Retirement Weekly: Spread the love — and 3 other things new investors need to know

An extraordinary number of people began investing for the first time during the COVID-19 pandemic, and it’s exciting to see how engaged they are about entering the market. At Schwab we call this cohort of new investors “Generation Investor” (or Gen I), and our research shows that they make up 15% of all current U.S. stock market investors. With so many beginners starting their investing journey at once I thought I’d offer them four pieces of practical advice.

But first, it’s worth sharing a few things we’ve learned about Gen I this past year. Schwab conducted two different studies exploring what drives new investors’ decision making, investing priorities, goals, expectations, and more.

The research shows that Gen I investors are confident in themselves and bullish on the markets. They’re not afraid to consider a range of investments from blue-chip companies and funds to “meme” stocks and cryptocurrencies, and they see the fun and excitement in investing. That said, they’re by no means flippant or unserious about how they manage their finances. They’re planners, and their time horizons tend to be long-term.

I love the combination of energy, engagement, optimism, and pragmatism that Gen I brings to investing. These aren’t just careless speculators, but an eager group of new investors looking to understand and learn. At the same time, a unique thing that Gen I investors share is having only seen one market cycle. But market cycles change, and new investors have to be prepared.

That brings me to my four pieces of advice for them:

1. Do a stress test – Every investor must know their risk tolerance, and it can be hard to measure when markets are rising. But you have to really test yourself to understand how much risk you’re willing to take—both financially and psychologically. Ask yourself, could you afford to lose a significant portion of the money you’re investing? How would you react to a 20% drop in your portfolio? If the answers are “no” and “poorly,” you should invest in ways more in line with your risk tolerance.

Read: Stressed about market volatility and want to change your investments? Do these 5 things before making a move

2. Spread the love – Tech stocks and crypto can be exciting, but beware of overconcentration. A mix of assets can help reduce the impact of any single investment on your portfolio’s performance. Also, when one asset class does poorly, others may do well. So spread the love. Diversify your risks across asset classes, sectors and regions. Make some investments that you may even consider boring — things like bonds. Having a robust mix of holdings can help smooth out the ride.

3. Avoid drift—As markets rise and fall, your portfolio can drift. Consider repositioning assets that have become oversize in relation to the rest of your portfolio and move that money into positions that have become undersized. Staying invested is key to long-term success, but being a prudent investor requires trimming from positions that have increased and caused a portfolio to get out of alignment. This can be emotionally challenging, because you’re selling positions in investments that have gone up, but avoiding drift helps ensure that your portfolio aligns better with your risk tolerance. It’s a good practice to rebalance at least once a year, and potentially more frequently if markets make big swings. Keep in mind, though, that there may be tax implications and other costs associated with selling investments.

4. Choose wisely – Consider where you invest. What kind of tools and services do they offer, and how can you interact with them if you need guidance or have a question about market volatility? A great investing app is important, but not enough for most new investors. Our research revealed that when markets see significant swings upward or downward, 84% of Gen I want access to a person to talk about it. So look for a combination of great tech and human support.

It’s undeniably great news that so many people have started investing over the past 18 months, and we’re encouraged by what we see in the instincts among Gen I to plan. If and when the market cycle changes, having a good plan in place will be critical.  

Amy Richardson is a Certified Financial Planner professional with Schwab Intelligent Portfolios Premium, Schwab’s hybrid digital advisory service which combines a fully automated investment portfolio with a comprehensive financial plan and unlimited guidance from a Certified Financial Planner professional.

The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.

Investing involves risks, including loss of principal. Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.

Schwab Intelligent Portfolios Premium® are made available through Charles Schwab & Co., Inc. (“Schwab”), a dually registered investment adviser and broker-dealer. 1121-1KDR

Encore: New proposal would improve Social Security’s finances and modestly enhance benefits

Rep. Al Lawson (D-FL) recently proposed a piece of Social Security legislation, which has been scored by SSA’s Office of the Chief Actuary. The Lawson proposal is the second major Social Security bill in a month. following Rep. John Larson’s (D-CT) Social Security 2100: A Sacred Trust.  

As a reminder, the Social Security actuaries project a program deficit over the next 75 years of 3.54% of taxable payrolls. This deficit reflects the combination of rising costs and constant levels of income (see Figure 1). The increasing costs are the result of a slow-growing labor force and the retirement of baby boomers, which raises the ratio of retirees to workers. Social Security’s deficit can be eliminated either by bringing up the income rate and/or lowering the cost rate.  

