Jonathan Clements's Blog, page 168

Moody Blues

DEPRESSION IS BAD not just for your health, but also for your wealth. In 2001, Prof. Robert Leahy touched on the corrosive influence of a person’s mood on his approach to the financial markets. Although intuitively plausible, his observation has never received the attention I think it deserves.

The notion of cognitive bias is a cornerstone of the burgeoning field of . Set in motion by the pioneering research of Daniel Kahneman and Amos Tversky in 1974, the idea that irrational thoughts and beliefs influence our choices can be seen in almost every aspect of our life—including our investment decisions.

Once dismissed by some economists as fringe concepts, universal biases like overconfidence and recency have gone mainstream. Consider loss aversion, a reluctance to part with disastrous investments to avoid locking in an ego-deflating defeat. It’s a useful heuristic to grapple with when folks may need to realize capital losses to offset capital gains and thereby trim their tax bill.

Exploring the role of personality on investor behavior could, I believe, be the next research frontier. Indeed, in this piece, I’d like to flesh out the relationship between feeling depressed and managing your portfolio. And trust me, I know what I’m talking about. You see, I suffered from clinical depression for many years and—while my investment results were satisfactory—they clearly suffered during this period.

What do I mean by clinical depression? It’s when folks experience lethargy, a gloomy mood, pronounced self-criticism and a grim outlook on life for more than a few weeks at a time. It’s not just the mild blues—the aftermath of, say, an emotional trauma like a divorce or the grief over the passing of a loved one. It’s not merely dreaming about a mental health day or being grumpy. In other words, please don’t self-diagnose. Even if you’re feeling down, you almost surely don’t qualify as clinically depressed.

My symptoms didn’t entirely sabotage a profitable, if humbling, switch from the youthful high of options trading to enlightened mutual-fund investing. Still, they undermined my investment success, and required all the ingenuity and endurance I could muster to cope with my affliction. Although depression expresses itself differently for everyone, a conversation about the strategies I used might be helpful for investors struggling with this or another psychological disorder.

Many of the investment problems created by depression fall under two headings, negativity and low energy. By negativity, I mean irritability, pessimism and cynicism. I was constantly edgy and agitated, causing undue unpleasantness for my wife, Alberta, who was supporting my halting efforts to carry on with managing our family’s finances. I retreated from my responsibilities as a father. To avoid eroding my family’s good will, I sought professional help.

Grudgingly, I came to realize my depression was distorting how I interpreted the world. To be sure, life can be prickly, but for me it was downright fiendish. I saw my investments through a dark lens. I was sure the Federal Reserve would overshoot, corporate earnings would disappoint and Vanguard Group’s funds would distribute excessive taxable capital gains. Perennially distrustful, I attributed losses to diabolical insiders.

Believing the worst would happen, I sold funds that were briefly suffering poor performance and I was woefully underinvested during the technology boom of the late 1990s. As Leahy discerned, an overly pessimistic investor is often an overly cautious investor. Checking in with family members and friends, whose perceptions were not so distorted, was soothing and reassuring.

Fatigue and lethargy are hallmarks of depression. Low energy is insidious and makes monitoring your portfolio seem like an overwhelming chore. It engenders disinterest in formerly pleasurable and essential activities. I ignored my fund investments for weeks on end, occasionally trading to relieve the doldrums.

As you know from reading HumbleDollar, benign neglect comes with an ironic twist, allowing investors to profit from a paucity of emotional trading and instead enjoy the magic of unfettered compound interest. I have a close friend who grapples with a chronic depression of his own and is unsophisticated about the market. Unknowing and uninvolved, he stood aside as his employer dutifully funded a broadly diversified plain-vanilla index fund within his retirement account for 22 years. He has outperformed me by a mile. Yet, despite all my despair and frustration, I take pride in the determination I displayed to protect my family’s stock and real estate investments.

Depressed investors often have a problem with concentration, and may resort to skimming complex articles and analyses at the expense of full understanding. In short, a bout of depression is not a good time to decipher Morningstar’s mutual-fund ratings. As is often the case with this illness, the quiet of night provided me the clarity that the grogginess of morning could not. I reserved the evening for my market reading and research.

The more jaundiced among you have probably wondered whether cognitive biases and personality effects pose a challenge to Nobel laureate Eugene Fama’s famous efficient market hypothesis. Can these two positions be reconciled? Fama has conceded that “poorly informed investors could lead the market astray” and that stock prices could become “somewhat irrational” as a result. At the same time, most adherents of Kahneman’s behavioral approach agree with Fama that the deviations from market efficiency are relatively small. In other words, the financial markets may not be 100% efficient—but most of us would still be well-advised to own broad market index funds.

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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Best-Laid Plans

I HAVE A RITUAL ON New Year’s Day—and it has nothing to do with making resolutions or watching college bowl games on TV.

