As of March 31, 2000, US value stocks had underperformed growth stocks by 5.61% per year for the previous 10 years. How many years did it take for value stocks to make up for these 10 years of underperformance?

  1. We are still waiting
  2. 10 years
  3. 5 years
  4. 3 years
  5. 1 year
  6. Less than 1 year

A Vanishing Value Premium?

By Weston Wellington, Vice President, Dimensional Fund Advisors

Value stocks underperformed growth stocks by a material margin in the US last year. However, the magnitude and duration of the recent negative value premium are not unprecedented. This column reviews a previous period when challenging performance caused many to question the benefits of value investing. The subsequent results serve as a reminder about the importance of discipline.

Measured by the difference between the Russell 1000 Growth and Russell 1000 Value indices, value stocks delivered the weakest relative performance in seven years. Moreover, as of year-end 2015, value stocks returned less than growth stocks over the past one, three, five, 10, and 13 years.

Unsurprisingly, some investors with a value tilt to their portfolios are finding their patience sorely tested. We suspect at least a few will find these results sufficiently discouraging and may contemplate abandoning value stocks entirely.

Total Return for 12 Months Ending December 31, 2015

Russell 1000 Growth Index 5.67%
Russell 1000 Value Index −3.83%
Value minus Growth −9.49%

Before taking such a big step, let’s review a previous period when value strategies underperformed to gain some perspective.

As many growth stocks and technology-related firms soared in value in the mid- to late 1990s, value strategies delivered positive returns but fell far behind in the relative performance race. At year-end 1998, value stocks had underperformed growth stocks over the previous one, three, five, 10, 15, and 20 years. The inception of the Russell indices was January 1979, so all the available data (20 years) from the most widely followed benchmarks indicated superior performance for growth stocks. To some investors, it seemed foolish for money managers to hold “old economy” stocks like Caterpillar (−3.1% total return for 1998) while “new economy” stocks like Yahoo! Inc. appeared to be the wave of the future (743% total return for 1998).

Many value-oriented managers counseled patience, but for them the worst was yet to come. In 1999, growth stocks shone even brighter as value trailed by the largest calendar year margin in the history of the Russell indices—over 25%.

Total Return for 1999

Russell 1000 Growth Index 33.16%
Russell 1000 Value Index 7.36%
Value minus Growth −25.80%

In the first quarter of 2000, growth stocks bolted out of the gate and streaked to a 7% return while value stocks returned only 0.48%. As of March 31, 2000, value stocks had underperformed growth stocks by 5.61% per year for the previous 10 years and by 1.49% per year since the inception of the Russell indices in 1979. A Wall Street Journal article appearing in January profiled a prominent value-oriented fund manager who regularly received angry letters and email messages; his fund shareholders ridiculed him for avoiding technology-related investments. Two months later he was replaced as portfolio manager amidst persistent shareholder redemptions.

With value stocks falling so far behind in the relative performance race, it seemed plausible that value stocks would need a lifetime to catch up, if they ever could.

It took less than a year.

By November 2000, value stocks had delivered modestly higher returns than growth stocks since index inception (21 years, 11 months). By month-end February 2001, value stocks had outperformed growth over the previous one, three, five, 10, and 20 years and since-inception periods.

The reversal was dramatic. Over the period April 2000 to November, value stocks outperformed growth stocks by 26.7% and by 39.7% from April 2000 to February 2001.

This type of result is not confined to the technology boom-and-bust experience of the late 1990s. Although less pronounced, a similar reversal took place following a lengthy period of value stock underperformance ending in December 1991.

We can find similar evidence with other premiums:

  • From January 1995 to December 1999, the annualized size premium was negative by approximately 963 basis points (bps), amounting to a cumulative total return difference of approximately 113%. Within the next 18 months, the entire cumulative difference had been made up.
  • From January 1995 to December 2001, the annualized size premium was positive by approximately 157 bps.

The moral of the story?

Prices are difficult to predict at either the individual security level or the asset class level, and dramatic changes in relative performance can take place in a short period of time.

While there is a sound economic rationale and empirical evidence to support our expectation that value stocks will outperform growth stocks and small caps will outperform large caps over longer periods, we know that value and small caps can underperform over any given period. Results from previous periods reinforce the importance of discipline in pursuing these premiums.

Quiz Answer

As of March 31, 2000, US value stocks had underperformed growth stocks by 5.61% per year for the previous 10 years. How many years did it take for value stocks to make up for these 10 years of underperformance?

