Jonathan Clements's Blog, page 174

Relative Affluence

WHEN RESTRICTIONS ON travel eased this year, I visited Kolkata, India, where I grew up and my mother still lives. The airline ticket and other travel costs were almost 75% higher than my last visit four years ago.

This year, I’ve grown used to price shocks at every turn, from groceries to gas, so the steep ticket price didn’t shock me. What did surprise me was my feeling of affluence once I arrived.

Traveling to a low-cost country as a tourist doesn’t necessarily feel like a bargain because most items still have an international price tag. But living like a local is another matter. Everything seems dirt cheap to folks from high-income countries. Curious to know how far my U.S.-earned dollars went during my stay in India? Consider:

A dime would get me a freshly made hot tea from a roadside tea stall, served in a disposable earthen cup. For a nickel more, most sellers would upgrade it to a masala chai—milk tea flavored with ginger, cardamon and other aromatic spices.

A quarter paid for the return bus ticket to my aunt’s place four miles away. What else could I buy for a quarter? How about a recently picked large guava to savor with rock salt, or a bag of fresh flowers that my mother needed for her morning offerings to the gods?

A half-dollar would buy a hearty Bengali breakfast dish from an outdoor eatery, if you didn’t mind waiting while the cook prepares it right in front of you. The food would typically be served on a Sal leaf plate, to be trashed afterward in a designated bin.

A dollar for a man’s haircut might sound like a promotional offer, but that’s the regular price in the neighborhood salon—and it wasn’t due to the thinning hair of its regular customers. The small shop not only had the needed hygiene standards, leather seats and air-conditioning, but also offered nice add-ons, like a 30-minute head and shoulder massage for one dollar more.

Two dollars was the cost of my cab ride from the Kolkata airport to our house five miles away. As soon as I walked out of the arrival gate, a few touts approached me to offer a no-wait, luxurious ride. I declined and waited in the queue for pre-paid cabs. Fifteen minutes later, I got a cab assigned to me, helped the driver to load my bags and was on my way.

Five dollars covered the electrician’s labor for two visits to our house to take care of a few things for my mother. The work didn’t take long but, as a courtesy to my mother, he also bought the necessary fixtures from our neighborhood electrical store.

Ten dollars may not seem like a lot, but it was enough for a trained masseuse to come over and help me with my sore calf muscles and feet. The massage lasted about an hour, not including a brief break for tea and light snacks that my mother made for him.

Fifteen dollars was the cost to take my mother for a sumptuous lunch at a trendy restaurant on Park Street, the Fifth Avenue of Kolkata. The fresh green coconut water added another dollar to the restaurant bill. The experience and service were well worth the hefty tip we left.

Twenty dollars got me an all-day ride in a private, chauffeur-driven compact car. We started in the morning to visit a few places within a 25-mile radius and returned in the evening. I could’ve used a ride-hailing service instead, but the neighborhood operator seemed more friendly and convenient.

Twenty-five dollars covered both the labor and materials for a long-overdue plumbing overhaul of the main bathroom. The plumber replaced the leaking pipes, ran a new water connection to improve the flow and installed a new showerhead. He took two days to complete the work, and it was immaculate.

One hundred dollars connected our home with high-speed broadband internet for a year. I tested to check if the connection lived up to the advertised speed of 100 Mbps. It outperformed.

One thousand dollars covered the cost of new Bosch appliances I bought for my mother and sister-in-law. These included an energy-efficient refrigerator, an automatic front-loading washing machine and a high-powered kitchen chimney. The cost, which included delivery and installation, was lower than I expected thanks to the seasonal discount for the Diwali festivals.

My feeling of affluence was shattered as soon as I was on my way back to the U.S. A cup of tea purchased past the security checkpoints at Kolkata airport cost $3. Thirty hours and 9,000 miles later, I was home, catching up with my wife after being away for a month. That was a moment worth $1 million.

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

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A Taxing Situation

MUTUAL FUNDS ARE about to send their shareholders some dubious holiday gifts—in the guise of capital gains distributions. These distributions usually occur mid-December and they represent a taxable event for investors who hold funds in a taxable account.

Even in a down year for stocks and bonds, a mutual fund may realize capital gains, which are then passed on to shareholders. These could come as a nasty surprise to investors already smarting from 2022’s steep losses.

It seems counterintuitive that a fund that lost money could also produce taxable gains. How can that happen? Throughout the year, a fund trades stocks, and its stock sales will result in a gain or a loss for the fund. The accumulated net gain—if there is one—is then passed on to the fund’s shareholders. A fund’s share price will drop by an amount equal to the distribution, so shareholders are no better off—before factoring in taxes. The problem: If you hold the fund in a taxable account, you’ll be responsible for paying taxes on your share of the fund’s net capital gain. A fund's long-term winners are taxable for shareholders at the lower capital gains rate, while short-term capital gains are taxed as ordinary income.

