Jonathan Clements's Blog, page 107

A Taller Ladder

I RETIRED ALMOST TWO years ago, at age 56. My wife, who is nine years younger, decided to semi-retire so we could relocate from Rhode Island to Florida. We were able to afford early retirement in part because we’d lived below our means for many years, diligently saving while also paying off our mortgage and other debts.

Relocating to a state with a lower cost of living and lower taxes also helped. In addition, I’m fortunate to get a modest pension and relatively affordable retiree health insurance coverage for both of us.

So, yes, we’re lucky—and grateful. The trouble is the date I retired: Dec. 31, 2021. It was days before the onset of a bear market that tanked our stock index funds, and only months before steep interest rate hikes sent our bond index fund tumbling, too. All in the face of rising inflation. Talk about bad timing.

Despite it all, I’m calm and confident about our retirement. Why? First, we’ve been living easily within our projected monthly budget. We draw down about 3.5% of our total nest egg each year, adjusted annually for inflation.

Second, we have a relatively aggressive mix of 70% stocks and 30% in bonds and cash. This high stock exposure gives me confidence that we’ll stay ahead of inflation over time.

I’m not worried that this mix is too aggressive for a retiree like me because it contains enough cash reserves to live on for four or five years. If necessary, selling bonds could then see us through an additional three or four years.

Unfortunately, we pay a price for this peace of mind. Our cash is likely to lose ground to inflation in the coming decades. We have an online savings account that pays a higher interest rate, but in recent years the returns haven’t come close to keeping up with inflation.

One popular strategy to squeeze out even higher yields from cash is to ladder CDs, or certificates of deposit. This might mean depositing a year of expenses in an online savings account, while also buying CDs in the same amount for terms of two, three, four and five years. By replacing each of these at maturity with a new five-year CD, you soon end up with a maturing five-year CD every year.

Laddering CDs strikes me as a safe strategy to lessen the bite of inflation. But they aren’t the only option for a laddering strategy. I’ve decided to stash most of our cash reserves in a multi-year guaranteed annuity ladder.

Multi-year guaranteed annuities are the life insurance industry’s answer to CDs. As the name implies, they’re fixed-term annuity contracts that pay a guaranteed annual rate of return on a lump-sum premium for a specified term. Despite mimicking CDs, however, they have important differences.

Typically, multi-year annuities pay about one percentage point above CD rates. As of this writing, the highest annual yield that I could find for a five-year CD was 4.9%. I can find a multi-year annuity paying 6% with a $20,000 premium.

Almost as important as the higher yields are annuities’ tax-deferred compounding. While interest earned on CDs is taxable annually, annuity yields are taxable only when you cash out.

Better still, when these annuities mature, they can be rolled over tax-free in a 1035 exchange. The exchange doesn’t need to be with the same company, so you can roll them over to the best rate available. In theory, these yields could compound indefinitely until you opt to cash out.

There are drawbacks to annuities, too. One is that they come with less solid government protection against default. Most CDs, as the product of a bank or credit union, are protected by federal deposit insurance up to $250,000. In the case of most annuities, the protection is provided by the state-sponsored insurance guaranty association.

Although the amount of protection promised in most states is the same as the federal protection for bank products, state-level protection doesn’t rise to the same level of surety as federal guarantees. This additional risk is real, but to me it seems manageable. By design, each of the five annuities in my ladder is from a different company, thus spreading the risk. None of the companies has ratings below B+, and most have A or A- ratings for financial strength.

A second drawback is that annuities require more time and effort to purchase than CDs. It’s essential to work with a good insurance agent with annuity expertise. Even the best agent can’t eliminate what’s inherently a painful process, however.

Each annuity requires reviewing a complex annuity contract, and then completing a lengthy and intrusive application process. Each contract can vary significantly on key features such as early withdrawal allowances. Although most companies have user-friendly online applications, others still do everything by paper and mail. All in all, expect it to take weeks or longer to get final approval.  

Both CDs and annuities have early withdrawal penalties, but there are differences here, too. Unlike CDs, which by law must impose early withdrawal penalties, some annuity contracts allow for interest earned, or a percentage of the initial premium, to be withdrawn yearly without penalty. Others don’t, however, and can impose steep penalties, especially in the early years.

What about the commission paid to the agent I use, as well as an annuity’s other expenses? I don’t need to worry about those costs because—as with a CD—the yields that are quoted already reflect all expenses. 

Like all annuities, mine are subject to a 10% federal tax penalty on any interest earned if I cash out before age 59½. If I died prematurely, my spouse would incur this penalty unless she kept rolling over the annuities until she reached 59½. These annuities may not be a good option for anyone who’s a lot younger than 59½.

So, is annuity laddering a good alternative to CD laddering? For me, the answer is yes. That extra one percentage point in interest may not sound like much. But thanks to tax-deferred compounding, it could make a big difference over many years. That said, I imagine there will come a time when my wish for financial simplicity will outweigh my desire to squeeze out a little extra interest.

David Cooper worked for many years as a career policy official in the Office of the Secretary of Defense. He subsequently became a professor of national security affairs. David had no particular interest in personal finance until it dawned on him in his late 40s that he had no idea how or when he could retire. He’s grateful for the many insights he’s gleaned as an avid HumbleDollar reader.

