Independently Wealthy : How to Build

This book provides you with a road map for navigating the new economic landscape and achieving financial security in the years ahead. The author clearly describes how the political, economic, and financial worlds interact and teaches you how to recognize emerging trends and take advantage of them.

ROBERT GOODMAN, Ph.D., a Managing Director at Putnam Investments, has been Senior Economic Advisor since 1989. He has also held positions at J.&W. Seligman Co., Citibank, and the Federal Reserve Bank of New York. He is a frequent guest on radio programs and television shows and is a regular commentator on CNN and CNBC.

Foreword

xv

Preface Setting Sail in Rough Financial Waters

xix

PART I THE RELUCTANT CAPITALISTS

The Enduring Conflict: Economic Efficiency Versus Economic Justice

3

(10)

Examining the Roots of the Conflict

3

(3)

Capitalism and Democracy: Oil and Water

6

(2)

Economic Gyroscope: The Inexorable Quest for Equilibrium

8

(2)

The Economic Pendulum Swings Slowly

10

(3)

The Keynesian Revolution and the Concept of Economic Justice

13

(18)

Economic Tailspin

13

(3)

Government as Savior

16

(1)

A Long Walk on the Demand Side

17

(3)

The Concept of Safety Nets

20

(2)

War and Postwar Recovery Fuel the Economic Engine

22

(1)

Baby Boomers: War's Lasting Legacy

23

(1)

Taxes as Tools for Shaping Policy

24

(1)

Social Security: From Safety Net to Entitlement

25

(1)

Pressure Cooker: The Crisis Builds

25

(3)

Bad Things from Good Intentions (Crisis Redux)

28

(3)

The 1980s: Renaissance or Relapse?

31

(16)

The Birth of Supply-Side Economics

31

(3)

Less Is More: Enter the Laffer Curve

34

(1)

Monetary Policy at the Crossroads: The Reining In of the Fed

35

(3)

The Selling of Tax Reform: ``Equal'' Cuts for Everyone

38

(1)

The Budget Deficit: Fact and Fiction

39

(3)

Entitlements: The Time Bomb Keeps Ticking

42

(1)

The Gamble Pays Off

43

(1)

The Pendulum Swings Back

44

(3)

The Dawning of the New Economic Era

47

(30)

The Next Wave: The New Philosophy

47

(2)

The Problem

49

(3)

The Search for Solutions

52

(1)

Tax Reform: From Deficit to Surplus

53

(6)

Income Tax

57

(1)

Consumption Tax

58

(1)

Paying for Tax Reform

59

(2)

National Sales Tax

59

(1)

Value-Added Tax

59

(2)

Government Spending: From Entitlement to Safety Net

61

(2)

Social Security: Already on the Ropes

63

(4)

The Stage Is Being Set for the Bull Market's Next Leg

67

(2)

Carpe Diem: Seize the Day!

69

(8)

PART II TAKING CHARGE OF YOUR FINANCIAL FUTURE

The Key to Wealth

77

(20)

Saving Versus Investing

77

(1)

Risk: Perception Versus Reality

78

(3)

The Risk of ``Playing It Safe''

81

(2)

Market Risk: Savers Beware

83

(2)

What Is Ownership?

85

(1)

It's Time in the Market, Not Timing the Market

86

(2)

Common Stocks: A Piece of the Action

88

(1)

The Importance of a Long-Term Commitment

89

(3)

Understanding Your Choices

92

(2)

Growth Stocks

93

(1)

Value Stocks

93

(1)

Income Stocks

94

(1)

Risk: No Pain, No Gain

94

(3)

The Path to Wealth

97

(28)

Planning Your Voyage

97

(2)

Finding the Right Financial Advisor: Choose Carefully

99

(5)

Ask for References

100

(1)

Check Credentials

100

(2)

Ask How the Advisor Is Paid

102

(1)

Make Sure the Advisor Can Serve Your Goals

103

(1)

Look for Compatibility

103

(1)

You Are in Charge

104

(1)

Setting Your Goals and Objectives

104

(2)

Building Your Capital Base

106

(1)

Dollar-Cost Averaging: The Eigth Wonder of the World

107

(4)