Every Jan. 1, I pull up my handy financial planning spreadsheet on my laptop and input year-end numbers for my investment portfolio based on where the various funds closed out the year. I created the spreadsheet 20 years ago when I was in my early 40s, had just gone through a financially devastating divorce, and retirement seemed like nothing more than a pipe dream.

At the time, I was working long hours in the all-consuming world of corporate communications and investor relations. I had a magic number for what I thought I’d need to step out of the frying pan no later than age 63. I knew how much I would have to contribute and earn each year to get there. It was just a matter of continuing to chip away, putting the plan on autopilot, and checking in once or twice a year to see how I was doing.

The spreadsheet is pretty basic, reflecting my relatively simple portfolio and investment approach. There are three tabs. The first tab looks backward, capturing the year-end value for each of my investment accounts—IRAs, individual stock holdings, money market accounts and so on—as well as the estimated market value of my house, net of mortgage debt. These values then add up to capture a snapshot of my net worth and how it’s grown over the years.

The second tab looks forward, projecting the expected growth of my investments in the years ahead using average market returns for a well-diversified portfolio.

The third tab contains a working budget for my golden years, based on a conservative spending level of $75,000 per year. The budget itemizes general categories of expenses—housing, utilities, medical, travel and such—as well as sources of income to cover those expenses. The income sources include a conservative 3.5% annual draw on my investable assets (not including real estate), Social Security income (starting at age 66), a small pension that I’m getting from a former employer, and any income I expect from my consulting business.

For most of the past 20 years—and particularly during the bull market that began after the 2008-09 market crash—updating this spreadsheet every New Year’s Day has been a happy exercise. With the market delivering close to an average 10% annual return during this period, I’ve consistently been pleasantly surprised to find that I outperformed my projected account values.

By year-end 2020, two years earlier than projected, I had surpassed my magic number. The following year, at age 61, I handed in my notice and made the big leap out of the corporate world.

It was about this time that I began doing something else with this little spreadsheet of mine. With the market and my investments doing better than my original projections, I began dreaming. I built in scenarios where I could use the surplus funds to splurge on fancy vacations, luxury items for my house—and perhaps even buy a condo in Myrtle Beach, South Carolina, or another warm-weather location for snow-birding during the cold winter months.

Then came 2022 and the worst market for stocks since 2008. Like a lot of other people, I’ve avoided looking at my investment accounts over the past year for fear of just how bad the carnage would be. I couldn’t even hold out hope that the bond side of my portfolio, which represents about 40% of my investments, had held up as bonds typically do during stock market swoons. Everything would be down double-digits.

But avoidance is not a strategy and so, on this past New Year’s Day, I logged into my accounts and took a look. As expected, it was ugly. I had lost all the market gains in my portfolio for the past two years. So much for dreaming. Forget the fancy vacations, the luxury items for the house, the condo in Myrtle Beach.

But then I reminded myself of why I’d created the spreadsheet in the first place. My goal had never been about getting rich or living an extravagant lifestyle. It was about gaining my financial freedom. As much as I enjoyed my career as a corporate communicator, I had a burning desire to go out on my own as an author and storyteller. To do that, I would need to sacrifice income for independence.

I’m doing that now and loving it. Every day, I get to wake up and do what I love—write and tell stories—with no one telling me how to spend my precious time.

My plan worked. I’m living the dream. It’s a simple dream I’m living, but it’s my dream, made on my own terms and no one else’s.

As long as I don’t change my income or expense assumptions, I should be able to continue to live this dream for as long as I’m healthy. As for the market, there’s no telling what it’ll do. If the bear market continues, I may have to adjust my income assumptions, increase my consulting work or perhaps take Social Security early.

That’s the way it works with plans. We make assumptions for an uncertain future and adjust along the way.

Who knows? Maybe a new bull market will begin in 2023, my portfolio will roar back and I’ll be able to dream again of that condo in Myrtle Beach. In the meantime, I’m enjoying my independence.

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

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Nine Retirement Myths

RETIREMENT PLANNING videos and books can be frustrating because of the conflicting advice from so-called experts. Often, these experts are outside the mainstream. They retired in their 30s, or saved 50% of their income, or claim to be living so frugally in retirement that they need to replace just half of their old salary.

I prefer to think more about average Americans facing the reality and challenges of planning for retirement in the real world. Let’s clear up some of the myths I’m hearing from these “experts.”

1. You need $1 million to retire. There’s no magic number other than the one that meets your needs. Imagine a worker with an annual income of $60,000 who retires at age 66. His Social Security will likely replace some 30% of his income. Add a spousal benefit and his income replacement reaches 45%. He doesn’t need $1 million in savings to replace the remaining income.

2. No way I can save enough to retire. For 80% of Americans, that is not true. It’s a matter of priorities—putting needs and savings ahead of wants and desires. Let’s say young adults save $100 a month and earn an 8% annual return over 40 years. At age 60 or so, their nest egg would be worth some $340,000 without ever increasing the $100 in monthly savings—which should never be the case.