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Shop Till You Drop

HERE'S A RECIPE FOR disaster: a good internet connection, plenty of storage space, lots of time on your hands—and credit cards.

Impulsive shopping has a name, oniomania, and the above recipe makes it all too easy. If you have a credit card, research suggests you’ll spend significantly more than if you were paying with cash or a check. The availability of 24/7 online shopping makes it just that much worse.

Here are eight signs—besides the pile of packages outside our front door each day—that tells me impulsive spending has reached our house:

1. You get a “charge” each time you place an order.

I’m not just talking about the credit card charge. You see something online and you think, “Wouldn’t that be nice to have?” It’s an item you wouldn’t have gone looking for—and wouldn’t have bought—otherwise. Now, with the tap of a few laptop keys, it’ll be delivered to your door. You get the added thrill of waiting for it to come, including tracking its delivery online.

2. You think you’re saving money.

We love our Amazon Prime membership and our Amazon Prime 5% cash back credit card. The free shipping, with free returns and Prime Video thrown in, means we’re constantly saving. Problem is, all the money we’re saving puts a big dent in our bank account.

3. You forget what you ordered.

My job is to monitor our credit card charges. My spouse doesn’t buy a few big things. Instead, she buys a ton of little things each month. We have a huge amount of small charges on our credit card. I’ve found charges that she initially denied making because she simply forgot about them. I challenged one such charge with the credit card company, only to later admit it was a purchase we’d forgotten about.

4. You buy stuff you don’t need.

One day, I found a couple of containers of finger moisturizer on my desk at home. This stuff keeps fingertips tacky and is frequently used by folks who count money or sort paperwork. My wife is a bank teller, so I brought it to her, thinking she left it on my desk by accident. She looked at me sheepishly and said, “I thought you might want it. I bought it but I don’t want it now.” This happens more than I'd like.

5. You start buying stuff for others that they didn’t ask for.

At some point, you run out of stuff that you want and you start making purchases for others. It’s too easy. You’ve got free shipping anyway and it goes straight to them without you having to leave the house to buy it, wrap it and take it to the post office. Even if it’s useful, it still isn’t your job to buy things for them, especially if they didn’t even ask for the items in question.

6. You buy large quantities that’ll last until you die.

I have a box of staples that has sat on my desk for 30 years. I’ve used about a tenth of them. One day, I found two new boxes of staples sitting on my desk. My spouse bought them because they were “cheap.”

She saw me brushing lint off my jacket. She bought me not one lint brush, but three. Don’t get me started on the 15 rolls of Scotch tape, 24 toothbrushes, 16 tubes of toothpaste, 27 cans of tomato paste or the back bedroom filled with toilet paper and paper towels. It’s not “cheap” or “a bargain” if it’s something you won’t use before it goes bad or you die.

7. You get mad if someone doesn’t want your purchases.

I used to be afraid to reject some purchases my spouse made for me out of fear I’d hurt her feelings or make her mad. The result was items would pile up in a dark corner of the house and be long forgotten. I’m not that way anymore. I will lovingly tell my spouse that I am never going to use that item, and then I quickly get a return slip printed. She gets over it.

8. It doesn’t have to be online shopping, either.

You can find great bargains, particularly clothes, at thrift or consignment stores. My wife was an expert at outfitting our five kids early in our marriage. She had a part-time job in a nearby city that had many such shops. She’d spend her lunch hour looking them over.

Every week, she came home with a big bag of clothes and a big smile. So much so that I bought and filled several storage bins with clothes. They were stacked all around our house. Unfortunately, the bins were never opened again and what was in them became lost to time. Eventually, most of the bins were carted off to the Goodwill store. The thrill of the hunt had overtaken the needs of the family.

So, what did we do to limit this disaster?

First, it’s good that opposites attract because, if both of you are impulsive spenders, you’ve got big problems. One spouse has to act as the police, which in our marriage is me. I monitor all the financial accounts and, as I’m retired, I see all the packages that come to the house. That gives me an unfair advantage.

I don’t argue with everything, but most purchases for me get returned. That has diminished some of my wife’s shopping fun. It also makes her feel a little guilty buying items just for herself.

Second, my wife is nine years younger than me and still working. We live on my pension but max out her 401(k). This makes me feel better, because it means we’re still saving a hefty sum.

Finally, choose your battles wisely. Some junk spending isn’t going to hurt you, and it does add some fun to life.

Ken Begley has worked for the IRS and as an accountant, a college director of student financial aid and a newspaper columnist, and he also spent 42 years on active and reserve service with the U.S. Navy and Army. Now retired, Ken likes to spend his time with his family, especially his grandchildren, and as a volunteer with Kentucky's Marion County Veterans Honor Guard performing last rites at military funerals. Check out Ken's earlier articles.

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They Made the Lists

THERE’S AN OLD SAYING: Good things come in threes. That’s certainly been true for one aspect of my life. I’ve lived in just three locations—and all of them have been featured in national “best places” lists.

