In December, able2pay.com will have a fresh analysis of value and volatility in the stock and bond markets. This post is a preview of the topics to be covered.

Always timely, questions like these seem particularly germane now. Stocks are over-valued by many of the traditional metrics; interest rates on bonds imply dismal future returns; and cash has languished below inflation rates for a painfully long period. If no investment has obvious value, does something have to give, and if it does, is there any prudent shelter from the ensuing volatility?

Accurately measuring whether stocks are over- or under-valued is hard enough. Yet even if that problem were solved, others would remain. An indicator that predicts a big change in stock prices over the near term is likely to have a wild margin of error. Longer term, the error-rate may decline, leading to a safer, more confident prediction, but the price-change will also fade to a smaller size. Is there any way to have it all: calculate a credible benefit, capture it safely, and bank it soon?

Earlier posts on this topic proposed how best to measure whether stocks are over- or under-valued. To recap, three ideas are key.

• According to solid academic studies, Shiller's ten-year CAPE is a good starting point. Andrew Ang's Asset Management (chapter 8, section 5.2 ) explains CAPE's uniquely reliable, if somewhat modest, power as a predictor
• The standard measurement of CAPE can be improved by computing it over a longer period than ten years with a method that gradually reduces the weight of older data, and by applying logarithms to ensure that high and low readings are judged evenly.
• Some credence should be given to the possibility that CAPE has its own long-term trend. Predictions can be improve by filtering out this trend, at least partially.

"Corrected CAPE" is the term used here to designate a metric that applies all these ideas. To learn more, follow the links above.

As of early 2016, the corrected CAPE is rather high, approximately +0.4. A corrected CAPE this much above a neutral value of zero implies over-valued stocks, hence a risk that future returns from stocks will be less than normal. Given this reading, how much weakness in stock prices might one expect? Is a swift decline likely, or an extended period of lackluster gains, or what? The answer, it turns out, depends on whether the goal is to predict changes for next year, the next decade, or even farther into the future.

In the chart above, the CAPE Effect is a multiplier that tells how much to adjust the future returns of U.S. stocks, given a value of the corrected CAPE. The blue dots are actual data points from a comprehensive study covering the period from 1896 through 2015. The red line is a statistically fitted model used in our calculators.*

Given corrected CAPE's early 2016 value of +0.4, a one-year forecast is an effect of roughly 0.4 * 0.14 = 0.056 on a log scale. The spreadsheet function EXP(0.056) converts back to a percentage, 5.8%, which is the predicted reduction in real (inflation-adjusted) stock-returns over the next year, because of the current over-valuation. For the 1896-2015 period of the study, compound real returns were about 6.6% per year, so the year-ahead prediction is a return of 6.6% - 5.8%, or a meager 0.8% better than inflation, including reinvested dividends. With economists currently predicting an inflation rate of about 2%, the nominal return would be 2.8%. That's less than the historical return of ten-year Treasury bonds.

​If U.S. stocks were held longer, for the next 20 years, the chart predicts the effect would still be negative but less drastic, roughly half as large. The compound, inflation-adjusted return would be reduced about 2.6%. Instead of enjoying average real returns of 6.6% annually for two decades, one's portfolio of U.S. stocks would grow 6.5% - 2.6% = 4.0% per year, above inflation. That's not shabby. It's better than bonds, but below average for the long-term performance of stocks.

​What the chart says, in short, is that buying stocks today is like paying a premium price for a house when real-estate is hot. Even after holding the investment for many years, one's annualized profits may be tepid.

There's a problem, however, in making decisions like these. The next chart shows why. It presents the same data points (the blue dots), bracketed by their margins of error.** Statistically, most of the historical data falls between the upper and lower margins of error (the orange lines). A big gap between the lines implies great uncertainty; a narrow gap means the prediction is more trustworthy.

For stock investments held one year, the margin of error is extreme. While the average one-year effect might be alluring, actual one-year results have often been very different, in both directions. Evidently, a short-term forecast is both big and wild. It's like predicting tomorrow's weather to be a 90% chance of rain, maybe a steady downpour, maybe a brief drizzle.

