civic freedoms that built this country success. that's it for us this week for the latest show updates follow me on twitter, facebook and instagram. i will be back next week with new in-depth interviews on the wall street journal at large. thank you for joining us and enjoy the rest of your holiday weekend. ♪ ♪ jack: welcome to a special additional "barron's roundtable". this week we're taking the long view looking at steps you can take to shore up your investment portfolio. i'm jack otter. coming up behavioral economist and nobel prize winner doctor richard thaler on the common mistakes we make in managing our finances and how to avoid them. our advice on how to construct an investment portfolio. but first, we begin with the top three things you should do now to manage your personal finances ahead of the new year. 2020 has been a tale of two markets with huge winners and

painful losers. if you got big gain is a time to take profit? should you harvest losses and beaten-down stocks cannot next, is pandemic togetherness making you feel squeezed in your home? is better to remodel or trade up for a bigger place? this year americans were given the chance to make penalty free withdrawals from their retirement savings what you need to consider on the "barron's roundtable" like colleagues beverly, jack so beverly, what a year this year we saw stock zooming higher when they benefited from the pandemic and then we saw other sectors get slammed. while we usually recommend a buy and hold approach there are some moves that investors ought to be considering this time of year, right? spewing absolutely. as you noted, jack, 2020 has been a tale of two markets. stocks are all almost 40% this year but it's been driven mostly by big attack. apple, amazon for instance, they are both up more than 60% we've

also seen pie-in-the-sky evaluations on pandemic stock. as he has nearly tripled. entire industries have been decimated notably airlines, cruises, banks, energy companies are all tanked and many are still down more than 30% for the year. so, this has all the makings of a good time to clean up your portfolio, do rebalancing and do tax loss harvesting. you can sell some of those out budged winners, trim them back to a more appropriate amount and sell the losers to offset the tax you owe on those gains. if there are any stocks that you are reluctant to sell but they do have big losses and you'd like them for the long term you can buy them back after 30 days. any sooner than that and you will hear from the irs but if you don't want to leave, for instance, an airline of sized hole in your portfolio you can buy an etf is a temporary or longer-term replacement for the stocks you sell.

for instance, delta and southwest are probably the two strongest airlines and they make up 20% of the u.s. global jets etf, ticker is etf and that's a good substitute for 30 days or longer term to the airline industry. jack: you're not breaking rules by buying that stock back in less than 30 days but what you are doing is sacrificing the ability to deduct the loss. >> exactly. jack: there is no shame in deducting that law spirit people think they want to get back to even and as a behavioral mistake but take that loss, deducted as a gift from the irs and then buy it back if you think it has long-term possibilities. i want to move in to jack because one asset class that has done really well this year is housing and people are feeling cozy with their kids on zoom, wife on zoom, husband at zoom, what's the best move? upgrade? >> don't do it. not now. i know you're squished and you've got two spouses working

from home and you got the kids going to zoom in school and everyone but you don't want to pay that pandemic premium right now. when i look at house prices they are all pretty significantly recently and if you look at forecasts for remodeling spending it will jump this or cool off as next year goes on. we now have a great visibility on a vaccine and i think as life gets back to normal late next year so i would say matter what you are thinking about just hold off a little bit unless you're thinking about refinancing your mortgage with that 30 fixed rate is it 3%. jack: dad, you take a look at something people don't pan up enough attention to which is carrying costs. >> yeah, don't spend all your time obsessing over the price of the house you will buy, spend half your time obsessing over the cost, the taxes, utilities and the maintenance and after repairs you need yardwork. jack, if that barest wheel in

your house breakdown that will be one heck of a repair bill. as a rule of thumb i would say every -- think of it as small house savings for every $10,000 a year in extra cost you can avoid i think over 20 years that works out to about $400,000 in extra savings you have an even double or triple that if you think about a much bigger move and i would say that idea to move up just know because ultimately you have to do what will make you happy and i talked with my wife about small house savings and she talks to me about where i can stick my small house savings so you got -. jack: marital harmony is very important in a small house. carl, real quick, let's talk about the new rules that would allow people to go into their retirement savings to help cover losses if they lost their job. >> yes, this year people are able to withdrawal up to $100,000 from their 401k plan. usually we do not advise doing

this and reasons art you get a 10% tax penalty and pay the taxes on it and then also you lose the appreciation of those funds but for people who may have lost their job due to covid or people who had covid and experienced economic hardship because of that inmate make sense to do so. however, the advice is don't take more than you need and you have three years where you would be paying the taxes on those funds that were withdrawn and if you are able to return those funds within three years and if you file an amended tax return you would not be liable for the tax penalties. advice is don't take more than you need and be careful if you decide to do that. jack: thank you, i hate to think people have to but of course in some cases they do. coming up, how to avoid the most common mistakes investors make with their finances, economist and nobel prize winner richard thaler joins me with advice you don't want to miss, next. ♪

millions of men are keeping their hair thanks to proven hair loss treatments, and you can to thanks to keeps. get online access to a physician and fda-approved treatments delivered right to your door, safely and affordably. go to keeps.com/tv to learn more. - i sent your new prescription to the pharmacy. - any idea how much it will cost? - [doctor] i recommend goodrx. you get free coupons to save on your prescriptions. - goodrx, smart.

