Jonathan Clements's Blog, page 170

Everyday Arbitrage

SOME PROFESSIONAL investors make a living through arbitrage, exploiting small, short-term differences in the price of stocks, bonds, commodities and currencies. For the average investor, such trades can seem far too complicated. Still, I often look for opportunities for what I call “everyday arbitrage”—situations where I can take advantage of a difference in, say, tax rates or a product’s price.

Here’s an example: In a recent article, I wrote about how 2022’s higher interest rates will significantly reduce the payouts that some retirees will receive from the 2023 lump-sum option on their pension. Today’s high-interest rates also mean that commercially available annuities are generating more income.

This unique environment leads to an “interest-rate arbitrage” opportunity. A friend elected to file for her pension and receive a lump sum in 2022. She could then purchase an immediate lifetime annuity with the money and receive some 25% more than her pension plan’s monthly amount. Had she waited until 2023, her lump-sum payout would have been reduced by about 25%.

I employed a tax arbitrage in 2017, which was a high-tax year for us. In March, I stopped working fulltime. I received a severance package and a vacation-time payout, started consulting work and began my pension. Coincidentally, my wife took a new job that paid her the highest salary of her career.

All this meant 2017 was our highest income year ever, which pushed us into a higher marginal tax bracket. Our income would likely be lower in future years—which led to the tax arbitrage. In December, I opened a solo 401(k) and made a tax-deductible contribution equal to almost my entire consulting income for that year. In a subsequent year, I can withdraw this money as taxable income—but at a lower marginal tax rate. I’m now over age 59½, so there’s no early withdrawal penalty to worry about.

I also like to employ an “everyday arbitrage” strategy for many more mundane financial transactions. For instance, for many years, I commuted from the Philadelphia suburbs to the Princeton, New Jersey, area. Gas costs a lot less in N.J. than in Pennsylvania. I would carefully plan my fuel consumption to refill my tank when I passed through Hamilton, N.J. I also did this when driving from Pennsylvania to our N.J. beach house.

There are certain over-the-counter medications my wife and I take. They cost about 25% less at Costco. There’s no Costco near our home, but there are two stores just off the Garden State Parkway. On our way to visit our sons and their families, we would stop at one to stock up. An added benefit: Costco has gas stations with low prices—low even for N.J.

My wife and I enjoy a good bottle of wine. Pennsylvania had a reputation as one of the least wine-friendly states in the country. Its state stores were known for high prices and limited choice.

When I started traveling for work 30 years ago, my colleagues told me of the best places to shop for wine. I traveled Interstate 95 from Valley Forge, Pa., to the Washington, D.C., suburbs. Engineers are good with numbers, and finding a great Napa Cabernet for under $10 was a noble goal. When we realized that the northern Virginia Costco and Trader Joe’s stores sold wine, we were all in.

Many Pennsylvanians routinely traveled to adjoining states for lower prices and greater selection. Although the situation has improved in the past decade, I know many fellow oenophiles who still make regular trips to Delaware or Maryland to stock up on wine.

I also try to make sure I’m not engaging in false savings. We bought our first beach house in March 2012. That summer, we rented it out for 14 weeks. We drove the 180 miles roundtrip each Saturday morning to clean the unit for the next renters. We took advantage of the trip to take a bike ride on the boardwalk, go out to breakfast and hit the beach for the afternoon.

Our first grandson was born in June 2013. We had planned to continue cleaning the rental ourselves. But for some reason, my wife found it much more enjoyable to go to New York on weekends to visit our grandchild. I found a good cleaner who was willing to fill in.

The cleaner charged $85 to take care of the house. When I calculated the cost of driving 180 miles, plus tolls, plus whatever we spent, I realized that paying a cleaner was a bargain. And that didn’t include the value of our labor—my wife’s labor, of course, being much more valuable than mine—or the opportunity cost of not seeing our grandchild.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.

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Rules for the Wedded

ON DEC. 14, MY WIFE and I celebrated 54 years of marriage—not bad for a curmudgeon and the person who’s had to live with him.

Considering that the average marriage in the U.S. lasts seven to eight years and the divorce rate is near 50%, we’ve done pretty well. On top of that, we got married just 10 months after our first date—and I was in the Army for eight of them. I remember receiving a letter from my dad while I was in the Army in which he basically asked, “Do you really know what you’re doing?”

Apparently, I did.

A lot has happened over the decades, mostly good and some very fortunate. My wife survived two car accidents unscathed. The first occurred when she was pregnant and driving on a highway at 50 mph, and a front wheel flew off. In the other, someone ran a red light and her car was totaled.

We have what used to be considered a traditional marriage. My wife stopped working when the first of our four children was born in 1970. Thereafter, we lived on my income, and structured our standard of living and spending accordingly.

There was little hope of keeping up with the Joneses. Still, after 54 years, we now are the Joneses—assuming the Joneses have no debt and money in the bank.