At the other extreme, for a holding period of 30 to 40 years, the prediction is much more precise, thanks to a tiny margin of error. It's a safe forecast, but the effect has become small. Now the weather forecast is for a certainty of rain this season, totaling 5 to 6 inches, but there's no telling which days will be wet.

The ideal case would be to find the points on the chart where the range of uncertainty excludes a zero effect, which appears to happen after about three or four years, yet the effect-size remains large enough to matter, which seems possible up to the mid-twenties.

Our calculators quantify these ideas by giving a weight to the corrected CAPE.*** As the margin of error decreases, the weight goes up. At the same time, as the effect-size declines, the weight goes down. The statistical model finds an optimal way to calculate the weights, and, it so happens, the weight steadily increases from one to 24 years, then very gradually declines.  

For a concrete example, start with the chart below. It shows how our calculators simulate the portfolio of a hypothetical investor who matches this description:

• She has moderate preferences. Her goal is a compromise between maximizing gains and minimizing losses, and she is somewhat able to tolerate ups and downs in her investments.
• She plans to start spending her savings in two years, when she will retire. Given her health status and current age, she expects to continue spending for a total of 25 years.
• If she had children, she might add another five or ten years of spending, to allow her heirs to spend-down any residual savings after she dies. But she has no children and prefers to maximize her retirement budget by spending all her investments. Her home equity provides a safety net.

The calculator's statistical model, shown by the red line, sets the investor's exposure to stocks, given her preferences and the time remaining until invested funds will be spent.^ The blue bars are slices or portions of her portfolio, one for each year of anticipated spending.

Because this particular investor's preferences are moderate, the calculator assigns 65% as her maximum exposure to stocks, for investments held 20 years or longer. Anything not invested in stocks goes to bonds, at durations that depend on how soon the funds will be spent.

More than half the portfolio will be held 12 years or longer, and is therefor invested near the maximum level of 65% stocks and 35% bonds. The other half is invested with increasing caution, depending on proximity to the retirement date. As the investor ages and begins to spend her savings, the blue bars will, in effect, march to the left in the chart while staying under the model's red line, thus causing her portfolio to become more conservative over time. Right now, with retirement still two years away and many years of longevity on the horizon, her investments are, overall, about 60% in stocks.

That's without any adjustment for stocks being over- or under-valued. The next chart shows how much this investor's profile would have changed, when adjusted by the corrected CAPE, had the current date been any year between 1920 and 2015. Over those 96 years, 80% of the data fell between the lines shown as High CAPE and Low CAPE (10% were even higher, 10% even lower).

​As it happens, the corrected CAPE in early 2016 is approaching the value marked by the blue line, where High CAPE means that stocks are over-valued. In times like these, the hypothetical investor's profile gets shifted to the blue line, where the maximum invested in stocks is adjusted down to about 50%. On the other hand, if today's corrected CAPE were like the green line in the chart, with stocks a real bargain (Low CAPE), then more than 75% would be invested in stocks to be held for a decade or more. Notice, however, what happens for near-term holdings that will be spent in two or three years. Here, the calculator makes hardly any adjustment for CAPE.

If the holding period were extended well beyond 30 years, the adjustment would diminish somewhat because the effect of CAPE would very gradually fade. But it would not vanish completely in any normal lifetime. To give a specific example, if you had bought stocks near the top of the dot-com bubble in late 1999, when over-valuation of stocks peaked, your returns, even if you held the stocks for many decades, would likely be poorer than if you had purchased at a more normal price.

One final note is important. Some time in the next decade or two, stocks could take a tumble. If they do, the corrected CAPE may fall to a level that recommends a higher-than-normal exposure to stocks. If you adjust your stock allocation periodically, perhaps every quarter or year, according to the calculator's then-current recommendations, the result will be to move some of your holdings in and out of stocks as they become cheap or expensive, taking into account your evolving plans to spend your savings. In that sense, today's relatively expensive stocks are not a permanent penalty for your portfolio. They are a reason for caution that will last only until more optimism is warranted.

