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8 Best Alternatives to Quicken in 2021 (#1 is Free)

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Quicken was once the go-to budgeting tool. I used it when it was first released in the 1980s. Today, it’s been eclipsed by apps that enable you to manage every aspect of your finances, often for free. Here are the best Quicken alternatives to consider in 2021.

Quicken alternatives
Business report. Cup of coffee on document. Accounting.

Personal Capital–Editor’s Choice

Personal Capital is the clear winner when it comes to finding a substitute for Quicken. It’s free and it offers tools to manage every aspect of your finances. With Personal Capital, you can link just about every financial account you have–checking, savings, credit cards, retirement accounts, investments accounts, HSAs, and even your home (via Zillow).

Personal Capital Cash Flow

Once linked, Personal Capital’s financial dashboard offers valuable insights into your finances. As an example, the tool enables you to–

  • Track your spending by category
  • Estimate when you can retire
  • Calculate the cost of your investments
  • Display the asset allocation of your portfolio
  • Generate a net worth statement
  • Get alerts when bills are due
  • Evaluate your investment portfolio
  • Save for emergencies

I’ve written a detailed review and guide of Personal Capital that you can check out.

You Need a Budget (YNAB)–Best for Budgeting

YNAB is ideal for those looking just for a budgeting tool. In my view, there is no better app when it comes to creating a budget. YNAB’s interface is similar to a spreadsheet. The tool makes it easy to budget by category based on the money you actually have in the bank.

YNAB budgeting alternative to Quicken

One of YNAB’s core principles is to give every dollar a job. You do that by deciding how you’ll spend every dollar that enters your checking account. As with other tools, you can connect your bank accounts and credit cards to YNAB. This allows for real-time updates so that you can track your spending throughout the month.

YNAB doesn’t have the rich feature set offered by Personal Capital. That’s particularly clear when it comes to investing. For those who don’t want to track investments, however, YNAB is a good option.

It’s not free, however. You can try it free for 34 days. After that it costs $11.99 a month or $84 a year for the annual plan. The cost is the biggest downside to YNAB.

Tiller Money–Best Spreadsheet Budget

I don’t know how they do it, but Tiller Money has figured out how to turn a Google Sheet into a dynamic budgeting tool. You link your bank accounts and credit cards to Tiller’s Google Sheet tool, and it automatically downloads all of your transactions. From there you can create budgets, categorize spending and generate reports.

TillerMoney - Quicken Alternative

I’ve been using Tiller for the past month. It’s clear that Tiller is ideal for those who love working with spreadsheets. I will caution you that setting up Tiller can be a bit intimidating. The good news is that they have videos to walk you through each step. If I can do it, you can do it.

One thing to keep in mind is that you must manually categorize each transaction. For some, this is a show-stopper. They want the convenience of tools like Personal Capital that automate this process. For others, they would prefer to categorize transactions themselves. It forces them to look at each entry, understand how they spent money, and then properly categorize the expense.

There is no right or wrong here. It comes down to preference. You get a 30-day free trial. After that Tiller costs $79 a year.

PocketSmith–Best for Calendar Budgeting

PocketSmith started out as a calendar to plan upcoming income and expenses. Today, it’s a full-fledged budgeting app. You can synch your accounts with PocketSmith. Once synced, you can track your budget and you’re net worth. You can also see your income and spending in a handy calendar view.

PocketSmith

One stand-out feature is PocketSmith’s auto-budget tool. It can create a budget for you based on past spending. It also has a cash flow feature that maps income and spending by date range.

While there is a free version of PocketSmith, it requires manual data entry. To get automatic bank fees, you’ll need to pay at least $9.95 a month, or $7.50 a month when paid annually.

CountAbout–Imports from Quicken or Mint

If you have a lot of data in Quicken (or Mint), CountAbout may be the budgeting tool for you. It has a feature enabling you to import data from Quicken or Mint.

CountAbout Quicken alternative

CountAbout enables you to download transactions from your bank and customize both income and expense categories. You can even attach receipt images to expense transactions. You can set up recurring transactions and generate financial reports.

