Jonathan Clements's Blog, page 138

Come a Long Way

WHEN I WAS BORN 80-plus years ago in Madathumpady, it was one of the remotest villages in India. The country was ruled by the British and the freedom struggle was underway, led by Mahatma Gandhi and Jawaharlal Nehru.

My parents hadn’t attended school because there were no schools in the village when they grew up. But they weren’t illiterate. Both learned to read and write. In fact, my mother taught me how to read and write before I attended school. I learned the alphabet by writing with my index finger on sand spread on the floor.

At the time, in India, you weren’t considered educated if you didn’t know English—which my parents didn’t. Still, my father knew the basics of mathematics, like addition, multiplication and division. When I was in high school, I taught him decimals, which he was thrilled to learn.

I was my parents’ sixth and youngest child. My father was in his 50s when I was born. Most schools at the time were established by India’s state governments. But my village had no government schools. A private school was started under the leadership of my cousin, who was about 30 years older than me. He was a college graduate. That’s the school where my siblings and I studied. It was a private school where students were charged a monthly fee of three rupees, equal to about four U.S. cents at current exchange rates. My father couldn’t afford even that amount and had to borrow.

The university matriculation examination was conducted by the state government. Even though I was in a remote village school, I ranked first in the state among approximately 250,000 students, for which I was awarded a scholarship to attend college. The scholarship was a meager 50 rupees (61 cents) per month. While I was a student in the college of engineering, my scholarship increased to 100 rupees ($1.22) per month. Without the scholarship, I couldn’t have afforded college.

After getting a bachelor’s degree in engineering, I applied for admission to the Indian Institute of Technology in Bombay, one of India’s premier engineering institutions, where I earned a master’s degree. I received a scholarship of 400 rupees ($5) per month from the Government of India. In return for the scholarship, I was obligated to teach at an engineering school for a minimum of three years.

My teaching career started in 1966 and I taught at another top school, the Indian Institute of Technology in Chennai. When my three years were up, I was interested in pursuing further studies. I applied for admission to two schools, Lehigh University in the U.S. and the University of Swansea in England. I won admission and financial aid from both schools. I chose Lehigh and arrived in the U.S. in August 1969 with $8 in my pocket—the maximum amount of foreign exchange you were allowed to hold in India at the time.

After earning a PhD in applied mechanics, I went back to India. At the time, almost all marriages were arranged marriages. A PhD from a foreign country was in high demand in the marriage market. That’s how I got to marry Valsala, who was a medical doctor. After our wedding, I returned to the U.S. Valsala was able to follow three months later, after she got a visa. She joined the internship and residency program at a nearby hospital. It took her four years to complete both.

I was interested in pursuing an academic career, but academic jobs paid considerably less, so I decided to look for jobs in industry. Ultimately, I accepted a job in the research division of a New Jersey engineering company that built and designed power plants, oil refineries, pharmaceutical plants and other chemical facilities. The company had subsidiaries in Europe and collaborated with companies in the Far East. That gave me the opportunity to travel internationally.

After completing her internship and residency, Valsala set up a medical practice as an anesthesiologist at a community hospital. Luckily for her, the anesthesiologists in the hospital worked as a group to fulfill their departmental duties at the hospital, but each was independent in billing and collecting money from patients and insurance companies. This worked well for Valsala, allowing her to set up her own pension plan. By this point, we were both earning good money—with Valsala earning more.

My interest turned to investing. I had grown up poor—but now I had a chance to invest. That’s when I started reading The Wall Street Journal. I must have read just about every column that Jonathan Clements wrote as a personal finance columnist for the Journal and learned much from them. I read every investment book I could find, including those by Jonathan, Burton Malkiel, John Bogle, Charles Ellis, William Bernstein, Larry Swedroe, Jeremy Siegel and many others.

One of the books that influenced me the most was Bogle on Mutual Funds. The book has been revised many times and it’s now a thick volume. I was impressed by Jack Bogle’s idea of capturing the market’s overall growth at as little cost as possible, and it’s why I like total stock market index funds.

Still, early on, I bought many individual stocks. I purchased Enron and lost every penny. I bought WorldCom and lost money. But I also had some winners, including Berkshire Hathaway. I bought three A shares (symbol: BRK-A). Unfortunately, I sold two of them in 2005, when we bought a home in Florida. I didn’t want to take out a mortgage. I retired in 1998 at age 59. My wife continued to work part-time until 2008, when we moved fulltime to Florida.

Over the years, I’ve simplified our investment accounts. Now, we have only two, at Vanguard Group and Charles Schwab. In the Schwab account, we have just one investment, our remaining share of Berkshire Hathaway, which recently closed above $500,000. I plan to move our Berkshire holding to Vanguard and close the Schwab account. Other than the one Berkshire share, I invest only in index funds these days, both the mutual-fund and exchange-traded varieties.

A change in the law that took effect in 2010 allowed everybody, no matter what their income, to convert a traditional IRA to a Roth. But the conversion meant paying taxes today. I delayed, thinking older folks won’t live long enough to benefit. It took me a long time to realize that, even if Valsala and I wouldn’t benefit, our son, daughter-in-law and three grandchildren would.

