2015 02 08 cmyk NL - The Wall Street Journal

[Pages:1]WSJ 2

SUNDAY, FEBRUARY 8, 2015

THE AGGREGATOR

What a Difference 15 Years Makes

Reuters

As any parent knows, 15 years isn't such a long time. Yes, a lot can happen--from the dot-com bubble to the housing bust, from 9/11 to ISIS--but 15 years is only about one-third of a working life for most people.

Across this space, where we usually give you a rundown of the previous week's financial developments, we've assembled a series of graphs to show you how much, or little, some things have changed since The Wall Street Journal Sunday premiered in September of 1999. There's no effort to give you a complete statistical album, just a few snapshots that we found illuminating and worth noting.

Two real positives: It's not quite four percentage points down from the peak, but that decline in the percentage of the population with no health insurance must be considered a welcome sight. Even if you are politically opposed to the Affordable Care Act and think there should be a better way for people to get the health care they need, you still must consider it a good thing that more people have health insurance today than at any time in the past 15 years. And who's

going to argue with a three-point falloff in household debt?

We could do better, a lot better: Even at 5.6%, the jobless rate is still too high, but the most disturbing chart here is the huge, nearly 9%, decline in inflationadjusted median income.

Finally, take a look at the chart immediately below. Back in September we asked our WSJ Market Data Group (our crack staff of in-house data crunchers) to work up a simple chart: How much would you have today if on Sept. 13, 1999, the Monday after Sunday Journal made its debut, you had put $200 every two weeks into Vanguard's venerable S&P 500 Index fund, a common component in many 401(k) plans, and your company matched it with $100, for those 15 years?

We updated the chart through the last bi-weekly payday in January. Out of pocket: $80,600 (and a tax savings of around $27,000). Total in your account: $201,001.

Fifteen years--long enough to build a substantial nest egg. Enough said. Now get going.

$200,000

Vanguard 500 Index fund (VFINX)

Traders in the S&P 500 options pit at the Chicago Mercantile Exchange on Sept. 15, 2008, the day that Lehman Brothers filed for bankruptcy protection.

Household Debt

The 2008-09 crash prompted families to deleverage.

Home Ownership

The percentage of households living in owner-occupied homes peaked along with the real-estate bubble.

150,000

19%

70%

100,000

$201,001

18

68

17

66

50,000

15.3%

16

64

0

1999

'01

'03

Source: WSJ Market Data Group

Housing Prices

Since 1999, an epic boom-bust cycle has played out.

15%

'05

'07

'09

*Through Jan. 26

15

'11

'13

'15 1999

'05

'10

'14

The Wall Street Journal

Note: Household financial obligations as a percentage of disposable personal income, seasonally adjusted. Quarterly data.

Source: Federal Reserve Bank of St. Louis

The Wall Street Journal

62

1999

'05

Source: Census Bureau The Wall Street Journal

63.9%

'10

'14

Median Income

Health Coverage

Jobless Rate

Gasoline Prices

Adjusted for inflation, household earnings have fallen about 9% since 1999.

$58,000

With the recovery and a new health law, the chronically stubborn uninsured rate is down sharply. 17%

It bottomed out at 3.8% in April 2000, and topped out at 10% in October 2009.

10%

Adjusted for inflation, gasoline is still more expensive than when the Sunday WSJ began. $5 a gallon

10 3Q: 5.7%

5

0

?5

?10

1999

'05

'10

'14

Note: Change in purchase prices from a year earlier. Quarterly data.

Source: Federal Housing Finance Agency The Wall Street Journal

56,000

54,000

52,000

50,000 1999

$51,939

'05

'10 '13

Note: In 2013 dollars; households as of March of the following year.

Source: Census Bureau The Wall Street Journal

16

15

14

13

12 1999

12.2%

'05

'10

'14

Note: Percentage of Americans of all ages without health insurance when queried for the National Health Interview Survey. 2014 data are through June.

Source: National Center for Health Statistics

The Wall Street Journal

8

6

4 5.6%

2

0

1999

'05

'10

'14

Note: December rates for people age 16 years and older.

Source: Bureau of Labor Statistics The Wall Street Journal

4

3

2

January: $2.12

1

1999

'05

'10

'15

Note: Retail price per gallon of regular gasoline, monthly data.

