Thursday’s need-to-know money news

Today’s top story: How to decide between investing or paying off your mortgage. Also in the news: Using payment apps in college, what you need to know about FHA mortgage insurance, and how to calculate how much an equity offer is worth in salary.

Invest or Pay Off Your Mortgage? How to Decide
Which is the smarter move?

You’re going to college: Time to start using payment apps
Streamlining your finances.

FHA Mortgage Insurance: What You Need to Know
Is it worth the cost?

Calculate How Much Your Equity Offer Is Worth in Terms of Salary
Discovering what you’re worth.

Friday’s need-to-know money news

Today’s top story: Why you might be down in an up market. Also in the news: 5 Warren Buffett quotes that can make you a better investor, 5 reasons why pay isn’t rising much for many, and how to get the most out of customer loyalty programs.

This May Be Why You’re Down in an Up Market
Don’t take unnecessary risks.

5 Warren Buffett Quotes Can Make You a Better Investor
Wisdom from The Oracle of Omaha.

Where’s my raise? 5 reasons pay isn’t rising much for many
Wages are stuck in the mud.

How to get the most out of customer loyalty programs
Playing the rewards game.

Thursday’s need-to-know money news

Today’s top story: 5 questions when shopping for a brokerage account. Also in the news: Is a robo-advisor right for you, why higher prices are squeezing both buyers and renters, and how a wife got her family out of $40,000 in debt.

5 Questions When Shopping for a Brokerage Account
What you need to know.

What Is a Robo-Advisor and Is One Right for You?
A different type of financial advisor.

Higher prices squeezing both renters and would-be homeowners
A housing shortage in parts of America is leading to higher prices.

A ‘good wife’ who secretly got her family $40,000 in debt shares how she climbed back to even
You can climb back, too.

Thursday’s need-to-know money news

Today’s top story: Cheated by student loan ‘Debt Relief” firm? What you should do. Also in the news: Rules rollback won’t keep defrauded student borrowers from loan forgiveness, 3 costly mistakes beginning investors make, and what to give and spend during Wedding Season.

Cheated By Student Loan ‘Debt Relief’ Firm? What To Do
Important steps to take.

Rule Rollback Won’t Keep Defrauded Student Borrowers From Loan Forgiveness
A little good news.

3 Costly Mistakes Beginning Investors Make
Ignore stock tips.

Weddings: What to give, what not to give, how much to spend
Wedding season is underway!

Q&A: How to find the right balance when investing

Dear Liz: My brokerage wanted me to start moving from stocks that paid me steady dividends into bonds as I got older. If I’d followed that advice, I wouldn’t be nearly where I am today. I sleep just fine with my dividends. Things can change, of course, but until I see solid evidence otherwise, I am sticking with my plan. I have no idea why the brokerage is still pushing the “more bonds with advancing age” idea.

Answer: Presumably you were invested during the financial crisis and saw the value of your stocks cut in half. If you can withstand that level of decline, then your risk tolerance is a good match for a portfolio that’s heavily invested in stocks.

The problem once you retire is that another big drop could have you siphoning money for living expenses from a shrinking pool. The money you spend won’t be in the market to benefit from the rebound. This is what financial planners call sequence risk or sequence-of-return risk, and it can dramatically increase the odds of running out of money.

Perhaps you plan to live solely off your dividends, but there’s no guarantee your buying power will keep up with inflation. Most people, unless they’re quite wealthy, wind up having to tap their principal at some point, which leaves them vulnerable to sequence risk.

There’s another risk you should know about: recency bias. That’s an illogical behavior common to humans that makes us think what happened in the recent past will continue to happen in the future, even when there’s no evidence that’s true and plenty of evidence to the contrary. During the real estate boom, for example, home buyers and pundits insisted that prices could only go up. We saw how that turned out.

Bonds and cash can provide some cushion against events we can’t foresee. The right allocation varies by investor, but consider discussing your situation with a fee-only financial planner to see how it aligns with your brokerage’s advice.

Monday’s need-to-know money news

Today’s top story: How to deal with a mooching friend. Also in the news: 11 ways to save money on Entertainment, how to invest $100,000, and how insurance can help save wedding disasters.

Ask Brianna: How Do I Deal With a Mooching Friend?
Making tough decisions.

11 Ways to Save Money on Entertainment
While still having fun.

How to Invest $100,000
Strategic investing.

Wedding gone wrong? Insurance could help set things right
A silver lining.

