Jonathan Clements's Blog, page 149

Changing My Ways

I'M ONE OF THE 30 writers who contributed an essay to My Money Journey. As the book’s publication drew closer, I found myself worrying about how readers would react to my story.

Will they see me as someone who saved a lot of money because I was thrifty—or because I was cheap? As I mention in the book, I was embarrassed about my spartan lifestyle, including the crummy apartments I lived in and the cars I drove.

In fact, when my boss gave me a generous raise, he asked me, “What are you going to do with the extra money? Buy a new car?” He knew that, at the time, I drove an old Toyota. But I didn’t buy a new car. I invested the money, like I always did when I received a pay raise.

I knew at a young age that people like me, who didn’t earn a lot of money, had to save a larger portion of their income to reach financial independence. As you read my story, you might think I went too far and denied myself some of life’s comforts.

I’ll admit I probably would have enjoyed life more if I hadn’t been so tightfisted. Saving and spending is a balancing act that can sometimes get out of whack.

In My Money Journey, you’ll read what path 29 other writers traveled on their journey to financial independence. That’s what’s so fascinating about the book—each of us has our own unique journey.

Now that I’m retired, you might wonder if I’m still living that same frugal lifestyle. I’m not. I wrote an article about how I was spending money left and right. At the time, I didn't know what came over me. Why was I suddenly spending so freely? I initially thought it was because I was getting older and I was more willing to spend down my savings to have a comfortable retirement.

But now I truly know why. It’s because of my wife. No, she isn’t a reckless spender. No, she’s not encouraging me to spend money. She, too, has led a fairly frugal life.

Instead, what I realized is that I needed someone in my life to spend money on. I wasn’t going to spend it on myself. I’ve never done that. For me, it was okay to do without what many see as “necessities.” But I didn’t want my wife to live like that, and that made me more open to spending money. For instance, we remodeled our house to improve our quality of life by updating the home to some of the latest features.

I married late in life. Although we were together for a while, we didn’t get married until 2020, during the pandemic. We were supposed to be married at the Orange County courthouse. A few days before our wedding date, we were informed that the courthouse was closed because of the surge in COVID-19 cases and that we should report instead to the Honda Center. That’s where the Anaheim Ducks play their ice hockey games.

Once we arrived, I received a text message for us to report to customer service window No. 1. This is the window where you buy tickets to the arena’s events. Behind that window was a lady young enough to be my granddaughter. She went through all the formalities, and then said to me, “You can remove your mask and kiss the bride.” It was surreal. But I’d never been happier.

I’ve learned an important lesson during my financial journey: Money can buy happiness—but it can often buy more happiness when you spend it on others. There are many ways to do this.

For instance, in the comments section of some HumbleDollar articles, I read about people in their 70s donating to charitable organizations using a qualified charitable distribution from their IRA. Those in their 70s and older are allowed to donate up to $100,000 each year to one or more of their favorite charities. No taxes are owed on the distribution and the sum counts toward their annual required minimum distribution.

I also read about folks funding 529 college savings plans for their grandchildren’s education, and about parents giving money to their children by taking advantage of the gift-tax exclusion. I’m sure this is all done out of the goodness of their heart. But I also believe such gifts bring the givers much joy, as they watch their money help those they care about most.

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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Healthy Choices

YOU'VE PROBABLY never heard of Carolyn Lynch. Shopping for groceries, she noticed a new display of panty hose packaged in colorful plastic eggs. She bought a pair, tried them on and loved them. She told her husband, Peter Lynch, the celebrated manager of Fidelity Magellan Fund and vocal advocate of “investing in what you know.” He promptly bought the stock. L’eggs became one of the most successful women’s consumer products of the 1970s.

I recently had my own L’eggs moment. Standing in a line of people waiting to fill their prescriptions at CVS, I was struck that we were all elderly. Most were probably retired and many were undoubtedly struggling with one or another major health concern. We’re not alone. The U.S. is experiencing a glut of old folks like us.

As you’re no doubt all too aware, with age comes medical problems. But ironically, awareness of our susceptibility to illness presents an opportunity—investing in companies that manufacture drugs, supply medical products and insure our access to them.

But how deep does your knowledge go? How company specific? Are you aware that Biogen has participated in the development of two newly launched Alzheimer’s drugs? Will Intuitive Surgical succeed in adapting its Da Vinci Surgical System from assisting in prostatectomies to gynecological procedures? You get my drift.

Maybe you didn’t have to study for your high school biology final, but getting up to speed here is going to take a swath of retirement time. Then you remember what Harry told you yesterday at the gym. He had done well with Vanguard Group’s health care mutual fund. Harry is given to self-promotion. Still, he had the mega-bucks to shell out for that kitchen remodel. You felt you should check it out.

You were impressed by what you found. Vanguard Health Care Fund (symbol: VGHCX) performed exceedingly well over the 10 years through March 31, averaging 12% a year. It accomplished this while fluctuating only about two-thirds as much as the average stock fund. You were familiar with Vanguard’s reputation as a low-cost fund provider and weren’t surprised by the skimpy 0.3% management fee, very reasonable for an actively managed fund.

