Jonathan Clements's Blog, page 166

Time’s A-Wasting

WHAT DO BEN FRANKLIN, Charles Darwin and David Cassidy all have in common? All have advised us not to waste life’s precious time.

Almost everything about money translates into time. Money can buy us time—either more free time or more time spent on higher-value activities. Money can purchase a nicer house or car, a luxury vacation, greater financial support for our children, fun toys or experiences, reduced financial stress—and, eventually, a comfortable retirement. The financial independence-retire early, or FIRE, movement is really about controlling our future time.

As a retiree now reflecting on my life, my biggest regret has absolutely nothing to do with work, marriage, parenting, leisure, house or financial decisions. No, my biggest regret is the significant blocks of time that I let slip away.

College was my first opportunity to manage my own time. I didn’t lose much time, if any, to haircuts, shaving, washing clothes, keeping my room tidy, exercising or eating a balanced diet. But like many students, I spent countless hours socializing, partying, listening to records over and over, endlessly debating social issues and initiating my discovery of adult-ish norms.

Despite plenty of wasted time in college, I did manage to obtain an engineering degree and met the best wife ever. Better time management in college or higher grades wouldn’t have led to any significant changes in my life’s outcome.

On the other hand, I can look back and identify plenty of squandered time in the years since. Here are the six biggest time wasters that I now regret:

Watching TV. While not a big television fan, I have watched too much TV, particularly in my early adult years. Since acquiring a Betamax, at least I’ve skipped past the commercials. Today, my wife and I generally require a 75% or higher Rotten Tomatoes score before pressing “play.” Unlike most of my contemporaries, I still haven’t seen a single episode of Friends, Game of Thrones, Seinfeld or The Sopranos.

Surfing the web. Admit it, we have all been sucked in by click-bait to check out the biggest, smallest, scariest, longest, shortest, best, worst, happiest or saddest whatever. Twenty pageloads later, we discover we’ve been swept down a rabbit hole into the web cesspool. Much of the web is just a huge time waster. Fortunately, I have largely avoided its biggest time sink of all—social media.

Fretting excessively over schedules and expenses. As consummate planners, my wife and I have spent countless hours stressing over—and trying to perfect—time and cost issues. Our planning perfectionism has perhaps been our life’s biggest discretionary time waster. These days, I find that the 80-20 rule or a “good enough” solution will usually suffice.

Doing low-cost work. My wife and I performed nearly all household chores throughout our adult lives. As the children of Depression-era parents, it just felt right. This approach saved money, provided exercise, felt fulfilling and set a good example for our two kids. But in hindsight, as our financial circumstances improved, we probably should have loosened the purse strings a bit and paid for more services.

For example, we now fork over $40 to have the grass cut. The two workers use expensive, commercial-scale equipment to cut, edge, blow clean and remove the yard waste on nearly three-quarters of an acre in less than 25 minutes. I couldn’t compete. The work would take me three hours or more, plus a significant financial outlay just to get the equipment.

Shopping. My wife and I are careful shoppers—perhaps too careful. We’ve spent far too many hours penny-pinching and fine-tuning our purchases. For perspective, let’s assume a $20-an-hour wage for basic labor translates to 33 cents per minute. On that basis, to be worthwhile, coupons, sales or penny-pinching activities ought to provide a greater return on the time expended. That means, if we use a 15-cent coupon, the total time we spent to find it, print it, cut it out and process it at the grocery store should ideally take no more than 30 seconds.

Today’s 15-cent coupon is equivalent of a nickel coupon from 40 years ago, when we spent plenty of time managing nickel coupons. I’m not sure it was worth our time then. It certainly isn’t now. Similarly, purchases that are made solely because they’re “on sale”—rather than because of need—have a high likelihood of being a net time sink.

Commuting. Long commutes were my life’s biggest block of squandered time, yet I don’t fully regret them. I willingly powered through my drive so that our family could live in a resort area that we all enjoyed.

The next logical question is, what would I have done with any additional time? I have no idea, but I hope I would have devoted it to something more worthwhile than extra TV watching. I doubt the great American novel is within me. But snippets of additional time could have allowed me more exercise, sleep, family time or writing time—all of which increase my peace of mind.

As I age, I’m more careful with time, particularly if it falls into the six time-wasting categories listed above. As seniors, we’re more aware that our time is starting to run out. That’s why the best advice is always, “Don't waste your time.”