My early years were in Moorestown, New Jersey, a quiet town with a population of some 20,000. It’s an affluent suburb of Philadelphia that defies stereotypes about New Jersey. In 2005, Money magazine identified Moorestown as the best place to live in the country. This was well after I’d moved away. Still, the town was certainly a pleasant place to grow up during the 1960s and '70s.

Moorestown has a strong school system, which I experienced first-hand. It also has a relatively low crime rate, a charming downtown and beautiful public spaces. It’s a little over an hour’s drive from the Jersey Shore. One downside: The town is so popular that homes have been richly priced for decades.

After I graduated from Moorestown High School, I made my way to Blacksburg, Virginia, to attend Virginia Tech. Blacksburg regularly makes lists of desirable places to live. For instance, Forbes included the town in its 2016 list of the top 25 places to retire. In 2018, Blacksburg was named the 63rd best place to live in the country, according to Livability.com.

I was only in Blacksburg for four years, back in the 1980s. It was an idyllic place to attend college. With the town located in the Blue Ridge Mountain range, it was easy to get away, even without a car. Within 10 minutes of leaving campus on a bicycle, you could feel like you were completely away from civilization.

The college itself has a mix of academic sophistication and friendly country charm. In a survey a few years back, Virginia Tech’s student quality of life was reported to be the best of any U.S. college. It was also recently rated as having the third-best college food in America. Sadly, that was far from the case when I attended.

All of my post-college life has been spent in either Lancaster, Pennsylvania, or an adjacent suburb. According to , Lancaster is 2023’s top U.S. city for retirement. Lancaster County is probably most famous for its Amish population, but there’s much more than that.

The food scene here has exploded—a good thing for my family of foodies. For instance, when I first came to Lancaster nearly 40 years ago, there were no Thai restaurants. Now, there's easily a dozen, most of them outstanding. Sushi is another family favorite. There’s a large number of great sushi places, Genki being our personal favorite.

Want top-notch Vietnamese? There are several options, along with Burmese, Ethiopian, Moroccan, Indian and Peruvian restaurants. In fact, name just about any ethnic cuisine, and you can find it. Of course, the famous Lancaster County Pennsylvania Dutch buffets are still around, as well as many fine dining establishments that defy easy definition. In short, this small city of 60,000 has just about everything you could want, food-wise.

What else is there in Lancaster County to attract retirees? A great health care system, parks galore, the Sight & Sound theater, top-rated farmers' markets and sprawling shopping outlets. The historic Strasburg Rail Road is popular with both tourists and local folks. Scenic drives through farmland abound. And, oh yes, you’ll see plenty of Amish folks with their horses and buggies. You may even get to know some of them when you buy their produce.

There are several large, high-quality retirement communities in or near Lancaster. Willow Valley is the most prominent, with around 2,600 residents living on 210 acres just south of Lancaster.

It’s convenient to already live in such a location. As I ease into retirement, we’re not planning to move any time soon. Most of our social network is here. We love the people in our church, where we’ve been members for nearly 30 years. I regularly get together with friends from work. We have great neighbors on either side of our house, in back of us, and across the street.

We also have established relationships with a medical practice, a dental practice, auto mechanics, hairdressers and landscapers. A fully stocked hardware store is less than a mile away, and our well-managed fitness center is also close by.

Since the criteria used in the various “best places” lists change regularly, I fully expect Lancaster to relinquish its crown as the “best place to retire” sometime soon. No matter. We’re staying put.

Ken Cutler lives in Lancaster, Pennsylvania, and has worked as an electrical engineer in the nuclear power industry for more than 38 years. There, he has become an informal financial advisor for many of his coworkers. Ken is involved in his church, enjoys traveling and hiking with his wife Lisa, is a shortwave radio hobbyist, and has a soft spot for cats and dogs. Check out Ken's earlier articles.

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Wasting Energy

I TRY NOT TO WORRY too much these days. Although I’m retired, it doesn’t mean my life is carefree. There’s always something I could worry about.

After all, as we age, we tend to have more health problems to fret about, and just as many money issues. We can also find ourselves alone for the first time in decades without our partner, the stabilizing force in our life.

My mother worried a lot after my father passed away. It got so bad she couldn’t sleep at night. She said she couldn’t turn off all the bad thoughts that kept her awake. I think a lot had to do with my mother never sleeping alone during the 41 years that she and my father lived in their house. Without her husband, she no longer felt secure in her own home.

After my wife left for six weeks to take care of her mother, I got a glimpse of what my mother must have been feeling. With Rachel gone, I too felt uneasy staying in our home alone, and my parents were together a lot longer than Rachel and I have been. I can only begin to imagine what my mother was going through. Still, I think it was good that I spent some time in the house on my own, so that one day I might not worry so much if I’m the one who’s left behind.

Over the years, the one thing I’ve learned about worrying: It’s usually all for nothing. Most of the time, it’s a lot of wasted energy that could have been put to better use. I’d like to believe that, as I’ve grown older, I’ve done a better job of living a worry-free life. At age 72, you’d think I would have experienced enough stuff that it would take a lot to rattle me.