  1. We are still waiting
  2. 10 years
  3. 5 years
  4. 3 years
  5. 1 year
  6. Less than 1 year [The Correct Answer]
Disclosures Including Backtested Performance Data


Which of the following should be elements of a plan to provide lifelong income through all market cycles? (Multiple correct answers)

1. Hold a rainy day fund.

2. Maximize diversification, and include at least the following: stocks, bonds, real estate.

3. Commit to low spending relative to your assets.

4. Diversify your stock allocation across companies and countries.

5. Start a profitable business.

6. Dedicate your money to high growth investments.

7. Limit your mortgage(s).

How Does the Book “The High-Beta Rich” Apply to You?

This article discusses an issue raised by the book “The High-Beta Rich” by Robert Frank, and explains how QAM’s plans address it.

Historically, wealthy families were more immune to market cycles than the general population. The book shows that starting in 1982, the income of the top 1% earners became more volatile than the income of the overall population. While they enjoyed high growth, their income declined further during economic downturns. This is due to more of their income depending on volatile investments, including leveraged real estate, individual companies and concentrated stock investments.

The book presents stories of people that amassed substantial wealth, and later lost most or all of it. A common strategy to avoid losing it all, is to hold some money in stable investments. While this solves one problem, it introduces another one – it slows down the overall growth, which increases the risk of outliving your money.

Is there a solution that lets you enjoy the high growth without taking excessive risks?

Such a solution exists in certain cases. Here is a list of goals with details of how to achieve them:

1. Having your money last: Dedicate your money to high growth investments – stocks of profitable companies that are priced low (value stocks).

2. Recover from declines: Diversify across thousands of stocks in many countries.

3. Provide stable income through the declines: Commit to low spending relative to your assets, with a clear trend towards 3%-4%.

The beauty of this solution is that it doesn’t require lifelong financial sacrifices. What it does require is:

1. Disciplined spending, even as you see your savings reach high levels, or when your income is much higher than 3%-4% of your savings. Lack of this discipline is a big reason some wealthy people get into trouble during downturns.

2. Strength in the face of downturns, and commitment to the investment plan.

3. Permanent diversification at all times; avoiding the temptation to put a substantial portion of the money in a single company or real estate investment.

Does the list of these requirements seem too easy to follow? During over 11 years of service, QAM learned that many people find these requirements to be very difficult to adhere to. If you are able to adhere to them, you have a good chance at sustaining lifelong (and multigenerational) growing income. In addition, successive downturns are likely to become easier to handle, if you limit the growth in spending.

Quiz Answer

Which of the following are key elements of a plan to provide lifelong income through all market cycle? (Multiple correct answers.)

1. Hold a rainy day fund. Sometimes correct: A rainy day fund, such as 3-6 months of living expenses in cash, is necessary for surviving declines early in your saving years, especially if you have low job security. Once you build meaningful savings, the benefit of such an allocation gradually becomes outweighed by the benefit of maximizing the growth of your investments, for lifelong income.

2. Maximize diversification, and include at least the following: stocks, bonds, real estate. Incorrect: While maximal diversification helps survive declines, including slower growing investments hurts the necessary growth for lifelong income that grows with inflation.

3. Commit to low spending relative to your assets. Correct: This is a key element. There are a number of benefits to low spending relative to your assets: (1) It helps handle declines combined with lack of work without depleting your money; (2) It helps build your savings faster, to provide the nest egg needed for lifelong income.

4. Diversify your stock allocation across companies and countries. Correct: Diversification helps avoid total loss during declines.

5. Start a profitable business. Sometimes correct: Running a business combines pay from work and profits of the business ownership. As a small business, it has the potential of outperforming stock investments. The benefit of higher growth comes at a price of liquidity constraints and the risk of a total loss. Therefore, for the goal of lifelong income, it is best to limit your investment in your business to a small portion of your savings.

6. Dedicate your money to high growth investments. Correct: As long as you stick with high-growth investments, diversification provides a benefit of higher low points during declines, without the price of hurting your average returns.

7. Limit your mortgage(s). Usually incorrect, but read further: Real estate with no (or limited) mortgages tends to grow more slowly than diversified stocks, and is less liquid. If you are going to limit your mortgage for any reason (can’t qualify for high mortgage, short-term risk is too high, don’t like volatile investments along with the mortgage obligation), you are better off investing in diversified stocks instead of owning a home, for the purpose of lifelong income. There are non-financial benefits to owning your home, which may lead to accepting a lower mortgage along with less optimal lifelong income.