This year, many investors appear to have sold their actively managed funds. These sales force a fund’s manager to sell stocks to generate the cash needed to pay off departing shareholders. That creates a tax conundrum, because many funds hold stocks that enjoyed significant gains in 2020 and 2021. Selling these appreciated assets produces a capital gain. The fund can offset these gains by selling stocks at a loss. But as more people bail out of a fund, the manager may run out of losses to realize and instead must sell winners to generate cash.

Mutual funds typically provide an estimate of their expected distributions in October or early November. Vanguard Group estimated its mutual fund distributions as of Oct. 31. It plans to provide final estimates on Dec. 8.

For example, as of a month ago, the estimate for Vanguard’s popular Windsor fund (symbol: VWNEX) was $9.82 per share, or 12.8% of the share’s net asset value (NAV). Through yesterday, the fund was down 1% in 2022, a nice recovery after being down almost 18% as of September.

More painfully, Vanguard’s International Growth Fund (VWILX), currently down 28% year-to-date, is estimated to pay a $4.92 per share capital gains distribution, or 5.6% of NAV. To an investor, this is a double shot of pain—both a loss for 2022 and an unexpected tax bill.

Is there anything you can do? The first step is to do your research and find out if you own a fund that’s planning to make a big capital gains distribution. Then find out the record date. That’s the date that the investment company uses to determine who’ll receive the distribution. Vanguard publishes its fund record dates here.

For instance, Vanguard International Growth’s record date is Dec. 13. If you sell your position prior to that date, you’ll avoid the taxable capital gains distribution, while also potentially locking in a tax loss. You could then invest the sale proceeds in a fund that gives you exposure to the same market segment, such as Vanguard Total International Stock Index Fund (VTIAX), which is down 15% year-to-date and has a low 0.11% expense ratio.

But before you sell your position, check your cost basis on the shares. If you’ve owned the fund for a while, you may have a large unrealized gain, despite this year’s market losses. In other words, selling your shares to avoid a taxable distribution could trigger a capital gain—and that taxable gain could be larger than the year-end distribution you’re trying to avoid.

If you choose to sell a position and reinvest in a similar fund, be aware of the wash-sale rule. This rule prevents you from utilizing the tax loss if you invest in a “substantially similar” asset within 30 days of the sale. Morningstar published an article recently with some great suggestions of quality, tax-efficient funds that should meet most investors’ needs.

If lots of investors sell stock funds ahead of this year’s capital gains distributions, it could have a knock-on effect, making the situation even worse. How so? By selling, departing shareholders could force a fund to unload yet more appreciated securities and they might cause the number of fund shares outstanding to shrink—and that could mean an even bigger capital gains tax bill for the investors who remain.

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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Who Will You Become?

YOU DON’T KNOW WHAT your future self will want. This is the tantalizing hypothesis of Hidden Brain podcast host Shankar Vedantam, who argues that we’re constantly becoming new people.

Vedantam offers the example of a hospice nurse who, having witnessed so much misery in her dying patients, made her husband promise never to extend her life if she became terminally ill. Yet, when her body was ravaged by ALS, often called Lou Gehrig’s disease, she ultimately chose to exist miserably on a ventilator to prolong her final months. In trading discomfort for more time at the end of her life, the nurse was not the person she had been before.

In my own life, I’ve come to conclude that Vedantam’s hypothesis is entirely accurate. As a high school student in Washington, D.C., I was fascinated by politics and our country’s leaders. In my senior year, I interned on Capitol Hill, which only strengthened my resolve to run for office one day.

For about 20 years, I studied policy and began planning my eventual try for elected office. By the time I turned age 36, however, I started to have serious doubts.

The older I got, the more I realized that politics is “a bag of rats,” as the actor Matthew McConaughey described it when explaining why he wouldn’t run for governor of Texas. As a kid, I thought our politicians were the greatest among us. As an adult, I’ve come to realize they’re typically merely the greatest egos among us.

Warren Buffett once said, “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours, and you’ll drift in that direction.” It slowly dawned on me that this couldn’t work for me if I wanted to hang out with politicians.

In retrospect, I feel lucky that my life’s journey thus far has included incredible adventures in the U.S. Army and as an attorney—as I prepared for a political career that never materialized.

What if this weren’t the case? What if I’d trained for a decade to become a professional athlete only to blow out my knee? Or studied to become an engineer only to decide I hated it? Wouldn’t I resent my earlier self?

