Author: A.T.

Yesterday I described how it was possible you might have found yourself among the 5.9 billion people on the planet who missed Beyond Wall Street, the eight-part PBS documentary I got to host with my friend and colleague Jane Bryant Quinn.

Today, to make your pain all the more exquisite, the sadist in me sketches out what you missed. Each of the eight half hours focused on a single star:

1. Foster Friess, whom I interviewed at his huge log cabin in Jackson, Wyoming, elected Jesus Christ chairman of his board some years ago, and is as sunny and positive a presence as I’ve ever encountered. But we didn’t select him for this or because he has a pet pig named Wilbur to whom he turns occasionally for 450 pounds of porcine investment advice. Rather, in overseeing upward of $10 billion, Foster embodies a style of investing that shouldn’t work but does, jumping from one stock to another in hope of catching huge updrafts in growth stocks just before they occur — and kicking out the winners as soon as a more promising prospect comes along, never mind the taxes.

2. John Neff, whom I met at his home outside Philadelphia. He’s my kind of investor, stubbornly buying the stuff others don’t want — like Citicorp, once upon a time — knowing that one day the cycle will likely turn and they’ll want it again. I had long “known” Neff from his annual appearances in Barron’s roundtable. He racked up a famous record at the helm of the Windsor Fund, from which he not long ago retired.

3. Barr Rosenberg does it all by computer. Except the one part you might expect to be done by computer — the actual trading. At his Orinda, California, firm, that’s done by humans. But the computer decides what to buy or sell, and the level of intelligence that goes into its software, along with the billions of bits of data that stream into it every day from around the world, are awesome. When I playfully reached down to one of the cables and asked “what would happen if I unplugged this?” Barr’s composure held — but barely. Brilliant, contemplative, unexpected (he raises chickens but, being Buddhist, will not kill them), he begs the question: can a computer beat the market? (Answer: his hasn’t, lately. Then again, neither has mine.)

4. Bill Sharpe showed me a replica of his 1990 Nobel Prize, the real one being in a safe deposit someplace, and drove me around his Palo Alto neighborhood in a 1965 Citroen Deux Chevaux — and I actually got paid for this. It was Sharpe who pointed out that beating the market is only an achievement when the risk you took to do it is factored into the equation. And he wrote the equation. How does he invest much of his own money? Index funds.

5. Mark Mobius is our man in Thailand. And Singapore. And 40 other emerging markets we didn’t follow him to. It’s a big world out there, and drifting down Bangkok’s Chao Praya River at midnight, and then visiting a factory that very likely makes the black nylon fabric in the umbrella that keeps you dry, I learned a good bit about it. This was before Asia collapsed. Take baht, Mark. And baht! And baht, and baht and baht!

6. Bill Gross manages $90 billion or so in bonds, which has to be really boring until you realize that he somehow manages to squeeze an extra 1% return out of his portfolio year after year — an extra $900 million. But the image that impressed me even more, as we looked from his Laguna Beach living room out over the Pacific, was of a 53-year-old man determined to live to 100, getting it into his mind to run from Carmel to the Golden Gate Bridge — five back-to-back marathons over five successive days. On the last day of this run, his kidney ruptured. Blood was running down his leg. But he hadn’t reached the bridge, so he kept running. Only when he finished did he allow the ambulance to whisk him away.

7. Gary Brinson, in Chicago, showed me a graph (although my eye did keep wandering to the Monet) which demonstrated something both interesting and important. Even though foreign stocks — Japanese stocks, say — are riskier than U.S. stocks, you can actually reduce the risk of your own portfolio, at the same time as you juice up your expected return a bit, by adding them to your mix. And this is a guy who oversees $120 billion, or, we calculated, roughly one quarter of one percent of all the investable assets in the world. So listen up.

8. Peter Bernstein, it turned out, went to my high school way back when, had known my dad shortly after World War II, and now here we were in a helicopter off Santa Barbara flying to oil rig Irene to talk about risk. He’d recently published a whole book on the subject, Against the Gods: The Remarkable Story of Risk, a bestseller. As we landed on the rig in a stiff wind, hundreds of feet above the rough sea and the sharks below — well, I think there were sharks — the setting seemed right. Although a long-time horizon helps to reduce the risks, investing is anything but a smooth ride.

