Jonathan Clements's Blog, page 180

Letter to My Dad

DEAR DAD, I���M SORRY I didn���t go to your 80th birthday party, just a year before your heart gave out. I was that angry at you, still smarting from all the belittling, the sarcasm, the intimidation. Just this morning, I was listening to a broad-shouldered CEO with a booming voice on CNBC and began to feel beads of sweat on my forehead. I was just a kid, Dad. I���m pushing 80 now, wounded as you were by the slings and arrows of life, and chastened by my own experience of fatherhood.

You were one smart dude, so you must have known how I felt about you, but you never retaliated or abandoned me. I���ve been there now and learned restraint from you. My repudiation of your impoverished childhood, your religious heritage and all your business accomplishments must have stung. I know because that���s what I intended.

Dad, do you remember my first time on a two-wheeler? I think I was four. You promised you would follow me along the sidewalk and hold on to the back of the seat. You lied, Dad. You lied because you believed your son shouldn���t need help. But I did, and I took a nasty spill. I ran back into the house and only stopped crying when Mommy put a Band-Aid across my knee. Maybe you were trying to prepare me for the rigors of life, but I also learned not to trust, not to delegate, not to have business partners.

You never put much stock in my psychology training, but please try to make this connection: In graduate school, all of us were asked to lean backward until we fell gently into the arms of a fellow classmate standing behind us. I was the only one who couldn���t do that.

You always hated the stock market because you couldn���t control it like you controlled your business. You���ll probably snicker when I tell you that, right now, I���m trapped in a bear market. You know what, Dad? Even though I���ve seen this plot play out many times before, I have no faith that it���s safe, and that���s probably your influence as well. I���m afraid I���m missing something out there that threatens the largesse you and Mom left me. I���m hanging on, but it���s a fight to the death.

Dad, you hollered like a football coach, one wildly swinging his arms on the sidelines. You scared the hell out of me when you came home from the office and bellowed from the bottom of the stairs, ���Stevie, come down for dinner already.��� You���ve probably had it with my psychobabble, but this is the truth. Over my 11 years as a college professor, I only taught one undergraduate lecture class and instead capitalized on my ability to publish research. I did a lot of supervision of graduate students��� dissertations and clinical work, but I didn���t want the anxiety of confronting an audience publicly.

This may come as a surprise, but I have always been upset about what you did to Richie. You probably don���t know what I���m getting at, so I���ll try to explain. Richie loved you like I never could, he was the son who listened to you, wore the same kind of shirts, he totally honored you. I was so jealous of your relationship. But you betrayed him, Dad. He went to law school, specialized in real estate and advised you on several closing transactions. He knew which apartments were on Eastern Parkway and which commercial properties were on lower Broadway. I compensated by willing myself to be a respected scientist.

You were blindsided by the stroke, bitter and humiliated by your partial paralysis. I���ve had a stroke warning and have some idea of how terrifying that must have been for you, a man so aggressively proud of his masculinity. But you wouldn���t hand the ball off to Richie. If you couldn���t score, then no one was going over the goal line. You dumped everything, Brooklyn, Manhattan, a businessman���s life in one fell swoop. Where does pride end and ego begin?

One time, driving back home from the city, you said, ���Stevie, Manhattan���s not getting any bigger. They���ll have to come down our way. Not soon, but I hope in your lifetime.��� And it happened. Dad, remember your rickety buildings downtown, you know, the ones with all the graffiti? They���re all fixed up now. The whole area has been revitalized and gentrified. It���s a little place called Soho.

Can a parent raised in a dingy Bronx tenement not be envious of the affluent life he provided for his children?�� You showered us with those imported sports cars and classic watches, but you were anguished that neither Richie nor I could truly appreciate how hard your early years were. I���m sorry, Dad, and I know Richie is, too. I get it now.

You were a real character. In the summer, when we were kids, you would come out in your yellow shorts, no shirt and a Giants cap, and play softball with us. When you belted one onto the Jacobs���s front lawn, you trotted around the imaginary bases and tipped your hat. At my 25th high school reunion, a couple of old friends came up to me and asked, ���How���s Wild Bill?���

In your world, under the surface, every man had dignity. I recall the time you heard Otis Redding sing, ���I���m sittin��� on the dock of the bay, watchin��� the tide roll away.��� You slapped my shoulder and said, ���Cool, man. That guy knows we all need a break in this life.���

Dad, with all those buildings you suddenly unloaded, you just missed knocking one out of the park. I miss you horribly. I���m sending along some pictures of the buildings you once owned. Richie took the photos last time he was in New York. I���m also including a recent one of my son, Ryan. He���s programmed a little like you.

