Jonathan Clements's Blog, page 121

Know the Score

IF YOU’RE IN THE market for a home and a mortgage, this is a tough time, with shrinking inventory, lofty home prices and interest rates that feel overwhelming. I know all about this—because I’m a mortgage broker.

For many, today’s housing and mortgage market mean putting their homebuying dreams on hold. What if you go ahead, despite 30-year fixed-rate mortgages above 7%? I advocate controlling what you can. One of the variables that you can influence—and which can help save a tremendous amount of money—is your credit score.

Below are the six things I wish clients understood about their credit score when it comes to mortgage lending:

1. You don’t have one credit score. You don’t have three credit scores. Instead, you have multiple credit scores. Experian, Equifax and TransUnion are the three main repositories of consumer credit data. These are the folks to whom your creditors send monthly data about credit usage, late payments and so on.

VantageScore and FICO are the two main owners of consumer credit algorithms, and both companies have multiple scoring models. VantageScore is often used by consumer credit-monitoring services. Those scores will not be the same as the scores used by your mortgage lender. If I had a dollar for every time clients were shocked that their mortgage score was lower than what they thought it would be, well, I wouldn’t be retiring, but I’d be making some large donations to charity.

Mortgage lenders use FICO score models Nos. 2, 4 and 5. If your consumer reporting service tells you that your score is 750, be prepared: Your FICO score used in mortgage lending will likely be much lower due to the different scoring algorithm used. This discrepancy has huge consequences for borrowers. As I write this article, below is how rates compare for various credit scores.

2. The mortgage industry is in the process of adopting an entirely new FICO model. It’s known as FICO 10T and it’ll give trended data. Think of it this way: The current FICO models are like a static picture on Instagram, but the new trended data model will show a lender a short video, similar to a TikTok video. It’s predicted that these models will better reflect consumer behavior, so—if you have anything to clear up on your credit report—it’s important to start now. These models are set to be the industry standard by 2025.

3. It’s crucial to know your scores before starting the mortgage process. The best way for consumers to do this is to head to myFICO.com (no endorsement deal here), choose the “advanced” service and pay roughly $30. This’ll give you a full credit report. You will have to sign up for a monthly subscription plan, but just set a reminder in your calendar to cancel the subscription before the end of the following week.

This report will provide the detailed scores used in auto, mortgage and credit card lending. Fear not: There’s no negative impact on your credit score if you check your own score. You can also get a free copy of your credit report at AnnualCreditReport.com, but this will only give you the data reported on your credit report. It won’t provide any scores based on that data.

4. When underwriting your loan, lenders will use the median score. That means we line up your three scores in order from lowest to highest, and choose the score in the middle. That effectively means you can have one bad grade from one credit reporting service without risking your entire mortgage pricing.

If your loan has two legal borrowers, such as two spouses or two partners, we’ll use the lower of the two median scores for mortgage lending purposes. Result: It can sometimes be advantageous to remove one borrower from the loan, though this also means that the spouse with the lower score won’t receive the credit-score benefit of making regular mortgage payments. What if you need both your salaries to qualify for a mortgage? You need to know who has the lower FICO score and then work to improve that person’s credit.

5. Having a mortgage lender run your credit won’t greatly affect your score. For most clients, it’ll mean a five-to-eight-point drop. Once a mortgage lender runs your credit, you have 14 days to safely shop for mortgages and apply to as many lenders as you like without any impact on your credit score. The consumer credit-reporting agencies have a policy that you won’t be penalized for shopping for similar types of credit within a limited time frame. They get that you’re trying to find the best possible deal.

6. For the sake of your own sanity, take steps to limit spam emails and calls. Register with OptOutPrescreen.com and DoNotCall.gov. Many mortgage companies buy “trigger” leads, so once you apply with one mortgage lender, the notification that that inquiry has been made gets sent to companies who pay for that data, and you’ll be fighting spam calls and emails if you haven’t registered with these two websites. Clients have reported being bombarded with as many as 45 calls in a 24-hour period.

There are countless articles about what you can do to raise your score, but here’s what I recommend: Keep it simple. Don’t get in a lot of debt. When you do use debt, do so responsibly. Despite common advice to use multiple different types of credit, I personally only have one debt: a single credit card that I pay in full every month. If I were getting a mortgage, my credit score would be 803. Once a year, I buy a credit report from myFICO.com, and check my scores and the data used in generating my score. I make sure everything looks good—and then I get on with my life.

Crystal Flores is a mortgage broker in Texas. She’s a graduate of Dartmouth’s Tuck School of Business and has advised clients on debt since 2004. In her spare time, she tends to her three horses, four chickens, three miniature goats, three cats and a dog. Going to the feed store—and using her sole credit card there—is one of her major pastimes.

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Reader Beware

I ONCE DREAMED OF writing for one of the high-profile personal finance magazines—but that was before I had a rude awakening about the “journalism” they sometimes committed.

As a mid-career business journalist at a respectable daily newspaper, teaching myself about investing, I had looked up to these magazines, then in their heyday, and viewed them as a career possibility.

My worlds came together one day when a top magazine ran a story touting the stock of the electric utility that served my area. The reporter quoted a sell-side Wall Street analyst as saying the stock was one of his top picks.

I called the analyst so I could write my own story. No, he explained, he wasn’t that high on electric utilities in general, though my local utility was a decent one within the sector. It seems the reporter had been assigned to write a story about how attractive utility stocks were, and that’s what the reporter did. His editor deserves most of the blame. Or perhaps the blame lies with the personal finance magazine business model, which requires hyping new investments every issue.