What I learned from these eight: First, there is more than one way to skin a cat. No single investment style is the “right” one. Second, each of these people had consistently done his homework, putting far more time and effort and passion into this than you or I would ever be likely to. Third, when we invest, these folks, and others like them, are our competition.

*

The lion’s share of the work on our TV series was done not by Jane or me but by a terrifically talented writer/director/producer named Eugene Shirley. Join us next fall, when we hope again to take you . . . beyond Wall Street.

Paul Kroger: “What happened to the PBS series you referred to in your visit to Louise months ago?”

It wasn’t Louise, it was Irene — an oil rig off the Santa Barbara coast — and the eight-part series, Beyond Wall Street, which I co-host with Jane Bryant Quinn, has finished running in many cities.

One of the glories of public television is that shows air at different times on different days in different cities, so you have to be very intelligent to know when anything’s on — which is how PBS sifts out the riffraff. No one has any idea when anything is on except Wall Street Week, Fridays at 8:30 p.m. In New York, we were on right after Wall Street Week. In Los Angeles, where everyone is asleep by ten, we were on Sundays at midnight. In Chicago, Saturdays at 7 a.m. (“I’ve got an idea, honey! Let’s set the alarm for 6:30 after a hard week’s work so we can bolt out of bed and have breakfast in front of the TV watching guys talk about p/e ratios!”) My favorite was Seattle, where I went to the local affiliate to tape an interview for my book tour. (OK, OK, if you insist, click here to solve all your last-minute holiday shopping problems.) The host explained that my interview would be half the show. Next week he’d be taping Jane Bryant Quinn for the other half — did I know her? “Know her,” I replied, “I’m crazy about her — and we co-host a PBS series that airs on your station.”

Now, I’m not saying I’d expect the average Seattleite to know our show was on. The average Seattleite has $18 million in Microsoft stock options and spends most of his or her time buying pro sports franchises. Or else building airplanes or brewing cappuccino. But this was the host of a local PBS show . . . indeed, their show about money.

“You have a PBS series?” he asked with warm interest. “What’s it called?”

A series of phone calls was required to ascertain that the show was indeed on his station, Sundays at 1 p.m., and had been airing for several weeks.

But I’m not complaining. I had the best of all possible worlds. I can legitimately say I co-hosted a PBS series without having to worry that anyone actually saw me.

There’s some talk of a new round of shows for the fall. But with luck, if it happens, no one will know about that either.

Tomorrow: What You Missed

A lot of divided opinion on last month’s “felony dumping.” I post some of that feedback here for what it says about the specific issues, but also as a reminder of how differently people can react to the same story.

Basically, two of my employees were arrested for dumping garbage we had collected from around the neighborhood, as we’d been doing every Monday for two years. It was something we’d worked out informally with the local “Neighborhood Enhancement Team.” We thought we were being good citizens, cleaning up the neighborhood. The officer thought he was apprehending some people committing a crime and used his discretion not just to issue a ticket, as he could have, but to handcuff them and take them to jail. For this, he got some criticism later from people in his department, which made him angry. A few days later, he spotted one of the two guys driving the same truck — which he absolutely should not have been doing, because he had not purchased the insurance needed to regain his suspended driver’s license. The officer pulled him over on the pretext of a cracked windshield and arrested both him and his boss, Sal. Again, he used his discretion not just to issue a ticket, as he could have, but to handcuff them and take them both to jail — the driver, for driving with a suspended license; Sal, for allowing him to (although Sal denies authorizing this).

Sal was advised by people who know the Miami police that he had basically two options: apologize to the officer and assume a very passive role in any future encounters or else move to another city.