Love,

Stevie

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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Convenience’s Cost

ONE OF THE BEST features of the stock market is liquidity���but it���s also one of the worst.

Whenever the market is open, we can find out precisely what our investments are worth and, if we���re so inclined, we can turn our stocks into cash with the click of a button. But this convenience comes with a major disadvantage: Yes, we can buy at any time���but we can also sell. This tempts some to bail out at the worst possible moment, when the market is down sharply.

Contrast this with investments in real estate. It���s difficult to buy and sell. But that may be a blessing in disguise.

Without so-called price discovery, we can���t constantly check the value of our real estate. That means that, most of the time, we aren���t unduly worried about the price of our real estate investments. Values may have declined, but we���d have only the foggiest notion because the prices aren���t flashing across our TV screen.

A friend recently told me about one of his real estate investments in India. He said that it had gone up 20-fold, equal to 1,900%, over 20 years. He���d earned a compound annual growth rate of 16.2%. We compared that to the S&P 500 for the same period and found it had a return of 7.5% a year from 2002 to 2022.

We also looked at the Nasdaq Composite. It had a return of 10.9% over the period, which includes this year���s bear market. My friend���s real estate investment had handily beaten the U.S. stock market���s return.

Then I tried a thought experiment. I asked him to imagine that he���d been able to see the current price of his real estate investment day and night. Would he have been able to hold on for the past 20 years if its value was dramatically affected by interest rate changes, inflation spikes and the COVID-19 pandemic? He wasn���t sure.

Now that he lives in the U.S., my friend wants to sell his real estate investment and bring the money to the States. Did I mention that real estate is illiquid? Let���s just say there are so many hoops to jump through that he���s decided to hold off selling for now.

Contrast that to investing in the stock market. We can invest in the stock market regularly, such as every two weeks when we get our paycheck. We can sell at any time when we need money. The cost of this convenience with the stock market is accepting major short-term price changes���and big swings in our net worth.

We should know going in that there will be wild fluctuations in stock prices, and that they aren���t necessarily related to the fundamental value of our holdings. This kind of volatility is the price of admission to stock investing.

Volatility is not a fine or a penalty. Rather, it���s the fee we pay for the added convenience of being able to buy and sell stocks in an instant. Each investor has to decide whether it���s worth paying that price.

It���s easy to say that we can tolerate a 30% stock decline when looking at a spreadsheet. Actually seeing our retirement account suffer such a drop can cause us to lose sleep���or, worse yet, sell out at the bottom.

As investors, we must decide whether we want the convenience and liquidity of stocks, even though the cost is massive fluctuations in our net worth. Or do we prefer the stability of real estate, where prices are opaque and selling is hard? Maybe the answer is to own them in combination, like the yin and yang of investing.

Gaurav Kumar is a CPA and professor of accounting. He enjoys talking about finance and teaching financial literacy to high school students, and is an avid reader of books on personal finance and stock��market investing. Check out Gaurav's blog��and follow him on Twitter��@GauravKInvestor.

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Answers to Everything

I CALL IT MY��"BIG BOOK." I got the name from a Washington Post article about compiling all the information your family will need to navigate your life, should you become incapacitated or after you die. It can include your will, insurance information, investments, real estate deeds, car titles���even who gets the family china handed down from Grandma.

I started my big book in Dropbox, the cloud filing service I can access from home or away. Eventually, I became a paid subscriber because my information is so sensitive and irreplaceable that I never, ever wanted to lose it.

I toiled for four long years collecting the information my family might need to carry on after I was gone. Yes, I���m a professional procrastinator. I felt under no pressure to complete my terminal mission until 2020, when my wife fell and suffered a traumatic brain injury, just as COVID-19 was starting.

My wife���s condition kept her in hospitals and rehab for six months. Her recovery has been miraculous. A stranger can meet her today, have a 30-minute conversation, and probably never pick up that she has significant cognitive impairments. Her doctors, concerned for her safety and because she has partial vision loss, require someone to be with her at all times.