I was stunned. I told the analyst that my own newspaper would have fired me for an act of such dishonesty.

Suddenly, the “big time” magazines in the Big Apple weren’t so appealing.

Today, the personal finance magazines are leaner and some have folded. Still, advertisements and headlines proliferate on the internet under every stock or exchange-traded fund quote you call up.

“Open a gold IRA.” “Former CIA economist sees depression ahead.” “Three most-popular stocks on Robinhood you should buy now.” “Rare all-in buy alert.” “Tech stocks to buy for crypto exposure.” “The #1 Stock to Buy Right Now.”

At least those are just advertisements. Almost as bad are some of the online personal finance news sites. I once wrote for one while I was between jobs, and I have a friend who has written for another. Outside of his pieces, its investing content is mostly dreck, such as, “Day-Trading Tips for Beginners.” At the site I wrote for, they were so intent on search-engine optimization that editors would insert phrases like “for your 401(k)” in articles that weren’t applicable to 401(k)s at all. When I raised the issue, I was told that SEO trumps all.

The bottom line: In case you didn’t know it already, it’s reader beware out there. Especially if you’re investing (ahem) for your 401(k).

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A Half-Century Later

MY PARENTS RECENTLY moved out of the house they’d lived in for 50 years. A half-century might sound like quite an accomplishment. But they stayed too long.

Their home was a 1940s two-story gray stone house north of Pittsburgh, with a three-quarter acre yard. At the 40-year mark, when my parents were in their mid-to-late 60s, the house began evolving from a safe shelter to a hidden hazard zone. The comfort and familiarity of four decades overshadowed the emerging challenges that would affect them as aging seniors.

The house had no bedroom or bathroom on the main floor, only upstairs. The bathroom situation made it difficult for visitors who were uncomfortable with stairs. The laundry was in the basement, requiring two flights down and two up for every load. Remodeling options didn’t make practical or financial sense.

Meanwhile, the three-tiered yard included a steep driveway, creating a slippery slope during the Pittsburgh winters. Maintaining the sizable yard was my dad’s daily exercise and hobby. He mowed grass and nurtured a bountiful garden for 45 years. But a severe health issue sapped his physical stamina. Hiring a service was not in his frugal and do-it-yourself nature, so he painstakingly tamed the turf and shrubbery until the movers drove off. The yard and aged house were constant physical and mental weights.

Now, my parents are in a more suitable home, with all their living needs on the main floor and comfortable guest accommodations upstairs for when the grandchildren visit. It’s still close to the old neighborhood, but even closer to their retired friends and regular golf courses.

Financially, they did everything right, saving enough money to buy the new place with cash before selling the old home. This gave them the flexibility to move at their own pace, though it still wasn’t enough time to properly sort through 50 years of stuff. Despite financial preparation and ongoing counsel, the pending real estate transaction caused significant anxiety because they’d only purchased a property once before, in 1972.

I observed the last decade of my parents’ residency like a risk manager, actively noting all the reasons they should move sooner. For years, I feared they were one fall or health issue away from moving in distress. But my fact-sharing and encouragement only went so far. When they finally acknowledged moving was overdue, the thought of packing up and relocating was overwhelming.

Thankfully, everything worked out okay. When a home in their ideal community became available, they’d already made the necessary financial preparations so they could act quickly. Still, getting there was a long and stressful process. In hindsight, three things would have both accelerated and eased the transition to a more suitable home.

Declutter sooner. Fifty years of possessions and clutter deterred my parents from moving. They couldn’t fathom how to deal with it all. COVID-19 was the perfect opportunity to start downsizing possessions. But not even the boredom of a global pandemic could motivate them to clean out the house. Emotional attachment and irrational justification prevented them from tossing unneeded stuff. Selling things online was intimidating, and they felt there was still financial value in items that most people would view as junk.

They only started addressing the clutter when the new and old homes were under contract. The move forced them to take responsibility for their accumulated possessions, instead of delegating the burden to the next generation.

Much of it went to family and charity, but plenty survived the move, filling the spacious new closets with mystery boxes and converting their two-car garage into a one-car. Had they trimmed their possessions during the previous 20 retirement years, they’d have eliminated a significant mental roadblock that deterred them from moving.

Avoid the “forever home” mindset. Legend has it that the old home’s previous owner had died while working on the roof. As a kid, I remember my dad saying he also planned to die that way.

In his youthful parenting years, Dad never thought he’d live so long. A bland high-fiber diet and daily exercise apparently worked. Still, it wouldn’t have surprised me if he suffered a similar fate as the previous owner, as he continued cleaning the gutters well into his 70s.

Aging seniors often prefer to stay in their longtime homes, and they may be able to do so if it’s suitable. Family, friends and the community can help by providing support for aging in place. But the home’s layout, maintenance requirements and location should be the deciding factors, not stubborn desire. Emotion can sometimes overrule long-term pragmatism, and I suspect that bias grows stronger as we age. My dad’s “forever home” mindset delayed the inevitable and made the move more challenging.

Have a retirement housing plan. My parents retired in 2002, when they were in their mid-50s. With their finances secured by their pensions, they focused on golf, grandchildren and travel. Long-term housing needs didn’t enter their conversations until 15 years later, after a significant health challenge.

Staying in a home “for as long as possible” isn’t a good plan. Waiting until sudden limitations force a move is even worse, as hurrying can result in settling for a less-than-optimal next home. Thinking you won’t live long enough to incur physical or mental limitations in your current home ignores many likely life scenarios. By delaying decisions about retirement housing, individuals and couples risk burdening loved ones with the heavy responsibilities of arranging a move.