- [announcer] stop paying too much for your prescriptions. - thanks. - download the free app today.

♪ jack: traditional economic assumes participants in the economy, you and me, are completely rational in the steak free automatons. in the real world or financial decisions are affected by our own bias and emotion pushing salesmen, bad math, million other forces. pioneering economist doctor richard thaler, won the nobel prize for his analysis of these real-world forces and how they shape decision-making and how they should shape economic policy. doctor thaler joins me now and it's great to have you on, sir. >> good to be here. jack: later in the show we will be talking about how to invest for retirement but if people don't save enough or if they sell every time the market falls investment decisions are almost meaningless so how have you help

to to make better decisions? >> there have been three important changes to 401k plans over the last two decades. they have all but based on gabriel's economics. the first is called automatic enrollment and companies now just and rolled people in the plan unless they do something to get themselves out and that in and of itself gets enrollments up to about 90%. jack: that is from -- from where? >> while, from say 50% to start. people eventually we'll figure it out to joint but automatic enrollment gets them in faster. the second is what we call automatic escalation or what we originally called save more tomorrow which is keep increasing the saving rate four, 2% every year and then before people know what they are saving

a respectable ten, 12% and then the third is the creation of sensible default investment vehicles like targeted funds. if you do all those things and put people on automatic pilot they can safely go to sleep and their retirement future will at least be decent. jack: using the same philosophy of the guided those changes are there things individuals can be aware of to try to do in their own lives to avoid making the wrong decisions? >> again, anything you can make automatic -- here is the simple thing that i advise anybody over 40 is to think about getting a 15 year mortgage and then pay it off. if you can afford it, most people pay their mortgage every month and the scary thing is a lot of people in their 60s

have substantial mortgage debt and that is not good. jack: then they no longer have income and it's tough to pay that out of retirement savings. while automating good behavior like savings is a great idea a lot of companies are trying to get up to automate our spending with them. in fact, wall street is rewarding those comedies that have recurring revenue. what should you do about all these auto and roll and auto renew programs that seem to be invading more and more part of his pending life? >> well, here is a warning i would give which is see how easy it is to unsubscribe and i have a rule that i think it should be just as easy to quit as it is to join. a lot of companies you can click and joint with one click but then to get out it involves a

lot of what we call, sludge, and i view that as unscrupulous activity. check to see whether you can get out. i read about some jim recently that was requiring people who wanted to quit to come to the gym in person to sign some form where gems are about the most dangerous place to be right now. jack: during a pandemic that's a tough policy. i also want to ask you about your mutual funds. you mentioned people sitting in front of screens and having trouble to be in the market. in your funds you try to take it manage of behavioral mistakes to find opportunities so could you ask why and how that works where you might be finding opportunity right now? spirit yeah, sure. the basic idea is that it is easier to predict the mistakes other people make then to avoid

making those same mistakes yourself. i like to use a baseball analogy. if a picture is pitching a sinker ball then you know hitters will hit ground balls. because the ball dips and they swing quarter of an inch and the ball goes down. i can predict that even though if i tried to get up there and hit i would have no chance of me running through my life. the same applies to the market. we tell our portfolio managers absolutely do not try to forecast earnings of prices but instead try to forecast the mistakes that other people are going to make when they are doing that so we try to break those mistakes down into overreaction and under reaction and find the situations in which people are most likely to be doing one or the other. it is easy to see the parts of

the market right now that everybody is paying attention to and possibly overhyped. we think the best opportunities right now are in the stocks that no one is paying attention to so we tend to specialize in small cash and those don't get as much attention and they can be doing quite well and are not very sensitive to covid but nobody is interested in them because drug companies and tech companies are getting all the attention on the upside in hotels and airlines on the downside so there is money to be made in the middle. jack: aaron agrees, doctor taylor thank you. >> my pleasure. jack: once you got your behavioral house in order it's important to make sure your portfolio is aligned with your goals but coming up, our advice on how to construct a possible portfolio. ♪

businesses today are looking to tomorrow. adapting. innovating. setting the course. but new ways of working demand a new type of network. one that's more than just fast. you need flexibility- to work from anywhere. and manage from everywhere. advanced technology. with serious security. and reliable coverage, nationwide. forward-thinking enterprises, deserve forward-thinking solutions. and that's what we deliver. so bounce forward, with comcast business.

