Ten years ago this week Bear Stearns collapsed, the first major meltdown of the 2008 financial crisis. Other financial titans soon followed, including Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG and Washington Mutual. Some failed outright, some were bailed out, others were merged into healthier firms, but they all fell victim to the worst financial crisis since the Great Depression.
Q: My financial advisor recently suggested that I invest in an index annuity. He says the annuity will give me the stock market’s upside without the downside risk. It almost seems to good to be true. Does that make sense?
A: I generally do not recommend indexed annuities. The main problem is that they are expensive and very complicated.
In 2002, the Royal Swedish Academy of Sciences awarded Daniel Kahneman the Nobel prize in economics. His choice was surprising at the time because Kahneman is a psychologist, not an economist. His contribution to economics—and it was huge—consisted in demonstrating how our cognitive foibles sometimes get in the way of rational economic decisions. You can learn more about Kahneman’s findings in his book “Thinking Fast and Slow.” If you haven’t read it, I highly recommend it.
According to Kahneman, most of us are unaware of the biases in our thinking.
Q: I am changing jobs and I am thinking about rolling my 401k into an IRA. Some people say I should just roll it into my new company’s 401k plan. What do you think?
A: This isn’t an easy decision and no single answer is right for everyone. Personally, I tend to favor IRAs for their flexibility and simplicity. However, 401k plans have some compelling benefits.
One of the most important benefits of employer-sponsored retirement plans, such as 401k plans, is that they are governed by a federal law known as ERISA. ERISA’s main intent is to make sure that plan participants are treated fairly. ERISA does the following:
Q: Living in California, I worry about earthquakes. I was going to buy earthquake insurance, but my friends told me it was a bad idea. What do you think? Does earthquake insurance make sense?
A: Although Californians face some of the greatest earthquake risk in the country, we are notorious for not insuring our homes against earthquake damage. In fact, according to the California Department of Insurance, only 11 percent of California homeowners have earthquake insurance.