For the features you get, the cost is very reasonable. The basic plan costs just $9.99 a year (not a month). If you want automatic downloading of bank transactions, the cost is $39.99 a year.

Moneydance–Traditional Budgeting Software

With so many apps going online, Moneydance takes a different approach. You download Moneydance software rather than use it online. Once downloaded, the software works much like you would expect.

You can download banking transactions into the software and initiate bill pay. The software automatically categorizes expenses based on how you categorize them. In other words, it learns from your use of the program.

Moneydance Quicken alternative

It offers a dashboard (shown above) that summarizes your finances all in one place. It can also generate reports and graphs to give you a visual perspective of your money. It comes with a mobile app, can track your finances, and can alert you when bills are due.

It costs $49.99 and is available for both Mac and Windows.

EveryDollar (now Ramsey+)–Best for Dave Ramsey Fans

For those Dave Ramsey founds out there, EveryDollar may be a good substitute for Intuit’s Quicken. Now the first thing to point out is that EveryDollar ain’t cheap. After a 14-day trial, you’ll pay $129.99 a year. If you want to try it for just 3 months, it will cost $59.99. For this reason, it’s not high on my list. Still, I know that some folks are passionate about Financial Peace University.

You can sync your bank accounts with the tool, set up budgets, and track spending. The budgeting app works on both computers, smartphones and tablets. It also comes with Dave’s educational materials, enabling you to take online course and join virtual groups.

Banktivity–Designed for Macs Only

Banktivity is the budgeting app specifically designed for Macs. It offers features that enable you to organize and track all of your finances. You can group accounts and reports, and organize the dashboard in a way that works best for you.

Banktivity

Banktivity enables you to follow an envelope budget. This can be ideal for those living paycheck-to-paycheck.

You can import transactions from your bank and sync data across all of your Mac devices. Banktivity also tracks investments and offers account-level reporting. You can try Banktivity for free for 30 days. After that they offer three plans ranging in price from $4.16 to $8.33 a month (billed annually).

Whatever tool you choose, the key is to pick one that works for you. For me, that’s Personal Capital. One or more of the above Quicken alternatives, however, should suit the needs of most looking to better manage their money.

11 Easy Ways to Invest $1,000 for Free

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It’s easier than ever to begin investing with a small amount of money. From stocks to real estate, it takes just a few minutes to create a diversified investment portfolio. The investing options have never been better. In this article, I’ll cover 11 easy ways to invest $1,000 for free.

How to invest $1,000 for free
With these investing options, no shovel is required!
Best Ways to Invest $1,000

How to Invest $1,000

1. Pay Off High Interest Debt First

First things first. If you have debit with double-digit interest rates, it needs to be your first priority. You won’t find a better investment than paying off any high interest debt. If you have credit card debt at double digit interest rates, that should be your top priority.

I wouldn’t worry about low interest debt, like federal student loans. I know there are financial gurus who preach you should pay off all of your debt before you start investing. They are dead wrong. if you have double digit interest rates on credit cards, however, make paying it off a top priority.

One way to deal with credit card debt is to transfer it to a 0% balance transfer credit card. That’s what I did back in the day to get out of debt. If that’s not available to you, the $1,000 should be “invested” in paying down that debt. You can check out this credit card payoff calculator to estimate how long it will take you to get out of debt.t

2. 401(k) with Matching Contributions if Available

If your employer matches contributions to a 401(k) or other workplace retirement account, this is where your first invested dollar should go. Your priority should be to contribute enough to take full advantage of those matching contributions. As I pointed out in an article on Forbes, the value of matching contributions over a lifetime can exceed $1 million. In other words, friends don’t let friends miss the match!

3. High-Yield Savings Account for Short-Term Savings

A savings account won’t make you rich, but your money is safe.

Investing is a long-term endeavor. You can’t “invest” for a day, a week, a month or even a year. They call that day-trading or swing-trading. I call it speculation. If you need money in the short term, then the best option is simply an online savings account. The rates aren’t great, but the accounts are FDIC insured, and you’re not going to lose any money.

One of my favorite options is CIT bank. It’s an online bank that pays one of the highest yields on FDIC-insured money market accounts. It has no monthly fees, you can deposit checks remotely, there is no minimum balance required, and just $100 to open an account.

