the customer’s purchase, instantly identify or scan in the item they’re returning, and even look up buying history and make recommendations on whether to exchange or get a refund.  The whole customer service model changes with technology.  The McKinsey report also talks about unexpected demand for skills.  Its previous report did not predict today’s massive demand for mobile app developers.

The picture of the world that emerges from these reports is similar to the changes that software brought about a generation ago: machines and people will collaborate to handle more data faster and in increasingly creative ways to innovate and solve problems.  The key skillset will be the ability to continually learn and adopt new skills.  For those who already have this important facility, it sounds like an exciting future.

The median retirement portfolio account balance for persons age 56-61 is just $25,000—which is obviously not enough for a healthy retirement and suggests that many Americans followed less-than-healthy savings habits.  In fact, this amount could have been accumulated simply by saving $6 a month in a 60% Stock and 40% Bond portfolio (or a “60/40”) from 1980 to the present.
 
 
A recent blog post by New York-based research director Michael Batnick calculates how procrastination impacts the amount that would have to be saved in order to afford that comfortable retirement.  He starts by noting that the 90th percentile pre-retiree has managed to save $855,000.  Then he imagines that a hypothetical person starts her work life in 1980, and invests in an evolving portfolio, 80% stocks, 20% bonds from age 22 through 39, a 60/40 portfolio from age 40 through 54, and 40/60 stocks/bonds until age 60, today.  To get to $855,000 today, this person would have had to save $159 a month in the first year and increased that savings each month commensurate with inflation.
 
 
What if she waited five years before starting to save for retirement?  Then she’d need to save $327 a month to achieve the same goal.  If she waited ten years to get started, the savings would start at $570 a month and rise with inflation.  The point of the blog: if you know somebody starting out or in early earning years, invite them to consider the potentially heavy cost of waiting before they start saving—or they could suddenly, unexpectedly, end up with the equivalent of $25,000 and retirement just around the corner.


This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice, and any opinions expressed are solely those of the writer.  Past returns do not guarantee future returns.