MONEY Wealth

How Do You Get Wealthy in America?

We hit the streets of New York City to find out what people think is the key.

Folks in Times Square seem to think hard work is the key to getting wealthy in America. Some said starting a small business or working for yourself was the way to go, while some seem to think working your way up in one company from the bottom to the top is the key to wealth. But perhaps the most enlightened answer was compound interest. Starting to save in your 20s—whether in a 401(k), an IRA or another investment account—gives your money the opportunity to grow exponentially by the time you retire.

MONEY Investing

3 Steps to Protect Your Retirement Portfolio Against a Wild Market

Stay calm and make these three moves to stay on track to your retirement goals.

If you haven’t reflexively jettisoned stocks from your retirement portfolio in the face of the market’s recent wild swings, congrats. Panic is never a smart financial move. But staying calm in periods of upheaval may be enough either. To really get your retirement portfolio in shape for the future—whatever it may bring—you need to take these three key steps.

1. Take stock of all your holdings. To choose the right path going forward, you need to know where you stand now. Start by toting up the current value of all your retirement investments and calculating the percentage that is in stocks and in bonds. This should be a pretty straightforward exercise. But if you own funds or ETFs that own a combination of stocks and bonds, you can figure out the percentage of each by plugging the fund’s name or ticker symbol into Morningstar’s Instant X-Ray tool.

You can do a finer breakdown if you like—small vs. large stocks, international vs. domestic, short- vs. intermediate- or long-term bonds, etc. But the main thing is to get an accurate overview of your current asset allocation, since the split between stocks and bonds will largely determine how your portfolio will fare in the future, regardless of whether the market declines or surges.

2. Re-assess your risk tolerance. Even if you’ve done a risk assessment within the last few years, it makes sense to do another given the market’s recent volatility. The reason is that many investors underestimate the true risk they’re taking in stocks when the market is surging, as it has done over most of the past six or so years. That miscalculation can lead investors to invest more aggressively than they should, a problem that becomes apparent when the market heads south and they realize they’re in over their heads and begin unloading stocks in a hurry.

So take this time to do a quick gut check. Specifically, you can complete Vanguard’s free 11-question risk tolerance-asset allocation questionnaire. This tool will help you estimate how much of your portfolio should be in stocks vs. bonds based on, among other things, how large a setback you feel you could handle without dumping stocks wholesale and how long you expect keep your money invested. More important, you will come away with an assessment your tolerance for risk that reflects the realities of today’s precarious market.

3. Get your portfolio in sync with your gut. The Vanguard risk tool will also recommend a specific blend of stocks and bonds that’s appropriate given your appetite for risk. You will then want to see how that suggested mix compares with how your retirement portfolio is actually invested today. Unless you’ve been rebalancing your holdings regularly, you may very well find that your portfolio has become much more heavily invested in stocks over the past five or six years, a natural consequence of the fact that stocks have outgained bonds by a margin of nearly seven to 1 since the market’s trough in 2009.

If for whatever reason you find that there’s a big disconnect between your portfolio’s asset allocation and the one recommended by the risk-assessment tool, you must decide how to reconcile the difference. One way to do that is calculate how each portfolio would have performed in a past severe downturn such as the 2008 financial crisis when stocks lost almost 60% of their value and bonds gained roughly 8% from the market’s high in late 2007 to its low in early 2009. You can then consider which you’d be more comfortable holding if the market spirals downward from here.

On the other hand, going with the portfolio that will hold up better under duress could leave you with a portfolio mix that can’t generate returns large enough to build an adequate nest egg. If that’s the case, you may want to sacrifice a little short-term security for a shot at loftier long-term returns with a higher octane blend, even if that means having to ride out some scary downturns. You can get an idea of how likely different portfolios are to give you a shot at a secure retirement by plugging different mixes of stocks and bonds into a good retirement income calculator that uses Monte Carlo simulations to make its projections.

There are other things you can do to get your portfolio in shape for a possible market downturn. For example, you might take this time to rid your portfolio of any investments that seemed to make sense at the time you bought them but on further reflection don’t really fit into your overall strategy (although beware that selling in taxable accounts could trigger a taxable gain). Similarly, you may want to consider unloading funds with high annual expenses, as annual charges that may have seemed insignificant while the market was soaring may represent an unacceptable drag on returns when the market stalls or declines. Once you’re confident you’ve got your portfolio where you want it to be, you may also want to go further and crash-test your overall retirement strategy to determine whether your retirement plans would hold up during a prolonged market slump.