4. Betterment for Easy Diversification

Betterment is one of the easiest, least expensive ways to invest in a diversified portfolio of stocks and bonds. Unlike many mutual funds, there are no minimum investment requirements to meet. You know I love Vanguard, but most of their funds have a $3,000 minimum. That doesn’t really help us when we’ve got $1,000 to invest. Betterment solves this problem.

I met the founder Jon Stein back in 2011. I’ve had accounts with betterment to try it out. It’s incredbily easy to use. You deposit money into a Betterment account, and based on your investing goals, it divides your money between stock and bond ETFs (I prefer mutual funds for most investors, but automated services such as Betterment use ETFs, which is perfectly fine).

If you’re new to investing and not quite sure how much to invest in stocks versus bonds, Betterment will help. It will walk you through a series of questions that will help you make that decision. And of course, you can change it anytime.

As always, we must consider investment fees and minimums. First, there are no minimums. Second, fees are relatively low. The cost is 25 basis points (0.25%) plus the cost of the underlying ETFs (which are cheap). , What you get in return is a very easy way to invest. I really like betterment, I think it’s a great a great option.

5. E*Trade Core Portfolios also for Easy Diversification

Another option along the same lines as betterment is E*Trade Core Portfolios. I’ve included this option because some may feel more comfortable with a traditional brokerage company. The minimum investment is $500, which works well when you have $1,000 to invest. As you can see from this screenshot, you get a well diversified portfolio of stocks and bonds (because it includes municipal bonds, or munis as they are called, this portfolio would be best suited for a taxable account).

ETrade Core Portfolios

In terms of costs, E*Trade charges 30 basis points plus the cost of the underlying ETFs. That makes it 5 basis points more expensive than Betterment. I believe in keeping expenses as low as possible, but it’s not a huge difference.

6. M1 Finance for Individual Stocks

For those who want to invest in individual stocks, M1 Finance is one of my favorite options. You can buy individual stocks without paying transaction fees. What I really like about M1 Finance, however, is that you can create what they call Pies. These are baskets of stocks, much like creating your own mutual fund. I created one that contained three bank stocks:

M1 Finance Pies
My financials Pie on M1 Finance

If I wanted to invest in this pie, I could just contribute to it. M1 Finance would then divide my contribution among these three stocks in the percentages that I set: 34% would go to Wells Fargo, 33% of JPMorgan Chase, and 33% to PNC.

Transferring money into M1 Finance and getting my money out was extremely easy. So I think this is a good option for those looking to invest in individual stocks.

7. Robinhood for Free Stock Trades

I include Robinhood in this list with some reservation. It is a free way to trade stocks, and the website and app are fun to use.

My “free” share of Macy’s from Robinhood is up!

I should warn you, however, that Robinhood does a lot in my view to encourage certain types of very risky investing. That includes buying and selling options, buying and selling cryptocurrencies, buying and selling commodities and buying on margin. I think those strategies are a good way to lose a lot of money. If you avoid those and just invest in individual stocks, Robinhood is a reasonable option.

8. Wealthfront for Real Estate Exposure

You can invest in real estate even just $1,000. Perhaps the simplest way is to invest in a REIT mutual fund. REIT stands for real estate investment trust. One potential problem is you’ve got to deal with minimum investments. So one approach is to use a service like Wealthfront.

Wealthfront Retirement Portfolio
Wealthfront Retirement includes Real Estate

Wealthfront is very similar to betterment and E*Trade Core Portfolios. I’ve used Wealthfront in the past for a SEP IRA and found it very easy to use and inexpensive. Unlike Betterment, Wealthfront includes exposure to real estate in its retirement portfolios.

9. Realty Income for Monthly Dividends

If you want even more exposure to real estate, you could invest directly in a REIT. One that I like is called Realty Income (ticker: O).

Realty Income (ticker: O)

Realty Income is best known for paying a monthly dividend for over 600 consecutive months and counting. You can also see from its portfolio that it is very diversified. One thing I’ll caution is that REITs like Realty Income should be held in a retirement account. They are not tax efficient.