Read: Social Security proposal would raise revenue and temporarily enhance benefits

Both the Lawson and Larson bills maintain current benefits — that is, they do not reduce the cost rate. Instead, they raise the income rate by lifting the cap on maximum taxable earnings. The area where the two bills differ the most is benefit enhancements. Whereas the Larson bill proposes a dozen enhancements for a five-year period, the Lawson bill offers four enhancements on a permanent basis. 

What does the news mean for your wallet? Sign up for Personal Finance Daily to find out

Specifically, the Lawson legislation proposes to:

  1. Use the Consumer Price Index for the Elderly (CPI-E), which historically has risen faster than the CPI-W price index currently used for Social Security, to adjust benefits for inflation.
  2. Extend student benefits up to age 23 if full-time students. 
  3. Increase the special minimum benefit for workers with very low earnings and index it by the growth in average wages.
  4. Establish an alternative benefit for surviving spouses equal to 75% of the couple’s benefit (subject to an upper limit).

To pay for these benefit enhancements and, more important, to reduce the 75-year deficit, the Lawson legislation would apply the payroll tax on earnings above $250,000 and on all earnings once the taxable maximum reaches $250,000. The legislation would apply a 2% benefit factor on average earnings above the current law maximum. 

Read: This hidden wrinkle in Social Security can help you decide when to file for benefits

Enactment of these benefit and revenue provisions would cut Social Security’s long-range deficit roughly in half, from 3.54% of taxable payroll to 1.88% (see Figure 2). 

Both bills have some favorable aspects: they maintain current benefits and they raise additional revenues, although at least the Larson bill appears limited in the revenue-raising efforts by President Biden’s pledge not to raise taxes on households earning less than $400,000.

In terms of benefit enhancements, both “spend” a lot of future revenue switching from the CPI-W to the CPI-E for indexing benefits. Personally, I wouldn’t bother. The other benefit changes in the Lawson bill are relatively small and positive. Most important, they are permanent, avoiding the chaos likely to be created by the temporary enhancements in the Larson bill.

In the end, however, any solution ­­is likely to involve a modest increase in the payroll tax rate, a change that would raise taxes on those with less than $400,000.      

NerdWallet: Living longer often means more years spent with serious illness—learn how to increase your health span

This article is reprinted by permission from NerdWallet

We’re living longer on average, but the number of years we’re healthy hasn’t kept up. This lagging “health span” translates into more time living with serious illness and disabilities at the end of our lives.

This can have significant repercussions for our retirements. Some of us will have our working lives cut short by ill health, reducing how much money we can save for our futures. Others will face big bills for medical and nursing home care. Then there is the emotional toll of struggling with poor health rather than traveling, visiting the grandkids and engaging in all the other activities we’d planned for our golden years.

It doesn’t necessarily have to be this way. Many of the biggest risk factors for poor health are within our power to modify, prevent or control, says R. Dale Hall, managing director of the Society of Actuaries Research Institute, which provides research on managing risks. But as with retirement saving, the earlier we get started, the better.

Learn the 5 health span risk factors

The institute commissioned Vitality, a company that partners with insurers and employers to promote healthier living, to conduct a study that identified five lifestyle risk factors with the largest impact on health span: tobacco use, obesity, high blood sugar, poor diet and high blood pressure.

Read: These simple (and tasty) diets help reduce your blood pressure and heart disease

The researchers also highlighted ways to modify those risks, including quitting smoking, engaging in physical activity, eating a healthy diet and taking medications as prescribed.

Read: The best reason of all to postpone retirement

The study relied on data from the Global Burden of Disease, a resource maintained by the University of Washington’s Institute for Health Metrics and Evaluation that tracks the prevalence of diseases and risk factors worldwide, along with the relative harm they cause. The GBD shows average remaining life expectancy at age 65 in the U.S. rose from 17.6 years in 1990 to 19.6 years in 2019, a two-year gain. Healthy life expectancy, on the other hand, rose less than one year, from 12.2 years to 13.1 years.

That echoes similar statistics from the World Health Organization, which found that U.S. life expectancy at age 60 rose nearly 8% between 2000 and 2019, but healthy life expectancy rose less than 5%.

Related: Seniors who are obese run higher cancer risks

Recognize the other barriers to healthier living

The GBD has some limitations: It doesn’t track the impact of well-established prevention strategies such as immunizations and screenings, or account for risk factors such as stress, depression, lack of sleep, loneliness and lack of purpose, the Vitality researchers said.