I���m 77 and our children range in age from 46 to 52. They���d been asking about our financial condition and health for years. My wife and I were reluctant to discuss anything with them. We felt they could cope with our demise simply by talking to our accountant and lawyer. Her recent health challenges changed my mind.

My wife is anxious and obsessed with how she���d carry on if I died before her. I wanted to complete the big book to help ease her worries. A few weeks ago, I reviewed my Dropbox files to see if anything was missing. While there wasn���t much to add, I got a bad feeling that my heirs wouldn���t be able to retrieve all the information from the cloud.

I needed a better way to share the big book with my three children, my wife���s two kids, my accountant and my lawyer. I wanted a secure system with compartmentalized access, as not everyone needs to see every document.

Fortunately, I discovered the Bublup organizational app last year. I���d used it in my consulting practice to store information for myself. To my surprise, it had the exact file-sharing abilities I needed for my big book. Moving folders and files from Dropbox was easy and fast. The real test was yet to come. Could my kids find what they needed easily?

I sent them a Bublup invite so they could spend some time poking around the app. Two kids who live nearby came over one night to ask me questions. I had the computer hooked up to the wall-mounted TV and I was able to locate answers to most of their questions fairly quickly.

They also asked questions that I hadn���t anticipated. I took notes to add the missing items later that night. My focus had been on their mom���s health, insurance, doctors and medical files. It never occurred to me to add my own health information for my children.

The next test was to show the big book to the kids who don���t live nearby. The recorded Zoom call with them lasted 90 minutes. In a blended family, indicating who inherits what can get complicated, especially because my wife and I maintain our assets separately.

I handled the list of bequests with an Excel spreadsheet that shows what would happen if one parent died today and the other died the next day. I ran two scenarios to cover all the bases, no matter which of us dies first. The examples were clear to everyone.

The children now understand that we have enough resources to live another 20 years and then some. More important, we both feel more comfortable that they completely understand our health issues and can care for whoever might need their help.

More than 20 years ago, my wife pushed to buy long-term-care policies for both of us. We purchased generous policies���which you can no longer buy���with a 5% annual increase in coverage and no dollar or time limit on care. That���s fortunate, as it turned out that my wife needed round-the-clock care for about 18 months after her fall, and now has a caregiver all day. I easily handle the nights and weekends.

We had experience caring for our parents, who wanted to stay at home in their later years. Their example was invaluable. We remodeled our home several times so we could age in place. We can even convert the den into a hospital room if needed. All the doorways and openings are wheelchair accessible. The stairs have chairlifts, and we might even win the prize for the most grab bars.

I was also fortunate to receive the help of a wonderful case manager when my wife was first hospitalized. It���s my fulltime job to manage all the details regarding doctors, surgeries, hospitals, rehab facilities, home care, occupational therapy and so on. According to the experts, it can take a team of up to 14 medical specialists to care for one traumatic brain injury patient.

Fortunately, when things got rough, we discovered new friends in high places who came to our aid. We���ve been very lucky to get this far. It could have been much worse. So far, I haven���t needed to pass the big book on to the family. It���s ready, though, for when it���s needed.

Richard Hayman is a second-generation family business owner and inventor with three patents. He studied engineering at Cornell University and received a master's degree from George Washington University. After his family's business was purchased by a public company in 1999, Richard went on to enjoy several additional careers. He���s also been a STEM instructor for middle and high school students in after-school technology programs. Richard's��previous article was Investing in Family.

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Should Have Waited

BILLIONS OF DOLLARS poured into Series I savings bonds toward the end of October, as investors rushed to snag the 9.62% annualized rate then on offer, which was guaranteed for the first six months. But it turns out these folks were a tad too hasty.

How so? Buyers of I bonds are promised a pretax return equal to the inflation rate, plus they sometimes also get an additional fixed rate of interest, over and above inflation, depending on when they buy. For the past two-and-a-half years, that additional fixed rate of interest has been zero. Pretty much everybody���including me���assumed it would remain that way. After all, with inflation so high and with billions flooding into I bonds, why offer anything more than a fat inflation-driven yield?

But it turns out those sneaky folks at the Treasury Department had other ideas. For the I bonds sold during the six months starting Nov. 1, the annual fixed rate has jumped from zero to 0.4%. One possibility: Perhaps the Treasury Department did this because Treasury Inflation-Protected Securities, or TIPS, are now also offering higher real yields.