In my 80s, I have two regrets. First, I didn’t write and publish anything worthwhile, even though I was always interested in writing. Second, I’ve contributed very little to charities. I hope to correct these two deficiencies during my remaining years.

I believe that luck plays an important role in life. How else could a penniless boy from India end up in the U.S. with an eight-figure net worth?

Thazhathu V. Narayanan—T.V. to his friends—has been retired for 25 years and now lives in Florida. His hobbies include reading books on investing, economics and politics, and listening to classical music—preferably Indian classical music.

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Thinking Ahead

WHEN I RETIRED, I thought about creating a website and writing about my retirement. I looked into what it would take to build a site and have someone edit my work. The more I thought about it, the more I realized the only ones who would probably visit my site would be my sister, brother-in-law and maybe a few curious friends. It wouldn’t be worth the time, effort and money—especially when HumbleDollar offers all the benefits an unknown and inexperienced writer needs.

Meanwhile, I saw a video of Bruce Springsteen, the 73-year-old musician, falling on stage during a concert. I’m not surprised. Although he looks to be in great shape for his age, as you get older, you're not as agile. The reason I bring this up: Falling is one of my greatest concerns.

I’m also in my 70s and my doctor warned me about staying upright. As you get older, your bones aren’t as strong and falls can be more dangerous. An elderly woman in my neighborhood fell. I never saw her again. Her house was eventually sold. The fall might not have killed her, but it surely turned her life upside down.

My doctor cautioned me that, since I’m so active, I’m at a higher risk of falling. She told me to include sufficient amounts of vitamin D and calcium in my diet, and to perform weight bearing exercises to help keep my bones strong. I’m like other folks, who think they aren’t going to fall and hurt themselves—until they do.

My cousin Pat fell recently and hurt herself. She’s recovering and currently not as mobile. She and her husband have been looking at continuing care retirement communities, or CCRCs, that provide multiple levels of care as your needs change. Although their daughter is close by, they feel there will come a time when they might need more help.

She mentioned that they looked at one CCRC, where it costs $250,000 to purchase a condo and the fees were about $8,000 a month. The CCRC will pay their moving expenses and the monthly fee covers most of their expenses, including 30 meals per month, weekly housekeeping, home repairs, homeowner’s insurance and transportation. In fact, she says they do so much for you that her husband is afraid that he won’t have anything to do if they move there.

What really caught my attention is that, if you need long-term care—including memory care—later in life, they would guarantee a place for you at another on-site location. More important, they wouldn’t kick you out if you ran out of money.

Running out of money is another concern I have as I get older. My wife and I have a comfortable retirement. Our fixed monthly expenses are low and our Social Security benefits can easily cover them, without us having to tap our investment portfolio. But I also realize how financially devastating a major health crisis can be. When my mother had a heart attack and needed 24-hour care, I thought I might need help taking care of her. Here in California, where we live and where my mother lived, the cost of a caregiver was $27 per hour in 2019. I can’t imagine what it is today.

Caregiving costs can add up quickly, especially if you don't have family and friends to take care of you. My wife and I don’t have long-term-care insurance. I don't have much faith in the insurance companies when it comes not only to premium increases, but also to getting approved for benefits when you can’t perform two of the activities of daily living, such as bathing, dressing and eating, or when you have serious cognitive impairment. Fern, my mother’s friend, had long-term-care insurance. After three years, she exhausted the coverage and had to move out of her house. It may not be the silver bullet for everyone.

Our plan is to self-fund our long-term-care needs with our Roth IRA accounts, while living off the rest of our assets. But when I think about those lifecare communities that my cousin talked about, they might be a good deal at a reasonable price for some folks. But I can’t see us moving to one or, at least, not yet. We love where we live. We’re going to take our chances and stay put for now, because our friends are here.

Friends are very important to me. I found that out when my wife left for six weeks to take care of her mother. It was lonely without her. But it would have been much worse without friends to keep me company. I got a glimpse of how the elderly are at an increased risk of loneliness.

When my mother passed away, I notified her few remaining friends. One of them was Helen. My mother and her were friends for almost 50 years. Helen lived by herself and was homebound because of her mobility issues. But her son lived nearby if she needed help. She also had a few other family members who would visit occasionally. When I told her that my mother passed away, she cried. I felt sorry for her, because I knew what my mother’s death meant to her. It meant the loss of her last remaining friend, and one less person to talk to.

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 Twitter @DMFrie.

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Nothing Saved

THIS IS MY SIXTH STORY for HumbleDollar. You don’t know how happy you’ve made this old hick from Kentucky feel by taking the time to read my stuff, let alone comment on it.

I've done and continue to do a lot of dumb things in my walk down life’s path. I hope to share most of them to give you something to think about and maybe avoid on your own. Today, it’s something I call “stupid saving.” Saving is great, but sometimes you really aren’t saving anything.

My family is universally known in our town for holding onto money. A local philosopher once said, “If that family lived on an island that had nothing but rocks then, by the end of the year, they would have all the rocks.” That’s just the way we are. We waste nothing and use everything until it’s so worn out that even the Salvation Army won’t take it.