To me, nothing typifies this conundrum more than the financial independence-retire early (FIRE) movement. While the “financial independence” piece is undoubtedly a worthy pursuit, the “retire early” part suggests that the profession of these folks is so miserable that they’d rather not work. I pity those in search of “RE.”

How can we plan our lives so that, in 20 or 30 years, we don’t look back with bewilderment or resentment at the career, relationship, wealth-building or health choices we now make? Here again, Vedantam offers some wonderful advice.

First, stay curious and be the curator of your future self. If we accept that we will be a different person in the future, we should play an active role in crafting the person we will become. Spend time with friends and family, and expand our horizons by pursuing new hobbies or avocations outside our current employment.

Second, as we make pronouncements about politics and policy on social media or at the dinner table, let’s remember that among the people likely to disagree with us are our own future selves. In other words, when we express views with great conviction, let’s remember to add a touch of humility.

Finally, our future selves may be physically weaker than we are today, but our future selves will also have wisdom that we don’t currently possess. When we tell ourselves that we can’t quit our jobs to start our own company, or become fluent in a new language or learn to play a musical instrument, that may be true—for now.

To close the gap between this current reality and our desired state, we must be brave enough to take the first steps to start that new business, learn our first words in that new language or string together the first few notes on that instrument.

Roughly halfway through my life, I find myself preparing for the back nine, and I want to make sure I don’t end up permanently in a sand trap. Remaining curious, staying humble and being brave seem like the best recipe to ensure that our future selves aren’t resentful of our current selves.

  John Goodell is deputy director of policy and general counsel at the Texas Pension Review Board. Currently an Army Reservist, he previously served 14 years on active duty before leaving to become the general counsel at the Texas Veterans Commission. John has spent much of his career working with public sector employees on tax, investment, estate planning and retirement issues. His biggest passion is spending time with his wife and kids.  Follow John on Twitter @HighGroundPlan and check out his earlier articles.

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Gloom Is Good

I HAVE CHEERY investment news: Most Wall Street strategists are bearish on stocks. Last week, Bloomberg reported that 2023’s projected change in the S&P 500 by the best and brightest forecasters is negative. That hasn’t happened since at least 1999. Consider today’s bleak consensus to be a contrarian indicator. It could set the bar low enough for a decent 2023.

If you flip on financial TV or peruse investment magazines at this time of year, it’s common to hear strategists predict that stocks will rise the usual 8% to 10% over the next 12 months. Nobody will scoff at or question a strategist’s bullish, but not overly optimistic, take on how markets will perform in the new year. Call it managing career risk or simply going with the herd.

As a result, you might wonder why there’s a gloomy outlook for the S&P 500 for 2023. It all has to do with the price-to-earnings (P/E) ratio on large-cap U.S. stocks. After a strong rally over the past two months, that metric is thought to be higher than normal right now.

Also driving P/Es upward is a decline in the per-share profit forecast. FactSet notes that expected 2023 earnings for the S&P 500 companies are down from more than $250 this past June to barely above $230 today. The S&P 500 closed Friday at 4071.70, so that puts the S&P stocks at a collective 18 times expected earnings. Some big banks are even calling for earnings per share to fall below $200 next year. If that dismal prognosis pans out, today’s forward P/E on the S&P 500 is an historically high 20.4.

J.P. Morgan Asset Management notes that most metrics suggest large-cap U.S. stocks are on the expensive side, but that the forward P/E is close to the 25-year average. What appears unambiguously cheap are small and mid-sized U.S. stocks and foreign shares—both of those groups have earnings multiples in the 11 to 14 range.

It’s important to keep in mind that the supposedly smartest people in the room aren’t all that smart. Your guess is as good as theirs, evidence shows. My advice: As you enjoy time with friends and family this holiday season, don’t fret too much about the dismal stock market forecasts for 2023 that you’re hearing on financial TV.

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Worth a Read

PERSONAL FINANCE books don’t exactly rank as the most sought-after holiday gifts. Still, if there’s a money nerd in your life—or someone who aspires to be one—below are 10 personal finance book recommendations.

Why Does the Stock Market Go Up? by Brian Feroldi. This book seeks to answer 60 of the most commonly asked questions in personal finance. In so doing, it demystifies many of the concepts, terms and acronyms that we often ​hear but may not fully understand. The book is presented in a simple Q&A format. Examples include:

What is the price-to-earnings (P/E) ratio?
What causes the P/E ratio to change?
Why does the stock market crash?
Why has the stock market always recovered from crashes?
Should I stop investing if the economy is doing badly?
Should I buy the highest dividend-yielding stocks that I can find?
What is the Federal Reserve?
What is the Securities and Exchange Commission?

In Pursuit of the Perfect Portfolio by Andrew Lo and Stephen Foerster. In the world of personal finance, people debate practically everything. In large part, that’s because there isn’t one “right” way to invest. There are lots of different—and equally reasonable—ways to make money. Lo and Foerster explore 10 of them.