Ask yourself: Can you live in your current home if afflicted with mobility or mental limitations? What modifications to your current home would make it more suitable as you age? Where else could you live? Are you financially capable of moving quickly, or are preparations still needed?

If your current housing situation isn’t suitable for the long term, consider rectifying any shortcomings or moving sooner rather than later. My parents’ experience suggests that the longer you wait, the harder it gets.

Craig Stephens writes about personal finance and investing at Retire Before Dad and Access IPOs . Follow Craig on Facebook and on Twitter @RetireBeforeDad , and check out his earlier articles.

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My No-Lose Strategy

FROM AN EARLY AGE, whenever I heard the word “stock,” it was said with a derisive tone. My father hadn’t owned any shares, but the 1929 stock market crash and Great Depression still hit him hard. He wasn’t able to find steady work until after the 1941 attack on Pearl Harbor.

Given its effect on our family, my father had a pathological disdain for the market that was, inadvertently, passed on to me. Without being aware of it, that disdain affected my investing for years until I crept into the market by risking “house money”—my returns from risk-free Treasury bills.

Before I share my low-risk investing strategy, which has helped me retire and give to my favorite charities, let me go back to the beginning. In 1932, when I was born, Herbert Hoover was president and our family was just getting by. My parents, my older brother and I lived in a cold-water flat that had a toilet with a water tank near the ceiling and a pull-chain for flushing, but no wash basin or bathtub.

We bathed in a galvanized tub brought into the kitchen on Saturday night for all to take a bath. A copper tank—now a decorative piece in my daughter’s house—was placed on a coal-burning stove and filled with water to be boiled for the tub.

Through high school, I viewed college as a place where others were headed. For me, even low-cost public institutions were out of reach. Instead, I obtained an apprenticeship that would lead to a trade job—or so I thought. But in 1953, I was drafted into the U.S. Army, and that drastically changed my life’s trajectory.

After I was released from active duty in 1955, I enrolled in college under the G.I. Bill. I also met the girl who would become my wife. We dated for four years—a date consisting of two cups of coffee and a shared English muffin at a Howard Johnson’s restaurant. We were married shortly after my college commencement in 1959.

My wife urged me to go on to get a graduate degree. After earning my master’s in 1960, I worked as a research engineer. During the first year, the company’s president asked if I could teach a course on AC/DC circuit theory at the YMCA Institute. Thus began my career in academia.

I enjoyed teaching, so I inquired about teaching jobs at several local colleges and at the U.S. Naval Academy. The Academy responded and, after an interview in Annapolis, I accepted its offer. I began in the engineering department but transferred to the weapons department after two years.

Each summer, civilian faculty members like me were invited to go to sea aboard naval ships to develop a sense for the duties of naval officers. My first summer, I went aboard the aircraft carrier Lake Champlain.

One day at sea, I went to the rear of the carrier. I was standing on a catwalk just below the landing ship officer, who was guiding pilots as they made landing approaches to the ship. When he dropped his arms, the nose of the plane would dip and then rise as the plane “hit” the deck and connected with the arresting cable.

At the crossroads. Soon, I had a hard landing of my own, professionally speaking. The Naval Academy changed the rules for promotion and tenure during my fifth year there. I would be granted tenure automatically in two more years but couldn’t be considered for promotion until I earned a PhD.

Each summer, my wife and I vacationed in Rhode Island. During that year’s trip, we discussed the pros and cons of my new situation. My choices were three: 10 years of commuting to Washington D.C. as I worked part-time toward my PhD, skip the PhD and remain an assistant professor for the rest of my career at the Naval Academy, or bite the bullet and leave the Academy to pursue a doctoral degree fulltime.

As always in our 64-year marriage, my wife encouraged me to move forward. I chose to pursue my PhD fulltime. I was accepted by the University of Rhode Island as a special instructor in mechanical engineering and a student in the doctoral program. I earned my doctorate in 1970.

Instead of returning to the Naval Academy, I took a position teaching mathematics at Bryant, a small business college in Rhode Island. Again, serendipity entered the equation when the department’s chair asked if I could teach a course about the mathematics of finance.

Falling back on an engineering economics course I’d taken as an undergraduate, I developed and taught the course. In so doing, I discovered what I wanted to be “when I grew up”—and, despite my PhD, it wasn’t mechanical engineering. I was so enthralled with finance that I changed my research to investing and retirement planning for the rest of my career.

I advanced through the ranks until I achieved a full professorship. I was elected chair of the mathematics department, a position I held for 13 years. I had my 15 minutes of fame when a correspondent from NBC Nightly News called for an interview on when people should take Social Security.

I joined the board of directors of a hospital corporation. Shortly after I joined, it became apparent that the hospital was in jeopardy of violating IRS rules. Its defined-benefit pension plan was grossly underfunded and on the verge of failure.

A consulting firm was brought in to reorganize the plan and bring it into compliance. The principal of that firm and I, as chair of the finance committee, worked closely to gain IRS approval for the reorganization. Later, he invited me to be a consultant for his firm. The faculty contract at Bryant allowed one day a week of outside employment.

Finding my way. This one-day-a-week work evolved into a 24-year relationship that exposed me to the real world of finance, including pension funding and pension fund distributions. That got me thinking about creating a major in actuarial mathematics at the university. I developed a curriculum and won approval.

Meanwhile, the consulting firm’s principal, wishing to expand his company to include investment advice and portfolio monitoring, asked me to develop a software package. It would quantify a person’s risk-return profile based on responses to a series of questions. Then it would search a database of some 1,200 active money managers to identify those who would be a good fit for the client.