When I returned from the Army, we saved 100% of my wife’s income toward a house down payment. When we bought our first and second homes, we chose houses we could afford on my income alone and that would meet the basic needs of a family of six.

Finances are one of the main causes of divorce. Generally, one partner is a saver and the other a spender. We never had that issue. My wife and I both came from modest backgrounds. Her mother lived in near poverty, and my family was lower middle-class.

If I were to tell you that, in 54 years, we never had a significant argument, would you believe me? I hope not. But when it comes to money, it’s true.

QDROs, short for qualified domestic relations orders, became law while I was managing a pension plan, so I got to read a lot of divorce decrees. I couldn’t believe the fights over money, especially when the spouse—always a man—took the position that the wife had done nothing to earn a portion of his pension.

Some decrees went into great detail. I recall one where the ex-spouses were going to live in the same house and share every expense down to the water bill. They couldn’t use the kitchen at the same time, however, so the husband was assigned times to eat. Could he cook, I wondered?

My wife has little interest in our finances. I doubt she knows our net worth or much cares. She still refers to the first of the month—when my pension arrives—as “payday.” There are no financial secrets between us. She’s attended all the estate planning sessions and the one investment meeting we had.

We have joint ownership of everything except my 401(k). I have explained how everything is structured to ensure our—and her—future financial security. I’ve prepared detailed instructions for her or, more likely, for our children to follow. Why has all this worked reasonably well for 54 years? I’d point to 10 factors:

Neither of us is selfish or greedy.
We trust each other.
We both think long-term and are goal-oriented.
We accepted delayed gratification as necessary.
We’ve always lived within our means based on one income.
We abhor debt. All credit card balances are paid off in full each month.
We know how we’ll pay for something before it’s purchased.
We have never, in 54 years, paid a penny in credit card interest.
There has never been a time when we weren’t saving and reinvesting, though there was less of that when we were paying for the children’s colleges.
And then there’s the matter of love.

In the end, we haven’t denied ourselves anything important, as some pundits claim frugal seniors do. Granted, many things were delayed to a point that others might find unacceptable. But as the saying goes, first things first.

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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Hits 2017-22

READERS HAVE PERUSED almost 18 million HumbleDollar pages over the past six years. Many of those pageviews were garnered by the homepage, the latest articles page and the main money guide page. But what about the site's articles? Below are the 30 best-read pieces since the site's launch on Dec. 31, 2016.

If the list seems a little eclectic, there's a good reason: Many of the articles that have enjoyed big traffic over the past six years have been those that got promoted by far larger sites. What about the site's No. 1 article? It's regularly used in high schools around the country. 

Terms of the Trade (2019) by Jim Wasserman
Nobody Told Me (2020) by Jonathan Clements
Farewell Money (2019) by Richard Quinn
He Gets, She Gets (2020) by James McGlynn
Don't Delay (2020) by Dennis Friedman
12 Investment Sins (2020) by John Lim
Home Rich Cash Poor (2022) by Mike Drak
The Taxman Cometh (2020) by James McGlynn
Choosing Happiness (2022) by Jonathan Clements
An F in Retirement (2021) by Mike Drak
11 Retirement Changes (2022) by Greg Spears
How to Use I Bonds (2022) by John Lim
Skimping on Cash (2021) by Jonathan Clements
Still Learning (2019) by Richard Quinn
This Too Shall Pass (2020) by Richard Connor
My Four Goals (2020) by Jonathan Clements
27 Things to Do Now (2020) by Jonathan Clements
Don't Get an F (2019) by James McGlynn
Price Protection (2021) by John Lim
Enough Already (2017) by Jonathan Clements
Farewell Yield (2020) by Jonathan Clements
The Bogle Method (2021) by Jonathan Clements
Flunking the Test (2020) by Richard Connor
Ten Commandments (2018) by Richard Quinn
The Tipping Point (2018) by Jonathan Clements
The Humble Landlord (2022) by Steve Abramowitz
Ten Years Retired (2020) by Richard Quinn
When Cash Is King (2021) by William Bernstein
45 Steps to Success (2019) by Jonathan Clements
Unanswered (2018) by Jonathan Clements

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It Could Be Worse

FEELING DESPONDENT about your 2022 investment returns? Yes, it’s been a grueling year for almost all stock and bond investors. But some folks have been hit far harder than others.

In the bounce back from 2020’s coronavirus market crash, near-zero-percent interest rates, coupled with consumers flush with cash, made for pockets of irrational exuberance. High-risk growth stocks—like those owned by Cathie Wood’s ARK Innovation ETF (symbol: ARKK)—captured the imaginations of Wall Street and Main Street alike.

