Prepaid tuition plan roundup

This week I wrote about the prepaid tuition plans offered by Washington state and Virginia. To close out the week I wanted to share a brief roundup of the other prepaid tuition programs still out there.First, take a look at the overview, then I'll offer some brief commentary:

State	Plan	Premium (discount) to current tuition	In-state public benefit	In-state private benefit	Out-of-state benefit
Washington	Guaranteed Education Tuition	8.80%	Tuition and mandatory fees at most expensive Washington public college or university	Tuition and mandatory fees at most expensive Washington public college or university	Tuition and mandatory fees at most expensive Washington public college or university
Virginia	Prepaid529	0%	Tuition and mandatory fees	Payments made plus the actual rate of return	Payments made plus a reasonable rate of return
Florida	Prepaid	6.5%	Tuition, tuition differential fee and other specified fees	Average rate payable to in-state public institution	Average rate payable to in-state public institution
Mississippi	MPACT	6.5%	Public in-state standard undergraduate tuition rates and mandatory fees	Weighted-average tuition and mandatory fees at Mississippi public colleges and universities	Weighted-average tuition and mandatory fees at Mississippi public colleges and universities
Maryland	Prepaid College Trust	(20.4%)	In-state or in-county tuition and mandatory fees	Tuition and mandatory fees up to the Weighted Average Tuition	Tuition and mandatory fees up to the Weighted Average Tuition
Massachusetts	U.Plan Prepaid Tuition Program	0%	Lock in a percentage of current tuition and fees at participating public and private schools in Massachusetts	Return of investment plus CPI	Return of investment plus CPI
Nevada	Prepaid Tuition Program	(6.1%)	Tuition at rate selected on contract	Paid at rate selected on contract	Paid at rate selected on contract

For each plan, I calculated the cost based on the most comprehensive plan available (usually a four-year university plan) for someone born this year (most of the plans get more expensive the closer your beneficiary is to graduation). I then calculated the premium or discount paid compared to the amount paid for someone using their benefits this year at the most expensive in-state institution.The prepaid tuition plans follow three basic models.

Fixed payout rate

This is the model used by Washington and Nevada. You buy a certain number of investment units at a fixed price today, and then are paid out at a different, hopefully higher value in the future. In Washington the payout rate is based on the most expensive public university in the state, while in Nevada it's based on the "credit hour cost" set by the Nevada Board of Regents.Washington charges a premium of 8.8%, meaning tuition and fees at the University of Washington would need to rise that much before a contract would start to show a profit.Nevada, on the other hand, charges less per credit hour than the current payout rate: you can buy 120 university credit hours for $24,285, or $202.38 per credit, while the current payout rate is $215.50 per credit hour.Both programs allow you to receive the same benefit at in-state public, private and out-of-state schools, making them by far the most flexible prepaid tuition programs.

Tuition and fees

Virginia, Florida, Mississippi, and Maryland allow you to use your prepaid tuition plan to cover in-state tuition and fees at public schools. Mississippi and Florida have the additional cool benefit of guaranteeing beneficiaries in-state tuition, even if they're not residents of the state when they enroll.The premium I show above is the difference between the cost of a prepaid tuition contract and the current value at the most expensive public institution. If your beneficiary attends a less expensive school, the premium goes up, since contracts cost the same whether you attend the University of Virginia or the College of William & Mary (the latter is more expensive).The discount shown for Maryland's plan is an artifact of my methodology, due to the outlier expense of attending St. Mary's College of Maryland, where tuition and fees for four years cost $57,984 and a four-year university plan costs just $46,135. At the University of Maryland Baltimore County, the second-priciest public university in the state, four years costs just $46,072, leaving the Prepaid College Trust with a small premium.One final thing to point out here: the weighted averages used by Florida, Mississippi, and Maryland to calculate the benefits payable to beneficiaries attending private and out-of-state schools will be much lower than the maximum benefits I used to calculate the premium and discount rates. In Maryland, the weighted average tuition for four-year colleges is $10,033, giving the Prepaid College Trust a premium of 14.8% (the amount the weighted average tuition would have to rise before your contract broke even).

Massachusetts

The Massachusetts model is fascinating. Instead of only applying to in-state tuition at public universities, the U.Plan Prepaid Tuition Program has a long list of participating Massachusetts public and private schools.Accounts owners make a dollar-denominated contribution to their account and then that contribution is converted into a percentage of tuition and fees at the prevailing rates at every participating school.So, to use this year's table, a $1,500 contribution today buys 2.86% of tuition and fees at the (expensive) Amherst College and 29.94% at the (cheap) Berkshire Community College. Next year, if Amhert's tuition rises by more than Berkshire's, the same $1,500 contribution might buy 2.5% at Amherst and 29.5% at Berkshire.The two contributions together, then, buy a total of 5.36% at Amherst or 59.44% at Berkshire — whichever one you end up enrolling in.This plan has one big advantage: it lets you lock in today's tuition prices, and at a wider range of schools than just the public institutions available in the other plans, including premier institutions like Amherst, Wellesley, Smith, and Mount Holyoke.But that advantage comes paired with a big downside: if you attend a non-participating institution, you get nothing. Well, not exactly nothing; you get your money back, but without any investment returns at all.That creates an obvious bind: the earlier you contribute, the lower the tuition rate you're able to lock in, so if you anticipate that Baumol's cost disease will continue to ravage the higher education sector, you should accelerate contributions early on. On the other hand, the earlier you contribute, the more years of investment returns you sacrifice if your beneficiary ends up attending a non-participating school!

Conclusion

Now you know everything I know about prepaid tuition plans. A few closing thoughts:

• A sufficiently wealthy resident of Washington or Nevada, with sufficiently young kids, should consider buying the maximum contract if they want to place a bet on the trajectory of public higher education costs. Both programs are fully funded (Washington at 135% and Nevada at 132% of liabilities), so I don't see any reason to worry about the programs being unable to pay the promised benefits.
• Residents of Florida, Mississippi, or Maryland with young enough children might consider combining a prepaid tuition plan with a 529 college savings plan. If their children attend private or out-of-state schools, then the weighted average tuition paid by the prepaid tuition plan should have steady, bond-like returns, allowing them to take more investment risk in their college savings plan. If the beneficiaries do end up attending an in-state public institution, then they'll receive a bonus payoff in the form of discounted tuition. Note that the beneficiary should be young enough to give rising tuition plenty of time to overcome the premium paid.
• Residents of Massachusetts or Virginia with enough children may consider opening a prepaid tuition plan in order to lock in today's tuition rates, since the ability to change the account's beneficiary from one child to the next increases your odds of being able to claim the benefit, by attending a participating school in Massachusetts or a public university in Virginia.

How to think about prepaid tuition plans: Virginia Prepaid529

Yesterday I described the best prepaid tuition plan I know of, Washington state's Guaranteed Education Tuition plan, which allows you to place a tax-free bet on the trajectory of tuition inflation at Washington public universities. It's a weird investment vehicle, but you could see how it might play a speculative role in the portfolio of a sufficiently wealthy person, especially because it comes with all the tax advantages of a 529 college savings plan.By way of comparison, today I want to describe the wrong way to invest in a prepaid tuition plan: the Virginia Prepaid529 plan.

Virginia Prepaid529

The Virginia Prepaid529 plan differs in important ways from Washington's GET program:

• Prepaid529 uses "semesters" as the unit of investment, rather than GET's "units." A "semester" is equal to the cost of one semester at a Virginia public 4-year university or 2.6084 semesters at a Virginia 2-year college.
• The price paid per semester varies depending on the age of the beneficiary. While GET allows all enrollees to buy units for the same price, set somewhat above the current payout value of a unit, Prepaid529 charges less for semesters purchased closer to the beneficiary's enrollment. For example, a newborn beneficiary is charged $8,825 per semester, while a 9th-grade beneficiary is charged $8,145 per semester. By way of reference, mandatory tuition and fees for undergraduates enrolling at the University of Virginia in 2017 are about $8,390 per semester (this information is remarkably difficult to find).
• Accounts must be opened by the end of the enrollment period during the beneficiary’s ninth grade year (as far as I can tell — Virginians feel free to correct me if I'm wrong).

So far, the plan looks pretty similar to GET. In-state tuition and fees at the University of Virginia are somewhat more expensive than at the University of Washington, so prepaying tuition is somewhat more expensive, but not radically so. The difference comes in when it's time to redeem your prepaid semesters:

• At Virginia public colleges and universities, you can redeem one semester investment unit for one semester of mandatory tuition and fees (2.6084 semesters at two-year and community colleges).
• At Virginia private colleges and universities, you can redeem one semester investment unit for the lesser of the payments you made plus the actual rate of return Prepaid529 earned on those payments or the highest Virginia public institution tuition and mandatory fees.
• At colleges and universities outside Virginia, you can redeem one semester for the lesser of your payments plus a "reasonable rate of return" or the average Virginia public institution tuition and mandatory fees. I can't find any record of that average on Prepaid529's site, but it will always be much lower than the highest tuition and fees used in the above calculation.

What is a "reasonable rate of return?" Prepaid529 helpfully defines it as "the quarterly performance of the Institutional Money Funds Index as reported in the Money Fund MonitorTM by iMoneyNet." As far as I can tell that's essentially 0%. Reasonable!

Do not invest in Virginia's Prepaid529 plan...

Virginia has essentially set up a three-tiered outcome structure:

• Some number of Prepaid529 beneficiaries will attend Virginia public colleges and universities. They'll receive the number of semesters of tuition and fees they paid for, at the price they paid for them. In exchange, Prepaid529 gets to invest their money during the intervening period. If Prepaid529's investments outperform tuition inflation, Prepaid529 gets to keep the difference. If they underperform, they (hopefully) still pay out as promised. This is a traditional single-premium annuity or insurance contract.
• Some number of Prepaid529 beneficiaries will attend Virginia private colleges and universities. If Prepaid529's investments underperform tuition inflation, they'll receive a lower payout amount based on that performance. If Prepaid529's investment outperform tuition inflation, the beneficiary doesn't participate in that outperformance; instead they receive an amount based on the highest Virginia public university tuition and fees. In other words, you participate fully in the downside and only partially in the upside, like a twisted variable indexed annuity contract.
• Some number of Prepaid529 beneficiaries will attend out-of-state colleges and universities, and receive their money back, plus a nominal return.