After describing these strategies, the authors provide a framework to help choose among them. Also, each of the philosophies is presented through the lens of its creator, including Harry Markowitz, Robert Shiller and William Sharpe, among others. As a result, the book does double duty, also serving as a history lesson that walks readers through some of the most important financial ideas from the past 100 years.

Just Keep Buying by Nick Maggiulli. Just when it seems like everything that could possibly be written about investing has been written, along comes a book like Just Keep Buying. Maggiulli works as a data scientist at Ritholtz Wealth Management and also writes a blog called “Of Dollars and Data.”

As I’ve noted before, the investment world is driven all too often by stories, sayings and rules of thumb. Maggiulli’s mission is to replace those stories with data, providing investors with a more logical basis for making decisions. To that end, there’s a chart or illustration on virtually every page in this book. It’s both an entertaining and easy read. One of my favorite chapter titles: “Even God couldn’t beat dollar-cost averaging.”

Trillions by Robin Wigglesworth. These days, the name Vanguard is largely synonymous with index funds—and for good reason. For more than four decades, Vanguard Group’s founder, the late Jack Bogle, was easily the most passionate advocate for this approach to investing. But Vanguard didn’t actually invent the index fund.

In Trillions, Wigglesworth traces the earliest history of the index fund movement, starting with a fellow named Alfred Cowles, who in 1933 published a paper titled “Can Stock Market Forecasters Forecast?” Trillions also discusses the influence of index providers—companies like Standard & Poor’s and MSCI. Like the hidden hand controlling a marionette, index providers stay mostly in the background, but it’s important to understand their role. They have outsized influence, and their decisions—in my view—haven’t always been in investors’ best interest.

Inside Vanguard by Charles Ellis. The title of this book is mostly self-explanatory. What makes this history of Vanguard so interesting, though, is the perspective of the author. As author of Winning the Loser’s Game, Ellis was one of the earliest advocates for index fund investing and served on Vanguard’s board of directors for 10 years. Because of that, this book isn’t just about Jack Bogle. Though Ellis—an occasional writer for HumbleDollar—does have plenty to share about Bogle, the book discusses all of Vanguard’s leaders, including current CEO Tim Buckley, who took over in 2018. It also provides a good window into where the company is going. If you’re especially interested in Vanguard, this is the book for you.

How to Adult by Jake Cousineau. This book is a terrific resource for young people. It fills the gap between traditional investment books, which are useful only to people who already have money, and personal finance ​“101” books, which can often be too simplistic. Cousineau tackles many of the most important real world personal finance questions that young adults face. Among them:

What does “APR” mean, and how does loan amortization work?
How are credit scores calculated, and what counts as a good score?
How are income taxes calculated, and how should a W-4 form be filled out?
What types of insurance are most important, and how much coverage should be purchased?

How to Appeal for More College Financial Aid by Mark Kantrowitz. If you’ve ever applied for financial aid, you may have discovered what many parents have learned: that the process can be unforgiving. That’s where this book is helpful. Kantrowitz is widely recognized as the expert on college financing. He explains this fundamental point: While the aid formulas are fixed and inflexible, the inputs to those formulas are very much subject to judgment and to review.

As a result, a college’s first offer isn’t necessarily its best or final offer.​ The key is to know which arguments to make in appealing for more aid. Kantrowitz does exactly that, and then walks the reader through the process of writing an effective appeal letter. Most valuable: The book provides examples of both good and bad letters to help readers make the most persuasive argument.

Deep Work by Cal Newport. This is a book on personal productivity. You might find that to be out of place on a list of personal finance titles. But remember that saving and investing are just one part of the equation. Income is equally important, and there’s probably no better way to improve your financial situation than by increasing your income. Cal Newport is a computer science professor, but he has been writing about personal productivity since he was a PhD student at MIT 15 years ago.

There are, of course, lots of productivity books out there. Newport’s is different, though, because it addresses the unique challenge workers face today: being productive in the face of ever-present distractions from smartphones, social media and the internet in general. Newport offers six strategies for tuning out those distractions to get more done.

Split the Pie by Barry Nalebuff. This is a book on negotiation. It too might seem out of place on this list. Moreover, negotiation might not seem like a big part of daily life. But there are times when we all need to negotiate—when buying a home, for instance. Getting a good result in those small number of high-value situations can have an outsized effect on our finances.

Nalebuff starts by dismantling the traditional “split the difference” approach to negotiating and instead proposes an approach he calls “splitting the pie.” After explaining the theory, Nalebuff provides several case studies. Probably most interesting is his own personal story. As a co-founder of Honest Tea, Nalebuff negotiated the company’s 2008 sale to Coca-Cola. Another amusing story: how he outwitted a domain name squatter using this same split-the-pie strategy.

