"The Girl with the Dragon Tattoo", the Economy, and Financial Markets

Over the past few months I've had several clients ask me why financial markets appear to be decoupled from the economy. Both have been negatively impacted by the COVID-19 pandemic, but financial markets have rebounded while the economy continues to struggle. I've given a lot of thought to this issue and I've come to the conclusion that there are multiple reasons for the divergence.

Rereading a Favorite Book Pays Off

While rereading one of my all-time favorite books, The Girl with the Dragon Tattoo by the late Stieg Larsson, I found a passage that got me thinking again about the question of why financial markets have diverged from economic reality. In the epilogue, one of the main characters, Mikael Blomkvist, is being interviewed by a journalist on a television talk show:

"The idea that Sweden's economy is headed for a crash is nonsense. . . .You have to distinguish between two things--the Swedish economy and the Swedish stock market. The Swedish economy is the sum of all the goods and services that are produced in this country every day. There are telephones from Ericsson, cars from Volvo, chickens from Scan, and shipments from Kiruna to Skovde*. That's the Swedish economy, and it's just as strong or weak today as it was a week ago. . . .The Stock Exchange is something very different. There is no economy and no production of goods and services. There are only fantasies in which people from one hour to the next decide that this or that company is worth so many billions, more or less. It doesn't have a thing to do with reality or with the Swedish economy."

*Kiruna is the northernmost town in Sweden, while Skovde is near the south.

At Least Seven Reasons I Can Think Of

I believe it's possible to answer the original question if we follow the character's advice and "distinguish between two things" - the economy of the U.S., not Sweden, and financial markets. I'm going to focus on the financial markets rather than the economy because, let's be honest, the economy of the U.S. isn't going to improve until either (1) everyone begins following mask and social distancing guidelines, which will lead to marginal, but probably significant improvement in the overall economy  or (2) there's a vaccine, when things can begin to return to normal, or whatever the new normal is at that time. Unfortunately, if you spend any time at all reading, watching, or listening to the news or social media, it is obvious that option #1 isn't likely to happen anytime soon.

With that out of the way, here are the seven reasons why I believe the financial markets aren't in sync with the economy:

1. Due to historically low interest rates, investors are searching for higher rates of return. High-yield savings accounts, Certificates of Deposit, and bonds aren't going to cut it. Despite the many risks, the only place with the potential to earn a higher rate of return is the stock market.

2. Corporate earnings have exceeded analyst expectations (for some companies). This is especially true when it comes to large tech companies, such as Alphabet, Amazon, Apple, Facebook, and Netflix, because consumers have increasingly used the services these companies provide.

3. Markets are forward-looking. Investors have processed the bad news and are now readying for the recovery. This is especially true for wealthy households, which are less likely to feel the pain of an economic downturn.

4. The actions of the Federal Reserve have bolstered investors' confidence that financial markets won't go completely off the rails. The Fed has moved aggressively to ensure businesses have access to the cash necessary to keep things running.

5. Government stimulus in the form of direct payments to individuals and households, unemployment benefits, and the Paycheck Protection Program (PPP) have calmed investors. It appears there will be another round of stimulus measures - if all of our elected officials can stop acting like children and actually work together. 

6. Investment apps, such as Robinhood, which make it easy to invest, and commission-free trades have lowered the barriers to entry for many investors. While I believe the net effects of these things are positive, they have probably led to more speculation in financial markets.

7. Sports and casinos haven’t been an option during the pandemic, which has forced those who gamble to look for other outlets, specifically the stock market. There's been a sharp increase in streamers broadcasting their day-trading routines. I encourage you to ignore these people, just as I encourage you to ignore other forms of financial entertainment, such as pretty much everything on CNBC.

A Few Reminders

1. Wear a mask.

2. Wash your hands.

3. Get some exercise.

4. Limit your social media intake.

Second Quarter 2020 In Review

Summary

The best thing I can say about the first half of 2020 is that it's over. Of course that leaves us with another six months of this crazy year. Let's not think about that right now. Instead, let's focus on what happened during the second quarter.

The first quarter ended with financial markets down and our anxiety levels up. The next two months saw financial markets bounce back aggressively. While I welcome the recovery in the financial markets, the disconnect between the market rally and the grim daily news is unsettling. Uncertainty, which is my contender for Word of the Year, is everywhere.

Second Quarter 2020 Numbers

The average diversified U.S. stock fund, which is a better measure of how we invest than the S&P 500 or the Dow, gained more than 23% during the second quarter. This gain follows a loss of nearly 25% during the first quarter. Investors, justifiably spooked, pulled $28 billion from US stock funds during the second quarter.
 
International stocks also did their best to impersonate a yo-yo: The average diversified international stock fund up 18%, which comes on the heels of a 23% loss during the first quarter. Investors demonstrated less confidence in international stocks funds by pulling nearly $62 billion out of those funds during the quarter.

The average intermediate-term bond fund gained 5.0% during the second quarter, which added to its gain of 0.4% during the first quarter. In a flight to safety, investors plowed nearly $184 billion into bond funds during the second quarter.

Returns By Broad Category

Can't read this? Here's a link to a PDF of this chart.

The chart above provides a high-level view of how the broad asset categories have fared annually from 2014 - 2019, monthly from January - June 2020 and year-to-date 2020. 

I love this chart and always look forward to seeing the updated version. Two takeaways:

1. Notice any patterns? If you answered "yes", we need to talk because your brain operates on a different level than mine. It's impossible to consistently predict which categories will perform best from year-to-year or month-to-month.

2. This chart is Exhibit A for why it's prudent to build diversified portfolios. Sadly, diversification means you're always having to say you're sorry because it's rare for every category to produce positive returns.

What's Next?

You may read or listen to the news.

You may ask yourself, well, how did we get here?

You may ask yourself, why won't some people wear masks?

You may tell yourself, financial markets cannot be this disconnected from reality.

You may tell yourself, our elected officials aren't actually leaders.

Same as it ever was.

Given all of the bad news, and the questions you're probably asking yourself, it's natural - and okay - to be nervous or unable to focus. I've found it helps to exercise daily and do something I enjoy, such as painting.

Since we're surrounded by so much uncertainty this year, I recommend focusing on some positive things:

1. Using history as a guide, we know that financial markets will recover. The timeline for recovery may be different with every event, but it still happens. Your portfolio will recover, too.

2. At least we have the internet*. Can you imagine being stuck at home without it during a pandemic? The internet allows many people to be able to work from home, get news, and have access to pretty much every form of entertainment.