John Yeigh is an author, speaker, coach, youth sports advocate and businessman with more than 30 years of publishing experience in the sports, finance and scientific fields. His book "Win the Youth Sports Game" was published in 2021. John retired in 2017 from the oil industry, where he negotiated financial details for multi-billion-dollar international projects. Check out his earlier articles.

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In a Heartbeat

I'VE BEEN ENGAGING IN the same end-of-the-year ritual for decades. Right after Christmas, I take a day or two—preferably away from home—to reflect, pray, meditate and write in my journal about the past year and the year that lies ahead.

It’s a time for me to think about what I’ve done, what I haven’t done and what I hope to do in the new year. In this review, I include my financial, spiritual, emotional and physical lives. I reset my portfolio allocation, take an inventory of my assets—financial and otherwise—and decide what I want to focus on over the next year.

At the end of 2022, I chose to go to the beach for a night and sit by the ocean as I did this. I thought about where I was at the beginning of 2022 and what had changed. I thought about three colleagues who were alive in December 2021. One was planning on retiring in June. She fell from a ladder as she came down from her attic, broke her neck and died in February. Another had retired in June 2021. He was a fit runner. He dropped dead of a heart attack this past July. Another gem of a man retired last summer at age 71. He was diagnosed with a very aggressive cancer one month later and died in October.

Life can change in a heartbeat. All the financial and family plans we’ve made, and all the dreams we hope to realize one day, don’t come true because one day never comes. Thus is the reality of life and death—a reality we ignore or deny at our own peril, whether it’s our finances or any other aspect of our life.

This realization is easy to intellectualize but sometimes hard to internalize, as I was reminded the week after New Year’s Day. At the end of 2022, I registered for Medicare because I turn age 65 in March. I had already helped my wife do so in October without any problem—which is why I was a little peeved when I received a letter from the Social Security Administration on Jan. 2 saying it couldn’t process my application until it had an original copy of my birth certificate. I huffed and puffed, and went off to look for it.

I didn’t find it with the birth certificates for the rest of the family, so I checked to see if it was in my adoption file. I was adopted at birth and began searching for my biological roots—with limited success—after my son was born 35 years ago.

Sure enough, my birth certificate was in my adoption file. That led me to check something on the internet. I’ll spare you all the details. But, to my surprise, I found the name and location of my biological sister and found pictures of my biological mother, whom I never met. I knew my mom was dead, but I didn’t know my sister was alive or where she lived. I do now. My heartbeat didn’t stop, but it definitely started pounding a lot harder and maybe missed a beat or two.

My sister and I have since talked on the phone, and I hope one day that we'll meet. My life was changed forevermore when I saw that picture of my mom and sister—the first such picture I’d ever seen. Almost all of the spiritual work I have done in my life points back to one truth: Stay in the moment and savor each breath. Or follow the words attributed by some to James Dean: “Dream as if you’ll live forever. Live as if you’ll die today.”

That’s good counsel for all of us, especially those of us who are in the financial thinking and planning business. Because it can all change in a heartbeat.

Don Southworth is a semi-retired minister, consultant and tax preparer living in Chapel Hill, North Carolina. He recently completed his Certified Financial Planner education. Don is passionate about the intersection between spirituality and money, and he encourages people to follow their callings wherever they lead. Follow Don on Twitter @Calltrepreneur and check out his earlier articles.

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Don’t Bet the Bank

LAST WEEK, I TALKED about Carveth Read, the English philosopher who’s famous for saying, “It is better to be vaguely right than exactly wrong.” This, in my view, is one of the most important ideas in personal finance.

My focus last week was on the “vaguely right” part of Read’s statement. But what about the second part—the importance of not being “exactly wrong”? Below are seven situations in which trying to be exactly right might, counterintuitively, carry more risk than aiming to be roughly right.

1. How to structure a portfolio. Consult market data, and you’ll find that the best-performing stocks over the long term have been value stocks. In the words of finance professor Bruce Greenwald, these are the stocks of companies that are “ugly, disappointing, boring or obscure.” They’re the opposite of the market’s most popular and well-known stocks—Apple, Amazon and so forth.