The most important thing for now, though, is to go through the three-step process I’ve described above, and do so sooner rather than later. Because your options for containing the damage will be much more limited if the market’s recent unruly behavior turns into a full-fledged rout.

Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at You can tweet Walter at @RealDealRetire.

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MONEY mutual funds

Why Trouble in China is Hitting Your 401(k)

How China's economic turmoil affects your investments.

You aren’t a currency trader. You don’t play in Shanghai’s boom-and-bust stock market. (It was only beginning to open to investors when the crash hit.) But if you have some money in a 401(k) or an IRA, you have a stake in the news coming out of China, even if you hardly think of yourself as a global investor.

The China bet in your mutual funds. If your portfolio includes an international-stock fund, it likely holds some Chinese companies that list shares on the Hong Kong or New York exchanges. For example, Vanguard Total International Stock Index Fund, the biggest foreign-stock fund, holds a bit less than 5% of its assets in China. At least as important are such funds’ holdings in countries like Brazil that sell a lot of raw materials. As China’s resource-hungry manufacturing economy slows, “the No. 1 thing getting shellacked is commodities,” says Robert Johnson, director of economic analysis at Morningstar. That has hurt commodity-producing countries.

Ripple effects close to home. A significant chunk of U.S. investments are closely linked to China. About 10% of the S&P 500—the benchmark followed by most fund managers—is in energy or basic-materials stocks, and those are down sharply this year.

More broadly, China’s surprise move to devalue its currency “reinforced the perspective that all is not well in the Chinese economy,” says Harry Hartford, president of Causeway Capital Management. China may be slowing even faster than investors thought. American multinationals hoping to sell to a rising Chinese consumer, particularly automakers, report that sales are slipping.

The smart move: stay diversified. As big as the events in China may feel right now, that doesn’t mean you have to act. “There’s very little evidence that individual investors are great at timing stocks,” says Research Affiliates chief investment officer Chris Brightman. (Don’t feel bad: pros have a lousy record too.)

If you are tempted to bail out of an international fund right now, bear in mind that U.S. stocks are hardly a haven. Looking at prices compared with the past 10 years of earnings, the stocks on the S&P 500 are relatively expensive. On the one hand, bad news about China might be the thing that breaks the bull market’s so-far optimistic psychology. Or maybe the market decides that slower global growth will continue to hold down interest rates, which could support high equity valuations for a while longer.

Instead of trying to guess, make sure you have a portfolio that can handle shocks. Hold many different kinds of stocks, along with enough in bonds and cash to get you through the bad years. China just shows that the markets are full of surprising risks–and they can come at you from the other side of the globe.

Read next: Why Investing in the Stock Market Isn’t Like Gambling

MONEY stocks

Wall St. Ends Sharply Down on Chinese Economy Concerns

Dow Jones Average Continues Sharp Decline
Andrew Burton—Getty Images A trader works on the floor of the New York Stock Exchange during the afternoon of August 20, 2015 in New York City. The Dow Jones continued its plunge south, losing over 350 points today.

The S&P 500 hit a 6-month low on Thursday.

The S&P 500 hit a more than six-month low on Thursday, closing in negative territory for the year, on concern a deceleration in the Chinese economy would translate into slower global growth.

Consumer stocks led the decline on Wall Street with Disney down 6% after a brokerage downgrade, while Apple fell 2% after a report that overall smartphone sales in China fell in the second quarter.

Lingering concern over the Chinese economy was underscored by a near 8% slide in a major stock index so far this week and after the Commerce Ministry said Wednesday exports could continue falling in coming months.

“The largest issue is certainly the fact that we don’t know how much the Chinese economy is slowing,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

“That’s manifesting itself in lower oil prices,” he said, pointing to the correlation between stocks and crude futures.

U.S. crude edged higher after earlier hitting its lowest since March 2009, while Brent dropped 2.3% to hit its lowest since January.

The 14-day correlation between the S&P 500 and Brent prices is at a five-month high.

The Dow Jones industrial average fell 358.04 points, or 2.06%, to 16,990.69, the S&P 500 lost 43.88 points, or 2.11%, to 2,035.73 and the Nasdaq Composite dropped 141.56 points, or 2.82%, to 4,877.49.