3. We've stopped hearing about murder hornets.

Wear a mask when you go out, wash your hands frequently, and stay healthy!

*Don't get any ideas, 2020!

Hang In There

If 2020 were a Marvel movie, this might be the moment when the Avengers show up and save the day.

Wishful thinking, I know.

Unfortunately, it appears the United States isn't in wave #2 of the pandemic because we never really left wave #1. Due to the uncertainty, no one really knows how financial markets or the economy will react in the coming months.

In a couple weeks I'll share my thoughts about the second quarter of 2020. In the meantime, here are some thoughts about the second half of the year.

Reasons for Optimism

1. Solid economic foundation
   The U.S. economy was healthy leading into the COVID-19 crisis. The ensuing recession was caused by an external shock, not a typical end to the business cycle driven by economic overheating. This could hold promise for the recovery.

2. Attractive value vs. bonds
   With bond yields down (and prices up), the gap in the value between stocks and bonds, as reflected in the equity risk premium, is wide. This suggests investors can potentially realize greater reward from stocks.

Reasons for Caution

1. Hidden vulnerabilities
   The lockdown-driven decline in economic activity and spike in unemployment has left the U.S. economy more exposed to risks. It remains to be seen whether there are any hidden vulnerabilities in the system, including hiccups in reopening progress. Markets do not like uncertainty.

2. Risk of second wave of infection
   COVID-19 is a novel virus, meaning it has no exact precedent. A new round of infection is possible and its burden on the health care system and potential for renewed closures is unknown. The upside is that countries would enter a second wave wiser and more prepared, with availability of greater testing, contact tracing, protective gear and drug interventions.

3. Heightened geopolitical tensions
   The U.S.-China relationship is further strained since the COVID crisis, defined by greater competition and less cooperation. Bouts of market volatility are likely should tensions flare. In addition, U.S. onshoring and the likely move toward deglobalization will have margin and inflation implications down the road.

4. Absolute valuations are not cheap
   Stock prices are attractive relative to bonds, but by the most common measure of valuation, P/E ratio, they are not cheap. Stock prices relative to 12-month forward earnings per share stood at 21x at the end of May. Pandemic-related uncertainty has made the earnings outlook for many companies blurry at best.

For better or worse, it appears very few people in the U.S. are prepared to endure another shutdown. So, a few reminders:

1. Wear a mask.

2. Wash your hands.

3. Get some exercise.

4. Wear a mask.

Reading / Watching / Listening / Playing

Here's what's keeping me busy in my spare time:

• The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton. To some, a book that suggests deficit spending isn't the monster we've been taught to fear is heresy. I haven't made up my mind yet, but I'm open to learning more about Modern Monetary Theory (MMT). In July, I'm joining a book club to read & discuss this book.

• Floor is Lava on Netflix. I'm watching this ridiculous game show with my kids. Full disclosure: I was the one who found this series and lobbied to watch it with my kids. It's both dumb and fun, which is just what I need at this point in 2020.

• Revisionist History, season five. Malcolm Gladwell's podcast returned last week to start its fifth season. So far, Gladwell continues to pull together seemingly different stories or facts with fascinating results. I find it best to enjoy this during a mid-day walk when I need to clear my head.

• Assassin's Creed: Odyssey. We won't be traveling this year, for obvious reasons, so I've been enjoying this game on my Xbox One. I may not be able to travel to modern Greece, but at least I can explore ancient Greece via Ubisoft's amazingly well-rendered game.

First Quarter 2020 In Review

Summary

Unless you've been living in a van down by the river, you know that the first quarter of 2020 was...overwhelming.

January started off well: Investors were feeling good about the stellar year that was 2019, financial markets continued to hit all-time highs, and unemployment was low. However, during the early weeks of 2020 it became clear that COVID-19 was turning into a serious global pandemic. Financial markets peaked on or around February 19, and then fell quickly and severely. Since then, investors have experienced swings in financial markets nearly every day, with double-digit rebounds in most stock indices.

As if a global pandemic wasn't enough, the price of oil cratered due to a price war, which only exacerbated the ups and downs in financial markets.

First Quarter 2020 Numbers

The average diversified U.S. stock fund, which is a better measure of how we invest than the S&P 500 or the Dow, lost nearly 25% during the first quarter. Investors, justifiably spooked, pulled $89 billion from US stock funds.
 
Returns for international stocks were also negative, with the average diversified international stock fund down 23%. Surprisingly, investors sent nearly $7 billion into international stocks funds during the quarter.

The average intermediate-term bond fund gained 0.4% during the first quarter. In a flight to safety, investors pulled $160 billion from bonds in favor of cash and gold.

This does not mean you should run out and buy gold. 

Unmarked Hazards Exist

In mid-January, I was fortunate to go snowboarding in Taos, New Mexico. While on the mountain, I saw signs everywhere reminding boarders and skiers that "unmarked hazards exist". That's because snow and bad weather can hide rocks, holes, and numerous other hazards.

The chart above is a good reminder about unmarked hazards. The chart shows five major hazards that have disrupted financial markets over the last 20 years. The CoronaVirus hazard was recently added, after replacing the Long-Term Capital Management (LTCM) hedge fund bailout of 1998.

In hindsight, it's easy to say that most of the hazards shown above were obvious. After 2001 it was obvious to everyone that tech stocks had been wildly overvalued. After 2009 it was obvious to everyone that the combination of a housing bubble and sub-prime lending had caused a financial crisis.

I suppose one could argue that some hazards are expected. For example, public health officials and other extremely intelligent people, such as Bill Gates, predicted a pandemic would occur and have a severe negative impact on the global economy. However, no one could predict exactly when a pandemic would occur or where it would begin.

Since the financial crisis of 2008-2009 investors have experienced a relatively smooth bull market. During that 10-year period I have sometimes shown the chart of hazards to clients when discussing their financial plan and investment allocation. My goal was twofold: First, to demonstrate how previous events have affected financial markets and client portfolios. Second, to reinforce the idea that another unknown event - not currently on the chart - would negatively affect markets sooner or later. 

In other words, as investors, we have to accept that unmarked hazards exist. Something new, that's nearly impossible to plan or prepare for, will always come along to shake things up. The only thing we can do is create a plan and stick to it when the event finally occurs.

Where Do We Go From Here?

The movie 12 Monkeys is a great documentary about life in a post-pandemic world.

Uncertainty is always a problem, but it's a major one right now.

Everyone wants to know, among other things: How long will the pandemic last? How many deaths will there be? When can we resume our normal everyday routines? When will financial markets recover?