Remember, you get help with saving through our tax laws and possibly from employer contributions. To get started, save your change every day—anything you can. Just do it. Once you accumulate a small nest egg, seek advice on how to invest it.

3. Social Security won’t be there for me. Yes, it will. I predict within 10 years it will be improved, especially for lower-income beneficiaries. The political rhetoric about Social Security’s demise is unfortunate because it scares people unnecessarily.

True, the program must be modified to remain sustainable. But there are numerous relatively painless ways to accomplish that over time. Nobody is going to cut the benefits earned or already being paid—nobody.

4. There’d be no problem if Congress hadn’t “stolen” the Social Security money. This falsehood has been circulating for years. From their start in 1937, payroll taxes above those required to pay benefits were invested in special U.S. Treasury bonds. Today, those bonds generate $70 billion in annual interest for the Social Security trust fund.

All payroll taxes—along with that interest—are used to pay benefits, and soon the trust will also gradually redeem its bonds to pay benefits. Once all those bonds are redeemed, full accrued benefits cannot be paid from payroll taxes alone. Congress didn’t steal the trust fund, but it sure didn’t do its job ensuring that the trust fund remains solvent.

5. I’m frugal and plan to live on 50% of my pre-retirement income. Some Americans are forced to live on a small income or even Social Security alone. Being frugal is fine, but why plan for that? For folks who failed to save, there’s no room for error, and I suspect no room for anything other than necessities. Most people need much more than half their old salary for an enjoyable, low-stress retirement.

6. My retirement expenses will decline as I get older. That’s the standard view supported by surveys, but it’s not my experience—and may not be yours. The nature of your expenses will change over time, but your total annual spending may not. If you’re fortunate, you’ll spend more on discretionary items like travel, entertainment, helping your children and so on. Overall, I submit there won’t be a spending decline, especially considering inflation. Long-term care, even at home, can be a real fly in the ointment.

7. When I retire, my saving days are over. Sorry, that’s not a good idea. Sure, you need to save less, but still something. You need cash in an emergency fund, and you’ll need to replace that money as it’s spent. The goal: Avoid paying large, unplanned expenses from the investments that you rely on for your stream of income.

8. Once I retire, I’m canceling my life insurance. Before you do, have you planned for your survivor’s income needs? A life insurance premium may be less costly than a survivor benefit arranged through a pension or immediate annuity, especially if the beneficiary is younger than the retiree.

9. I hear health care costs in retirement are more than $300,000. Those estimates include out-of-pocket costs and premiums over a retirement of 25 to 30 years. Don’t rely on one large number. Instead, look at your situation and think in terms of the annual expense.

Add up many ongoing costs over 30 years—property taxes, for example—and you’ll get a scary number. Once you qualify for Medicare, buying a Medigap supplemental policy can virtually eliminate out-of-pocket costs. Prescription drug costs can be an extra expense, however, and should be planned for.

The key to planning for your retirement is to plan your retirement and not one based on averages, medians or the advice of people who live on the financial fringe.

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

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Securing Lower Taxes

THE TWO SECURE ACTS—2019’s and 2022’s—may inadvertently increase the federal and state tax rates on tax-deferred retirement accounts, such as 401(k)s, 403(b)s and IRAs. While well-intentioned, the laws result in required withdrawals being bunched into fewer years—which could push people into higher tax brackets. But there are ways this tax toll might be lightened or avoided, as you’ll see.

With tax-deferred accounts, the normal advice is to delay taxable distributions for as long as possible to give more time for investment growth. That rule might need to be ditched. Why? For starters, the two SECURE Acts have raised the age when required minimum distributions (RMDs) must begin—from age 70½ in 2020 to age 72 in 2022, 73 in 2023 and 75 in 2033.

Now, consider that the average lifespan of Americans fell during COVID-19. In practice, then, there might be just a decade or so of required withdrawal years before the balance goes to beneficiaries. And that could be quite a taxing event.

Widows and widowers, for example, can owe higher taxes than married couples with equivalent incomes. Widows with taxable incomes between roughly $45,000 and $90,000 would pay a 22% top marginal tax rate, versus 12% for a married couple filing a joint return showing similar income. This is the so-called “widow’s tax,” which has been well-documented on HumbleDollar and elsewhere.

Similarly, children or grandchildren who inherit might be hitting their peak earning years—and paying taxes at their highest marginal rate. Compounding the problem, 2019’s SECURE Act shortened the distribution period for inherited IRAs to 10 years for most beneficiaries. Previously, distributions could be taken over a beneficiary’s remaining actuarial lifespan—the so-called stretch IRA.

If we assume that these heirs take equal annual distributions, they’d need to withdraw roughly 10% a year, instead of the 3% to 5% per year typical under the old stretch IRA. These larger distributions could push some heirs into higher tax brackets for a decade. Admittedly, this is a nice problem to have.