But Harry wasn’t done. He said over the weekend he’d read about a more recent sequel to mutual funds called exchange-traded funds (ETFs). These funds hold a fixed portfolio of stocks or bonds, don’t trade and require no active portfolio management. With streamlined research departments and negligible transaction costs, they often produced better returns than their actively managed mutual-fund predecessors. No portfolio manager? No trading? You were skeptical, but you thought it deserved a look.

Sure enough, Vanguard has a health care ETF (VHT) and it has been even more profitable than the firm’s professionally managed mutual fund. The ETF returned 12.7% annually over the decade through March 31. What’s more, it also bounced around less than the market and had a minuscule 0.1% expense ratio. The cumulative effect of the lower fee probably explained much of the ETF’s ability to produce better results than the mutual fund. All the research and trading in the active fund were, practically speaking, worthless.

No doubt you get the thrust of this vignette. The counterintuitive takeaway has been confirmed in hundreds if not thousands of major studies: ETFs—and passive index mutual funds—perform as well as and often better than their active mutual fund counterparts. But a dose of common sense is needed to temper any giddiness about what you can realistically expect from a health care ETF. Interest rates for the next 10 years are unlikely to return to the microscopic level we enjoyed a couple of years back. Without that tailwind, stocks probably won’t perform quite as well as they have over the last 10 years.

Now, get ready for a curve ball. Will you at least consider an ETF from another fund family with a higher but still moderate expense ratio of 0.4%? BlackRock’s iShares series offers a global health care ETF (IXJ) that enhances diversification by holding a 30% allocation in international stocks. Including foreign companies in your portfolio gives you a foothold in Europe and Asia, which will have disproportionately large populations of seniors.

I know I’ve wandered off the trusted Vanguard path to sensible retirement investing. After all, 0.4% is four times the 0.1% expense ratio offered by Vanguard. Still, over a five-year span, the cumulative excess fee on a $10,000 lump sum is only $150. Although iShares gained 10.3% a year over the past 10 years, more than two percentage points less than the Vanguard ETF, the difference can be explained by the likely temporary underperformance of international markets. International stocks comprise almost half of the world’s market capitalization. After a frustrating decade that has led many market observers to believe foreign stocks are undervalued, why ignore stalwarts like Roche and AstraZeneca out of fear, home country bias or overdone frugality?

But if you buy a health care fund, go easy because there’s an important caveat. Pharmaceutical stocks are highly represented in health care portfolios and they’re vulnerable to government regulation that would impose a cap on drug prices. As with any sector fund, a health care fund should be limited to no more than 10% of your stock portfolio.

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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Dinosaur Does Retail

I WAS READING HumbleDollar, minding my own business, when I heard those dreaded words: “I need to go shopping.” Frankly, I dislike shopping. If I need something from a store, I go, quickly find what I’m looking for, pay and leave. I use self-checkout whenever it’s available so I can get out as soon as possible.

To avoid the store altogether, I may go online and never leave my easy chair. Search, click, check out and your package arrives Thursday. No aisles to wander, no searching for a parking space. I don’t even have to talk to anyone who may steer me in the wrong direction.

My wife, on the other hand, meanders up and down the aisles. “What are you doing?” I sometimes have the courage to ask.

“Just looking,” I’m told.

“For what?” I ask.

“For something I might need.”

Sometimes the need pops up based on the item being on sale. That way, you can save money when buying something you don’t need. Occasionally, you buy two of them because you get 50% off the second item. The question is, do you now have two more than you need?

I don’t know about you, but if I need something, I know what it is before I go to the store. I just looked in my closet and counted 22 pairs of pants. More than I need, of course, but I must admit some of the older pairs have somehow shrunk a bit around the waist in the years since retirement.

On our last shopping sojourn, “we” decided I needed new pants. After coupons were applied to the sale price, a $59.95 pair of pants cost only $11.99. I must admit this was a bargain. Now I have 23 pairs of pants—about five or six of which fit comfortably.

My wife enjoys shopping and is deliberate about it. She likes to interact with the sales staff and receive help when needed. Research undertaken at the University of Pennsylvania’s Wharton School suggests “women’s role as caregiver contributes to women’s more acute shopping awareness and higher expectations. On the other hand, after generations of relying on women to shop effectively for them, men’s interest in shopping has atrophied.”

Apparently, there’s a scientific basis for this female need to shop. One theory holds it goes back to our hunter-gatherer ancestors. Men hunted while working far fewer hours than women, who spent their days and nights gathering, cooking, making clothes and soothing the egos of the men who didn’t catch anything. Okay, that egos part is my theory.

I think my personal aversion to shopping may be linked to my love of Swedish meatballs. Several years ago, I went to my local IKEA for a bag of frozen meatballs. IKEA has a unique way of arranging its stores. Instead of aisles, it uses a labyrinth. I made a wrong turn and it took me half an hour to find my way out. It was traumatic.

It seems we older men may be behind the times. An article in GQ says that, when shopping, many men are now behaving more like women. According to several experts, men are browsing, impulse buying and experimenting with trends like never before. Of course, all this may be wishful thinking on the part of marketers.