The one thing I'll give Prepaid529 is that this structure allows them to charge lower prices per semester compared to Washington's GET. You can buy 10 semesters of in-state tuition and fees for a newborn today for $88,250, about a 5.2% premium over current tuition and fees, while 500 GET units would cost $56,500, a premium of about 8.8% over the current $51,930 payout value. That's not nothing.But in exchange for the relatively low Prepaid529 premium, you are buying into the three-tier payout structure I described, in which the investment returns on the payments of students attending private and out-of-state schools subsidize the guaranteed tuition of students attending in-state public schools. Meanwhile, the higher GET premium buys you a return based on Washington state public tuition inflation regardless of where you decide to enroll.For an older student with their heart set on attending the University of Virginia, that might make sense. But for a younger beneficiary who may or may not even decide to enroll in higher education, investing using a 529 college savings plan offers all the benefits of internal tax-free compounding without the larcenous payout structure of Virginia's prepaid plan.

...with one exception

If you or your beneficiary is a Virginia resident in the 9th grade year of your beneficiary and you think there's even a chance the beneficiary will attend a Virginia public college or university, you might consider rolling over a 529 college savings plan into the Prepaid529 plan. Why? Because if you plan on spending your 529 assets for higher education (instead of for estate planning), those assets should be mainly in cash and bonds anyway by the time your beneficiary reaches high school, in order to preserve their value against stock market volatility. If you're going to earn a low rate of return on 529 assets anyway, you may as well get a cheap hedge against tuition inflation.The same logic doesn't apply to Washington state's GET program because the purchase price of investment units is too high compared to the near-term payout value of those units.In other words, the best course is to invest your 529 assets in GET as early as possible, and invest them in Prepaid529 as late as possible.

How to think about prepaid tuition plans: Washington's Guaranteed Education Tuition plan

I've written extensively about 529 college savings plans, which are a way for the wealthy to permanently shield intergenerational transfers of appreciated assets from taxation while also allowing those assets to internally compound tax-free. However, there's a second kind of investment vehicle conceived of by section 529 of the Internal Revenue Code: prepaid tuition plans.While every state, the District of Columbia, and Puerto Rico all offer 529 college savings plans, only a few states took section 529 seriously and endeavored to set up prepaid tuition plans.

Washington State's Guaranteed Education Tuition (GET) plan

Washington's GET plan has a simple structure:

• At any time, you can buy any number of "units" at a purchase price determined by GET's actuaries each year, until the total number of units purchased per beneficiary has reached 600.
• When the beneficiary enrolls in a qualified educational institution, you can request disbursement of up to 150 units per year at a unit payout value equal to 1% of the tuition and mandatory fees charged by the most expensive public university in Washington state.

A few things to note here:

• In any given year, the unit purchase price will be higher than the unit payout value. This year, the unit purchase price is $113, while the unit payout value is $103.86. That's because they're not selling this year's tuition and fees, they're selling tuition and fees at an unknown point in the future.
• 600 units is equal to 6 years of tuition and fees at the most expensive Washington public university, but you can redeem up to 150 units per year, so if you bought 600 units, you could be reimbursed for 150% of that amount against the tuition and fees at a more expensive four-year college (like all 529 plans, you can only request tax-free distributions for qualified expenses).

To give an extreme example, you could purchase 600 units today for $67,800. You would break even when tuition and fees in Washington rose to $11,300 per year, about 8.8% higher than they are today. As tuition and fees rose still further, you'd experience the same tax-free appreciation of your investment seen in 529 college savings plans, except instead of depending on stock or bond market performance, your returns would depend on the trajectory of Washington state education funding.This is, needless to say, a curious investment. It combines a credit risk (will Washington state honor the terms of the program in 10, 20, or 50 years?), an inflation hedge (the "purchasing power" of your investment is protected from tuition increases as long as you attend a Washington public college or university), and a speculative bet (Washington state tuition inflation will outpace the performance of your public market investments).

What happens if tuition and fees go down?

I'm glad you asked, since that very thing happened in 2015!In that year, the Washington legislature passed the "College Affordability Plan" which reduced tuition and fees from $11,782 to $11,245, and then to $10,171. By rights, this should have reduced the unit payout value of accounts from $117.82 to $101.71, a decrease of 13.7%.But it didn't. By special dispensation from the state legislature, GET was allowed to maintain the higher unit payout value, and then when they finally reset the unit payout value to match the new, lower tuition and fees, they compensated account holders by increasing the number of units in their accounts by a corresponding amount!Look: I'm not a Washington state taxpayer. I don't own and am not the beneficiary of a GET account. But this kind of "heads-I-win-tails-I-win" policymaking is a textbook example of moral hazard. If GET investors participate fully in the upside of tuition inflation and are protected from the downside of tuition deflation they're going to be the beneficiaries of huge wealth transfers from their fellow citizens of Washington state, and the country as a whole.

Should you invest in a prepaid tuition plan?

A few years back I learned about the story of Bert Fingerhut, who, as a wealthy and successful Wall Street investment banker, criss-crossed the country opening accounts in his own name and the names of anybody else he could think of at so-called "mutual savings banks," so that if they ever reorganized as publicly traded entities he would be entitled to pre-IPO shares. What he was doing was perfectly legal, he just wasn't satisfied with only claiming shares for himself, so he fraudulently opened accounts of which he was the beneficial owner.When researching the Washington state GET plan, I was reminded of poor old Bert, whose only crime was that he got greedy. I think if I were a sufficiently wealthy Washington resident, with a sufficiently young child, I'd buy my 600 GET units, not because such an investment is guaranteed to outperform the public markets, but because it's an investment different enough from the public markets that it's likely to perform differently from the low-cost stocks and bonds in a 529 college savings account like the ones offered by Vanguard and others.After all, the most you can lose in a $67,800 investment is $67,800. If tuition and fees at the most expensive Washington public universities rises at the same rate as median hourly wages, the maximum rate currently allowed by law, then based on data between 1990 and 2016, you'd expect your investment to return an average of 2.9% per year. If that cap is lifted and tuition and fees rise faster, you'd do even better, and if tuition and fees are cut again, there's precedent for being made whole by the state legislature.And all these returns are, of course, completely tax-free.

Should long-term taxable investors consider dividend-minimal funds?

I've been thinking lately about the role taxes play in calculating investment returns. It's not a question that's very relevant to most people, since for the vast majority of Americans investments are best made in accounts that offer tax-free compounding, whether that's an IRA, 401(k), HSA, or 529 account.But once you start to think about it, there are potentially interesting implications for determining the best investment strategy for long-term taxable investors.

Over long time horizons growth and value stocks offer near-identical pre-tax returns

This may be somewhat difficult to grasp if you have a prior commitment to "value" investing, but if you think about value and growth stocks "overperforming" and "underperforming" over different time horizons, it becomes more clear.Take two funds that have been available since November, 1992: VIGRX, the Vanguard Growth Index Fund, and VIVAX, the Vanguard Value Index Fund.

• Between November 2, 1992, and August 31, 2000, VIGRX outperformed VIVAX handily, returning an average annualized return of 21.66%, compared to the Value Fund's 16.42%.
• Between September 1, 2000, and May 31, 2007, VIVAX outperformed VIGRX, returning an average annualized return of 6.1%, compared to the Growth Fund's negative 2.65% average annualized return.
• Between June 1, 2007, and February 28, 2009, VIGRX outperformed VIVAX, returning a mere negative 28.39% average annualized return compared to the Value Fund's negative 37.14% average annualized return.
• And from March 1, 2009, to February 28, 2018, VIGRX outperformed VIVAX, returning an average annualized return of 18.37%, compared to the Value Fund's 16.76%.

But between November 2, 1992, and February 28, 2018, their returns were virtually identical: 9.42% annualized in the case of VIGRX, and 8.85% annualized in the case of VIVAX. As a reference, the Vanguard 500 returned 9.23% annualized over the same period, falling smack dab in the middle, just as you'd expect.

This is meaningless to tax-advantaged investors

A tax-advantaged investor without any special investing insight should invest in a broad global portfolio of stocks and bonds, with the precise allocation between domestic and international stocks and bonds depending on their risk tolerance, time horizon, and other sources of retirement income, like Social Security or workplace pensions.You can see in the four time periods I outlined above that if you knew what was going to happen in advance, even a tax-advantaged investor would want to invest in growth stocks in the first time period, value stocks in the second time period, hold cash for the third time period, and then growth stocks in the fourth time period. But if they have no special insight into what's going to happen, then a tax-advantaged investor should just buy, hold, and very occasionally rebalance.

Taxable long-term investors should think about dividend-minimal funds

What differentiates the returns between the Vanguard Growth Fund and Value Fund I described above is not their total return over the past 26 years, which is nearly identical: it's the form those returns took. The Growth Fund experienced more price appreciation and less dividend and capital gains reinvestment, while the Value Fund experienced more dividend and capital gains reinvestment and less price appreciation.I was trying to think of a way to illustrate this involving all sorts of calculations, but realized the easiest way is also the simplest:

• Between November 2, 1992, and February 28, 2018, a $100,000 initial investment in the Vanguard Growth Fund experienced a price appreciation of $650,700 and distributed $97,483 in dividends and capital gains.
• Between November 2, 1992, and February 28, 2018, a $100,000 initial investment in the Vanguard Value Fund experienced a price appreciation of $315,000 and distributed $193,666 in dividends and capital gains.

Under the current US tax code, the price appreciation is completely tax free, while the dividends and capital gains are taxed at a maximum marginal federal income tax rate of 23.8%. If that rate were in effect for the entire investment period (it wasn't) then a taxable Value Fund investor would have paid $22,891 more in federal income taxes over the 26-year period than the Growth Fund investor, almost twice the amount by which the Value Fund investment outperformed the Growth Fund investment. If those tax savings were invested and allowed to compound over time, the Growth Fund investor would have done even better.

Useless, but good, advice

As I mentioned above, the overwhelming majority of Americans hold the overwhelming majority of their investments in accounts that offer tax-free internal compounding, so this information is properly useful only to the tiny sliver of people who have both an investing time horizon of 25 years or more and substantial taxable investments.This is obviously something of a contradiction: by the time you've reached the point in your career where you're maxing out all your tax-advantaged savings vehicles and have funds left over for taxable investments, you're usually too late in your career to have a 25-year investment horizon!Meanwhile if you struck it rich early enough to both have large taxable savings and retire early, you're paying a 0%, not 23.8%, marginal income tax rate on your qualified dividends.But just because advice isn't very useful doesn't mean it's not good: if you have a long enough investing time horizon to not mind the achingly long periods of underperformance, then it can make perfect sense to hold lower-dividend mutual funds in your taxable investment accounts.