It’s also important to acknowledge that there can be huge systemic barriers to healthier living. If you live in an area with limited access to fresh fruits and vegetables, it’s harder to eat well. If you live in crowded housing in an unsafe neighborhood, getting enough exercise can be tough. If you must choose between buying medication and food, you’re unlikely to fill the prescription your doctor wrote for you — assuming you can afford to visit a doctor. The more money you have, the better access you have to the key health interventions that help people live a longer life in good health.

Even when we have enough money, our behavioral biases can get in the way — particularly our tendency to value present gratification over future gain.

“I’d honestly rather sit on the couch and eat the bag of crisps rather than go for the run,” says Tanya Little, Vitality’s chief growth officer. “And yet future me would thank me for going for the run now.”

Identify one area for change

Similarly, we may choose inaction over action if we’re asked to change too much, Little says. Instead, Vitality’s programs identify one change that would have the biggest impact based on each person’s health and lifestyle profile.

“This idea of an endless list is totally overwhelming and demotivating,” Little says. “Whereas if I say to you, ‘If you just did this one thing’ … you are much more likely to do it.”

You might like: Beat the blues this holiday season by keeping in touch with older family and friends all year

Once people make progress on a single goal, they’re often inspired to change others, Little says. People who get more exercise often start to eat healthier, for example.

Healthy habits don’t make us immune to illness and disability, of course. But minding our health improves the odds we’ll have many more years to enjoy.

If you’d like to see what Vitality recommends for you, as well as its estimate of your life and health spans, you can visit the company’s calculator.

More From NerdWallet

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

The Moneyist: My late mother’s will was signed under ‘suspicious circumstances.’ My father ransacked $2M from her estate — he now lives with his much younger wife.

Dear Quentin,

My darling mother died in 2008 in Florida. Her will — in my opinion fake, but I can’t prove it — was signed weeks before her death under suspicious circumstances, and creates a trust. 

That trust stipulates that her husband, my father, gets to use the income from her estate until his death, at which time her estate is to be distributed to her three children or their heirs. Unfortunately, it also named her husband executor. 

My father is independently wealthy; my guess is he was worth $15 million in 2008. He doesn’t need a home, as he lives with his new and much younger wife in her home. We children are well aware that all of his money is going to her and her children, in Australia, and we agree we have no claim to it.

As soon as the funeral was over, my father took all of my mother’s investments, a CD worth $1 million and a mutual fund worth $300,000. They have vanished. He sold my mother’s Florida home quickly and pocketed $250,000. 

‘My father took all of my mother’s investments, a CD worth $1 million and a mutual fund worth $300,000. He sold my mother’s Florida home quickly and pocketed $250,000. ‘

Later, he sold her Illinois home and pocketed that — $500,000. He auctioned her possessions and raised over $100,000, and took that. There’s more, but I’ll drop it. His takings exceed $2 million. We do not get the earnings, so the number in 2008 is the number.

Counsel says that under Florida law no reading of the will is required, and next of kin do not have to be notified. What is missing is annual accounting to her beneficiaries of her estate’s net worth and income distribution, but we have no way to compel it, since the lawyer is compromised by representing my father.  

Further, counsel says that no recovery can be made until the husband dies and his will is executed. My sister is dead and her two children will not participate. Nevertheless, my brother and I agree that we will offer them each one-sixth of anything we recover. Can we reimburse ourselves first? It is likely they will not respond. What do we do then?

Anyway, I have lost hope. My father is close to 90 and appears to be losing his cognitive abilities, but he still manipulates everyone. Is there any strategy that might manifest my mother’s will to benefit her children?

Seeking Justice and Lost Inheritance

Dear Seeking,

The first thing you should seek is independent counsel.

There’s so much to unpack here, least of all your feelings about your father, and your suspicions about the legality of your mother’s will, and the way her trust has been managed or, indeed, mismanaged. One word of caution: Your belief that there was a fake will may not bear out.

The truth could be far more mundane than the willful ransacking of her estate outlined in your letter — an estate left in the hands of one person. I don’t want you chasing ghosts, and I don’t believe it’s healthy to chase dragons.

Florida law states that there is a three-month statute of limitations to contest a will, a time period that can only be extended if there was fraud, misrepresentations or misconduct. (You can read more about the Florida statute on that time limit here.)