Disclosures Including Backtested Performance Data


What is the financially optimal way to handle stock dividends for a retiree?

  1. Automatically reinvest the dividends and sell from the principal for income.
  2. Keep the dividends in cash and use them for income.

Look for the answer below and read this month’s article for a discussion.

2 Reasons to Reinvest Dividends

In recent years, it has become tougher to automatically reinvestment dividends. Despite this difficulty, it is still beneficial.

What is the difficulty with automatically reinvesting dividends? When reinvesting dividends (as with any other “buy” trade), there is a 61-day window (30 days before and after the reinvestment) in which selling and recognizing tax-losses is disallowed. This is called the “Wash Sale Rule”, and is established to prevent people from selling and buying for the pure sake of getting a tax deduction. Complying with the wash sale rule, requires knowing the date of upcoming dividends at least 31 days in advance, to avoid sales in that window.

How has it become more difficult to automatically reinvest dividends? Brokers & custodians are required to report the cost basis of mutual fund purchases on form 1099-B, in order to shed light on wash sales, and discourage them. By not reinvesting dividends, you reduce the number of buys, including the number of wash-sale windows, and retain more freedom to sell without violating the wash sale rule.

What are the benefits of reinvesting dividends?

1. Full participation in gains: Reinvested dividends never stay in cash, allowing you to get the investment returns at all times, and avoid missing returns while money sits in cash. For every 1% that you avoid keeping in cash in the account, and instead keep in an investment that averages 10% per year, you get a benefit of 0.1% per year (1% of 10%). This is a material portion of the investment performance.

2. Tax deduction: When there is a need for cash (e.g. retirement income) or a rebalance, you can sell the most appealing mutual fund shares (outside the 61-day wash-sale window), allowing to realize tax losses.

How can you avoid wash sales? To avoid wash sales, you need to be strategic, and sell away from the time of dividend reinvestments. Dividends are often given quarterly. After excluding the month before and after the dividend, you are left with one month per quarter to sell while realizing tax losses. One strategy is to sell once per quarter (whether for rebalancing or for withdrawals). If you need cash throughout the quarter, you can choose between keeping it on margin (borrowed against the brokerage account) if the amount is small, or selling in advance for large amounts.

Quiz Answer:

What is the financially optimal way to handle stock dividends for a retiree?

  1. Automatically reinvest the dividends and sell from the principal for income.  [The Correct Answer]
  2. Keep the dividends in cash and use them for income.

Explanation:  While keeping the dividends in cash is the easiest thing to do mechanically, there are many benefits to reinvesting them. The article above explains the benefits.

Disclosures Including Backtested Performance Data

At a time where saving money is more valuable than usual, a local client shared ideas for watching TV cheaply:

  • Free Network Broadcasts: For access to the major networks (CBS, NBC, ABC, FOX) and live television broadcasts, purchase an HD antenna.  I bought the 35 mile range model from amazon Amazon.com: AmazonBasics Ultra-Thin Indoor HDTV Antenna – 25 Mile Range: Electronics and it provides me with access to SD and LA broadcasts. ($35 – one time)
  • TV Shows, Movies on Demand over Internet: For access to thousands of movies and shows on demand, Netflix (Cost:$8.99/mo for HD), Amazon Prime ($99/year), and Hulu ($7.99/mo) offer excellent options.  Netflix and Amazon offer deeper catalogs with no ads.  Hulu has current shows with ads.  I currently only do Amazon Prime as it’s the best value with their Unlimited 2 Day Shipping, Music Streaming, and Photo Storage included. Netflix and Hulu offer the flexibility to activate for a month and cancel at any time.
  • Sports: NFL, MLB, and NBA all offer season packages that allow you to watch all games on demand, on any connected device.  I only subscribe to the NFL Gamepass package ($99/year) which has the downside of not providing live broadcasts. This is not an issue for me since I can almost never carve out 3 hours in the middle of the day to watch a game.  The functionality is ideal as all On-demand games are replayed with no commercials and there is even a “condensed” version that cuts out the video between plays, allowing you to watch a game in approximately 30 minutes.
  • Sling TV: For those that want access to major networks such as ESPN, FX, AMC, they can subscribe to slingTV ($20/month) which provides live coverage of these networks previously only available through satellite and cable vendors.  They also offer the benefit of subscribing and cancelling the service by the month.
  • Connected TV Devices: Most new tv’s have web-enabled “Smart TV” hardware and software built in.  If a TV does not, all of these apps are accessible via an Apple TV, Amazon Fire TV, Roku, Google Chrome, or connecting your PC to your TV.
Disclosures Including Backtested Performance Data


When a diversified stock portfolio has low valuations, as measured by Price/Book, which of the following is most likely?

