Mayport Wealth Management

Do annuities ever make sense? Many people complain that annuities amount to giving an insurance company a pile of money, only to have them give it back to you, minus fees. In some cases, that’s true, and that’s a reason they’re unpopular. But in one instance, they can be invaluable. Suppose a retiree is in his 80s and finding his retirement savings running short. The rational response would be to cut back on spending, in effort to make the remaining funds last. But with an annuity, that retiree would likely be able to spend more. That’s because of annuities’ structure, which spreads longevity risk out among a group of people. In other words, any given 80-year-old might worry that he could live another 20 years, and that would lead him to be more conservative with his spending. But as a group, the insurance company knows that a group of people that age won’t all make it another 20 years, and that would allow each individual to spend more. The result: Annuity payments can be more generous because they’ll be based on the group’s average life expectancy. In other words, for a retiree running short on funds late in life, annuities can be the right answer, removing fear and replacing it with certainty.

What's a key challenge in personal finance? In an area where we’d expect facts and logic to drive decisions, instead misconceptions and misunderstandings often take hold. Here are five common financial myths: https://lnkd.in/ecpNizca

Daniel Kahneman passed away today at the age of 90. A recipient of the Nobel Prize in economics and the presidential medal of freedom, he was a towering figure. Why did Kahneman, a psychologist, receive a Nobel prize in economics? For several decades, beginning in the 1950s, the investment world believed in a concept known as Modern Portfolio Theory. This was a mathematical approach to constructing a portfolio, and it was viewed as the bedrock theory of the investment profession. But then in the late-1970s, Kahneman and his colleague Amos Tverksy upended that thinking with an argument that seemed radical at the time. Math is important, they said, but so is psychology—maybe even more important. If you listen to Warren Buffett, this comes through clearly. In his public comments, he spends much less time talking about numbers than he does about psychology and decision-making. In fact, most of Buffett’s pithy aphorisms boil down to the same basic message: “Just be sensible.” This may seem easier said than done. That’s why it’s worth taking time to learn about the major cognitive biases discovered by Kahneman and Tversky. Most notable is what they called prospect theory. Kahneman and Tversky were the first to recognize that people dislike losses about twice as much as they enjoy gains. For example, an investor would need to experience a 10% gain to offset the pain of a 5% loss. This was just one of Kahneman’s many contributions to the world of finance. He will be missed.

There’s no “one size fits all” answer to any of the many personal finance questions we may have. In fact, trying to find useful answers will inevitably result in contradictions and generalizations. But, if you approach your financial life like you approach the seasons of the year, you can cut through the noise. If you’re interested in understanding which financial strategies are right for each season of your life, then I invite you to read on. If you’re just starting out, your first financial goal may be to simply “get to zero”. Often, people just starting out begin their financial journey with a negative net worth, and paying down student loans and avoiding additional debt is definitely something to strive for. But should you use every spare dollar to eliminate your loans as quickly as possible? In my opinion, no. Rather than paying more to your loan than required, start saving instead, for the following three reasons... 1. You’ll probably earn more on your investments than you will by paying down debt. 2. Having savings also gives you the flexibility to deal with unexpected expenses and/or finance large purchases without taking on more debt. 3. Many employers match your contribution to your retirement plan, which means you instantly earn a 100% return on those savings. Once you’re a few years in and have some surplus dollars in your budget, your priorities will begin to shift. This is especially true if you’re starting a family. At this point, life insurance should take center stage. But how much insurance should you get? To start, get enough term coverage to pay off your mortgage and pay your family’s bills. A good rule of thumb is to look to cover 25 or 30 times your current after-tax income. Also, pay attention to how you’re allocating your surplus across different savings needs. How you allocate can be best viewed through an investment and tax lens. As you move forward, you may find that you’re just breaking even and are having a hard time adding to your savings. That isn't necessarily a problem. Just make sure that you’re still on track to reach your goals, especially for retirement. Later on, you may find that you’re at a point where you have saved enough to meet your needs indefinitely. Now it’s time to focus on risk management. Make sure a chunk of your savings are conservative enough that you can rely on them should you encounter a multi-year downturn. A good rule of thumb is to keep 5 to 10 times the annual amount you need from your portfolio in cash or bonds. Once in retirement, the most important thing to do is think ahead. There are a whole host of new risks that you’ll face, but there are strategies that you can employ to help navigate rainy-day scenarios. The key point is that the different seasons of your life require you to shift your focus and priorities, and when you sense a change coming, it’s good to have a new playbook ready!

Part of what makes personal finance complicated is that there isn't always an easy answer—or even one answer—to many questions. That's in large part because the answer depends on what season of your financial life you're in. Here I map out a recommended playbook for five of the most common seasons: https://lnkd.in/eD7sVgyZ #personalfinance

Even when things are quiet on the economic front, people worry. Why is that? Economist James Choi proposes an answer: Many live in fear of “rare disasters”—a repeat of the 1930s, for example, when the stock market sank 90%. It’s very difficult to combat these fears, Choi says, because there is, by definition, so little data on rare events. As a result, many live in fear that “the big one” is always right around the corner. Here's the paper: https://lnkd.in/egDfBn-3 Interested in more personal finance ideas like this? The Daily Ideas newsletter delivers a short personal finance-related quote, video or idea to your inbox every morning for 365 days. Sign up (free) at: https://lnkd.in/e4Zf66c2

One of the challenges of personal finance: The data and the conclusions we rely on for decision-making can never be accepted with absolute certainty. Here are four areas where our understanding has evolved over time—and may evolve further still. https://lnkd.in/eSiBRDzN #personalfinance

Apple Computer founded on April 1, 1976, by Steve Jobs and Steve Wozniak. What's less well known is that originally there was a third co-founder, an engineer named Ronald Wayne. Wayne's tenure at the company was short, though. Concerned by the risk-and by Jobs's personality-Wayne sold his stake in the company after just 12 days. In exchange for his 10% stake, Wayne received $2,300. Today, Apple (AAPL) is worth close to $3 trillion. Wayne's decision to sell is sometimes cited as one of the worst missteps in financial history. It's hard to judge him, though. "Nobody could have anticipated how big Apple would become," Wayne has said. This, in fact, is the reality with many financial decisions. Seeing Apple today, Wayne's error seems monumental, but he had no way of knowing what would happen. It's only with hindsight, nearly 50 years later, that we can deem it a mistake. Many financial decisions, however, don't require hindsight. Below are 11 common financial mistakes that are mostly avoidable. https://lnkd.in/eRepTx74