Unfortunately, no one can answer these questions right now. Given all of the bad news we're seeing every day, it's natural - and okay - to be nervous or unable to focus. I'm finding it difficult to focus when reading books or watching TV.

Since we're surrounded by so much uncertainty in these strange times, I recommend focusing on some positive things:

1. Using history as a guide, we know that financial markets will recover. The timeline for recovery may be different with every event, but it still happens. Your portfolio will recover, too.

2. If you are fortunate to be able to work from home during this pandemic, take a moment to think about how wonderful this is. Sure, you're stuck inside and your daily routine has been disrupted, but you are safe and you have income.

3. If you have children, being stuck inside with them can be challenging. However, this is a great opportunity to spend more time with your loved ones. Play some boardgames, do some puzzles, or watch some movies.

4. If you're stuck at home this is might be a good opportunity to work on home improvement projects you often don't have time for.

Stay home (if you can), wash your hands frequently, and stay healthy!

Investing Is Hard. Focus On What You Can Control.

When I say "investing is hard", what I really mean is that staying invested is hard. Especially when, as of this writing, the S&P 500 is down 26% year-to-date. Or when you’re bombarded by non-stop coronavirus-related news information from traditional and social media. Or when you can log in to your financial accounts anytime you want and watch the value decrease.

For investors of all ages, 2020 has been a difficult year - and we’re not even through the first quarter! It has been a long time since investors have seen such wild swings in financial markets. Since 2009, staying invested has been easy. Sure, there have been ups and downs, but mostly ups. And the market always goes up, right? Wrong, but after 10 years, and an absolutely stellar 2019, we've become accustomed to positive returns.

I could tell you to ignore the latest updates about the coronavirus pandemic, but you won’t do that. The virus has disrupted so many aspects of life that it’s natural to want to find out when it will end.

I could tell you to stop checking the value of your investments, but you won't do that. Technology has made it easy for us to quickly log in to our accounts or receive automated notifications of the balance, performance, etc.

I could tell you to ignore the daily news about the financial markets, but you won't do that. There's information everywhere and it's nearly impossible to avoid.

I could tell you not to listen to talking heads make predictions about what the markets will do, but you won't do that. Like daily news about financial markets, it's almost impossible to avoid hearing from someone who knows what's going to happen in the financial markets today, tomorrow, or next year. Here's a secret: No one can predict, at least not consistently, what's going to happen.

You're human, at least I think most of you are, which means you will track the latest news about the coronavirus, you will worry about your investments, you will be curious about the day-to-day changes in your account, and you will want to know what's going to happen to your accounts in the future.

Here’s something else you can do: Focus on what you can control.

You can control your own behavior. Spend quality time with loved ones. Try not to eat too much junk food. Make time in your day for some exercise. Read a book. Take a break, even an hour, from news, markets, noise, social media, commentary, opinions, and speculations and give yourself some space to think.

Finally, do one more thing: Since we’re in the Age of Coronavirus, your portfolio is like your face: Don’t touch it.

Ongoing Volatility in the Financial Markets

There's no way to spin this: Monday was a rough day for investors.

• The Dow was down 7.8%

• The S&P 500 fell 7.6%

• The Nasdaq Composite slid 7.3%

Reminder: Take a deep breath. And another. It's all going to be okay.

Health Crisis: Downturn to Recovery

Historically, downturns caused by health crises don't last forever. The charts above show the SARS and Zika crises from 2003 and 2016, respectively. In both cases, the sell-off trough lasted for much of the first quarter before stocks resumed their upward trend.

I can't tell you when things will turn or by how much, but my expectation is that investors bearing today's risk will be compensated with positive expected returns. Unfortunately, history has shown no reliable way to identify a market peak or bottom. This means it is unwise to make market moves based on fear or speculation, events difficult and traumatic events transpire.

In other words, stick to your financial plan.

It's Okay to Be Nervous

Note: My friend and fellow financial planner Will Kaplan, CFP® wrote the following three paragraphs. I couldn't improve upon them, so I asked him if I could include them here. Enjoy.

Feeling nervous as the market drops is normal. That is part of our biological response to bad news. As humans we feel bad news about twice as intensely as we experience good news. It's just how we are wired and part of why being investors is so challenging.

Courage does not mean that you are not afraid. Courage is doing something even though it is scary. It is okay to be afraid, but fear should not be our only guide.

Discipline is remembering that we know markets go down from time to time and remembering that we have a plan for when they do. We rebalance the portfolio (when necessary) to maintain the asset allocation. We want to be buying when markets are down and selling when markets are up. The challenge isn't in knowing what to do, but in being disciplined and not allowing our emotional response to derail our plan.

One Last Thought

The late Jack Bogle, founder of Vanguard, once commented in other periods of heightened volatility in the markets, "The expression is 'don't just stand there, do something' and the best rule I think is 'don't do something, just stand there.'"

While the news in the short-term may get worse before it gets better, long-term perspective and patience are necessary to ride out short-term volatility in the markets. Hang in there.

Keep Calm and Stick to Your Financial Plan

It has been a challenging week for investors.

As of Thursday, February 27, 2020, the three major U.S. stock indices are in negative territory year-to-date. Let's look at the damage:

• Dow Industrials -9.71%

• Nasdaq Composite -4.53%

• S&P 500 -7.80%

The cause? Fear and uncertainty over the global impact of the coronavirus.

The headlines are frightening, the posts on social media are scary (and probably riddled with incorrect information, but that's whole different issue), and the responses from elected officials are unsatisfactory.

For investors, your age, experience, and the total value of your portfolio are irrelevant because nearly 100% of you are thinking the same thing: This. Doesn't. Feel. Good.

Take a deep breath. And another.

It's all going to be okay.

How Have Other Diseases Affected Financial Markets?

This afternoon I spoke with a friend who works in public health. She's highly-educated and very smart. In other words, she knows what she's talking about when it comes to these types of things.

Part of our conversation focused on previous epidemics/pandemics and their affect on financial markets. The chart above might be difficult to read, so here's a link to a larger version. When viewing the larger chart, you can see a host of pandemics/epidemics and, most important, the macro trends in the S&P 500. However, it's impossible to see the micro trends, so I had to do some digging:

• During the height of the SARS virus back in 2003, the S&P 500 Index fell by 12.8%

• During the Zika virus, which occurred at the end of 2015 and in 2016, the market fell by 12.9%

My point is that during previous pandemics/epidemics the financial markets suffered some scary declines. The important takeaway is that markets recovered relatively quickly.