But counterintuitively, value stocks, as a group, have easily outpaced their better-known peers. According to data from Dimensional Fund Advisors, value outperformed growth by more than four percentage points per year, on average, between 1927 and 2021. Strictly according to the numbers, you’d allocate your entire portfolio to value stocks. But that’s not what I recommend, for two reasons.

First, as the standard investment disclaimer states, past performance does not guarantee future results. The future won’t necessarily look like the past. Also, when looking at historical data, there’s the possibility that the patterns we observe are just artifacts in the data. If that’s the case, and thus those patterns have no fundamental basis, there’d be no reason to expect them to repeat. For both of these reasons, I wouldn’t go too far out on a limb with value stocks—or with any other specific category of investment—to avoid the risk of being exactly wrong.

2. Whether to pick individual stocks. Years ago, I worked as an equity analyst—a stock picker. My colleagues and I would collect a mountain of data, and then sit and analyze companies for days or weeks before deciding whether to purchase a stock. The problem, though, was that there was always information that simply couldn’t be known. An unexpected product recall or a government inquiry could easily put a dent in a company’s share price.

The lesson I learned: When picking stocks, you can get the math exactly right and still be wrong. That’s why index funds, which are diversified across hundreds or even thousands of stocks, strike me as the better bet for most investors.

3. Whether to invest in private funds. The late David Swensen, who oversaw Yale University’s endowment, earned outsized returns investing across the universe of private funds—venture capital, hedge funds and private equity. Because of that, private funds have developed a certain reputation: They came to be seen as the exclusive vehicles that high net worth families use to build wealth.

But here’s the problem: Because they aren’t regulated as tightly as publicly available funds, there’s much more room for malfeasance. And because they’re opaque and tend to pursue unusual strategies, there’s more room for incompetence and organizational failure. In the past, I’ve highlighted some high-profile cases in which private funds turned sour. But those are just the cases that made the news. I have also seen investors lose seven-figure sums in private funds on more than one occasion. The bottom line: Even if a private fund has an impressive track record, I’d steer clear. It’s much easier to be roughly right with a simple investment like an S&P 500-index fund.

4. When to invest in the market. Robert Shiller, a professor at Yale University, is the father of the cyclically adjusted price-earnings ratio, or CAPE, a well-regarded metric for valuing the stock market. He has also, over the years, made more than one accurate market prediction. That made it notable when, in the middle of the post-2020 market frenzy, Shiller wrote in The New York Times, “The stock market is already quite expensive. But it is also true that stock prices are fairly reasonable right now.”

In explaining this apparent contradiction, Shiller pointed out that there are many ways to assess the stock market. Through one quantitative lens, it might appear overvalued, but through another, it might not. The lesson: If even the creator of the CAPE ratio acknowledges that market valuation is subjective, it’s a reminder to all investors to take a long-term view. Even at times when the market looks unusually expensive or unusually cheap, there’s still no way to know what’s coming next. That makes short-term trading treacherous. But if you set your sights on the long-term, you’ll have a high likelihood of being roughly right and avoiding a penalty for being exactly wrong.

5. How to structure a retirement plan. Suppose you're age 65. Consult a life expectancy table, and it’ll indicate a life expectancy of about 83. But here’s the curious thing: According to this same data set, the life expectancy of a 70-year-old is 85. And at 80, the average life expectancy extends to 88. In other words, the longer we live, the longer we can expect to live. This is a reminder that, when building a retirement plan, we need to be careful with statistics.

Life expectancies also differ across other demographic variables, including zip codes and education level. Because of that, in building retirement plans, I like to stretch the numbers out to age 100. Most people don’t live that long. But here again, it’s better to be roughly right than risk being exactly wrong.

6. What to think of the 4% rule. A frequent debate centers around safe withdrawal rates: Given a certain portfolio, how much can a retiree safely withdraw each year to ensure a portfolio will last? Some adhere to the so-called 4% rule, while others argue 4% is irresponsibly high. Meanwhile, the creator of the 4% rule, among others, believes that retirees can withdraw more than 4%.

The reality is, such models rest on a large number of assumptions. Just a year ago, many argued that 4% was much too high because bonds offered yields that were so meager. Today, of course, yields are much higher. This should serve as a reminder that, in building a retirement plan, we shouldn’t blindly assume that today’s conditions will prevail indefinitely. Instead, to avoid being exactly wrong, consider a range of assumptions in building a plan.