The high-employment generation

The lives of Americans my age are overwhelmingly defined by a single formative experience. Not the September 11 attacks, which happened at the beginning of my junior year of high school, but the global financial crisis. Obviously both events affected Americans of all ages old enough to remember them, but people my age had the unique privilege of entering the workforce during the highest period of unemployment since Reagan's first term.After spending a year teaching English abroad, I returned to the United States in July, 2008, when the unemployment rate had just reached 6%. It would continue to rise before cresting in January, 2010, at 10.6%, and beginning the long, slow decline which has brought it down to 4.5% today.For 18 months new college graduates were looking for work in an environment where more jobs were being destroyed than created. And college graduates had it lucky compared to the high school graduates they were suddenly competing with for low-wage work.I say all this by way of background, since it's essential to understanding why people in the brief cohort that came of age between roughly 2007 and 2013 (when unemployment dropped to 6.5%, its previous post-9/11 peak), turned out the way we did, and because it gives a framework for insight into the generation coming of age today.

What will the high-employment generation look like?

Coming of age today means rather than entering the workforce at at time of historically high unemployment, new workers are seeing unemployment low and falling, while wages continue their slow but steady trot higher.By analogy, I'd like to suggest a few consequences this has for 18-to-22-year-olds entering the workforce today.

• Less education. Many folks of my generation were able to hide out in the universities while the recession raged around us. Besides a modicum of debt-financed financial security, a by-product was more education. Between 2005 and 2015, the percentage of advanced degree holders rose by a full 25%, from 9.6% to 12%. With plentiful jobs and rising wages, fewer people will be inclined to sit out of the job market, and I expect the number of advanced degree holders will flatten or decline in the coming years.
• Less entrepreneurial. Just among my friends from high school and college, I know two app developers, one bitcoin millionaire, one event photographer, and one acrobat. Plus one blogger, if you want to count me. And I didn't have many friends! We started businesses because what else were we going to do? Today's graduates don't have that problem, and I expect the high-employment generation will start somewhat fewer businesses since the tradeoffs between formal employment and self-employment will be concrete in a way they weren't for my generation.
• Less radical. The radicalism of my generation is based on the fact, manifest everywhere you looked, that the system of global capitalism had proved itself yet again incapable of providing stable growth. A system prone to the periodic immiseration of a broad swathe of society based on accidents of timing was a bad system, it needed to be destroyed and replaced with a system that was more resilient. That's as true today as it was in 2008, but with the passage of the radicalizing moment, I expect today's generation to have much more incrementalist views on change. For example, in a period of high unemployment and marginal work, the absurdness of employer-based health insurance was obvious, and enormous effort was expended making health insurance less dependent on employment. In a period of high employment and steady work, most people will be mostly satisfied with the insurance they get through their employer, and radical changes will be harder to mobilize young people around.
• Less gig employment. Companies like Uber and AirBnB have been able to survive for three reasons: the low cost of capital; the weakness of state and local regulators; and the labor surplus. While I don't foresee states and localities stepping up their regulation, rising interest rates and wages will make it harder and harder to continue operating unprofitable businesses. Such firms are only ever one funding round away from insolvency, and it's impossible to predict when investor sentiment is going to swing away from them. But any attempt to extend their funding by cutting the income of drivers and renters will push people out of the gig economy into the formal labor market. That'll be especially true as attacks on the Affordable Care Act like we're seeing in Idaho make comprehensive health insurance unaffordable to gig economy workers.
• More family formation. Whatever the underlying long-term trend in marriage rates, superimposed on that trendline is the overall economic well-being of young people, and I expect the current generation will see both earlier marriages and more marriages as they enter the workforce with stable, long-term employment.
• Higher lifetime incomes. It's frequently observed that people who enter the workforce during a recession have lower lifetime incomes, as their future raises are "anchored" to the relatively low base they began their careers with. The flip side of that is also true: if my generation saw a lifetime earnings hit due to an accident of timing, the present generation will see higher lifetime incomes as their future income is anchored to a higher starting point.

Conclusion

There are only a few periods in post-World War II history when unemployment has been as low as it is today, and the key unknown is which of those periods our present moment will most resemble. Will it be 1964, when unemployment stayed low for another 6 years? Or will it be more like 1973, 1997, or 2006, when low unemployment was followed by long, grinding recessions? The answer to that question will determine how long the high-employment microgeneration lasts, and how many of the predictions I made above will bear out.Meanwhile, it's possible to pursue policies that encourage the best results of low employment (higher lifetime incomes, more family formation) while mitigating the worst results. For example, simplifying the tax code is always worth doing, but it's especially worth doing in a period of declining entrepreneurship in order to offset the appeal of formal employment. Reducing the burden of tuition is always worth doing, but it's especially worth doing in a period when advanced degrees are relatively more expensive due to the more lucrative job opportunities available.And finally, if the relative ease with which young people could be radicalized against global capitalism in a period when its failures were obvious made radical organizations lose their rhetorical edge, then the relative prosperity of the current generation will quickly marginalize organizations that do not have a message that continues to resonate under today's actual existing economic conditions.

Follow-up: was I too harsh on "charitable clumping?"

On Tuesday I wrote that so-called "charitably clumping" was a fairly transparent marketing campaign by the philanthropy and money management industries to generate more contributions and assets under management.Commenters were not amused! After reading through the comments I'm happy to concede I overstated my case, while I think some readers might have passed over elements of my argument as well.

There's no secret to timing charitable contributions

As long as charitable contributions have been eligible itemized deductions, it's been possible to shift contributions forward or back in order to claim the maximum available tax benefit.Someone making $10,000 in charitable contributions per year has always been able to wait until the end of the year to estimate whether the deduction would be more valuable if made in December or January. That allows the taxpayer to maximize the value of their deduction while, as commenter DaveS put it, "For the charities the contributions all come 11-13 months apart – not a big feast or famine rhythm at all."This has nothing to do with the Republican tax bill, except that the higher standard deduction gives taxpayers one more thing to keep in mind when deciding which tax year to make a contribution in.If we're going to call shifting a contribution a few days or weeks in one direction or another "charitable clumping," then who could object to charitable clumping?

Proponents of charitable clumping make a much stronger claim

In the post I linked to in my original piece, and was attempting to be in dialogue with, Michael Kitces describes something completely different:

"The end result of this 'charitable clumping' strategy is that by doing 5 years’ worth of charitable contributions at once, the couple gets at least part of the value of the deduction for a charitable contribution, while also saving additional taxes by donating appreciated securities and “replacing” them (at a new, higher cost basis) with the money that would have been donated. Which means the net cash flows into the household and out to the charity are the same… but by engaging in the charitable clumping strategy, the couple obtains both a partial charitable deduction and avoids capital gains. (Or alternatively, the strategy could be executed by simply contributing cash to the donor-advised fund, which doesn’t produce any capital gains tax savings but still results in additional charitable deductions through clumping.)"

It's this stronger claim that I was objecting to, for the three reasons I explained in my original post:

• non-profits perhaps should, but definitely don't, treat a single large donation as the sum of multiple small donations spread out over many years;
• donor-advised funds promote charitable clumping in order to gather assets they can charge account maintenance fees on, reducing the total value of your contributions to the recipient;
• and charitable contributions are made periodically, instead of all at once, because of the individual taxpayer's fluctuating economic circumstances, and contributions to donor-advised funds can't be returned in cases of economic hardship.

None of these considerations matter if you're talking about shifting a donation a few days or weeks forward or back. I was addressing my argument at Kitces's "strong" form of charitable clumping, not the commonsense business of figuring out whether you should make a donation in December or January.

Conclusion

If you're a wealthy, high-income person planning to give away a million spare dollars in the next 10 years, you should certainly feel free to assign the contributions to tax years in which you would otherwise pay the highest marginal tax rate on that income.But if you're an ordinary worker, you don't need me to tell you that you probably shouldn't be making your 2023 charitable contributions in 2018, no matter how sweet the tax benefits are, because 2023 is a long time from now.

"Charitable clumping" is a clever marketing campaign, not a tax planning strategy

The 2017 Republican smash-and-grab tax reform bill made two related changes to individual tax deductions:

• The standard deduction was raised to 12,000 for individuals and 24,000 for joint filers;
• and the state-and-local-tax (SALT) itemized deduction was limited to $10,000.

Meanwhile, the charitable contribution deduction was unchanged, and the mortgage interest deduction was unchanged for existing mortgages (interest deductibility was limited to $750,000 for new mortgages).Altogether, that means in order to make their state and local taxes deductible at all, taxpayers need to have additional itemized deductions such that their total itemized deductions exceed the standard deduction. To receive the benefits of the maximum $10,000 SALT deduction, they'd ideally have additional deductions equal to or greater than their standard deduction: $12,000 or $24,000 in combined mortgage interest and charitable contributions.

What is "charitable clumping?"

As the always-effervescent Michael Kitces helpfully explains, charitable clumping refers to the idea of making the equivalent of several years of charitable contributions in a single year, raising the taxpayer's itemized deductions above the standard deduction and allowing them to claim all or part of the SALT deduction they'd otherwise be unable to claim.In theory, there is no obstacle to doing this. Indeed, an organization should theoretically be grateful to receive several years of contributions up front, especially taking into account the time value of money.

In practice this makes no sense

There are two obvious problems with "charitable clumping" in practice.First, non-profits spend essentially all of their revenue each year. If you've ever contributed so much as a dollar to a non-profit organization, you are well aware of the barrage of fundraising pitches you begin to receive immediately and which will never, ever stop. Non-profits have short memories. I have a family member who's a prodigious philanthropist but if she stopped giving to the Five Valleys Land Trust for 4 years she'd simply stop being invited to their events. What would they want a deadbeat there for? They already have her money, after all!If non-profits have short memories, I bet your church has an even shorter one. Are you going to give $25,000 to your church this year and then skip on tithing for the next decade? Are you going to explain to your rabbi that you were really making ten $2,500 annual gifts all at once? Good luck.But the second problem should be taken just as seriously: people make charitable contributions annually based on their present economic circumstances. The problem with making a large upfront contribution based on your estimated future giving is that your future giving is only estimated.Kitces's suggestion of making your upfront contribution to a donor-advised fund, which gives you the ability to "recommend" grants of the account's balance in future years, potentially solves the first problem, but not the second. Your contribution to a donor-advised fund is completely irrevocable — there are no hardship withdrawals, no loans against the balance, no way to pay a tax penalty to get the money back.That means charitable clumping can only make sense for a strange subset of taxpayers: those who have so much money that they can afford to make tomorrow's contributions today, but whose annual charitable giving is so low that, combined with mortgage interest, it doesn't exceed the standard deduction. If that describes you, I guess go ahead.

Conclusion

Upon even a moment's reflection, it should be obvious that "charitable clumping" is not a tax planning strategy at all: it's a marketing campaign by non-profits and donor-advised-fund administrators.The former want you to "clump" your contributions this year, while having every intention of returning next quarter or next year to ask for another "clump."The latter want to charge 0.6% of the assets under management each year, plus the management fees for your underlying investments.For the right taxpayer, in the right tax bracket, who's able to reach the right understanding with their preferred philanthropies, that may be a small price to pay. But the overwhelming majority of taxpayers should spend exactly no time thinking about how they're going to game the new higher standard deductions. Claim it and move on with your life.