But once in a while, no matter how insignificant, something will stress me out. It’s unavoidable because I’m human, and that’s what humans inevitably do—we worry. I’ve been seeing a urologist for the past three years due to a medical condition. It turned out to be nothing serious, but he thought—because of my age—that it might be a good idea to monitor my health closely for a while.

I usually see him every six months. During my most recent visit, he wanted me to have another renal ultrasound exam. The last time, I had to drink 40 ounces of water an hour before. Drinking water is required, so you can have a full bladder that gives a clearer view of the kidneys and bladder. At my age, it was a struggle for me to hold that amount of water long enough to complete the exam.

I told my doctor I didn’t think I could do that again. He said, “Do the best you can. I want you to have it done at Hoag.”

A month went by, and I still hadn’t made an appointment for the exam. I kept thinking about all the things that could go wrong, having to drink that much water. It’s amazing how the prospect of downing five glasses of water, each containing eight ounces, can keep you from taking action. But it did. I knew I was being irrational when I realized I wasn’t concerned about what the exam might reveal. I was worried about the consequences of drinking 40 ounces of water.

I finally called Hoag to make the appointment. The representative took all my information and then told me how to prepare. She said, “You have to drink 16 ounces of water 30 minutes before the exam.” That’s right. It was only 16 ounces and only half an hour before the exam. Hoag had different requirements than the medical facility where I’d previously taken the exam. The exam was easy, and there were no hiccups.

If I’d only listened to my own advice, I would have saved myself a lot of grief. Usually, things we worry about never happen or, if they do, it’s not nearly as bad as we imagine. I can think of countless times when this has occurred, whether it was an issue with my health, job, family or money. Things usually work out in the end.

It seems like there’s an endless number of decisions to make in retirement: Should I take Social Security benefits early or late? Should I enroll in traditional Medicare or Medicare Advantage? Should I buy an immediate-fixed annuity or keep the lump sum? Should I stay in my home or plan on moving into a continuing care retirement community?

We might fret about making the right retirement choices. But there are no truly right or wrong answers to these questions. Everybody's situation is different. There’s no crystal ball that’ll tell us the future. We can only make such decisions based on what we believe are our desires, needs and goals. If we find out later that we made an undesirable choice, more than likely it won’t have a significant impact if we’ve planned well in other areas of our retirement.

I told Rachel that we’re going to live out the rest of our retirement based on what we think is best for us, without worrying about things that might never happen. For instance, we’re going to stay in our home and not fret about being able to care for ourselves in our later years.

If things don’t go our way, we’re prepared to tackle them head on. We’ve done two of the most important things that we could do to prepare for our golden years: We saved diligently and lived a healthy lifestyle. Those are two good reasons we shouldn’t worry about our future.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on X (Twitter) @DMFrie.

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’Tis the Stress Season

THE HOLIDAYS ARE HERE. For me, the Christmas season brings back memories—along with anxiety and stress.

Let’s review the stress first. Where are we going to have Christmas dinner and who will come? Getting everyone together is virtually impossible.

Next come the decorations. It wouldn’t be so bad if they weren’t stacked this way and that in a storage locker. When we moved to a condo, we converted to an artificial tree. It looks real from two feet away, but it’s stored in four pieces and weighs a ton. Wouldn’t you know it? It’s at the back of the storage locker located in our building’s garage.

We have enough decorations collected from our travels to trim five trees and two houses, and yet something new pops up each year. Isn’t that so cute? I see a black lab ornament in our future this year to celebrate our daughter’s new puppy. Our collection of Cape Cod ornaments alone fills a large box.

I’m faced with major decisions. Do I set up the Christmas villages and my electric trains? Darn heavy stuff and not many people see them. Alas, tradition prevails. Those trains were my father’s, from 1920.

My wife decorates every room in the house, plus our balcony. Where did I put all those extension cords, timers and spare bulbs? Are we having fun yet?

I like Christmas, I really do, but as a kid, I don’t remember all the stress, aggravation and work involved. Could it be my parents and grandparents did it all?

Gifts are also a source of stress. At least my wife and I stopped giving presents to each other several years ago. Instead, we each fill the other’s stocking with a few trinkets and lottery tickets. But that’s not true for our four children, their spouses and the 13 grandchildren. What will I get everyone?

I recall presents that were real doozies. One year, I splurged and gave my wife a giant microwave that was nearly impossible to lift. The fact that our marriage survived past Christmas morning was that year’s miracle. Every Christmas, my adult children remind me about that gift.

Many years ago, I was feeling successful and dipped into savings to buy my wife a red fox fur jacket. It cost $1,500, which back then was a hefty sum. Connie was pleased and she wore it, but it seemed more and more I had to suggest she put it on when we were going out. Turns out she felt it made her look like a teddy bear. Old Foxy still hangs in the back of her closet, not having seen the light of day in decades.

Memories from my childhood are still fresh. I grew up in a small city in North Jersey, a few miles from Newark and about a 30-minute drive from New York City. We had several department stores in town—malls didn’t exist. One mall was subsequently built on land that had been a dairy farm, with horse stables and a black Angus cattle ranch. Yup, in North Jersey.

Christmas was a big deal. Every department store had a Santa or Santa’s helper, many times in the store window with Mrs. Claus. One store, Kresge’s in Newark, had a monorail running beneath the ceiling of the toy floor. You could have lunch with Santa for a small fee—at least, I think it was small.

