1.

You should string out your mortgage to maximize the interest

deduction
You may have heard someone advise you not to prepay your mortgage
because youd lose the interest deduction. Thats true, but youd also be
saving on interest by paying off your mortgage over a shorter period of
time. Given that the interest deduction only represents a portion of the
interest itself, youd save more money by getting rid of the interest, even at
the cost of losing the deduction. It is true that the mortgage deduction helps
make mortgages cheaper than most other forms of debt, so it makes sense
to pay off other debts first. However, if you dont have other
debts, prepaying your mortgage may be a good option.

2. You should always minimize your tax withholding
The theory behind this is sound why should the government be earning
interest on your money until it pays your refund? However, the value of
that theory is seriously diminished when interest rates are near zero, as
they are now. The simple fact is that many people will simply whittle away a
few extra dollars in their weekly paychecks, whereas they might accumulate
a nice amount of savings in the form of a tax refund. The optimal strategy
would be to minimize your tax withholding but use automated deposits into
a high-interest savings account to achieve the same result while beginning
to earn interest earlier. As a practical matter though, letting your
withholding build up to a refund is a crude but effective savings method
that wont cost you much in a low-interest-rate environment.

3. Deferring taxes saves you money
Even though deferring taxes can mean earning money tax-free in a
retirement account, it all evens out in the end when you pay taxes upon
withdrawing from the account unless your tax rate changes. This can
make deferring taxes a good deal if you are making a high income and
expect to be in a lower tax bracket when you retire, but it can make more
sense to pay your taxes upfront if you are young and expect to be in a higher
tax bracket by the time you retire.

4. Its easy to minimize credit card costs with 0% offers
One problem with this strategy is that opening and closing credit accounts
can hurt your credit score. Another potential problem is that even while
there is no interest for an introductory period, you may run into balance
transfer charges. Focus on paying off your credit card balances rather than
simply shuffling them around.
The best myths often have some basis in truth, and all of the above ideas
may work in certain situations. But when they get passed along as absolute
rules, they enter the realm of myth and start to become dangerous.