7. Whether to annuitize. If you have a retirement plan that offers you a choice between a lump-sum payment or an annuity—that is, equal monthly payments for life—you may be tempted to take the lump sum. A majority of workers do, and there are reasons to go that route. Indeed, if you do the math, you might calculate that you’d do better investing the lump sum on your own rather than relying on your employer’s pension fund manager. But as noted above, life expectancy is a key unknown, and guaranteed lifetime annuity payments can be an underappreciated benefit. This is one financial topic where it’s crucial to avoid being exactly wrong.

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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My Eight Rules

I'M AN 81-YEAR-OLD retired radiologist. Early in my medical career, I realized my stock broker was managing my account for his benefit, not mine. I fired him and took charge of managing my own investments.

Today, I have four granddaughters who are starting to invest. Over the years, as I learned more about personal finance, I put together a 130-page financial notebook. My granddaughters probably don’t want to read my lengthy notes, so I decided to put together a one-page summary. It includes these eight points:

Your human capital is your most important asset—one that never shows up on your financial balance sheet. Your human capital is your education, skills, work habits, contacts and mentors, and it determines your future earnings stream. Your skills will require constant improvement throughout your career. When you retire, your earnings stream will dry up—which is why you need to use your human capital to save for the future.
Save what you can, as soon as you can, for as long as you can. You might first save 10% of your income, then 15%, and then—when possible—even more. Your regular savings are essential to becoming financially independent and more important than the investment returns you earn. Indeed, by age 65, the actual dollars you sock away will account for perhaps half of your accumulated wealth.
First, eliminate debt. Taking on debt that charges non-tax-deductible interest, such as car loans and credit-card balances, is the biggest obstacle to accumulating wealth.
Next, create an emergency fund equal to four months of your current salary. Consider this insurance against job loss or serious illness. Explore online banks to find the highest interest rates. Once retired, this fund should be increased to five or six years of anticipated portfolio withdrawals.
Then, start your investment accounts. Open Roth accounts to get relief from all taxes on accumulated growth and withdrawals. When you’ve reached the contribution limit, open a discount brokerage account and purchase exchange-traded index funds (ETFs).
Your portfolio should consist of a small number of low-cost ETFs. ETF investing is the simplest, most efficient and least stressful method of investing. Your goals may be simple, but the key is to take them seriously. A simple solution is to save diligently, buy index funds for the long haul and do nothing else.
Do not pay fees to anyone else to manage your money. Although “fee” is a small word, it can seriously erode your future wealth. Keep your portfolio management as simple and automated as possible. You can’t avoid all taxes and costs, but you can reduce the activity that increases both these subtractions from your wealth. Excessive activity will also increase behavioral portfolio .
Do not forget that health is your first wealth. Always look after it.

John G. Clement spent 39 years as a hospital radiologist, 12 of them as the head of medical imaging at the Royal Columbian Hospital in New Westminster, British Columbia.

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Marginal Benefit

I'M A BIT EMBARRASSED to admit that, until I started toying with the idea of early retirement a few years ago, I was pretty ignorant about how Social Security worked. I didn’t even pay much attention to the FICA payroll taxes that were deducted from my paycheck.

As I looked into it some more, the prospect of receiving lifelong monthly checks from the government came as a pleasant surprise. I started researching how much I might get.

I learned that my retirement benefit depended primarily on two factors. First, the system would calculate a monthly benefit—called my primary insurance amount—based on my taxed Social Security earnings. The second factor would be when I decided to start benefits. I could claim Social Security as early as age 62, and take a permanent haircut on my benefits, or wait until as late as 70 to juice up my monthly payments.

Based on my birth year, the system designated 67 as my normal retirement age. That’s when I would get 100% of my primary insurance amount—the benefit I’d earned by paying Social Security taxes.

I was still unclear, though, exactly how my benefit would be calculated and whether early retirement might affect it. Should I plan to work longer to boost my monthly benefit? How much longer? Would my benefit grow substantially because of those extra years of toil?

I’d already paid the maximum Social Security payroll taxes for 15 years, thanks to the steady paychecks from my software engineering job. In my naïve thinking, if 15 years of payroll taxes got my primary insurance amount to, say, $1,500 a month, then each additional working year would proportionately increase the monthly amount by another $100 or so.