If you care about deficits, this is what you should care about

I do not, as a rule, care about the United States budget deficit. This is for three main reasons:

• the United States issues dollar-denominated debt, and so has no risk of default, short of political (versus economic) catastrophe;
• the United States spends such an extraordinary amount on national defense that we have a "peace dividend" available on demand should we choose to spend less on our periodic wars of choice;
• the United States has an overall tax burden far lower than the OECD average, giving us a lot of headroom to increase taxes should budget deficits become a problem in the real economy.

But of course the financial solvency of the US government is not the issue of concern to an individual American; the question is, what do accelerating budget deficits mean for your own finances — the ones you need to pay the rent, buy gas, send your kids to college, and retire with dignity?

Accelerating budget deficits can have two effects

As the budget deficit accelerates, part of the increased nominal economic activity will be absorbed by previously unemployed workers joining the workforce and adding to the nation's total economic activity.But in addition to that, part will be absorbed through higher interest rates, as the increased supply of Treasury bonds forces down their price, and part will be absorbed through inflation, as more money chases an amount of goods and services that doesn't keep up with the supply of money. Whether inflation or higher interest rates predominates is completely up to the Federal Reserve's Open Market Committee. They can raise interest rates faster and keep inflation muted, or keep interest rates depressed and allow inflation to run ahead of their target.

What do accelerating budget deficits mean to a worker?

The single most important effect government fiscal and monetary policy has for individual Americans is the effect on their income and livelihood. If inflation accelerates, workers' incomes will fall in real terms unless they're able to negotiate raises that keep up with their cost of living (economy-wide this would have the effect of accelerating inflation even more).If interest rates rise, companies will lay off workers and consolidate their operations.For the average American, this is the overwhelming consequence of accelerating deficits: either a lower standard of living, or a more precarious existence.

What do accelerating budget deficits mean to an investor?

As an investor, the picture is somewhat different, depending on whether you think the condition is temporary or permanent.If you think accelerating budget deficits are a permanent feature of American economic life, then American firms will be in constant competition with risk-free Treasuries for financing, and experience a consistently higher cost of capital, reducing the present value of their future income. In that case, you might consider investing in international companies, who will see their currencies depreciate and exports increase as the US dollar attracts additional capital inflows from abroad.If you think accelerating budget deficits are a temporary feature of American life, then temporarily higher interest rates are a short-term buying opportunity for US equities, whose depressed valuations will bounce back once a comprehensive fiscal solution is found.But I think investors in general fail to take investing literally enough. If your best guess is that your retirement goals require a 6% real return for the next 30 years, and 30-year Treasury inflation-protected securities are returning an inflation protected 6% return, why would you own anything else?To be clear: 30-year TIPS aren't earning 6% today. But if US deficits continue to accelerate, and we manage to avoid another global financial crisis or recession, they will be within the next 3-6 years. At the point, the question will be, do you want to lock in sufficient inflation-adjusted savings to meet your retirement needs, or do you want to swing for the fences by gambling on US or international equities?After all, long-term US Treasuries have underperformed US equities in the current bull market, but they haven't underperformed bonds. They've performed exactly as you'd expect long-term bonds to perform.

Conclusion

So that brings me full circle: if you're worried about accelerating US budget deficits, what, exactly, are you worried about?

• are you worried about losing your job? You can prepare by saving more, studying harder, learning a trade, or making more friends.
• are you worried about inflation? You can buy international equities or inflation-protected bonds.
• are you worried about high interest rates? You can hold more cash or reduce the average duration of your bond holdings.
• are you worried about a stock market crash? You can pay for a put strategy that protects you from big downside losses.
• are you worried about the Republican Party gutting Social Security and Medicare? You can vote.

In other words, there's no worry that doesn't have a solution, but if you can't identify what, exactly, you're worried about, you're not going to be able to deal with it in a way that lets you get on with the business of actually living your life.

Is intergenerational advice possible?

Canadian philosophy professor and YouTube hit Jordan Peterson recently attracted some attention when he published a book called "12 Rules For Life: An Antidote to Chaos," and a number of other folks on the internet got in on the act with their own "rules for life." You can read Peterson's rules here, if you're so inclined. I don't know whether they're good rules or bad rules.What the whole thing got me thinking about is the subject of intergenerational advice. Is it possible? And if it's not possible, should people try to give it anyway?

Lifecycle effects and generational effects dilute the power of advice

I use the phrase "lifecycle effects" to describe how someone's perspective shifts over time purely through the process of aging, and "generational effects" to describe how the world changes through the passage of time. Importantly, the two effects can weaken each other or reinforce each other.To take an example from my other project, there's nothing experienced travel hackers love more than explaining how easy travel hacking used to be, and how what's left today is a mere shadow of the hobby's former glory. Here you see the two effects reinforcing each other: there really are fewer opportunities easily available in many parts of the country, but it's also true that travel hacking is easier at age 25 than it is at 30, and easier at 30 than it is at 35. No one complaining about how much worse the travel hacking landscape is today than it was in 2010 remembers to add, "also I had a lot more free time because I wasn't married, didn't have kids, and had fewer responsibilities at work."At a population level this can give rise to ambiguous situations. For example, social scientists have observed that people's voting habits become more conservative as they age. However, if each successive generation is further left than the generation before it, it's possible for the overall electorate to become further left. What matters are the rates of change: are individuals of a generation drawn right as they age more or less quickly than subsequent generations are drawn left?These interacting effects are what make it unclear to me whether intergenerational advice is possible. To take a final example, think about what kind of advice a late-career, 60-year-old professional could give a graduating 18-year-old high school senior today. The professional was age 18 in 1976. In that year, a nonresident undergraduate at the University of California would pay $2,130 in tuition and fees ($9,116 in 2017 dollars; it's $40,644 today). In the intervening years, the professional has experienced the lifecycle effect of rising income as her career advances. But in the background the generational effect of accelerating tuition has proceeded apace. So what advice can our professional give our high school graduate today? Should she advise the graduate to skip college, since its cost has quadrupled in real terms in the intervening 42 years, racing ahead of inflation? Or should she advise the graduate to attend college, based on the fact that all her well-off professional colleagues have college degrees? Now flip it around. What advice should a late-career union machinist in a Toyota factory give the same student? He's also seen his wage rise through the years, and seen the cost of college rise even faster. If college wasn't worth it in 1976, how could it be worth it at quadruple the price?And most importantly of all, how can the person receiving the advice untangle the two effects? If they aren't able to do so, how are they supposed to evaluate it?

The advice you can use is different from the advice you need

If intergenerational advice is possible, I think it's only possible by separating out the advice that the person giving it thinks is necessary from the advice the person receiving it can actually use:

• the advice a reimbursed business traveler needs is to put their travel and meals on a Chase Sapphire Reserve credit card. The advice a reimbursed business travel can use may be to just sign up for a BankAmericard Travel Rewards credit card and redeem the points they earn against their travel purchases.
• the advice a new hire needs is to invest their 401(k) contributions in a diversified portfolio of low-cost mutual funds. The advice a new hire can use may be to invest in a target date retirement fund.
• the advice teenager need is to stay out of trouble. The advice teenagers can use is to not get caught.
• the advice a high school graduate needs is to wait until they're treated by the FAFSA as independent before applying for financial aid. The advice a high school graduate can use is to apply to as many schools as possible that guarantee to cover their full financial need.

The problem with a book written to impart wisdom on younger (or older!) generations is that the best you can do is give people the advice they need, not the advice they can use. To give a person useful advice, you need to know something meaningful about the person you're advising. To sell a million copies of a self-help book, the only advice you can give is advice guaranteed to be of no use to anyone.

Should you use the Vanguard 529 Plan?

State-sponsored 529 savings plans are tax-advantaged estate planning tools that can also be used to save for "higher education" expenses, a category which was recently expanded to include private and religious K-12 tuition.I've had an account with the Utah Educational Savings Plan, which was recently rebranded as My529, for years and have been very satisfied with their selection of very low-cost Vanguard investment funds and low account maintenance fee of 0.2%.My brother recently asked me about the Vanguard 529 Plan, and after doing a little bit of research, I thought I'd share what I found.

How to select a 529 plan

There are three factors that should go into your decision of which 529 plan or plans to choose:

1. Tax benefits. Check every state where you earn taxable income and find out whether there are deductions or credits available for contributions to 529 plans. Some states, like Pennsylvania, allow residents to take the deduction for contributions to any state's 529 plan, while others, like Arkansas, only allow deductions for contributions made to in-state plans. Credits and deductions may only be available to residents; check with your tax professional.
2. Investment options. While I would look for low-cost Vanguard index funds, it's not the end of the world if you have to choose low-cost index funds from another provider, but stay away from plans that only offer high-cost, actively-managed, or more complex investment vehicles. Washington State, for example, has a prepaid tuition savings plan that, as far as I can tell, is a way to make a tax-advantaged bet on public higher education tuition outpacing the stock market (and Washington State not going bankrupt).
3. Fees. In addition to the underlying expense ratio of the mutual funds you invest in, 529 plans also charge account maintenance fees, which you should also attempt to minimize.

The key thing to realize is that since you can open multiple 529 plans, you can optimize these factors in multiple ways. For example, an Arkansan can contribute $5,000 per year ($10,000 for married couples) to Arkansas's relatively expensive 529 plan in order to secure the maximum state income tax deduction, then direct additional contributions to lower-cost, out-of-state plans.

How does Vanguard compare to My529?

When it comes to state tax benefits, the plans are identical except for residents of Utah, who can claim an annual 5% state income tax credit on up to $1,920 ($3,840 for married couples) in contributions per beneficiary to My529 plans. That $192 per year, per beneficiary, may not seem like much, but it swamps the differences in fees between the two plans.What are those differences? Unlike My529, Vanguard somewhat annoyingly rolls the asset-based account maintenance fee into the expense ratio for each investment option. So while My529 offers the "Vanguard Total Stock Market Index" with a 0.02% expense ratio and 0.2% "Administrative Asset Fee" for a total of 0.22%, Vanguard offers the "Total Stock Market Portfolio" which charges 0.18%, including both the underlying expense ratio and the account maintenance fee.The spread isn't a constant 0.04%, unfortunately, so the actual difference in fees will depend on your weighted asset allocation. For international stocks, My529 charges a total (including Administrative Asset Fee) of 0.27% while Vanguard charges 0.25%.So basically, for non-Utah residents, Vanguard is the clear, if slight, favorite. For Utahns, the question is how much hassle you're willing to go through managing two 529 accounts. If that exceeds your hassle threshold, then using My529 exclusively is a perfectly reasonable, low-cost choice. If your hassle threshold is higher, stick $1,920 per beneficiary, per year, into My529 and use Vanguard for the remainder of your contributions.