Of course, you’re welcome to click on the hyperlink above to read the fuller story, but that’s the essence of it — from our point of view. Obviously, the arresting officer (AO, as I called him), has a different perspective. In that sense, without giving him his say, this exercise is not fair. Still, here’s some of your feedback:

There is a third choice. The third choice is to sue the city and the cop for harassment, entrapment, and federal violation of Sal’s civil rights. The cop cannot target a citizen and do what amounts to an unauthorized stakeout in order to get even, even if he does ‘find’ a violation of the law. There might be an equal protection issue as well if it can be proven that the cop does not normally make it a practice to arrest this type of violator, but did so for an improper reason (i.e. – personal vengeance).

I’m a lawyer who was arrested during my divorce by a cop who knew my wife, and I’ve sued the county for false arrest and false imprisonment, as well as civil rights violations, in Federal Court. I think cops get away with far too much in our society. Good luck.

— R.E.

Your article about your employees and their problems, especially about driving without a valid license, in my opinion, does not belong here on Ameritrade’s home page. The law says you don’t drive without a valid license — that’s all there is to it. It appears your employee has little respect for the law and society. A previous DUI, driving without a valid license. Yes, DUI is a serious offense — you lose your license and you don’t drive again under no [sic] circumstances until you get it back. So what are you trying to accomplish by blasting the AO? I come here for stock trading and maybe some professional insight into the market place, not to read about your personal problem with an AO for doing what he should be doing.

— J.L.

I was a police officer for 15 years in a city close to Denver. I now work for the Denver Police Dept as a civilian. This officer you write about is the type that gives all police officers the bad name. Do not submit to him, do not apologize, as this will validate his actions. He does not deserve to wear the badge. Very little difference between him and the thugs on the street. You know you can make a complaint to Internal Affairs, or failing that, sue for harassment. This also sounds like something the local media may take up. Hope the best for your people in this situation. My email is ———-. Give this to the cop also if he wants to swap words back and forth.

— C.B.

Of course your friend should know better about driving with a suspended license and I suspect that the occasion on which he was caught wasn’t the only time he’s done so since his license was suspended, no? He needs to behave himself. He’s not above the law. Nevertheless, “Officer Holiday” isn’t above the law either and in Florida there’s the Public Records Act and information on this police officer, as is the case with all arresting officers, is a matter of public record and I think his name should have been published in your article, for all to know, and for him/her and all such “Public Servants” who think they are something special, to know that their actions don’t go unnoticed and I’ll bet that more of such “public recognition” will help keep the likes of such as “Officer Holiday” from taking it out on the public they are supposed to be servicing.

— J.T.H.

Unfortunately it seems to have happened to you; the worst curse of all. The curse of believing your own press clippings. No doubt you thought that your recent article about the incident involving your employees and the police department would show support for your employee and present an opportunity to tell everyone what a blessing you and your company are to the public. Well, I’ve got news for you; it didn’t come across that way. What the article says is that laws don’t matter if they happen to involve your objectives, and worse, that you have forgotten the thought that “virtue is its own reward.” With a lowered opinion of you, Sincerely . . .

— L.J.L.

Why in the world would Sal submit to these dictatorial actions by this cop if what you have related is true. This juvenile delinquent police officer should be reported to his internal affairs officers, the mayor, the town council and whatever authorities exist. My son is a police officer and I am all too familiar with this type of treatment for bad guys. I have had to inform him from time to time that you do not do in the good guys who are out there supporting police officers. Do not let this little dictator get away with his attitude. Go to his superiors and report his behavior. Harassment is not a normal way of life and he will continue his actions until Sal moves to stop him.

— C.M.

I will agree with you that the officer may not have acted in the best public relations by arresting your people. However, as a police officer I know that any volunteer agency, even under contract with our department, has no authority to give permission to anyone to violate any law or ordinance, no matter how small. In our community the proper procedure would have been to go to the Town Council, Mayor, etc and get a variance (permission to do this). Kind of like a building permit. I would have towed the vehicle as being illegal. Two equipment violations [the cracked windshield and the piece of tape on the brake light]. As far as your driver being suspended and driving: If he knew he was suspended, never mind the excuses or how far he drove. The only thing to do is DO NOT DRIVE. This was only good police work. If I have someone I think is committing a criminal act, I am not doing my job if I do not observe for this and take action. Everything else in your article is just a smoke screen. Since you seem to support criminal activity, I will not be doing business with you in the future.