As with most things, the answer turned out to be more nuanced. To illustrate, imagine a hypothetical worker named Fred who was born in 1960 and started his career at age 22. Throughout his working years, he earned enough to contribute the maximum annual Social Security tax. The accompanying chart shows Fred’s monthly primary insurance amounts if he stopped working at different ages.

Notice that Fred gets nothing if he stops working before turning 32. That’s because it takes 10 years, or 40 quarters, of payroll tax contributions to be eligible for Social Security benefits. Also note the diminishing effect of Fred’s contributions on his benefits during the second half of his career. His benefit’s growth decelerates in his early 40s, and almost stops after age 57, even though he works five more years.

Why are Fred’s later contributions less valuable—or outright ineffective—compared to those earlier in his career? The devil is in the details of the timing and amounts of Fred’s Social Security contributions.

Fred’s annual contributions are indexed, or adjusted, to factor in wage growth over his working life. These indexed earnings are then combined over 35 years to calculate Fred’s average indexed monthly earnings. Think of this as Fred’s Social Security earnings averaged over 420 months, or 35 years of work.

What if Fred worked fewer than 35 years? His earnings would still be averaged over 35 years, but with zeroes for the idle years when no taxes were paid. And if Fred worked for, say, 40 years, his lowest-paid five years would be dropped from the equation.

This explains why Fred’s benefit barely budges after 57. If he keeps working, he’d be replacing lower-earning years with higher-earning years—but he’s credited with 35 years of work in either case. The difference between the two rates of pay isn’t significant enough to bump up his benefit much, particularly after the lower-earning years have been indexed for wage inflation.

Once Social Security computes Fred’s average indexed monthly earnings, it then plugs that number into a three bracket system to calculate his benefit payment. In the first bracket, each dollar of his credited monthly earnings adds 90 cents to his benefit, up to $1,115. The second bracket adds 32 cents for each dollar of credited earnings between $1,115 and $6,721. The third bracket adds 15 cents for each dollar of credited earnings over $6,721.

The idea behind these brackets is to favor the folks who’d probably need the benefits the most due to their lower lifetime income. For example, if Fred had a much lower-paying job, his benefits would be lower—but it would represent a much higher percentage of his working years’ wages.

In my case, starting my benefits at my full retirement age of 67 would provide me with 100% of the primary insurance amount to which I’m entitled. I’d receive a monthly payment for the rest of my life, which could be passed along to my wife if she survives me, plus it’s increased annually to keep up with the cost of living.

As sweet as all this sounds, 67 is not the age when I plan to claim. Waiting for my maximum benefit at age 70 seems like the wiser choice. My benefit would increase by 8% each year I delay claiming, plus annual cost-of-living adjustments will be added on top of that.

I won’t be working until I’m 70, though. Like Fred, working longer would increase my benefits only marginally—certainly not the $100-a-month boost that I’d imagined. Grinding beyond a few more years for the sake of a minimally higher Social Security payout doesn’t seem appetizing. Waiting a little longer to claim, though, does seem palatable given the big gain in benefits that would result.

Want to know where you stand? You can get an estimate of your benefits from Social Security’s online calculator.

Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Check out his earlier articles.

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Turning the Page

I RECENTLY WROTE about taking a seasonal part-time position during the holidays. My job at the bookstore has now ended. Later this year, I’ll decide whether I want to take another part-time job. With that in mind, I thought I’d review the good and not-so-good aspects of the job, while they’re still fresh in my memory.

Let’s start with the plusses. First, the job gave structure to my weeks. My employer provided me with a work schedule three weeks in advance. That allowed me to plan my other commitments around the job. Most mornings, I woke up knowing what I had to accomplish that day. Even days when I didn’t work required a bit of planning, since I had less wiggle room to postpone tasks to the next day.

Second, there was the interaction with coworkers and customers. I enjoyed talking about the latest books. I’d never before heard of Colleen Hoover. Some customers had never heard of Tony Hillerman or Bertrand Russell. It was great discussing Terry Pratchett’s Discworld books with a customer who had just discovered them. I learned far more about manga and romance novels than I thought I’d ever need to know. I can now at least discuss both genres without a blank stare on my face.