I completed the program just before the 1987 stock market crash. While the principal was delaying the program’s use until the market settled down, I was conducting tests to validate my work. I ran a test with outrageous requirements—one criterion was a return of at least 25% for 1987. A search of the database produced just one money manager who met that objective.

This manager offered his clients two portfolios, one that guaranteed a return no worse than a 0% gain for the year and the other limited losses to -10%. It was the latter portfolio that achieved a 31% return in 1987.

But it was the money manager’s strategy for avoiding an annual loss that intrigued me. It turned out he bought three-month Treasury bills, which are sold at a discount to their face value at maturity. He then invested these discounts in three-month stock options. On the expiration date of the options, he received the face value of the Treasury bill and either exercised his options for a profit or let them expire if they were out of the money.

With my lifelong hesitancy about stocks, I seized on this low-risk concept. But instead of options, which required knowledge I lacked and involved risks I wasn’t willing to take, I decided to invest the discount in stocks.

In 1988, the one-year Treasury bill provided an average yield of 7.65%. The discount rate for that yield would have averaged 7.12%—I’ll use 7% for simplicity. Result: For each $1,000 of T-bills, the cost would be $930, leaving $70 to be invested. I chose to invest that 7% in dividend-paying stocks.

Fast forward one year. The portfolio would include the $1,000 principal from the T-bill, plus dividends earned on the $70 invested in stocks, plus sometimes a gain from share price performance. The worst-case scenario would be that the stocks lost all their value, leaving the portfolio with no gain and still at $1,000.

The downside of this approach was the opportunity cost of not investing more in stocks. The upside was that I couldn’t lose my investment capital. I made my investments through a Simplified Employee Pension Plan, or SEP, funded by the allowable contribution from my consulting practice.

I kept pursuing my safety-first strategy, accumulating T-bills with new savings and using their discounts to buy stocks, until 2004, when the consulting firm’s principal sold his company and my work for him ended. I terminated the SEP and rolled over the assets into an IRA. I began to take required minimum distributions, transferring stocks to a taxable brokerage account and withdrawing cash to pay the income taxes.

I view my approach as a model of Aesop’s fable, The Tortoise and the Hare. I ventured into the stock market as the slow-moving tortoise. Viewing my investments in hindsight, I could have earned much higher returns with a larger stock allocation. My return, however, was commensurate with the risk I was willing to take. I’m still a proponent of investing in T-bills. But today, both my IRA and my taxable account are 100% allocated to stocks.

I enjoyed teaching the theory of interest, as well as lecturing on software development and applications. The years passed quickly and, at age 80, I took senior status, which meant a reduced teaching load. I phased into retirement over the next four years.

Thanks to the income from Social Security and the university’s retirement plan, I’m free to use my IRA to make charitable distributions, including to my wife’s favorite charity, The Jimmy Fund Clinic at Dana-Farber Cancer Institute, and to my favorite charity, Disabled American Veterans.

I’m now in my 90s. My wife and I are financially secure. I was lucky I found a way to invest in stocks at a risk level I could tolerate, because their returns have allowed me to overcome inflation. Indeed, like many of my generation, I’m grateful I found a path that helped me achieve a measure of the American dream.

Robert Muksian is a professor emeritus of mathematics at Rhode Island’s Bryant University. He served on the faculty for 46 years. He has also served on the boards of trustees of his church, a small general hospital and the Rhode Island affiliate of the American Heart Association, as well as the board of canvassers of the city where he resides and the editorial board of the Journal of Financial Planning. He has published two books, several papers in both peer-reviewed and non-peer-reviewed journals, and op-eds dealing with Social Security and public finance in Rhode Island’s largest newspaper. He and his wife reside in Cranston, Rhode Island.

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Live to 100

MY WIFE AND I JUST finished watching the Netflix documentary Live to 100, which I highly recommend. The four-part series focuses on Dan Buettner’s study of pockets of people around the world who achieve amazing longevity, including many residents who live to age 100 and beyond.

The seven longevity locations include Okinawa, Japan; Sardinia, Italy; Ikaria, Greece; Nicoya, Costa Rica; and Loma Linda, California. These locations of long-lived people have been labeled “blue zones” based on the seminal demographic work on Sardinia by Giovanni Mario Pes, Michel Poulain and others.

Buettner identified nine characteristics shared by these blue zone residents. He further distilled that list down to four basic practices:

Eat well. This consists largely of a plant-based diet consumed in moderation. A little bit of wine is common, but modern processed foods are not.
Move naturally. Blue zone residents do plenty of daily walking, plus typically a moderate level of manual labor, and keep it up into old age. In effect, many of these folks don’t retire, but rather undertake light but meaningful work-based physical activity—such as gardening, farming, sewing, cooking, home maintenance—as part of their daily routine. They effectively use it, so they don’t lose it.
Maintain a positive outlook. It seems a purpose-driven life delivers both happiness and longevity. Many blue zone residents build leisure activities into their daily lives, giving them a chance to periodically decompress. Most also lead a faith-based life.
Connect with others. This includes their spouse, family members and their larger social network.     

Interestingly, these blue zone traits mirror the advice of many HumbleDollar contributors: eat healthily, exercise, stay connected for greater happiness, and develop a sense of purpose.

How do Buettner’s findings help if you don’t come from a family with notable longevity and you don’t live in one of these blue zones? Buettner and others have found that heredity is not the largest contributor to longevity.

Buettner has helped implement well-being transformation programs in several U.S. communities. In every case, these communities have dramatically improved population health and longevity. In other words, we can improve our long-term health by adopting the lifestyle of blue zone residents.