If not, then those of us who can relate to the dinosaur days, when shopping wasn’t a thing, will surely become extinct.

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Mammoth Mistake

NEAR THE END OF 2019, just before a couple of coworkers and I headed out for lunch together, I said to them, “I’m 26% smarter than I was at the beginning of the year.”

“What are you babbling about now, Johnson?” one of them said.

“The mutual funds where I have my investments went up by 26% this year,” I said. “Clearly, I’m 26% smarter now than I was at the beginning of the year.”

“Guess you’re buying lunch then,” he said.

“D’oh.”

You’ve probably noticed there were a couple of difficulties with my theory. First, in 2019, a 26% return lagged behind the S&P 500 slightly, so being “26% smarter” wasn’t much of an accomplishment. Second, all joking aside, there are absurd logical flaws in thinking you’re smarter simply because you had a good investment year. Still, I find it a surprisingly seductive fallacy.

A parallel fallacy operates in reverse in down market years, such as 2022. When you lose 20%, it’s normal to ask yourself what you’re doing wrong. I think that impulse, however, is the psychological jumping off point for some classic investment errors, including selling out at a market bottom.

Ask yourself: What did you do wrong? If you had a reasonable plan in place before the market downturn, the right answer is probably “nothing.” The most important thing about realizing you did nothing wrong is that it means you don’t have to take drastic action to fix your mistake—because there’s no mistake to fix.

Sometimes, not doing anything is difficult. When faced with a problem, there’s a natural, and perhaps deeply ingrained, impulse to do something right now. Presumably, a bunch of Cro-Magnon hunters weren’t very successful if they stabbed a mammoth once, and then held a series of meetings to decide whether they should undertake a study to determine whether they should stab the now highly irritated mammoth again. Instead, successful mammoth hunters stabbed it again right now.

Evolution favored those who took action and it imposed penalties on those who scheduled lots of meetings. While we can fervently hope that evolution will eventually eliminate people who like to schedule lots of meetings, that doesn’t mean that contemporary financial markets favor people who frantically take abrupt action in response to short-term changes in market prices. After all, it’s a market, not a mammoth.

Personally, I’m not prone to worry much about stock and bond market downturns, even though they look alarming. Eventually, I figure, the market will go back up without me having to do anything.

On the other hand, I am prone to think I’m smart when my investments perform well. After all, in that case, I did take action: I saved money, I invested it and the investments went up. Looks like I’m pretty smart. Lately, though, I’ve begun to suspect that certain outcomes had as much to do with luck as any intelligence I might have.

Case in point: My peak earning years were 1996 to 2021. The late 1990s were a good time to start investing in the stock market because returns were encouraging. Even the subsequent market downturn around 2000 wasn’t a bad deal for me because by then I realized I should be buying stocks, not selling them—and lower prices meant I could buy more shares.

It was as if I had $20 and headed to the store to buy some steak, but before I got there the price of steak fell by 40%. Steak still looked good to me, but now I could buy almost twice as much with my $20.

By some measures, the stock market took a decade to recover from the 2000-02 decline, its rebound interrupted by the housing crisis and recession at the end of that decade. All the while, I was buying inexpensive shares while my salary, and hence the amount I could save and invest, increased over the course of my career. Then, over the following 10 or 11 years, after I had already built a decent-size portfolio, the stock market did remarkably well.

That sequence was completely outside any intelligent action on my part. I could have saved the same amount and invested the same amount but, under other historical conditions with different return sequences, I wouldn’t have fared nearly so well.

Why is it important to realize that my efforts were only part of the reason things went well for me? This realization might prevent me from thinking I’m so smart that all my ideas are pure genius and that I should act on them right now.

In other words, those of us who manage our money tend to focus on external risks—market risk, interest rate risk and so forth. Yet many of these risks are outside our control. At the same time, we don’t spend much of our energy considering an equally dangerous risk that is under our control: management risk. That’s the risk that the guy managing your money—you—will make unforced and completely avoidable .

In most personal finance decisions, from purchasing objects to changing investment strategies, you don’t have to act immediately. Before you bet your life savings on your latest idea, you have plenty of time to think about whether there’s anything wrong with it. I try to spend more time thinking about the ways a new idea might be wrong, and less time thinking about what a good idea it is.

The real intelligence in a financial plan is to understand your goals, the means you have to achieve those goals over time, and to diversify your savings and investments in such a way that your portfolio supports what you want to do, while avoiding outrageous exposure to risk. A good financial plan contemplates periodic, normal-but-painful market downturns, so that such things don’t derail your long-term goals.

The temptation is to think choosing the “right” stock or mutual fund is how smart people do well. But I think the smart people are more likely to spend their time developing a plan that’s likely to work, and then sticking to it. That’s less sexy than “hitting it out of the park” with a stock pick, but far more likely to work, and it helps you avoid worrying about any need to take drastic action right now.

I could get in real trouble if I immediately acted on all the ideas that pop into my head.

If those of you with spouses read that last sentence aloud to your better half, you might be met with a disturbingly enthusiastic confirmation that this notion applies to you, too.