Still, if you want to mitigate taxing situations like these, here are eight ideas, some of which overlap:

Fund Roth accounts, while also converting traditional IRAs to Roths. Because Roth money isn’t taxed again, you’d avoid higher income tax rates in later years. The benefits of Roth conversions have been broadly covered here and here.
Take earlier and more frequent distributions from your traditional retirement accounts. Earlier distributions could be beneficial under three circumstances—if future marginal tax rates would be higher once RMDs kick in, if federal income tax rates rise as scheduled in 2026, and if beneficiaries would be taxed at a higher rate than the current account owner, perhaps because of their fortunate inheritance.
Take earlier IRA distributions and invest that money in a taxable account. Subsequent gains would be taxed at lower capital gains tax rates. If held until death, the investments could receive a step-up in basis and pass income-tax-free to heirs.
Take earlier distributions and give the proceeds to family members or other potential heirs. Yes, you’d owe income tax on the withdrawals. But if the gifts are kept at $17,000 or less per person in 2023, there would be no gift-tax consequences.
Name more beneficiaries for your traditional retirement accounts, so the resulting extra taxable income would be spread among more folks.
Slow or stop contributions to retirement accounts if adding more money is going to result in highly taxed RMDs.
Use qualified charitable distributions to reduce the balance in a tax-deferred IRA. Those who have passed age 70½ can give away up to $100,000 a year from an IRA directly to charities without incurring taxes. But be careful: Money given to a donor-advised fund or private foundation doesn’t qualify for this tax exemption.
Bequeath your traditional retirement accounts to charity, while saving Roth and taxable account money for your heirs.

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This Empty House

I STEP INTO THE OLD farmhouse where I grew up and am momentarily confused.




Where’s the blue sofa under the living room bay window with its plump pillows and cozy blankets that my mother likes to throw over her as she reads the morning paper? Where’s the coffee table with the covered pewter candy dish filled with M&Ms and Hershey Kisses? Where’s the rickety table where our family of eight crowded around for countless meals in the tiny but somehow adequate kitchen?




Then I remember: We took those items to Mom’s new apartment at the senior center when we moved her there six months ago, following her series of ministrokes. Since our father passed away in 2019, we’d done all we could to keep our 89-year-old mother in the house she loved—the house where she’d raised us and took care of my father after his own stroke. 




But the game was up. She could no longer be on her own. The senior center was not home, but it was a nice place staffed with kind, competent people who could look after her. She was safe there. It was the right place for her.




And so now, after 56 years, the old farmhouse was empty, and we need to figure out what to do with it.






Deciding what to do with an empty homestead, and all the stuff in it, doesn’t often land among the list of life’s 10 biggest stressors. But for me and my five siblings, it’s one of the most difficult decisions we’ve ever had to face. 




Yet, face it we must, for the family’s finances depend on it.




All that good care at the senior home comes at a steep price, after all—specifically $7,500 a month. That money has to come from somewhere, and my parents were not rich people. Right now, we’re funding Mom’s care by pulling from a small sum invested in certificates of deposit. But at the rate we’re going, those funds will be gone sooner rather than later.




Our parents’ only other substantial asset is the farmhouse and the six acres of ground that surround it. At 300 years old, the house is in dire need of updating and probably not worth much in its current condition. But the land, surrounded by developments in a busy southeastern Pennsylvania suburb, certainly is. Should we subdivide the property and sell off parcels? Fix up the house and try to sell or rent it? Sell the entire property as it is?




Right now, we siblings are divided on the best course to take. My older brother would like to go the development route. But that plan will take time and money to make it happen, and we don’t have a lot of time and money to work with.




A few of us favor selling the property as is and being done with it. But that will surely limit its value and, if we go that route, we’ll have no control over what happens to the property. For all we know, the buyer could raze the house and build a McMansion.

The good news is, we’re a close bunch and we’re not about to allow the emotions of a difficult situation divide us. The important thing is our mother’s health and happiness, and we’re committed to doing anything we need to do to provide for her in her time of need, just as she and Dad did all those years raising us.




And yet it’s hard to stay unemotional in a situation like this. After all, it isn’t just a house. This is our home, our ballast, the very foundation of our family. Pull it away and what do we have to stand on?




I wrestle with the thought as I walk through the empty house. Ghosts dwell in every room. The dining room where we sat for so many holiday dinners. The parlor where we set up Dad’s cot when he was too weak to sleep upstairs.




Up the squeaky old stairs that have carried so many feet over the decades and where, one terrible day so many years ago, my grandmother fell and broke her hip. I remember looking down at her little body crumpled on the landing and hearing her pitiful wailing as we waited for the ambulance to arrive.




The tiny bedroom I shared with my older brother—how did the two of us manage to live in here with so little space? My parents’ bedroom with the mirrored dresser, queen bed and corner desk—everything in its place, untouched, as if in a museum. The bathroom where we found our mother lying on the floor that morning before the ambulance came and took her away for the last time.