At another store, Santa gave me a wrapped present each year. I always seemed to get Tiddledy Winks. I suspect it was because my mother always chose the 25-cent gift instead of the 50-cent, 75-cent or $1 presents.

My all-time favorite Christmas shopping occurred in my young married days. What to buy, what size, what color? There was a small department store nearby called J.M. Towne—now long gone—that on a certain night each week around Christmas held a men’s night. You sat in a nice chair, sipped cocoa and ate cookies, while the sales ladies shopped based on your general criteria and then wrapped your choices.

The result wasn’t any better than my own unassisted effort, with many of the gifts quickly returned. It was fun, however. Eventually, I resolved to stay with jewelry. Baubles seem to keep well.

My favorite time is Christmas night. It’s all done, over, quiet, and I sit in my chair by the glowing fireplace sipping eggnog, listening to carols and staring at the tree. Oh, forget that. Because we’ve moved, the tree is now in another room.

As we get closer to the big day, I’m trying to get into the mood. Facing that storage locker takes fortitude. I get the same stressed feeling opening that door as I do entering a Home Depot. What am I doing here?

Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on X (Twitter) @QuinnsComments and check out his earlier articles.

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Fixing Your Mix

WITH YEAR-END IN sight, it’s a good time for some investment housekeeping. What’s worth your attention? Last week, I discussed the importance of asset allocation. According to research, this is the most significant portfolio decision you can make. But while asset allocation is important, it isn’t the only decision. Within each of the major asset classes, there’s another set of considerations.

Bonds. Earlier this year, I conducted a survey on X, as Twitter is now known, asking whether a total bond market fund would, on its own, be sufficient to fill an investor’s bond allocation. Nearly three-quarters of respondents said no, and I share that opinion. Why? The bond market is larger and more diverse than the stock market and, for that reason, a broadly diversified basket of bonds may not be what best serves investors. Instead, investors may wish to narrow their bond holdings along several dimensions.

The first dimension is what’s known as duration. A bond’s duration is similar to its maturity, and measures how long it would take an investor to get their money back. Bonds with longer durations—or bond funds with longer average durations—face more risk when interest rates rise.

That’s precisely what we saw in 2022, when total bond market funds, which have a duration of around six years, lost 13% of their value. By contrast, funds with shorter durations experienced much more modest losses. For example, Vanguard’s Short-Term Bond ETF, with a duration around 2.6 years, lost just 5.5% last year.

The next consideration is the type of issuer. Bonds are issued by the federal government, by state and local governments, by foreign governments, and by corporations. And all of these, with the exception of U.S. Treasury bonds, are available from issuers of all different levels of creditworthiness.

A final consideration when choosing bonds: whether to invest in a bond fund or individual bonds. You can find high-quality, low-cost funds covering each corner of the bond market, plus investing through funds typically makes life simpler.

Still, there’s an exception to consider. With yields at 15-year highs, you might want to build a ladder of individual bonds to lock in today’s yields. If you go this route, I’d offer one caution: Because the bond market is far more opaque than the stock market, the only type of bond I’d purchase individually would be U.S. Treasurys. Because of its size, the market for Treasurys is much less opaque.

Remember, the bond market—unlike the stock market—has no centralized exchanges with quoted prices. That makes it much easier for professional bond traders to take advantage of individual investors. The upshot: For bonds other than Treasurys, I’d opt for a fund or, depending on the size of your portfolio, a dedicated bond manager. I wouldn’t try buying municipal, corporate or international bonds individually.

Real estate. For many years, real estate seemed to only go up. But with elevated interest rates, some corners of the real estate market are seeing declines. This presents an opportunity for buyers. Intrigued? There are at least four key decisions to make.

First, decide whether you want to participate via equity or debt. In other words, do you want to own a property, or do you want to be a lender to those who are buying properties?

Second, if you opt to be an owner, decide whether you want to own property directly or through a fund. Owning a rental property directly generally results in much better economics for the investor. It also, however, means more work. There’s no right or wrong answer here, but it’s probably the most important decision for real estate investors.

Third, decide how you want to allocate your available funds among properties. If you invest all your money in one single-family home, for example, you’ll gain simplicity but give up diversification. Choose a multi-family property or a collection of smaller homes, on the other hand, and you’ll have more to manage, but a problem with any one unit won’t be as damaging.

Fourth, think about geography. If you’re managing a rental yourself, it’s ideal if it’s close by. On the other hand, if you don’t mind hiring a property manager, you might benefit from diversifying geographically.

Stocks. In another survey I conducted this year, I asked readers whether a total stock market fund would be sufficient to fill an investor’s stock allocation. As with the bond survey, only a minority said yes, but the percentage was notably higher. In other words, more investors would be satisfied with a total market fund for stocks than for bonds.

That result makes sense to me. As discussed above, the bond market is much more diverse, and certain types of bonds simply don’t make sense for certain investors. With stocks, that’s far less likely to be true, so investors’ best bet is to opt for broad diversification. Indeed, with stocks, the key risk is being too concentrated—in other words, being under-diversified.