10. Fundrise for Direct Investing in Real Estate

One final option for those looking to invest in real estate is Fundrise. It allows you to get as clsoe to being a landlord without actually being a landlord. The minimum investment is $1,000. The fees are on the higher side (about 1%), so keep that in mind. If we look at its historical performance, though, it’s been reasonably good over the last six years:

Fundrise real estate investment
Fundrise average annualized returns

11. Target Date Retirement Funds for Simple Retirement Investing

One last option I want to give you is what are called target date retirement funds. Most of the major mutual fund companies offer a target date retirement fund, and you’ll find these investing options in your 401(k). They’re similar to something like Betterment or Wealthfront in that you invest your money into a single mutual fund. The mutual fund then takes your money and invests it in U.S. stocks, international stocks and bonds.

They are different than robo advisors in one important respect. As you near retirement, the allocation between stocks and bonds will change. It will gradually move away from stocks and toward bonds.

Choosing a target date retirement fund is easy. Simply select the one that most closely corresponds with the year you plan to retire. Here are several options from Vanguard.

Vanguard target date retirement accounts
Vanguard target date retirement accounts

The one thing I’ll caution about target date retirement funds is that they can be on the expensive side. Vanguard’s funds cost just 15 basis points, which is very low. Others tend to be higher, so you want to keep an eye on the fees.

How NOT to Invest $1k

When it comes to investing $1,000, there are several strategies you should avoid.

The first one is what’s called day trading. Day traders seek to make money buy buying a stock, holding it for a few minutes or hours, and then selling it before the market closes. The reality is in study after study after study shows this day traders do not make money. One such study found that “it is virtually impossible for individuals to day trade for a living, contrary to what course providers claim.”

The second strategy you should avoid is buying and selling options. There are a lot of websites that try to sell options trading strategies. But again, study after study after study shows that most people lose money trading options. One study found that the “results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading.”

The next one, and I know this is going to be controversial, is Bitcoin and other cryptocurrencies. I know that they’re all the rage right now because prices are up. The problem is that they have no intrinsic value and are subject to wild swings. Can you find people that have made a fortune with crypto? Sure, but you can also find people that have made a fortune in the lottery. I don’t think it’s a good way to build long term wealth.

And the last way not to invest $1,000 are commodities, such as gold and silver. The historical returns have been terrible, and they are not a productive asset.

Invest $1k Video

New to investing and managing your money? Check out my book,
Retire Before Mom and Dad.

“This book is a must-have for anyone, regardless of age, to understand how to grow and protect our money over the course of our lives.” — Adrienne

Has Warren Buffett Lost the Midas Touch?

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Investors and analysts have fallen out of love with Warren Buffett. At least that’s the claim by some as reported by Business Insider. The story claims that Berkshire has suffered from “chronic underperformance.” A MarketWatch piece piled on, describing what it called a “vast underperformance.” Later the same article said Buffett is “profoundly underperforming” the market.

Chronic. Vast. Profound.

Combining all three, are we to believe that Warren Buffett has fallen into an intense, persistent, and immense underperformance? We’ll answer that question in this article. The answer, as it turns out, teaches us four important lessons about investing.

Let’s start with the claim of underperformance.

Has Berkshire Hathaway Underperformed the Market?

Howard Gold of MarketWatch never seems to miss an opportunity to take a shot at Warren Buffett. His latest missive claims that “Dud stock picks, bad industry bets, vast underperformance — it’s the end of the Warren Buffett era” (Source).

Gold claims Buffett has “profoundly” underperformed the S&P 500 during the “entire 11-year bull market.” The math backs up Gold’s claim. From 2009 through 2019, Berkshire Hathaway has indeed trailed the S&P 500. By my calculations, Berkshire’s Compound Annual Growth Rate (CAGR) during this time was 12.10%. Respectable, but well below the S&P 500’s 14.69%.

To put these numbers into perspective, let’s assume we invested $10,000 at the start of the 11-year bull market. An investment in Berkshire would have grown to just over $35,100. An investment in the S&P 500, including dividends, would have grown to more than $45,000. And this brings us to lesson #1.