* The data for the study were monthly prices of the S&P 500, or a reasonable surrogate, and corresponding estimates of consumer inflation, from 1871 to 2015, as compiled by Robert Shiller. The period from 1871 to 1895 was used to initialize the values of the corrected CAPE. The plotted points in the chart are slopes from regressing LN(r) on LN(c), where r is the annualized real return on stocks, with dividends reinvested, and LN(c) is the corrected CAPE as described in an earlier post. The fitted line is a power function of the form s = -b * POWER( m, y ) where s is the slope; b and m are fitted constants; and y is the holding period in years.

** Statistically, the margin of error is the standard error of the least-squares estimated slope, on a natural-log scale.

*** The weight is k * s / e, where s is the slope; e, the standard error of the slope; and k, a fitted constant. All are on a natural-log scale. The weight is fitted to optimize the natural-log of the annualized real return.

^ The calculator's model for stock-allocations is an exponential function of the form:
p = q + u * ( 1 - EXP( - (y-1)/v) ),
where p is the portion allocated to stocks; q is a minimum allocation when there is one year left before spending starts; q + u is the upper limit or asymptote of the stock allocation; y is the holding period or "slice"; and v is a factor that controls the rate of rising from the minimum to the asymptote. As described here, this model worked better than other growth functions as a method of optimizing returns.

​

Earlier posts in this series reviewed possible explanations for what economists call "the annuity puzzle." The gist of the puzzle is that classical economic theory says retirees should buy more annuities than, in fact, they do. This series of posts can't claim to fully solve the puzzle. Instead, the more modest aim here is to use research by economists to help current and future retirees make good decisions about annuities.

A decision to buy or avoid an annuity is likely to be better made if it's properly framed. Being well framed means that the choice is stated in a way that counteracts common biases that could otherwise lead to a poor decision. That's the conclusion of a 2008 study published by Jeffrey R. Brown, J. R. Kling, S. Mullainathan, and M. V. Wrobel.

In the study, the authors surveyed 1,342 participants and asked them to evaluate decisions made by hypothetical retirees. The retirees were said to have "made permanent decisions on how to spend a portion of their money in retirement ... each person has some savings and can spend $1,000 each month from social security." Participants were told about the decisions that two such retirees had made and were asked which of the two had made a better choice.

For example, in one comparison, "Mr. Red" made a decision that allowed him to "spend $650 each month for as long as he lives in addition to social security. When he dies, there will be no more payments." He was compared to "Mr. Gray [who] invests $100,000 in an account which earns a 4% interest rate. He can withdraw some or all of the invested money at any time. When he dies, he may leave any remaining money to charity." Given this choice, most participants said Mr. Gray had made the better decision.

However, in another comparison, Mr. Red was the same, but Mr. Gray was described differently. He was able to "choose an amount to spend each month in addition to social security. How long his money lasts depends on how much he spends. If he spends only $400 per month, he has money for as long as he lives. When he dies, he may leave the remainder to charity. If he spends $650 per month, he has money only until age 85. He can spend down faster or slower than each of these options." In this case, most participants said Mr. Red had made the better decision.

Although described differently, these two cases were mathematically equivalent. In both of them, Mr. Red had a lifetime annuity, and Mr. Gray had a savings account earning 4% interest. When the savings account was characterized as in investment (the first case) it was favored over an annuity. However, when the savings account was characterized in terms of the spending pattern it would foster (the second case), it was disfavored.

The study was well designed in a manner that systematically compared a simple lifetime annuity to several other options, including interest-bearing investments and more complex annuities like the ones insurance companies may pitch to skeptical buyers. In every case, the simple lifetime annuity was logically and mathematically the better choice, but it was favored by the participants only when framed in language that clearly stated how each option would affect the retiree's budget and lifelong spending.