After the Death of Your Spouse by Mike Piper. While this isn’t the most uplifting topic, the subtitle explains its importance: “Next Financial Steps for Surviving Spouses.” That’s a position none of us looks forward to. But if it happens, this is the best guide to have on hand. It’s short—a little over 100 pages—and to the point, with clear explanations of what to do and how to do it. Mike Piper is a CPA and the author of several other books with titles such as Investing Made Simple, Social Security Made Simple and Can I Retire? I have several of these short volumes on my shelf and recommend them all. They provide just the right amount of information, and in a very readable format.

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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Not My Game

INVESTING CAN AND should be simple—and yet sometimes I make it so hard. Blame it on my ego and a faulty belief in my ability to pick winners among exchange-traded funds (ETFs) and, once in a while, individual stocks.

Problem is, I’ve had a few things go my way this year. Now that know-it-all feeling is rearing its ugly head again—“hey, I can pick stocks and sectors”—even though it’s hurt me badly in the past.

Convincing myself that I don’t know how to pick winners, and that no amount of research will help, is the key to sticking to indexing and avoiding costly investment blunders. Even so, some proponents of indexing devote a small portion of their portfolios to what they call a “fun money” account. A young Merrill Lynch financial advisor hoping for my business recently called that portion of a portfolio the “sandbox.”

I don’t care for either phrase, yet I do have some investments that aren’t market-capitalization-weighted index funds. I pick more narrowly focused ETFs and stocks when I’m trying to get an edge on the market or hedge against some potentially adverse development.

On the days when I feel an unbridled enthusiasm for my ideas, I enjoy being an active investor. But on other days, I can be beset with anxiety over my holdings. You see, I know most of my investment moves haven’t worked out in the past. The closer I’ve stuck to indexing, the better my performance has been—both in relative and absolute terms.

Still, this year, I’ve lucked out big time with the only individual stock I’ve purchased in several years, plus I’ve had another winner with a stock I inherited but opted not to sell right away. I was bequeathed a relatively small position in Exxon Mobil (symbol: XOM) late last year. The shares have soared 85% from my stepped-up cost basis, but I’ve avoided selling, lest I incur a taxable short-term capital gain.

What was the other stock? Despite the fact I’ve lost a lot of money trying to predict and profit from geopolitical trends—that was always my poison—I made another such move. In October 2021, about four months before Russia’s full-scale invasion of Ukraine, I thought to myself, “What could derail this bull market?”

No, I didn’t predict inflation or spiking interest rates, though I did own a Treasury Inflation Protected Securities fund in the hope it would offer some defense against inflation. Instead, I surmised we were closer to a significant military conflict than most investors wanted to accept. Challenges to Uncle Sam were growing and I was well acquainted with Russia’s ongoing aggression toward Ukraine. This led to my successful stock purchase.

I didn’t originally set out to buy defense giant Lockheed Martin (LMT). But for several reasons, I didn’t find the available aerospace and defense ETFs wholly satisfying. Thinking that a modest position in Lockheed Martin would be a hedge against conflict, I figured the worst outcome would be that this blue-chip, high-dividend stock would muddle along but lag the market.

Instead, a little more than a year later, my shares are up 35%. At one point recently, the stock hit an all-time high, even as the overall market has fallen double-digits.

This success has encouraged more geopolitical investment hunches. There’s always the risk—perhaps growing—that China will attack Taiwan, a critical producer of semiconductors. On top of that, there’s now a U.S. chip war with China. That made me wonder whether we’re going to need more semiconductor plants in the U.S. and elsewhere.

As of late October, the stocks of firms that sell chip-making equipment were down 40% or more on the year. I was sorely tempted to pull the trigger and buy shares. But I also recalled that my old self always lusted after volatile stocks, like oil drillers and chip equipment makers, only to be proven wrong. I was torn between what I thought was a good idea and the fact that I couldn’t trust my instincts.

According to the news, many investors were worried about a global recession, a chip glut and the potential of lost business with China. Despite all this pessimism, the chipmaker shares I was watching soon started to climb. My emotions kicked in. I squirmed—but still didn’t buy.

Then, on Nov. 11, the Dutch company ASML did indeed tell analysts that tensions with China could cause other countries to invest in new chip plants, so they’d have reliable domestic supplies. Soon, stocks of chip equipment makers were up 20% or more from when I started tracking them, versus a 3% gain for the S&P 500.

I started kicking myself, but not too hard. I know I have to keep my ego in check, and that I need to limit my fun money investments because they take me away from indexing. Even if I might get lucky sometimes.