  1. Investors are pessimistic about the investment, which could lead to poor performance.
  2. Investors are pessimistic about the investment, which could lead to unusually high performance.
  3. Investors are optimistic about the investment, which could lead to poor performance.
  4. Investors are optimistic about the investment, which could lead to unusually high performance.

Look for the answer below and read this month’s article for a discussion.


Extended-Term Component, one of two stock portfolios offered by Quality Asset Management, exhibits high volatility along with high average returns. In recent years, the portfolio went through a slow period. At this point, it would be nice to have some indication of where we stand. There is one measure that is very helpful – the Price/Book (P/B), or price of the companies relative to their book value, or liquidation value. When breaking the timeline of returns to up and down periods, we observe a strong relationship between the returns in the upcoming period and the Price/Book at the start of the period (see charts below). Specifically, down periods started with a Price/Book of 1.38 to 2.04, while up periods started with a Price/Book of 0.69 to 0.75.

There is nice logic to this behavior. A Price/Book below 1, indicates that people are paying for the company less than its value by the books – a very low price. This is usually the result of very negative sentiment. Once the pessimism wanes, people go back to wanting to pay a premium for the companies relative to their book values. This leads to gains beyond the growth in the book values of the companies, explaining the dramatic gains of 84% to 580%, that were experienced in past up periods.

Up Periods for Extended-Term Component
Period Begin Period End Starting P/B Annualized Gain Total Gain
02-1999 12-1999 0.69 105% 84%
03-2003 10-2007 0.75 52% 580%
11-2008 04-2011 0.71 62% 214%
Down Periods for Extended-Term Component
Period Begin Period End Starting P/B Annualized Gain Total Gain
12-1999 03-2003 1.45 -14% -39%
10-2007 11-2008 2.04 -66% -68%
04-2011 07-2015 1.38 -8% -31%

Today, the P/B is equivalent to 0.79 (after adjusting for the profitability bias), close to the range that started the big up periods in the past. While the future can bring lower valuations or longer down periods, the data is strong enough to give some optimism for an up period in upcoming months or years. If we experience declines from this point, I would expect the gains to be greater.

Quiz Answer:

When a diversified stock portfolio has low valuations, as measured by Price/Book, which of the following is most likely?

  1. Investors are pessimistic about the investment, which could lead to poor performance.
  2. Investors are pessimistic about the investment, which could lead to unusually high performance. [The Correct Answer]
  3. Investors are optimistic about the investment, which could lead to poor performance.
  4. Investors are optimistic about the investment, which could lead to unusually high performance.

Explanation: A low Price/Book means that the price of the investment is low relative to the company’s book value. Investors are usually willing to pay a low price because they are pessimistic about the investment. Once the sentiment improves, investors are willing to pay more than the book value. This leads to unusually high performance, because the price goes up by compounding the price gains relative to the book value with the growth in the book value.

Disclosures Including Backtested Performance Data

While there are many factors that make a good investment advisor, expected performance is a central one. Many choose an advisor that had good performance in recent years. While easy to evaluate, it can lead them to a choice that is even worse than a random selection, since there is often a negative correlation between the past 5-year returns and the next 5-year returns (relative to a benchmark or the long-term average). Here are some steps for a more educated evaluation of performance:

  1. Repeatable performance: Identify repeatable factors, for example (for stocks): US/developed/emerging markets, size, value/growth, profitability.
  2. Statistically Significant Horizons: Evaluate at least 30 years for stocks, and longer for bonds, to get statistical significance. Since most investment vehicles and advisors didn’t operate for this long, you usually have to depend on simulated data, using indexes in the same categories. While not perfectly accurate, it is far better than using statistically insignificant data from the past 5 or 10 years.
  3. Deduct Fees: Deduct the advisor’s fees from any performance presented to you (both live & simulated), if not done already.
  4. Discipline: Check the track record of the advisor’s discipline, by asking about changes to the allocations that were later reverted. Reverted changes are often a sign of market timing, and often (but not always) result in buying high and selling low. Make sure to ask how the advisor behaved at extreme points (the peak of 10/2007 and the bottom of 3/2009 are great examples). In some cases the advisor’s behavior can hurt the returns by more than a number of other factors combined.
  5. Risk Analysis: Just like discipline, a portfolio that is too risky may work on paper, but fail in real life. There is no investment that is 100% safe under all circumstances (picture a 100% short-term government bond allocation subject to retirement withdrawals at times of high inflation). A good advisor would structure your plan to protect you from the highest risks, leading to a high likelihood of success, given your goals and needs.
Disclosures Including Backtested Performance Data