Vanguard 529 balances count towards Voyager status

Unrelated to the tax and cost advantages of 529 savings plans, Vanguard has one additional slight advantage: your 529 balances count towards your qualification for Voyager, Voyager Select, and Flagship services. Vanguard "elite status" doesn't have very many advantages, but if you have any account types, like a solo 401(k), that charge annual account maintenance fees, those fees are waived once your total Vanguard balance across all account types reaches $50,000. That can take a long time if you're just saving $5,500 per year in an IRA, so the ability to goose your overall Vanguard balance with 529 contributions may help you save money on fees in addition to the lower cost of the investments themselves.

You got your tax cut. Now what?

I had an interesting exchange in the comments of this post with reader sh on the subject of portfolio protection. I won't relitigate the question here since you can go read our exchange, but sh got me thinking about public markets and what they are, and aren't, for.I take for granted that the price level of public market equities, that is to say without dividends reinvested, will be flat over the next 5-to-10 years. Far from being valuable insight, however, this conviction is completely worthless. That's because I have not the slightest inkling about the path of public equity prices in the next 5-to-10 years. A "flat" intermediate-term prediction can describe a market that drops 80% and then quintuples, a market that doubles and then drops 50%, or a market that just staggers along for the foreseeable future.And of course that leaves totally aside the fact that my seemingly-precise expression "5-to-10 years" masks a difference of five whole years!

Remember what high stock prices and low interest rates are for

Almost a year ago I wrote about the Federal Reserve's plan to save the American economy: sell everything and start a business. The plan was and is marvelously simple: by buying up trillions of dollars in government bonds, the Fed was able to drive the interest paid on safe securities to extremely low levels. That forced investors seeking returns that used to be available on risk-free assets to buy riskier assets. It forced investors seeking returns that used to be available on risky assets to buy even riskier assets. And, ultimately, it was supposed to make returns so low, funds so cheap, and equities so overpriced, that people would be enticed to borrow money, issue equity, start businesses, hire employees, and get the American economy moving again.

You got your tax cut. Now what?

The Republican party felt compelled, for aesthetic reasons, to include adjustments to individual tax rates in their recently-enacted changes to the tax code, but the overwhelming impact, in both practical and budgetary terms, was on corporate taxes. Those changes mean that in the short term, US corporations with assets owned by international subsidiaries will be able to retitle those assets in the name of the parent corporation at discounted rates, permitting the US company to use the assets to pay dividends and reduce their share count (offset by the shares issued to their executive suite, of course).Whether you think the 2018 year-to-date rise in the stock market's price level was "caused" by those changes to the tax code or not, it has certainly risen, and if you're invested in public market equities, you may have noticed their increased value (even though you shouldn't peek).The question I have to ask is, now what? Still-low Federal Reserve interest rates have now been combined with a shot of adrenaline from Congress to push public market equities to all-time highs. But what's the plan? Or rather, what's your plan?

Imagine the opposite conditions

People even a little younger than me won't remember this, but in the early 2000's it was possible to earn 6% APY, or higher, on a totally liquid money market savings account (mine was with PayPal). People older than me may remember when US Treasuries were paying well over 10% APY in the early 1980's. What would be the appropriate response to conditions like those?Logically, you'd want to get the highest-paying job you could, work as many hours as your boss let you, spend as little as possible, and save every penny you could in the longest-dated securities you could. Treasury Inflation-Protected Securities weren't issued until 1997, but if those high-interest, high-inflation conditions existed today you'd probably want to give up a few points of interest and buy 30-year TIPS. Of course, public market equities were also very depressed, so in general saving as much of your income as possible and scooping up as many securities as possible was the right move, and you would have been richly rewarded for it.

Last call for this business cycle

We've reached full employment and employers are having to raise wages and working conditions and lower hiring standards to attract additional workers. Inflation is starting to fitfully show signs of life. The Federal Reserve has raised interest rates off the floor and may accelerate the pace of increases this year.Eventually, these conditions will converge, growth will collapse, and it will be time to start scooping up cheap stocks and bonds again. But we're not there yet. If a year ago the time was right to start a business, today the time is perfect to start a business.So, what now?

Five questions about immigration

Immigration has emerged somewhat abruptly and I gather somewhat unexpectedly as a major political issue in 2018 due to the president's decision to end the Deferred Action for Childhood Arrivals program, which offered work permits and reprieve from deportation to immigrants who entered the United States without authorization as children (this group of immigrants is sometimes called "kids" but the population is in fact mostly adults, given the effect of time on the human body).Immigration is an issue that famously divided both political parties for decades, so while these days it's always tempting to retreat into partisan corners, I want to ask five questions relevant both to the current political squabble and to figuring out what kind of immigration policy you actually favor. (Note: these questions deliberately exclude all racist arguments for and against immigration from particular countries. I'm not interested).

What is E-Verify, and should it be mandatory?

E-Verify is a system developed by US Citizenship and Immigration Services to instantly verify employees' authorization to work in the United States. While CIS brags that it is "used nationwide by more than 700,000 employers of all sizes," according to the best data I could scrounge there are about 17 million employers in the United States. So currently, about 4% of employers are enrolled in E-Verify (note that some employers are enrolled but don't use it)."Mandatory E-Verify" is the term of art used by people who think the use of E-Verify should be mandatory for all employers. This has become a key demand of some Republicans in the current immigration debate.Should use of E-Verify be mandatory? Here are some things to consider:

• The overwhelming majority of new hires in the United States are authorized to work here. Remember that E-Verify is designed to detect people who are present in the United States, are not authorized to work here, and are applying for new jobs. This will only ever be a tiny fraction of the total number of new hires. To pick a recent non-seasonally-adjusted peak, in June, 2017, there were 6.2 million new hires; the 2017 low was in February, at 4.4 million. Averaging and annualizing those gives 63.6 million annual new hires. The total unauthorized population in the United States in 2015 was 11.3 million. Assume 50% of those are workers (and not infants, students, the self-employed, and retirees), and 50% of those get a new job each year, and you're forcing 64 million authorized workers to go through E-Verify in order to potentially catch 2.8 million unauthorized workers.
• E-Verify isn't free. In order to accommodate 25 times as many employers, E-Verify would need to radically expand its capacity. This would be very expensive for both the federal government and for employers who aren't able to proceed with hiring due to the overwhelmed system.
• E-Verify isn't easy. I would encourage you, right now, to head on over to E-Verify and set up an account. This time I actually got all the way to the end before I got the error message: "Please verify your input parameters and try again. If the problem persists, contact the help desk. Object reference not set to an instance of an object." Maybe next time.

This is the question I feel most strongly about as an advocate for entrepreneurs and entrepreneurship. Is starting a business too easy? Is hiring your first employee too easy? Is managing payroll too easy? In order to make the process of hiring employees manifestly more difficult for every employer in the country, the benefits would have to be overwhelming. Are they? Or is this just a massive subsidy for payroll firms to add an additional "service" they're happy to provide — as long as companies are able to afford it?

Is it preferable for immigrants to be older or younger?

This is an interesting question that people have extremely strong opinions about, but about which I have no opinion:

• Very young immigrants are entitled to free public education, which makes them more expensive to support initially but also has the potential to better integrate them into American society and culture, possibly giving them higher lifetime incomes.
• Very old immigrants (often parsed as "the parents of US citizens" because they are often able to immigrate relatively late in life through family reunification provisions) have fewer productive working years remaining, but are also able to provide valuable home work like childcare and cost relatively little (assuming they arrive too late to earn enough Social Security and Medicare work credits). They are also, perhaps needless to say, unlikely to commit many crimes.
• Are there "just right" immigrants? If so, what is the right age to permanently relocate to a foreign land? Should we try to guess? Should we try to use our limited and fractured dataset of past immigration patterns to decide which age on immigration is most predictive of lifetime success?

As I say, this is a legitimately interesting question, but one about which I have no opinion whatsoever.

How much education should immigrants have relative to the native population?

If you know anything about immigration, you know that immigrants to the United States are more educated, overall, than the native-born population. So one way to phrase this question is, should we admit additional immigrants until the immigrant population has the same educational attainment as the native population, or should we reduce immigration until the immigrant population has an even higher educational attainment than the native population? How much more educated should an immigrant be than a native-born citizen to be considered worth admitting?Are we willing to pay more for, or give up completely, the childcare, valet parking, landscaping services, construction, and other jobs relatively unskilled immigrants perform?

Is it preferable to have immigrants with or without connections to the United States?

This is a question that I had literally never considered until I recently listened to episode 73 of "The Editors" podcast from National Review and heard Reihan Salam explain why he thought family reunification (or "chain") immigration to the United States was a problem. In every other area of American life, liberals and conservatives are united in believing that family and community are essential to human thriving.But Reihan Salam passionately expressed the view that immigrants should have no ties to the United States because if they do, they'll form communities that keep them from integrating into American culture. This argument is, I believe, totally novel in the history of American immigration policy. Every period of American immigration has been characterized by the formation of communities based on national or religious identity that have provided mutual support as they integrate into mainstream society. I don't know what Salam's vision of scattering isolated immigrants across the country surrounded by strangers would even look like.

Are periodic immigration amnesties a problem?

Until the immigration amnesty of 1986, the word "amnesty" had, as far as I can tell, an exclusively positive connotation. An amnesty was a period of mercy, of slate-cleansing, of rebirth, like the ancient Jewish concept of jubilee.Since then, the word "amnesty" has become a kind of weapon against any attempt to normalize the status of unauthorized immigrants. Even those in favor of such normalization insist that it doesn't constitute "amnesty" since there will be fines and paperwork involved.Immigration "hawks" believe any amnesty has to be accompanied by assurances that it's "the last time," the problem will be solved "once and for all." That's the unfulfilled promise of the 1986 amnesty.But that seems symptomatic of the general conservative pathology of insisting on a final solution for every problem. No matter what immigration compromise is agreed to, and indeed if no compromise is agreed to at all, tourists, students, and temporary workers will continue to enter the United States, they'll continue to overstay their visas, they'll continue to fall in love, get married, and have children. Why should this year's immigration bill be the last bill ever passed? Why should every potential immigrant begin to abide by US immigration restrictions in this year that they ignored in every previous year?The United States is, hopefully, going to be around for a long time. Why do we have to solve every problem we'll ever face this year?