–D.A.Y.

Well. That settles that.

From Nick: “A topic I would like to see discussed is how to apply savings and tax-deferred savings (IRA, 401(k), etc.) at the time of retirement. Assume you plan to retire at 60, expect to live to 90 and intend to leave no money to heirs. If you estimate you will require $100,000 at age 60 and inflation is 4% how much will you need to carry you through your 30 years if your pot of gold earns 7%? How much must you withdraw from tax deferred accounts once you are retired? Assume no Social Security or pensions.”

Well, there are several questions there and I can give only an incomplete answer, but here are a few points to note:

• You’re assuming your money will earn a real rate of 3% (7% growth minus 4% inflation). My trusty calculator tells me that you’d need to set aside just under $2 million at 60 (or any other age) for it to throw off $100,000 a year for 30 years.

• Needless to say, an awful lot depends on your assumptions. Figuring that, under the shelter of retirement plans, you’ll be able to outstrip inflation by 3% is, I think, sensible. You certainly might do better, but there’s no guarantee you’ll do even that well.

• What will you do at 90, when the money’s all gone? To solve this problem, you can either withdraw less than $100,000 each year to make your money stretch further (lowering it to $80,000 stretches the payout from 30 to 45 years; lowering it to $60,000 would make it eternal, based on your assumptions, because you’d be withdrawing just 3% a year) . . . or you can set aside even more than $2 million . . . or you can assume you’ll outstrip inflation by more than 3% . . . or you can buy an annuity from a life insurance company and let it worry about the possibility you’ll live forever.

• The problem with annuities is that insurance companies assume people who buy them will live long lives — you don’t get a lot of terminal patients buying annuities — and so they don’t pay out as much on your $2 million as you might like; i.e., the life insurer isn’t doing this entirely as a favor. People who really do live unusually long make out fine with annuities; those around average make out only so-so; and those who die young are — for this side of a life insurer’s business — the best possible customers. (At 60, you can easily find annuities that pay more than $100,000 a year for life on $2 million — but will it be an inflation-adjusted $100,000? That’s what we’re talking about here: $100,000 a year in 1997 purchasing power.)

• With a Roth IRA, you could withdraw the money over 30 years (or any other number of years) just as you envision. But with a traditional retirement plan, you are required to withdraw certain minimums each year, based on your age when you begin. If I read the table right, you’d be expected at 60 to base your withdrawal amounts on a 24-year payout schedule. (Longer if married, and there are a couple of ways of figuring this — I’m just trying to give you the flavor of it. The personnel department that administers your 401(k), or the financial institution that administers your IRA or Keogh, probably has a pamphlet with the details.)

• The actual dollar amounts would not be a flat $100,000 a year. To keep up with inflation, given your assumption, you’d withdraw $104,000 the second year — even as your $2 million had not shrunk by $100,000 but (earning 7%) had actually grown by $40,000. By the final year, your withdrawal would be about $325,000 — which, if there’d actually been 4% inflation along the way, would be the equivalent of $100,000 when you started 30 years earlier.

• Assuming you have some savings outside a retirement plan, you will want to use it first, letting your tax-sheltered money grow as long as possible. Knowing this, the IRS imposes a stiff penalty on those who under-withdraw the minimums from their retirement plans. (Again: the exception will be the new Roth IRA, starting January 1, 1998, withdrawals from which will have no minimums.)

In 460-odd daily comments, I have yet to write one about music. Anyone who has heard me whistle will know why.

But one family of eleven I know — two parents, nine kids — told me recently how, when Saturday morning came around, Dad would put on his John Philip Sousa recordings, crank up the volume . . . and soon everyone would be marching around, cleaning up the house as if they were invading Normandy. For variation, he’d sometimes put on bagpipe music, which worked equally well.

Anyone who’s taken an aerobics class can tell you the effect music has on mood and energy. Or look what it did to Laurel and Hardy’s wooden soldiers when the boogie-men were about to overrun Toyland!