Thus, looking at budgets and spending led to better decisions than looking at investment factors such as interest rates and earnings. Focusing on budgets and spending counteracted people's tendencies, described in the previous post in this series, to over-simplify and to miscalculate risks.

Summing up, two points stand out from the various studies reviewed in this series of posts:

1. Consider your future health costs (for the reasons described in the first post). If you have excellent health insurance, such as a strong Medigap policy and long-term care insurance, then a simple annuity may be a reasonable way to smooth and stabilize your retirement income. If not, then you may be wise to set aside a reserve fund before purchasing an annuity.
2. Lay out your retirement income and budget without an annuity. Then consider whether purchasing an annuity might improve your lifetime spending. Do this instead of focusing on interest rates, investment returns, or payback periods.

Of course, other factors will also come into play, including your desire to leave bequests to your heirs or charity and your shared income with a spouse or partner, if you have one. For a step-by-step method that incorporates all these considerations, along with specifics regarding the best types of annuities, see our article on annuities for retirees.

Classical economic theory says that retirees should prefer annuities over investing in stocks and bonds. But they don't. Why? An earlier post reviewed one explanation, citing a study that said classical theory overlooks how health shocks reduce lifespans and impose burdensome costs. This post reviews other studies offering a second explanation. It examines how retirees think when deciding whether to buy an annuity.

In 2014, Jeffrey R. Brown, A. Kapteyn, E.  F.  P. Luttmer, and O. S. Mitchell, published a study that examined decisions to buy steady, lifelong annuity payments or to take a one-time, lump-sum payment. They noted that much of the research about such decisions "assumes a rational and fully informed individual who knows ... mortality rates, market returns, inflation, future expenditures, and income, and who can use this knowledge to optimally choose the mix of financial products to smooth" one's future budget over many years. That's a tall order, even for the brightest among us. Most of us may compensate, according to the study, by over-simplifying the decision.

To conduct the study, Brown and his colleagues generated realistic but hypothetical choices between annuities and lump-sum payments, and presented the choices to 2,112 individuals. The data indicated that most participants in the study used "simple heuristics rather than full optimization." The tendency to simplify the decision was strongest for those who had low scores on financial literacy and numerical ability, and those with less education.

A very common method of simplification, even among the more shrewd participants, was to buy an annuity or to trade one for a lump sum only when it was "an exceptionally good deal." While it might seem rational to insist on a good deal, the typical price-points in the study were extreme. On average, the participants were willing to buy an annuity only if the price was marked down by about 75% from the amount they would accept when trading an annuity for a lump sum. That's like offering to buy a new home for $60,000 but, as the owner of the same house, refusing to accept any offer below $250,000. A modest difference between the offer and list prices might make sense, but at values this extreme, a rational sale at fair value won't happen. In short, annuity buyers may have expectations that preclude reasonably priced transactions.

Another recent study offers a systematic explanation of the decision process that may guide annuity buyers. Under review for possible publication in an academic journal, the study is by Daniel Gottleib. Using a mathematical model from behavioral economics called Prospect Theory, the study analyzed consumers' decisions to buy or avoid either an annuity or life insurance. Logically, annuities and life insurance are complementary. One pays if you die; the other, if you live. As Gottleib argues, a theory that explains why retirees buy fewer or smaller annuities than is optimal (which they do) may also explain why the same retirees buy more life insurance than is reasonable (which they also do).