The old cast-iron radiators. The too-small and too-few closets. The chipping plaster walls. When I was little, this house felt like a castle. But looked at through modern eyes, this old farmhouse seems suddenly inadequate for a family of four, let alone a family of eight. Who would want it? How is it possible that a family other than our own could ever live here? 




My tour of the upstairs complete, I go back down the steps and descend into the musty, low-ceilinged basement where I have to duck to make my way around. There is the freezer where my mother stored the vegetables she picked and bagged from the garden; the shelves once lined with jars of pears from the old tree behind the house; the chalkboard on the wall where we six kids would write our names and ages. My entry is frozen at the age of 19 when I was a sophomore in college.




Memories. Ghosts. 




How do you part with a place that made you happy? I don’t know. All I know is that every detail of this place is so etched in my mind that even when I leave it physically for the last time, I will be able to walk it every day in my mind. Walk the rooms, hear the laughter, smell the meals, relive the joys and traumas imprinted there. 




“What will you do with the house?” our mother asks us these days when we visit her at the senior center. She knows she isn’t going back there, that she's too weak to go back there. 




“We’ll figure that out when the time comes, Mom,” we tell her.




That time is fast approaching. It will be a day of reckoning, a day I don’t like to think about. In the meantime, the old house sits waiting, its rooms quiet for the first time in 56 years.

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

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You Are Missed

IN FALL 2021, I WROTE about my father-in-law’s impending death due to cancer. He died a few months after publication. I had the honor of writing his obituary. Like my wife and her family, I have found myself wanting to call him many times since he died.

I was born in the early 1980s. That means that, until very recently, all I’ve known is a falling interest rate environment. People from my father-in-law’s generation knew environments like today—when interest rates and inflation rose together, and stocks didn’t necessarily perform well.

When I think of the 1970s, I think of bell-bottom jeans and Jimmy Carter wearing a sweater. But those who lived through that turbulent time likely recall the decade’s infamous stagflation, high unemployment, oil embargo, high interest rates and soaring commodity costs. I don’t have any experience investing in such times.

Last year, a hypothetical 60% stock-40% bond portfolio had its worst performance in decades. It goes without saying that this past year has made me wish I had my father-in-law’s advice. How do you invest in times like these? Is now the time to shift more into bonds to take advantage of higher yields? If so, should I buy conventional fixed-interest bonds or Treasury Inflation-Protected Securities?

Obviously, I’ll never know exactly what my father-in-law would say. But thanks to the many hours and days we had together over the years, I think I can hear his voice in my head.

“Stay the course,” he might say.

“Remember your long investing horizon.”

“You’re not like me, you’re still young.”

“Don’t invest in anything if you don’t have a long time to see it through—like at least 10 years.”

“Don’t worry so much.”

“Hey, at least it’s not like the ’70s.”

You know, he’s right. Today’s unemployment rate is low. My wife and I still have great jobs. Thanks to all our hard work and the investing we’ve already done, we’re well positioned for the future and to take advantage of today’s low stock prices.

It's at times like these that I’m thankful for all the down time my father-in-law and I spent on long weekends and holidays, shooting the breeze about our favorite pastime: personal finance. Yes, I’d love to pick his brain during this unique—to me and my generation—time in the markets.

Still, I’m grateful to have had his wisdom downloaded for times like this, as well as for the many challenging and different times that no doubt lie ahead. Maybe someday, many years from now, I will spin yarns about my “old war stories” of 2022 to a protégé of my own. Dad, I hope I’m doing it right and that you’re winking down at me, as I try to stay the course through this strange time.

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My First Retirement

I LOST A MATCH ON Nov. 12 against my former tag-team partner, Kevin Gutierrez, who wrestles under the colorful name “Corn Boi.” It was a classic Lucha Libre stipulation match. I put my mask on the line, and Kevin would cut his shoulder-length hair if he lost. Mask versus hair—or, as they say in Mexico, mascara versus cabellera.

We had many tried-and-true plot lines going for us. Teacher versus student. Old friends and tag partners who were now fighting furiously against each other. Older, bitter, crotchety veteran wrestler—that’s me—frustrated with this not-so-serious newer generation.

It was a good story. All the while, I knew how it would end—with me losing my mask and announcing my retirement from wrestling. I’ll wrestle a goodbye match or two next summer, but essentially, I was done.

When I put on the mask at age 40, I remembered a line from the great wrestling journalist Dave Meltzer. He wrote the obituary for Junkyard Dog, the African-American grappler who was a Main Event star and drew tons of money in the New Orleans area and later in the World Wrestling Federation. “If he had kept his weight under control and continued training, he could have been a star into his 50s like Ric Flair, The Crusher or Dick the Bruiser.”

Right there, Meltzer had given me the formula for longevity in the sport.