The S&P 500 and Dow posted their largest daily percentage drops since Feb. 3, 2014, while the Nasdaq had its biggest loss since April 10, 2014.

The S&P 500 is now down 1.1% year-to-date. It also traded below its 200-day moving average for the full session, something not seen since last October.

At its session low on Thursday, the S&P 500 was down 4.6% from its record intraday high set in late May.

Disney WALT DISNEY COMPANY DIS 0.3% slumped 6% to $100.02 and Time Warner TIME WARNER INC. TWX -0.6% fell 5% to $73.90, leading a rout in media stocks after a Bernstein downgrade that cited a massive structural upheaval in the industry.

“The pattern didn’t change overnight but it got called by Disney for the first time on their earnings,” said Hogan.

Disney shares have fallen 17.8% since reporting earnings earlier this month.

Apple APPLE INC. AAPL 0.43% fell 2.1% to $112.65 after a Gartner report said China smartphone sales fell for the first time ever on a quarterly basis in the second quarter. Apple counts China as a key growth market.

One bright spot in tech stocks was NetApp NETAPP INC. NTAP 0.73% , up 3.4% to $30.78 after the data storage equipment maker’s results beat expectations.

NYSE declining issues outnumbered advancers 2,612 to 457, for a 5.72-to-1 ratio; on the Nasdaq, 2,396 issues fell and 437 advanced, for a 5.48-to-1 ratio favoring decliners.

The S&P 500 posted 4 new 52-week highs and 40 new lows; the Nasdaq Composite recorded 16 new highs and 208 new lows.

About 7.9 billion shares changed hands on U.S. exchanges, above the 6.7 billion daily average so far this month according to BATS Global Markets data.

Read next: Should I Invest in Stocks Or in a Stock Mutual Fund?

MONEY financial advice

How to Manage Your Finances Without an Adviser

woman painting $20 bill on wall with roller
Getty Images

A financial professional explains how to avoid needing his help.

As a financial planner, I’d like to let you in on a little secret: Everyone has the ability to manage their finances on their own. In theory.

The information and knowledge you need to make the right financial decisions is at your fingertips. You simply need to do three things: learn, apply and manage. Let me explain:

Learn the Fundamentals

There is a ton of technical financial information out there, and it takes time to learn what you need to know. The Internet, though, has made this process easier.

You need to focus your attention on these areas:

  • General principles of financial planning
  • Insurance
  • Investing
  • Taxes
  • Retirement
  • Estate planning

If you look at those areas and feel overwhelmed, I understand. It’s a lot.

On the other hand, if you look at that list and feel that you know it all, I’d suggest rethinking that. No one out there knows it all. There is always something else to learn.

Again, the Internet makes finding this information easier, but there’s a catch. You need to carefully validate the sources of the information you collect before accepting it as true and accurate. Many financial blogs and podcasts can be extremely valuable, but others are based more on personal experience than on years of education, training, and professional work. Personal stories can help you tune in to your own situation, but they might not reflect a comprehensive understanding of finance or relevant laws and regulations.

Read next: How Do I Figure Out My Financial Priorities?

Wise Bread and Daily Finance offer advice from both bloggers and professional advisers. Bankrate has calculators that help you visualize how various savings and debt repayment strategies will impact your finances. Play with the numbers and notice how a slight adjustment to a periodic savings amount or interest rate can completely alter your results.

Apply Your Knowledge

Knowing that you need to budget and understand your cash flow is one thing, but actually doing it is another.

Start with the basics. You need to track all your money coming in (your total income) and everything going out (your fixed expenses and your discretionary spending). Once you know what your money is doing, you can set up a budget to help keep you on track from month to month. From there, you can determine what you’ll contribute to savings and investments. Make those transfers automatic.

After you set up the basics, your financial planning needs get more complicated. For example, you might start out by calculating how much money you need in your emergency reserve account, but then realize that you also need to figure out how much to save for retirement. Additionally, anyone earning income is exposed to various risks, including becoming disabled, so you’ll want to find the best way to protect yourself.

It’s all about understanding your unique circumstances, applying appropriate strategies and setting up systems to help you stay on track. There’s no right answer—only the answer that works and makes sense for you.