(If you have somehow failed to see Babes in Toyland, the 1934 classic known also as March of the Wooden Soldiers, in which Santa ordered 600 one-foot soldiers but they accidentally made 100 six-foot soldiers and . . . well, gather the kids round the TV Christmas Eve — it’s almost always on around Christmas — and enjoy.)

Feeling a little overwhelmed by the holidays? Grab yourself a tape of Rocky and come roaring back.

I tell you this now, rather than later in the month, so you have time to acquire the proper music. Removing and putting away the Christmas tree ornaments a drag? Just remember John Philip Sousa, and it will be done in no time.

THE 35% BRACKET

From Jim Maloney: “In writing about the Roth IRA, you discuss the situation of currently being in a 35% tax bracket. You say, ‘In that case, taking the deduction now would save $700 on your taxes today (35% of the $2,000 contribution).’ I think I’m missing something. If you are currently being taxed at the 35% tax rate aren’t you, in all likelihood, making too much to take advantage of the IRA tax deduction?”

Yes, but only if you are covered by a retirement plan at work. If not, there’s no limit on how much you can earn and still take the IRA deduction with a traditional IRA. (It used to be that having either spouse covered by a plan at work disqualified you. But I believe that starting in 1998, spouses’ IRAs have become “delinked.”)

Note also that there is no 35% federal tax bracket as such. The relevant number here is your combined marginal tax rate, including state income tax. I was just using it as an example.

NAMING CHARITIES THE BENEFICIARY OF YOUR IRA

From Bill Jones: “If you plan on leaving money in your will to charity, a far better thing than to give appreciated securities is to give deductible IRAs. The charity avoids ALL taxes, and those gifts do not count for estate taxes. This is the simplest, cheapest, and most efficient estate planning available.”

As I have written before, if you have an IRA and plan to leave money to charity when you die, the best way, as Bill and I agree, is simply to designate the charity or charities as beneficiaries of a percentage of your IRA (or even the whole thing). But what if you want to be charitable before you die — perhaps even this month? That was what I was writing about in listing the reasons to keep your most speculative investments outside an IRA. If one of them hits big, you can use it, instead of cash, to do your giving. (Meanwhile, those that lose big outside an IRA provide a tax loss.)

The one new twist to consider is that with a Roth IRA, since withdrawals are already free of tax, there’s no special advantage to designating a charity the beneficiary; i.e., if charities are the beneficiaries of your IRA, there’s less reason to move from a traditional IRA to a Roth IRA and incur the tax to do so.

There’s still some reason, to be sure: With any luck, you’ll be withdrawing cash from your IRA for many years before the charities get to celebrate your demise. Better to withdraw that cash tax-free from a Roth IRA than taxably from a traditional one. But the case becomes a little less compelling — and, as we’ve discussed, wasn’t in all situations that compelling to begin with. (For help deciding whether it makes sense for you to transfer your IRA to a new Roth IRA, click here.)

So this is a very good time to think about whether you do plan to leave some money to charity . . . and, if so, whether you might not want to do it simply by naming that charity/those charities as beneficiary/ies of the IRA.

NOT SO HARD EARNING 7% OUTSIDE AN IRA — VARIABLE ANNUITIES

His comment on charitable giving was really just an afterthought. Here’s what really got Bill Jones writing in:

You missed a key point in your discussion of a Roth IRA. In your example, you assumed 9% tax-free growth within the IRA but indicated it would “not be easy” to make your $700 tax saving (from the traditional-IRA deduction) grow outside the IRA at 7% after taxes.

It is actually very easy. Consider this: Put the $700 tax rebate in EXACTLY THE SAME 9% investment as the IRA, but within a Vanguard variable annuity. The effect is that you only earn 8.5% (because the annuity charges a 0.5% annual management and expense fee). And you have to pay 15% tax at the end. But that still comes out to $25,370, which is far larger than the $16,000 you thought would “not be easy” to match.

The apparently paradoxical result is that a 9% pre-tax and pre-expense growth rate [over the 46 years in my example] is equivalent to an 8.1% post-tax growth rate in a variable annuity. Odd, isn’t it!

Note that I can actually do much better; as a teacher, I qualify for TIAA’s variable annuity with an 0.2% annual charge.