The result is that, for the first six months that today���s buyers own their I bonds, they���ll earn an annualized 6.89%. But what���s really guaranteed is 3.44% for six months, or 3.24% to compensate for recent inflation plus half of the 0.4% fixed rate. Thereafter, today���s I bond buyers will get a return equal to the inflation rate, plus 0.4% a year.

What if, instead, you���d bought in October? You would pocket an annualized 9.62% for the first six months, equal to 4.81% for that six-month period. That���s better���1.37 percentage points better, to be precise���than the 3.44% that November���s buyers will collect during their first six months.

But after the initial six months are over, things start to change. October���s buyers will get a yield equal to the inflation rate, while November���s buyers will get inflation plus 0.4% a year. It won���t take many years for today���s buyers to catch up with October���s buyers, and thereafter they���ll pull further and further ahead.

All this carries something of a sting. Why? You're limited to buying $10,000 of I bonds per year, plus another $5,000 using your federal tax refund, assuming you owe that much. On top of that, you can't sell savings bonds in the first 12 months and you lose the last three months of interest if you bail out in the first five years. Still, October's remorseful buyers will get another chance in 2023���when they can invest $10,000 more.

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Own It All

ONLY CASH IS SHOWING a positive return this year, while most parts of the stock and bond market have suffered double-digit losses. And with inflation spiking, even cash investments have been a losing proposition in 2022. With nowhere to hide, perhaps it���s time to renounce active management and consider the three-fund portfolio.

Long championed on the Bogleheads forum, the three-fund portfolio is an indexing approach that drives down costs, feasts on diversification and ends investment selection errors by sticking with just three funds:

Total U.S. stock market index fund
Total international stock market index fund
Total bond market index fund

It���s the everything bagel of investing. If a security is listed in a major index, one of these funds will likely own it���with the notable exception of foreign bonds. The three funds combined own more than 22,000 stocks and bonds, according to Sept. 30 figures from Vanguard Group���s website. By owning it all, you could expect to earn the global stock and U.S. bond markets��� total returns, less expenses���and those, it turns out, are minuscule.

The three-fund portfolio is essentially a bet on the long-term prospects of capitalism and the world economy. Which will be back, I���m sure��� if we���re patient. If you accept that we invest to earn a generous long-term return���short-run is another matter entirely���then the three funds offer an elegant plan. It only works, however, if investors remain steadfast when the markets melt down. With that caveat, let���s use Vanguard���s offerings to look at the portfolio���s three components.

Vanguard Total Stock Market Index Fund (symbol: VTSAX) had portfolio holdings that ran to 4,066 stocks as of Sept. 30, everything from Apple to Rocky Mountain Chocolate Factory. It owns a representative sampling of large-, mid- and small-cap stocks, plus growth and value shares. Nothing���s worked this year. The fund was down 18.8% year-to-date as of Oct. 31.
Vanguard Total Bond Market Index Fund (VBTLX) owned 10,174 bonds as of Sept. 30. It���s roughly two-thirds U.S. Treasurys or guaranteed government agencies and one-third corporates. It has an average duration of nearly seven years, a measure of interest-rate sensitivity. If interest rates rise by one percentage point, you can expect the fund to lose 7%. That helps explain its 15.8% loss this year, as the Federal Reserve has jacked up rates like it was changing a tire on Jerome Powell���s car.
Vanguard Total International Stock Index Fund (VTIAX) adds another 7,991 stocks of companies from more than 40 countries, including both developed and developing nations. The largest allocation is to Japanese shares at 15.5%, then the United Kingdom at 9.9% and China in third position at 8.7%. Again, nothing���s worked. The fund���s year-to-date loss was 24.3% as of Oct. 31. Ouch.

By the way, you don���t need Vanguard mutual funds to assemble this portfolio. Fidelity Investments or Charles Schwab���s mutual funds could do the trick as well. You could also invest in exchange-traded funds from iShares, Vanguard and elsewhere, which might cost less. Almost no matter which major fund company you choose, the three funds��� expenses are as light as a feather. That���s because these funds are forever owners, selling out entirely only if a security is dropped from an index, plus there���s no overpaid stock-picker at each fund���s helm.