Much of what applying your knowledge looks like in practice is simply taking action and holding yourself accountable. It can help to write out your financial goals and check in with those regularly to remind yourself why you’re working hard to manage your money.

And to make sure you stay on the right track over time, you should set up check-in points periodically throughout the year. For example, you might want to revisit your budget monthly, your investments quarterly, and your overall financial plan annually.

Manage Your Behavior

This is by far the most challenging piece, because emotions often cloud our thinking. It can feel simple to manage our own money when times are good. However, we often fall prey to recency bias—assuming that what happened in the recent past will continue into the future. Confidence (or fear) projected into the future can distract us from making prudent decisions.

When things get stressful, you get distracted. Other things take up your time, energy, and attention, diverting you from managing your finances.

As you continue to learn, you might also find yourself confused by a myriad of opinions and different ways of doing things. Decision fatigue can set in. It can become extremely challenging to make even the simplest of decisions as you start questioning yourself and your knowledge.

After all, there’s a lot on the line—your money and your life. You don’t want to make a mistake, and you want to do everything you can to maximize your financial resources. Your decision-making can become clouded by fear, and it can just as easily be affected by greed.

To successfully manage your own money, you need to manage your own behavior. That means taking small, consistent actions over time. You need to create your plan of action and stick with it through market ups and downs, through everything from personal struggles to professional triumphs.

Why Work With a Financial Planner Anyway

All that being said, it’s worth reiterating that managing your own behavior is the most difficult part of managing your personal finances. Most people cannot do it successfully.

Most mistakes happen when people depart from rational decisionmaking with their finances. Hopes, dreams, fears, and other emotions start creeping in. We all do this.

It’s easier to manage our behavior when we have an outside perspective. While we can’t necessarily see the bigger picture when we’re immersed in it, someone looking in from the outside, from an objective point of view, may be able to help steer us in the right direction. That’s where a professional financial planner can add a lot of value.

It’s possible to manage your own money, but it’s not probable that everyone can do it successfully. There is a reason why even some financial planners have financial planners. Everything is easier when you have someone who can help hold you accountable. A professional financial planner may be able to help you find more success than you would achieve on your own—even if you know all the right money moves to make.

Get started on your own by educating yourself, applying your knowledge, and practicing smart (rational!) behavior around money management. Then, for long-term success in avoiding behavioral traps and pitfalls, consider working with a financial adviser. Carl Richards put it bluntly but accurately: It’s well worth it to “put someone between you and stupid.”

Eric Roberge, CFP, is the founder of Beyond Your Hammock, where he works virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love. Through personalized coaching, Eric helps clients organize their finances, set goals, and invest for the future.

MONEY retirement planning

The 4 Questions You Must Get Right for a Secure Retirement

senior mature man on laptop in kitchen
Getty Images

To stay on track to a comfortable retirement, focus on these four essentials.

Given the flood of often confusing and conflicting information from financial services firms, market pundits and the media, it’s easy to lose sight of what really matters when it comes to retirement planning. No doubt that’s one reason only 32% of American workers surveyed by Personal Capital reported they are very or somewhat prepared for retirement. But there’s an easy way to improve your odds of a secure post-career life: Focus on the fundamentals, which can be boiled down to these four key questions:

1. Are you saving enough? How much is enough? Well, if you get started early in your career and experience no disruptions to your savings regimen, you may very well be able to build a nest egg well into six or even seven, figures by stashing away 10% of pay each year, especially if your employer is throwing some matching funds into your 401(k). But not everyone gets that early start and sticks to it. So I think a more appropriate target—and one cited in a Boston College Center for Retirement study—is 15% a year.

Of course, if for whatever reason you’re getting a late start on your retirement planning, you may have to resort to more draconian measures, such as ratcheting up your savings rate above 15%, putting in a few extra years on the job before retiring and scouting out innovative ways to cut expenses and save more. There are a number of free online calculators that can help you estimate on how much you should be saving to have a reasonable shot at a comfortable retirement. Don’t despair if the figure the calculator recommends is too high. You can always start with an amount you can handle and then increase it by a percentage point or so a year until you reach your target rate.