Shoot, I bought a car so small and that got such great gas mileage that you could fill up the tank, drive it around all day and still have enough gas by sunset for a sizable explosion if someone runs into you. But enough about me.

Or maybe not. I want to give you an example of “stupid saving.” In the country, we tend to have very big yards because land is so cheap. Our house sits on a 1.5-acre plot. To be honest, I hate big yards. But the fellow that sold us the house wouldn’t let me buy any less.

So, with big yards come big responsibilities, assuming you don’t want to make the neighbors mad. You’ll do a lot of mowing, raking, weed eating, bush and tree pruning, leaf blowing and so on and so forth. Let me tell you that “so on and so forth” gets quite old as you get quite old.

The central cost for me is the lawn mower. You have two basic kinds: the lawn tractor and the zero-turn radius mower. The lawn tractor gets the job done, but the zero-turn mower is all that and a bag of chips.

I mow my 95-year-old mother’s lawn with her zero-turn mower and you can easily do one acre in one hour. My 1.5 acres takes two-and-a-half hours with the lawn tractor going full out.

To top it off, I have some sort of degenerative tailbone problem. This old age disease makes it difficult for me to sit down for long periods of time without a lot of pain. I ought to go straight to heaven after I die because I’ve already done my time in the bad place riding that lawn tractor.

My lawn tractor is about 20 years old and I have enough jackleg mechanic’s ability to keep it running. But I really want that zero-turn mower bad. When I get it, it’ll mean less pain and less time mowing. In addition, I hate mowing with a purple passion.

I haven’t gotten it because it goes against my nature to throw away anything that is still “functional.” I’m that guy that keeps underwear full of holes because the elastic waistband still works. But my mower will likely die a painful death in the next year or two, depending on how many sins I still need to work off.

A friend who is also “frugal,” to put it nicely, asked if I got that zero-turn mower I wanted. I replied, “Not yet.” He then told me, “Do you realize that model is up $700 from last year? You not only didn’t save anything, you lost money.”

He was right.

In addition, I’m 65. A good zero-turn mower can last a couple of decades, at least based on my use. I figure that, by age 85, I’ll either have someone else mowing the lawn if I’m lucky, will have moved out of the house to an apartment if I’m luckier, or will be fertilizing some plot of land if I’m normal.

So, why delay getting that zero-turn mower? All I’ll end up doing is leaving it to someone else with a few extra years of use still on it. That’s stupid. I haven’t saved anything and took on extra pain, suffering and hours of working on the old mower for nothing.

So, I think you know what I did. I still have the old mower. I am sick.

By the way, does anyone need a couple of rocks? I’ve got a whole island full of them.

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, including more than 350 during the past three years. Check out Ken's earlier articles.

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Money Talks

PERHAPS YOU'RE TOYING with seeing a therapist to help you cope with, say, the transition to retirement or the loss of a loved one. How can you get the best return for the time and money you’ll invest? Unfortunately, there’s no easy answer.

Early in my career, I was an academic psychologist whose area of specialty was the effectiveness of psychotherapy. I published many papers on the topic, and also presented several at the proceedings of the Society for Psychotherapy Research. In 1972, I collaborated in a study that was sponsored by the National Institute of Mental Health and led by Hans Strupp, then the country’s foremost authority on treatment outcome. Our results were ambiguous and inconclusive.

My professional interests moved on, and I departed university life after 13 years. I became a practicing psychologist, charging a fee for a treatment whose effectiveness wasn’t convincingly demonstrated by my own data.

That brings me to a fascinating article in The New York Times Magazine that was published in May and which transported me back 50 years to my earlier research. Susan Dominus’s article, “Does Therapy Really Work? Let’s Unpack That,” caught me up on what’s been going on in the trenches since I left the academy. She asks if mental health problems are amenable to the talking cure, and if psychotherapy is worth the financial and emotional commitment it requires.

According to recent research, people who received therapy reported feeling, on average, happier and less symptomatic than similar folks who didn’t seek out treatment. But improvement and increased life satisfaction are not universal—almost 50% of patients in one study claimed little or no significant benefit from therapy. Not surprisingly, our culture has become distrustful of psychotherapy. In the 2023 romantic comedy, You Hurt My Feelings, a couple who feel their two years of counseling were unproductive demand that their therapist refund their $33,000.

Curiously, all therapeutic methods produce similar results. This finding has spurred a search for beneficial techniques that the various approaches have in common, along with efforts to pinpoint helpful attributes among therapists, such as the ability to relate empathetically. Some evidence suggests the quality of the bond between the therapist and patient, rather than any method or therapist trait, is what distinguishes successful from disappointing treatment.

The two dominant therapeutic approaches—psychoanalytically oriented and cognitive-behavioral—offer prospective patients a clear choice. The many offshoots of Freudian psychoanalytical therapy emphasize childhood influences and promote self-exploration and understanding. By contrast, cognitive-behavioral methods focus directly on relief from specific complaints, such as anxiety or depression.