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Why the Long Face?

AS I READ ARTICLES and comments on HumbleDollar, I see concerns about taxes, Medicare, Social Security, health care costs, college, inflation, investing—and the anxiety caused by the complexity of it all. I also see very different views on what’s earned and deserved. In some ways, it’s about what we consider fair.

I suspect the HumbleDollar community is more aware and more involved in their overall financial life than the majority of Americans, but nevertheless generally representative. If we step back and consider our collective views on money and all that goes with it, have we lost our perspective? Do we realize how good we have it?

Even our poor are comparatively fortunate. If you earn $50 a day, or about $13,100 per year, you’re in the world’s top 20% for income. The average household income in the world is $12,235, while the median (or typical) per-capita household income is $2,920.

Americans have more stuff and larger homes than citizens of just about any other country. There are 300,000 items in the average American home, or so says an article in the Los Angeles Times.

The average size of U.S. homes has nearly doubled since the 1950s, according to National Public Radio. It’s still not large enough for many. A quarter of people with two-car garages say they don’t have room to park cars inside them, and 32% only have room for one vehicle, according to the Department of Energy. No wonder one out of every 10 Americans rents offsite storage—the fastest growing segment of the commercial real estate industry over the past four decades, reports The New York Times.

A Bloomberg article reveals that, when surveyed, even wealthy people—those with incomes in the top 10% of tax filers—say they’re poor. These are people earning at least $175,000 a year. A quarter of these folks say they are “poor” or “just getting by.” Half say they’re just “comfortable.” They’ve achieved the American dream, but as the article notes, it’s not enough.

We lament the demise of the traditional pension and yet not even 50% of working Americans ever had one. We also forget that a pension’s value lies in longevity as an employee. Our tendency to change jobs every four years or so makes the 401(k) plan more valuable than a pension for most workers, especially those whose 401(k) includes an employer contribution. Yet I don’t think I can convince today’s workers of that.

Where does all our money go? I know one place. A new survey says 32% of Americans have a tattoo and 22% have more than one—at an average cost of about $200. A quarter regret their tattoos. Oh well, too late. Based on my back-of-the-envelope calculation, we’ve spent at least $16.5 billion on skin ink. It seems some Americans are filling their bodies faster than their garages.

Meanwhile, our COVID-19 exuberance for pets has left some families struggling to afford their fur babies. They’re going into debt to keep their pets or giving them to shelters. How much emotion is involved in financial choices like these?

About our tax situation: The U.S. is not in the top 10 highest-taxed countries for income, corporate or sales taxes. As of 2021, the U.S. ranked 32nd out of 38 democracies as measured by taxes paid relative to gross domestic product. Although we all want government programs, our taxes are too low to support them.

We also seek legal ways to pay less tax, even as the deficit is growing fast. Each household’s share of federal interest payments on our collective debt is roughly $3,035 per year.

Our lack of appreciation for our good fortune extends beyond money. I had a health issue in 2022 that was quite routine and resolved using a robot. My father had it 60 years ago and spent a week in the hospital. Sixty years before that, he—and I—would have died.

I have a friend in England in need of a hip replacement. She’s been suffering since February and is now told she should have the surgery by Christmas. Don’t get me wrong, Americans wait for health care, too. It’s just that we seem to complain louder based on our unrealistic expectations. We also want lower health care costs with no consideration for the consequences, such as longer waits and less flexibility.

One of my unusual habits while on Cape Cod is visiting old graveyards. The tombstones can teach us a lot, including what we should appreciate. By far the most moving headstones are those of families. One I’ve visited a few times has headstones for 11 children, all of whom died in infancy or when they were just a few years old.

In the U.S. today, the infant mortality rate is 6.2 per 1,000 births. That’s a far cry from what families endured in the past. But sadly, it’s not as good as Belarus, Cyprus, Estonia, Iceland and many other developed countries.

What should we make of all this? I’d say we Americans could do better at appreciating what we have, and be a bit more prudent with our financial planning and discretionary spending.

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

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There Always

DON'T BE TOO IMPRESSED with the magnificent chandelier hanging from the ceiling or the tastefully furnished lobby. A nursing home is a nursing home. It’s not the best answer, but sometimes it’s the only answer.




Mom grew very frail when she entered her 90s. She’d already been diagnosed with late onset Alzheimer’s. At age 91, she fell and broke her right hip and shoulder. At 93, she broke her left hip and, at 95, she fractured her pelvis. Surgery was out of the question for the pelvis. Her bones were now porous and brittle. From that point on, she was wheelchair bound. Mom was taken to the hospital, and then transferred to its rehabilitation and residential skilled nursing-care facility. She was placed in the Alzheimer’s wing.






I was spared having to formally admit her. I don’t think I could have. But as providence would have it, the timing of her admittance was beneficial—because shortly after she required major surgery on her liver. This came to light because I noticed she was becoming jaundiced, and I immediately reported her condition to the head nurse.




Fearful because of her age, I asked the doctor if surgery was a necessity. He replied that she would die in terrible pain without it. That settled the question. But the doctor also told me if there were complications with the surgery, he wasn’t going to do anything “heroic.” Somehow, at 95, she survived and lived another three years, but with worsening dementia and more medical problems.




A nursing home patient needs a strong advocate—something that’s imperative for those who aren’t able to speak for themselves. The care of your loved one depends on the health care workers, who are often understaffed. Problems can be overlooked or, worse still, dismissed. The nurses do their best, but are harried and under pressure.