Lesson #1: Always question the numbers and underlying assumptions

In this case one has to ask why Gold selected the 11-year period. Yes, it represents the last bull market, but so what? Why does that make it a meaningful period to evaluate? What if we shave off a couple of years or add a couple? What happens then?

Well, If we look at the last decade, 2010 through 2019, the numbers are almost identical. Berkshire enjoyed a 13.09% CAGR; the S&P 500 came in at 13.57%. The S&P 500 still edged out the Oracle of Omaha, but one can hardly call that vast, chronic or profound.

And if we go back to 2007 to capture both the market collapse and bull market, Buffett comes out on top: 9.05% vs 8.82%. As it turns out, Buffett has underperformed the market, but only if you are very selective in the time period you chose to consider.

Complaints About Warren Buffett’s Investments

There have been several complaints leveled against Buffett recently. Generally speaking, they fall into one of three categories: (1) he’s made some bad investments, (2) he’s allowing Berkshire to hold too much cash, and (2) he missed out on the Coronavirus sell-off. We’ll start with the first complaint and then we’ll look at the other two together because they are related.

Bad Investments

There’s no question that several Berkshire investments have not done well.

Airlines

Berkshire invested about $7 or $8 billion in airlines, amassing sizable positions in four airlines:

  • Delta Air Lines (DAL): 11%
  • American Airlines Co (AAL): 10%
  • Southwest Airlines Co (LUV): 10%
  • United Airlines (UAL): 9%

(Source)

Following the fallout from COVID, Berkshire exited this positions.

According to Warren Buffett:

When we sell something– when we sell something, very often, it’s going to be our entire stake. I mean, we don’t trim positions or– that’s just not the way we approach it, anymore than if we buy 100% of a business we’re going to sell it down to 90% or 80%. If we like a business, we’re going to buy as much of it as we can and keep it as long as we can. But when we change our mind . . . Well, when we change our mind, we don’t take half measures or anything short. So I was amazed at how we frankly, now, we sell– we were selling them at far lower prices than we paid. But I was amazed at the volume. Now airlines always trade in large volume relatively, but– but we have sold the entire positions. (Source)

Why did Buffett sell? In addition to the complete collapse in demand for air travel, it’s likely due to the industry’s need to borrow billions of dollars to keep planes in the air. (Source) This money will be paid back out of future earnings, substantially reducing the enterprise value of each airline. Selling equity to raise capital is no better, as the new shares dilute the ownership interest of existing owners.

According to MarketWatch, Berkshire lost $5 billion. (Source).

Kraft Hines

According to a Harvard Business Review article, “Earlier this year, the company suffered a massive loss in less than 24 hours — $4.3 billion, to be precise. And over a two-year period, the fiasco cost Berkshire Hathaway $20 billion, possibly its worst loss ever.” According to MarketWatch, Berkshire has lost $2 billion on its $10 billion investment. (Source). However you do the math, the investment has not been a winner.

Occidental Petroleum

In 2019, Berkshire invested $10 billion in Occidental preferred shares to help the company in its $38 billion acquisition of Anadarko Petroleum. At the time, Buffett called the investment a long-term bet on oil prices (Source).

Oil prices then crashed, and Occidental was saddled with a debt. In April, Berkshire agreed to accept stock in lieu of a cash dividend. (Source)

Lesson #2: Make sure you get all the facts

Yes, these investments have not performed well. Still, the investments in Kraft Hines and Occidental may prove over time to do just fine. The story there is not over. More importantly, those who focus just on these investments don’t tell the whole narrative. For example, they conveniently leave out the fortune Berkshire has made on its Apple investment or the remarkable cashflow it enjoys from its wholly owned business.

The point: Be sure you get all the facts.

No Coronavirus Investments & Too Much Cash

“I am nervous that he may have missed this whole rally,” James Shanahan, an analyst at Edward Jones, told the Financial Times. “That’s frustrating.” “A lot of retail investors were plowing money into the market and doing better than professional investors,” he continued. “I think you can include Buffett in that.” (Source).

Billionaire investor Ken Fisher made a similar claim. He claimed that Buffett’s failure to take advantage of the coronavirus sell-off was due to his advanced age (Source). Buffett turns 90 in August.