ARK Innovation rallied from a pandemic low of $33 to its February 2021 peak just shy of $160. But fast forward to today, and the fund’s shares have completed a roundtrip to their March 2020 bottom. The fund has plummeted some 80% from its all-time high and is off 67% this year alone. One fund has capitalized on ARK’s misfortune: AXS Short Innovation Daily ETF (SARK) sells short the entire ARK Innovation portfolio, in a bet those stocks will fall. AXS is up almost 86% in 2022.

 But ARK Innovation is hardly 2022’s only big loser. In 2021, SPACs, short for special purpose acquisition companies, were a popular way for private companies to become publicly traded. But total issuance of new SPACs was down sharply in the first half of 2022 from a year earlier, and that trend has likely continued through the rest of 2022. What about the performance of companies that went public via the SPAC route? Bloomberg reports that the median post-merger SPAC company that debuted this year is down a stunning 70%.

And we can’t leave out cryptocurrencies. Stalwarts like bitcoin and ethereum are down more than 60% in 2022, while smaller “altcoins” have fared even worse. Meanwhile, some stablecoins—tokens thought to be pegged one-for-one to the dollar—left investors with big losses as some crypto lenders went bankrupt in recent months. In all, the total value of cryptocurrencies is down some 65% year-to-date, dropping from nearly $3 trillion in November 2021 to almost $800 billion today.

We shouldn’t expect gains every year in the stock and bond markets. Still, while a 15% to 20% drop feels lousy, it pales next to the crashes we’ve seen in these other assets. Moreover, while it’s debatable whether investors in SPACs, crypto and ARK Innovation will ever make back their losses, 2022’s pain in the mainstream stock and bond markets probably means better returns in the years ahead.

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Words to Live By

ONE OF MY FAVORITE end-of-the-year rituals is watching Turner Classic Movies’ annual memorial to those in the film business who have died during the past year.

Each year, I’m reminded of people who have entertained and often strongly influenced me. It’s four bittersweet minutes of smiling, crying and reliving memories. Movies, and especially holiday movies, have been as important in inspiring and teaching me as any scripture I’ve ever read and any sermon I’ve heard or given.

Two actors who died in 2022 were in two of my favorite movies. Virginia Patton, the last living adult actress from the best movie of all time, It’s a Wonderful Life, died in August. She played George Bailey’s sister-in-law, Ruth Dakin Bailey. James Caan, who played Buddy’s biological father Walter in Elf, died in July. Like most characters in holiday classics, they taught us lessons about love, selfishness, generosity and greed—lessons that can be helpful in all parts of our lives, including our financial lives.

Caan played the stereotypical self-centered businessman who had lost the spirit of the season. Patton had a small role in the movie with a handful of lines. She lets George know that the main reason his brother Harry married her was to go into plastics, where he could make lots of money. He does; George doesn’t.

Most of us didn’t make a lot of money this year if we were invested in the stock and bond markets. (I’m not sure about those in plastics.) I find the last few weeks of the year are a time of complex emotions and to-do lists. A time to celebrate, to remember, to mourn, to plan, to share and reflect on what’s come and what we hope will come next. No matter which holidays or movies we embrace.

My contemplation this year, after watching TCM Remembers, made me think of some of my favorite holiday movie quotes. Maybe not surprisingly, they offer as much wisdom for investing as they do for living.

“Remember, no man is a failure who has friends,” says Clarence, George’s guardian angel in It’s a Wonderful Life. The first time I heard this line I broke into tears. I saw the movie in my early 20s when I was early in recovery from the financial and spiritual heartbreak caused by my compulsive gambling.

Clarence gives George a new lease on life, reminding him that his friends made him far richer than those with much more money. It’s a lesson we all need to be reminded of. Failure comes often and easily in life, in work and in investing. If they’re the main things we focus on, life will look bleak. If we focus on love and friendship, spending as much time cultivating those as we do our portfolio, we’re always ahead at the end of the year.

“Christmas isn’t just a day, it’s a frame of mind,” offers Kris Kringle in Miracle on 34th Street.

“And what happened, then? The Grinch’s heart grew three sizes that day and the true meaning of Christmas came through,” the narrator tells us in How the Grinch Stole Christmas.

No list of holiday quotes connected with finances would be complete without including Santa and the Grinch. Every year, financial pundits wonder if we will get a Santa rally or a Grinch “rally.” Of course, Santa always carries the Christmas spirit, while for the Grinch it takes some time. Every Christmas movie on my list of favorites has the same message shared in different ways—savor the spirit of the season and give it away all year. Of course, not everyone celebrates Christmas, Santa or the Grinch.

But the frame of mind and true meaning they teach transcend religions, movie scripts and investing advice. Think of others and be generous. Be grateful for what we have and practice kindness every chance we get. Look at the world with wonder, anticipation and joy. Help someone whenever we can and love even more. Aren’t those the real reasons we spend our time and money working, making money and learning how to invest?