Ric Flair also said in his podcast that the enemy of any professional wrestler was inactivity. So, for the past nine years, I’ve tried to keep a regular wrestling schedule. If I didn’t have a match, I headed up to the Black & Brave wrestling school in nearby Davenport, Iowa, and worked out in that hard ring.

It all helped. My work actually improved as I had regular access to a ring for the first time in my career. My body felt good. I eliminated the heavy weights from my training, especially exercises that stressed my lower back.

I kept my weight under control. At five feet nine inches, I never allowed myself to go above 230 pounds, even during the holidays. Most of the time, the scale read around 215, and occasionally I got to a fit 208 pounds. With my tan, and dedicated work in the gym, I looked the part.

Kevin and I worked hard at the school. I insisted we train the way we performed in front of a crowd. It was invigorating to finally be able to work on my craft in a way I had never done.

When I was young, I wasn’t willing to move to locations that would have given me the chance to get in the ring and train with other pros. To be in a position to get to work with Kevin was an opportunity I couldn’t pass up. Even at age 48.

After several long practice matches last summer, I could feel the repercussions. A headache was a given. When I went to wrestling school in 1994, we were hyper-focused on our bodies. Our neck, back, shoulders and knees were our injury concerns. Those were the dangers that weighed on our minds.

But our minds—our brains—were not a concern. Now, it was becoming one for me. The science of concussions and chronic traumatic encephalopathy, a progressive brain disease, are today well-known and ominous.

The physicality of the sport also let me know that, while I could handle both the rigors of the training and my young contemporaries, my recovery was slower. It took me days or a week to recover fully from a 15-minute training match.

What was most heartbreaking was seeing something so clearly at my advancing age that I never thought about in my 20s. I had talent. Some of the kids who graduated from the intense, three-month training program at the school didn’t have the same aptitude for the life of a wrestler.

I was an athlete. Some others didn’t move as naturally in the ring. I saw countless young men hit the weights hard and still not look all that impressive, considering the time they were putting in.

My body had always responded to training. I loved pumping iron, which some wrestlers considered more of a required chore. Lifting weights cemented what I had been feeling since I turned 40. Wrestling was my calling.

I had pursued it, yes. But I had never given it the time, sweat and dedication that the craft demanded. I was always negotiating the price. As I approach turning 50 next March, Father Time was telling me I was pushing the limits.

It didn’t matter how long or consistently I trained—the end was near. Especially if I wanted to dictate my last chapter, rather than have it decided for me.

As we age, we begin to feel more physically vulnerable. You hesitate to climb on a roof or step too high on a ladder. All because you see or experience firsthand the physical dangers that life presents. You lose the invincible feeling of your youth, the blissful ignorance you had in your 20s.

When I would climb to the top rope of the ring to deliver an exciting move, my balance was not what it once was. My awareness of the risk I was taking, however, was ever-present.

Pursuing your passion, versus following the safe route, is something folks have been dealing with for many centuries. HumbleDollar’s editor offered this great piece of advice a while back: “I’d put in a plug for earning and saving starting in our 20s, so we can pursue our passions in our 50s, when we likely have a better idea of what’s important to us.”

That’s great advice if your talents and pursuits are cerebral. But what if they have a large physical element? I wish I could retire at 55 from the chemical plant where I work and then hit the road to do wrestling shots all over the country. But for my dream, that’s not an option. As Warren Buffett once said, “It's a little like saving sex for your old age.” My passion had a limited window, and it passed long ago.

After the match, my kids and I headed to Applebee’s for a late-night meal. I told them this would be an aspect of the business I’d miss. My wallet was full from the generous pay. We drew a great crowd and the promotor paid me well—$300—plus my daughter sold lots of merchandise. I came home with more than $600 in my pocket.

The match was good. I had delivered in the ring. For the fans, for the promotion company, for Kevin. My kids and I were all smiling and enjoying the meal and the glow from the evening. It was nearing midnight, well past my bedtime. But I knew the euphoria from the evening would keep me up late.

A few days after the show, Kevin and I had a chance to talk on the phone. After our conversation about the past few days, he asked me how I’d felt at the end of our match. How did it feel in the ring taking off the mask with my sister, my nephews and my family in the audience? With the fans and wrestlers all watching and thanking me for my career?

Grateful. Grateful was all I could think of. To have been physically able to get to that match, when the summer before I was questioning if I could reach the finish line and allow us both to have this moment. Grateful to have had a dream, and to get paid for it.

Grateful to have been able to pursue it and enjoy everything that came with the journey. And—most of all—grateful that I was able to maintain my health, my job at the chemical plant and my family along with it.

Juan Fourneau’s goal is to retire at age 55. When he isn't at his manufacturing job, he enjoys reading and writing about personal finance, investing and his other interests. Juan, who is married with two children, retired from the ring after wrestling on the independent circuit for more than 25 years. He wrestled as a Mexican Luchador under the name Latin Thunder . Follow him on Twitter @LatinThunder1 . Check out Juan's previous articles.