Source: Energy Information Administration

The Wall Street Journal

BARRON'S INSIGHT

ENCORE

Investing 101: How to Pick a Stock Golden Rules for Your Golden Years

BY JACK HOUGH

There's no one checklist that can tell whether a stock is attractive. That's because stocks represent part ownership in businesses as different as egg farming and semiconductor etching.

However, there are signs that bode well for any stock. Below are four.

They aren't must-haves, but the appearance of at least a few of them bolsters the case for an otherwise appealing stock and can reduce investor risk.

Rising Earnings Estimates: People are slow to let go of long-held beliefs, even as mounting evidence says they should.

That includes Wall Street analysts. The result is that consensus earnings estimates tend to change gradually rather than all at once.

Buying into rising estimates increases the chance that more good news is coming.

and Yahoo Finance are among sites whose stockquote pages show current earnings estimates as well as how those estimates have changed in recent months.

Delta Air Lines (DAL), Apple (AAPL) and General Motors (GM) have each had earnings estimates climb over the past month.

Room for a Higher Valuation: Value investing works. That is, shares that are inexpensive relative to some measure of economic appeal, like earnings, revenue or asset value per share, tend to outperform those that are expensive over long time periods. Not every cheap stock shines and not every pricey one flops, of course, but most investors will improve their odds of success by sticking with modest valuations.

One reason is that people tend to assign too large a negative value to company flaws or challenges. Research by Brandes Investment Partners, a San Diego money manager, shows that value stocks tend to outperform even though the companies attached to them, on average, don't catch investors by surprise with bright financial results. In other words, most stock discounts are simply too large.

Discover Financial (DFS), hard-drive maker Western Digital (WDC) and builder Fluor (FLR) all sell for less than 12 times projected earnings for the next four quarters, versus close to 17 times for the S&P 500 index.

Growing Dividends: There's a high-finance theory that dividends don't matter, because companies can extract just as much value from their spare

cash by buying back stock or investing. Ignore it. Dividends provide far more than income.

Payment hikes signal confidence, because managers are loath to cut payments, and so tend to increase them judiciously.

Dividends help attract buyers during difficult patches, because dividend yields rise as share prices fall. And they act as a check on accounting, because it's hard to fudge the act of putting cash in someone's pocket.

Favor moderate yields with healthy payment increases over high yields with little growth. Examples of the former: CVS (CVS) and BlackRock (BLK).

Executive Buying: When company managers spend their own cash on shares, it's an excellent sign. Technically, managers may not use nonpublic information to time stock transactions. Realistically, their deep experience and close view of daily operations gives them an informational advantage most investors can't match.

Fortunately, such transactions must be quickly made public. Hess (HES) recently reported a share purchase of nearly $4 million by a man whose name suggests he knows a thing or two about the company's ability to ride out the current oil slump: CEO John Hess.

TAX TIP

Your Questions, Tom's Answers

BY TOM HERMAN

Many thanks for your thoughtful questions and comments over the past 15 years.

Your emails and letters often have introduced me to fascinating quirks and unintended consequences of our tax system. They also frequently have reminded me of the Internal Revenue Code's needless complexity. Sure, taxation is the price we pay for civilization--but why should our system have to be so complex?

Here are some closing thoughts based on a few of the most frequently asked questions I have received:

Home, sweet home: Most people who sell their primary residence for more than they paid for it don't owe capital-

gains tax on the profit. Generally, a married couple filing a joint return can exclude a gain of as much as $500,000 (or $250,000 for singles).

To qualify for the full exclusion, you typically must have owned your home and lived in it as your primary residence for at least two of the five years before the sale. But there can be important exceptions.

Audits can be a nightmare: Most people don't have to worry, however. Only about 1% of all individual taxpayers have been audited each year in recent years. Also, most of these have been "correspondence" audits, conducted by mail, rather than faceto-face audits with IRS agents. But that doesn't mean you can relax. Your odds of getting au-

dited generally increase if you are self-employed, deal in large amounts of cash, and your income isn't subject to withholding.

Beware of the AMT: This stands for alternative minimum tax, a nightmarishly complex alternative way to figure your taxes. Its origins date to the late 1960s, when Congress discovered a small number of high-income Americans didn't owe any federal income tax. But the AMT now ensnares many victims for whom it wasn't intended.

EITC: Many Americans who could benefit from the earned-income tax credit, a program to help the working poor, don't claim it. Created with the best of intentions, it can be so complex that it's easy to overlook.