Psychotherapy is not a one-shot deal, like your annual portfolio review. It’s cumulative and expensive, especially if you’re entering an emotionally enriching psychoanalytically framed therapy, which progresses more slowly than the cognitive-behavioral variety. Treatment for mental health issues is cheaper in small cities and towns than in large metropolitan areas, where the once-a-week fee can exceed $200. Many psychologists in private practice don’t accept insurance, although you can request an invoice and pursue reimbursement on your own.

Psychologists, who can’t prescribe medication, generally don’t proselytize for drug treatment. But I’ll play the maverick. Psychiatric medication offers several advantages, both financially and therapeutically. Your first interview is extensive and costly, but once you’re on a regimen you may only need to meet periodically. Insurance will pay for most of your medication, often at a higher rate than it will for psychotherapy. It may take time to hit on the medication that’s right for you, which can be discouraging, and you need to be prepared for the side effects that accompany failed trials. But if you win the lottery, your improvement can be quick and dramatic.

Unfortunately, not even the recent research reviewed by Dominus has yet determined how to match individual patients with specific therapeutic approaches. Instead, you’ll have to be a wily consumer, settling on a person and approach you feel comfortable with and that fits your pocketbook.

Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve's earlier articles.

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Ask Away

NEW YORK ATTORNEY Steven Schwartz recently found himself in hot water. Schwartz was representing a passenger injured on board an Avianca Airlines flight. In a filing with the court, Schwartz cited several precedents that appeared to support his case, including Martinez v. Delta Air Lines, Zicherman v. Korean Air Lines and Varghese v. China Southern Airlines. The only problem? These cases are all fictional—made up not by Schwartz, but by ChatGPT, an artificial intelligence (AI) “chatbot.”

The judge was not pleased, and Schwartz acknowledged being duly embarrassed for not verifying the information provided by ChatGPT. Schwartz explained that his children had told him about this new tool, and he understood it to be like a “super search engine.” Schwartz wasn’t aware, however, that it was still a work in progress and susceptible to “hallucinations.” It frequently makes things up out of whole cloth.

Since its introduction last fall, ChatGPT and competitors like Google’s Bard have been the subject of heated debate. Students love it because it can help them compose well-written essays with virtually no effort. Parents and teachers, meanwhile, are wary of it precisely because of these capabilities. For that reason, and because of its tendency to hallucinate, news coverage of AI often includes an undertone of mockery.

The Wall Street Journal, for example, reported recently that Japanese venture capitalist Masayoshi Son had used ChatGPT to help him validate business ideas. After one back-and-forth with the chatbot that lasted until 4 a.m., Son reported that, “I really felt great because my idea was praised as feasible and wonderful.” Coming from a billionaire and someone who is perhaps Japan’s most famous investor, it was odd to hear that Son was relying on a computer’s opinion to make investment decisions.

Because of its limitations, you might wonder if AI has any practical use for investors today. I believe it does. Below are the types of questions where I think ChatGPT and Google Bard can be most helpful.

“Can you help me understand…?” The world of personal finance is full of jargon, and sometimes it’s hard to find basic explanations. I asked ChatGPT to describe the difference between a mutual fund and an ETF. It started by noting the ways in which they’re similar. It then listed six differences, all of which were correct and explained in clear terms. It did an equally good job explaining other terms, including bid-ask spreads, bond yields, and the difference between confusingly similar terms like efficient markets and efficient portfolios.

“What is the role of…?” If you’re looking to understand elements of the broader financial system, AI can help. For example, what is the role of the Federal Reserve, and how does it differ from the role of the Treasury? Bard answered this question by putting together a table outlining the roles and responsibilities of each entity. It then explained how they collaborate. It wasn’t the most comprehensive explanation, but it was a good introduction. I then asked Bard, “Can you say more?” Sure enough, it provided a more detailed discussion.

“What is the history of…?” AI can be great at providing historical context on a given topic. I asked Bard and ChatGPT, “What is the history of the Federal Reserve?” The responses included both basic facts and figures, as well as some historical context, even noting key events that motivated the creation of the Fed.

“What is the significance of…?” Perhaps you’ve heard a financial term but aren’t entirely sure of its significance. For instance, what does it mean when you hear about the annual meeting in Davos? Why was the Dutch East India Company so famous? What was the origin of the Dutch tulip craze? AI does well with questions like these.

“Should I….?” For now, at least, AI tools don’t necessarily know you, so it might seem like a problem to ask whether you should make a particular financial decision. But this actually highlights a strength of AI. It’s very good at pulling together information on a given topic and listing the considerations that ought to go into a decision.

I asked Google’s Bard, “Should I complete a Roth conversion?” It replied with four considerations, all of which were valid and explained clearly. It did, however, include one detail which was incorrect. This is a reminder that these systems are still imperfect. That’s why I would use AI as an aid—but don’t make the mistake Steven Schwartz made. Its output is not gospel. Also, keep in mind that you can ask these systems to cite their sources.

“Can you provide a chart of…?” In a lot of cases, personal finance information is available online but not in formats that are easy to understand. While susceptible to mistakes, AI does a great job pulling together data.