2. Do you have the right investing strategy? By the right strategy, I mean tuning out the incessant Wall Street chatter and the pitches for dubious investments and concentrating instead on building a well-balanced portfolio that jibes with your risk tolerance while also giving you a reasonable shot at the returns you need to achieve a comfortable retirement. Fortunately, that’s fairly easy to do. Start by gauging your true appetite for investment risk by completing this free 11-question risk tolerance-asset allocation questionnaire from Vanguard. Then, using the mix of stocks vs. bond funds the tool recommends as a guide, create a portfolio of broadly diversified low-cost index funds.

The portfolio doesn’t have to be complicated. Indeed, simpler is better: a straightforward blend of a total U.S. stock funds, total U.S. bond fund and total international stock fund will do. The idea is to keep costs down—ideally, below 0.5% a year in annual fund expenses—and avoid toying with your stocks-bonds mix except to rebalance every year or so (and perhaps to shift your mix more toward bonds as you near and then enter retirement).

3. Are you fine-tuning your plan as you go along? Retirement planning isn’t a task you can complete and then put on autopilot for 20 or 30 years. Too many things can change. The financial markets can take a dive, a job layoff might upset your savings regimen, a health or other emergency could force you to dip prematurely into your retirement stash. So to make sure that you’re still on track to retirement despite life’s inevitable curve balls, you need to periodically re-assess where you stand and determine whether you need to make some tweaks to your plan.

The best way to do that is to fire up a good retirement calculator that uses Monte Carlo simulations. For example, by plugging in such information as your current salary, retirement account balances, how your investments are divvied up between stocks and bonds and your projected retirement date, the calculator will estimate your chances that you’ll be able to retire in comfort if you continue on your current path. If your chance of success is uncomfortably low—say, below 80%—you can see how moves like saving more, investing differently or postponing retirement might improve your retirement outlook. Doing this sort of evaluation every year or so will allow you to make small adjustments as needed to stay on track, reducing the possibility of having to resort to more dramatic (and often more disruptive) moves down the road.

Read next: This Overlooked Strategy Can Boost Your Retirement Savings

4. Have you developed a retirement income strategy? If you’ve successfully dealt with the three questions above, you’re likely well on the path to a secure and comfortable retirement. But there’s one more thing you need to do to actually achieve it: Develop a plan for turning your retirement nest egg into reliable income that, along with Social Security and other resources, will provide you the spending dough you need to sustain you throughout a long retirement.

Typically, creating such a plan involves such steps as doing a retirement budget to estimate how much income you’ll actually need to maintain an acceptable standard of living in retirement; deciding when to take Social Security to maximize lifetime benefits; figure out how much of your retirement income you would like to come from guaranteed sources like Social Security, pensions and annuities vs. draws from savings; and, setting a reasonable withdrawal rate that will provide sufficient income without too high a risk of running through your nest egg too soon.

Clearly, you’ll also want to devote some time to non-financial, or lifestyle, issues, such as thinking seriously about how you’ll live and what you’ll do after retiring, whether you’ll stay in your current home or downsize or, for that matter, even relocate to an area with lower living costs to stretch your retirement budget. But if you want a realistic shot at a secure and comfortable retirement, you need to answer the four questions above.

Read next: Why Social Security Is More Crucial Than Ever for Your Retirement

Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at You can tweet Walter at @RealDealRetire.

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MONEY financial literacy

6 Nuggets of Financial Wisdom I Wish I’d Learned in School (But Didn’t)

JGI/Jamie Grill—Getty Images

Financial literacy 101 should be a required class.

As I reflect back on my years in high school and even college, one thing has become readily apparent: learning about the many facets of financial management wasn’t part of the plan.

Admittedly, the constraints on the education system these days are tremendous. Veritably every parent has an idea of what their child should be learning in school. But, when push comes to shove, America’s kids are woefully unprepared for the real world when they graduate with respect to their financial knowledge.

A financial literacy survey conducted by the Financial Industry Regulation Authority, or FINRA, that was released last year demonstrates just how much trouble our nation’s young adults could be in when it comes to their finances. The five-question survey covered relatively basic topics such as interest, savings, and investments. A passing score was considered four or five questions out of five answered correctly. Less than a quarter of millennials aged 18 to 34 passed the quiz.

Arguably a lot of these issues could be solved if they taught basic life skills in school as it relates to our everyday finances. Here are six things that I should have learned when I was in school, but didn’t until after I graduated and sought the answers out for myself.

