Millennials Are Mooches…and Other Money Myths

There are plenty of stereotypes about how certain people behave around money — stereotypes I’ve often seen contradicted in my experience as a financial planner. Let me debunk some of these money myths for you.
Myth One: All millennials are mooches.


Market at All-time High: good time to sell?

Wall Street Thumbs Up
USA Today says that stocks are at all-time highs. So is it a good time to sell? Well…probably not.

Here’s why.

Let’s take a closer look at our article. Hmm. They say that the large companies are doing well and small companies are doing well, too.

Okay, that’s two market segments. What about the rest? I generally recommend investing in 8 market segments, not 2. Here they are:

Large Cap (large company stocks)
Large Cap Value (large company dividend paying stocks)
Small Cap
Small Cap Value
Emerging Markets
Long-term bonds
Short term bonds.

Reason 1: What happens every year:
Every year, some of these segments go up and do better than the other segments, and some don’t do so well.

So while large cap stocks and small cap stocks did well in 2013, there are other segments that didn’t do so well.

Here’s a chart of the last 15 years. It shows which segments did the best. There are people who can make a ton of money if they can figure out the pattern here. Turns out, which segments outperform the others are pretty much random.

In other words, you can’t predict it. There is no pattern.

Reason 2: You have to put your money somewhere

Let’s say that you do want to sell your mutual funds and ETFs that have done so well. Where are you going to invest the money? The money’s got to go somewhere. Since what happens next year can’t be predicted either, you have no way of knowing if you’re going to take money out and invest in something that does well in 2014.

The Solution: Invest in a well-diversified portfolio and rebalance every year

When you rebalance, you sell some of the winners and buy more of the segments that are cheap right now. Research says that rebalancing once a year is about right.

As a financial planner, I try to smooth out the financial roller coaster—to make money into a low-drama part of life. However
when the market is at a high, I say—hey, it feels good. Hang on; enjoy it.

Life is inherently paradoxical; when is the opposite of this advice true?

If you own individual stocks, it could be a great time to sell. If you own company stock options, it could be a good time to exercise them.

Bonus prediction
I don’t generally make predictions. However, I’m going to make one right now. The deficit is going to go down. We might not hear about it because the deficit going down doesn’t cause anxiety or grab headlines.

Why will the deficit go down? Because a lot of workers with stock options will exercise them and pay tax on the income. That was a huge factor in reducing the deficit in the 1990s; I think it will work now, too.


Here’s Joe: Chopping Onions and Saving Money

Joe Woods large
I’ve been watching a lot of US Open Tennis. As any fan knows, that means being inundated with commercials pitching financial advice. As a fee-only financial planner, I groan at most financial commercials partly because I suspect a lot of people get most of their financial information from them.

But I saw one (over and over) that I like!

This commercial shows Joe Woods on his first day on the job in the kitchen, wearing an apron and chopping onions. The voiceover says that his boss told him two things: cook what you love, and save money.

The narrator informs us that Joe gets promoted to waiter. Joe is still chopping, and his outfit changes to a black vest. The narrator details Joe’s many promotions and wardrobe changes. He ends up owning his own restaurant specializing in northwestern fish and game. He’s still chopping, and he’s still saving. It implies—isn’t that easy? Courtesy TD Ameritrade.

I like the commercial because it:
  1. Illustrates the first financial fundamental: save money.
  2. Implies that saving isn’t for the wealthy, it’s a path to wealth.
  3. Focuses on the actions that Joe controls rather than on what he has no control over.
The commercial would be better if it:
  1. Illustrated the first fundamental of financial planning more specifically. It would be great if it said something like, “When Joe became a waiter, he kept saving 10% of his income. Even tips.”
  2. Addressed the wide swath of people who didn’t start saving when they were bussing tables. What about everyone else?
But, let’s put this commercial in perspective. Most financial industry commercials try to get people to act by generating fear. That makes everyone watching feel slightly worse. Joe Woods models financial empowerment. Thanks Joe!

Here’s the
commercial in case you want to see it (again!)


Crisis: Real or Manufactured?

Is the “debt crisis” something to worry about?

Don't Worry about Tax Hikes

Don't believe the hype on tax hikes. And certainly don't
spend precious energy worrying about them.

A Kate and Joe were in yesterday. They are professionals
raising four kids, who, between the two of them, make around
$350,000 a year.
They were bemoaning the fact that, according
to the media, their taxes are going to go up.

When we actually looked at their numbers, I had a different
prediction: their taxes won't go up.
How could this be?
Please excuse me while I get a bit tax-geeky (and
simultaneously simplify the tax code and the political system
for explanatory purposes.)

$15,000 of the $120,000 Kate and Joe pay in federal taxes is
the dreaded "Alternative Minimum Tax" or AMT.
Alternative Minimum Tax sounds appealing, it basically limits
the deductions of people who make between $200,000 and
$600,000 a year. It usually kicks in if you pay a lot in
property tax or state income tax and earn $200-600K. Most
people who are paying it don't know they're paying it and
don't care about the distinction between regular tax and AMT.
It's all the IRS to them.

if regular tax rates rise, before Kate and Joe would
actually have to pay more, their AMT would have to go down to
For instance, if the top bracket goes from 35% to 39.6%
on people making over $250K, Kate and Joe's taxes would
theoretically increase 4.6% * 100,000 = $4600. Because they
pay $15,000 in AMT, this "tax increase" would mean they'd pay
$4600 less in AMT and $4600 more in regular tax. The net
effect of the "tax increase" would be zero.

Using my example, the tax increases that the experts are
predicting will have the biggest impact on folks making over
But Kate and Joe, and a lot of people like them,
shouldn't worry about tax increases.

That being said,
I might turn out to be wrong. Have you heard
the pundits peddling fear of tax increases admit that?

by Bridget Sullivan Mermel

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