The majority of hands-on care boils down to the aides, who handle the everyday routine tasks and have the most frequent contact with patients. Some are caring angels who go the extra mile. Others do the minimum that’s required of them in a desultory manner, while still others seem totally unsuited to their vocation. Staff turnover is high. In reviewing my concerns with Mom’s doctor, he did say the facility had good ratings but that all facilities have their problems.




I entered a state of mind known as anticipatory grief. This is the distress a caretaker feels for months or even years when loved ones have a serious and often lengthy illness, such as advanced cancer or Alzheimer’s. Watching your loved one deteriorate is a disconcerting, numbing, unreal condition which becomes more palpable as time passes. It’s the loss you feel before the final loss. You long for the person you once knew—the friendship, the intimacy.




My health suffered and I had no personal life. I became preoccupied with Mom. With each visit, there was some issue to deal with. Her hearing aids went missing. Her dentures were broken. Sometimes, she was dressed in another patient’s clothing. Each day, I’d help her with the noon meal. On one occasion, when they were short of aides, they allowed me to give her a shower. I still don’t know how that one passed muster.




On nice days, I’d take her to the adjoining garden. She liked me to paint her nails. It seemed to calm her, and ease her constant fidgeting and repetitive movements. There were days she was agitated, and had hallucinations and paranoia. One day, as I gathered her laundry, she accused me of stealing her clothing—but to the end she retained her sweetness.




I may have been part of the problem at the nursing home. I was so accustomed to caring for Mom that I never wanted anyone else to touch her. She was my treasure, my mom. I scrutinized and checked on everything. I stayed too long. I think the staff was relieved when I left to go home.




I would get to the secured doors of the wing and something would restrain me from leaving. I was gripped with anxiety. Had I checked the hearing aid batteries, made sure she had a little snack, freshened her water pitcher? I would then walk back to her room—any excuse for one last check. My reluctance to leave her was so great. Because of her severe hearing loss and mental confusion, I constantly worried about her ability to communicate with the nursing staff.




When Mom died at age 98, she was in a coma-like state. She had succumbed to pneumonia, as many Alzheimer’s patients do. We were unable to communicate. But while holding her hand, I felt three quick spasms from her fingers. I knew at that point she had passed. These were probably electrical impulses, but I like to think it was her way of saying goodbye and that she loved me—always.




Mom’s favorite song was Always , written by Irving Berlin. It’s a song of enduring love. The last words of the song echo my feelings for Mom.




“Days may not be fair always




That’s when I’ll be there always




Not for just an hour




Not for just a day




Not for just a year




But always.”
Marjorie Kondrack loves music, dancing and the arts, and is a former amateur ice dancer accredited by the United States Figure Skating Association. In retirement, she worked for eight years as a tax preparer for the IRS’s VITA and TCE programs. Check out Marjorie's earlier articles.

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Long and Short of It

BACK IN THE 1980s, Michael Milken earned notoriety as “the junk bond king.” With his swagger—and his toupee—Milken was an outsized personality in a normally staid industry. But that was four decades ago. It may have been the last time that bonds were truly interesting.

On most days, bonds are about as dull a topic in finance as you can find. But here’s the challenge for investors: While bonds might be boring, they’re important—and they can be tricky.

Consider the Vanguard Total Bond Market Index Fund (symbol: VBTLX). As its name suggests, it’s designed to offer one-stop shopping for bond investors. For that reason, total market funds like this are one of the three pillars of the vaunted three-fund portfolio. They’re intended to be an easy set-it-and-forget-it solution for investors looking to add bonds to their portfolio. But the funds are far from perfect.

Just look at 2022. When the stock market was down—and thus when investors would have benefited most from the relative safety of bonds—total bond market funds lost about 13%. It’s too simplistic, though, to criticize these funds solely because of one year’s performance. Instead, it’s worth looking under the hood to understand why they struggled in 2022. These were the two key drivers:

Duration. The biggest driver of bond prices is a metric known as duration. In simple terms, it’s a measure of how long it would take a bond investor to get back his or her money.

Suppose you own a bond that matures exactly one year from today. At first glance, you might conclude that the duration of this bond would be one year—because that’s when you’ll get your money back. But because most bonds make periodic interest payments prior to maturity, you’ll end up receiving your original investment back a bit before the one-year mark. As a result, the duration of this bond will be a little less than one year.

That might seem straightforward, but how does duration impact a bond’s performance? To understand this, suppose you wanted to buy a bond today. You have lots of choices. The first option might be a recently issued Treasury bond that offers a 5.5% coupon (or interest) rate. Alternatively, you could buy a two-year Treasury that was issued last year.

In both cases, the bonds will mature one year from today. But because interest rates were lower last year than they are today, the coupon rate on the older bond will be just 4%. That will cause the older bond to be worth less. Why? Suppose the new 5.5% bond is selling for $1,000, which is the standard price for new bonds. If that’s the case, you certainly wouldn’t pay the same $1,000 for the older 4% bond. You might still be willing to buy it, but only at a lower price.

What would be the right price for this older bond? You’d want enough of a discount on this older bond to make up for its lower 4% coupon rate, because that 4% is 1.5 percentage points below the 5.5% rate available on a new bond. The discount you’d want would be $15—because $15 is 1.5% of $1,000. Result? You should only be willing to buy a 4% bond today if you can get it for around $985—in other words, for $15 less than a new $1,000 bond.

A key point here is that bonds always mature at their “par value.” Even if you’re able to buy a bond for $985, you’d still receive the $1,000 when it matures next year. Thus, if you were to buy the older 4% bond for $985, you’d make money over the next year in two ways. First, you’d receive the 4% interest payments. Second, between now and maturity, you’d pick up another $15. So, in total, you’d make 5.5% on this bond—the same as you’d be able to earn on a newly issued 5.5% bond.