BY ANNE TERGESEN

Saving for retirement may feel like an impossible task. After all, as definedbenefit pension plans fall by the wayside, those with 401(k) plans must act as their own pension managers, a complex task that involves amassing a nest egg and making it last a lifetime. As a nation, we're clearly falling short. The Center for Retirement Research at Boston College calculates that 52% of workingage households are at risk of being unable to maintain their pre-retirement standard of living after they stop working. So what can you do to get yourself on track? In this, our final column, we present seven "golden rules" of retirement savings. While there are no guarantees, these recommendations will help you avoid some of the biggest mistakes people make with their investments and minimize the risk that your nest egg will expire before you do.

1 Save early and often. When saving for retirement, mutual-fund company T. Rowe Price Group recommends putting away at least 15% of annual pretax pay, including matching contributions from an employer.

The goal: To stockpile 12 times your ending salary, a sum that--combined with Social Security--should allow you to maintain your current standard of living over a 30year retirement.

If you haven't saved enough, there may be time to catch up.

A 55-year-old who has saved only three times salary can reach the 12-times goal by socking away 32% of pay for the next decade, says T. Rowe Price. The recommendation for a 50-year-old in the same situation: 24%.

2 Plan for a long life. According to the National Center for Health Statistics, the average 65-year-old will live an additional 19.3 years--up 1.5 years from 2000. One in four will reach 92.

One way to boost lifelong

income is to delay Social Security. While you can start those benefits anytime between ages 62 and 70, the longer you wait, the higher your monthly payment.

3 Slash fees. According to Vanguard Group, over a 40-year career, someone who invests 9% a year of a salary that starts at $30,000 into a balanced fund that charges 0.25% annually will save 20% more than if he or she pays 1.25% in fees.

One way to reduce fees is with index funds. The average U.S. stock mutual fund charges 1.21% a year. By contrast, the fee for Vanguard's Total Stock Market Index fund is 0.17%.

A note to readers: While this is the last

Encore column in WSJ Sunday, Encore lives on as a special section of The Wall Street Journal. Published five times a year, it is dedicated to providing advice about how to live, enjoy and finance your retirement. We hope you'll take a look, in print and at .

Before rolling your money over into an individual retirement account--something many do upon leaving a job-- compare the fees on the investments in your 401(k) plan to the lowest-cost alternatives on the market. Many large 401(k) plans negotiate ultralow fees, says Joseph Valletta, co-publisher of the "401(k) Averages Book."

4 Plan your lifestyle. If you don't know what you want to do in retirement, it's hard to know whether you've saved enough.

Sites including and LifeReimagined. offer free introspective exercises and tutorials, plus links to workshops, coaches and financial advisers trained to help people clarify their goals and priorities.

Nonprofits including Coming of Age, , Project Renewment, and The Transition Network sponsor workshops, webinars and peer support groups.

5 Consider a Roth. The classic candidates for a tax-free Roth IRAs or Roth 401(k)s are convinced their marginal tax rates will be higher in retirement. By paying income tax on contributions now, these workers avoid paying Uncle Sam at a higher rate on their withdrawals. (In contrast, with a regular IRA or 401(k), investors receive upfront tax deductions and pay income tax on their withdrawals.)

But workers in their 40s, 50s and 60s who want to contribute the maximum to an IRA or 401(k) can accrue more wealth with a Roth than with a traditional 401(k), even if their marginal tax rates decline by as many as 10 percentage points in retirement, according to Stuart Ritter, a senior financial planner at T. Rowe Price. The reason: With a Roth, you can shelter your entire contribution from taxes. But with a traditional IRA or 401(k), you must invest a portion of that contribution--the upfront tax deduction--in a taxable account.

"The power of tax-free compounding in a Roth can offset even a drop in tax rates," says Mr. Ritter.

6 Budget realistically. When estimating expenses, be sure to take into account the cost of health care. According to the Employee Benefit Research Institute, a 65-year-old man and woman will need $64,000 and $83,000 in savings, respectively, to have a 50% chance of covering the costs Medicare doesn't pick up, including premiums and deductibles.

7 Withdraw 3.5% a year. How much can you withdraw without a substantial risk of depleting your nest egg? For years, advisers have suggested spending 4% of your initial balance and adjusting each year for inflation. But because ultralow interest rates have reduced the rate of return on investments, they have thrown the 4% rule into doubt.

Now, those who want an 80% chance of making their money last should withdraw no more than 3.5% a year, according to Wade Pfau, a professor at the American College of Financial Services.

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