The last two quotes come from Charles Dickens’s classic A Christmas Carol. No matter if you prefer the 1938 version with Reginald Owen, 1951’s version with Alistair Sims (my personal favorite) or 1988’s Scrooged with Bill Murray, Dickens’ story reminds us that all work—and no play or compassion—aren’t good for anyone.

“I will honor Christmas in my heart, and try to keep it all the year. I will live in the Past, the Present, and the Future. The Spirits of all Three shall strive within me. I will not shut out the lessons that they teach!” declares Ebenezer Scrooge in A Christmas Carol. Scrooge is talking about his transformation after being visited by the ghosts of Christmas past, present and future. But it’s hard for me not to read those lines and think of our financial lives.

Too often, when we make investing decisions, we choose to look at past results, go after the current hottest fads or speculate wildly about what will happen in the future. At least I have from time to time. Scrooge reminds us to keep learning, to remember the lessons we have learned and to be open to learning new ones. And doing all of it while being grounded in the values we hold dear.

This year, the lessons of old haven’t always held true. (If stocks are down, aren’t bonds supposed to be up?) Still, if we hold on to what matters most in our lives, it can help us to remember what matters most in investing as well—hew to the long view, with some humility and caring thrown in.

“God bless us, everyone.” I leave you with these words, which come from Tiny Tim. No matter how large our net worth, what religion we do or don’t practice, or which god we do or don’t believe in, may we remember our blessings and shower them on others. I’ll see you at the movies.

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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Same Old Same Old

IN THE INVESTMENT world, every year is unique. This year certainly has been.

But in some ways, every year is also the same. The specific events change, but many of the underlying themes and challenges don’t change a whole lot. As 2022 winds down, it’s a good time to take a closer look at six of those themes, as well as the steps investors might take to navigate them when, invariably, they present themselves again in 2023.

1. Taxes. You may remember George Steinbrenner, the longtime owner of the New York Yankees. As a billionaire, my guess is that he spent considerable time, effort and money developing strategies to minimize the estate tax that would ultimately apply when he passed away. But something unusual happened when that day finally came. In the year that Steinbrenner died—2010—a wrinkle in the law resulted in there being no federal estate tax at all. It was just a fluke. The result, though, was that all of the Steinbrenner family’s planning was, in a sense, totally unnecessary.

The lesson: It’s good to plan, but it’s equally important to recognize that things can, and usually do, change. This applies to all types of financial planning, but especially to estate planning. Because the estate tax is a political football, it’s likely to change multiple times during our lives. And yet, for each of us, all that matters is the law in one particular future year. Of course, there’s no way to know which year that will be. For that reason, when it comes to tax planning, I always recommend a light touch. Look for ways to take half-steps, opting for flexibility, where possible, over solutions that might be theoretically optimal under current law.

2. Shiny objects. One day last fall, outdoor diners at a restaurant in the city of Recife, Brazil, panicked when they saw a group of people running down the sidewalk. It looked like they were running from danger. As a result, all of the diners got up from their meals and started running too. What was actually happening, though, was much more mundane: The folks running down the street were simply exercising. But all it took was for one person to panic. That triggered others, and soon everyone was running.

The parallel to investment markets is clear. Crowds can often spread panic. But this year revealed that crowds can also do the opposite: They can make everyone feel safe. Cryptocurrency is a case in point. ​As the prices of bitcoin and other digital tokens rose in recent years, more people began to feel that these digital “assets” were gaining legitimacy and stability. That led more people to buy into the crypto story, further pushing up prices, thus adding further credence to the story.

But in reality, cryptocurrency hadn’t become any safer. It was only investors’ perception that had changed. The lesson: Always keep your eye on investment fundamentals, such as cash flow, earnings and dividends. If someone tells you that something is the “new thing,” check twice. Then check again.

3. Recency effect. There’s an old joke about two parents watching their children participating in a marching band. Every child is marching perfectly in sync, except for one, who is entirely out of step. Seeing this, one parent leans over to the other and comments, “Look at how the whole band is out of step with my son.” It’s funny, but also a reminder that many things are a matter of perspective.

Investors, I believe, try to be rational. By that, I mean they look at history and try to make informed decisions based on the data. The trouble, though, is that there’s no single definition of “the data.” Inflation is today’s example. Over the past 20 years, U.S. inflation has been very stable at around 2%.

But in the 1990s, it was 3%. In the 1980s, it averaged nearly 6%. And in the 1970s, of course, it exceeded 10% at times. So how should we look at the inflation we’ve seen this year? Is it an aberration, or were the past 20 years the aberration? Which of these numbers is out of step? Ask five economists, and you’ll likely get five different answers. As an investor, what can you do?

Over the course of this year, I’ve discussed various strategies to protect portfolios from inflation. Here’s the important thing: Even if the current bout of inflation settles down, you’ll still want to maintain some inflation protection in your portfolio. To the extent possible, you should try to maintain a portfolio that's diversified in ways that would protect you from as many different types of rainy days as possible.