David Johnson retired in 2021 from editing hunting and fishing magazines. He spends his time reading, cooking, gardening, fishing, freelancing and hanging out with his family in Oregon. Check out David's earlier articles.

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Changing My Mind

A FEW YEARS BACK, I related a story about the comedian Joan Rivers. Her daughter, Melissa, likes to joke that her mother was always very consistent. Wherever she was, she would always drive at 40 miles per hour, whether it was on the highway, in a school zone or in the driveway.

This is funny, but it also illustrates a key challenge for investors. On the one hand, it’s important to be consistent. But at the same time, it’s important to be flexible, to adapt to new information or changing circumstances. There’s a fine line between consistency and stubbornness. For that reason, I believe investors should periodically reassess their thinking on key questions. Over the years, for example, my views on the following four topics have changed.

Psychology. For many decades, the accepted wisdom in finance was that investors were rational, and that psychology played no part in financial decision-making. The investment establishment generally accepted a mathematical approach to investing called Modern Portfolio Theory. But that changed with the emergence of behavioral finance in the late 1970s. Investors today generally see math and psychology playing roughly equal roles in how markets operate.

I, too, shared that view. But over time, I’ve come to think that math and psychology are not quite equal contributors. Today, I see psychology as the far more important driver of investor behavior. Math, I think, plays only a supporting role. You don’t need to look too far back to see why.

Recall 2020, when the stock market dropped 34% in a matter of weeks. That decline flew in the face of even the simplest financial analysis and could only be attributed to emotion. I recall hearing some investors at the time predicting a depression akin to the 1930s.

But then, just a year later, we saw investor psychology drive the market in the opposite direction. The market rose far above its pre-COVID peak, as investors threw caution to the wind. Initial public offerings, crypto “currencies” and tech stocks all rose in a 1990s-style frenzy. There was little or no data underlying much of this behavior. Sure enough, in 2022, many of these highflying investments dropped 50%, 70% or more.

Wall Street analysts contribute to this dynamic in a subtle way. When a stock starts trading at a higher level, they’ll sometimes call it out as being overpriced. But at other times, they’ll justify that higher price by declaring that the stock has been “re-rated” by investors. The re-rating refers to the stock’s price-to-earnings (P/E) ratio.

When a P/E rises, it means that investors are willing to pay more for each dollar of corporate earnings, causing the share price to rise. The trouble, though, is that P/E ratios only appear quantitative. They don’t have any mathematical underpinnings. So, when a stock’s P/E ratio rises, it’s really just another way of saying that investors like that stock better now. The upshot: Investment professionals, even when they’re trying to be rigorous, are often simply fitting their math to the prevailing psychology.

To be sure, math does play some part in how investment assets are valued. When bonds dropped last year, for example, it was directly related to—and largely proportional to—the Federal Reserve’s interest rate increases. But more often than not, the market seems to be driven more by emotion than by anything else.

If that’s the case, how can you navigate this with your own finances? One approach—and I’ll acknowledge that this may sound circular—is to simply recognize this as a reality. In other words, recognize that “the market” isn’t all-knowing, that it’s just a collection of individuals, each of whom might be making their own less-than-logical decisions. If you can see the market through that lens, it’ll be easier to tune out much of the day-to-day commentary, especially during periods of volatility.

Recency. Among all the psychological drivers of market behavior, fear and greed are the most commonly cited. That makes sense, but I’ve come to think about this differently. I used to see these as fixed personality traits. Some people tended more toward greed, while others were more fearful. In my experience, however, many investors oscillate in their thinking about investments. Sometimes, they’ll be more fearful, and at other times they’ll become more aggressive.

Why? Ultimately, I believe fear and greed—as well as many other emotions—are simply manifestations of the same underlying dynamic known as recency bias. That’s the tendency to assume that recent trends—whether positive or negative—will continue into the future. Psychologists have identified of different behavioral biases, but I’ve come to see recency bias as the most powerful among them. And for that reason, it’s the one that, as investors, we need to be most aware of and most leery of.

Rational ignorance. Another market factor which I’ve come to appreciate more is the notion of rational ignorance. As investors, there’s simply too much information coming at us and not enough time in the day to process it all. As a result, it's actually a rational decision to choose to ignore certain topics, even when they represent potential risks.

A few weeks ago, for example, I referenced the U.S. government’s 2019 “Worldwide Threat Assessment.” In that document, written well before the pandemic, the government wrote: “We assess that the United States and the world will remain vulnerable to the next flu pandemic or large scale outbreak of a contagious disease….” In other words, the coronavirus shouldn’t have surprised us, but it did. Why? I attribute it to rational ignorance. Folks chose not to pay attention.

No one, of course, can see around corners. Still, in building financial plans, I encourage investors to consider risks that currently seem unlikely.

Fundamentals. Even when investors do try to be rational, another fly in the ointment emerges: In investment markets, there’s often more than one factor at play. Consider the inflation spike that started in 2021. Economic theory says that inflation should weaken a currency, but the dollar actually rose in value.