That’s the basic concept behind duration, and it explains why older bonds decline in value when interest rates on new bonds rise. And that’s precisely what happened last year. In 2022, the Federal Reserve raised short-term interest rates 4.25 percentage points over the course of the year. This negatively impacted the value of older bonds.

There’s one more element of duration to understand, and this is a crucial point for bond investors: The greater a bond’s duration, the greater the risk when interest rates rise. To see why, let’s look at another example. Suppose you want to buy a bond that matures in two years. You could buy a newly issued two-year bond with a coupon around 5.5%. Or you could buy a three-year bond issued last year. Again, because rates were lower last year, that older bond will only pay about 4%. But both will mature at the same time, two years from today. Now, how much would you pay for this older bond?

Following the same logic as above, you might be willing to purchase the 4% bond, but you’d want a discount. How much of a discount? In the example above, we calculated a $15 discount, because that’s what would be required to make up for the 1.5 percentage point gap in coupon payments over one year.

But in this case, if there are two years to maturity instead of one, the discount will need to be greater. That’s because buyers will now want to be compensated for two years of lower interest payments. In round numbers, the discount on this two-year bond would need to be around twice the discount required on the one-year bond—$30 instead of $15. The key lesson: Duration is a critical driver of bond prices. And the longer the duration, the greater the price risk on a bond.

Composition. The bond market is very diverse. The U.S. Treasury, of course, issues bonds. So do states, as well as cities and towns. And corporations of nearly every stripe also issue bonds. At first glance, you might think that these differences would be an important factor in the performance of bonds. To be sure, they’re a factor, but not nearly as significant as you might guess.

Consider how a set of popular bond funds performed in the face of 2022’s steeply rising interest rates. Vanguard’s intermediate-term corporate bond fund (VCIT) lost about 14%, while its intermediate-term Treasury bond fund (VGIT) fell around 11%. Meanwhile, its short-term corporate bond fund (VCSH) lost about 6%, while its short-term Treasury fund (VGSH) slid some 4%.

What can you conclude from this? I see two key points: First, in rough markets, Treasury bonds tend to hold their value better than corporate bonds. That makes sense since—despite Washington’s political dysfunction—the U.S. Treasury is still a safer bet than even the most stable corporation. That explains some of the performance difference between the two categories.

That difference is dwarfed, however, by the performance difference between short- and intermediate-term bonds. Short-term bonds, with their shorter durations, held up much better in 2022 than their intermediate-term counterparts. As you can see, even short-term corporate bonds held up better than intermediate-term Treasury bonds. Long-term Treasury bonds fared even worse, with many losing nearly 30% last year.

This is why, in structuring your portfolio, I would lean heavily on short-term bonds. Since interest rates are unpredictable, I see that as the best route to preserving value. And that’s why total bond market funds, despite their reputation for simplicity, aren’t—in my view—a great solution. The problem, as you can probably guess by now, is that the duration of these funds is quite long and, indeed, similar to the intermediate-term funds referenced above. They might be appropriate for part of your bond allocation, but I’d make it just a small slice.

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 Twitter @AdamMGrossman and check out his earlier articles.

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Absolutely Fine

I'M DOING RELATIVELY well—and therein lies the problem. No, it isn’t the “doing well” part that’s the issue. Rather, the problem lies with that all-corrupting word “relatively.”

We’re constantly reminded of how we stack up against others. Early in life, that can be useful. If we aren’t cut out to be professional athletes, effective leaders, academic stars or market-beating investors—this last one would include almost all of us—it’s good to find that out, so we don’t spend countless years pursuing goals we’re unlikely to achieve.

But much of the time, this comparison stuff is a source of misery. Consider four benchmarks against which we measure ourselves.

Relative to our peers. Yes, we may have attended a more prestigious college and enjoyed more career success than others in our age cohort. But there will also be folks who have fared far better. The risk: We find ourselves disparaging some for the goals they didn’t achieve, while resenting others for the success they’ve enjoyed.

Neither contempt nor jealousy is admirable, and we’ll likely suffer a touch of shame for harboring either emotion—and deservedly so. Such comparisons can also leave us feeling worse about our own achievements, which is silly, because this ignores a crucial consideration. What price did the successful pay for their accomplishments? What bad luck hampered those who achieved less?

If we only take notice of the visible record of success or failure, we see just part of the story. The high achievers may have worked long hours and shortchanged other parts of their life, while the apparent laggards may have been handicapped by ill-health or the demands of family.

Relative to our friends, family and neighbors. As we cast a judgmental eye across those in our social circle, we’ll likely find ourselves pondering our financial standing relative to these folks—or, at least, as best we can ascertain it. At issue is the age-old pitfall of “keeping up with the Joneses,” with its insidious impact on both our spending and our sense of financial contentment.

Way too much spending seems to be driven by signaling, as folks attempt to telegraph their financial success to others. But, of course, such spending is the enemy of wealth accumulation, because it inevitably leaves us poorer. In fact, as we learned from The Millionaire Next Door and elsewhere, those who live modestly can have surprisingly impressive bank balances, while those who live large are often far less rich than they appear.

I fear that, when we compare ourselves to those around us, there’s another unfortunate effect: We’re less likely to engage in activities that we might enjoy, but which we simply aren’t good at. There are many things I’m mediocre or terrible at, including singing, bowling, drawing, cooking and dancing. But such things can be fun, even if we aren’t good at them, and yet fear of how we compare to others may stop us from even trying.