It took a weekend of enjoying life—and not obsessing over stocks—to break my fever for chip equipment. I hope I’ll continue to remember that, for my peace of mind, stock picking is not my game anymore.

William Ehart is a journalist in the Washington, D.C., area. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart and check out his earlier articles.

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Check Again

THE TWO-MINUTE CHECKUP is, I like to think, a unique financial tool: It aims to offer feedback across someone's entire financial life based on no more than nine pieces of information. That’s an ambitious goal and—perhaps no surprise—some users have found the calculator wanting.

Meet Checkup 2.0.

Sanjib Saha, who writes for HumbleDollar when he isn’t busy writing software, and I went through all the comments that the calculator had received and made a host of changes. Let me highlight three of them.

First, we tweaked the “financial fitness” feedback. The original feedback compared users’ total savings to their earned income to see whether they were on track to have a big enough portfolio, as of age 65, to generate retirement income equal to half their salary.

Some users didn’t take kindly to that feedback. Many folks noted that the Checkup didn’t take into account the pension they were entitled to, while others simply didn’t like being told they were behind when it came to retirement savings.

To make the results more palatable, Sanjib and I changed the way they're presented. The idea remains the same: We’re looking at whether folks are on track to have enough retirement income as of age 65. But now, we simply tell folks what percentage of their current earned income they’ll likely have as of age 65, assuming they continue to accumulate retirement savings at the same rate they have in the past. Note that users only receive this feedback if they’re single and still in the workforce or, alternatively, if neither they nor their partner are retired.

The second key change: We’ve allowed retirees to input their guaranteed income, such as Social Security, annuity income and pension income. Some users felt the calculator’s feedback was incomplete if this number wasn’t included.

Third, we tweaked the Checkup’s suggestions for couples where one is retired and the other is still working. This was a flaw in the initial version of the Checkup. I'd assumed most couples were either both retired or both working, but—based on the comments we received—I was badly mistaken.

Even with the revisions, I can’t promise that the Two-Minute Checkup will offer the exact right financial answers for everybody. Each of our lives is too unique for a simple tool to offer that sort of precision.

Instead, I have a different ambition: I hope the Checkup will make users think harder about their finances.

Are you saving enough and spending reasonably? Do you have the right stock-bond mix? Do you have too much debt? Are you taking the right steps to prepare for your children’s college costs? Do you have the right amount of emergency money? Do you have all the insurance policies and estate-planning documents that you need?

If the Two-Minute Checkup gets you to ponder such questions, I’ll consider it a success. Got friends and family members who aren’t so diligent about their finances? Please forward the Checkup’s URL to them. The two minutes they spend could make a lifetime of difference.

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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Bah Humbug

MY LEAST FAVORITE time of the year is fast approaching—the holidays. The curmudgeonly part of me will be on full display.

Don’t get me wrong, there are many aspects that I like. I enjoy the spirit of Christmas, the music, getting together with friends and family, and eating. But let’s face it, there’s a lot of stress, aggravation—and money to be spent.

My DVR stores A Christmas Story, which is my favorite holiday movie and which I watch every December. I can relate to the family in the movie, including the temperamental coal furnace, and I sympathize with Ralphie.

Unlike Ralphie, I never wanted a Red Ryder rifle. Instead, I wanted electric trains, which I did get one year. I can also relate to Ralphie’s pink bunny pajamas. One year, I asked for a basketball—pretty simple. What I received was a beach ball imprinted like a basketball.

In the first week of November, I was hearing holiday songs on the radio and I passed a church already decorated for Christmas, including a lighted tree on the lawn. Needless to say, stores have been stocked with Christmas decorations since Labor Day. Is there an actual season any longer?

I began writing this before visiting—not voluntarily—a Hobby Lobby, where we and many other shoppers were loading up on Christmas decorations. That’s despite our storage area already bursting with past years’ bargains.

Spend $269 on decorations? That’s what some research says the average American lavishes on lights, tinsel and such. My least favorite holiday items are those lawn blow-up things, not classy in my humble opinion.

My wife and I gave up exchanging gifts years ago. There’s simply nothing we want or need. Let’s face it, what happens to many gifts—perhaps most—is they’re returned, broken in a day or two, or shortly forgotten and go unused.

I recall the stress of finding the right gift for my wife. One year, decades ago, I thought I had it. I presented her with a microwave oven. It was a cold Christmas, but my marriage survived. Thereafter, it was one-stop shopping at my favorite jeweler.

Folks who celebrate Hanukkah aren’t immune to all this. The best research I could find estimated the average spent on that holiday at around $600.

They say it’s the thought that counts. I’m not so sure. A National Retail Federation study found that retailers expect about 17.8% of all merchandise sold in the holiday season to be returned, either online or in person. That’s $158 billion worth of goods.

