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These 7 financial resolutions can boost your wealth for a lifetime

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Every year at this time, the financial media is filled with lists of how to be a better investor.

This got me to thinking: If these lists are so effective, why do we need a fresh set of them every year? Two answers come immediately to mind. First, investors are fickle and easily dissuaded by their emotions, compelling sales pitches and of course the ups and downs of the markets. Second, many of the items on these lists are vague and fail to tell people what they should actually do.

Ignoring that first problem, at least for now, I’m going to propose seven steps you can take that will actually make a difference.

First, let’s look at a few common “rules” that aren’t really useful.

Starting with Warren Buffett, who is widely regarded as the best of the best investors of our era, we find this well-known prescription: “Rule No. 1: Don’t lose money. Rule No. 2: Don’t forget Rule No. 1.”

Sounds good, don’t you think? But as a New Year’s resolution, what does it mean?

Unless your luck is incredibly good, any stock or fund you buy is very likely to decrease in value at some point. If you buy something for $50 a share and five minutes later its price is $49.75, have you violated this rule?

Well no. If Buffett’s advice really meant that, you could never buy anything.

So he must be saying you should never sell an investment at a loss. In other words, hang on forever to anything that is worth less than what you paid for it. Does that sound like a recipe for success? Buffett himself has been known to sell investments at a loss.

Read: Yes, it’s possible to save too much for retirement

Therefore, I have to give this “rule” for successful investing a grade of “D.” Yes, it’s thought-provoking, but it’s not helpful.

I looked at a list of “10 Key Rules of Investing” from John Bogle. Many of them are good, but they fall short of being actionable instructions that tell you what to do.

For example: “Don’t fight the last war. What worked in the past is no predictor of what will work in the future.” OK, but how is this useful? You can’t know what will work in the future, so you’re left to pilot a ship without a rudder.

Fortunately, Bogle’s list includes this: “Stay the course. The secret to successful investing isn’t forecasting or stock picking. It is about making a plan, sticking to it, eliminating unnecessary risks, and keeping your costs low.”

That’s very good, but the key thing point is “making a plan.” What should be in that plan? Will any old plan do the job?

Let’s turn to Bob Farrell, who was Merrill Lynch chief market analyst and senior investment adviser for 45 years. His widely circulated rules for investors contain good insights — but they don’t tell investors what they should do. Three examples:

• Excesses in one direction will lead to an opposite excess in the other direction.

• When all the experts and forecasts agree — something else is going to happen.

• The public buys the most at the top and the least at the bottom.

Still, if you are like most investors, probably 90%, what you really want to know is exactly what to do. Instructions, in other words.

You can always get instructions and recommendations from any broker. But what you really want are recommendations that will accomplish your goals, not Wall Street’s goals.

If your goals include higher long-term returns, less risk, and more peace of mind, you’re in the right place.

1. Save some of your money regularly instead of spending everything. Start your serious savings earlier instead of later. If you can’t sock away a lot, don’t let that stop you. If you can save (and invest) even $25 a week, that’s still $1,300 in a year, $13,000 in 10 years. Do that for 30 years and earn a compound return of 10%, and you’ll have about $214,000. (And once you start seeing the results, I’m willing to bet you’ll find ways to add more than just $25 a week.)

2. Invest in stocks by the hundreds or thousands through low-cost index funds or ETFs in a variety of asset classes. Make sure to include value stocks and small-cap stocks. Massive diversification will reduce your risks. Indexing will almost certainly improve your return as opposed to active management. Including value stocks and small-cap stocks is highly likely to improve your long-term return.

3. Pay attention to taxes. Invest in a 401(k) or similar retirement account if one is available to you — with luck, you could even get matching funds from your employer. Maximize your use of IRA accounts, and choose a Roth IRA for its long-term tax advantages.

4. Ignore what you feel, and put your investments on automatic, using dollar-cost averaging. Don’t let greed or fear determine when you invest. Recall Bob Farrell: “The public buys the most at the top and the least at the bottom.”

5. If you’re saving in an employee plan like a 401(k), make a target date retirement plan the backbone of your allocations. In one simple step, that will accomplish most of the things you should be doing. To increase your long-term return from this fund, allocate part of every contribution you make to an auxiliary fund such as a value fund, a small-cap blend fund, or a small-cap value fund.

6. Loop back to something John Bogle and many others have recommended: Stay the course. Don’t panic and don’t try to time the market.

7. Once you have done those six things, focus on living your life instead of obsessing about your investments. Stop watching the financial news, listening to hot tips from your friends, and reading the pundits who claim (without any evidence, as they say) to know what the future holds.

If you successfully and consistently do these things, I promise you’ll be among the most successful (and probably among the least stressed) investors out there.

Happy New Year!

Investors can learn some important lessons from the year that just ended, as I discuss in my latest podcast.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of “We’re Talking Millions! 12 Simple Ways To Supercharge Your Retirement.



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My fiancée’s mother asked us to raise her 2 kids, as we live in a good school district and she has a gambling addiction — then she claimed their stimulus checks

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Dear Quentin,

Last year, in February, my fiancée’s stepfather passed away. After his passing, my fiancée’s mother asked both her and me to raise her younger sons, as we had recently purchased a new home, have degrees and will be able to provide a great area for their education, such as help with homework and the ability to communicate with their schools or doctors. My fiancée’s mother cannot read, write or speak English, and she has an addiction to gambling at casinos.