Why? Even though the Federal Reserve was slow to respond to the inflation threat, other government programs at the time were driving our stock market higher, making the dollar more attractive to international investors. This is a big part of why it’s so hard to make economic predictions. An investor might correctly forecast one factor but overlook others.

Sometimes, even the same fundamental factor can cut both ways. Rising interest rates, for example, have put a damper on home prices because they’ve made mortgages much more expensive. But prices haven’t dropped as much as they might have, owing to a more subtle, countervailing effect: Homeowners with existing low-rate mortgages are now more hesitant to move because that would require a new mortgage at a higher rate. This has resulted in fewer homes being put on the market, and that reduced supply has created upward pressure on prices. The bottom line: It’s important to be aware of current trends in the economy, but we should be careful not to base investment decisions on forecasts, even when we feel they’re grounded in evidence.

While I’ve changed my views on these topics, there are other principles that I feel even more strongly about today than I did in the past. I’ve argued that private funds are a very difficult way to make money for individual investors, and I still feel that way. Instead, I see simplicity as a critical pillar in building portfolios.

Whether you have $30,000 or $30 million, I believe index funds are investors’ best bet, for their tax-efficiency and relative performance, among other reasons. I see active management in all of its forms—including stock-picking, market-timing and forecasting—as a fool’s errand. And I agree with fellow financial planner Peter Mallouk, who has argued that “somewhere between 99% and 100% of all cryptocurrencies are going to zero.” Because they lack intrinsic value, they’re unsuitable as investments. And because they're so volatile, they’re unsuitable as currencies.

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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Learned Along the Way

IMAGINE YOU TOOK a group of folks—mostly male, mostly older, mostly upper-middle class, mostly well-educated—and had them describe their financial journey. They’d all be pretty similar, right? You might be surprised. I was.

Next Tuesday marks the official publication of My Money Journey, which you can now order from Amazon and Barnes & Noble, as well as directly from Harriman House, the publisher. When I asked 29 writers for HumbleDollar to join me in contributing essays to the book, I wasn’t quite sure what I’d get. But as the last few essays trickled in and I looked over the submissions, what struck me most was the diversity of the stories.

There are many paths to the top of the mountain. Most journeys start haphazardly, trying one route and then another. But eventually, successful investors settle down and do mostly the right thing for many years, and they end up with surprising wealth—and nobody’s more surprised than the investors themselves, who discover that a huge pile of dollars has resulted from decades of prosaic prudence.

While each journey described in the book is unique, you’ll likely notice that certain themes crop up again and again. Here are the eight themes that struck me:

1. Our parents mold our financial beliefs. This comes shining through in almost every essay. Trust me: If you’re a parent, it’s scary to realize how much influence you have on your children. Really scary. What beliefs from our parents should we hang on to, and which should we discard? For some contributors to My Money Journey, it’s been a lifelong struggle.

2. The key to financial freedom is good savings habits. It’s banal to say it, and yet it can’t be said enough. The virtue of thrift is a theme that runs through almost all 30 essays.

3. Complexity is unnecessary. Again and again in My Money Journey, you’ll hear mention of the same simple strategies. Dollar-cost averaging. Extra-principal payments on a mortgage. Maxing out retirement plan contributions. Indexing. To the uninitiated, the world of personal finance can seem baffling. But once you dig into the details, you’ll discover that complexity is usually the route to high costs and mediocre returns, while simplicity offers not just better financial results, but also a comforting sense of control.

4. We don’t need to be great investors. That’s just as well, because most of us aren’t. In fact, most folks end up with investment results that trail the market averages, which is why indexing—humbly accepting the results of the market averages—is a strategy embraced by virtually all contributors to the book.

5. Success is apparent only in retrospect. It usually takes decades to achieve financial independence, and, along the way, progress often seems grudgingly slow. And then one day, we look back and realize how far we’ve come—and how all those small, sensible decisions have compounded one upon another to ensure a comfortable future. Are you early in your financial journey and saving regularly, but it feels like a game of inches? For inspiration, look no farther than the stories in My Money Journey.

6. Don’t discount the role of luck. Our financial success often hinges on things beyond our control. Does our boss take a shine to us—or instead favor others for no apparent good reason? Does our employer prosper, or do we find ourselves struggling to survive in an organization beset by red ink and constant layoffs? Once we have a healthy sum invested, does a booming stock market fatten our nest egg even further—or are we hit by a vicious downdraft?

It seems almost all of us get dealt a bad financial hand at some point in our life. The wound might be self-inflicted, or it may come out of the blue—a major medical bill, a bad investment, a family member needs our help, unemployment, divorce. Such financial hits may set us back, but—as you’ll learn from some of the book's essays—the damage doesn’t have to be permanent.

7. We infuse money with meaning. Money is just money in the same way that a Maserati is just a car and the silver cutlery we inherited from our parents is just flatware. My point: These inanimate objects hold meaning far beyond their objective attributes—and how I feel about such things will likely differ from the sentiments you harbor.