Near the top of the return list is apparel. I can relate. As a kid, I received an endless supply of clip-on ties, socks and underwear. Whoopee.

Think of all the time, stress and money that goes into shopping. It’s greatly stimulated by advertising—often misleading when it comes to toys that don’t actually fly.

Then there’s the work involved. Dragging decorations out of storage, putting them up—occasionally at dangerous heights—and then putting all the stuff back after a few weeks. Fun, really? Or is it keeping up with the neighbors?

A simple wreath on the door would do, and would certainly be more traditional. Most Americans didn’t even decorate or have Christmas trees until the mid-19th century.

When I was a child, we went to Grandma’s house for Thanksgiving dinner and Christmas. I’ve come to realize that Grandma didn’t have it so easy, doing all the work herself. Grandpa did none of that. But he did take the metal tinsel off the tree and reused it year after year. Can you imagine?

If you’ve never planned, shopped for, prepared or served a holiday meal—and then cleaned up afterward—you have no idea of the work involved. If you go elsewhere for a holiday meal, be sure to thank the host and perhaps help with the cleanup, too.

By the way, a Thanksgiving dinner for 10 people cost $64.05 on average this year, or so says the American Farm Bureau’s annual informal price survey. Who are they kidding? I spent $57 alone for a 19-pound turkey.

My suggestion: Let’s make all holidays less about stuff and more about what makes them truly special—time with friends and family.

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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Lucky Fools

I FLUNKED MY FIRST two interviews for an academic job. Fifty years ago, I didn’t make the grade at the University of California, Los Angeles, or the University of California, Berkeley, either of which would have made a fitting classroom for an unseasoned but game New Yorker.

Instead, I prevailed at the University of California, Davis, the agricultural mecca of the statewide system. I was sold when I looked at one of those old gas station maps and saw that I’d be close to San Francisco.

At a welcome party for new faculty held three weeks after my arrival, I met the woman who became my wife and has been at my side for 39 years. You undoubtedly have your own stories of synchronicity. How much of a role does randomness play in our life? And why are we so quick to dismiss it out of hand?

I made my first and best real estate investment when mortgage interest rates were the highest in modern history—17%. For four decades, this exploit became the bedrock of my self-esteem as an investor and carried me through times of despondency and failure.

But just last week, a passage in market philosopher Nassim Nicholas Taleb’s book Fooled by Randomness upended my self-assurance. “Lucky fools do not bear the slightest suspicion they may be lucky fools,” he wrote.

I had denied this dagger all these years despite the string of improbable events that preceded that first real estate purchase. Could I be one of Taleb’s prideful fools? Might you?

In 1980, Federal Reserve Chair Paul Volcker resolved to quash the prolonged high inflation of the 1970s with a stifling monetary policy that induced a recession. Sound familiar? Back then, few American families could afford a conventional loan, forcing builders to stockpile inventories of unsold homes. Staggering under the weight of short-term construction loans reaching 24% and facing bankruptcy, companies were offering creative financing to lure homebuyers.

As happens with many defining business ventures, I stumbled into real estate ownership quite by accident. Over lunch with a broker friend, my wife Alberta was enticed by the virtues of real estate limited partnerships.

At the time, people were rushing to pool their money to buy shares of a real estate enterprise, much as they would with a mutual fund. Small investors were attracted by the generous tax benefits and the promise of no management responsibilities and no liability, which were assumed by the general partners who ran the business.

Alberta’s parents had missed out on the late 1970s boom in Los Angeles real estate. She wasn’t about to let another opportunity fly by. I shuddered at the prospect of losing control over my investment and trusting a remote management team to align my interests with its own. From my vantage point, the limited partnership was the beneficiary of an unsustainable and risky real estate bonanza.

Besides, at age 36 and building a career as a research psychologist, I was damned if I was going to bow at the altar of my father’s real estate mantra and invest in rental properties. Alberta carried no such baggage. We agreed on a compromise. I would look for a property to invest in, but it would have to be our own.

Some weeks later, I came across a classified ad in the real estate section of the Sacramento Bee announcing a financing plan consisting of 30% down with the balance to be paid in 60 equal monthly installments at no interest. No interest? A phone call filled in the blanks.

A local builder had slowly sold out his suburban condominium development except for the three model apartments. He needed more cash for an assisted living project and was having trouble unloading his properties in the current astronomical interest rate environment. He wanted to sell the units to an investor and rent them back as his firm’s offices for two years.

Dare I believe my good fortune? I would have to put down 30% for an investment loan anyway, even if I could qualify. No interest and no points. No anxiety-ridden pressure to prep the condos and find a renter. And we would own the properties free and clear in five years.