The Magic of Compounding

111

(1)

Managing the Risks

111

(6)

Invest Regularly

112

(1)

Diversify Your Investments

113

(1)

Buy and Hold

114

(1)

Taking Advantage of Research

115

(1)

Read Financial Publications

115

(1)

Maintain Good Records

116

(1)

Monitor Your Portfolio

117

(1)

Asset Allocation: Professional Portfolio ``Management''

117

(4)

Investment Alternatives

118

(3)

International Investing

121

(3)

Next: Your ``Vessel of Choice''

124

(1)

Mutual Funds: Prudent Vessels of Choice

125

(28)

Origins: The Concept of Pooled Investment Funds

125

(3)

The Ins and Outs: Open-End or Closed-End, Load or No-Load?

128

(2)

Why Mutual Funds?

130

(5)

All in the Family: The Benefits of Multifund Complexes

135

(1)

Regulation: Plenty of Watchdogs

135

(2)

The Prospectus: Your ``Owner's Manual''

137

(4)

The Shareholder Report: Update from Management

141

(1)

Understanding Your Fund's Objective, Strategy, and Performance

141

(3)

Understanding Equity Funds

144

(3)

Understanding Fixed-Income Funds

147

(1)

Caution: Don't Compare Apples and Oranges

148

(2)

The Role of Your Financial Advisor

150

(1)

Next: Taxwise Investing

151

(2)

Avoiding the Tax Bite: Shelters and Strategies

153

(34)

The Message Is Clear: Help for Those Who Help Themselves

153

(2)

Tax Deferral: Delaying the Day of Reckoning

155

(3)

Employers Shift Responsibility to Workers

158

(1)

A Look at Your Choices

159

(7)

Individual Retirement Accounts

160

(3)

401(k) Plans

163

(1)

403(b) Plans

163

(1)

Employee Retirement Plans

164

(2)

What About Annuities?

166

(2)

Shift the Tax Burden to Minors

168

(1)

Investing for Education

169

(2)

The Benefits of Investing Often

171

(1)

Remember: Paper Gains Are Not Taxed

171

(1)

Tax Avoidance: Taking the Tax Collector Out of the Loop

172

(1)

Don't Overlook Tax-Free Municipal Bonds

173

(2)

Practical Alternative: Tax-Free Mutual Funds

175

(2)

Will Tax Reform End Municipal Bond Tax Breaks?

177

(2)

Defer Taxes---At Any Rate

179

(1)

Don't Overlook Estate and Inheritance Taxes

180

(2)

So, What Should You Do Now?

182

(2)

Next: Putting It All Together

184

(3)

PART III PUTTING IT ALL TOGETHER

Building Your Plan: Move Decisively, but Stay Flexible

187

(20)

A Message of Hope

187

(1)

Establish Your Benchmarks

188

(2)

Drafting Your Plan

190

(1)

A Tall Order---But Not Necessarily an Impossible One

191

(3)

Building Your Investment Program

194

(1)

Life-Stage Investing

194

(3)

Some Real-Life Examples

197

(2)

Some Useful Tools for Maintaining Discipline

199

(1)

Review Your Plan Periodically

199

(1)

How Much Will You Need for a Comfortable Retirement?

200

(1)

How Much Will You Need to Invest to Reach Your Goal?

201

(2)

How Long Will Your Assets Last?

203

(2)

Preparing to Set Sail

205

(2)

Summing Up: Ten Rules That Can Make You Independently Wealthy

207

(6)

Start Now

207

(1)

Set Realistic Goals and Objectives

208

(1)

Choose a Competent Advisor

208

(1)

Educate Yourself

208

(1)

Pay Yourself First

209

(1)

Invest Regularly

209

(1)

Choose Your Investments Carefully

210

(1)

Diversity

210

(1)

Be an Owner, Not a Lender

211

(1)

Avoid Temptation

211

(1)

Copy and Review Often

211

(1)

Your Financial Destiny: Chance or Choice?

212

(1)

Appendix

213

(12)

Financial Planning Work Sheets

213

(12)

Index

225

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Independently Wealthy : How to Build Financial Security in the New Economic Era

Summary

Author Biography

Table of Contents

Supplemental Materials