I asked AI for a graph illustrating the top marginal tax bracket in the U.S. over time. ChatGPT wasn’t able to produce a graph, but it did provide that information in a well-organized table. Bard was able to offer a chart—not generated on the fly, but sourced from another website. That gets at another of the controversies surrounding AI—that it freely borrows from websites around the internet. This is a separate topic but one that will need to be worked out.

“What are some of the most popular…?” When I asked AI for some summer reading recommendations, it came back with some reasonable selections. When I asked it to provide separate lists for novices and advanced readers, it did that as well.

Over the course of history, many inventions have been met with skepticism or fear. This goes back at least to the 1400s, when some worried the printing press would result in the spread of heresy. More recently, a 2008 article in The Atlantic asked, “Is Google Making Us Stupid?” People are asking the same question now about AI.

I understand these concerns. To be sure, as with any technology, there will be downsides. I don’t worry, though, about some of the more extreme scenarios, such as the idea that an AI-powered army could enslave the human race in an amoral drive to do something as mundane as making paperclips This is an actual theory put forward by an academic who has been studying AI. That sort of thing strikes me as science fiction. Instead, my sense is that, as it improves, AI will be an increasingly useful tool.

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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No Right Way

WE LIVE IN A WORLD rife with intolerance—and that intolerance, alas, has infected the once-civilized world of index-fund investors.

Back in the 1990s, we indexers were such a small minority that simply owning index funds was a common bond. But now that more than half the fund market is given over to index funds, internecine skirmishes regularly erupt, with folks debating what’s the right way to index and belittling those who take a different approach.

Want to know what’s the “right” way to index? Arguably, you should own the ultimate in diversification, which is the global market portfolio—every stock and bond, U.S. and foreign, weighted according to its market value. This is the mix that reflects the collective judgment of all investors everywhere and should offer the highest risk-adjusted expected return.

In theory, depending on your goals and risk tolerance, you could change this portfolio’s risk and expected return either by adding risk-free investments—think Treasury bills—or by borrowing at the risk-free rate to leverage the portfolio. Do you invest this way? As far as I know, almost nobody does. But arguably, if you don’t, you have no standing to claim that your approach to indexing is the right one.

Why don’t folks own the global market portfolio with varying degrees of leverage? For starters, there’s no agreement on what the global market portfolio looks like. Should you include commodities, collectibles and real estate? Should your real estate exposure consist solely of commercial properties, or should you also add residential real estate? And what about private companies?

Trickier still is the question of leverage. The fact is, most of us can’t borrow cheaply enough to make leverage a winning proposition and, indeed, short-term borrowing rates today would likely match or exceed the yield on the global market portfolio’s bond allocation, plus there’s always the risk of a margin call.

Even if you throw out the use of leverage and ignore commodities, collectibles and other alternative investments, today’s global market portfolio might include 36% U.S. stocks, 24% foreign shares, 21% U.S. bonds and 19% international bonds. It would be easy enough to replicate that mix by combining 60% in Vanguard Total World Stock ETF (symbol: VT) with 40% in Vanguard Total World Bond ETF (BNDW).

To be sure, if you’re a purist, even this mix comes up short—because the foreign bond exposure is currency hedged. But forget such quibbles. Let’s face it: How many U.S. investors own a portfolio that looks anything like this investment mix, especially the 19% allocation to foreign bonds?

The bottom line: Almost nobody indexes in the theoretically correct way. Instead, we make all kinds of judgment calls as we wrestle with eight key questions:

What mix of stocks, bonds, cash investments and alternative investments should we own? This asset allocation decision is the most important investment choice we make.
What percentage of our stock portfolio should be earmarked for international shares? I have close to half my stock portfolio allocated to foreign markets, but most U.S. investors have far, far less.
Should we include foreign bonds? I don’t. But Vanguard Group, for one, has banged the drum loudly for international bonds, and it includes a healthy allocation in its LifeStrategy and target-date funds.
Is a total U.S. bond market fund the best way to get bond exposure when the role of bonds is to provide a shock absorber for our stock portfolios? Total bond market funds can fall hard—they slid 13% in 2022—which is why I favor shorter-term bonds.
Should we tilt toward value stocks and smaller companies, which academic literature suggests will boost long-run returns? I do, but that’s been a bad bet over the past decade.
Should we own conventional emerging-market stock index funds, with their hefty weighting to authoritarian regimes, notably China? For now, I do—but I’m having second thoughts.
Should we own index-mutual funds or exchange-traded index funds (ETFs)? This is a matter of weighing annual fund expenses and annual tax bills, which are often lower with ETFs, against the cost of trading ETFs, including the bid-ask spread, and the possibility we’ll buy at a premium to a fund’s net asset value and sell at a discount.
When should we rebalance? The global market portfolio needs no rebalancing. Instead, its weights change along with the markets. But most portfolios should be rebalanced, though there’s a lot of debate about what’s the best strategy.

Have you answered the above eight questions? Next come questions where your answers could get you labeled not just as a fool, but as a heretic. We’re talking about questions like: Is it okay to own a few individual stocks? What about actively managed stock funds? I own neither. But I know plenty of indexers who do, in part because they need an outlet for their speculative urges. Is that so terrible, assuming it’s a small part of someone’s portfolio?