♪ jack: also on the show we focus on opportunistic investment such as securities that seem temporarily undervalued but this week we're taking opportunity to step back and look at the big picture. far more important than buying a stock that beats the market is having a smart consistent investment strategy. to help us tell you how to do that we are joined by sebastian paige, head of global multi- asset and author of a new book, beyond diversification. sebastian, thank you for joining us. let's start off by stipulating that you want to be diversified in your portfolio and the classic approach to that was say, 60% in stocks for growth,

40% in bonds for shock absorption and you say it's time to move beyond 60, 40, what do you mean by that? >> i have three issues with the 6040 portfolio. first, it is clear that different people have different goals so 60/40 is too generic and people need to account for how far they are from retirement, for example. given lower expected returns going forward and increasing longevity risk the answer to the question an important question, how much stocks should you own? that is often more than you think. i talk about this in my book and if you look at target date strategy for example someone who is 15 years from retirement say 50 years old we think should hold about 80% of their portfolios in stocks. at retirement the equity await is about 55% which may seem high but at 65 you can expect to live for 20 plus years.

the second issue with the 60/40 is risk is not stable through time. on a rolling one-year basis a 60/40 portfolio can deliver as much as 20% volatility and as little as 5% volatility in the depending on the market environment. third issue is 60/40 is clearly capital markets have changed this year. interest rates are 100 based points lower than they were before covid and that's about 50% drop relative to the level of rates at the beginning of this year. this means for the same expected return people need to take more risks. jack: we have eight model portfolio and you have it in the book, called the balance portfolio and it's not that far from 60/40 on the surface and 57% stocks, 43% bonds and other stuff and i know my colleague beverly has a question about one sleeve of that which is absolute

returns, i think. >> yeah, thanks, jack. [laughter] sebastian, you have 12% in absolute return strategy so help me understand that. it seems like most of the time they are a drag on your portfolio and in the times where they are kind of working is 12% enough of an allocation to help the rest of your portfolio? >> yeah, look. they are a drag in the portfolio in a massive bull market for both stocks and bonds when rates keep going down but where we sit here today with rates at the lower bound we are looking at a different portfolio construction equation and we are revisiting the value of absolute return oriented strategies that have the advantage of allowing for short positions which allows for some hedging. they allow for more breath in the portfolio in a broader set of investment choices and when returns for stocks and bonds,

the traditional approach is go down that is where absolute return strategies can play a bigger role and they have a diversifying characteristic in portfolios. one of the biggest issues investors must face in this environment is thinking about the role of bonds when rates are near zero and that is where in part, absolute return oriented strategies, and. it's a different environment going forward and it is not the rising tide that we have all votes. jack: sebastian, that unfortunately is all the time we have but i want to dig deeper into that portfolio and thank you so much. up next, roundtable members give their investment ideas for the coming weeks so stay right there. ♪ when you're through with powering through, it's time for theraflu hot liquid medicine. powerful relief so you can restore and recover. theraflu hot beats cold.

lexus has been celebrating driveway moments. here's to one more, the lexus december to remember sales event. get 0% financing on all new 2020 and 2021 lexus models. experience amazing at your lexus dealer.

♪ jack: jack, we just finished open enrollment and i maxed out my health savings account, my hsa and understand your approve of that move. >> that a boy, jack. that's my yearly sermon on if you have a choice from your employer and if one of them is a high deductible health plan, think carefully about doing that. yes, if you have a big year you might have to write a check for six or $7,000 but typically an employer wants to steer workers into those plans and they usually make them very cheap and the bonus is you also gain access to this health savings account and that's one of the best financial deals in the universe. medium tax break in money and spend it right away on healthcare or let it grow tax-deferred and you want to try to get into that hsa. also, try to stay healthy but you can try vegetables and exercise and i'm thinking about doing maybe one of those this year. jack: it is tax-free so you could if you are healthy, save up 20 years and have a nice

spending account for your free medical expenses when you are old and failing. [laughter] beverly, you have an actual idea that i also liked. >> yet, as you know, dad, end-of-the-year tax planning almost always involves deferring income but if you've lost income in 2028 whether because of a pay cut or job loss or your spouse or just did not take the required minimum is to be in from your ira it's a good opportunity to implement some longer-term strategies that can be costly in the short-term, exercise employee stock options, convert a traditional ira to a roth, maybe even capital gains taxes might be lower for you this year. jack: carlton, vegas finishes off with a nice contrarian thought. >> it's time to look at small cut stocks. this is a play on the economic recovery and as it continues to get good data on vaccines and treatments for covid-19 we expect to see the small caps will continue to rebound as people fall out of those tech stocks that soared in the potomac and kept us all going. jack: they've not had a great

ten years but now may be the time. jack, carlton and beverly, thank you so much. these are all great ideas. three more check out barron's .com and don't forget to follow us on our social media. that is all prospered happy thanks giving a (announcer) the following is a sponsored program for prostagenix, furnished by prostatereport.com. (upbeat music) ♪ hi, this is larry king. over 30 million men in america have prostrate problems. i know, i was one of them. and all these natural prostate supplements like the ones i have here in front of me are everywhere. drugstores, health food stores, on the internet, and all over tv, selling millions of bottles every year.