It’s always important to act swiftly in such cases of uncertainty surrounding the legitimacy of a will or trust. You have — in all likelihood — allowed far too much time to pass since your mother’s death to take legal action now.

‘Your belief that there was a fake will may not bear out. Additionally, you have already allowed too much time to pass since your mother’s death. ‘

You have also far exceeded the statute of limitations for contesting a trust. There is also a different statute of limitations for contesting a trust — due to lack of mental capacity, for instance, or undue influence — and filing a lawsuit for breaching a trust. Those time periods can run from six months to four years.

You may have more luck holding your father to account for his management of the trust, assuming you and your siblings are qualified beneficiaries. Radio silence is not typically an option when managing a trust in Florida.

According to this Florida statute, the trustee should keep the beneficiaries reasonably informed. “Upon reasonable request, the trustee shall provide a qualified beneficiary with relevant information about the assets and liabilities of the trust and the particulars relating to administration,” it states.

‘You may have more luck in holding your father to account for his management of the trust, assuming you and your siblings are qualified beneficiaries.’

The law firm Comiter, Singer, Baseman & Braun outlines the process for compelling a trustee to provide annual accounts and relevant details of the trust’s assets and liabilities. The trustee is obliged to give notice to the beneficiaries of the trust’s existence and the identity of the settlor/settlors, among other acts of transparency.

“When a trustee does not comply with the Florida Trust Code’s requirements they may be in breach,” the law firm says. “A trustee who is in breach of his or her duties as a trustee may be compelled by the court to account and/or provide information to a qualified beneficiary.”

Your mother could have left a separate trust for her children. It’s difficult to know her thinking. Perhaps she thought it best to leave her husband in charge of her estate. Or maybe she believed he would pass it on to her children.

This has dragged on for 15 years. Don’t allow it to usurp the next 15.


You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

More from Quentin Fottrell:

My married sister is helping herself to our parents’ most treasured possessions. How do I stop her from plundering their home?
My mom had my grandfather sign a trust leaving millions of dollars to two grandkids, shunning everyone else
My brother’s soon-to-be ex-wife is embezzling money from their business. How do we find hidden accounts?
‘Grandma recently passed away, leaving behind a 7-figure estate. Needless to say, things are getting messy’

The Ratings Game: Honeywell stock leads the Dow’s losers after BofA analyst backs away from bullish stance

Shares of Honeywell International Inc. took a hit Wednesday, after BofA Securities analyst Andrew Obin said he no longer recommended investors buy, citing expectations that inflation and supply-chain headwinds will continue into next year.

Obin downgraded the diversified industrial company to neutral from buy. He also cut his stock price target to $245 from $270.

Honeywell’s stock HON, -1.52% fell 1.6% in midday trading. It had bounced 2.7% over the previous four sessions, since closing on Dec. 1 at a 10-month low of $199.42.

The stock’s price decline of $3.29 shaved about 22 points off the Dow Jones Industrial Average’s DJIA, -0.23% price, while the Dow declined 84 points, or 0.2%.

BofA’s Obin said “there is a lot to like” about Honeywell, as recent investments have shifted the company business toward higher growth and margins, but he believes the company is likely to face revenue and margin pressures into the first half of 2022.

Honeywell Chief Financial Officer Gregory Lewis said at the company’s “Leadership Webcast Series” last month that fourth-quarter revenue was trending to the low-to-middle end of expectations given the “severity of the constraints” in the economy from parts shortages and logistics and labor challenges, according to a FactSet transcript.

And while the company was doing what it could to alleviate the challenges, including raising prices and compensation, Lewis said it was “going to be a real fight.”

“It’s going to be with us for a while,” Lewis said. “It’s really hard to say whether we’re seeing the peak right now, but I would say to just kind of reiterate, I think we’re going to see some of these challenges going into the first half of next year.”

He highlighted, however, that “demand is not the issue,” it’s meeting that demand.

BofA’s Obin said given the near-term headwinds, he believes the scope for upward earnings revisions and valuation multiple expansion is limited.

“We believe [Honeywell] is a high-performing multi-industrial, with the sum worth more than the parts,” Obin wrote in a research note to clients. “However, our sum-of-the-parts analysis does not support further multiple expansion in the near term.”

The stock has slumped 9.2% over the past three months, while the SPDR Industrial Select Sector exchange-traded fund XLI, +0.08% has tacked on 2.1% and the Dow has gained 1.7%.