Setting aside the sophisticated math of Prospect Theory, one of its core ideas, as Gottleib explains, is that "individuals are risk averse over gains and risk seeking over losses." This means that decisions are based on miscalculation of the true risks. Here are some plain-language examples:

• Consumers (retirees and younger individuals alike) avoid taking losses. If, for example, they own a stock listed below what they paid for it, they avoid selling the stock at a loss and instead hold onto it, hoping that the price may recover. In doing so, they risk an even greater loss. For an annuity, the irrevocable decision to buy one may seem like a loss, if the buyer worries about dying before receiving enough payments to recoup the original cost. Just as the owner of a losing stock will hold onto it at risk, potential annuity-buyers hold onto their cash at the risk of depleting it, should they live longer than expected.
• Consumers are also over-eager to take gains. Stock-owners who have a modest gain, for example, may be inclined to sell pre-emptively and not let their profits run. They are averse to the risk that modest gains might vanish. Similarly, one who has held an annuity long enough to receive payments equal to the original purchase price may be reluctant to buy more annuities, even when doing so might be optimal. Logically, for example, it might be wise to increase an annuity if inflation has eroded the value of the original payments or if the buyer's good health has boosted the odds of a very long life. But such wisdom is atypical for retirees.

Gottleib's study offers the cold logic of Prospect Theory to explain decisions like these and similar ones regarding life insurance, including consumers' proclivity to under-purchase life insurance when young and over-purchase it when old. A point in favor of Gottleib's analysis is, thus, the breadth of decisions it covers.

The foregoing studies imply that when thinking about annuities, we are prone to over-simplify complex decisions and to miscalculate the true risks. Are there ways to counteract these misguided tendencies? Other research suggests that there are, and that better informed choices may be possible. That's the subject of Part 3 in this series.

For step-by-step methods to evaluate whether an annuity would be right for you, including methods to find a good insurance company that sells annuities, read our article on annuities for retirees.

Since a ground-breaking study by Menachem Yaari in 1965, economists have called it "the annuity puzzle." Classical economic theory says that retirees should, in a perfectly rational world, prefer annuities over investments such as stocks and bonds.* But they don't. In fact, very few retirees hold annuities. Why? Is the theory wrong? Or are retirees making bad decisions?

There's been plenty of research on the topic since 1965, with no definitive resolution. Some recent studies tackle the problem from very different perspectives. While not written as advice to retirees, the studies do, as I read them, offer useful insights that can sharpen one's thinking about annuities. In this post, I'll explain the core idea from one study. In subsequent posts, I'll discuss additional studies and review what the new research may imply about whether and when a retiree may sensibly consider an annuity.

The first paper, published in the November 2015 issue of American Economic Review, is by Felix Reichling and Kent Smetters. It aims to resolve the annuity puzzle by examining "​health shocks that simultaneously affect longevity and increase uninsured health costs." Setting aside the elegant mathematics used in the paper, the core idea is quite plausible.

To illustrate the idea, suppose you had purchased a lifetime annuity at age 65. It has paid you a steady stream of income for a few years, just as promised. When you bought the annuity, you had good information about your health. You knew that people with similar health had only a small chance of dying right away and maybe a 50% chance of dying in their 70's. But now, at age 72, you've gotten what Reichling and Smetters call a "health shock." While on vacation in a tropical paradise, you contracted a local disease that nearly did you in. You survived, after a long stay in the hospital, and your future health, alas, now looks bleak. To put a number on it, your chance of dying in your 70's is approaching 90%.

Making matters worse, you had no Medigap coverage, and you needed care from some pricey specialists. Consequently, you've withdrawn much more than planned from your retirement savings. Your personal wealth is much diminished.

The core idea articulated by Reichling and Smetters, supported by mathematics and by data, is that when both these events occur, a health shock that increases the risk of dying plus costs not easily covered by insurance or savings, then annuities become less attractive than holding bonds or other safe investments. Should you live in a world where the combination of such events is plausible, you would, according to Reichling and Smetters, be rational to avoid annuities.

Nonetheless, in the Reichling-Smetters model, annuities continue to make sense if only one of the unhappy events occurs. Thus, in certain scenarios, annuities may still be attractive. Here are two such scenarios:

• You've already had a bad health shock. For you, the next shock would be if your health improves, or a medical miracle arrives in the nick of time, and you live longer than the few years you thought you had left. Or, as a less extreme case, your health may be weaker than average because of a chronic condition. Think about it. Wouldn't an annuity be helpful, just in case you find yourself greeting the sunrise far beyond what you pessimistically expect? That's essentially what Reichling and Smetters argue.
• Your savings and insurance are ample. You can afford to buy an annuity so generous that no health shock would devastate your finances. It might wreck your health, but you would remain financially secure. Alternatively, you may be so shrewd about health insurance and long-term care that you have sufficient coverage for all conceivable costs. Then, whether or not you ever suffer a health shock that actually triggers your insurance benefits, an annuity would be a sensible way to guarantee and stabilize your future income.