The bottom line: Every indexer makes judgment calls. Yes, there may be choices that are more sensible than others. But there’s no one index-fund portfolio strategy that’s right for everyone. Instead, the right portfolio is the one that works for you. Those who denounce the approach of others aren’t smarter or more faithful to the indexing creed. Instead, their only distinction is their greater intolerance.

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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Passing Them On

"LOOK RIGHT HERE, Charlie. If you click on the background of Windows Vista in just the right place, the script that I developed will launch and give you access to all my online passwords. You will need to know that if something were to happen to me."

Dad was a self-taught computer nerd and paranoid about securing passwords. The year was 2007.

Dad died in 2018. I didn’t remember where to click to get his passwords. I didn’t even know whether he continued to hide passwords on his desktop following subsequent Microsoft operating system upgrades. Mom didn’t know any of the passwords, either. Dad kept his passwords extremely secure. Problem is, now nobody had access to them.

This was the first of many frustrations Mom and I encountered in the days after Dad passed away. All Dad’s usernames were lost as well, so we tried going through the "forgot username/password" protocols. Those weren’t helpful because, without the password, we didn’t have access to Dad’s numerous email accounts. We also didn’t have access to his cell phone—because he didn’t have one.

In one day, my mom lost all online access to credit cards, utilities, bank accounts, retirement accounts, retirement benefits, Costco, Social Security, Medicare and more. Thirty years ago, nobody had a problem like this. Today, I hear about this type of thing all the time.

So, Mom needed to open new accounts and verify her identity in a variety of ways. She sent copies of Dad’s death certificate and copies of their marriage license, and in one case she was required to send a copy of Dad’s will, last signed 13 years earlier. There were other times when Mom had to answer obscure security questions about the spelling of the school where Dad attended kindergarten. This one was particularly frustrating because it seems that Dad misspelled the school’s name.

Handling all this was difficult, and it was piled on top of an already stressful situation—the death of a spouse—when folks are least able to handle a lot of extra stress. It took months to gain and regain control of my parents’ online accounts. Much of this could have been avoided with proper password management.

Statistically speaking, one out of every one person will die, so it makes sense to do some advance planning for the inevitable. Family members will be grateful if we do.

Mom initially tried to manage her passwords by writing them down in a notebook. Admittedly, this isn’t a very secure method of storing passwords. But there was another problem. When Mom revisited an online account, she frequently discovered the password and username combinations weren’t correct for some reason. Keeping the notebook of passwords current was a bit of a chore.

Fortunately, there are automated tools available to make accessing online accounts easier and more secure. In addition, these tools can make things easier for our loved ones if something were to happen to us.

Most internet browsers have a built-in password manager. These might seem like an easy and free way to manage your passwords. Unfortunately, they don’t work well across both desktop and mobile devices.

Dashlane, 1Password or another good password manager—one that doesn’t come as part of your internet browser—may be just the ticket for managing passwords across all your devices. They can suggest complex passwords, store lengthy passwords, and automatically fill in passwords seamlessly on any computer's internet browser and on your smartphone. No more using the same password for multiple accounts, and no more forgotten passwords, either. And, just as important, you’ll only need to remember one master password instead of many.

In addition, many password managers provide alerts to security issues that may affect your accounts. Some also offer family plans or have ways to set up emergency recovery options to make it easier for our family if something were to happen to us. The only downside to a password manager: There may be a small monthly or annual fee.

Chuck Staley and his wife Gina have five children between ages seven and 30. He worked for 35 years as a Department of Defense engineer at Edwards Air Force Base before retiring in January 2022. Chuck now volunteers as a part-time pastor at a small church. He recently started a sole proprietorship, Walk Worthy Solutions, to train federal employees about retirement planning and leadership. Chuck enjoys walking daily with his wife, reading, home improvement projects, and traveling with his family. His previous article was Best Time of My Life.

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Foolishly Fixated

GOOGLE THE QUESTION, “How many Americans live on a fixed income?” You won’t find an answer. But we all know “fixed income” is used endlessly to describe the plight of us seniors.

For example, there’s this from the National Council on Aging: “Living on a fixed income generally applies to older adults who are no longer working and collecting a regular paycheck. Instead, they depend mostly or entirely on fixed payments from sources such as Social Security, pensions, and/or retirement savings.”

Fixed payments? It’s said so often that we’ve come to accept it as fact, but it isn’t true. At least a portion of almost every senior’s income is guaranteed to increase along with inflation. The larger the portion of retirement income that’s from Social Security, the greater the inflation protection, though it’s also true that folks in this situation are likely to have relatively modest incomes.

Since I began Social Security, my benefits have increased 33%, helping to offset the damage done by rising consumer prices. To be sure, Social Security benefits rise with a version of the Consumer Price Index known as CPI-W, not the more popular inflation measure known as CPI-U, and there’s a risk that the annual increase in benefits will lag behind the typical retiree’s cost of living. Still, Social Security recipients do better than many working Americans, who aren’t guaranteed an annual raise. Even Congress hasn’t had a pay raise since 2008.

