I have written several essays lately on various aspects of what I call the Sustainable Financial Plan (SFP).  My colleague at CLU, Bill Watkins, suggests that I produce a simplified version of these essays that is targeted for young people (I think this is Bill’s nice way of saying that the original essays were indecipherable). … Read more

In a prior blog I have discussed the components of building a sustainable financial plan.  There were two key steps:  first, take into account your “human capital” which is the present value of your estimated future income stream.  Your total wealth is the sum of this human capital and your net financial capital (assets less… Read more

How much debt is it reasonable for individuals to undertake?  I propose two criteria for answering this question.  First, you must be able to service the debt.  Second, the debt should be “productive” in the sense that the benefits of the activity being financed are greater than the cost of the debt.  These criteria can… Read more

Mistakes In 2012, Federal Reserve Chairman Ben Bernanke1 gave a speech on the importance of financial education.  People commonly make financial mistakes such as saving too little, taking on too much debt, holding too little life insurance, making bad investment decisions and paying excessive fees that are unnecessary.  The consequences of these mistakes can be… Read more

One of the lessons that many people have taken from the financial crisis is that there was too much debt and leverage and too little equity capital.  Capital serves as a buffer against loss.  If this buffer is inadequate, the probability of financial failure is high.  During an economic boom, borrowers are eager to take… Read more

Gordon Pye was a finance professor at UC Berkeley in the 1970s.  Then he became Chief Economist at a bank in New York City.  After ten years or so, the bank was acquired by another bank that already had a Chief Economist.  So Professor Pye took early retirement and began to contemplate the appropriate rule… Read more

At first glance, this seems like a dumb question.  The Freddie Mac 30 year mortgage rate is approximately 3.75%, near its all-time low.  Based on this rate, the median income family can afford to purchase 200% of the median priced home.  This so-called “affordability” measure is the highest it has been in twenty years. Although… Read more

Journalist Helaine Olen has produced a strong criticism of the personal finance industry1.  She claims the industry does not add much value, makes unsubstantiated claims, charges huge fees, is fraught with conflicts of interest, and redirects attention away from its failures by preaching a false solution – financial literacy.  But aside from that, the industry… Read more

In the fiscal year beginning October 2008 (the 2009 fiscal year), federal government spending exploded from 20.8 percent of GDP to 25.2 percent of GDP.  This was due to a confluence of factors including a decline in GDP due to the recession, an increase in automatic expenditures such as unemployment insurance, the $750 billion Toxic… Read more

At the recent World Economic Forum in Davos, Goldman Sachs Chief Operating Officer (COO) Gary Cohn suggested that many investors and banks might not be prepared for what he called a “significant repricing” in bond markets.  What he means by “significant repricing” is that bond yields may spike higher and bond prices fall dramatically.  His… Read more