1. How to balance a budget
In terms of basic money management skills, nothing is more critical than understanding your cash flow. Most people have a pretty good bead on how much money is coming in via paychecks, but when you ask them where their money went by the end of the pay period you’re liable to get a shoulder shrug.

Students in school should be taught early and often about the basics of keeping a record of their financial transactions. This means recording cash flow into and out of a checking account, and understanding how to properly formulate a budget. Operating on a budget will teach critical money management skills that should allow students to save money and not live paycheck to paycheck — something that could come in handy if they graduate with student loan debt or don’t land their dream job right out of high school or college.

2. How to manage credit
Another financial nugget of wisdom not being taught in schools is the concept of credit, credit scores, and how lending rates can affect our financial decisions.

Not understanding your credit score, or what goes into the makings of a credit score, can be a big problem. In general, your credit score is the single most important component that will determine whether or not a financial institution will lend to you. It’s also a determinant of what interest rate you’ll qualify for. The higher your credit score, the more favorable the lending rate, and the more financial institutions are likely to compete to obtain your business (which could further lower your lending rate).

Along those same lines, it’s imperative today’s youth understand the concept of interest and how dangerous making minimum payments on a credit card can be. According to a 2011 Harvard study by Dennis Campbell that looked at Affinity Plus Federal Credit Union’s 30,000+ member portfolio of credit card holders, a mere 8% of members were on track to pay off their credit cards in 36 months (three years) or less. This means more than nine out of 10 cardholders are in danger of paying substantial interest fees over the life of their debt.

3. How to invest for retirement
It’s not only important that schools teach kids how to save and manage their credit profile, but it’s equally important that they teach students how to invest for their future.

A Money Pulse survey from Bankrate in April showed that, for adults under the age of 30, only 26% owned stock. That might not seem like a terrifying figure, but with time and compounding being the best friend of the long-term investor, it could really put millennials in a tough bind come retirement. The reason is the stock market has historically returned 7% per year. Comparatively, next to bonds, CDs, money market accounts, savings accounts, and metals, it’s been the greatest long-term creator of wealth. Other investment vehicles may not even outpace the rate of inflation, resulting in real money losses.

On top of understanding their basic investment options, students should also be introduced to common tax-advantaged retirement vehicles like IRAs and 401(k)s, and they should leave school with a basic understanding of what Social Security and Medicare cover and how these entitlement programs could affect them before and after retirement.

4. How taxes affect us
Who here remembers getting their first paycheck and feeling dumbfounded at all the deductions that were taken out? I (vaguely) remember I did because I wasn’t taught about the basics of taxes — why we pay them and who benefits from our tax payments — in school.

Since all working Americans pay taxes, all students should be taught some tax basics. They should understand how much we pay in payroll taxes, and ultimately how those payroll taxes get funneled into the Social Security program. Students should also understand why federal income taxes, state income taxes, and Medicare taxes exist, and be prepared to estimate how much of their paycheck may wind up being taken out to cover taxes. Understanding how much you’ll pay annually, monthly, or weekly in taxes is another component to proper budgeting.

5. How to market yourself and interview for a job
I’m not exactly sure how schools get away without teaching this, but at no point during my tenure in high school and college was I ever taught the basics of developing a resume, how to market myself, or how to be interviewed by a prospective employer. In my opinion, these real-world situations should be at the top of the list of what we’re teaching in school.

Throughout high school we should be teaching students the skills necessary to land a well-paying job. These include how to prepare a resume and highlight their strengths, how to find and apply for a job, how to successfully interview and sell their strengths in person, and also how to negotiate contracts and/or their salary. Without these basic tools, millennials and generation Z could wind up being underpaid and/or underemployed.

6. How to set goals
Finally, schools need to do a better job of teaching students about goals and goal-setting.

Understandably goal-setting sometimes involves more than just your finances. Taking a European vacation, owning a beach house in Florida, or being married with two kids and a white picket fence by the age of 35, are all examples of potentially lofty goals. However, most goals will ultimately tie back into your finances. You need to be able to save enough in order to take a trip to Europe, buy a beach house, or start a family.

Schools these days should be teaching students about creating achievable goals for the short- and long-term, and should be advising students on how to hold themselves accountable. This means creating measurable goals that are easy to keep track of.