The average Social Security benefit for retirees in 2000 was $816 per month. Since then, thanks to annual cost-of-living adjustments, or COLAs, Social Security benefits have climbed 64%. That means those receiving $816 in 2000 would have collected $1,338 in 2022.

What about those of us receiving a pension? Millions of state and federal government workers, as well as beneficiaries of some union pension funds and even a few private employer pensions, enjoy annual COLAs. But unfortunately, my pension doesn’t have a COLA, so it is indeed a fixed income.

The majority of people have no pension, and instead fund their own retirement. But on top of that, they have Social Security—assuming they contributed—which provides about 40% of the retirement income of the typical senior. For those retirees following the 4% rule or a similar portfolio withdrawal strategy, annual inflation adjustments are also part of the strategy.

No, retired Americans don’t live on a fixed income. But are the COLA increases always adequate? Probably not, so that means it’s helpful to have a financial buffer.

Regardless of your primary source of retirement income, it’s good to be able to generate more income when it’s needed and, until it’s needed, to reinvest that income. To me, that means high-yield savings accounts, interest on bonds and dividend-paying stocks.

My suggestion: Divert a portion of your savings for retirement to such investments and then reinvest all earnings for as long as possible. Add to these investments with any found money, such as gifts, tax refunds, overtime pay and year-end bonuses. Don’t think of this as your core retirement money. Instead, it’s your future inflation buffer.

The ultimate income from this strategy might be modest or it could be thousands of dollars per month. But given the typical Social Security COLA increase of some $35 a month in recent years, adding even another $100 to monthly income would be significant for many seniors. One stock I’ve accumulated for more than 50 years, and which has paid dividends for over 100 years, now generates the equivalent of $90 a month in dividends.

My wife and I invested our Social Security benefits, which I claimed at my full Social Security retirement age while I continued to work for a few additional years, in municipal bond funds. Today, after more than a decade of reinvesting, those funds generate several hundred dollars per month in tax-free income—which we could then spend if we needed it.

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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Don’t Go There

I'VE MADE A LOT OF investing mistakes in my time. In fact, if I ever wrote a book on investing, the title would probably be Don’t Go There, It Sucks.

I’m a Kentucky hillbilly and, yes, that’s hillbilly talk. Another local colloquialism is, “Careful, or you’ll end up like Scrambo Hill.” I don’t know who Scrambo was. But apparently, he resided around our parts at one time, and you don’t want to end up at the bottom of the barrow like him.

Let me say first that Cindy and I are financially secure today because we’re supersavers—and despite my investing skills. My two big mistakes are fairly common: trying to time the market and constantly shifting my investment style.

You know what? Everybody has heard of Warren Buffett. He’s the senior statesman of Wall Street with an investment record to die for. Has anybody heard of Ken Begley? Uh, doesn’t ring a bell? Well, that’s my name at the top of this column. So, if everybody has heard of Warren Buffett and Warren constantly says that he can’t time the market, why does Begley think he can?

That wasn’t a trick question. He can’t or, rather, I can’t. So, why do I try? Out of sheer freaking fear. Here’s what I’ve learned about myself: I have been a part of many a good panic and sometimes led a few. Why? I can’t stand losing money, even if it’s only short-term paper losses, and it sometimes causes me to make rash decisions. I’m not stupid, but sometimes I can be.

Cindy and I had accumulated what, for us, was a large net worth in the late 1990s, with a fair amount of our money in the stock market. Even with a relatively conservative portfolio, the sinking and soaring of said market would involve larger and larger amounts of money. The euphoric feelings of the gains never equaled the despair of the losses. At one point after Sept. 11, 2001, our net worth had plunged about 25%.

I always think of money in terms of how long we had to work to accumulate it. To me, money is stored work. That 25% loss was the equivalent of some three years of gross income, and it happened pretty dang quick. It was unnerving to say the least.

To my credit, I didn’t sell in a panic and, due to dumb luck, even bought a bit when the market hit bottom. But then I did something that was really stupid. I started selling out a huge part of our portfolio in bits and pieces as the stock market rose. The money ended up in low-interest-bearing accounts, which we then held for years.

I couldn’t even tell you how much money we could have had today, even considering the next big drops in the markets that have happened since then. But let me assure you, it would be a bunch.

That brings me to my second big mistake: a constant desire to tinker with investment types, rather than sticking with index funds. I just can’t seem to keep my hands off my investments, frequently changing styles and directions.

Financial tinkering is like following a compass, only you first follow it north, then south, then west, then east. You know what happens? At best, you’re going to get somewhere, but it’s going to take you a lot longer than just going in one direction all the time. At worst, you aren’t going to make any progress at all, instead ending up where you started or maybe even further from your goal.

I’ve gone from growth funds to value funds to index funds. Sometimes, I’ve been lucky. But for the most part, it was a lot of work for a lot less gain. I should have just gone with a set plan involving index funds. We’d be much richer today if I had.

So, have a safety net of cash to last for a few years, go with index funds, and stay the course through thick and thin. You won’t end up at the bottom of the barrow with Scrambo. You’ll also look a lot smarter than me. But based on my history, that isn’t saying much.

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, including more than 350 during the past three years. Check out Ken's earlier articles.