It’s worth spending serious time pondering the meaning we attach to money and its many uses. Are we buying the Maserati because we love finely engineered automobiles—or because we want to impress the neighbors? Are we saving diligently because we want the financial freedom to pursue activities we find fulfilling—or are we over-saving because we’re terrified that we’ll end up destitute? In the essays, many of the writers discuss their relationship with money and their efforts to make their peace with the almighty dollar.

At its best, money is a tool that delivers a sense of security, lets us devote our days to activities we’re passionate about, allows us to have special times with loved ones, and lets us help those around us, not just family and friends, but also those we’ll never know personally. How should we divvy up our money among these possible uses? It comes down to our values—to what each of us believes is meaningful and finds fulfilling.

8. At some point, we need to declare “enough.” Then comes the next hard task: learning to be satisfied with what we have—and enjoying the money we’ve accumulated. This may be the destination we’ve long had in mind, yet most of us find that the journey never quite ends and contentment remains elusive. That isn’t so terrible. We humans are built not to rest and relax, but to dream and strive. There’s great satisfaction to be had from that striving.

The above article was adapted from My Money Journey's introduction.

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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When in Rome

MY WIFE AND I VISITED Italy this year. We flew to Venice, where we stayed three days, and then hopped a train to Florence, where we spent the next five days. After that, we rented a car for three days and toured the Tuscany countryside, before catching a train to Rome for our final six days.

I learned a lot about Italy, but I also learned some things about myself. Here are 11 takeaways from our trip:

1. Going home was one of my favorite parts. Before I retired, I thought I’d spend months on the road, and maybe even live overseas for a while. But after two or three weeks of traveling, I’m ready to go home.

I miss my home, friends and routine when I’m away for a while. I don’t see how people, no matter how much time they spend traveling, can sell their house and not have a place to go home to. I wouldn’t feel safe and secure.

2. If I’m going to travel and see everything I want to see, I better do it now. While we were in Florence, my wife and I climbed to the top of the dome that covers the Cathedral of Santa Maria del Fiore, also known as the Duomo. It was 463 steps to the top, and the passage is sometimes steep. There are many towers in Italy with breath-taking views that also involve climbing many steps.

I can't see us being fit enough in our 80s to do things like that. Our 70s might be the last chance to travel without physical limitations.

3. Travel is not cheap. We have two more major trips planned this year. Funding these trips means drawing down our investment portfolio.

I don’t know if I’d have felt comfortable spending this much money on travel if I didn't have a financial advisor giving me the thumbs up. That reassurance allows us to spend without fear that we’ll run out of money.

4. I wrote in another article about having only one credit card in our later years—how it would simplify our finances and make them easier to manage. I was wrong. We should have at least two credit cards.

My wife and I paid for almost everything in Italy by using credit cards. While dining at a restaurant in a small town in Tuscany, our credit card was rejected. We tried three times with no luck. I checked my Citi Mobile app and it was temporarily shut down for maintenance. Maybe that was the reason for the rejection.

Luckily, I brought another card with me—because we didn’t have enough euros to pay for the dinner. That’s another lesson I learned: Make sure you have enough local currency for emergencies, because you might not be able to charge everything to a credit card. For instance, we stayed at a hotel in a small town where we were required to pay part of the bill—the city taxes portion—in euros.

5. How to manage the exchange rate can be tricky. When you use your credit card, sometimes restaurants and hotels will ask you if you want to charge in euros or dollars. I once paid a restaurant bill in dollars. But the exchange rate seemed higher than when I was charging in euros.

According to American Express, if you’re using a credit card with no transaction fees, you usually save money if you make the purchase in local currency. When you choose to charge in dollars, there’s sometimes a hidden currency conversion fee added to the transaction by the merchant’s credit card processor.

6. I bought an international wireless travel plan when we went to Italy. Yes, you can make phone calls, text and access the internet using wi-fi. But I wanted to use Google Maps and get real time directions on my iPhone, and for that I needed a cell signal. Not all rental cars have GPS navigation.

If you’re traveling overseas, Google Maps is a lifesaver when trying to find your way around on foot or by car. It’s easy to get lost when walking those narrow pathways that traverse the canals in Venice, and those country roads while driving in Tuscany.

If you don’t want to pay for data usage, you can use wi-fi to download your destination ahead of time in Google Maps and save it. But transit and walking directions are unavailable offline. You also won’t get traffic information, alternate routes and lane guidance while driving.

7. If you’re traveling in Europe by train, the Trainline app is an easy way to check train times and prices, and to purchase tickets. There’s no need to print out a ticket. If you have the app, you can use a mobile ticket with a QR code that’s stored on your phone and that can be scanned at the station or after you board the train.

8. If you’re renting a car, it’s a good idea to schedule an early morning pickup because of the shortage of automobiles. When we picked up our car at 10 a.m., we were fortunate to get the last car that was available. If we had scheduled the pickup later in the day, we might not have gotten a car that would have fit our schedule.

9. You should shop around for the best deal on hotels. When traveling overseas, we usually book our rooms through Hotels.com. For every 10 one-night stays, you get a free night valued at the average value of the previous 10 nights earned. If you’re a gold member, you’re entitled to complimentary room upgrades, early check-in and late check-out at select properties when they're available.