Thinking about portfolio protection

Downside risk protection is one of the more interesting things to think about in investing. After all, if you ask me, "should I own US stocks or international stocks?" my answer will be "yes." We can quibble or even fight about what proportion of your equities should be large cap, small cap, growth, value, etc., but those are all ultimately battles around the margin. The fact is, owning equities is the best way to participate in the profits of publicly traded companies, so if you want to participate, you should own them.So, if investing in global capitalism has a positive expected return, why would you worry about downside risk at all? The answer isn't war on the Korean peninsula, or Chinese industrial espionage, or the first of what I can only assume will be many US government shutdowns in the coming years. The reason is (almost) entirely behavioral: if you, personally, are going to make decisions you know to be bad when your portfolio tanks, then one way to avoid making those bad decisions is to put in place protections that will keep your portfolio from tanking.Faithful readers know about my unfortunate literal tendency, and it's remarkably difficult to find any concrete descriptions of how a person might implement a strategy to protection their portfolio from downside risk. So, I thought I'd take a swing at it.

Options

It's easy to find people online who are happy to sell you options trading strategies with a positive expected return. I do not believe those people and don't think you should either. But options really do exist, and you really can use them to provide portfolio protection — as long as you're willing to pay for it.To see how this would work, let's use the example of SPY, the S&P 500 SPDR and the most heavily-traded ETF in the world every single day. SPY is currently at $280.41 and, in 2017, paid $4.79 in dividends, which we can use as a baseline (under most — but not all! — market conditions dividends are stable or rising). Assume a portfolio of 100 shares of SPY, which paid $479 in 2017 dividends.According to Nasdaq's information at the time of writing, you could buy 100 option contracts giving you the right to sell SPY for $280 per share at any time before April 20, 2018, for $543. That would give you downside protection should the price of SPY fall by more than $0.41. Of course, it would also mean giving up $543 of your $479 in 2017 dividends. If the price of 3-month options remained constant quarter-to-quarter (more on that in a moment), you'd end up paying $2,172 in annual options premia, turning a modestly positive 1.71% yield into a negative 6.04% yield.If you were able to do that, would it be worth doing? Well, that depends. How bad a decision do you think you'll make if the markets tank? If your portfolio loses half its value, will you sell everything and never touch stocks again? In that case, giving up 7.75% in annual returns might be cheap.Of course, this exercise has insisted on complete downside protection using at-the-money puts covering an entire portfolio. Naturally, there are other strategies you could use to provide partial downside protection.Since options are cheaper the further out of the money the strike price falls, you could buy out-of-the-money put options, for example corresponding to your portfolio's dividend payout. In the case of SPY, $118 (roughly a quarter of the $479 2017 dividend) would buy you 100 put options with a $252 strike price, roughly 10% lower than SPY's last closing price. You would sacrifice a 1.71% dividend yield for protection from any fall in the price of SPY of more than 10%, while fully participating in any price rise. This is, incidentally, essentially how variable indexed annuities work, although they cap upside participation as well as downside risk.One problem with such a strategy is that options prices are not constant quarter-to-quarter, so the same amount of protection could cost more when your contracts expire and you need to replace them. One solution would be to buy longer-dated puts.Rather than paying $543 for an April at-the-money put contract, then in April replacing it with a July at-the-money contract, then replacing that in July with an October contract, and finally replacing that with a January contract, you could buy a January at-the-money put today for $1,402. It may take a moment to realize why the January contract doesn't cost four times (or more) the April contract: the strike price of the January put doesn't reset each quarter, and since SPY has a positive expected return, the option is priced on the (reasonable) assumption that it will be very far out of the money by the time it expires. In other words, if you want to reset your option's strike price each quarter, you have to pay up.Incidentally, for the $2,172 you'd pay for four equally-priced quarterly put options you could buy a January, 2019, SPY put with a strike price of $295, locking in a 5% price increase (but you shouldn't).

Put strategy funds

Instead of getting involved in options trading yourself, you could pay somebody to do it for you. For example, Cambria Funds offers what they call a "tail risk" ETF, ticker symbol TAIL [full disclosure: I own two (yes, two) shares of TAIL in my Robinhood account]. Their strategy is slightly different from the ones I described above, since the fund uses bonds instead of equities to generate income that they then use to buy out-of-the-money puts. You can see their actual holdings here, they only have 13 positions so it's pretty easy to understand the strategy, although for reasons I don't entirely understand the ETF also pays a small dividend.One thing to keep in mind is that since TAIL holds 95.5% of its value in Treasuries, you would want to use it to replace bonds in your portfolio, since it's basically an intermediate-term Treasury fund with a small allocation to put options.

Sell part

The single easiest thing you can do to protect yourself from a fall in asset prices is to simply sell now, before the fall. If your equities have doubled or tripled since the depths of the financial crisis, there's no rule that says you have to hold onto them forever. If holding some cash, or short-term treasuries, or inflation-protected securities, is going to make you more psychologically resilient against the inevitable crash, just hold some cash!In tax-sheltered accounts that may be as easy as pushing a button, although for assets in taxable accounts be sure to consult with a fiduciary financial advisor or tax professional to understand the tax implications of selling appreciated assets. If you are still making contributions to IRA's or workplace retirement accounts, you can also adjust how your ongoing contributions are allocated in order to build up a defensive position.

The problem of asset location

That last point raises an issue that I've only begun to struggle with, the problem of asset location, which arises because different investment vehicles have different rules about contribution limits and contribution timing.For example, since funds in IRA's compound tax-free, you'd ideally like them to be fully invested in assets with the highest expected returns. But since there are annual contribution limits, you'd also like to keep some of the value of the account in safe assets, or assets that are uncorrelated with the account's most volatile investments. Once solution, counter-intuitively, could be to hold each year's contribution in a high-yield taxable account (I like Consumers Credit Union's Free Rewards Checking) and delay contributions until as late in the year as possible, in order to determine whether each additional contribution should be added to the high-risk or low-risk portion of a portfolio. Contribution limits are so low to such accounts that delays are unlikely to have much effect one way or the other in the accounts of high-net-worth individuals, however.Likewise, workplace retirement plans that are funded through paycheck withholding require you to specify how your biweekly or monthly contribution is to be allocated. Whether or not you can accelerate contributions in response to events in the market depends on your payroll department and the time of year, and in any case you're subject to annual caps on elective employee contributions, meaning for some people there may be strategic value in holding less-volatile assets even within an account that internally compounds tax-free.

Why China doesn't scare me

I've recently read and listened to a number of interviews and stories about Harvard scholar Graham Alison's recent book "Destined for War: Can America and China Escape Thucydides’s Trap?"The book catalogues China's present and future rise as a great economic and military power, and describes 16 similar cases in history, with some resulting in war, and others peace. As the blurb helpfully explains:

"Today, as an unstoppable China approaches an immovable America and both Xi Jinping and Donald Trump promise to make their countries 'great again,' the seventeenth case looks grim."

China is changing very rapidly

While it's very fashionable to refer to the growth of China's GDP as an "objective" measurement of the changes taking place there, there are other measures that I think make the point even more clearly, like this very cool graphic showing the growth of Chinese metropolitan rail systems. You can fudge GDP numbers, you can waste money keeping state-owned enterprises afloat, but if used to be hard to get across Nanjing and now it's easy to get across Nanjing, that's going to be a meaningful difference in the lives of Nanjing's residents.Likewise the widespread deployment of high-speed rail in China, despite high-profile accidents, manifestly increases the speed with which Chinese people can traverse their country, in a concrete way that national steel mill or semiconductor factory output doesn't capture.Of course, past performance is no guarantee of future results. Maybe single-party rule works better for small, industrializing economies than large, industrialized ones. Maybe the lingering effects of pollution will retard Chinese growth or lead to rising crime like the US saw in the aftermath of our introduction of lead into our children's environment. Maybe Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era will be bad Thought instead of good Thought.Who knows?

China doesn't scare me

None of China's achievements bother me in the least, and I don't think they should bother you either. As far as I can tell, China isn't responsible for any of the actual challenges facing the United States:

• China didn't make the United States pass tax cuts in the early 2000's, apparently-permanently squandering a first-in-a-generation budget surplus;
• China didn't make the United States squander trillions in wealth and thousands of lives invading Iraq;
• China didn't make the United States attack Muammar Qaddafi and thrust Libya into anarchy;
• China didn't make the United States permit an enormous buildup in fraudulent mortgage assets, and it didn't force the United States to keep our insolvent banks in private hands instead of nationalizing them;
• China didn't make the President of the United States deliberately omit unconditional support for Article Five of the North Atlantic Treaty in his first speech to our treaty allies;
• China didn't make the United States withdraw from the Trans-Pacific Partnership;
• China didn't keep the United States from responding to a foreclosure and unemployment crisis with the kind of overwhelming effort that would have been required to quickly restore stability and growth;
• China isn't keeping the most productive areas of the United States from building more affordable housing, forcing people into less-productive industries in more-affordable communities;
• China isn't keeping the United States from building out rural broadband;
• China isn't keeping the United States from reforming our patent and copyright laws;
• China isn't keeping the United States from restoring the affordability and accessibility of our institutions of public higher education.

In Bill Clinton's first inaugural address he said, "There is nothing wrong with America that cannot be cured by what is right with America."To adapt his aphorism, there's nothing wrong with America that hasn't been caused by what's wrong with America. Whether America is rich, strong, and a leading member of an international order based on the rule of law, or a poor and marginal player in a world dominated by Chinese interests isn't up to China. It's up to us.So it's not China I'm scared of.

What did you "miss" in the bitcoin bubble?

I take almost no interest in bitcoin or any other cryptoasset as a store of value or investment (although there's no reason the technology couldn't be useful in other ways), but there's one specific mistake I often see people make that I want to offer a friendly correction to.

Bitcoin are not discrete units

When people talk about stocks they frequently say things like, "if you had bought Berkshire Hathaway stock in 1964 for $19 per share you'd be worth more than Bill Gates," or "if you had bought a share of Amazon at $20 in 2001 your investment would be worth a zillion dollars today." That's because, as a general rule, shares of common stock are bought and sold in indivisible units (or even in blocks of 100 shares).Lazy journalists and thinkers try to port that logic over to bitcoin and say things like, "if you had bought a bitcoin for $1 in 2011 it would be worth $13,000 today."But bitcoin isn't like stock, in that rather than being indivisible, it's extremely divisible — into 100 millionths of a bitcoin (a "satoshi"). If $1 is the amount of bitcoin you think you should have bought in 2011 (which I consider an appropriate amount of bitcoin to own as a speculative investment), you can still buy $1 in bitcoin. Of course, instead of buying 1.0 bitcoin, you'll be buying 0.00036615 bitcoin, but who cares?