Myth #1 You can have it all
Reality Few of us mortals can simultaneously pay off debt, save for an emergency fund, purchase a
home, maximize retirement accounts, never carry a credit card balance, pay for college, and still have
something left over beyond rice and beans every day. At least in the short run, you have to prioritize
and make hard choices. Fair enough.
Myth #2 Get a good job and youll be set for life
Reality Nobody has job security anymore, pensions are few and far between, and few people spend
all their working years with the same employer, or even in the same industry. This seems even truer
today than it was when this book came out in 1998.
Myth #2 Stocks are Risky
Reality In the long run, not really. In the long run, bonds and money markets are risky because
after taxes and inflation, they offer no real return. This is among Clements most controversial
statements, and I couldnt agree more, despite the fact that he published his book before both the
tech crash of 2000 and the credit crunch of 2008. In fact, myth #3 is where I decided this was a book
worth reading, as it agrees on this point and others quite closely with one of my absolute
faves, Simple Wealth, Inevitable Wealth.
Myth #4 You cant go wrong with IBM
Reality This myth is short-hand for the idea that any one companys stock offers immunity from
investing disaster and, despite the headline, Clements really focuses on Microsoft as the heralded
blue-chip of the 1998 time-period. In reality, any single company can go horribly wrong, and most
individual investors would do better to focus on sector-investing in the equity markets, rather than
stock-picking.
Myth #5 You can beat the market
Reality We are all the market, so beating the market is both mathematically implausible for the
majority of us, as well as empirically rare, and a red-herring of an investment goal. For me, this myth
ranks as the biggest lie perpetrated on us by the Financial Infotainment Industrial Complex. The goal
should not be to beat the market, but rather to be exposed to the market, to achieve market returns.
Myth #6 Your investment will make 10 percent a year
Reality Heres a bit of an anachronism from 25 Myths since few people in 2013 expect 10% returns
from the stock market on a consistent basis. If Clements wrote this book in 2013 hed have to make
the myth: Your investment will make 5 percent a year just to make it a plausible straw man. On the
other hand, memories are short, and well have to forgive investors entering the field after 2009 for
outlandish expectations. Dont look now, but the damn market just more than doubled in the last four
years. Pretty soon folks will think thats the new normal. Double my money in just 4 years! Sweet!
Myth #7 You cant go wrong with mutual funds
Reality Sector mutual funds can be terribly undiversified, expenses can be outrageously high, some
investment managers still sell load funds, and minimum investment sizes can keep people out of the
market, to name just a few flaws of mutual funds, broadly understood.
Myth #8 You can find the next Magellen
Reality Again, an anachronism. People under 40 dont think of Peter Lynchs fund The first $billion
mutual fund and easily the most famous mutual fund of the 1980s when they think of investment
rock-stars. Legg Masons Bill Miller overtook that crown in the 2000s, and hedge fund managers
largely replaced mutual fund managers as the sexy geniuses touted by the Financial Infotainment
Industrial Complex. Soros, Robertson, Jones in the 1980s and 90s, Tepper, Ackman, Loeb, Cohen,
Einhorn, Eisman, Paulsen in the 2000 and 2010s. The point, however, is that few of us can
realistically pick those winners before they were rock stars. Once they are rock stars, youre either
purchasing lagging returns (an error!), or you cant actually get into the fund (queldomage!)
Myth #9 Index funds are guaranteed mediocrity
Reality Index funds outperform most actively managed funds over the medium to long run, mostly
due to the latters higher fees and higher portfolio churn.
Myth #10 Nothings safer than money in the bank
Reality Clements recommends money market funds, with check-writing capabilities, as a higher-
yielding opportunity than savings in a bank. At this point in the interest-rate cycle (zero return either
way!), and with the unfortunate experience of money market funds breaking the buck in 2008 without
a government bailout, Im less inclined than Clements to point out the advantages of money market
funds over money in a bank. But, whatever.
Myth #11 If you need income, buy bonds
Reality To quote Clements: Investors love bonds. Its what you would call a sado-masochistic
relationship. Bonds suck investors in with their fat yields, then bludgeon them with inflation, taxes,
defaults, early redemptions and more. Yet folks keep coming back for moreWhat do I think? I think
bonds stink. The irony here is that I wholly agree with Clements despite two important situational
facts: 1. I am a bond guy by training and fixed-income oriented in my investment outlook 2. At the time
he published his book, bonds easily offered 6.5% US government-guaranteed yield, which any total-
return-oriented equity investor would probably kill for today.
Myth #12 Hedge your bet with hard assets
Reality Clements points out that hard assets like real estate, precious metals, art, and collectibles
should only reasonably return the rate of inflation over the medium and long run. Despite my arguing
in favor of home ownership as a particularly advantageous hard asset investment, I agree with his
expectations-setting of price appreciation when it comes to hard assets.
Myth #13 You should own a balanced portfolio
Reality In this context, Clements means balanced as a 60/40 split between stocks and bonds.
Clements points out, rightly, that many individuals would benefit from a more equity-oriented mix, and
the specific 60/40 traditional blend doesnt work for everyone. Fair enough. Although to pick a fight
with him and myself at the same time: While 60/40 may not be the answer to everybodys needs,
there are also much worse ways to allocate your investments. Any individual investor should
probably deviate meaningfully from 60/40, but if you were to mandate an allocation that everybody
has to follow, 60/40 isnt a terrible place to start. Its not right for me, for example, but it wouldnt
completely screw me up either, as much as other potential allocations might. To pick another fight,
only with Clements this time, hes overly proscriptive and enamored with zero coupon bonds for
investors. I get where hes coming from, but I certainly wouldnt send any individual out to buy zero
coupon bonds today.
Myth #14 You need a broker
Reality Discount/low-service/online brokerages may be just fine for the do-it-yourself generation,
even more true now than it was when 25 Myths first came out. Clements wisely points out, and I
concur, that a good investment advisor offers timely hand-holding when the shit inevitably hits the fan
in your stock portfolio. Their value-added is to get you to do nothing, because you made a
reasonable plan, and now you need to be tied to the mast, and not allowed to sell out your equities at
the bottom. That is the true value of an investment advisor.
Myth #15 Keep six months of emergency money
Reality Few people can do this, and credit cards, home equity lines, or even non-retirement equity
accounts may serve this purpose for many people and under many conditions.
Myth #16 Debt is dangerous
Reality Of course it is dangerous. But it may be better than the alternative of not using debt, such
as never owning a car, never going to college, always renting your home, or keeping too much cash
earning zero return. He points out the advantages available in stock margin accounts (too scary for
me!) and home equity lines of credit, which I highly endorse under certain scenarios.
Myth #17 Buy the biggest house possible
Reality You can lose a lot of money buying a home as everyone re-learned, again, in 2008, because
investing in housing is quite risky. Clements supplements this chapter with wise thoughts on housing
as an inflation-hedge and as a form of forced savings, which influenced my post on the advantages of
housing as an investment.
Myth #18 You cant beat the mortgage tax deduction
Reality Clements argues correctly that having a large mortgage for the deduction is not clever but
asinine. You end up spending $1 to save 15 cents. Spend to save is such a large part of our
advertising and consumption culture that Im not surprised the Financial Infotainment Industrial
Complex has convinced so many of us of this wisdom, but still.
Myth #19 Invest in your house
Reality Houses can be huge money pits, in which we convince ourselves that spending money on
the structure for consumption purposes may be mistakenly considered an investment. As Clements
points out, the home improvement industry brags:
you might recoup 95% of the cost of a minor kitchen remodeling, 91% of a bathroom addition, 83% of
a family room addition, 77% of a bathroom remodeling, and 72% from adding on a deck.
Using those numbers, in investment terms, you lose between 5% and 18% on the investment, which
makes it a terrible investment indeed. Its fine as an act of consumption, of course, but a loser as an
investment. The lesson: Youve got to separate the consumption and investment functions when
spending money on your house.
Myth #20 Trade up as soon as you can
Reality Trading up in terms of house size or price as soon as you can can cost you somewhere
between a lot to everything, as anyone with a pulse, watching the 2008 credit crunch, realizes.
Myth #21 Protect against every disaster
Reality Clements and I sing from the same hymnal here, in that many people purchase more
insurance than needed. If it aint risk transfer, it aint insurance worth buying. (Apparently our mutual
hymnal speaks in a terribly uneducated manner.) In addition, some insurance is optional at best,
useless and expensive at worst.
Myth #22 Life Insurance is a good investment
Reality I could kiss Clements. Its like his chapter lines up perfectly with my previous blog postings
on life insurance as a useful risk transfer but a terrible investment. Honestly, I wrote these things
before reading his book.
Myth #23 Invest in your kids name
Reality Apparently this must have happened back in the 80s and 90s as a tax dodge. I never hear
about anyone doing this nowadays. Maybe the parents I know are just poorer than the New York
City-based parents Clements interacted with. Or maybe parents today learned too much from the
1980s, and Studio 54, and how a lifetime of parental investments can be snorted through your childs
nose. Anyway, in case youre tempted, Clements doesnt recommend this.
Myth #24 Max out your IRA every year
Reality Clements wants you to know that retirement-account funds are semi-permanently locked up,
they change the eventual taxable nature of your retirement income to capital gains, you might have
tax hassles, and you still pay taxes upon death. I suppose hes right, but for most of us its still a
worthy aspiration to max out our IRA. Its unlikely, but you might miss out on a Mitt Romney type
situation if you dont max out your IRA especially a self-directed IRA and Roth IRAs have special
powers on which Clements does not elaborate. So I mostly disagree with Clements on this myth.
Lets move on.
Myth #25 One day, kids, all of this will be yours
Reality Estate planning takes a lot of work, and it is available to folks who invest a lot of time and
some money in the project. He urges careful organizing, talking as openly as possible with heirs, and
remaining alert to the opportunities for giving tax-free. Fair enough. Im not there in my life yet to
have done much thinking about this, beyond paying an attorney to prepare a simple will.