Although I personally believe these six financial nuggets of wisdom should be taught in our schools, there’s no reason kids these days shouldn’t also be learning about these concepts in their home. If you have the time and the know-how, there may be no greater gift you can give your child than giving them a head start in understanding real-world financial concepts.

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Gold is Crashing! No, Wait, it’s Booming! So What’s Really Going on With Gold?

One hundred gram gold bars at Gold Investments Ltd. bullion dealers in London, U.K., on Tuesday, July 15, 2014.
Chris Ratcliffe—Bloomberg via Getty Images

New research suggests the yellow metal may become less valuable over the next decade. But it's an inherently unpredictable investment.

Gold is a little strange as far as commodities go.

You don’t run your car on gold. It doesn’t heat your home, and you can’t eat it. It doesn’t generate profits or pay dividends. Nevertheless, whenever investors feel skittish about a particular aspect of the global economy, demand for the stuff increases.

Consider recent events in China. The government in Beijing let its currency, the yuan, devalue against the dollar in a bid to make exports more competitive, thereby adding economic growth to the suddenly struggling world power. This uncertainty has been credited in the financial press for supporting the price of gold, which jumped 3% from $1,087 an ounce on Aug. 3 to $1,116 yesterday.

Despite this recent jump, gold is in a four-year decline after breaching $1,900 an ounce in August 2011 as the U.S. economy has slowly convalesced. So how should you think about the price of gold? And should you own the material in your portfolio?

Investor psychology

Gold is a volatile commodity that rises and falls in the short and intermediate term depending on the animal spirits of the economy. Take SPDR Gold Shares, an exchange-traded fund that actually owns and stores bullion in a London vault. Over the past year the once second-largest ETF in the world has declined about 1% as the domestic economy keeps adding jobs at a nice clip.

“There’s been a lack of interest among U.S. investors in gold because it hasn’t done anything for you,” says portfolio manager for USAA Precious Metals and Minerals fund Dan Denbow. “It’s done nothing for investors over the last three years. They would have been better off in Google and Facebook.”

With the S&P 500 up 10% over the past 12 months, there’s less appetite for the metal.

And when Chinese officials signaled support for the yuan after devaluing, the surge in gold demand quickly receded.

The value of the dollar

The strong U.S. dollar provides a roadblock for gold investors.

Despite moves by the Federal Reserve to purchase trillions of dollars worth of bonds and keep short-term interest rates at basically 0% since the Great Recession, the U.S. dollar has shot up. (Which isn’t as good for American companies as you may think.)

Either way, the greenback has strengthened considerably against most major currencies over the past year—including almost 8% against the euro—and the dollar index has jumped 7% since the beginning of the year.

With signs pointing to a short-term interest rate increase by the Fed sometime later this year or in early 2016, it’s hard to see U.S. investors pining for gold in the near term.

Dan Denbow is quick to point out, however, that gold has been a good investment for some investors, like those in Canada, since their currency has weakened generally. While American investors using dollars would have seen a 9% decline so far this year investing in gold, Canadian bullion holders have enjoyed a 10% increase.

Forget about inflation

Conventional wisdom holds that gold is used as a hedge against rising prices. And that’s true, in the very long run. “In 562 B.C., during the reign of the Babylonian King Nebuchadnezzar, an ounce of gold bought 350 loaves of bread. At today’s gold price, that’s $3.14 per loaf – roughly what I pay at Whole Foods,” says Duke University finance professor Campbell Harvey, co-author of the recent paper “Golden Constant.”

But you’re not going to live that long, unfortunately. “Our investment horizons are much shorter,” says Harvey. “As such, in these shorter horizons, gold cannot be counted on to provide an inflation hedge.”

And over the next ten years, the price of gold could go down a lot, per Harvey and co-author Claude Erb, even while inflation stays muted. The pair calculated that the fair value of the yellow metal is $825 an ounce, but it could fall as low as $350 an ounce if the sell-off follows historical examples in the middle of the 1970s and later in the 1990s.

That’s a loss of about 3% per year or “11% per year if the real price of gold overshoots and declines to previous low real price levels,” says Erb and Harvey in their paper.

Golden satellite

What does this mean for your portfolio?

If you’re going to include gold, don’t take on very much of it. Even Denbow, a manager of gold fund, says bullion should never make up more than 10% of your holdings.