4. Expertise. One of my favorite cartoons from The New Yorker features two elderly men sitting side-by-side in easy chairs. Both are reading investment books. Look closely, though, and you’ll see that one of the books is titled The Coming Boom while the other is titled The Coming Bust.

On several occasions, I’ve discussed the challenge posed by expertise in economics and finance. Because there are so many variables involved, it’s awfully hard to make accurate predictions. The most notable recent example: Jerome Powell, chair of the Federal Reserve and perhaps the world’s most informed economist, was wrong in his assessment of inflation last year.

Powell, like other economists, has taken heat for his inaccurate forecast. But here’s the challenge: As much as we know that predictions are often wrong, we don’t have much alternative. If we ignore experts, then we’re really flying blind. What should investors do? Author and investor Howard Marks offers one useful solution: Don’t view expert opinion as Gospel. Instead, take it with a grain of salt, just as you might listen to a long-term weather forecast.

More important, look at the big picture. In his book Mastering the Market Cycle, Marks acknowledges that it’s difficult to know precisely where the market will go tomorrow or the next day, but he points out that it’s possible to observe whether the market is very high or very low. With that information, investors can make reasoned judgments.

5. Stock-picking. Another topic on which I’ve been a broken record is the difficulty of stock-picking. There are years of data showing that both professional and individual investors underperform the market, on average. And yet stock-picking remains alluring.

Why is that? The reason, I believe, is because it’s just successful enough—enough of the time—to keep investors interested. Pretty much everyone knows someone who bought Apple or Google or Netflix early on and has happily turned those gains into bragging rights at family reunions. I call this the brother-in-law effect. How can you combat it?

My recommendation: Don’t view the debate over stock-picking in religious terms. Personally, I don’t recommend picking individual stocks, and I don’t do it. But doctors don’t recommend junk food, either, but that doesn’t mean you should never, ever touch it. My view: If you want to pick a few stocks—as long as it’s a manageably small slice of your holdings—I wouldn’t worry too much about it, especially if that helps you better respond to your brother-in-law’s bragging the next time you see him.

6. Investment frauds. No discussion of 2022 would be complete without a discussion of the defunct crypto exchange FTX and its founder, Sam Bankman-Fried. What can investors learn from this episode? Warren Buffett has this saying: “It’s only when the tide goes out that you discover who isn’t wearing a bathing suit.”

In more formal, academic terms, there’s an idea in finance called the Kindleberger-Minsky theory. One of the key ideas is that markets go through cycles and that, during bull markets, investment frauds tend to thrive. That’s because it’s easier to cover up something like a Ponzi scheme when the market is rising. It’s only when the market drops that fraudsters are exposed—because lower asset prices make it more difficult for them to paper over their theft.

It’s why Madoff’s fraud only came to light at the end of 2008, when the stock market dropped. And it’s why the scheme at FTX only came to light this year, after bitcoin had dropped 70%. The lesson: As an individual investor, you should always be wary of things that are new and untested. But you should be especially careful when the market is strong and everything looks perfect. Counterintuitively, that's when risk levels are highest.

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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Writ Large

WANT TO BE A PERSONAL finance columnist? I can’t claim expertise on many topics, but this is one where I draw on a lifetime of experience.

And it isn’t just as a writer. At HumbleDollar, I have a hand in editing every piece that appears, plus I get to see the numbers on which articles catch readers’ attention—and which get the cold shoulder.

To be sure, popularity isn’t necessarily the best way to gauge an article’s quality. Sometimes, a HumbleDollar article garners big traffic because it gets mentioned on a far larger website. Sometimes, the day an article appears is one with big breaking news or terrible stock market performance, and readers are spending their online time elsewhere or they simply don’t want to think about their finances.

Still, I’ve come to have a pretty good sense for which articles will be well-received by readers. Want to write a personal finance piece that gets decent traffic? It doesn’t need all 10 attributes listed below. But the more of these elements a piece has, the better read it’s likely to be.

1. Relevant. If you write an article that covers recent market action or addresses legislation just passed by Congress, it might strike folks as a must-read. But a “news peg” isn’t the only way to be relevant. The key issue: Is the article important to the reader’s life? A piece that discusses how to squeeze more happiness from vacation spending may strike folks as more relevant to their life than a piece that analyzes the latest bond market trends.

2. Revealing. As a columnist, you shouldn’t simply report the facts. Instead, you need to offer an opinion on those facts, and often the best way to offer an opinion is to talk about what you’re doing with your own money. The more personal the piece, the more likely you are to engage readers. This isn’t always a comfortable thing to do. Still, if you want to buy yourself broad readership, the price may be a small piece of your soul, plus some specific details about your finances.

3. Relatable. Most folks don’t have seven-figure portfolios. A quick way to lose readers: Talk about wealth and spending in ways that they simply can’t relate to.