Relative to the market indexes. It’s hard to do a proper comparison between our portfolios and an appropriate market index, given the money that flows in and out of our financial accounts and our portfolio’s precise mix of stocks, bonds and other assets. For those who buy individual stocks and actively managed funds, this can be a drawback, because it can allow them to simply imagine they’re beating the market and thereby persist with their foolishness.

But if we do actually know how our investments are performing relative to “the market,” however defined, that can also be a drawback. How so? It assumes that our performance relative to the market is what matters, rather than, say, our results relative to what we need to meet our financial goals. The danger: Even if a more conservative strategy might ensure we have plenty for retirement and our other goals, we might continue to take high risk in pursuit of high returns—and potentially suffer a devastating reversal of fortunes.

Relative to how we fared earlier. At various points in our life, we peak—and, if we aren’t careful, we’ll spend the rest of our life looking back at those all-time highs.

I’ll never run another half-marathon at a sub-six-minute pace. I’m pretty sure no book I write will match the sales of my 2016 book, How to Think About Money, and I doubt I’ll ever again have that sense that I’ve got the world’s attention, which occurred the few times I appeared on national television. Even HumbleDollar may have peaked. The site garnered 510,000 pageviews this past February, and I’m not sure it’ll ever surpass that number.

If we aren’t careful, these high watermarks can be a source of grinding dissatisfaction. We run as fast as we can on what psychologists call the hedonic treadmill, but whatever success we enjoy provides only fleeting happiness, and that’s doubly so if today’s successes pale next to yesterday’s victories.

How can we avoid the pitfalls of comparison? I believe the solution lies in absolutes. We need to forget how we compare to others and to our own past, and instead set absolute goals for ourselves.

What are the career accomplishments that’ll allow us to proclaim victory? What net worth would we consider enough? If possible, we should set these goals far ahead of time and then write them down. That way, we may avoid the temptation to later move the goal posts, either because we see others doing better or because we grow disgruntled with our own achievements.

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

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Care Money Can’t Buy

FULL OF PROMISES AND plans, we start retirement in our 60s. It surprises me when people reach age 65 and say, “I don’t feel old.” That’s because, at 65, we aren’t.

We’re still in our go-go years. We still have the time and energy to conquer the world, visit new places, experience new adventures. The 70s, by contrast, are the slow-go years. Maybe we need replacement parts, to slather on Bengay, to load up on Advil. We’re still good to go—just a little more carefully and maybe not as often.

As people inch towards their 80s, most of us enter the no-go years. We don’t go out as much. We might head out for the “early bird” special, come home and watch the evening news, and go to bed early. The world tends to close in on us as we experience loss in many different ways.

And contrary to what others say, bird watching is not that riveting—and not how I want to spend my no-go years. Instead, my preferred remedy is friends, if only because your family can sometimes drive you crazy or, worse still, decide they don’t even like you. Here's a snapshot of my friends, in no particular order of importance:

Cindy and Tom. Last Thanksgiving, they visited, ladened with a home-cooked feast fit for a king’s table. Tom has the most cheerful countenance of anyone I’ve ever met and is an expert on fixing anything. Wouldn’t you just love Mr. Fixit to live next door? As a bonus, Cindy is a gourmet cook. Unfortunately, they moved away from our neighborhood, but they remain like family.
Nancy. Stray animals find their way to Nancy’s house and she cares for them. She could rival Martha Stewart in entertaining. Her “hen parties” are memorable and so much fun. But her most outstanding virtue is her willingness to help friends in any way possible. When health issues leave me struggling, she’ll pop over with a cooked chicken from Costco, just in time for dinner.
Jeri. A woman of great faith, she’s never too busy to run an errand, take me to a doctor’s appointment and bring food treats, and she does it all willingly. Once asked if we were related, Jeri thought for a minute and then said, “She’s my sidekick.” A retired physical therapist, it’s in her nature to help others. And it runs in her family: Her daughter works with special needs children.
Trish. One day, my husband answered the doorbell and there appeared a tall blonde angel with a box of bakery treats. I could almost hear the Hallelujah chorus. Trish was previously unknown to me, but heard of me through our church. When I thank her for her generosity and compassion, she always replies, “Isn’t that what we’re here for?” That, in a nutshell, is her philosophy of life: Our main purpose for being is to help others.
Rita and Bill. They’re the neighbors you want to have. After a snowstorm, Bill is out there with his snowblower, digging us out. Rita never fails to ask if there’s anything we need on her shopping trips, and regularly checks to see how we’re doing. Alas, they’re moving to their retirement home at the Jersey Shore. But Rita reminds us she’s only a phone call away.
Jill and Chuck. Jill is a distant cousin. She’s a retired librarian, living in the south. She’s also an historian who chronicles our family genealogy. Jill’s been a staunch supporter of my writing. To hear her praises, you’d think I wrote the great American novel instead of a few humble posts. We have a lot in common—our love of learning and family connection. Her husband Chuck is a font of information, as well as my go-to guy for tech support.

Our friends are all younger and, fortunately for us, in better health and more capable than we are. They fill the void of departed family and friends we’ve lost to the passage of time.

In our long-term-care plan, we never counted on the kindness of friends and neighbors. We’re careful not to impose on the goodwill of others, but the help they cheerfully give us has been an amazing blessing. Friends are an integral part of the tapestry of life. Give them the care and attention they so richly deserve.

Marjorie Kondrack loves music, dancing and the arts, and is a former amateur ice dancer accredited by the United States Figure Skating Association. In retirement, she worked for eight years as a tax preparer for the IRS’s VITA and TCE programs. Check out Marjorie's earlier articles.

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