Let's revisit your hypothetical self, at age 65, before you took that disastrous vacation. If you were thinking like Reichling and Smetters, you would do one of two things, maybe both.

First, you would set aside some of your retirement savings as a reserve fund for uninsured medical costs. Or you would increase your insurance coverage for medical expenses and long-term care. Doing so would make you less vulnerable to the double-whammy of a health shock that reduces your longevity combined with uncovered costs that degrade your financial viability. To get started, read our article on reserve funds for retirees, and use our Retiree Reserves calculator.

Second, you would buy annuities only to the extent that, after setting aside some reserves or increasing your insurance, you still have ample savings. You would have to review your personal circumstances, perhaps in consultation with a financial professional who receives no compensation for selling annuities or possibly with sophisticated software like ESPlanner.

Aiming to set a benchmark, Reichling and Smetters presented a chart (their Figure 7) indicating that for a healthy 65-year-old, at least $500,000 in savings would be necessary before buying any annuity. With $1,000,000 in savings, the chart says that annuitizing half or more might be defensible. Smetters offered similar advice when interviewed by the New York Times. Given the level of savings available to most retirees, this advice would rule out annuities for a substantial majority.

You should, of course, make your own decisions and consult your own adviser. As one way to get a second opinion, Part 2 in this series reviews another recent study that took a different perspective. It examined the decision process that retirees may be using, perhaps unwisely, when they avoid annuities. You can also find a step-by-step process for evaluating annuities and insurance companies in our article on annuities for retirees, which was recently updated to incorporate ideas from this series of posts.

* To make the economic theory accessible, I am necessarily glossing over some technical details. For example, the classical model assumes that annuity buyers have no "bequest motive." They do not intend to set aside some assets to be inherited by a spouse, child, or charitable organization. To dig into the technical details on your own, you might start here and then consult the home page of Prof. Smetters.

Disclaimer: Historical data cannot guarantee future results. Although a mixture of bonds, stocks, and other investments may be safer than investing exclusively in one class of assets, diversification cannot guarantee a positive return. Losses are always possible with any investment strategy. Nothing here is intended as an endorsement, offer, or solicitation for any particular investment, security, firm, or type of insurance. You are responsible for your own investment decisions. Please read our full disclosures and Fiduciary Oath.

On February 2, 2016, we released an updated and improved version of Plan to Retire, one of our calculators. Whether you are 20 or 70 or any age between, the improved calculator will enable you to test out your retirement plans. You can ...

• See your forecasted income throughout the period between ages 60 and 70, when key dates occur for Social Security, pensions, and retirement withdrawals.
• Test different scenarios, and see how they will affect your savings and potential income.
• Study options for phased retirement by independently setting several key ages: when you start taking retirement benefits from Social Security, when you stop working, when a pension might start, and when you begin withdrawing from your retirement savings. You can make these dates all the same, all different, or any combination.
• See how your retirement savings will be affected if you increase or reduce the amounts you and your employer save each year, or if you start taking withdrawals.
• Test how investing more or less in stocks will affect the growth of your savings and the amount of your retirement income.

You can find this calculator and others on the Calculators menu, above.

This post is about the fiduciary duties of investment firms and advisers to represent their clients' best interests, and about the positions taken on this matter by the investment firms recently rated in our article Best Firms 2016.

In April 2015, the U.S. Department of Labor (DoL) proposed new regulations regarding conflicts of interest in retirement plans and the definition of investment advice. Among the most important objectives of the proposed regulations are to:

• Strengthen the responsibility of retirement plans and retirement advisers to act in their clients' best interest, and
• Extend fiduciary requirements to IRA providers and to rollovers between IRA and 401(k) plans.