The turnover rate of Vanguard Total Stock Market was 4% in 2021, versus 63% in 2019 for the average actively managed U.S. stock fund. Far less is spent on brokerage commissions and bid-ask spreads, the often-overlooked costs of fund ownership not counted in the expense ratio. Fewer trades can also mean lower realized capital gains, a help to investors with taxable accounts.

Speaking of expenses, Vanguard Total Stock Market Index mutual fund has an expense ratio of 0.04%. The average actively managed fund charged 0.68% in 2021, according to the Investment Company Institute, or 17 times as much. Vanguard Total Bond costs 0.05%, compared to 0.6% for the average bond fund. The lower the expenses, the more return that���s left for the investor. In this case, less truly is more.

With all of this to recommend it, what could be wrong with the three index-fund portfolio? Mainly this���capturing the return of the stock and bond markets in 2022 has been a terrible, awful no good thing. With energy shocks, inflation and rising interest rates, there could be further to fall.

Then there���s a quibble over what might be missing. Index purists, for instance, might want to add international bonds. They might create a four-fund portfolio by adding Vanguard Total International Bond Index Fund (VTABX). A rising U.S. dollar���as happened this year���can scupper even the best international bond fund���s results unless it���s hedged against currency risk. Vanguard���s international bond fund does that.

This still leaves the big questions of what proportion of stocks and bonds to own, and how much to allocate to foreign shares. There���s no right answer, but investors should be careful to avoid na��ve diversification. That would be the tendency to give stocks a two-thirds weighting simply because the three-fund portfolio consists of two stock funds and one bond fund. People do this all the time within 401(k) plans.

If asset allocation decisions give you agita, you can always default to the big kahuna���an all-in-one target-date fund. They own everything, too, but professionals manage the asset allocation to gradually lower risk as the target date approaches. They���re now used by a majority of Vanguard 401(k) investors, who only have to know the year they expect to retire to choose a fund.

Intellectually, indexing makes all the sense in the world for long-term investing, say longer than five years. But emotionally, this is a challenging time to be an investor. Tempted to shift to the three-fund portfolio? You might find it emotionally easier if you tiptoe into your new portfolio. Want to read more about the three-fund mix? Check out The Bogleheads��� Guide to the Three-Fund Portfolio, a 2018 book by Taylor Larimore.

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 Best Investment

CHRIS CROWLEY IS co-author of Younger Next Year, a book that opened my eyes to what���s possible in retirement. When I grow up, I want to be just like Chris.

Since turning age 75, he���s managed to find the energy to publish five books. At 86, he���s still having fun skiing downhill, going on 30-mile bike rides, leg pressing 360 pounds at the gym and giving the occasional paid speech.

His example reminds me that, at age 68, I still have a lot of runway ahead of me.

I remember the day I told Chris I planned to attempt an Ironman triathlon, consisting of a 2.4-mile ocean swim, a 112-mile bike race and a 26.2-mile marathon run. The silence on the phone that followed spoke volumes.

It told me that Chris thought that, for me, it might be a bridge too far. That made my goal only more exciting. I like to shock people and prove them wrong. It���s just how I���m wired.

Writing three books���plus the pandemic���had left me borderline obese. My blood pressure was in the 160s, requiring me to go on meds. I knew I had to make some significant changes if I wanted to enjoy a long life with my wife and kids.

I made the smart decision to invest my time and money in getting my health back before it was too late. I hired a triathlon coach and joined the local community gym. I bought a road bike, along with some fancy running shoes. I had to buy new workout clothing because all my old stuff didn���t fit.

On Nov. 20, I���ll be attempting Ironman Cozumel. It���s going to be close. I badly want that finisher���s medal. But even if I don���t finish before the midnight cut-off time, I���ll still be a winner.

I have my health back. My blood pressure is now in the low 120s. My wife says I look great, and that I���d better not stop working out after the Ironman or I���ll be in trouble again.

Getting my health back is one of the best investments I���ve ever made. If I can do it, there���s no reason you can���t.

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Free in the World

YESTERDAY EVENING we went under contract to sell our home of the past 10 years, by far the longest I���ve ever lived in one place. In our neighborhood, the average time on the market is currently 33 days. We���d been on the market for one day and the offer was over asking. We credit this to taking good care of our home, and having a sharp listing agent and staging consultant.

This experience, and what we learned from it, could be its own article. But this one isn���t about real estate. As we���ve seen retirement approaching over the past few years, a constant topic of conversation between my wife and me is where we want to live.