4. Likeable. This is in the same vein as “relatable.” If you mention your oversized portfolio, mansion or six-figure car, you’ll lose readers in a hurry. Nobody likes a braggart. Of course, if you write about personal finance, readers assume you’ve done reasonably well with your own money. But if your columns tend toward boasting, while failing to mention your struggles and mistakes along the way, don’t expect to garner many readers.

5. Smart. After writing about personal finance and investing for a while, you’ll realize the basics are pretty straightforward and it’s tough to say anything original. As I’ve joked occasionally, “There are only 20 personal finance stories—which means that, by the time I left The Wall Street Journal after penning more than 1,000 columns, I’d written each of those stories 50 times each.” Still, if you can tell readers something they didn’t know before—or tell them about an old truth in a new, intriguing way—you may have yourself a winning article.

6. Surprising. Every so often, it’s good to surprise readers by, say, offering an article that seems off-topic—such as when HumbleDollar posts an article that has little to do with finance (though I’d argue that almost everything has a money angle). For instance, in 2022, we’ve run articles on wrestling, triathlons and joining the circus.

7. Anecdotal. Readers like stories, especially those that incorporate the telling details that make a story compelling. But the best anecdotes are those that tell the reader something about the broader financial world and which you can support with evidence from, say, an academic study, government data or a statistically meaningful survey.

8. Lists. There’s a reason I’ve numbered the points in this article. Readers love lists.

9. Accurate. Even a minor error in an otherwise accurate article will cast doubt on the veracity of the entire piece. Indeed, at the publications where I worked during my career, the gravest sin you could commit was to make a factual mistake.

10. Actionable. This is a word I loathe. It strikes me as yet another example of the corporate speak that has infected our otherwise lovely language. And don’t get me started on words like optimize, impacted and connectivity. You can read more about my pet peeves in HumbleDollar’s style guide.

That said, “actionable” is indeed a key element of a good personal finance article. Yes, readers want to be informed and entertained. But they also want to be told what it all means for the way they manage their money. Is this article actionable? For most readers, perhaps not. But I hope it’ll be helpful for anyone who wants to write for HumbleDollar.

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

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11 Retirement Changes

JUST IN TIME FOR Christmas, a sweeping new retirement law has passed both houses of Congress, and should be signed into law this weekend. Dubbed the SECURE Act 2.0, it makes dozens of significant changes to the employer-based savings systems that millions of workers depend on for retirement.

Under the new law, some workers will be able to save far larger catch-up contributions during the home stretch of their working years. Meanwhile, retirees can delay taking required minimum distributions until age 73 starting in 2023. Younger workers with college loans may get an employer match for paying those debts. And people facing a financial emergency will find it easier to take money from retirement savings.

Many of the provisions won’t take effect for a year or two—and sometimes even longer. With that caveat, here are 11 changes that could affect you sooner or later.

1. Delayed RMDs. Here’s one provision that has an immediate effect. The new law delays the first required minimum distribution (RMD) from tax-advantaged retirement savings accounts from age 72 to 73 starting next year. In subsequent years, the RMD age will be raised even further, reaching 75 in 2033.

But postponing withdrawals might be a Pyrrhic victory—one that comes at great cost. Income tax rates are low now and scheduled to rise in 2026. Some retirees might owe less by taking smaller, more frequent withdrawals rather than bigger slices later at steeper tax rates.

2. Higher catch-ups. Starting in 2025, the maximum catch-up contribution limit is raised from $6,500 in 2022 to at least $10,000 a year—but only for workers ages 60, 61, 62 and 63. The law stipulates that this “super catch-up” will be a moving target that’s at least 50% more than the regular catch-up contribution amount. In the meantime, the regular catch-up is getting a $1,000 inflation increase to $7,500 in 2023, so the super catch-up would then pencil out at $11,250.

If workers made maximum contributions plus super catch-ups, they could pack $133,000 into their retirement plan at work in just four years. But wait, there’s more. For the first time, IRA catch-ups will be indexed to inflation starting in 2024. That catch-up has been stuck at $1,000 a year since 2015.

3. Roth catch-ups. In a big switch, catch-up contributions to employer retirement plans—but apparently not to IRAs—would have to be made with Roth after-tax dollars, except for workers who make less than $145,000. This is the biggest tax increase in the new law, and it helps pay for some of the other tax breaks it bestows.

Every retirement plan has a cadre of super-savers who try to contribute the maximum each year. These new catch-up provisions will make it more expensive to join this club. To hit the max, workers ages 60 through 63 would need to contribute well over $30,000 a year—without the benefit of a tax deduction on the catch-up portion.

4. No RMDs on Roth savings. Starting in 2024, Roth money in a 401(k) would not be subject to RMDs, as it is today. Roth IRAs were already exempt from RMDs. That’s led to a big exodus of Roth money from employer plans to IRAs. Rollovers can invite mischief in the wrong financial advisor’s hands, so this is a win for older investors—and tax simplification.