The DoL solicited public comments on the proposal over the summer and held hearings in September. In December, Republicans in Congress failed in an effort to modify the omnibus spending bill with a rider that would have overridden the proposed new regulations. After reviewing the public comments, the DoL is expected to issue final standards this year.

To evaluate each firm's position on the proposal, I read their official submissions to the DoL and looked for news or commentary on the firm's website. The submissions ranged from brief to profuse, making it difficult to compare, for example, one that was limited but vaguely supportive versus another that detailed its clear support in some areas and constructive opposition in others. I've opted, therefore, to judge them by comparison to comments submitted by Alicia H. Munnell and Anthony Webb of the Center for Retirement Research at Boston College. The comments of Munnell and Webb are both strongly supportive of the DoL proposal and lucidly explained. I recommend reading them.

In the list below, I've ordered the firms from best to worst according to my own judgment of the degree to which they conformed to the Munnell-Webb analysis. I also gave a firm credit for disclosing its position on its own website, in a manner retail investors would could easily find and understand.

1. Betterment submitted strongly supportive comments, covering certain aspects of the proposal applicable to individual investors and 401(k) plans. They fully disclosed the firm's position on their own website.
2. Wealthfront submitted very limited comments, mainly supporting low-fee automated services for small investors. They fully disclosed the firm's position on their own website.
3. Fidelity submitted modest comments here and here, requesting revision of some aspects of the DoL proposal, largely on grounds of compliance cost and administrative complexity, grounds that Munnell and Webb explicitly reject. Fidelity did not disclose any information about the DoL proposal or the firm's position anywhere on their retail client website.
4. Charles Schwab submitted extensive comments here and here. They supported the intent and some specifics of the DoL proposal, and constructively offered clarifications, while conforming mostly but not fully to the main points advocated by Munnell and Webb. Schwab did not disclose any information about the DoL proposal or the firm's position anywhere on their retail client website.
5. Vanguard submitted extensive comments here, here, and here. They responded constructively when in opposition but rejected some significant constraints favored by Munnell and Webb. Vanguard did not disclose any information about the DoL proposal or the firm's position anywhere on their retail client website.
6. TIAA-CREF submitted very extensive comments here and some follow-on comments here, agreeing in concept with the need for clearer fiduciary standards but opposing many significant constraints favored by Munnell and Webb. TIAA-CREF posted an article about the DoL proposal on the firm's main website but disclosed no information about the firm's position.
7. BlackRock submitted extensive comments here. They objected to the DoL proposal, including many significant constraints favored by Munnell and Webb, yet they allowed a generally favorable blog-post on the website of their subsidiary, Future Advisor, in conflict with the parent firm's strongly opposing comments to the DoL.

A full appreciation of the proposed standard requires some willingness to delve into legal and financial technicalities. That said, if you want to learn more, here are some ways to get started:

• Pensions & Investments, a publication for executives who manage pension accounts and institutional investments, reviewed the DoL proposal in August 2015, explaining who's a supporter, who's not, and why.
• The Board of Certified Financial Planners and the Financial Planning Coalition have articulated their reasons for being strong supporters. 
• A complete list of the public comments is published on the DoL website. Using control-F in your browser, you can search for the comments of a particular firm or individual.

Disclaimer: Nothing here is intended as an endorsement or solicitation of any security or product from any particular firm or financial adviser. Please read our full disclosures.

Taxes are such a headache.

Still, despite the pain, it's dumb to be dumb about taxes on your investments.

​I've assembled a new article, Being Tax-Wise, that tries to capture the main points to consider when planning your investments, so as to make them a notch more tax-savvy.

Some of the ideas are obvious: Save for retirement in an IRA or your employer's plan. Others, not so obvious: should you have both an IRA and your employer's plan?