Lesson #3: Don’t confuse price movement with value

While it’s a common mistake, I was surprised to see the likes of Ken Fisher make it. Just because stocks have fallen by 30% doesn’t mean they are a great buy. Yes, they are a better buy then they were before the fall. But they could still be overvalued. Indeed, the S&P 500 as measured by the P/E Ratio is still overvalued by a wide margin based on historical standards.

Furthermore, the story is not over. We aren’t through the first wave of Covid-19, never mind a second wave. Buffett buys based on his evaluation of value, not the recent price movements of a stock or index. We would do well to follow his example.

Warning for Investors in Actively Managed Mutual Funds

Even the best investments and investment strategies will underperform from time to time. Berkshire is no exception.

  • In 1974 it lost 48.7% while the S&P 500 lost just 26.4%
  • In 1990 it lost 23.1% while the S&P 500 lost just 3.1%
  • In 1999 Berkshire lost 23.1% while the S&P 500 GAINED 21% thanks to the tech bubble.

The same is even true for index funds. There will be markets where actively managed funds, on the whole, outperform passive investments. And that brings us to our last lesson.

Lesson #4: Choose an investment strategy you can stick to even in bad years

It’s for this reason that I favor low cost index funds. When they are down I know it’s not because a money manager has lost his or her touch. No mistakes have been made. No bad investment decisions. It’s just the market.

As for Berkshire, I’ll keep my shares in the company, thank you very much. I view it like a low cost, extremely tax efficient large cap mutual fund. Even better, it’s not limited to publicly traded companies; it can buy whole companies.

New to investing and managing your money? Check out my book,
Retire Before Mom and Dad.

“This book is a must-have for anyone, regardless of age, to understand how to grow and protect our money over the course of our lives.” — Adrienne

How the Bucket Strategy and 4% Rule Work Together

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Investing in retirement is scary for the most experienced investor. Combining the bucket strategy and 4% rule can help any retiree weather a bad market. Here’s how.

The Bucket Strategy and 4% Rule

I retired (the second time) at the age of 51. Having just sold my online business, my wife and I went from earning and saving money to living off of our investments. And even though we could live comfortably on about 2% of our nest egg, I was scared to death of running out of money.

It felt like I was on a life boat in the middle of the ocean rationing what little food we had left.

So a recent article in the WSJ—Investors Approaching Retirement Face Painful Decisions (paywall)—didn’t surprise me. According to the article, nearly a third of investors age 65 or older sold ALL of their stockholdings between February and May.

The news saddened me. Having spent years studying retirement investing and spending, I know that market timing is a recipe for retirement disaster.

Fortunately, a combination of the bucket strategy and the 4% Rule can save the day.

Table Of Contents

Retirees are Long-Term Investors

The WSJ article featured 62 year old Dr. Craig Sklar. COVID had caused a decline in his medical practice, forcing him to furlough staff and take on emergency loans. At the same time, his portfolio fell during the March Madness, as I like to call it.

So it’s understandable that he sold much of his stock investments. Understandable, but probably a mistake. He explained his decision saying, “I don’t have 10 to 15 years left to recover my losses.” Actually, he has more like 30.

Retweet if you didn't sell any of your investments during the last bear market. Click To Tweet

Retirees are long-term investors. If we assume Dr. Sklar lives to the age of 95, he still has 33 years left on this rock. That’s more than 3 decades of investing, long-term by any definition.

Of course, he will be spending some of his investments along the way. As he pointed out to the WSJ, “I’ll need my cash to live on.”

And that raises an important question—how does a retiree reconcile the current need for cash with the long-term need for market returns that only stocks can provide?

The Bucket Strategy and 4% Rule

The answer is a combination of two retirement money management frameworks—the Bucket Strategy and the 4% Rule.

The Bucket Strategy

The Bucket Strategy helps us divide our retirement money between short-term spending needs and long-term investment needs. In its simplest incarnation, we use just two buckets—Cash and Investments.