I told Alberta about the scenario and she immediately understood we had to act quickly. She’d received a modest inheritance a few months before, so we had the cash to buy all three. We arranged to view the condos and, not wanting to alienate the seller and future renter, made a reasonable offer. It was accepted and the transaction closed in three weeks.

I was in shock. I had walked almost blindly into a small goldmine. I had vowed in my youth never to follow in my father’s footsteps. Instead, I became a professor, half in spite. My brother was the trouper and I was the renegade. Yet here I was making a sweet real estate deal.

 A few days later, I called my father and related the story.

“So, Stevie, how many did you buy?”

“All three.”

“Good, you did the right thing. You’ll never see something like that again.”

It wasn’t all wine and roses. Real estate values dropped 25% between 1983 and 1988, so we were underwater for several years. The stock market was going viral and I wondered for a long while whether I’d made the right decision.

Those limited partnerships? Beset by so much blind faith and gunslinging, they crashed like other investment comets of yesteryear. The concept has survived but no longer enjoys the same panache. It was the crypto of that era.

An innocent lunch, a wife whose parents didn’t cash in, a son reluctantly agreeing to reclaim his family’s real estate legacy, a builder who wanted to move on. How much is our destiny in investing and in life tossed about by chance? Was it all serendipity? Our lack of control makes us anxious and too easily deceived by the Protestant ethic that depicts a productive life as a straight line, from school to job to family. The journey is more jagged than that.

Taleb wrote, “The simple inability to remember the true sequence of events but a reconstructed one will make history in hindsight appear more explainable than it really was. In most circumstances fraught with a high degree of randomness one cannot really tell if a person has skill.”

I have tried to find the same 0% financing plan in every recession since the 1981-82 downturn. My father was right, I have never found another. Does my inability to repeat the escapade confirm that I was merely lucky? I’ll never know if what I accomplished was due largely to skill or a whim of chance. In many of your own triumphs and failures, neither will you.

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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It’s Just a Tool

MY WIFE AND I ARE expecting our first baby in March. In preparation, we’re converting what used to be an office into a nursery. We’ve bought a crib, glider chair, curtains and dresser for the new room. But we also needed to find a place to put the desk and furniture that was in the office. We decided to move the office into what is currently a quasi-sunroom.

When we bought the home, our inspector disclosed that the sunroom was likely built by the homeowner and wasn’t up to code. But from what the inspector could tell, the homeowner was quite handy. I didn’t think much of it after that. I should have.

As we started moving office furniture into the sunroom, we realized that the vinyl floor felt soft. A contractor suggested that it was simply improperly installed and that replacing the flooring with some new planks would be fairly easy. He pulled up the vinyl, revealing the subfloor. The dark wood, stained by long-term water exposure, was veined with white mold and soft enough to push your finger through.

“You’ve got a real big problem here,” the contractor pronounced. While he may need some sensitivity training, I don’t think softer delivery would’ve helped much.

My wife got upset, and who can blame her? We have a baby on the way, we didn’t know where water was coming in, there was mold, there was nowhere to put the office stuff and the repair would be costly. This wasn’t good.

 “Let’s make a plan to find where the water is getting in, fix it and repair the floor,” I told the contractor.

My wife took me aside later and asked, “How are you so calm about this? This is bad. This is going to be expensive.”

I hadn’t really thought about “how” until she asked. I pondered the issue for a few seconds and then it came to me: “What’s the point of money if not to solve problems? There are plenty of problems that money can’t solve. This isn’t one of them. Money can fix this. We work too hard to spend time getting upset about things we can’t control, but which money can fix.”

Three days later, we got the chance to replay this scene. Our central AC froze up and then melted, creating a large puddle on our bedroom ceiling. But I digress.

Life will throw curve ball after curve ball at us: flat tires, missed opportunities, rotten subfloors, car breakdowns. The list goes on. There are many problems that money can solve. While it may not be the way we want to spend our hard-earned cash, it’s what money is meant for—to solve problems.

But there are also plenty of problems that money can’t solve: lack of purpose, chronic unhappiness, lost loved ones. I believe we should save our worrying and mental focus for these problems, and let money take care of the problems it can solve.

Stress comes for us all, and money stress can be some of the worst kind. My advice: Try to fret less about money. It’s simply a tool—not our life’s purpose.

Luke Smith is a CFP® professional and practicing financial planner. He creates customized financial plans for each family he works with around the country. Luke pursued financial planning to combine his two favorite passions: finance and people. He spends his free time with his wife Heather and their family in Maryland. Outside of work, Luke enjoys the outdoors, golf, reading and writing. You can reach him at  Luke.Smith@Wealthspire.com. Check out Luke's earlier articles.

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