MYTH 1: There's always a hot market somewhere. When U.S. markets began to blow up, you
heard about "decoupling" and "the Chinese century." The idea is that Asia -- or Russia or Latin
America -- can grow vigorously independent of the U.S. and Europe. Invest there and you'll offset
losses at home. Instead, Chinese, Indian and Russian shares have crumbled. Net investment
money flowing into emerging-market economies fell 50% in 2008, to $466 billion, and is forecast
to sink to $165 billion in 2009.

Truth: In this age of globalization, economic downturns and bear markets observe no borders.
MYTH 2: Real estate behaves differently from other investments. Call it a bubble instead of a
boom if you like, but it was supposed to be "proof" that real estate returns don't strongly correlate
with the returns of stocks and other financial investments. The message: Rental properties or
real estate investment trusts can make money despite drops in Standard & Poor's 500-stock
index or the Nasdaq. Wrong. REITs lost 38% in 2008 because the credit crunch and overly
aggressive expansion plans hammered profits and dividends. REIT returns used to have little
correlation with the stock market. Now they closely track it.


Truth: Real estate won't overcome other risks when credit problems are harming all investments.
MYTH 3. Reliable dividend payers are safer than other stocks. Companies recognized as dividend
"achievers" or "aristocrats" -- because they could be counted on to increase their payouts
regularly -- used to perform more steadily than most stocks. That's because shareholders
seeking income tended not to sell. But now shares of dividend achievers can be as volatile as the
overall market. One reason: more mass trading of blue-chip stocks in baskets, a la exchange-
traded and index funds. Another factor: Banks, insurance firms and real estate companies can no
longer afford to pay high dividends.
Truth: Companies aren't too proud to stop increasing dividends. If you want stable dividends,
ignore the past and look for companies with lots of cash flow.
MYTH 4. Foreign creditors can drain the U.S. Treasury overnight. Puny Treasury yields suggest
that it's bad business for the rest of the world to lend so much money to the U.S. But think: What
else would these investors do? And who has the power to impose this dramatic sell order?
Nobody. Foreigners own $3.1 trillion of Treasury debt. Of that, $1.1 trillion is with private
investors -- mainly pension funds, which cannot safely ignore a class of investment that is
absolutely liquid and has never defaulted. Governments and institutional investors hold the rest.
On occasion they have sold more U.S. debt than they have bought. But massive private buying
has overwhelmed the modest pullbacks.