You didn't miss anything

I don't know what the price of bitcoin will do tomorrow (or even what it will do today). But I don't know what the price of the S&P 500 will do tomorrow either, and that doesn't stop me from owning it. That's not what investing is about. Investing is about making appropriately-sized bets based on your level of confidence (which may be no confidence!) in the best information you have available (which may be no information!).I have no information about bitcoin and no confidence in it, so I hold a diversified portfolio of low-cost equity mutual funds. But if your own information and confidence makes you think it's appropriate to invest 0.5%, 1%, or 50% of your portfolio in bitcoin, there's no reason to let the price of 1.0 bitcoin stop you. If bitcoin goes up even more, you can sell it off and rebalance into underperforming parts of your portfolio, and if it goes down, you can buy more up to your desired portfolio allocation, just as you would have done if you'd bought it at $1, $10, or $100 per bitcoin.If what you regret is not buying 100 bitcoin at $1 and then not selling as it swamped every other part of your portfolio in value, then what you're talking about isn't investing, it's gambling. Gambling is, of course, extremely fun, but there's no reason to let the price of 1.0 bitcoin stop you from gambling with an amount of money you're prepared to lose, any more than you should stop betting when a craps player has a long winning streak or a blackjack dealer busts over and over again.

Is this the next high interest savings opportunity?

My go-to resource for high-interest savings and checking accounts has long been depositaccounts.com, which has a pretty good list of accounts offering unusually high interest rates on deposits when you meet certain requirements, usually connected to either debit or credit card spending activity, or both. Such accounts are great; what's not to love about high-interest, FDIC- and FCUA-insured deposits?When people complain about low interest rates on savings, I usually point to these accounts and argue that this is precisely how we'll see higher interest rates trickle through the economy: through products offered by regional banks and credit unions that are confident they'll be able to deploy the deposits profitably within their service areas.But I stumbled across the subject of today's post in a totally different way.

Somebody has sold the nation's credit unions on "round-up savings" accounts

Like many folks with my areas of interest, I have accumulated quite a few memberships in regional credit unions over the years, and today I opened my mail to discover an unusual offer. One of my credit unions has launched a product called "Round-Up Savings."The program works like Bank of America's "Keep The Change" program, rounding up each debit card purchase to the next dollar and depositing it in a savings account. Via Henry Fung on Twitter, I learned that program used to match contributions up to $250 per checking account — a good deal!This Round-Up Savings program works slightly differently: instead of matching your savings contribution, it pays 20% APY (through February) and then a "high interest rate" thereafter.Knowing that virtually all credit unions deal with the same traveling salespeople, it occurred to me to look around to see if any other credit unions had bought into this scheme.They had.The best one I found on the first couple pages of Google search results is a credit union in Kentucky which offers:

• a 100% match for the first 90 days;
• a 5% match thereafter (the two matches are capped at a combined $250, I believe);
• a 5% APY dividend rate (oddly the dividend is paid annually instead of monthly, but it's advertised as APY which in principle is supposed to control for compounding frequency).

How do you fund these accounts?

Every Round-Up Savings account I found allows the account to be funded exclusively through round-up transactions; you can't just deposit your life savings into your new 5% (or 20%!) APY account.What you have to do is make purchases with your linked debit card that end in as small a cent figure as possible, ideally while minimizing the dollar figure — $0.01 purchases would be ideal, for example.Assuming the best case scenario, that you have access to a tool that lets you charge $0.01 to your linked debit card an unlimited number of times, you're then faced with a grim reality: such a transaction only deposits $0.99 into your account. One thousand (1,000!) such transactions would only result in a deposit of $990.So the opportunity is throttled by your patience, the tools you have available, and the willingness of your credit union to entertain your antics. That's going to dissuade virtually everyone from pursuing these high-interest accounts aggressively.And that's the real reason arbitrage opportunities last as long as they do.

Podcast recommendations for January, 2018

I spend a lot of time listening to podcasts, and when I mention this, people often ask me for recommendations. In general, I don't think I'm a great source of podcast recommendations, because I'm extremely picky and have extremely specific tastes. For example, I can't listen to any of the most popular NPR podcasts because I find them agonizingly overproduced; you don't need to add "street sounds" in post-production to convince me you are on the street!But if your taste in podcasts happens to align with mine, then you're in luck! Here's what I'm listening to as of January, 2018. In each case I'm using the podcast title as it appears in my iPhone Podcasts app, which should hopefully make them relatively easy to find in your own preferred medium.Podcasts are in no order whatsoever.

Money and finance

That's what you come here for, right?

• Animal Spirits Podcast. From a couple of the guys at Ritholtz Wealth Management, a fun conversation about investing and investors. This podcast is still very new and is very much on probation, but I've tentatively enjoyed the 11 episodes they've released so far.
• Behind the Markets Podcast. Hosted by Jeremy Schwartz, who has some role at Penn's Wharton School, it features a brief comment on the markets by Jeremy Siegel each week and then in-depth interviews with folks in the investment industry.
• Invest Like the Best. Hosted by Patrick O'Shaughnessy, this podcast started out very strong but Patrick has lately gotten obsessed with cryptocurrencies and other stuff of no practical interest to actual investors, so it's back on probation. I'm still listening for now, though.
• The Meb Faber Show. Meb Faber is a sort of goofball but I find him and his obsession with "momentum" investing and other hocus pocus very charming. Every episode hilariously starts with a disclaimer that Meb won't talk about any of Cambria's ETF's, and then he goes on to talk about Cambria's funds for an hour every week.
• Slate Money. This is a weird product, since it's three mostly-ignorant people talking about things they have no experience with or knowledge about, but I stubbornly keep listening. I should probably have culled this one a long time ago but Felix Salmon's accent is too charming to give up.
• Masters in Business. Barry Ritholtz's original podcast, MiB used to be great but I think has grown too big and now he mostly interviews authors promoting their latest books. There's still an occasional gem though, and the back catalogue is brilliant (don't miss his conversation with Jack Bogle).
• Investing Insights from Morningstar.com. This is a very strange podcast, since I believe it is the audio track from their weekly on-demand television program. It's a mixture of market news and ads for Morningstar products, nothing of great interest but offers occasionally useful suggestions on portfolio construction, etc.

Politics and policy

Politics matters because policy matters.

• Vox's The Weeds. The Weeds currently has a twice-weekly format, where they do an early-week episode on recent developments in the news and a late-week episode on specific policy issues.
• The Power Vertical - Radio Free Europe / Radio Liberty. A show focused on developments in Russia, Eastern Europe, and the former Soviet Union. A mixture of news and discussion of long-term developments in the region.

I try to stay abreast of conservative media and would eagerly listen to a conservative policy podcast, but I do not know of any podcasts that make forthright positive cases for conservative policies. "The Editors" podcast from National Review offers occasionally interesting insight into the conservative mind, but they make no attempt to justify or defend an actual conservative governing agenda. I don't mean to come across as uncharitable towards my conservative fellow citizens, but it does not appear to me that they have any interest in convincing people they have ideas which, if implemented, would improve the lives of Americans.It's very strange. Let me and your fellow readers know if you have any suggestions in the comments.

Comedy

• Chapo Trap House. Chapo is not for everybody. In fact, it's for practically no one. But if you have the same sense of humor as me, it's indispensable. If you're not familiar with the podcast already, I would suggest starting with episodes 74 and 76, "Tabletop Game Theory." Extremely vulgar (more vulgar than you think — you've been warned). Alternating "premium" episodes are only available to paid subscribers.

Culture

• Conversations with Tyler. Tyler Cowen is an insufferable nitwit, but for my money has the best interview podcast out there and I listen devotedly. It's comedy gold when his guests get increasingly frustrated with his insufferable nitwit questions. Think "Between Two Ferns" but where the host doesn't know it's a comedy program.
• The Ezra Klein Show. Ezra's a weird guy, but he gets some great guests and does excellent long-form interviews. I don't listen religiously but I keep an eye on the feed to make sure I catch the good ones. The podcast has gotten a LOT darker since election day, 2016.

Travel

• Dots, Lines & Destinations. DLD has gone through a few format shakeups since I've been listening (or as Seth Miller once replied to me on Twitter, "we have a format?"), but it's a fun jog through the aviation, travel, and loyalty news of the week.
• Saverocity Observation Deck - Miles, Points, and Travel Podcast. Hosted by Saverocity's own Joe Cheung and Trevor Mountcastle, and with a revolving cast of guests including yours truly, SOD is the only real travel hacking podcast that I know of.

History

Those who forget history are doomed to listen to podcasts about it.

• Revolutions. From Mike Duncan, the podcaster behind The History of Rome, Revolutions has told the story of the English, American, French, Haitian, and Bolivarian revolutions, and is currently covering the European revolutions of 1848. It's superb.
• The History of Rome. I've only dabbled in Mike Duncan's first podcast in between episodes of Revolutions, but it's pretty good so far. Early on he has not yet upgraded his recording equipment so the sound quality leaves something to be desired, but I've learned more about the history of Rome in 4 hours of podcasts than I did in 3 years of studying Latin!

Conclusion

These are my podcasts. There are many like them, but these ones are mine.What are yours?

The only investment you'll ever make that matters

I was having a conversation with a young investor yesterday when I mentioned in passing my view that the latest clue that the market cycle is ending is when an enormous corporate tax cut became not a possibility, but a certainty, and share prices didn't budge. In other words, the market had already fully priced in the special dividends and share buybacks we'll see over the next year.Then the investor asked me a question I wasn't expecting: "So what should I do?""Do?" I replied, "What do you mean, do?""You just told me the market cycle is ending and we're headed to a collapse, at least in share prices, and possibly in the whole economy. I've been living within my means and investing as much of my paycheck as possible for the last two years. You're telling me that after all those sacrifices, my investments are about to go up in smoke. So what should I do?"

Maybe market timing is possible, but what makes you think you can do it?

Before deciding to time the market, you need to have reasonable confidence in two separate, independent propositions:

1. It is possible to time the market. Using indicators either publicly (CAPE ratios, length of bull market, timing of Federal Reserve rate hikes) or privately (satellite imagery of parking lots, conversations with CEO's, credit card transaction volume) available, a person is able to conclude whether the market is likelier to rise or fall in the proximate future.
2. You are one of the people who can time the market. Once you have concluded market timing is possible, you then have to be sufficiently confident in a totally separate proposition: that you are one of the people who is able to properly synthesize public indicators or the specific private indicators you have access to in order to reach a correct conclusion about the direction of the market.

This calculus is easy for me. I do not have any confidence that market timing is possible, and I know for a fact that I, personally, am incapable of market timing.