Retirement investing is a marathon, not a sprint. Click To Tweet

Cash Bucket: This bucket holds three to five years worth of living expenses in cash (checking, savings, CDs, short-term bonds). Remember to deduct from your living expenses any other types of retirement income (e.g., pension, social security) before calculating your cash bucket needs. For example, if you need $75,000 a year before taxes, and social security provides $25,000, a 5-year cash bucket would hold $250,000 (($75,000 – $25,000) x 5 years).

Investment Bucket: Here we hold the remainder of our retirement funds in a diversified portfolio of low-cost index funds. The question we have to answer, however, is exactly what asset allocation to hold in this bucket. Is it 100% stocks? A 50/50 portfolio of stocks and bonds? Something else?

To answer these questions, we turn to the 4% Rule.

The 4% Rule

The 4% Rule arose from the work of financial advisor William Bengen. In a 1994 study, he found that a retiree could spend 4% of his nest egg in year one of retirement, adjust that amount by the rate of inflation each year, and not run out of money for at least 30 years (and in most cases, 50 years or more).

What doesn’t get as much attention is the asset allocation Bengen assumed in his study. His primary assumption was a portfolio of 50% stocks (tracking the S&P 500 index) and 50% intermediate term treasuries. Further, he assumed the retiree rebalanced the portfolio annually.

What they didn’t do was sell all their stocks in a bad market. And his study covered some really bad markets—1929 stock market crash, the final years in the 1930s, the stagflation of the 1970s. Through all of these difficult times, the 4% Rule survived.

Bengen did look at other asset allocations, ranging from 100% bonds to 100% stocks. What he found is that portfolios with a stock allocation between 50% and 75% lasted the longest. Add more stocks and the market volatility would hurt the unfortunate retirees who retired just before big market declines (particularly if inflation spiked). Hold less than 50% stocks and the returns were not sufficient to sustain a 30-year retirement in many cases.

So just like Goldilocks and The Three Bears, a 50% to 75% stock allocation is “just right.”

Putting it All Together

If we follow the 4% Rule, we want our overall portfolio to consist of 50% to 75% stocks. Here we combine both of our buckets (cash and investments) to determine our overall asset allocation. There are several ways to track our asset allocation across all our accounts.

The most effective tool and the one I use is Personal Capital. It’s free and it enables you to link all of your investment accounts (retirement and taxable) as well as all of your cash accounts. Once linked, you can see your asset allocation with a click of the mouse.

It’s here that the Bucket Strategy and the 4% Rule work together. The Bucket Strategy serves two critical roles. First, of course, it assures we have the cash we need for everyday expenses. Second, by having a cash bucket of three to five years, we are better positioned to handle the fear of market declines in our investment bucket.

This second objective cannot be overstated. Fear is what often drives any investor to sell during sudden market drops. It’s exactly what more than 100 years of data and experience tell us we shouldn’t do. If five years of living expenses in cash isn’t enough to calm your fears, than make it six or seven.

As you make these decisions, be sure to keep an eye on your overall asset allocation. So long as your stocks don’t drop below 50% of your portfolio, you’re still following the 4% Rule as envisioned by Bengen.

How Retirees Can Survive a Bear Market [Video]

New to investing and managing your money? Check out my book,
Retire Before Mom and Dad.

“This book is a must-have for anyone, regardless of age, to understand how to grow and protect our money over the course of our lives.” — Adrienne

Morningstar User’s Guide

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Welcome to the Morningstar User’s Guide. We’re going to cover everything you need to know about using and getting the most advantage out of Morningstar. In this first article and video, we’ll cover an overview of Morningstar. We will also look at some resources you’ll need as we work through this guide.

It’s my hope that this will help you become a better, more confident investor.

Table Of Contents

Morningstar User’s Guide Video

Morningstar Overview

Morningstar was founded in 1984. Before the internet as we know it, by Joe Mansueto. The story is that he started it in his apartment in Chicago with about $80,000. I don’t know if that’s true, but regardless, he started Morningstar in 1984. Today, it’s a publicly traded company trading under the ticker MORN. It went public in 2005.

Last year, Morningstar generated about $1.2 billion in revenue. By my calculations, individual investors who pay for the premium version of Morningstar accounted for only about $22 million. Most of the revenue comes from tools designed for professional money managers and investment advisors. Some of these tools can cost tens of thousands of dollars a year.