Some ideas may be surprising: Did you know you can be the beneficiary of a 529 college savings plan you establish for your own graduate degree, and possibly get a state-tax rebate for doing so?

And, yes, some ideas are downright convoluted: Being tax-smart about retirement spending will keep you mentally fit, if your frontal lobe is ready to be exercised.

The article closes with suggestions on where to turn for tax-advice and second-opinions. In an area like taxes, where you are the one ultimately accountable for the decisions, professional advice and second-opinions would be smart for everyone. You can find the full article on the Investing menu.

The best and most popular news-posts at able2pay.com are being updated and moved. To see what's available, click on Retirement or on the Goals, Investing, or Portfolios menus at the top of this page. Included under Portfolios is an article on Basic Portfolios that amplifies the post immediately below.

Do you want  guidance on funds to buy in your 401(k), 403(b) or IRA, college-savings, or investment account? Here's an easy method from able2pay.com.

• Answer two questions to set targets for stocks and bonds, suitable for your goals and preferences.
• Allocate to three basic funds, which any firm will offer.

Step 1. Set a target percentage for stock funds.
When do you expect to spend most or all of the investments in this account?

• All in the next year or two: Set final target = 0% and stop (skip the next question).
• Most or all within five years: Set preliminary target = 30% and continue.
• Six or more years from now: Set preliminary target = 60% and continue.

What is more important to you, maximizing gains or minimizing losses?

• Maximize gains: Add 15% to your target.
• Minimize losses: Subtract 15% from your target.
• Do both: Keep your preliminary target (no change).

You now have a target of 0%, 15%, 30%, 45%, 60% or 75%. This is the amount you will allocate to stock funds. The rest will go to bond funds. (If you want more finely tuned values, you can get them with our Best-Invest calculator.)

Step 2. Allocate to suitable stock and bond funds.
Use your target to find the matching row in the table below. Then use the percentages in your row to invest in the funds shown by the column headings. Most 401(k), 403(b), IRA, college-savings, and investment accounts will offer these funds or equivalents. Below the table are descriptions that will help you find the right ones for your account.

• U.S. Stocks: Use an index fund that invests in the total U.S. stock market. If not available, use an index fund of large-cap U.S. stocks or the S&P 500. Avoid anything that's not indexed or that's more specific.
• International Stocks: Use an index fund that invests in all non-U.S. stock markets. If not available, use an index fund of EAFE stocks (developed countries outside the U.S.). Avoid anything that's not indexed or that's more specific.
• Intermediate Bonds: Use a bond fund that invests primarily in a broad mix of U.S. treasury and corporate bonds. Avoid funds with a limited focus on TIPS or on inflation-linked, international, high-yield, or short-term bonds. In a 401(k), 403(b), or IRA account, you should also avoid municipal bonds.
• Short-Term Bonds: Use a fund of U.S. treasury bonds with maturities less than five years. If not available, use instead a short-term bond index fund or a money-market fund.

Optional Step for IRA and Taxable Accounts
The following options are good improvements for an IRA or taxable account, but are unlikely to be available for your 401(k), 403(b), or college-savings plan:

• Invest at Betterment, and simply use the target from Step 1. Betterment's automated service will invest in a well-designed set of U.S. and international stocks and bonds.
• Invest  at Vanguard, using the alternate table below and these funds: Global Minimum Volatility; either Mid-Cap Value Index or Strategic Equity; Intermediate-Term Bond Index; and Short-Term Treasury.
• Invest in a low-fee brokerage account such as Fidelity or TD Ameritrade, using the alternate table below and these Exchange-Traded Funds (ETFs): iShares MSCI All-Country World Minimum Volatility (ACWV), Vanguard Mid-Cap Value (VOE) or equivalent; Vanguard Intermediate-Term Bond (BIV) or equivalent; Vanguard Short-Term Government Bond (VGSH) or equivalent.

To learn more about global low-volatility stocks, mid-to-small value-stocks, and Betterment's portfolio, see the article Diversify! on the Portfolios menu.