Some Perspective

If you want some statistics about the coronavirus check out this site, which aggregates statistics from health agencies across the world. Some numbers to consider:
 

• At the time of this writing, there were 83,379 coronavirus cases and 2,858 deaths

• Every year an estimated 290,000 to 650,000 people die in the world due to complications from seasonal flu viruses

I'm not attempting to minimize the threat posed by the coronavirus or the deaths that have occurred. I simply want to give you some perspective about this issue.

So, get a flu shot, wash your hands, eat well, exercise regularly, and don't forget to breathe.

If you're still nervous about the coronavirus and how it might affect global markets and your portfolio, that's okay. Just keep the big picture in mind when thinking about this week's declines:

One Last Thought

In the movie Braveheart, there's a scene where English heavy cavalry are bearing down on William Wallace, played by Mel Gibson, and his army of Scottish warriors. It would be truly terrifying to have heavy cavalry charging at you. In the movie, Wallace/Gibson tells his soldiers to "HOLD".

I recommend you do the same when it comes to investing. Keep calm and stick to your financial plan.

Discover & share this Braveheart GIF with everyone you know. GIPHY is how you search, share, discover, and create GIFs.

Listening / Playing / Reading / Watching

Here's what has my attention this week:

• Pandemic by Z-Man Games. This is a great cooperative board game where up to four players try to keep the world safe from outbreaks and pandemics.

• Outbreak starring Dustin Hoffman and Morgan Freeman.

Key Takeaways of the SECURE Act of 2019

The SECURE Act was signed into law on December 20, 2019. The bill, aimed at strengthening retirement security for Americans, features a mix of good and bad. Here are the most important takeaways, along with some commentary:

The Act pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70 1/2 to 72, and allows traditional IRA owners to continue making contributions indefinitely

In case you're unfamiliar with the RMD, it's basically a forced distribution made from one's retirement account. The government needs the taxes you've been deferring for years! Here's how RMDs work:

Historically, the initial RMD had to be made the year you turned 70 1/2. You could postpone taking that initial payout until as late as April 1 of the year after you reached the magic age. However, you would then have to take your second RMD by December 31 of the same year. Since RMDs are taxed at ordinary income rates, one would incur a large tax bill if both RMDs were taken in the same year. In order to avoid this double-whammy, it's typically a good idea to spread the RMD over two years (take the first RMD in the year you turn 70 1/2 and the second RMD during the next year). Confused yet? 

While the SECURE Act increases the age at which you must begin taking RMDs from age 70 1/2 to 72, this favorable development only applies to those who turn 70 1/2 after 2019. If you turned 70 1/2 during 2019, you're still required to begin your distributions under the old rules.

Under the new rules, you still have the option to postpone your first RMD until April 1 of the year after you turn 72. If you decide to postpone, remember the second RMD must be taken by December 31 of that same year. In order to avoid a large tax bill consider spreading the RMDs over two years.

The SECURE Act makes it easier for small business owners to set up "safe harbor" retirement plans that are less expensive and easier to administer

Small businesses will be able to join a pooled employer plan (called a MEP or Multiple Employer Plan), which is meant to reduce the cost of offering retirement plans to employees of small businesses. Bonus: If the employer plan has an automatic enrollment feature, they get a small tax credit.

Part-time workers will be eligible to participate in an employer retirement plan

While this is generally good news, the rules are somewhat restrictive: Employers have to include eligible part-time workers in the 401k plan. In this case, an "eligible employee" is defined as one that completes three consecutive years of service, working for 500 hours per year.

The Act mandates that most non-spouses inheriting IRAs take distributions that end up emptying the account in 10 years

Historically, beneficiaries could elect to take distributions from an IRA over their life expectancy. This "stretch IRA" feature has been scrapped for non-spouses in the SECURE Act. The maximum number of years a non-spouse beneficiary can take distributions is now 10 years. This is essentially a tax-grab by Congress.

The Act allows 401k plans to offer annuities

This was a big win for insurance companies - and their highly-paid lobbyists. I am not at all happy about this provision. I believe it's a bad deal for consumers because high-fee and commission annuities can now be sold to sponsors of 401k plans. Annuities aren't always bad, just mostly bad.

My New Year's Resolutions for 2020

Here's what I want to accomplish in 2020

At the start of every year I like to come up with a list of New Year's resolutions. I believe I'm more likely to achieve, or at least come close to achieving, my stated goals. In fact, there may be some truth to my belief: According to a study in the Journal of Clinical Psychology, 46% of participants who made New Year's resolutions were likely to succeed, over ten times as among those deciding to make life changes at other times of the year.

Feel free to share your New Year's resolutions with me!

Here's what I want to accomplish in 2020:

1. Resume tracking what I eat. Around March of 2019 I faced the sad reality that I need to do something about the slow creep of weight gain that started affecting me in my late 30s. I started tracking and logging what I ate in the MyMacros+ app. At first this wasn't easy and it wasn't fun. However, after a few weeks I started to get the hang of weighing and logging my foods. I lost some weight and started to feel better. The only downside I found was that I had to buy new jeans because my old ones were too loose after losing weight (that's a good problem to have). The holidays derailed my progress, but I'll resume tracking now that all the celebrating is over until later this year.

2. Continue CrossFit training ~3 times/week. Watching what you eat is only part of the equation; training to preserve muscle mass and improve mobility is equally important. I started CrossFit a few years ago and absolutely love it. Are the intense workouts for everyone? Definitely not. But in my 44 years this is the first workout regimen that hasn't allowed my body to plateau.

3. Create more art. I love to paint and draw. Unfortunately, it's easy to get distracted by, among other things, life, numerous streaming services, and social media. I want to resume practicing with oil paints and finally finish some projects.

Coming Next Week

Next week I'll provide you with a summary of the SECURE Act of 2019. And in case you're wondering what SECURE stands for...Setting Every Community Up for Retirement Enhancement. Because every tax law needs an unwieldy acronym.

What I Learned In 2019

Another Year Older

Whenever my birthday comes around I reflect on the things I've learned during the year. My birthday just happens to fall near the end of the year, which is fortunate because I can use what I've learned when developing my New Year's resolutions. I'll share my resolutions in the next email. In the meantime, here are three of the things I learned, or lessons that were reinforced, during 2019:

1. Regardless of income, nearly everyone overspends in the same categories. I've worked with individuals and couples of all ages and income levels. Whenever I do a cash flow analysis, the results are the same: Shopping, dining out, groceries, and subscription services are the categories that kill budgets. I even created a calculator to help people see how much they spend on subscriptions.