5. Matching contribution for student loan payments. Starting in 2024, employers can, if they choose, make matching retirement contributions on the dollars their employees spend repaying college loans. Result? Some workers might be tempted to skip retirement savings, knowing their employer is throwing 3% or 4% of their pay into a 401(k) account in their name. By itself, of course, that isn’t enough for a comfortable retirement. Still, many workers are strapped today, paying student debt, higher rents and everything else, so maybe half a loaf is better than none.

6. Automatic enrollment grows. Starting in 2025, newly established 401(k) plans would be required to automatically enroll eligible workers, except for new or very small companies—those with 10 or fewer employees. Enrolled workers will still be free to drop out at any time, yet few do. Research shows that automatic enrollment tends to lift plan participation rates above 90%.

The new law doesn’t require employers to offer a 401(k) plan, however. Labor economist Teresa Ghilarducci of The New School calls this the “huge problem untouched" by the legislation. Only about 35% of working-age Americans report having a 401(k), 403(b) or similar account, says the Census Bureau.

7. Don’t settle for 3%. These automatic enrollment plans can start workers’ savings rates at just 3% of pay, with annual increases of just one percentage point. That’s too low and slow, according to experts. Nobel laureate Richard Thaler, who pioneered the automatic 401(k), recommends saving at least 10% for retirement—and says 15% would be better. These figures include any employer contributions.

To save more, workers might time their savings increases to coincide with their annual raises at work. That way, they can ramp up their savings without seeing a cut in take-home pay.

8. Emergency fund. The 401(k) plan has become a de facto emergency fund for many, with the number of workers taking hardship withdrawals already at record levels. The new law reflects this reality by allowing employers to designate up to $2,500 of employee savings as an emergency fund for each worker.

Currently, workers living on the edge can max out on plan loans, which are usually limited to one or two at a time. A revolving emergency fund, like the one allowed by the new legislation, would make it easier for workers to tap into their savings when the rent is due. Plan administrators see this happen all the time, and want to help their workers.

9. Emergency withdrawals. Victims of domestic violence could take up to $10,000 from their employer plan, no questions asked. A similar provision would allow workers to take $1,000 from their plan once a year for an emergency without owing the 10% early withdrawal penalty.

Sound tempting? It still might be better for workers to borrow the money from their plan, rather than opting for the $1,000 penalty-free withdrawal. A plan loan gets repaid with interest through automatic payroll deductions. Workers avoid owing income taxes on the withdrawal, plus their retirement savings are left intact.

10. Saver’s tax credit. Uncle Sam would match 50% of retirement savings, up to $2,000 annually, made by lower- and middle-income workers. In a twist, this payment of up to $1,000 would be directly deposited into the saver’s retirement account, and not issued as a check.

The current saver’s tax credit is nonrefundable, meaning you have to owe taxes to get the money. Not many lower-wage workers do. Now that the credit is refundable—in the form of a matching retirement contribution—lots more workers should benefit.

11. Lost and found department. People move, change jobs and—believe it or not—lose track of their retirement savings all the time. The new law requires the Department of Labor to create a “lost and found” database within two years where you could type in your name and find any retirement money you forgot about. This is similar to the lost property databases run by the states, which have made it far easier for people to find lost bank accounts and other assets.

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

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My Confession

I HAVE READ THAT confession is good for the soul. I suspect it’s also good for our financial health—or, at least, I hope so. I have a confession to make as a usually loyal fan, regular reader and occasional contributor to HumbleDollar.

I’ve read less than a dozen of the site’s articles in 2022, and I’ve checked my portfolio just as infrequently. This is a new practice for me. I share it somewhat reluctantly because it may or may not be healthy.

When I was a regularly practicing minister, it was rare when someone came to me to spill their darkest secrets. My religious tradition doesn’t require regular confession.

When I counseled people in financial trouble, one of the first tasks I gave them was to write down everything they earn, spend, owe and own. In every case, I found that sharing honestly was not only good for the soul, but also for just about everything else in their life. Secrets and darkness often destroy; openness and sunlight give life.

As I reflect on why I’ve disengaged from finances this year, I realize I’ve learned some good things—and some not-so-good things. I hope you’ll find a truth or two for yourself in my confession.

Bad news isn’t fun and I avoid it. In years when the financial markets decline, I often stop looking at my portfolio. I do the opposite when the market is booming. Then I may check and recheck my balances multiple times a day.

The bad news is that frequent checking sometimes led me to act impulsively. I’d sometimes sell low or buy during what I thought was a dip. I wish I was more like Warren Buffett, who famously advised, “Be fearful when others are greedy, and greedy when others are fearful.”

Most of the time, unfortunately, I’m not like Warren. By not looking at my portfolio this year, I’ve missed some buying chances. But I’ve also avoided selling in a year when I probably just needed to sit still and be patient.