Bill is right — and I’m not just saying that to curry favor with the teacher (though good teachers should be honored at every opportunity). I’d just add two thoughts.

First, as a general proposition, I’m leery of variable annuities. Those that are most heavily promoted have high sales and expense charges. And all are in effect a mechanism for transforming what would be lightly taxed long-term capital gains (if you invested outside the annuity) into more heavily taxed ordinary income when you withdraw it. Not to mention that you lose flexibility once you take the plunge — it can be hard or expensive to switch managers.

Second, if tax rates at withdrawal turned out to be higher than 15%, as they certainly might — no one can know — then our 24-year-old is hit with a double whammy. The taxes turn out to be steeper than planned on both the traditional IRA withdrawals and from the annuity whose growth was meant to make up for those taxes.

Still, Bill’s math is right and his perspective, valuable. And if one does choose the traditional IRA . . . and does lock up one’s $700 tax-saving from a $2,000 deductible IRA contribution in a variable annuity (as per this example) . . . at least one is likely to avoid the other pitfall I referred to: squandering that $700 someplace along the way.

Doug Posten: “I get no tax deduction now on a regular IRA because my income exceeds the limit. If I cannot deduct the $2,000 now from my taxes, isn’t the Roth IRA better?”

Yes! Absolutely.

The Roth IRA is great for what might be called the lower upper middle class — people who earn too much to qualify for the traditional IRA deduction, but not so much as to be disqualified from contributing to a Roth IRA.

(I say lower upper middle class because in America, almost no one will admit to being upper class. “Upper middle class” is as high as we go — even if we earn half a million a year. So wouldn’t those who earn way above average — $90,000, say — be lower upper middle class?)

As reader Mike Carver put it: “For those of us who can’t make deductible contributions to the traditional IRA, the Roth IRA appears to be a no-brainer.”

Tomorrow: Still More on the Roth IRA

I told the “presumably fanciful” story of the guy who insured his rare cigars, smoked them, then tried to collect on his fire insurance. Robert Doucette was kind enough to point me to the mother of all myth-debunking sites, lest anyone think this might actually be true. I commend this site to you even if you don’t care about this particular story for its links to other amusing, but preposterous folklore.

In the same vein are several books by Jan Harold Brunvand:

• The Vanishing Hitchhiker: American Urban Legends and Their Meanings

• The Mexican Pet: More “New” Urban Legends and Some Old Favorites

• Curses! Broiled Again!

• The Baby Train & Other Lusty Urban Legends

• The Choking Doberman and Other “New” Urban Legends

This is a guy with a flair for titles. How can you not be at least a little curious? So I bought all five.

The baby train has to do with this notion that a certain married students dorm on campus had the highest birth rate on campus because of the train that came through every morning at 5 AM — too early to get up, too late to go back to sleep, so . . . and it all sounds sort of plausible except that Brunvand has apparently encountered this same legend as far off as Australia.

The Doberman was allegedly choking on three human fingers. So the vet, who had sent its mistress home rather than have her watch the required surgery, called her immediately with the warning that she leave the house immediately and call the police. Well, when the cops came they found a semi-fingerless intruder unconscious upstairs in the house. Thanks to the Doberman and the quick-thinking vet, tragedy was averted. And this episode, though no newspaper could ever track down the actual woman and vet involved, is reported in numerous different newspapers in numerous different cities throughout 1981, according to Brunvand.

You get the idea — he has scores and scores of such tales in his collection.

Next thing you know, he’ll be debunking Oliver Stone movies.

Tomorrow: Still More on the Roth IRA

Here’s the lowdown from one of your fellow readers I’ll call Witherspoon:

Financial Facts:

1. I am 43 and my wife 38. Two daughters 8 and 6 years old.

2. My salary — $40,000. Wife just started substitute teaching and coaching part time now that both girls are in school. Likely salary–$6,000. Dividend income from our stocks — $10,000.

3. Value of home: $165,000. Fixed 30-year mortgage at 8.25% on $85,000 with 27 years to go.

4. Credit card paid off monthly. No other debt.

5. Stock portfolio worth $620,000 (48 stocks and 3 mutual funds). The majority of this came from our parents reducing their estates though gifting and an inheritance from a grandmother. Stocks include $160,000 worth of Coca Cola with the rest a menagerie of phones, utilities, and growth stocks.