2. Income inequality is bad, but you're probably better off than you think you are. The people I work with are doing well financially, but they don't always feel like they are. This is understandable given the high cost of living in major cities, child care expenses, etc. I don't have any easy solutions to resolve this problem, but sometimes it's helpful to have a reminder that you're probably better off than you think you are. Check out the table in this article to see how you measure up.

3. How we invest continues to evolve at a rapid pace, but the basic principles of investing are still valid. During 2019 we saw trading commissions for stocks and ETFs go to zero, major consolidation in the financial services industry (Schwab buying TD Ameritrade), the proliferation of online investing tools (Robinhood, Personal Capital), and major outflows from mutual funds and inflows to ETFs. All of the changes and slick tools haven't changed the fact that it's important to build a diversified portfolio, keep your costs low, and stick to your plan. Don't have a plan? Use this tool to get started.

Listening / Playing / Reading / Watching

Here's what's keeping me busy in my spare time:

• The Ride of a Lifetime: Lessons Learned from 15 Years as CEO of the Walt Disney Company by Robert Iger. I just started this and will let you know what I think about it as I read more.

• The Andromeda Evolution by Michael Crichton and Daniel H. Wilson. Sadly, Crichton died in 2008. Fortunately, Wilson does a decent job of expanding the story started in The Andromeda Strain.

• Gears 5 on Xbox One. Who knew the stagnating video game series would reinvent itself with an open-world? Gorgeous and fun to play. I'm looking forward to the inevitable Gears 6.

Another Downside of Aging: Elder Abuse

Yet Another Downside of Aging

If you're reading this hoping for a guide to abusing the elderly, such as Elder Abuse for Dummies, you're (A) out of luck and (B) a monster. 

On the other hand, if you're looking for some tools to help fight elder abuse, then this post may be helpful.

Elder Abuse In The News

In case you didn't know it, I'm a big fan of all things Marvel. That's why I was sad to see reports of elder abuse against Marvel founder Stan Lee, who died in November of 2018.

Recently, a former business partner and caretaker of Mr. Lee's was charged with three felonies, including false imprisonment, grand theft (possibly $5 million!), and a misdemeanor charge of elder abuse.

Surprisingly, these crimes seem relatively normal when compared to the one perpetrated by another ex-manager of Mr. Lee's. In that case, the ex-manager was sued for having "a nurse inject Lee with a syringe and collect many containers of blood", which were then sold by a fictitious charity for thousands of dollars.

How low do you have to be to steal and sell your employer's blood? Perhaps the better questions are who bought the blood and what did they do with it? Unless it's some genius who is attempting to clone Stan Lee, these questions are better left unanswered.

Elder Abuse Facts

Mr. Lee was a celebrity, so his case makes for interesting reading and generates headlines. Unfortunately, most cases of elder abuse don't make the news. Here are some statistics from the National Council on Aging:

• Approximately 1 in 10 Americans age 60+ have experienced some form of elder abuse

• It's possible only 1 in 14 cases of abuse are reported authorities

• Two-thirds of abusers are adult children or spouses*

*I'll be keeping an eye on you, Heidi Kotzian

What You Can Do

If you suspect an older adult is being mistreated please contact your local Adult Protective Services office. Residents of Washington, D.C. can contact the Adult Protective Services 24-hour hotline at 202-541-3950.

Mom & Dad: If you're reading this, don't be alarmed when I show up for a visit with a syringe and many containers.

Knowing When To Let Go

Sticking With It...Or Not

A couple of weeks ago, a friend asked if I had watched the most recent season of House of Cards. I responded that I had stopped watching partway through the 5th season because I was no longer enjoying it. My friend and his wife were slogging through the final season, determined to finish it even though they too weren't enjoying it.

Over the past few years, I have become much less likely to continue reading or listening to books, watching TV shows or movies, or playing video games that I wasn't enjoying. Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari? Set it aside after it kept putting me to sleep. The Walking Dead? Stopped watching after season seven shambled on what seemed like forever. Far Cry 5? Deleted from my PlayStation 4 after growing tired of boring fetch quests.

As I've gotten older I've become more conscious, and more protective of, my free time. Call it the Marie Kondo Effect: Why waste precious time on something that doesn't bring me joy?

We all love instant gratification, but not everything has to bring you instant or constant joy. Sometimes challenging things are worth it. The Count of Monte Cristo is one of my all-time favorite books, but parts of it drag. Still totally worth it.

Buying...Or Selling

I know this will shock you, but I often relate things to investing. The decision about whether or not to stick with something that no longer brings us joy is similar to what happens when we invest. Sometimes we hold on for too long; sometimes not long enough.

Hopefully, the decision to buy or sell an investment isn't based on emotion, such as joy. Instead, the decision should be made based on logic and quantitative measures, such as price, expenses, and the need for diversification.

Sadly, as I've written previously, investing is hard. Humans are emotional creatures and we're often lousy at making rational decisions. We buy high and sell low. We take on more risk than we need to.

My advice: Try to reserve your emotional decisions when choosing things like books, TV shows, movies, and video games. And, if you've given something a fair chance and you aren't enjoying it, don't be afraid to let it go. Unless it's The Count of Monte Cristo. You need to stick with that book.

When it comes to investing, check your emotions at the door.

Ten Years!

It's difficult to believe that ten years ago this month the S&P 500 finally hit the bottom. Check out the chart below to see how it has bounced back.

Reading / Watching / Playing

Here's what has my attention right now:

• Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou. The rise and fall of Theranos and its CEO, Elizabeth Holmes, is a fascinating tale of corporate fraud, greed, and the insanity that is Silicon Valley. I'm about halfway through the book and it is fantastic. Highly recommended!

• Marvel's Spider-Man on the PlayStation 4. The thrill of swinging through the man-made canyons of Manhattan never gets old. I'm no fan of spiders, but maybe getting bitten by one that's radioactive wouldn't be so bad. PS: There's a cameo by the late Stan Lee that is simply perfect.

Residual Self-Image and Personal Spending

Enter the Matrix

Last Friday, I decided it was time to introduce my oldest daughter to The Matrix. I'm happy to report (a) she liked it and (b) the film, which was released way back in 1999 (!), has held up pretty well. Yes, the computers and cell phones featured in the movie are dated, but the subjects of A.I., virtual reality, and control over the population are still relevant today.

Residual Self-Image

After Neo (Keanu Reeves) has been freed from The Matrix, brought into the real world and his physical body healed, his liberators have to show him what The Matrix is. In this scene, Neo is jacked into a computer program and his avatar's appearance, complete with hair, stylish '90s era clothing, and a distinct lack of creepy ports embedded in his body. In other words, very different from his real-world self.