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New Kid on the Job

I'M RETIRED, BUT I KEEP fairly busy. From January through April, I volunteer at AARP, helping folks file their income taxes. From May through October, our vegetable garden keeps me occupied. That leaves November and December as a slow period. There’s some volunteering that I do, but nothing that fills up large amounts of time.

This year, I thought I might try some seasonal part-time work to keep myself occupied. Retailers usually need help during the holiday season. I’m sure that I could have gotten a higher wage if I’d applied to work for one of the big discount retail chains. But I really didn’t want to be too stressed by large volumes of customers, so I limited my job search to a few stores that I thought would need extra staff but wouldn’t be swamped by huge crowds on Black Friday.

The experience reminded me of three things. Although I knew each of them, it was good to get a refresher.

First, resumes still matter. At first, I slightly modified my current curriculum vitae (CV), stating that I wanted a seasonal, part-time retail position, but I left my work experience unchanged.

I got soundly rejected by potential employers. Maybe it was discrimination because of my extensive work history. Maybe they thought I was overqualified. It really doesn’t matter—it wasn’t working.

I changed my CV. I showed only five years of experience and, instead of saying that I was a manufacturing director, I said I’d been responsible for customer satisfaction. Customer satisfaction was certainly part of my previous job description, just not my only duty. Suddenly, I got more calls from employers, including an employer that had previously rejected me based on my old CV.

Second, culture matters. I took a job at a national bookseller. Everybody was very nice to the new guy. I was wondering if this was just lucky happenstance or something that the manager worked to achieve.

I found out one day when I had a problem. I thought a customer had a gift card that she was trying to redeem. I couldn’t get the gift card to be accepted, so I sent the customer to another cashier. I warned the cashier over the radio of the issue that I was having, and asked him to let me know what he did to get the card to work.

A few minutes later, my colleague radioed me and told me that the person was trying to buy a gift card, not redeem one. I thanked him for letting me know. Being of relatively thick skin, I thought nothing more of the exchange. But then I heard the manager come over the radio and gently suggest to my coworker that perhaps his response had been a bit too sarcastic. Obviously, the manager was working to make sure all discussions were professional and respectful.

Third, work is just a way to exchange our time for money. I’d taken the job to meet new coworkers, learn a bit about the book trade and stay out of my wife’s way for a few hours each week. I wasn’t working for the money. But it still affected my thinking.

Our dog had a minor medical issue that required a trip to the veterinarian for some pain medication and antibiotics. The vet’s bill came to 20 hours of working. My wife reminded me that I wasn’t paying the vet bills with my current job. Still, I found myself converting all sorts of expenses into the number of hours I’d have to work to pay for them.

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After the Swan Dive

I'VE BEEN RETIRED for six years and—like many retirees—I rely on my portfolio’s appreciation, interest and dividends for most of my retirement income. The high inflation of 2022, coupled with poor stock and bond market returns, have me pondering what history would predict for 2023’s performance.

I decided to look at how frequently both the stock and bond markets have performed poorly in the same year, and what subsequent returns have typically been. Simultaneous declines in both the U.S. stock and bond markets might be considered a “black swan” event—something far outside what’s normally expected. The term was made popular by the bestselling book by Nassim Nicholas Taleb.

And, yes, 2022 qualifies as a black swan: Simultaneous annual stock and bond declines have occurred just five times over the past 95 years, as you’ll see in the chart below, and 2022 was the first year when both stocks and bonds posted double-digit drops. The chart shows the total annual returns for the S&P 500 and 10-year Treasury notes for 1928-2022, which I got from the site maintained by New York University finance professor Aswath Damodaran.

What does Damodaran’s historical data tell us? My conclusion: Markets tend to have healthy recoveries in the three years after bad years. Indeed, for a 50% stock-50% bond portfolio, all four of the prior black swan years were followed by at least three up years, with the cumulative three-year gain ranging from 27.5% to 57.8%. While black swan years have been relatively rare, the data suggest that maybe investors in those years were overreacting to fears of future economic problems that didn’t come to pass.

The lessons: It’s important to maintain a large enough cash reserve to cover at least three years of your foreseeable retirement spending, so you’re never forced to sell long-term investments at low prices to cover your short-term spending needs—and it’s equally important not to overreact to a single bad year.

Bill Kosar retired after working for 40 years in various roles as an engineering and business manager in the semiconductor industry, where he spent much of his time doing exploratory and diagnostic analysis of technical and financial data. He has 45 years of experience with various types of investments, including stocks, bonds, options, limited partnerships and mutual funds, and is familiar with both the fundamentals and the pros and cons of these types of investments. Bill enjoys looking at economics from a macro perspective. He’s also an avid bird photographer and gardener, and mediocre golfer. 