It is well established that value stocks (stocks with low price/book value, or price relative to the company’s liquidation value) earn a higher return than the general market. The effect is very meaningful – at least 2% excess annualized return. It was tested through long time periods, retested through new periods, and retested in many different countries (out of sample testing). It is also logical – if the price is low relative to the value of the company assets, it has room to grow to reach the valuations (P/B) of other companies.

So, why doesn’t everyone focus on owning them? Value stocks tend to be less known and less glamorous. They often have low price relative to their book value as a result of poor recent returns. People like to see that the stock “proved itself” before investing in it. They also like to imitate others’ success. To make matters much worse, value stocks don’t always do better. They can do worse for long stretches of 5+ years. I have seen people think logically about investments, and stick through tough periods. But, as the period gets longer, they lose faith in the long-term success.

A strong example from recent years is Emerging Markets Value. This asset class suffered in multiple ways – both emerging markets and value suffered poor performance for the past 5 years. To add insult to injury, the more known US market had unusually high returns. This led people to think that the US is a better investment and to sell from emerging markets to buy US investments.

US stocks reached high valuations (P/B), and emerging markets reached low valuations (P/B). The relative valuations between the S&P 500 and emerging markets value almost doubled in the past 5 years. Your emerging markets investments would not reach the S&P 500’s P/B, until they approximately triple in value – that is about 200% gain. An observation of the past 30 years of emerging markets value returns (partly simulated), shows how surges emerge from low valuations. Here are distinct 12-month periods with ~100% gains in this timeframe:

Period starting at

12-month return











These returns occurred approximately every 6 years. The value premium is greatest when having big gains that stem from low valuations. For example, in the recent 2009 surge, emerging markets value outperformed the general emerging markets by more than 20%.

What is the logic for these surges? As explained above, the past selling results in poor performance, leading for more people to sell, and propagates the poor returns. This is a snowball that can go on for a while. As valuations reach very low points, any bit of marginally good news can lead to a surge – whether it is a reduction in interest rates, government spending, or economic results that are not bad enough to justify the very low valuations.

Your strong value tilt means that you buy the unloved companies that people sell. When people are completely desperate and lose all faith in these companies, you buy low, and when the turnaround comes, you reap the greatest benefits – life changing benefits. This focus on value stocks is one big thing you have in common with Warren Buffett, one of the greatest investors of all times.

Disclosures Including Backtested Performance Data

Money can be an emotional topic.  It can raise feelings of greed, fear, entitlement, or shame, among others.  It is important to have emotions impact money in one stage of the investment process:  when defining your goals.  Here are a few examples:

  1. You expect to have great emotional suffering when your portfolio declines.  This may lead you to have a greater allocation to low-volatility investments (CDs or bonds) than financially called for.  It can make sense when done in the planning phase, and not during a deep decline.
  2. You may be stuck in the rat race for too long, and decide to take actions to live within your means.  As a part of the solution, you are willing to accept short-term volatility for the ultimate goal of having sustainable spending relative to your assets.

Once you are done defining your goals, emotions can harm your investment results.  Here are a few examples:

  1. Fear:  After a big market crash, the media is very negative about the economy and stocks, and you are ready to sell stocks low, or stop investing new savings.
  2. Greed:  After unusual gains in stocks, you decide to increase your stock allocation (buy high) beyond what you planned for originally.
  3. Familiarity Bias:  You fall in love with a company, believe in their product and business plan, and decide to invest in it, without looking at valuations (price relative to book value or earnings) and other information.