It's no surprise that this change confuses Neo. Morpheus (Laurence Fishburne) explains "your appearance now is what we call residual self-image. It is the mental projection of your digital self."

I find the concept of residual self-image applies to the real world. For example, I recently turned 43, but I don't feel all that different from when I was 30. More importantly, my residual self-image, my mental projection of myself, is that of a younger version of me.

I'm pretty sure this happens to most people. As long as we don't have any major health issues, we assume we still look like we did 5, 10, or even 15 years ago. That is, of course, until we look at pictures of ourselves from those periods and we are surprised at how young we look or how much weight we've gained (or lost, depending on the individual).

Residual Personal Spending

In my experience, a phenomenon similar to residual self-image occurs with our spending. For lack of a better name, I'll call this Residual Personal Spending, which is how you think you spend, not how you actually spend.

Here's how it works: We go about our daily routines, spending money as we always have. Sometimes this goes on for years.

One day, we decide to take the red pill. Either we begin tracking our spending on our own or we hire a financial planner who forces us to find out where our money is going.  Suddenly, we discover our residual personal spending is all wrong. We spend how much on dining out? We couldn't possibly spend that much on groceries!

Take the Red Pill

Do yourself a favor, and take the red pill - start tracking your spending. Technology makes this easy. You can use Mint to aggregate your bank and credit card transactions. Or, if you're like me and hate advertising, use an inexpensive service such as Tiller to aggregate your transactions in an easy-to-manage spreadsheet. Disclaimer: I have no affiliation with either of those services.

To paraphrase Morpheus: This is your last chance. After this, there is no turning back. You take the blue pill, the story ends. You wake up in your bed, go about your day, continue to spend as you always have, and believe whatever you want to. You take the red pill, you begin tracking your spending, and I show you how deep the rabbit hole goes - how much you actually spend on dining out and groceries. Remember, all I'm offering is the truth. Nothing more.

Stay Calm And Focus On Your Plan

Volatility and Anxiety

As of today, December 7, 2018, the US market (as measured by the S&P 500 Index) has fallen about 6% over the last three months, resulting in many investors wondering what the future holds and if they should make changes to their portfolios. While the S&P 500 Index may still be in positive territory for the year-to-date, it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself.

Reacting Impacts Performance

If one was to try and time the market in order to avoid the potential losses associated with periods of increased volatility, would this help or hinder long-term performance? If current market prices aggregate the information and expectations of market participants, stock mispricing cannot be systematically exploited through market timing.

Translation: It is unlikely that investors can successfully time the market, and if they do manage it, it may be a result of luck rather than skill.

Further complicating the prospect of market timing being additive to portfolio performance is the fact that a substantial proportion of the total return of stocks over long periods comes from just a handful of days. Since investors are unlikely to be able to identify in advance which days will have strong returns and which will not, the prudent course is likely to remain invested during periods of volatility rather than jump in and out of stocks. Otherwise, an investor runs the risk of being on the sidelines on days when returns happen to be strongly positive.

The following chart helps illustrate this point. It shows the annualized compound return of the S&P 500 Index going back to 1990 and illustrates the impact of missing out on just a few days of strong returns. The bars represent the hypothetical growth of $1,000 over the period and show what happened if you missed the best single day during the period and what happened if you missed a handful of the best single days. The data shows that being on the sidelines for only a few of the best single days in the market would have resulted in substantially lower returns than the total period had to offer.

The Takeaway

While market volatility can be nerve-racking for investors, reacting emotionally and changing long-term investment strategies in response to short-term declines could prove more harmful than helpful. By adhering to a well-thought-out investment plan, ideally agreed upon in advance of periods of volatility, investors may be better able to remain calm during periods of short-term uncertainty.

In other words, stay calm and stick to your plan.

Diversification: The Avengers of Investing

This week, the creator of Marvel Comics, Stan Lee, passed away. In case you aren't familiar with Lee's work, he created or co-created some of the world's most popular comic book characters: Iron Man, The Incredible Hulk, Thor, Spider-Man, Dr. Strange, and Black Panther are just some of his creations. In honor of Lee's work, it seemed appropriate to revisit a basic principle investing, diversification.

You're probably wondering what comic book characters have to do with investing. Consider The Avengers, a team of superheroes who work together to save the day (most of the time). Individually, they can't succeed because each of them has strengths and weaknesses. Put them together and they are nearly unstoppable. Will there be ups and downs? Yes, but in the end everyone is better off working together.

When you invest, the concept of diversification works the same way.

What is diversification?
The short answer is that diversification means not putting all of your eggs in one basket. Iron Man is great. Seriously, who wouldn't want Tony Stark's brains, money, and sweet armor? However, when the fate of the world is at stake, as it always is, the odds of saving the day are vastly improved when Iron Man is assisted by Captain America, Thor, Hulk, Black Widow, and Hawkeye. If Iron Man gets knocked down another member of the team can step up and get the job done.

So how does this relate to investing?
Let's use Apple as an example of how diversification works in the world of personal finance. Apple is a highly profitable tech company. However, owning a portfolio comprised only of Apple stock is not a good long-term strategy. Let's say Apple's stock falls 20% because consumers stop buying iPhones. You won't be a happy camper if Apple is your only investment!

The solution
You need to create your own team of superheroes! Unfortunately, the team you'll create won't feature a giant green rage monster or a Norse god wielding a magic hammer. Instead, your team will be comprised of companies in different categories, such as Wells Fargo (financial services), Exxon Mobile (oil & gas), Pfizer (pharmaceutical), and Proctor & Gamble (consumer products). Why companies in different categories? Because it's impossible to predict which categories will be best from year to year. The following chart shows returns for different investment categories from 1998 - 2017.

I know it's difficult to see exactly what's going in this chart. The different colors represent different categories of assets. For each year, the best-performing assets are at the top of the page and the worst-performing assets are at the bottom. As you can see, it's rare for the same category to consistently be number one - or two.

Superhero portfolio assemble!
Okay, we've established why having one superhero (stock) isn't ideal. The following chart shows a hypothetical portfolio comprised of five superheroes (stocks). Please note the stocks referenced here provides a highly simplified illustration of how diversification works.
 
Spoiler: Instead of a 20% loss, you have a 3% gain.

Congratulations, your superhero stocks have saved the day! Instead of a 20% loss, you have a 3% gain!!

Simplify!
For the average investor, owning a portfolio of individual stocks, such as the one in the example above, isn't practical. Fortunately, mutual funds and exchange-traded funds (ETFs) provide investors with an efficient, cost-effective means of holding large baskets of stocks and bonds.