“We tell our investors that gold is for diversification, for that rainy day,” says Denbow. “And so when everything’s good in U.S. you’re going to care less. But it’s there for that exogenous event, that geopolitical activity that unsettles things.”

When fear was in abundance in 2008, for instance, SPDR Gold Shares jumped 5% while the stock market fell 37% and commodity funds in general dropped 33%.

So it can make sense to appropriate a sliver of your portfolio to gold for some ballast. Don’t be surprised though if prices continue to drop in the short term.


What to Make of Apple’s Stock Drop

Mark Lennihan—AP Apple's new store on New York's Upper East Side.

Do cheaper shares suggest a buying opportunity for investors—or a company that's hit its limits?

If you bought shares of Apple APPLE INC. AAPL 0.43% in recent months, you might be feeling pretty frustrated right now: After a stellar rise in the beginning half of the year, Apple’s share price this month dropped below $120 for the first time since February.

The price dive began after the company’s third quarter earnings report showed iPhone sales of 47.5 million, missing analysts’ expectations for 48.8 million. While that might seem like a minor miss for a business sitting on more than $200 billion in cash, it shows just how high hopes have gotten for what’s already the world’s most valuable company.

“Investors expect Apple to keep finding new ways to move the needle, but that needle keeps getting bigger and harder to move,” says Becker Capital Management president Pat Becker Jr., who invests in Apple through Becker’s value equity fund.

Whether you see this as simply a “correction” or an overreaction depends in part on your confidence in Apple’s ability to keep hitting home runs out of the park. The company’s most recent home run is still the iPhone, which generated 63% of sales last quarter. So two big questions for Apple are how well the phone can keep selling and what—if anything—can succeed it as Apple’s next big thing.

To the first question, while some reports show Apple’s smartphone market share increasing in the U.S., others actually suggest Google’s Android devices might be gaining on the iPhone domestically. And even though iPhone demand is growing in Europe, there are fears that a devalued Chinese yuan could erode consumer demand for Apple’s phone in China.

Then again, revenue from the iPhone’s loyal customer base seems like an incredibly reliable source of cash flow, as investor Carl Icahn has said: Every two years, like clockwork so far, millions of people upgrade their phones. And only 27% of current iPhone users have upgraded to an iPhone 6, which leaves plenty of room for sales success this coming year, says Becker.

But the question of what will be the “next iPhone” is trickier. Sales of the Apple Watch and iPad have been disappointing, at least relative to the hype accompanying them. And other new offerings, like the streaming service Apple Music, haven’t yet distinguished themselves from competitors (like Spotify).

Still, any bearishness about Apple today must be put in perspective: After all, the Cupertino, California-based company has had a stellar year—even after the recent correction—with a share price 20% higher than it was a year ago.

AAPL Chart

AAPL data by YCharts

“Nobody should be buying Apple expecting it to double in the next year,” says Villere Balanced Fund co-portfolio manager Lamar Villere, who owns the stock in his fund. “But you’re also not taking a lot of risk.”

“Not taking a lot of risk” seems like a strange way to describe investing in a tech business. But Apple’s evolution into a mature company means investors can now count on steady dividends and share buybacks, Villere says, and steady income might be the company’s biggest selling point for investors today. As long as the iPhone maintains its current popularity, the company doesn’t truly need a game-changer—at least not just yet.

If there were a game-changer going forward, one possibility might be payment services, says Becker, if the company can expand the base of consumers using Apple Pay.

“If they can grab transaction revenue, that’s the holy grail,” he says. “We don’t think that’s priced into the stock right now.”

Apple’s P/E ratio, a measure of how high prices are relative to earnings, is only about 13 right now. For some perspective, Google—which just announced a massive restructuring—is trading for about 31 times earnings.

MONEY Investing

Why Vanguard Founder Jack Bogle Doesn’t Like Investing in Foreign Markets

It's no secret Jack Bogle isn't crazy about investing in foreign markets.

Bogle’s reasoning? First of all, he thinks U.S. businesses are and will remain the world’s strongest thanks to their history of innovation, focus on technology, and foundations built on better legal and regulatory structures. As for other countries, he’s wary of Britain’s ‘unusual electoral process,’ Japan’s demographics, and France’s short workweek. But if you still want to invest abroad, Bogle says, don’t go much above a 20% allocation—and certainly not to the 40% that many professional investors are recommending these days. That, he says, “is not worth it.”


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