The third benefit was that I lost weight while working. I regularly walk the dog, ride my bike and do strength training. But the job provided several thousand additional steps on workdays as I traversed the sales floor shelving books and assisting customers, plus the work schedule kept me from sneaking in a mid-afternoon snack.

Finally, there was the money. I hadn’t taken the job because I needed the money to meet daily living expenses or to keep up with inflation. Instead, I opted to work to keep from being bored. But let’s face it, bringing in a few extra dollars can be satisfying.

What about the job wasn’t great? Paradoxically, the daily structure may have been a benefit, but it was also the largest drawback. I was once again working for The Man—or, in this case, The Woman. While my employer was flexible about when I worked, I didn’t want to be a burden and place too many restrictions on my work schedule. That meant that, for six weeks, I missed my biweekly game night with friends. As we get older, we have fewer friends and connections. Skipping those games for six weeks was a bigger deal than I’d imagined. I also missed a family gathering that took place one weekend.

Next October, I’ll have to decide whether the benefits of seasonal part-time work are greater than the drawbacks. Which way am I leaning? Right now, it really is a toss-up.

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Give Yourself a Gift

SEVERAL YEARS AGO, I had lunch with a longtime friend, Jim. Over the course of 30 years, he’s had a tremendous impact on my life through his wise counsel and fine example. That day, Jim wanted to treat me to lunch, but I stepped in front of him in line and paid for us. After I’d paid, I could see the disappointment in Jim’s face. He turned to the woman behind him and proceeded to pay for her lunch.

As Jim gave the cashier the money, the woman looked at him in shock and said emphatically, "Sir, that is the nicest thing a man has done for me in years." As I looked at the woman and then at Jim, I could see the joy in their faces. I knew Jim was faithful in giving to his church and other charities. But for the first time, I witnessed the joy he received because of that giving. His joy appeared to be even more profound than the woman's joy.

Contrast that experience to the story I recently heard from another friend. He mentioned to his business associate the joy he and his wife experience when they give. He told his associate that they’d decided many years ago not to limit their giving to a percentage of income, but instead chose to increase their giving each year. The business associate looked at him a bit confused and asked, “Why would you ever give more than 10%?”

As I reflect on these two experiences, I’ve come to understand that there’s a difference between dutiful giving and desired giving. One looks at giving as an obligation, almost like paying taxes, while the other understands that there’s real joy to be experienced when we’re generous.

Many people are aware of Jesus’s statement that, "It is more blessed to give than to receive." Recent scientific research seems to confirm that giving is inherently rewarding. Jordan Grafman and his team of neuroscientists at the National Institute of Health found that giving money to charity activated the parts of the brain associated with the pleasures of eating and other enjoyable activities. Their scientific research shows that people who give receive positive physiological results from seeing their money go to help others. At times, scientific research can be confusing, with a lot of graphs and numbers. Real life is where truth is tested, as illustrated by the next two stories.

Cami Walker, in her early 30s, was stricken by multiple sclerosis (MS). She lost the use of her hands, vision in one eye, and her mobility. Within two years, she had quit her job and was completely dependent on her husband. In a state of depression, she called a friend who gave her a challenge. The challenge involved giving away 29 gifts in 29 days.

Although it was difficult for her to get out of bed, on day one she gave the gift of time and attention to a friend of hers in a more advanced stage of MS. Walker continued her giving and chronicled her experiences in the 2009 New York Times bestseller, 29 Gifts: How a Month of Giving Can Change Your Life. Although she’s not 100% cured, there has been no further progression in her disease.

The late Manute Bol was the seven-foot, seven-inch center for several NBA teams. He spent most of the millions he earned to help people in his native Sudan. What most people don’t know is that when his money dwindled because of his generosity, Bol continued to raise money through charity fundraising events. To that end, he agreed to appear as a clown, pose as a jockey and box with a former NFL player. In a 2010 Wall Street Journal article, Jon Shields wrote that, "Bol agreed to be a clown. But he was not willing to be mocked for his own personal gain as so many reality TV stars are. Bol let himself be ridiculed on behalf of suffering strangers in the Sudan. He was a fool for Christ."

One of my favorite thinkers is the 20th century author C.S. Lewis, who was known for giving the profits from his dozens of books to charity. The C.S. Lewis Institute, which continues to carry the message of C.S. Lewis, once wrote, “Few things in life reveal our hearts as do our attitude toward and the practice of giving away our money, especially when it comes to the poor.”