Key takeaways

1. Owning one stock (or having Iron Man on your side) is great, but it's risky and could lead to losses (or the end of the world). On the other hand, owning multiple stocks in different categories (or multiple superheroes) typically reduces risk and leads to better long-term returns (or the world not ending).

2. I've just proven that reading comic books or watching movies based on comic books is not a waste of time. Thanks, Stan Lee!

Image credit goes to my awesome cousin, Bryan Lenning. You can (and should) see more of his work at instagram.com/bryanlenning

Best 529 College Savings Plans, 2018 Edition

Every year, Morningstar rates the country's best and worst 529 college savings plans. The ratings are based primarily on the same five key pillars that Morningstar uses to rank all investments: Process, People, Parent, Price, and Performance. Basically, Morningstar looks for plans with low fees, good investments, a decent selection of investment options, an asset allocation approach based on the most up-to-date research and solid management by the state and program manager.

In addition to the five categories listed above, the ratings also take into consideration any state tax breaks provided by the plans. This is important when deciding which plan to invest in because while every state has a 529 plan, not every plan provides a deduction for contributions to the plan.

In all, Morningstar rated 62 plans. Unfortunately, the DC College Savings Plan was not included in the ratings. This isn't unusual; Morningstar hasn't rated the DC plan in previous years. I've contacted Morningstar numerous times to request the inclusion of the DC plan, but I haven't had any success.

Without further ado, here are the best and worst plans for 2018 along with some commentary on the plans relevant to residents of DC, MD, and VA.

The Best

1. Bright Start College Savings (Illinois).

2. Invest529 (Virginia): This plan features age-based portfolios, passively managed portfolios (index funds), and actively managed portfolios (investments selected by a human). Residents of Virginia can deduct their contributions up to $4,000 per account, per year, with unlimited carryover to future tax years.

3. Vanguard 529 College Savings (Nevada).

4. My 529/Utah Educational Savings Plan (Utah).

Honorable Mentions

1. CollegeAmerica (Virginia): Unlike the Invest529 plan mentioned above, this Virginia 529 savings plan is only available through investment advisors. It's managed by American Funds, which means the only investment options are actively-managed funds. Residents of Virginia can deduct their contributions up to $4,000 per account, per year, with unlimited carryover to future tax years.

2. Maryland College Investment (Maryland): This plan is managed by Baltimore-based investment company T. Rowe Price. It features enrolment-based portfolios and fixed portfolios. Residents of Maryland can deduct contributions up to $2,500 per year per beneficiary (child) from their state income taxes.

The Worst

1. College SAVE (North Dakota).

2. Florida 529 Savings Plan (Florida).

3. Franklin Templeton 529 College Savings Plan (New Jersey).

4. GIFT College Investing Plan (Arkansas).

5. TD Ameritrade 529 College Savings (Nebraska).

What About DC's 529 Plan?

In case you missed it, a couple of years ago I exchanged several emails with the department tasked with overseeing the DC plan. As a frugal financial planner, resident of DC, and saver in the DC plan, I was unhappy with then-manager Calvert Investments. The investment options were lousy and the fees were outrageous.

The DC College Savings Plan, now managed by Ascensus, is a huge improvement over the plan as managed by Calvert. I feel much better about recommending the DC plan to clients and friends.

Savers can choose from individual portfolios or year-of-college enrollment portfolios. In both cases, the underlying investments are mutual funds and ETFs from Vanguard, iShares, and Schwab.

Residents of DC can deduct up to $8,000 for married couples filing jointly, who have separate accounts, ($4,000 for individuals) when they contribute to their DC College Savings Plan account.

Which Plan Is Best For Me?

The answer to this question, like many other questions in personal finance, is: It depends.

If you live in a state that has a decent plan and where you'll receive a tax deduction, then, by all means, use that plan. If, on the other hand, your home state's plan is lousy, perhaps because of high fees or poor investment options, then you should opt for a plan in another state.

Investing Is Hard

When I say "investing is hard", what I really mean is that staying invested is hard. Especially when the year's gains are wiped out in one day, which happened earlier this week. Or when you are bombarded by non-stop financial information, much of it negative, from many sources. Or when you can log in to your financial accounts anytime you want and watch the value decrease.

For investors of all ages, 2018 has been a difficult year. It has been a long time since investors have seen such wild swings in financial markets. Since 2009, staying invested has been easy. Sure, there have been ups and downs, but mostly ups. And the market always goes up, right? Wrong, but after 10 years we've become accustomed to positive returns.

Check out this chart:

The chart shows the total annual return for the S&P 500 since 2009. Obviously, 2018 isn't over yet, so there's time for the bar to go in either direction.

The takeaway from the chart is that we've had a great run over the 10-year period shown above.

I could tell you to stop checking the value of your investments, but you won't do that. Technology has made it easy for us to quickly log in to our accounts or receive automated notifications of the balance, performance, etc.

I could tell you to ignore the daily news about the financial markets, but you won't do that. There's information everywhere and it's nearly impossible to avoid.

I could tell you not to listen to talking heads make predictions about what the markets will do, but you won't do that. Like daily news about financial markets, it's almost impossible to avoid hearing from someone who knows what's going to happen in the financial markets today, tomorrow, or next year. Here's a secret: No one can predict, at least not consistently, what's going to happen.
  

You're human, at least I think most of you are, which means you will worry about your investments, you will be curious about the day-to-day changes in your account, and you will want to know what's going to happen to your accounts in the future.

Do one more thing, the hard thing: Stay invested.

Listening / Reading / Watching

Here's what has my attention right now:

• Red Dead Redemption 2 by Rockstar Games. It's like Westworld minus the violent, bloody robot uprising! The original Red Dead Redemption is one of my favorite games of all-time, which means I've been eagerly anticipating the sequel. If you're unfamiliar with the Red Dead games, check out the trailer by clicking on the link above. Games have come a long way since Space Invaders and Pac-Man.

Third Quarter 2018 In Review

Stock Market Summary

Looking at broad market indices, the US outperformed non-US developed and emerging markets during the quarter.  

Small caps underperformed large caps in the US, non-US developed, and emerging markets. The value effect was positive in emerging markets but negative in the US and non-US developed markets. 

Real estate (REIT) indices underperformed equity market indices in both the US and non-US developed markets.

US Stocks

The US equity market posted a positive return, outperforming both non-US developed and emerging markets. 

Value underperformed growth in the US across large and small cap stocks.

Small caps underperformed large caps in the US.

International Developed Stocks

In US dollar terms, developed markets outside the US underperformed the US but outperformed emerging markets during the quarter.