The only investment that matters is the investment in justice

I'm happy to tell you the same thing I told that young investor: how much you save, and the performance of the markets between now and when you start drawing on your savings, may affect the neighborhood you can afford to retire in, it may affect the car you can afford to drive, and it may affect the amount of money you'll have left to pass on to your favorite children, relatives, churches, or charities.But there's no amount of personal virtue, self-deprivation, market performance, or astute asset allocation that can pay for a serious medical emergency, a chronic disease, or a decade or more in a dedicated nursing facility. The amounts of money involved are simply different orders of magnitude.I save a high percentage of my income. I invest in a very aggressive portfolio of global equities. But I don't think for a moment that I'll ever have enough money to pay for treatment for pancreatic cancer out of pocket.And yet, while I don't have any interest in contracting pancreatic cancer, I don't think pancreatic cancer would render me homeless, dying on the street as the cancer consumes my body. How is that possible? It's possible because we have begun, as a nation, to work towards universal access to affordable, comprehensive health insurance. We haven't taken the straight path, but we've taken many steps along the winding path to universal coverage.And that's why I say the only investment that matters is the investment in justice.When you register to vote, when you vote, and especially when you help others to vote, you are investing in your future in a way that a low-cost index fund will never provide — no matter how well it performs. When you contact your representatives to oppose cuts to Medicaid, Medicare, and SNAP, when you demand that CHIP be funded before millions of children lose access to healthcare, when you rally against Social Security privatization, you are securing your own future and the future of the nation in a way that a diversified portfolio does not and never will.

Conclusion

The fact that we denominate even unpayable expenses in dollars leads to a kind of category confusion, whereby people come to think that if they have "enough" money they'll be able to escape financial hardship. But the only protection any of us have is in our mutual and collective support for one another.The work you do to create a just society is the best investment you'll ever make.

Congress wants you to sell stocks to pay your taxes

The tax bill Republicans are planning to pass in the next day or two is not a good bill, and hopefully it will not pass. The fact that people have correctly identified it as a bad bill, however, has given rise to quite a bit of sloppy thinking about why, exactly the bill is so bad.

The effect of replacing the personal exemption with a larger child tax credit is genuinely ambiguous

Under current law, there are two different ways income is automatically shielded from the federal income tax: the standard deduction and the personal exemption. The standard deduction depends on your filing status, and the personal exemption depends on the number of people in your tax unit.As a single filer with no dependents, I'm going to see a slight increase in the amount of income automatically shielded, since my standard deduction will rise from $6,300 to $12,000, a bigger increase than the loss of the $4,050 personal exemption. However, I won't see a tax cut, since I don't pay federal income taxes; as a sole proprietor it's trivially easy to shield an arbitrary amount of income from taxes, and that will actually become modestly easier under the Republican tax bill due to the 20% passthrough deduction.Now take my married brother, who has three kids. His standard deduction will also almost double, from $12,600 to $24,000, but that increase is less than the loss of his $20,250 in personal exemptions. That means he'll have less income automatically shielded from the federal income tax. To illustrate this, assume he makes exactly $32,850 per year.

• Under current law, he owes no taxes since his income is entirely offset by the standard deduction and personal exemption.
• Under the Republican tax plan, he owes $885 in income tax.

So does he see an increase in his taxes? Not at all! That because three of his dependents are children, which allows him to claim the child tax credit. With no federal income tax owed, he's currently entitled to a refund of $1,000 per child, or $3,000. Under the Republican tax plan, $1,400 of the new $2,000 credit is refundable, which leaves him with a $4,200 refund.The interesting thing is what happens as his income increases. The Republican plan replaces the 15% marginal income tax bracket with a 12% bracket on up to $77,400 in taxable income. So while in 2017 my brother would owe $7,459 on $108,750 in earned income ($10,459 less the $3,000 child tax credit), in 2018 he'll owe $3,000 on the same amount ($9,000 less the expanded $6,000 child tax credit). In other words, the lower 12% marginal tax rate on the majority of his income, and the expanded child tax credit, more than offset the fact that a larger share of his income is taxable.Hopefully this stylized example shows why Republicans are able to say "most people" will see a tax cut in next few years compared to current law. The bill does nothing for low-income single adults, but modestly lowers taxes on middle- and high-income workers with multiple kids. These are also the provisions that are set to expire in a few years.

The effect of the state and local tax deduction cap is not ambiguous

So far we've only looked at stylized taxpayers with the only inputs being filing status, income, and number of dependents. Of course, what people are really talking about when they say their taxes will go up is the loss of the unlimited state and local tax deduction they enjoy today.Under the current tax code, to the extent your state and local taxes exceeds the standard deduction, you can deduct the difference from your taxable income (technically you deduct the entire amount instead of claiming the standard deduction, but the result is the same).Under the Republican plan, you can still deduct up to $10,000 in combined state and local taxes, but only to the extent your total itemized deductions (including the mortgage interest and charitable contribution deductions) exceed the new, higher standard deduction. That means even a joint filer that owes more than $10,000 in state and local taxes may end up actually deducting substantially less than that, if they don't have enough mortgage interest or charitable deductions to "fill up" their standardized deduction, while under the status quo state and local taxes can be deducted in their entirety, even by taxpayers without any mortgage interest or charitable contributionsNow, it should be obvious this isn't going to affect very many people. Property taxes are only paid by people who own real estate (renters don't get to deduct the portion of their rent used to pay their landlord's taxes). State and local income taxes, while less progressive on the whole than the federal income tax, are not so high that many people end up paying more than $10,000 without also having deductible mortgage interest and charitable contributions.So we are left with the conclusion that the state and local tax deduction cap will fall almost entirely on a fairly specific group of people: high-income people who also own real estate, and fall on them it will. Your level of sympathy for high-income owners of real estate depends on your taste; I'm not here to argue with you about how sympathetic you should find such people.However, there's one more moving piece in the Republican tax puzzle that becomes suddenly relevant when discussing this population.

Anticipation of corporate tax cuts has inflated asset prices

Remember the point of this entire tax cut exercise: to enact an enormous permanent cut in the corporate tax rate. The ostensible reason for doing so is to spur investment in the United States. The consensus of reputable economists is that this will not, in fact, occur, which is of course one of the many reasons the bill is bad and should not be passed.But there's no question that it will, in fact, cut the amount of taxes owed by corporations, and given general macroeconomic stability, the anticipation of that surge in post-tax profits has inflated asset prices, with the S&P 500 rising 18.6% in the last year.Of course, relatively few people own the overwhelming majority of financial assets in the United States. However, those exact same people also earn the highest incomes and own the most valuable real estate.

Economists pretend to believe marginal effects matter the most

When you read "heartbreaking" stories about wealthy suburbs of New York City, you see people complaining that their inability to fully deduct their property taxes will cause them to up stakes and head to a lower-tax jurisdiction, or perhaps lead to a tax revolt against high property taxes they now have to pay with after-tax income.That's because they've been convinced that it is marginal effects (tax rates in this case) that govern people's behavior. Each decision in every aspect of a person's life is supposed to be made by optimizing its marginal cost and benefit, resulting in an equilibrium that maximizes their total well-being. If property taxes become more expensive, the model has to be re-run and a new, lower-tax equilibrium has to emerge.There is no reason to believe anything like this is true. Economists pretend to believe it because it makes it easier to develop models of "rational" human behavior. But you can just ignore them.

Your corporate tax cut is just as real as your property tax increase

Look: I get it. You're a responsible investor. You max out your 401(k) contributions, your HSA, your 529, and your IRA. You invest in a sensible target retirement date fund. You save every raise so you don't suffer from lifestyle inflation. You don't speculate in bitcoin. And as your reward, you've seen your net worth reliably increase over the last 8 years. Those are your investments.And now you find yourself shocked to discover that due to the cap on the state and local tax deduction, your federal income taxes are going to go up by tens of thousands of dollars. You're being punished for working hard, for homeownership, for living in a good school district, for loving your family too much and wanting to keep them too safe.But your federal income taxes are going up to pay for a cut to the tax rate on your investments! I understand perfectly well the psychological disconnect. One of them shows up as a quarterly bill you have to pay out of pocket, and the other doesn't seem to show up at all. You're responsibly reinvesting your dividends, after all, so you won't even notice when Apple pays out an enormous special dividend with its repatriated profits; it'll be plowed right back into your target date fund.But the tax cut, the special dividend, and the rise in asset prices are still there. So if you're having trouble finding the cash to pay your higher federal income taxes, it's sitting right in front of you.

It's not too late to enroll in health insurance

As an independent businessperson, I've been enrolled in health insurance through the Affordable Care Act practically since it went into effect. Due to an unprecedented buildup of bile, the current administration radically shortened the open enrollment period for plans offered on the ACA marketplaces, which will lead to somewhat fewer people enrolling in time for their coverage to begin January 1, 2018, despite an accelerated pace of enrollment during the shortened open enrollment period.So, this being the last day of the open enrollment period, I wanted to give a quick, practical breakdown of all the options available.

Enroll today

If you're self-employed or don't get qualifying health insurance through your employer, then head to healthcare.gov right now and submit an application. If you estimate your 2018 income between 138% and 250% of the federal poverty line, you'll likely be best off choosing a Silver plan, so you can take advantage of cost-sharing reductions. If your estimated income is up to 400% of the federal poverty level, you'll still be eligible for a (decreasing) amount of advance premium subsidies.Note that despite the current administration's refusal to pay the cost-sharing reduction subsidies to insurance companies in a timely manner, the insurance companies themselves are still forced to honor them.If you think you're unlikely to use non-preventive medical services during 2018, another option is to use a premium subsidy to purchase a Bronze plan. Such plans don't qualify for cost-sharing reductions, but still provide the preventative services offered by all ACA-compliant plans.

Enroll later

For most people, most of the time, the open enrollment period is the appropriate time to sign up for health insurance coverage for the following year. However, there are a range of exceptions which allow people to signup for ACA-compliant health insurance throughout the year.Besides getting married or having children, the easiest exceptions to the open enrollment period are changes in residence. From healthcare.gov, such changes include:

• Moving to a new home in a new ZIP code or county
• Moving to the U.S. from a foreign country or United States territory
• A student moving to or from the place they attend school
• A seasonal worker moving to or from the place they both live and work
• Moving to or from a shelter or other transitional housing

While it may sound strange — and it is strange — to move your residence to a new ZIP code in order to trigger a special health insurance enrollment period, the reason it's strange is because we don't offer our citizens universal, comprehensive, affordable health insurance coverage.

Enroll in Medicaid

If you live in a Medicaid expansion state, you can enroll in Medicaid at any time if your income is or drops below the Medicaid eligibility threshold. That's usually 138% of the federal poverty level, although Medicaid enrollment is administered by the states so enrolling can be as easy or hard as your state chooses to make it.

Conclusion

Health insurance isn't about staying healthy. If you want to stay healthy, you should eat mostly vegetables, cooked mostly in olive oil (not too hot though!), get a moderate amount of exercise, and pray.Enrolling in health insurance is about paying for all the things that lightly sautéed vegetables and cross-country skiing won't prevent. So get covered — or at least have a plan to get covered.If you end up needing medical care, you'll thank me then. If you don't end up needing medical care, I'll thank you. Do we have a deal?