The solution is easy to describe and tough [psychologically] to implement:

  1. When developing the plan, view its impact on your entire life, and balance the various risks.  Accept that there is no safe investment – you simply choose which risk you can tolerate most.  Examples of risks to account for are: a need for money during a big decline, panic selling during a decline, outliving your money, and inflation.
  2. Once the plan is developed, be cautious of making changes without changes in your personal circumstances.  Unless you have very substantial assets relative to your expenses, and you don’t watch your investments frequently, you have to expect to feel uncomfortable with your investments at various points in life.  The difference between success and failure can be the action you took against your interests under the emotional stress of an uncomfortable period.
Disclosures Including Backtested Performance Data

Did your income jump significantly at any point in your life?  If you are fortunate enough to experience that, you may face a tradeoff between feeling wealthy and being wealthy.

If you feel wealthy, you are likely to increase your spending significantly, which can make you less wealthy very quickly.  If this doesn’t make sense to you, Sports Illustrated estimated in 2009 that 78% of National Football League (NFL) players are either bankrupt or in serious financial trouble within two years of retirement.  This is a group of people who typically make several millions each year.  While this is an extreme example, you can get in trouble even without feeling adventurous or being irresponsible.

Say your income jumped from $100,000/year to $300,000/year.  You make the following adjustments to your annual expenses:  $1.5M house, with $72,000/year mortgage payments (30-year fixed loan with 4.5% interest), $18,000 property taxes, $15,000 repairs & improvements, $10,000 utilities + cleaning + gardening, $40,000 private schools for 2 children, $5,000 classes for the children, $20,000 food, $10,000 car payments, maintenance, gas & insurance, $10,000 travel & vacations, $10,000 various types of insurance, including medical & dental & medical bills for the family, $10,000 clothes, toys, household items, etc..  If you don’t have children, you may spend more on nice clothing, eating out, jewelry, hobbies, etc.

I didn’t include all categories of spending, and already consumed your entire net income of $220,000, with nothing left to save.  If you lose your job, you are left with high expenses and low savings.  Furthermore, you have no money left to help your children with higher education, or to fund your own retirement.  By feeling wealthy, and spending accordingly, your financial security dropped lower than before the big raise.

Instead, you can decide to not feel wealthy.  You increase your spending to $120,000 – a significant jump, but low enough to leave $100,000 to save.  Within a few years, you accumulate meaningful savings.  If you lose your job, your savings can carry you for a much longer period of unemployment.  In addition, finding a job to cover your $120,000 in spending will be much easier than replacing the $300,000 salary.  Here are some key ideas for making this work:

  1. Keep your focus on spending-to-assets, and strive to reach a sustainable ratio of 3%-4% per year.  While it would be impossible for most people to reach this rate for a long time (even with $300,000 or $600,000 in annual earnings), use any big jump in earnings to increase your spending modestly and your saving rate significantly.
  2. Never feel wealthy thanks to high income.  No matter how much you earn, you can end up with no financial security, and no wealth.  It can start with nicer cars, expensive jewelry, a nicer home, vacation home, full-time staff in each of your houses, yacht, private jet, private island, or private jumbo jet.
  3. Once you approach sustainable finances, you can increase your spending along with your assets, and enjoy the continued increase in standard of living without losing your peace of mind.
Disclosures Including Backtested Performance Data

Say you inherited $10,000.  Would you use it the same way you use $10,000 you got for weeks of work?  How about if you won it in a bet, casino, or found it on the street?  If you are more likely to spend easily found/won money because you didn’t work hard for it, you are not alone, and you are subject to a bias called Mental Accounting.  You associate different meanings to money depending on the source.  But, in reality, all money is the same, no matter how you got it.  Specifically:

  1. If you would save hard earned money, you would rationally save found money.
  2. If you would spend money you earned on overtime work or a bonus, you would rationally spend the same amount from an inheritance.

Here are some ways to avoid mental accounting:

  1. Put all money earned, found, won, or inherited into the same account (see exceptions below).  Now you can look at it as one pot of money, and forget about its source.
  2. Put any money that needs to be in a separate account for tax purposes in the account that fits the tax requirements.  Examples are:
    • Retirement:  IRA, Roth IRA, 401k, Roth 401k
    • Inherited Retirement: Inherited [Roth] IRA
    • Education: Coverdell ESA, 529
    • Different Individuals or entities: children, businesses.
  3. Do not use separate accounts for different goals, unless required for tax- or accounting-purposes. Set priorities for money.  Here is one potential ordered hierarchy:
  4. Set priorities for money. Here is one potential ordered hierarchy:
    1. Basic necessities, including: rent/mortgage, food, children’s education, cars, etc..
    2. Retirement/sustainability.
    3. Children’s education accounts.
    4. Discretionary (fun/non-critical) spending.
Disclosures Including Backtested Performance Data