We received a free upgrade at a hotel in Florence. The room was located on the top floor, and had a private outdoor patio with a view of the city. It was one of the highlights of our trip. The accompanying photo shows the view of the Duomo from our room.

10. If you take medication, keep it in your possession when boarding the plane. Don’t stash it in your check-in baggage because it could get lost in transit. Also, the plane’s cargo area can get very cold for medicine that needs to be kept at certain temperatures. Losing your medication is a good way to ruin your trip.

11. When you live on the West Coast, it isn’t easy traveling to Europe. How great it would be to fly from Italy to Newark, New Jersey, and not have to take the long six-hour connecting flight to Southern California. Still, no matter how tiresome and inconvenient it is, we wouldn’t want to live anywhere else.

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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11 Mottos to Live By

LIVING BENEATH OUR means is one of the best habits to develop if we want a secure retirement. Like many others, I learned this sort of thrift from my parents and grandparents, who lived through the Great Depression and, by necessity, had to avoid waste.

Not only did our forebearers survive the Great Depression, but also the Second World War came right on its heels. These were years of conserving materials—such as metal, rubber, paper and food—to support the war effort.

My mother saved a food ration book from the war that still had some stamps in it. When she shopped, she had to hand the grocer stamps when buying meat, sugar, butter, cooking oil and canned goods. The number of stamps handed over depended on the scarcity of the item purchased. For instance, if bacon was 35 cents a pound, you might have to give the grocer seven stamps.

Once the stamps were used up for the month, people couldn’t buy any more of that food until new stamps were issued the following month. I wonder how many young people today know that, in this land of abundance, food was once rationed, and that thrift in itself can be a source of remarkable household revenue.

Mom also saved a booklet from the war years that gives information about saving or conserving just about everything—food, clothing, house furnishings, appliances, utilities, cars, even insurance. People found artful ways to scrimp on just about everything. Nothing was wasted.

We could all benefit from the advice in this little booklet. Here are 10 of the more memorable passages that appeared at the bottom of the booklet’s pages:

Willful waste makes woeful want.
Waste nothing. Hoard nothing. Use everything.
Spend what you must and save what you can.
He that eats and saves sets the table twice.
Wear it out—make do—do without.
Respect pennies and the dollars will respect you.
Spend money and it goes. Save money and it grows.
Thrift is worth a lot of money, yet it doesn’t cost a cent.
What is worth owning is worth treating well.
And my favorite: Be penny wise… and pound wise too.

I’ll add to this list a quote from the 30th U.S. president, Calvin Coolidge, which seems apropos: “Industry, thrift and self-control are not sought because they create wealth, but because they create character.”

Coolidge kept track of the grocery bills for the White House kitchen, and drove costs down over the years. He was also one of the few presidents who left office with a federal debt far smaller than when he entered.

A footnote: To get the flavor of what life on the home front was like during the Second World War, watch Woody Allen’s film Radio Days, which can be streamed free on the Tubi network. It’s worth watching for the tender and evocative songs of the 1940s, and it may be Allen’s finest movie.

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Makes You Wonder

THOSE OF US WHO GREW up in the 1950s watched Howdy Doody on that large, newfangled box with a picture tube and knobs. The show’s host was Buffalo Bob, who enthusiastically proclaimed Wonder Bread “helps build strong bodies eight ways.”

Subsequent nutritional research debunked that claim, and the government induced Continental Baking to add back the healthful ingredients that its processing methods were removing. The new wrapper proclaimed “enriched” Wonder Bread, even though the firm was simply replacing what had been there before.

That brings me to investing. Instead of Howdy Doody, many of us now watch CNBC, where talking heads expound on the virtues of picking stocks and making market bets. Does such active involvement help strengthen our portfolios eight ways? Consider these eight dubious contentions from fans of active management:

1. Index funds produce average—and hence unsatisfactory—returns.

Remember the game show Who Wants to Be a Millionaire? If your goal is seven figures, start making steady monthly contributions to a broad stock market index fund when you’re young. Live your life, pursue your dreams and don’t mess with your portfolio’s compounding. By the time you reach retirement age, there’s a good chance you’ll have your wish. How’s that for average?

2. Results for most index funds diverge from their underlying indexes.

Consider one of the most popular exchange-traded index funds, Vanguard Group’s S&P 500 ETF (symbol: VOO). In 2021’s soaring market, the Vanguard fund’s 28.6% total return was virtually identical to the index’s 28.7%. In last year’s tumultuous down market, the corresponding figures were -18.2% and -18.1%. What divergence are they talking about?

3. The higher cost of active funds is insignificant.

We can quickly dispense with this blatant untruth. Research has linked higher expense ratios to lower fund returns, and the longer the time horizon, the greater the impact. Suppose you invested $100,000 at a modest 4% a year—before costs. Over 20 years, you’ll end up with almost $10,000 more if you pay 0.25% in annual expenses rather than 0.5%. And, of course, most active funds charge far more than 0.5%.

4. Money managers’ massive research capability gives them a big leg up on index investing.

What leg up? It’s the outrageous cost of that research albatross that explains much of why portfolio managers consistently underperform.