Classical economics has always postulated that, given the choice, man will opt for a personal benefit over a personal loss, even if that loss involves a benefit to someone else. That’s the theory. But from the joy I have seen on Jim’s face and other faithful givers like Cami Walker and Manute Bol, that theory is just that—a theory. Science now seems to have established from a physiological perspective what many have long known: Giving often benefits the giver as much as it does the recipient.

Erik Daniels is an executive vice president with wealth manager Ronald Blue Trust, where he’s worked since 1980. He’s been an adjunct faculty member at Georgia State University, teaching graduate courses on financial and investment planning, and has served on the board of a number of nonprofits. Erik and his wife, Sherri, live in Marietta, Georgia. They have four children and two grandchildren. Erik enjoys golf, and is also an avid reader.

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Death to Dividends

KIPLINGER'S HAS TOUTED using dividends to “Fund 20 Years of Retirement,” Forbes insists they’re useful “For Sleeping Well At Night During Turbulent Times,” and Seeking Alpha declares “I'm Living The Retirement Dream, Paid With Big Dividends.”

Morningstar has an entire monthly newsletter devoted to the subject of dividends. I even vaguely recall HumbleDollar praising the virtues of dividend-paying stocks.

Investing in such stocks is perhaps the oldest investing meme in the world, most likely invented right after the second company went public. It sounds like a great idea. Discard all stocks that don’t pay a dividend, analyze each remaining stock’s dividend “track record,” invest in ones that have a history of increasing dividends over time, and—voila—success is apparently assured.

If folks want to invest their money this way, so be it. To me, it’s akin to religion. Whatever people want to do in their private life is fine with me. But when they start foisting their ideas on others, something must be done.

Investing in dividend-paying stocks is lunacy for two reasons. The main reason is that there are zero studies that show this stratagem can beat the market. This is the acid test of investing. A few years ago, while enjoying a free lunch, I listened to a professional money manager tout his dividend-paying stock strategy.

His had the added twist of only investing in stocks that had a dividend yield within a certain range. Not too low, where the dividend was insignificant, and not too high, where the dividend was overstretched. But in the middle or, as Goldilocks might say, “just right.”

I subsequently investigated and could not find a single study confirming that investing in dividend-paying stocks can beat the market. Not one. If a strategy can’t beat the market, then it’s useless and shouldn’t be followed, let alone advocated.

The second reason for not investing in dividend-paying stocks is that it’s tax-inefficient. Every year, if you hold these stocks in a regular taxable account, you have to pay taxes on your dividends and have no control over their timing or amount.

Years ago, I had a dividend-paying golden child. Year after year, he raised his dividend until one day, after a corporate restructuring, he stuck me with a colossal capital gains tax hit and then subsequently cut his dividend in half.

Proof that investing in dividend-paying stock is lunacy is that its antithesis—investing in stocks that don’t pay a dividend—is incredibly appealing. I have no evidence that this Buffett-esque strategy will beat the market, but you won’t pay any tax until the year of your choosing.

Another dividend-loving Kiplinger’s article mentions the requirement to get “rid of stocks that suspend or cut their dividends.” What? So, when a company suffers a financial reversal, it should do everything possible to keep paying the dividend? I don’t know about you, but when I’ve faced some fiscally trying times in my life, I didn’t maintain my spending level and I certainly didn’t increase it a little bit more.

There may be ways to beat the market. I’m still looking for one myself and, until I find it, I’m sticking with index funds. If you have a strategy, I’m all ears. But please provide some evidence that substantiates your claims. As author Christopher Hitchens said, “Extraordinary claims require extraordinary evidence.”

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Service With a Smile

MY MOM TOOK ME to a local credit union in 1981, when I was 14 years old, to open my first savings account. I don’t remember how much money I initially deposited. But back then, I had two sources of income. Each summer, I sold a pig at our 4-H fair livestock auction. That typically provided me with $200—funds I budgeted for school clothes and supplies.

I also earned money by showing livestock at our county fair. Every ribbon my animals were awarded came with a cash bonus. Blue ribbons meant pocketing $20. Most years I’d earn between $200 and $300 by strategically entering my animals in as many categories as I could.