6. My parents are likely to fund the Virginia Prepaid Tuition Program for our kids college tuitions. They have purchased life insurance which equates to $150,000 in proceeds to us in the future. In addition, my parents net worth is in the $2.3 million range. I have 2 siblings.

7. My wife’s mother is worth slightly less than that and has one other child. She has set up a trust for our children that is worth $150,000.

8. I have been terrible about funding my 401(k) because of trying to live on one salary after we had kids and due to being downsized 3 times. Balance $1,700.

9. I have approx $200,000 life insurance on me and $80,000 on my wife. $1,000,000 umbrella policy also.

Questions:

1. I feel guilty about the 401(k). How important is it that I find a way to fund it?

2. We have an additional $20,000 coming in from the inheritance. Do we use it to pay off part of the mortgage, invest in the market for additional income which would allow us to fund the 401(k) or some other idea that I have not thought of?

3. Any other advice would be appreciated.

Well, free advice is worth what you pay for it, and I suspect some of your fellow readers may come up with far more perceptive suggestions than mine. That said:

1. Feeling guilty about your 401(k), while completely justified, (you should feel terrible!) does you no good at all. Instead, you should stop feeling guilty and fully fund it, since money will grow faster tax-deferred than taxable, and particularly if your employer, like most, kicks in 25 cents or 50 cents — sometimes even more — for every $1 you contribute. Can you imagine the lines outside a bank that offered depositors not a toaster but free money — a free $500 for each $1,000 you deposited? Can you imagine the riots? Everyone in town would be trying to get into that bank and yet you, who have a private door and no riotous crowds to brook, are, in effect, saying, “Nah. Not interested.” For shame, Witherspoon! For shame! [Note to readers with no sense of humor, no small number of whom seem to have joined us in the last couple of months: I’m kidding. Witherspoon knows I mean him no disrespect.]

2. It should be a snap for you to fund it. If nothing else, just sell a little stock each year if you have to. You may want to sell the stock on which you have the most modest capital gain, although if it weren’t for taxes, I’d suggest you’re awfully heavily weighted toward Coke. In fact, what the heck: given the new low capital gains rate, why not sell a little Coke? Given your modest income, made more modest by the mortgage-interest deduction and exemptions for two kids, etc., the tax rate on the gain will be minor.

3. It sounds as if you will also both qualify for Roth IRAs, and I would definitely put $4,000 a year into these as well, funding this, if need be, with sales of stock from your taxable portfolio.

4. Before paying down that $165,000 mortgage, look into refinancing it altogether, or all but this $20,000 of it, with an adjustable rate mortgage (ARM). Shop around — and be sure you fully understand the wrinkles of whatever you’re offered, since ARMs can sometimes be deceptive. But why should you pay someone to take the risk that interest rates will rise? That’s what you’re doing by paying for a 30-year fixed mortgage. Some people have to. They can’t afford the risk of rising rates. But you’ve got $620,000 in stocks to help you in an emergency. If your ARM had decent annual and lifetime caps, and you could be paying 7%, say, after figuring in all the costs, you’d be saving some nice money — something like $2,000 a year, thank you very much. Yes, the rate might rise — but it might fall, also. (From 1880 to 1965, home mortgages were almost never pegged above 6%.)

• Of course, if you know interest rates are headed back up, then this would be dumb — but if you know the direction of interest rates, it should be you, not me, dispensing the advice.

• (It would also be dumb to refinance if you think you might move any time soon, because of the closing costs you incur.)

• One place to start shopping around for a mortgage is www.quicken.com/mortgage. It includes a 15-minute “interview” that actually takes half an hour to run through, but is well worth it.

5. At your ages, more term life insurance should be very cheap, and ordinarily I’d suggest with two young kids you buy more. But with fairly wealthy, loving grandparents, you may not need any at all. I also worry that you’ve bought some kind of overpriced life insurance. Your wife has $80,000? That’s not a very round number. The kind of people who sell $80,000 worth are not necessarily the kind who offer the best values. With annual renewable term insurance, it’s easy to shop around (on the Internet, even), and you may find you could get a lot more coverage for the same money.