Our Houston-area home has a lot going for it. It���s small, efficient, well-maintained, with good neighbors, in a low-cost-of-living area with no personal income tax, great medical facilities and a major airport. Until recently, we���d thought about keeping it as a base while we travel���as travel was always a major part of our retirement plans. While we like our house, it just isn���t located where we���d choose to spend a lot of time, with our biggest complaint being the climate.

We���d talked for years about buying something else but could never settle on one location. We���ve thought about lots of places���starting, of course, with places we like. We���ve considered the weather, cost of living and taxation. I���ve become conversant with various state tax regimes and the resident visa requirements for a few foreign countries.

At one point, my wife lamented that we couldn���t even settle on a continent. My response was there are only seven, and Antarctica is basically uninhabitable, so we can almost count our choices on one hand. I���m a glass-half-full kind of guy.

What made choosing so hard is that there are lots of places where we could be happy and comfortable. We���re not the type of folks who have a single place they love and want to be, at least not yet. To such people I say, ���Count your blessings.��� If we knew of a single place we loved, all this would have been a lot simpler, and we���d be living there now.

All we knew is where we didn���t want to live, and we decided to act on that and take the rest as it comes. Market turmoil and rising mortgage rates have added complexity to relocation, but we decided we aren���t going to hunker down and wait for conditions to be perfect.

In August, we returned from three months in Europe, our second such trip since retiring last year. As soon as we were over the jet lag, we started serious downsizing. Despite all the pros of our home, we decided the pull wasn���t strong enough to make us stay. We didn���t know where we were going, or even if we would find a new home right away or just travel for a while. We only knew that we were going to sell.

We picked a realtor we liked and agreed to stage the house. That started us packing to get things out. My wife���s sister had scheduled a visit around this time. My wife called her the day before she flew in from Spain to say we were listing the house.

My sister-in-law and her husband have had their things mixed with ours while they���ve been living abroad, so the three of us spent some days sorting that out, removing some things to storage units, and prepping the house to show. We continued to downsize and pack, with the constraint of needing to keep certain things in the house to help it show well.

With the house ready for viewing by potential buyers and the storage unit half full, we headed to Kansas City to visit my wife���s parents. We had our first showings while we were on the road. We signed our sales contract yesterday evening, less than two months after returning to the U.S. from our extended vacation.

When we go back home next week, the packing will get serious���and come with some choices. We���re not packing and downsizing with the mindset of moving from point A to point B. Rather, we���re deciding what we value enough to store, and what basics we���ll need to live out of our suitcases for a year. I suspect this last part will be the harder decision.

Is this how we���ll live, as nomads free in the world? We don���t know. But we���ll make sure we���re prepared to do what we want, no matter where our travels take us.

In the near term, we have a short trip planned to Cabo with friends. After that, a visit to my parents is on the calendar. By that time, we should have closed on the sale of our home. Our next big decision: Will we head back across the pond���or another pond���right away, potentially for much longer than three months, or do we do something in the U.S. first?

It feels like this article should offer some things to think about if you���re in a similar situation. I���m visiting family, so I���ll keep this short.

Do it while you can. There���s likely to always be some reason not to set off on an adventure or make some big change you���ve wanted to make, whatever ���it��� is. We���re fortunate to have good health and mobility, and to not have family responsibilities that keep us tied to any geography. Indeed, our families enjoy seeing us, but they���re also happy we���re able to go and do what we want to do. While now isn���t necessarily the perfect time for various reasons, we recognize it���s pretty good, and maybe the best we���ll get.

Stay flexible. We hear how important it is to have a plan not just for getting to��retirement, but how to spend one���s time in retirement, with some even advising not to retire until you know how you���ll spend each day. I think that���s taking it too far. There���s much to be said for being flexible and going with the flow when you have the freedom to do that. Doing some thinking about the possibilities���including the pros and cons���has enabled us to break free.

Have a buffer. We���re not charging headlong into the vast unknown. While we aren���t living by a schedule or a spreadsheet, we���ve researched our options and planned enough to have a sufficient level of comfort for us. We���ve included a margin of safety on the financial side, and aren���t bound to any one place or activity that we���ll be distraught not to have. We have some ideas, but they���re ideas we���re prepared to change.