Still, I’m sure my savings account balance at the credit union rarely exceeded $500. You never would have known by the customer service I received. In 1981, my credit union had one branch and two tellers. Each time I’d go in to make a deposit, the tellers would greet me by name. I never had to tell them my account number or provide any identification.

For more than 30 years, I remained a member of that credit union. Over the years, the credit union grew and opened multiple branches. Even though the tellers no longer knew me by name, the customer service remained stellar. When I would recite my four-digit member number to one of the employees, they’d inevitably thank me for being a long-term customer. By then, new clients were being assigned eight-digit numbers for their accounts.

The lessons I learned about exemplary customer service have stayed with me. Although I’m quite frugal, I will willingly spend more money on a service or product if I know it’ll be accompanied by exceptional service.

When my husband and I decided to start a dog-training business, we knew customer service would be at the core of our business model. We wanted our clients to feel they were getting more than just information on how to train their dogs. We wanted them to have a clear understanding of the techniques we use. We wanted them to feel free to ask questions about the training. We wanted to share our love of dogs, and dog training, with them in whatever ways we could.

When we conduct a lesson at a client’s home, both my husband and I attend. This allows one of us to interact with the dog, while the other person is free to explain the training techniques to the owner. We provide clients with several written handouts explaining each exercise. We follow up each lesson with a personal email. We emphasize to clients that they should never hesitate to call or text us.

There are other ways we show our clients how much we appreciate their business. In December, we delivered a handwritten holiday card and a bag of dog treats to each client. We were inundated with positive feedback for this simple goodwill gesture.

From what I can tell, all the extra attention we provide is appreciated. Even though we’ve only worked with a handful of dogs, the reviews we’re getting from their owners have been positive.

How does all this customer service affect our bottom line? For every hour we get paid, I spend an additional one to two hours answering calls, writing emails and filming content for our business YouTube channel. My husband spends several hours a week researching ways to make our training techniques more effective. I suspect our hourly wage is barely above what we’d make if we worked at a local fast-food chain.

For now, my husband and I aren’t concerned about the money. We don’t rely on the business to pay our bills. Instead, training dogs—and their owners—serves as a rewarding outlet for our own passion for dogs.

Kristine Hayes Nibler recently retired, and she and her husband now live in Arizona. She enjoys spending her time reading, writing and training their four dogs. Check out Kristine's earlier articles.

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Friedman’s Favorites

I GOT AN EMAIL last month that also went to half-a-dozen other HumbleDollar writers—those of us who have been the site’s most prolific contributors. It came from HumbleDollar’s editor. His request: Please come up with a list of your 10 favorite articles that you’ve written for the site.

I immediately knew what type of article I’d select—ones that weren’t just about personal finance, but rather were about more than money. I hope you enjoy reading them as much as I enjoyed writing them.

Don’t Delay (Nov. 18, 2020). What inspired this article? When COVID-19 was running rampant through the country, I thought I'd made a terrible mistake by putting off my retirement wish list until I was fully retired.
Healthy and Wealthy (Sept. 4, 2019). After having lunch with three close friends—two of them with serious health issues—I realized how important our health is in meeting our financial goals.
First Impressions (Dec. 4, 2018). I've always thought of my parents as my most influential financial teachers. I owe a lot of my success to them.
The Short Game (Oct. 5, 2020). I don’t know what got into me, but one day I started spending gobs of money, and I haven’t stopped. Maybe it’s because I’ve gotten older and my timeline is shorter.
More Than Money (June 19, 2018). Before I retired, many of my coworkers kept asking me what I was going to do with all my free time. This article is about having a retirement plan that goes beyond financial issues.
Six That Count (Aug. 19, 2021). This piece probably offers the best retirement advice I’ve given to readers in the fewest number of words.
One Simple Thing (May 14, 2021). Many years ago, one of my coworkers gave me helpful advice about how to be more productive at work. I used that same advice to better organize my personal finances.
Are We There Yet? (Sept. 12, 2019). When I wrote this article, I was feeling pretty good about my retirement. I still do. Here are my 15 signs that a wonderful retirement lies ahead.
Treating Ourselves (July 29, 2021). While stuck at home during the pandemic, I would think about some of our weekend getaways. I realized how important they were to my well-being.
Be Like Neil Young (Dec. 19, 2018) I had to include this article because I’m a big Neil Young fan. If you want to be successful with your money, be like Neil—and keep it simple.

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