If you're reviewing your stock holdings, that’s the primary screen I recommend. Examine whether your stock holdings are too heavily weighted in one company, one industry or some narrow slice of the market. Because of the runup in technology shares, it’s not uncommon to see portfolios with a huge bet on a handful of stocks, such as Apple, Amazon and Microsoft. A variety of tools, including Morningstar’s X-Ray, make it easy to look under the hood of your portfolio and see risks like this.

A final note. Across all asset classes, there’s another key decision to make: whether to invest only in publicly traded investments or to get involved with private funds. To be sure, private funds have an allure. But they’re also characterized by high fees, illiquidity, lack of transparency and often tax-inefficiency.

That’s why the late David Swensen, who promoted the use of private funds during his long tenure running Yale University’s endowment—and had great success with that strategy—went out of his way to advise individual investors to do precisely the opposite. In fact, he wrote an entire book on the topic. As you think about investment choices for 2024, this is a key factor to keep in mind.

Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X (Twitter) @AdamMGrossman and check out his earlier articles.

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Forget the Check

THE HOLIDAY SEASON used to be a time when we’d write and mail more checks than usual. Some were gifts to family, while others were year-end charitable donations. But with the rise in mail theft and check washing, we’ve been on a campaign to limit the number of checks we write, plus we’ve almost eliminated the mailing of checks. Here are eight things we’ve done to reduce our exposure to check fraud:

We opened a secondary no-fee checking account and opted out of the overdraft protection. We keep no more than $500 in that account and use it for any check that has to be mailed. It’s linked to our primary checking account, so we can quickly replenish it with an online transfer whenever necessary.
Either our primary checking account or a credit card is used for all bill payments that are either automatic deductions or electronic payments that we initiate. All automatic credit card payments are through one card that never leaves our house.
We bought gel pens that we use for checks that are to be mailed, since that ink is harder to “wash.”
We drop any mail that includes a check into the slot inside the post office. This doesn’t prevent an “inside job” perpetrated by a postal worker, but it cuts out the risk of theft from publicly accessible boxes.
We balance our checkbook each month, monitoring the account for any unexpected activity.
We enrolled in Zelle through our bank to send and receive payments, and had our adult children do the same. Zelle should only be used if you know and trust the payee because, once the money is sent, it isn’t retrievable.
We have also used PayPal for transactions. PayPal and similar services are best for situations where you don’t know or don’t have a trusted relationship with the payee.
We’ve moved to using a credit card to make online charitable donations. I realize the charity has to eat some fees, but that’s better than the charity not receiving the check at all. We use a check for local donations when we can deliver it by hand.

Before this latest campaign to limit the chances of fraud, we’d already converted most of our routine monthly bill paying to either electronic funds transfers or credit card payments. I also eliminated snail mail delivery of as many bills, bank statements and investment statements as possible. Now, you won’t find much in our mailbox except junk mail.

In the past 12 months, we’ve written just 11 checks. Six were handed over to the payee in person—three to the dentist, one gift and two charitable donations. Of the five that were mailed, two were payments for local taxes; I’ve since enrolled in online payments.

You might think gift cards would be a good option for gifting. Since they can’t be “washed,” at least your loss is limited to the value of the card. On the other hand, they’re effectively cash without having the hassle of needing to be washed. My brother-in-law, who lives out west, has had two greeting cards to his grandkids disappear on their way to Ohio. Both included gift cards. We’ve now explained the merits of Zelle to him.

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Better and Better

PROGRESS IN RECENT decades has been remarkable. We no longer do math using slide rules, talk on phones attached to walls, choose from just a handful of TV channels or drive clutching an unfolded map.

Less obvious—but arguably just as important—has been the progress in our financial thinking. Looking back over the post-World War II period, I see five key phases in our thinking about money, and those phases roughly parallel the needs and wants of the baby boomers, as they went from amassing money for retirement to spending down those savings. Ever heard the five statements below? You’re far less likely to hear them today:

“I just buy the best investments I can.” Today, everyday investors are quick to talk about their portfolio and how it’s allocated—and yet the very notion of portfolio design is a relatively new one. Until Harry Markowitz’s groundbreaking work in the 1950s, investors were focused not on building diversified portfolios, but on buying the best investments, however they chose to define "best."

Today, by contrast, many investors can rattle off key portfolio statistics, such as their split between stocks and bonds, U.S. and foreign shares, large and small companies, and growth and value. Until the 1980s, this sort of style-box talk would have been rare, even among sophisticated investors.

“I can beat the market if I put in the work.” To me, it isn’t clear there was ever a golden age when savvy professional investors cleaned up at the expense of supposedly foolish amateurs. And if there was such a period, I suspect any performance edge among professional investors resulted not from hard work and brilliant research, but rather because they had greater access to inside information.

Indeed, evidence that professional investors were struggling to beat the market has been available since at least 1932. That was the year that Alfred Cowles detailed the poor performance of professional money managers’ stock picks and market forecasts.