My wife is already downstairs having coffee with her parents, so I���m going to head down, too. I���m not sure what���s happening beyond the next several weeks, but I���m excited to find out.

Michael Perry is a former career Army��officer and external��affairs executive��for a Fortune 100��company. In addition to personal finance and investing, his interests include reading, traveling,��being outdoors,��strength training and coaching, and cocktails. Check out his earlier articles.

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October’s Hits

WHAT CAUGHT THE EYE of readers last month? Below are the 10 most popular articles and blog posts published by HumbleDollar in October:

Despite seeing his portfolio shrink by $500,000 this year, Dennis Friedman isn't cancelling his travel plans. Why not? Dennis offers six reasons.
"My head and my hands executed what I had learned were the right moves," writes Ed Marsh. "I bought stocks, but I was also stung by my losses.��The seed of a new emotion was planted."
"Many retirees feel boxed in because the majority of their money is tied up in home equity and traditional retirement accounts," says Matt Trogdon. "Building up a healthy-sized Roth can ease that problem."
"It costs $300,000 these days to raise a kid," notes Jim Kerr. "At least the kid eventually goes off on his own and sends birthday cards���well, maybe. A dog is constant work and expense until death do us part."
During 2022's bear market, Dennis Friedman hasn't made any changes to his portfolio. Why not? He offers seven reasons.
"Beset by the infirmities of old age, I am approaching the time when the baton must be passed," writes Steve Abramowitz. "I want to leave my wife and son a portfolio that suits their needs."
"Investors should always be looking for ways to hedge, to diversify or to split the difference on big decisions," says Adam Grossman. "That can be invaluable if things turn out differently than expected."
How much do you spend and where do the dollars go? Adam Grossman's contention: Amid today's economic uncertainty, household spending is a key financial lever���because it's something you control.
Ed Marsh is all in favor of big experiences in��faraway places. But he says much happiness can also be found in mundane transactions here at home.
"While living longer is a terrific thing, it comes with the rising risk of running out of money," writes Mike Drak. "What happens if they come up with a pill in 10 years that will help you live to age 150?"

Meanwhile, among our twice weekly newsletters, the four most popular were Back to Fundamentals, Budgeting Time, News You Can't Use and My Side Hustle.

The post October’s Hits appeared first on HumbleDollar.

Under the Tree?

A VANGUARD FINANCIAL planner once told me his clients��� biggest problem was that they didn���t want to withdraw money from their accounts during retirement. They lived beneath their means because they just couldn���t overcome their desire to continue seeing their assets grow.

If this describes you, too, you might be pleased to learn that required minimum distributions (RMDs) would be delayed a year or more if legislation, which currently sits before Congress, can slip through the crowded legislative calendar and pass before year-end.

Informally known as SECURE 2.0, the legislation is a grabbag of upgrades to the current retirement savings system. It would do everything from delaying RMDs until age 73���and 75 for some���to bumping the maximum 401(k) catch-up contribution to $10,000 a year from the current $6,500 limit.

All this sounds appealing, but there���s a catch. First, the House and Senate need to reconcile the differences between their two versions of the bill. Then the final version needs to hitch a ride across the finish line before the 117th Congress adjourns forever on Jan. 3, 2023.

The retirement bill isn���t controversial, but neither is it vital. That���s why its authors are looking around for a Christmas tree. That���s the nickname for a must-pass bill that emerges at the end of a legislative session. Lawmakers hang various other bills on it, like ornaments from a tree, in hopes the whole package will pass during the holidays in one great big Hallelujah Chorus.

Oddsmakers give the SECURE 2.0 bill a better-than-even chance of becoming law. If they���re wrong, the next Congress would have to start all over again���and without many of the current bill���s champions, who are retiring at the end of this legislative session.

If the bill is signed into law, however, here are some gifts you or your working-age children might discover under the tree this Christmas. Keep in mind that some details will likely change during final negotiations.

Delayed RMDs. Currently, RMDs begin at age 72. Under the House-passed version, people who turn 72 after 2022 could delay their first required minimum distribution until age 73. But it keeps going. Those who won���t turn 73 until after 2029 could delay a year longer, until age 74. And if you were turning 74 in 2032 or later, you could delay your first RMD until age 75.

Lower penalties. If someone did miss an RMD, the tax penalty would fall from 50% of the amount that was supposed to be withdrawn to 25%, or 10% if the person acted promptly to undo their mistake.