Truth: If what you want is super-safe bonds, the U.S. Treasury is the go-to place.
MYTH 5. Gold is the best place to hide in a lousy economy. Gold is currently trading at more than
$1,000, but it has bounced around a great deal during and after the economic meltdown. Its rise
since the economy began to perk up is as much a reflection of speculation about higher interest
rates and inflation than anything else. It is not a warning that the recovery in stocks, corporate
bonds, some sectors of real estate, and other commodities is at risk. Gold is its own little world
and doesn't count as a reliable economic indicator.
Truth: Gold tends to rally in prosperous times, when you have inflation, easy credit and flush
buyers (kind of reminds you of real estate).
MYTH 6. Life insurance is not a good investment. This canard spread as 401(k)s and IRAs
supplanted cash-value life insurance as Americans' most popular ways to build savings while
deferring taxes. True, the investment side of an insurance policy has higher built-in expenses
than mutual funds do. But two factors point to a revival of insurance as an investment. One is
guaranteed-interest credits on cash values, which means that if you pay the premiums, you
cannot lose money unless the insurance company fails. The other is the boom in life settlements.
If you're older than 65, you can often sell the insurance contract to a third party for several times
its cash value -- and pay taxes on the difference at low capital-gains rates.
Truth: A good investment is one in which you put money away now and have more later.
Checked your 401(k) lately?
MYTH 7. The economic downturn dooms the dollar to irrelevance. No question, the U.S. is deep in
debt and going deeper while the economy contracts. History teaches that when a country can't
pay its bills, lags economically and cannot control inflation, its currency loses value. That's why
currencies in Argentina, Iceland, Mexico and Russia have all crashed within recent memory. The
dollar does swoon, and it's lost punch in places as unexpected as Brazil and India. But -- and
here's the surprise -- as recession gripped the U.S., the dollar got stronger. For one thing, there
aren't many alternatives. For another, some other currencies were temporarily inflated by oil and
commodities speculation.
Truth: The dollar has survived a tough test and remains the world's "reserve" currency.
MYTH 8. Mass layoffs reward investors. In the 1990s, news of layoffs would boost a company's
stock for several weeks. Stock traders lauded bosses for tightening their belts, so it was smart to
buy or hold the shares. But mass firings no longer impress investors. Lately, firms as varied as
Allstate, Boeing, Caterpillar, Dell, Macy's, Mattel and Starbucks have all announced enormous
layoffs -- only to learn that, if anything, doing so spooks the market even more. For example, on
the day in January when Allstate axed 1,000 of its 70,000 employees, its shares fell 21%.
Truth: Don't buy a stock thinking that a layoff will help profits. More likely, trouble's brewing.
MYTH 9. It's crucial to diversify a stock portfolio by investing style. Experts say a sound fund
portfolio fills all "style boxes," starting with growth and value. Growth refers to companies with
expanding sales and profits. Value describes stocks selling for less than the business is worth. In
1998 and 1999, growth stocks soared and value stocks stalled. Then, for a few years, value rose
while growth got crushed. But since 2005, the differences have been melting away. In the current
bear market, both styles have been disastrous, and it's hard even to classify stocks as growth or
value anymore. Many former growth stocks, such as technology companies, are so cheap that
they act like value shares. Banks and real estate, once lumped into value, are a mess.
Truth: Pick mutual funds that are free to search for good prices on stocks, whatever their labels.
MYTH 10. A near-perfect credit score will get you the best loan rate. Before the credit bust, if you
could fog a mirror, you could get a mortgage. You know what happened next. But bankers still
need to make a buck, so it sounds logical that if you can show a strong credit score, you'll win
the best of deals on any kind of loan. Not so. Mortgage lenders prefer large down payments.
Credit-card issuers are just as apt to reduce your credit line or raise your interest rate. And those
0% car loans? Often they last for only three years, which puts the payments so high you'll need
to come up with more upfront cash anyway.
Truth: Credit is going to be tough to get for a while no matter what. So don't obsess over every
few points of your FICO score.