More than four decades later, the problem posed by this poor performance was finally solved, thanks to Vanguard Group founder John Bogle, who in 1976 opened the first index fund for everyday investors. Instead of regularly lagging behind the market indexes by one or two percentage points a year, investors could now mirror the market’s return, and today they can do so while incurring annual expenses of less than 0.1%, equal to just $1 a year for every $1,000 invested.

“My broker picks stocks for me.” The work of Cowles, Markowitz and others got financial advisors to think more carefully about portfolio design and investment selection. But the world soon moved on—and today the best advisors no longer focus solely on investing.

The fact is, it’s awfully hard to outperform a simple portfolio of low-cost, broad market index funds. By contrast, with a little effort, we can substantially improve our financial lives if we focus on issues such as saving diligently, managing taxes, spending thoughtfully, managing debt, planning our estate, purchasing necessary insurance, buying the right size home, claiming Social Security at an appropriate age, and avoiding mistakes. A greater awareness of these issues has been a boon for everyday investors.

Indeed, if you use an advisor and he or she doesn’t help with anything other than your portfolio, it’s time to get a new advisor. What if you manage your own money? If you devote endless hours to your investments and very little to these other issues, you’re almost certainly shortchanging yourself.

“I’ll be happier when I get that next pay raise.” Folks have always sought to lead happier, more meaningful lives. But the amount of research devoted to the issue—especially the connection between money and happiness—has soared in recent decades. The resulting insights have quickly gone mainstream, perhaps reflecting our growing post-World War II affluence, with money available to satisfy more than just basic human needs like shelter, food and clothing.

Do you favor experiences over possessions, try to keep your commute short, take time to express gratitude, endeavor to have a robust network of friends and family, and use your money to buy yourself more free time? Whether you know it or not, there’s a good chance you’ve been guided by academic research.

“I’m looking forward to having more time to relax.” Are you retired or nearing retirement? As you ponder how to handle your finances and how to use your free time, you’ve likely been influenced by the new thinking of the past few decades.

For instance, concern about sequence-of-return risk—an outgrowth of Monte Carlo analysis—has made folks leerier of bad financial markets during their initial retirement years. Worries about longevity risk, and analysis of the best Social Security claiming strategies, have led more folks to postpone claiming benefits. Discussions of happiness, and how retirees with predictable income tend to be more content, have also led folks not only to delay Social Security, but also to see the value in pensions and income annuities.

Meanwhile, a better understanding of what makes for a fulfilling life has prompted folks to view retirement less as a chance to relax, and more as a time to take on new challenges. It’s also led folks to think more about how they’ll avoid social isolation during their retirement years.

All five topics above are a focus here at HumbleDollar, but especially retirement. And we’re hardly alone. Driven by the aging of the baby boomers, I suspect we’ll see growing interest in retirement issues among both academics and the media—and the result will be ever-more valuable insights. Indeed, folks may look back decades from now and view today’s thinking about retirement as backward and perhaps even wrongheaded.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X (Twitter) @ClementsMoney and on Facebook, and check out his earlier articles.

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Running Up the Tab

A FEW DAYS AGO, I RAN the numbers on our likely 2023 taxes, and reached two conclusions: We have a small refund coming—and we should find a way to pay more taxes.

How can both be true? I project that our 2023 taxable income will be well below $190,750, which is the top of the 22% tax bracket for those married filing jointly. Getting taxed at 22% strikes me as a good deal, given the likelihood that we’ll be taxed at an even higher rate later in retirement. There are a few things we could do by Dec. 31 to make sure this opportunity doesn’t go to waste.

For instance, we could convert some holdings from a traditional IRA to a Roth IRA, paying tax at 22% on the sum converted. That marginal rate is probably low compared to what we’ll pay when we draw down our traditional retirement accounts later in retirement. By the time we make those withdrawals, we hope our accounts will have grown, plus income tax rates may have gone up.

Today’s historically low tax brackets are set to sunset at year-end 2025. The costs of the pandemic, foreign wars and the government’s growing debt burden create further pressure to raise taxes. Anything can happen, of course, but it seems highly likely that our future tax burden will be higher than our present one.

We might even consider Roth conversions that would push us into the next bracket, which goes up to $364,200 for married couples. Even at that high amount, the effective marginal rate would only be 24%. While the net investment income tax (NIIT) is triggered for couples at $250,000 in modified adjusted gross income, distributions from IRAs and 401(k) accounts are exempt from this additional 3.8% tax.

Still, converting such a large sum would mean a big tax bill. Moreover, there are reasons to keep a healthy sum in traditional retirement accounts, rather than moving too much into Roth accounts. We also don’t have children, so we don’t have the legacy considerations that make Roth conversions appealing to many. But while converting at a 24% rate is debatable, converting enough to get to the top of the 22% bracket seems like a no-brainer for us, improving our tax diversification across Roth and traditional retirement accounts.

Another way we might take advantage of our low bracket is to realize some capital gains by selling appreciated investments held in our regular taxable account. We have some tax losses that we harvested last year and which are available to offset gains.

What about generating additional gains beyond the size of our realized losses? Our taxable income is too high to realize gains at the zero percent rate. On the other hand, even if we realized enough gains to get our income all the way to the top of the 24% income tax bracket, the tax on those gains would be just 15%, with the 3.8% NIIT layered on top of that 15%.