Bigger catch-ups. Workers aged 62, 63 and 64 could make $10,000 annual catch-up contributions to 401(k) and 403(b) plans starting in 2024. In a big change, plan catch-ups would have to be made with Roth after-tax dollars only, even for those aged 50 to 62. These after-tax contributions would help offset some of the cost of the new law to the U.S. Treasury.

IRA catch-ups grow. The $1,000 annual IRA catch-up limit hasn���t been increased since 2015. For the first time, it would be indexed for inflation so it could grow over time. IRA catch-ups could be made with either tax-deferred or after-tax Roth dollars.

Automatic enrollment. A 401(k) or 403(b) plan would be required to automatically enroll new workers into the plan. Many big employers do this already, but the House bill aims to make it standard practice for all employers except guppies���companies with 10 or fewer employees or which are less than three years old.

Roth 401(k) reprieve. You would no longer have to take RMDs from Roth money within your 401(k) or similar retirement plan. Today, people must roll their Roth 401(k) and 403(b) dollars into a Roth IRA to avoid having to take these withdrawals.

Roth and college matches. Plans could match employees��� 401(k) contributions with Roth dollars if both the employer and the employee choose to do so. In an unexpected plot twist, employers could treat employees��� student loan repayments as if they were 401(k) contributions, and then make matching contributions to their retirement plans on that basis.

Emergency savings. The bill would allow employees to save up to $2,500 in an emergency savings plan through automatic payroll deduction of after-tax money. Withdrawals would not be taxed or subject to the 10% early withdrawal penalty.

Believe it or not, there are dozens more fine-print provisions like this between the House and Senate versions of the bill. When it comes to the employer-based retirement system, Congress clearly feels that it can never make things too complicated.

Should the legislation pass, plan administrators, HR professionals and financial planners will all be working overtime to explain the nuances of the law to the people who could benefit. Meanwhile, half of the working population without access to a 401(k) will miss the memo, and likely continue to save too little for retirement.

I have no doubt, however, that astute investors will seize these opportunities as they arrive. I���m looking at you, HumbleDollar readers.

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.

The post Under the Tree? appeared first on HumbleDollar.

An Average That Isn’t

VALUE STOCKS ARE having quite the year���at least relative to growth shares. This past week underscored that trend, with the value-oriented Dow Jones Industrial Average (DJIA) rising every day. Barring a big drop today, October will mark the index���s best monthly performance since 1976.

Even as the Dow rallied 5.7% last week, the growth-heavy Nasdaq Composite index rose just 2.2%. For the year, the Nasdaq is down 29%, versus less than 10% for the Dow.

Should you allocate some of your portfolio to the DJIA? I don���t think that���s the most effective way to invest. The Dow is a price-weighted index. That means the higher the stock price of one of the Dow���s components, the heftier its weight in the index. By contrast, most index funds weight their holdings by each company���s market capitalization���the stock price multiplied by the number of shares outstanding.

For example, the biggest holding in the Dow is UnitedHealth Group (ticker: UNH) at more than 11%. But that stock is just 1.6% of the S&P 500. What about America���s biggest stock by market capitalization, Apple (AAPL)? After reporting strong third-quarter earnings last Thursday, I calculate it accounts for 6.9% of the S&P 500. But Apple is just 3% of the DJIA, making it the 15th biggest holding among the Dow 30.

Overall, the Dow has 19.4% in the growth-oriented tech sector, compared with the S&P 500���s 25.9%. Meanwhile, the more defensive health care sector is 22.2% of the Dow, but just 15.3% of the S&P 500. The DJIA���s larger relative positions in financials and industrials also give it more of a value flavor.

Still, over the long haul, the DJIA and S&P 500 boast similar returns. A lot of ink has been spilled deriding the DJIA���s price-weighted construct and, indeed, I���ve been among the critics. But in reality, what really matters is being invested.

Since 1998, SPDR Dow Jones Industrial Average ETF (DIA) has returned 545%, while the SPDR S&P 500 ETF (SPY) has notched 523%. Even broad market funds, such as Vanguard's Total Stock Market Index Fund (VTSAX), have had similar returns to the Dow. The upshot: While such index funds have different holdings, their performance tends to converge over the long term���and investors should fare just fine with any of them.

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