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Yardsticks for Stocks

THERE ARE MANY WAYS to gauge whether individual stocks and the overall market are expensive. But which valuation metric should you rely on?

The fact is, you can find metrics to buttress any market narrative you want to believe. Such confirmation bias can prompt investors to make big changes to their mix of stocks and more conservative investments—sometimes with disastrous results.

As a market analyst, writer and former university finance instructor, I’m familiar with a host of valuation tools. But I take each with a grain of salt. Here are five of the most common market metrics:

1. Price-to-cash flow. This multiple takes the price of a stock and compares it to the firm’s operating cash flow per share. Cash flow is different from net income. It adds back non-cash charges, such as depreciation and amortization, to a company’s reported earnings. It can give you a better sense of the true worth of, say, a big industrial firm that has a large amount of fixed assets that decay in value over time.

Cash flow can also be helpful because it’s thought to be less easily manipulated than net income. I like to look at a company’s free cash flow, which further backs out capital expenditures. You can think of free cash flow as the cash that’s potentially available to a company’s creditors and stockholders. For the S&P 500’s current price-to-cash-flow ratio, check out J.P. Morgan Asset Management’s monthly Guide to the Markets.

2. Price-earnings. The P/E multiple is perhaps the most widely cited valuation measure. It’s simply a company’s stock price divided by its earnings per share. You can use actual (sometimes called “trailing 12-month") or forward (estimated) earnings. I prefer to use estimated corporate profits. While never perfect, I believe it’s better to use expected earnings rather than past figures—because future corporate profits are what investors care about.

It’s important to recognize that today’s market P/E ought to be higher than those seen over the past century for two reasons. First, we have lower interest rates, which make stocks more attractive relative to the main investment alternative, bonds. Second, the technology sector is now a bigger share of the U.S. market compared to past decades, and tech stocks typically sport higher P/E ratios thanks to their faster growth.

Like price-to-book value, which I discuss below, you can find a company’s P/E ratio on several stock research sites, including Yahoo Finance and Seeking Alpha. I also like to scout out GuruFocus for a comprehensive summary of the entire zoo of P/E ratios for both individual stocks and market indexes.

3. Cyclically adjusted price-earnings. Critics of the standard P/E ratio claim, with good reason, that it can be overly volatile—and hence misleading—given the big swings in corporate earnings caused by the economic cycle. Such skeptics often turn instead to the cyclically adjusted P/E ratio.

Also known as CAPE or the Shiller P/E, it uses the average corporate earnings from the past 10 years, with those earnings adjusted for inflation. Problem is, because it uses the previous decade’s worth of data, the CAPE is very much a lagging indicator. Also, after periods of accelerating earnings growth and a bull market, the CAPE will almost invariably indicate that stocks are overvalued.

The S&P 500’s CAPE averaged 14.5 from 1872 through 1991. Since then, the average is above 27. Had you relied on this ratio to time the market, you’d have been stuck on the sidelines for the past few decades, waiting for far lower share prices that never materialized. My go-to site for all things CAPE is Multpl.com. J.P. Morgan’s Guide to the Markets also lists the S&P 500’s current CAPE.

4. Price-to-book value. This ratio is often used by value investors to hunt for bargains. It compares a stock’s price to the firm’s book value—total assets minus total liabilities—expressed on a per-share basis. The gauge is often used to assess banks and other companies in the financial sector. A reading below one—meaning the share price is below book value—is generally thought to indicate an attractive valuation.

Price-to-book value falls short, however, when comparing companies across countries since accounting standards differ. It also falls short when gauging high-growth tech stocks, because such companies usually have little in the way of tangible assets.

5. Tobin’s Q. This involves dividing the market value of a firm by the replacement value of the company’s assets. You can think of it as an attempt to compare a company’s stock market value to the intrinsic value of its assets. The ratio is applied to both individual stocks and the broad market. Like book value, it’s focused on asset values—and differs from P/Es and price-to-cash flow, which ignore assets and instead focus on profits from a company’s operations.

A Tobin Q ratio below one is thought to be a buy signal, while more than one says the stock is more expensive than its true worth. Like the CAPE ratio, Tobin’s Q tells us the overall stock market is expensive right now, but that’s likely because the S&P 500 is now so dominated by technology firms. Check out Advisor Perspectives to see a monthly chart of Tobin’s Q. Alternatively, go to YCharts or the Federal Reserve Bank of St. Louis.

Feeling overwhelmed by all the ways to value individual stocks and the overall market? Even the pros are often uncertain about whether stocks are a good buy. Count me among those who believe that all this valuation information is, for the most part, reflected in current share prices, so it’s foolhardy to trade based on one or more of the above measuring sticks. Still, it’s helpful to have some sense for how stocks are valued today versus history—because it can prevent us from getting overly exuberant or overly bearish.

Mike Zaccardi is a freelance writer for financial advisors and investment firms. He's a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program. Follow Mike on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com and check out his earlier articles.

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