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Pain in the Neck

I JUST HAD ANOTHER reminder that, when managing our health and the costs that come with it, we need to be our own best advocates.

Last September, I started developing headaches. Every day, I’d wake up with a dull ache in my left temple area. The headache would often build during the day and, by evening, I was feeling washed out and pretty miserable.

I’m fortunate not to suffer from migraines, but tension headaches have been the bane of my existence for many years. They were the price I paid for working in the high-octane corporate world, where I had global teams to manage and demanding bosses who didn’t know a weekend from a weekday. Tension came with the territory, and so, for me, did the headaches.

But those tension headaches would usually go away when I took a couple of ibuprofen and got a good night’s sleep. But these recent headaches weren’t going anywhere. They were there every single morning when I woke up, hovering in the background like gremlins aiming to ruin my day.

For anyone who has suffered from frequent headaches, you know how debilitating they can be. They steal your joy and make it hard to find the motivation to get anything done. Headache sufferers also know how hard they can be to diagnose. Many things can bring them on—stress, dehydration, alcohol, sinus congestion, allergies, to name just a few.

I was pretty sure that stress wasn’t the primary cause of these headaches. I’m retired, after all, and am no longer pedaling on the hamster wheel. While I have responsibilities in my new, second-act career as an author and communications consultant, they’re nothing compared to what I used to face on a day-to-day basis.

I drink a lot of water during the day, so dehydration wasn’t the culprit. Neither was alcohol since I’m a lightweight in that department.

Sinus headaches? Nope. I’ve had them in the past and know what they feel like.

Allergies? Unlikely. I don’t suffer from allergies and wasn’t sneezing or experiencing other symptoms.

Down the list I went, trying to figure it out. I hate going to the doctor, especially now that I’m insured through the health care exchange and have a high-deductible plan. I bore with it, week after week, hoping the headaches would resolve themselves.

When January came around and I was still having them, I bit the bullet and went to see my primary doctor. He scratched his head and diagnosed me with something called a “new persistent daily headache,” a broad term for a sudden-onset headache that goes on for months without resolving itself. Unfortunately, he told me, no one is sure what causes them.

At his suggestion, I went to see my dentist to rule out bruxism (teeth-grinding) or a jaw dysfunction. The dentist suspected a temporomandibular disorder (TMD) and put me on a soft diet. If that didn’t work, we could go the route of a custom mouth guard. But that, he warned, would not be cheap.

I was hopeful I’d found the answer. But after a month on a soft diet, I didn’t notice any difference in my headaches. As a test, I picked up a store-bought mouth guard and started wearing it at night. That, too, didn’t make a difference.

At that point, I made an appointment with the neurologist recommended by my primary doctor. After an examination and blood tests to rule out anything serious, the neurologist said I was likely having muscle spasms and put me on a 10-day regimen of heavy-duty naproxen.

All the analgesics did was mask the pain and, after 10 days, the headaches were back in full force. By now, I had shelled out a few hundred bucks on doctor visits and tests. The neurologist’s office wanted me to come back to evaluate other more invasive—and expensive—options like Botox injections, but I didn’t go back.

Then one day last March, while I was out walking the dog, I struck up a conversation with a neighbor who had just come back from an adjustment at her chiropractor. I asked her why she was seeing the chiropractor and she told me she’d been having daily headaches for years. After a few weeks of regular adjustments, though, the headaches were remarkably better.

I’d never visited a chiropractor, believing they were quacks. But desperate for relief, I made an appointment that day. The following Saturday, I was sitting at the chiropractor’s office getting evaluated. An x-ray showed that the cervical region of my spine had lost much of its curvature. Likely, the chiropractor said, my headaches were cervicogenic in nature.

I found it interesting that none of the other doctors I’d visited had said anything about my headaches being cervicogenic, but it made sense to me. I’d been having neck pain, on and off, for years from all the decades I’d spent staring turtle-necked into computer screens. Now, it seemed, I was paying the price.

I signed up for a three-month plan with the chiropractor covering 40 visits. I started noticing improvement in the headaches after my first few adjustments, and the improvement has continued since. I also started seeing a physical therapist (PT) to work on stretching and strengthening my neck muscles.

The combination of the chiropractor and physical therapist has been miraculous. My headaches are now largely gone—without the need for expensive interventions.

Just as important, I’m better educated now. Both the chiropractor and PT have taken the time to show me how the cervical spine, neck and head muscles work together, and why it’s important to approach pain in a holistic way. Every day, I’m doing the neck-strengthening exercises recommended by the PT. I’ve woven them into my routine.

What I’ve learned is that every medical practitioner comes to a health issue with a bag of tricks that he or she is familiar with. It’s up to us, as patients, to be aware of all the options out there, so we can make informed decisions about our health.

James Kerr led global communications, public relations and social media for a number of Fortune 500 technology firms before leaving the corporate world to pursue his passion for writing and storytelling. His debut book, “The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life’s Purpose,” was published in 2022 by Blydyn Square Books. Jim blogs at PeaceableMan.com. Follow him on Twitter @JamesBKerr and check out his previous articles.

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