Q&A: Investment advisor’s fees

Dear Liz: Two years ago I rolled my 401(k) into an IRA at the suggestion of an advisor after I lost my job. The rollover was $383,000, and a secondary amount of $63,000 was transferred from my after-tax savings to a second account. All the fees for the advisor are taken from my small account and are 1.5% annually. My IRA is now at $408,000. Assuming an average earnings of 3% annually ($12,000), and with the advisor taking 1.5% ($6,000), I’m thinking this is not beneficial to me financially and that can I do better. Also, why is the advisor taking his fee out of my small (after-tax) account? I am 67 and filed for full Social Security in January.

Answer: You should ask your advisor to confirm this, but withdrawals from the smaller account are likely to trigger a smaller tax bill since most of the money there has already been taxed. A withdrawal from your larger account, which is presumably all pre-tax money, would result in a larger tax bill for you.

That’s the end of the good news. Given your age, with perhaps decades of retirement ahead, a good benchmark for you to use to compare your returns would be Vanguard’s Balanced Composite Index, which tracks the performance of funds that have 60% of their portfolios in stocks and 40% in bonds. The index returned 8.89% in 2016 and has a three-year average of 6.49%. Even a portfolio with a much lower proportion of stocks would have gotten better results than you did. Vanguard’s Target Retirement 2015 fund, with a stock exposure of less than 30%, earned 6.16% last year and 4.04% on average over the last three years.

Investment performance shouldn’t be the only way you judge an advisor, but giving up half your returns to fees could dramatically reduce the amount you have to live on in retirement.

Fortunately, you have options. You could hire a fee-only planner who charges by the hour to design a portfolio for you, and implement it yourself at one of the discount brokerage firms such as Schwab, Vanguard, Fidelity or T. Rowe Price.

Or you could explore the digital investment options known as robo-advisors, which invest and rebalance your money using computer algorithms. Some of the pioneers in this field include Betterment, Wealthfront and Personal Capital. Schwab, Vanguard and T. Rowe Price also offer digital investment services directly to consumers, while Fidelity offers it to advisors.

If you still want the human touch, some of the services — including Betterment, Personal Capital, Vanguard and T. Rowe Price — combine digital investment with access to advisors.

Monday’s need-to-know money news

Today’s top story: How to invest $50,000. Also in the news: Ditching student debt through monster payments, funding a wedding while paying student debt, and what we can learn from rich people who are bad with money.

How to Invest $50,000
Making the wise choices.

How I Ditched Student Debt: ‘Monster Payments’
Using monster payments to pay off your student debt faster.

Ask Brianna: How Can I Fund a Wedding and Pay Student Debt?
Managing two large expenses.

What We Can Learn From Rich People Who Are Bad With Money
Learning from other people’s mistakes.

Friday’s need-to-know money news

Today’s top story: Disputing credit card purchases. Also in the news: Accepting money from parents, 3 investing lessons from the First Lady of Wall Street, and why the IRS wants a piece of your March Madness winnings.

You Can Dispute Credit Card Purchases, But Should You?
Use, don’t abuse.

Ask Brianna: Should I Accept Money From My Parents?
The pitfalls of being an adult.

3 Investing Lessons From the First Lady of Wall Street
Meet Muriel “Mickie” Siebert.

You won your March Madness office pool! Congratulations! now pay your taxes
One shining moment for both you and the IRS.

Q&A: Investing during retirement

Dear Liz: I’ll be retiring shortly. After 30 years of public service, I’m fortunate to have a generous pension. I’ll be paying off all my debts upon retirement, including my mortgage. I have a deferred compensation account that I will leave untouched until I’m required to take disbursements at 70 1/2 (15 years from now). Until then I will have disposable income but no significant tax deductions. Short of investing on my own in a brokerage account (and perhaps incurring capital gains taxes), are there any other investment vehicles that perhaps would be tax friendlier?

Answer: A variable annuity could provide tax deferral, but any gains you take out would be subject to income tax rates, which are typically higher than capital gains rates. (Annuities held within IRAs are subject to required minimum distributions starting after age 70 1/2. Those held outside of retirement funds will be annuitized, or paid out, starting at the date specified in the annuity contract.) Also, annuities often have high fees, so you’d need to shop carefully and understand how the surrender charges work.

Many advisors would recommend investing on your own instead and holding those investments at least a year to qualify for lower capital gains rates. This approach is particularly good for any funds you may want to leave your heirs, since assets in a brokerage account would get a “step up” in tax basis that could eliminate capital gains taxes for those heirs. Annuities don’t receive that step-up in basis.

You also shouldn’t assume that waiting to take required minimum distributions is the most tax-effective strategy. The typical advice is to put off tapping retirement funds as long as possible, but some retirees find their required minimum distributions push them into higher tax brackets. You may be better off taking distributions earlier — just enough to “fill out” your current tax bracket, rather than pushing you into a higher one.