Large-cap value stocks underperformed large-cap growth stocks in non-US developed markets; however, small-cap value outperformed small-cap growth.

Small caps underperformed large caps in non-US developed markets.

Emerging Markets Stocks

In US dollar terms, emerging markets posted negative returns for the quarter, underperforming developed markets including the US.   

The value effect was positive, particularly in large-caps in emerging markets. 

Small-caps underperformed large-caps.

Fixed Income

Interest rates increased in the US during the third quarter. The yield on the 5-year Treasury note rose 21 basis points (bps), ending at 2.94%. The yield on the 10-year Treasury note increased 20 bps to 3.05%. The 30-year Treasury bond yield rose 21 bps to 3.19%.

On the short end of the yield curve, the 1-month Treasury bill yield increased 35 bps to 2.12%, while the 1-year Treasury bill yield rose 26 bps to 2.59%. The 2-year Treasury note yield finished at 2.81% after an increase of 29 bps.

In terms of total return, short-term corporate bonds gained 0.71%, while intermediate-term corporates returned 0.80%.

Impact of Diversification

Remember how I'm always reminding you that the rate of return in your portfolio probably won't look like that of the S&P 500 or Dow? Well, I'm going to remind you again.

These portfolios illustrate the performance of different global stock & bond mixes and highlight the benefits of diversification. Mixes with larger allocations to stocks are considered riskier but have higher expected returns over time.

That's all for this week. Next week I'm planning to start a series of posts that explain my approach to investing. Fun!

Second Quarter 2018 In Review

One, Two, Three, Four, I Declare a Trade War

The primary question on investors' minds during the second had to be how far the trade war would go between the U.S. and its trading partners. During most of the quarter, it seemed one could reasonably expect markets to be down one day and then up the next. It got to the point that I often tried to predict the day-to-day headlines of The Wall Street Journal. My idea of fun is probably different from yours.

If the scope of the trade war was the primary question on investors' minds, the second was whether or not the Federal Reserve would raise interest rates. Spoiler: It did - and the Fed indicated there would be two additional rate hikes in 2018.

Let's look at the numbers.

Q2 2018 Numbers

The average diversified U.S. stock fund, which is a better measure of how we invest than the S&P 500 or the Dow, gained 3.7% during the second quarter, which brings the year-to-date return to 3.4%. Investors, still jittery about the long bull market and an escalating trade war with China couldn't get out of stocks fast enough. Nearly $59 billion flowed out of stock funds during the quarter.

International markets didn't fare well: The average diversified international stock fund declined by 2.1% in the second quarter, which brings the year-to-date loss to 2.7%. Investors were more optimistic about foreign stocks because $89 billion flowed into international stock funds during the quarter. Of course, international stocks will be affected by a trade war, so the shift to foreign markets may not help all that much in the long run.

The average intermediate-term bond fund lost 0.3% during the second, which brings the year-to-date loss to 1.7%. A whopping $128 billion flowed into bond funds during the quarter, again over concerns about the long bull market and trade war.

Expectations For The Third Quarter

When it comes to financial markets and investments, I honestly don't know what to expect. No one does. The best I can do is make a few educated guesses:

1. The U.S. and its trade partners will continue to talk about tariffs, which will lead to retaliatory actions or threats of actions.
2. Consumers and the global economy will be the casualties of a trade war.
3. In the event of a trade war, investors should look to small-cap stocks, which are less likely to be vulnerable to trade spats.
4. Since the Federal Reserve has already tipped its hand, and unless anything unanticipated happens, I believe it's safe to say there will be a rate increase during the third quarter.

As always, you should focus on what you can control. Make a financial plan that's right for your goals and financial situation. And stick to it.

Listening / Reading / Watching

Here's what has my attention right now:

• The Three-Body Problem by Cixin Liu. Since I was going to spend two weeks in China, I decided to reread this excellent novel by China's most famous science fiction author. Go read it. Now.
• The Dark Forest by Cixin Liu. And then I promptly started reading book two in the trilogy. Again, go read it. Now.
• On to book three, Death's End.

The Ins and Outs of the DC Tuition Assistance Grant (DCTAG)

Fact: No one seems to know exactly when people started giving apples to teachers, but it may have started long ago when food was used to pay teachers for their services.

Another Fact: I don't know any teachers who want to be paid with apples (or food in general).

What Options Do College-Bound Residents of DC Have When Applying to Out-of-State Schools?

Unless you're a resident of Washington, DC, this week's post may be of limited interest to you, but feel free to share if you know someone that can benefit from the information!

I'm often asked if residents of DC can receive in-state tuition when attending an out-of-state school. While the actual benefit may not equate to in-state prices, it's still worth it. Here are the details.

The DC Tuition Assistance Grant (DCTAG)

• What is it? The DCTAG was created by Congress in 1999 for the purpose of expanding higher education choices for college-bound residents of DC.
• What schools are eligible? The DCTAG treats public and private schools differently:
  • Public: DC residents may use the DCTAG to attend one of the more than 2,500 colleges and universities in the nation.
  • Private: DC residents may use the DCTAG to attend any private HIstorically Black College or University (HBCU) or private not-for-profit college or university in the DC metro area.
• What is the benefit? Again, the DCTAG has slightly different benefits based on the type of school:
  • Public: Up to $10,000 per academic year (a maximum of $5,000 per semester) toward the difference between in-state and out-of-state tuition, for a lifetime maximum of $50,000. The award is disbursed directly to the institution.
  • Private: Up to $2,500 per academic year (a maximum of $1,250 per semester), for a lifetime maximum of $12,500. The award is disbursed directly to the institution.
• What are the eligibility requirements? Students must be enrolled on at least a half-time basis and be in good academic standing. Awards do not cover mini-terms or non-accredited online classes.
• How do I apply for the DCTAG? There are three requirements:
  • First, complete the DC OneApp. Note: This must be completed yearly.
  • Second, complete the FAFSA (Free Application for Federal Student Aid).
  • Third, provide the DC OneApp Required Supporting Documents.
• Is funding for the DCTAG in danger? Between late 2017 and early 2018, the Senate and the Trump Administration attempted to cut funding for the program. Congresswoman Eleanor Holmes Norton (D-DC) negotiated to maintain $40 million for DCTAG. For now, the program will remain in place.
• Where can I learn more? Check out the Office of the State Superintendent of Education.

Listening / Reading / Watching

Here's what has my attention right now:

• The Outsider by Stephen King. To say I'm a longtime fan of King's work is an understatement. This week marks the release of his new book and I can't wait to dive in.