We have a few holdings in mind to sell. These are perfectly fine funds and stocks, but selective selling could reduce our large number of holdings, lower the average expense ratio of our portfolio and increase its tax efficiency. Then again, if we just sit tight, when the first of us dies, these holdings will get an adjustment in cost basis that makes the embedded gains go away.

This will be especially significant if we’re still residents of a community property state. In other words, we have a choice between paying some tax today to improve our portfolio or avoiding that tax payment and letting nature do the job for us—though hopefully not until the far distant future.

Our default would probably be to reduce some of the holdings mentioned above by the amount we can cover with carried-over losses, for a net zero capital gains tax liability for 2023. An argument could be made for preserving the carried-over losses for use in future years, when the capital gains tax rate is perhaps higher than 15%. After all, if basic income tax brackets are likely to go up, why not capital gains tax brackets?

We have to be cognizant of the NIIT in realizing capital gains. Unlike Roth conversions, dividends and capital gains are subject to the NIIT and its additional 3.8% tax. If we did both, while the Roth conversion amount itself wouldn’t be subject to the NIIT, it would count toward the $250,000 threshold beyond which dividends and capital gains would get hit with the NIIT.

Next year, we’ll have another, perhaps bigger bite at this tax apple. I project our taxable income in 2024 will be even lower, which would give us more room to do a Roth conversion or take capital gains at a relatively low rate. We’ll also still be more than three years away from Medicare, which means not having to worry about triggering higher Medicare premiums.

As I write this, we haven’t decided. I expect we’ll realize capital gains up to the point where these gains are offset by the losses harvested last year. I also expect we’ll do enough Roth conversion to get us near the top of the 22% tax bracket. Beyond that, well, we still have a few weeks to decide.

Michael Perry is a former career Army officer and external affairs executive for a Fortune 100 company. In addition to personal finance and investing, his interests include reading, traveling, being outdoors, strength training and coaching, and cocktails. Check out his earlier articles.

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Pick Your Fights

WHEN I WAS GETTING ready to marry for the second time, I went to Klaus Dorfi, the CEO of the company where I worked, and asked what advice he’d offer to ensure a lasting marriage. His words became another of those phrases that stayed with me for the rest of my life.

“Pick and choose your fights,” he said. “You can argue about everything—or decide what are the most important issues that need to be agreed upon.”

We all know people who disagree often. There are others who enjoy debating an issue. Then there’s the third group, who love to get into physical fights. These folks I avoid like the plague. They’ll erupt and strike without warning.

I’ve never been in a physical fight, so all my bones, joints and teeth are where they’re supposed to be. The bad news is, I lived defensively to avoid confrontations at all costs. This also means that, throughout my life, I’ve internalized my problems and didn’t properly confront the folks who caused me headaches. I could have done a better job.

One benefit of my aversion to fighting: I was never terminated from a job for cause. I never hit, mouthed off to anyone or got into a "pissing match." As I noted in an earlier article, the primary cause of my job terminations was that my bosses simply didn’t like me.

My brother was the opposite. His first reaction to any problem was to fight, badger, argue and blame others. This led to the dissolution of all the businesses he formed and the partnerships he entered. It also led to tensions with my mother, especially when my brother and his family moved into her house at the end of her life. The only partnership that lasted was his 57-year marriage.

This behavior ultimately led to his death. Two years prior, he apparently got into a verbal and physical confrontation with a neighbor, who ended up pushing him. That caused my brother to lose his balance, fall back and hit his head. The head injury resulted in him losing his verbal abilities and to infections, and ultimately to his death.

We all have the right to stand up for what we believe. We all have our individual needs and wants, which may or may not be given to us without some intervention on our part. What’s important is the approach you use to get what you want.

Successful people know how to negotiate for what they need or want, and can do so without raising their fists. You can “win the battle but lose the war” by focusing on minor issues at the cost of the bigger win. Sometimes, you have to accept a loss if the ultimate goal will eventually be achieved.

Whenever I started a new job after a period of unemployment, I always reviewed the benefits package and made sure I got what I needed. My three priorities were salary, 401(k) and medical insurance. As long as all three were part of my package, I was satisfied. I, of course, took advantage of the other benefits and learned how to maximize things such as flexible spending accounts, automatic savings plans for U.S. savings bonds, and pre-tax transit benefits. For me, vacation was the least important benefit.

When applying for a job or once you’re employed, a satisfactory benefits package and a salary increase are worth fighting for, as long as the negotiations don’t backfire and harm your employment status. You shouldn’t have to settle for something less than what other employees receive. That’s a fight worth fighting. But don’t fight—and, for goodness sake, don’t fight aggressively—for something you’re unlikely to get.

David Gartland was born and raised on Long Island, New York, and has lived in central New Jersey since 1987. He earned a bachelor’s degree in math from the State University of New York at Cortland and holds various professional insurance designations. Dave’s property and casualty insurance career with different companies lasted 42 years. He’s been married 36 years, and has a son with special needs. Dave has identified three areas of interest that he focuses on to enjoy retirement: exploring, learning and accomplishing. Pursuing any one of these leads to contentment. Check out Dave's earlier articles.

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