The good news is that Morningstar made a lot of its data available for free to individual investors. And its premium version, which offers additional tools, is only $199. So that’s the good news.

Issues with Morningstar’s New Website

Now, there is some bad news. Last year Morningstar made some substantial changes to its website. They launched the new website in July 2019. The look of the new site is an improvement, sort of.

Here’s what the old site looked like:

Morningstar old website

And here’s the current website design:

Morningstar new website

The problem is that the functionality took a big hit for several reasons.

First of all, they took away a lot of the tools and data that were available in the old version of the site. For example, the removed the after-tax returns of mutual funds, which I thought was a very helpful data point. There are ways to get at that information, and we will cover that when we get to it in the series. That’s the good news, we can still get back to this old version, for now.

Second, they haven’t bothered to update the user guide. The Premium User Guide for paid members still reflects the old website design and functionality. I reached out to Morningstar support, thinking I just couldn’t find the new guide. Nope. They haven’t updated it. I guess that makes this User’s Guide all the more important!

Finally, many of the tools that still exist are really hard to find. In the old version they had a menu item called “Tools.” Seems simple enough. That page now no longer exists. So there’s no one page to go to to see all of the tools Morningstar offers investors.

This Morningstar User’s Guide

This guide will be divided into four parts.

Part 1: The Data

The first part is going to be simply understanding the data. It’ll be creating a number of videos that walk through all of the data about mutual funds, ETFs an stocks that Morningstar offers.

Part 2: Using The Data

Now that we have all this data from Part 1, how do we actually use it to make important investment decisions? That’s what we will cover in Part 2. First, we’ll figure out of all of the data you get from Morningstar, what pieces of it are really important. And then once we know that, we’ll cover how to use the data.

How do we use it to pick a mutual fund in our 401k? How do we compare two mutual funds? So we’ll be looking at that in part two.

Part 3: Portfolio Manager

In Part 3, we’re going to be looking at the portfolio manager in Morningstar.
We will walk through the Portfolio Manager, showing you how to set up your own portfolio, how to add new holdings, and then the different ways you can use the tool to evaluate your investments.

Part 4: Morningstar Tools

In Part 4 we will look at Morningstar Tools. These include fund and stock screeners, calculators, and the X-Ray tool.

Morningstar Resources You Need Handy for this User’s Guide

To finish out this brief overview, I want to talk about some things that that you want to keep in mind that are important as we move through the series.

Membership

The first is the Morningstar membership options. For individual investors like you and me, there’s are two options. At a minimum, you’ll want the Morningstar basic membership. It’s free, and you will need it to create and monitor your portfolio. If you want the premium version, it costs $199 per year.

Here’s what the two options cover:

Morningstar Membership Options

While I’m a Premium member, it’s not necessary for most people.

Snapshot and Glossary

Two more things briefly, that I think you should focus on, or at least have handy. The first is Morningstar Snapshot definitions.This gives you the definitions of key terms and concepts that we will encounter throughout this series.

For example, Morningstar categorizes mutual funds as a stock, bond or balanced fund. One might think that a bond mutual fund invests in bonds. Well, it does, but Morningstar categorizes a fund as a bond fund if at least 80% of its assets are on bonds. As a result, a “bond” mutual fund could also have a not insignificant amount invested in equities.

As another example, consider Morningstar’s definition of an international stock fund. According to Snapshot, it’s a stock fund that has invested 40% or more of its equity holdings in foreign stocks. So don’t assume you know Morningstar’s definition of these terms.

A similar tool is the Morningstar Glossary. It offers a wider range of investing terms.

Morningstar Search Tool

The last thing I want to show you in this overview is the search box on Morningstar. This really is the door through which you’ll find a lot of the things that you need on Morningstar. For example, you can you the search box in several ways to find key information on Morningstar:

  • Ticker: Search an investment by its ticker symbol
  • Name: Search a mutual fund or stock by name
  • Screener: Search the term “Screener” to find Morningstar’s stock and fund screeners
  • Tool: Search the term “Tool” to find Morningstar’s calculators and other investment tools

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