COVID-19 hit soon afterward. We both were let go from our jobs, and are making it by with unemployment and savings.

With that said, in March of this year, we filed taxes and my fiancée claimed both of her brothers since they had lived with us for almost nine months of last year. We received both of their stimulus payments a few days later. About three weeks later, we found out that my fiancée’s mother had also received the stimulus payments, even though she is adamant that she did not claim her children this year.

Upon seeing the money, I advised her to leave the money as the Internal Revenue Service may eventually ask for it back. Her new boyfriend then quickly told her to withdraw it anyway. They’ll deal with it later if the IRS asks for it, he said.

My question is: Will this situation hurt my fiancée and me in any way? I fear that the IRS may find out sooner or later about the error and seek the money from us, as her mother may have already gambled away that stimulus money, and make us pay for it even though we are using it as it was intended: for bills and necessities.

Fiancé

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Fiancé,

You are correct. The IRS will eventually ask for that money back, and it will likely do so by deducting the money from a future tax refund. You are also correct that your de facto mother-in-law should not spend the money. I take my hat off to you for raising these two children, and giving them a stable home and the head start in life that they deserve.

Many people in such a situation would write complaining about how they did X, Y and Z, and their in-laws were ungrateful. But you have taken the high road, knowing that these shenanigans are between you two and your fiancée’s mother, and do not involve your girlfriend’s two younger siblings. I am glad that you have not involved them in this somewhat messy situation.

You, of course, have done the right thing. The Moneyist column has dealt with dependents who claimed the stimulus, and parents who are not guardians of their children collecting it. The $1,400 economic stimulus payment, as you are aware, is not a loan. This third stimulus check is an advance tax credit on your 2021 taxes, and calculated based on your 2020 taxes.

If the IRS does not know who is telling the truth here, it will audit both parties. The truth will come to light eventually, and your fiancée’s mother and her boyfriend should be made aware that you are not in a position to help bail them out of this situation. They have knowingly walked into it, and there should be a clear boundary between helping her children and being a facilitator to this malfeasance.

The IRS has extensive guidance on what to do when someone fraudulently claims your dependent. “If you determine the other person was not eligible to claim your dependent, you’ll need to take steps to protect your right to claim the dependent and ensure an accurate filing,” it says. You have everything you need to know in order to take proactive steps here.

I leave that for you to decide.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 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.

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I’m on track to retire at 58. My fiancée is in debt and drives my old car, and I support her family. How do I ensure my son inherits my wealth after I die?

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Dear Quentin,

I have dated my fiancée for just over three years. Within those three years, I have been severed from a job and spent two years unemployed looking for a new job. I have a new job, making roughly 75% of what I previously made, but it is a more than livable salary. My fiancée makes a modest salary in comparison to my own.

Financially, I had spent a lot of years going without in order to pay for my son’s college education and to stockpile savings in order to retire early. According to my financial planner, I am well ahead of my goal to retire at 58 (I’m 51 currently) with an IRA of around $2 million, plus savings and other liquid assets.

Currently, my fiancée is trying to get herself out of debt. She drives my old car and shares no utility bills or mortgage payments, but she does buy groceries, as the household is made up of her, her children and me. By supporting her family, I have very little I can do for my own son.

It has always been tradition in my family to leave an inheritance. I had planned on leaving my only son a rather large inheritance so that he may better himself and his family. My fiancée has children, and my concern is that if I am married (I live in Texas), the savings I have would go to her and subsequently her children, bypassing my son.

Since I am 10 years older than my fiancée, I suspect she may outlive me. How do I protect my assets so that they can be split as part of my wishes?

Nervous Fiancé and Father

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Want to read more? Follow Quentin Fottrell on Twitterand read more of his columns here.

Dear F & F,

Texas is a community-property state, so what you bring into the marriage, you also take out of the marriage. Assets accrued during the marriage, with the exception of inheritance, are deemed marital or community property.

You have several options, including setting up a living trust to allow you to transfer your wealth to your son during your lifetime, and thereby avoiding going through probate, which can be an unpredictable, cumbersome and public process.

You have two choices of trust: revocable or irrevocable. The first can be changed. You could retitle financial accounts in your son’s name. The latter cannot be changed, and also serves to save on estate taxes. It’s typically used to leave assets to children and grandchildren.

Other routes: a prenuptial agreement, a will (obviously) and naming your son as your beneficiary on your life-insurance policy. With the help of an estate planner, you can devise ways to ensure your son is taken care of after you’re gone, and your future wife is not left out.

In the meantime, ensure you keep separate property separate. If you deposit an inheritance in a joint bank account, for instance, it becomes marital property. If your fiancée contributes to the renovation of a home in your name, it again becomes community property.

Speak to your fiancée about your concerns and goals. It’s important to be transparent and ensure that you and she are on the same page, and share the same financial expectations. You may also want to wait until your wife pays her debts before marrying.

Hello there, MarketWatchers. Check out the Moneyist private Facebook
US:FB
 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.

By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.





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