Greed is good—except when it isn’t. The bear market wasn’t the only reason I’ve stayed away from HumbleDollar and my portfolio this year. Last spring, I finished my third year as a seasonal tax preparer. I continue to learn and enjoy the work—most of the time.

Living with investment accounts, bank statements, W-2s and the other details of people’s financial lives for two months each year puts money front and center in my life. This year, when tax-filing season ended, I went on a two-day silent retreat to rest, meditate, pray and reground myself.

At the CPA practice where I work, the income of the clients is typically higher than my own—and that of most people. I don’t get to meet the folks whose returns I prepare, yet I imagine what their lives are like based on their tax returns and background information.

The financial person in me looks for ways that people can keep and enjoy as much money as they’re legally allowed. What they do with that money is, of course, up to them. The minister and spiritual searcher in me, however, reflects on the value of money, and how we can use it to bring more joy, peace, health and happiness into our lives and into the world.

But it’s also true that not all needs are met. We’re such a rich society, and yet there’s such poverty and despair among us. I wonder how we can justify one rich man spending $44 billion to buy a single company or, for that matter, collectively spending a record $16 billion on elections. I needed a break from the financial industry this year to focus a little more on questions like how much is enough, and how much do I want to share with others.

For me, these questions never get old, although in some years they seem more urgent. Reading and writing about financial struggles and strategies felt too heavy for me in 2022.

Planning and preparing give me options. I’ve been able to consciously disconnect from money this year partly because I have the privilege of knowing so much about it. The lessons I’ve learned over the years—from my experiences and from financial experts like my colleagues at HumbleDollar—taught me how to manage my money in a successful, non-stressful way.

I don’t have to sweat the market’s ups and downs because my wife and I have enough cash set aside to carry us through a minimum of three years. I’ve set up our finances so we don’t need any money from the bond market for at least three years, or from the stock market for at least eight.

This peaceful security is the result of lots of hard work and luck, and some spiritual practices as well. Regular meditation seems to help me focus on today, rather than on what might happen tomorrow.

I’m semi-retired now. Next year, when I turn age 65, I’ll have a myriad of financial decisions to make. I expect I’ll be spending more time with HumbleDollar to learn and share. The conversations and articles here have helped me prepare and be at peace more often than not.

I just hope I won’t forget the lessons I’ve learned by not paying so much attention. My soul feels better now. Thank you for hearing my confession.

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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Spreading the Word

I BOUGHT AND SENT 16 Christmas cards this year. Why spend $6.99 for the box of cards and $9.60 for stamps? I frequently communicate with most of the recipients via email and texts—but that’s why the cards are special.

Apparently, many other Americans feel the same way. Billions of cards are still bought and presumably sent each year, despite the cost of postage, according to the Greeting Card Association.

I could send virtual cards. But do they stand out amid the blur of other messages, both personal and commercial, in someone’s email inbox? It’s simply more personal to know the sender took the time to choose cards, buy stamps, address the envelopes and write a personal note. It’s an extra effort for me because the quality of my penmanship has suffered over time. I blame it on decades in newspaper journalism, where I developed my own style of shorthand. To be honest, I can barely read my own cursive, so I print carefully.

Growing up in the 1960s, I remember my parents would receive enough cards to fill a basket. Everyone sent cards, even if they were family members we were likely to see on Christmas. I loved opening them up to see the variety. I was always impressed by people who had paid for embossed cards with their signatures, but I now realize that wasn’t very personal and perhaps a tad pretentious.

It’s quaint to consider how envelopes were addressed with formal and sexist courtesy titles. For example, a widow was Mrs. John Smith, as though she still had no identity of her own even after her husband died. A divorced woman could still be a missus and use her ex-husband’s last name, but not his first or even her first name. Her maiden name was now her first name, such as Mrs. Jones Smith. That’s what etiquette expert Emily Post advised. Thankfully, times have changed.

That said, I always thought it special to see cards to me addressed as Master Ronald Wayne before I became a mister.

Starting in 1964, the U.S. Postal Service adopted a cartoon character named Mr. ZIP to prod the nation toward more efficient and accurate deliveries by using ZIP codes. Did you know ZIP is an acronym for “zone improvement plan”? It could be a question in the next trivia game at the local pub.

To make room for the five-digit ZIP codes, the USPS pushed the consistent use of two-letter abbreviations for states. But I recall some friends and relatives still used Penna., instead of Pa., for Pennsylvania.

Cards any time of year can lift the mood of elderly friends and family members who might live alone. I sent cards regularly to a favorite aunt who didn’t have email and who was difficult to talk to on the phone. Sending a personal, handwritten card can mean a lot to people like her.

The Idaho Commission on Aging launched a campaign this year urging people to send cards to residents of nursing homes and assisted living facilities. It’s a wonderful idea. I hope more states do the same.

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