5. Active funds protect investors by shifting in and out of market sectors and moving between stocks and cash.

What good is all that activity if active managers have no proven skill in the first place? On top of that, investors shouldn’t have to pay a fee for that part of a stock fund that sits in cash. We’re perfectly capable of hoarding our own cash.

6. Active managers can exploit market inefficiencies among small-cap stocks and emerging markets.

Here we can consult the last word on active vs. passive fund performance, the S&P Dow Jones Indices’ SPIVA report. In 2021’s rising market, 71% of active small-cap funds failed to beat their index bogey. Likewise, in 2021, 65% of active managers underperformed when trying to pick among emerging markets’ less followed and less liquid stocks. What about last year’s tumbling market? In the just released 2022 data, active funds succumbed 57% of the time among small stocks and 76% in emerging markets.

7. Directionless and choppy markets offer special opportunities for stock pickers .

I can’t turn up any evidence to counter or support this claim. Andrew Marchant, chief investment officer at financial advisors Minchin Moore, refers to the stock-picker story as a “nice idea that has no grounding in actual fact.” Given the inability of portfolio managers to perform well in up and down years, it seems highly unlikely they have a hidden talent for plucking promising stocks from a directionless market.

8. Actively managed funds have consistently outperformed their corresponding benchmarks.

Are they kidding me? Let’s get real by going back to that definitive SPIVA report. In 2021, just 20% of all active U.S. stock funds outpaced the S&P Composite 1500 Index. Active managers’ results “improved” to 50% in 2022, their best showing since 2013. But it’s the long-run results that are truly telling. More than 92% of U.S. stock funds have failed to beat the index over the past 20 years. Adjusted for volatility, that figure rises to an unconscionable 97%.

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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Class Worth Taking

LESS THAN HALF of Americans—46%—have tried to calculate how much they need to save to live comfortably in retirement, according to a 2022 survey by the Employee Benefit Research Institute. I often meet extremely bright people—doctors, residents, PhD students and professors—who say with a sheepish smile that they don’t understand the intricacies of their retirement plans.

For some, this lack of understanding is a choice. People who sense they haven’t saved enough, or any money at all, may not want to know where they stand financially. But arguably these and most other Americans have also been shortchanged. Personal finance is not a standard offering in the general education curriculum in the U.S. Last year, when I asked the students in my college economics class how many had previously taken a personal finance course, only one student out of 21 raised a hand.

This vacuum is worrying because so much rides on successfully budgeting, saving, investing and other financial decisions. Next Gen Personal Finance is a nonprofit group trying to fill that void. Its goal is to make sure every student who graduates high school has completed at least one personal finance class.

Thanks partly to the group’s lobbying, six states added a personal finance requirement for high school graduation in 2022. That brings to 18 the number of states that mandate personal finance study. Only 24% of U.S. public high school students currently receive finance education. That’s projected to rise to 40% thanks to the six additional states that just mandated a state-wide personal finance curriculum—Florida, Georgia, Kansas, Michigan, New Hampshire and South Carolina.

In the 32 states and the District of Columbia that lack a mandate, an average of just one student in 10 will take a personal finance class before graduating. In some cases, the local school district mandates a personal finance course. Most of the time, however, a money class is offered as an elective, folded into another subject like math—or it’s simply not offered at all.

To help build a personal finance curriculum, Next Gen provides school districts with free course materials and teacher training. Some 77,000 educators have been trained to teach a money curriculum, and around 20,000 more join annually, according to Tim Ranzetta, an entrepreneur from Palo Alto, California, who is Next Gen’s co-founder and chief financial backer.

Next Gen’s financial education curriculum is comprehensive. How to use credit cards. How to invest. Budgeting, taxes and insurance. And, perhaps most pertinent to high schoolers, how to afford college without sinking into a pit of debt.

“It’s about behavior change,” Ranzetta said in a telephone interview from California. After taking the class, he said, students “open up savings accounts. Set up Roth IRAs. Make better decisions on student loans.” Their knowledge can also be passed on to parents in a ripple effect. “Kids are taking this home to their families. Parents are signing up for IRAs after their son comes home” from class, Ranzetta added.

The absence of financial education is particularly acute among lower-income students. In school districts where 75% of students or more qualify for free or reduced-cost lunch, less than 5% of children are required to take a personal finance class to graduate, according to Next Gen’s research. These districts often lack the resources to add a new subject, Ranzetta said.

To assist these students, Next Gen is making three-year grants to 15 such districts to allow them to hire a personal finance expert to “be the evangelist” for adding financial education classes. Basketball great and businessman Michael Jordan and his Nike brand have endowed six of these grants, placing financial education advocates in school districts, including in New York City, Detroit and Jordan’s home-state North Carolina cities of Charlotte and Mecklenburg.

Ranzetta said he became interested in this work when he was asked to speak at a school about personal finance. He said he discovered students had a natural affinity for the topic because they sense how important it could be to their future. “One hundred percent of kids,” he said, “are going to have to learn to manage their own money.”

Greg Spears is HumbleDollar's deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

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