6. Forty-eight stocks and three mutual funds? On a total of $620,000? You’re even more ridiculously diversified than I am! Actually, it’s 47 stocks and 3 mutual funds on a total of $460,000 if you subtract the Coke. Talk about a lot of baskets! But I know how this can happen, and having happened, I wouldn’t rush to “clean things up” for the sake of appearance when taxes would be due on any sales.

7. I’m sure you’ve already done this, but be sure your girls have a computer. And given that the holiday season is upon us, don’t you think you should also get each of them a copy of My Vast Fortune?I’m not saying they’re not a little young for it, but c’mon — we just saved $2,000 a year!

Here’s the comment I ran last year:

You can easily have all you want by not wanting much. You can’t possibly have all you want by making more money.

And isn’t “want” the most intriguing word? It means lack (“For want of a nail the shoe is lost, for want of a shoe the horse is lost, for want of a horse the rider is lost” — George Herbert, 1651) and it means wish for — which are so often one and the same.

But we don’t want (wish for) the things we don’t know we want (lack) — hence the importance of advertising and the scary power of “Dallas” reruns in the Third World.

And “want” is only sometimes synonymous with “need.” Sure, for lack of a nail — but how about for lack of a Sea-Doo?

The miraculous thing about this country is that almost everybody has food, clothing, shelter, and extraordinary devices undreamed of until a moment ago in human history: radios, telephones, color televisions, cars, radios in their cars — even enough dough to fly across the country once a year, if they plan ahead and stay over a Saturday. I speak here not just of the great middle class. This list pertains to most (sadly not all) lower-income Americans as well.

I consider myself blessed that, in material terms, I don’t want (lack) anything, and don’t even really want much. (My friends will tell you this is just a lack of taste. They marvel at my satisfaction with mid-priced used cars and mail-order clothes.)

How might you become similarly blessed? Well, maybe you already are. Or maybe you will decide that not having to strive for stuff you don’t need is the greatest luxury of all.

Happy Thanksgiving.

* * *

That’s the comment I ran last year. One of you, Erik Sten, responded with such a charming message, I’ve saved it all this time to share with you. He writes:

I just forwarded your Thanksgiving comment to a friend who has been amazed that I’ve gotten along just fine without having a real job for about ten years. He and others have suggested that I do a book on living within one’s means. My response is that I know how to do it and anyone else can do the same but he or she must want, more accurately, desire, to do it. That I do not have a clue how to teach.

I’m a graduate of Yale Law School and spent many years in public service doing consumer protection work. I was effective enough to get myself fired from two positions because my bosses felt I was too aggressive for their political tastes. My philosophy was there is simply no justification for any degree of deception in the promotion of sales. It’s not fair to either the consumer or the honest competitor.

Shortly after I left my last professional position, I got my kids through college. I was divorced and realized I had nobody to please, satisfy or impress other than myself. I maintain myself through a few modest investments and the odd project, and I am satisfied or I’d be living differently.

I am blessed.

My younger son teaches in an alternative high school and is doing a marvelous job. He’s attended the funerals of several of his students who have died by guns. I couldn’t do it and am amazed anybody can do what he can. I couldn’t be prouder.

My other son was just elected to the Portland City Council. It’s only a five-person council so it’s quite an achievement for a 29-year-old. He won by better than a 3 to 2 margin after running a positive campaign that was noted for the large number of enthusiastic volunteer workers. He is a Generation Xer who will make an impact; you’ll be hearing more about him. I am fearful for the long-term impact of political pressures on his ideals, but I know that if we cannot encourage our best and brightest to be our leaders, then we’re in big trouble.

Hey, isn’t Thanksgiving great to cause us to think about these things?

The only holiday I like more is July 4, when I can read the Declaration of Independence on the back page of the New York Times. (Well, and maybe Christmas. Ho, ho, ho.)

Monday: One Family’s Finances (and How You, Too, Might Save $2,000 a Year)