Jonathan Clements's Blog, page 184

Hard to Believe

WHAT���S THE REALITY of most Americans��� financial life? It seems that many are having difficulty making ends meet. For instance, 42% of Americans say they���re struggling financially, the highest rate since Monmouth University began conducting its survey five years ago.

If this is true, many Americans are certainly in big trouble. But I think that���s a big ���if.��� Why do I doubt such findings?

For starters, the result is based on a survey, and people may not be honest in their answers. Ask yourself this: If close to half of Americans are struggling financially, who���s keeping all the businesses selling non-essential goods and services going?

I recently drove a few blocks down the main street of a suburban town. In that short stretch, there were multiple nail salons, beauty salons, liquor stores, fitness facilities and coffee shops, not to mention restaurants, pizza shops and Chinese take-outs. I guess if a smartphone is a necessity, then so is an egg roll. Who���s buying those expensive pickup trucks? Who are the tens of millions of Americans who visit theme parks each year���and sometimes go into debt to do so?

Survey results and spending patterns just don���t match up. I maintain that nearly all Americans can accumulate a modest emergency fund if they wanted to���and yet a Federal Reserve survey finds that just 68% of Americans would be able to cover an unexpected $400 expense entirely with cash. I���ll go further and say if the typical family let me review its credit card charges and what���s in its grocery cart, I���d find significant savings.

A survey conducted by the Bureau of Labor Statistics found that the average American household spends $2,912 annually on entertainment, representing 3% of total income. Another $2,376 a year is spent on food not purchased from the grocery store.

Here���s my favorite result: The average family supposedly saves 18% of their monthly income, based on the difference between their after-tax income and what they say they spend. If this is accurate, the average family should have no problem with retirement savings, creating an emergency fund or paying off credit cards in full each month.

Which survey are we to believe? I���m not suggesting the majority of Americans have lots of cash to throw around, or that many lower-income Americans are not struggling. But I am suggesting Americans often mismanage what they have and they aren���t honest about it, either with themselves or with the folks who conduct surveys. Their lifestyle is based on spending���often paid for with debt���before taking the more prudent steps of saving and investing.

The average household credit-card debt is $6,270. About 29% make the minimum or a low payment each month and are charged, on average, about 15% interest for the privilege. Only 14% of men and 10% of women say they pay off their balance in full each month. That means a lot of money is going to interest payments. If you can���t pay the card balance in full each month, you may be living beyond your means.

A recent GOBankingRates survey found that 30% of Americans have between $1,001 and $5,000 in credit card debt, 15% have $5,001 or more in credit card debt and about 6% have more than $10,000. Is all that debt caused by spending on necessities? Color me skeptical.

My question: Where does individual financial responsibility begin? Some Americans seem to have an unusual view of debt and who creates it. This Tweet caught my eye: ���Debt is banks keeping you poor by loaning you money for things that will take half a lifetime to pay back���. That���s what it is, debt is caused by big banks and governments.���

Yup, that���s the problem, Americans are forced to borrow.

In my opinion, a family���s lifestyle should be based on its total income minus three expenses: taxes, savings and necessary insurance such as health care. I suspect many people wouldn���t be happy with what that meant for their lifestyle.

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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My Side Hustle

WHEN I BEGAN MY journey to becoming a professional wrestler in 1994, I didn���t give much thought to the money aspect of the business. Wrestling was a secret organization similar to magicians or, frankly, the Mafia. Information wasn���t readily available on the industry���s economics. I simply had a burning desire to be a part of this crazy circus that I���d always loved as a fan.

As I began training to be a wrestler under Skandor Akbar in Dallas, information came in trickles. In my class, there was a huge wrestler who got booked before me, even though I���d trained for longer. It didn���t bother me. He was a legit six foot 10 inches tall and weighed a solid 400-plus pounds. He was a nice guy and I was happy for him.

At the time, even World Wrestling Entertainment (WWE) was losing money and struggling to draw crowds. When my fellow newbie debuted, he said the crowd was fewer than 100 people, and full of former Texas wrestling stars and veterans. He shared that he didn���t get paid for his first match.

After several delays and setbacks, I had my first match in 1996. There were some veteran wrestlers on the card. The business was becoming hot again, the start of a boom that peaked in 1999. I debuted at the Sportatorium in Dallas in front of a healthy crowd of more than 800 fans.

My first match was one of my worst. I sucked up my disappointment and headed back to thank promoter Grizzly Smith and the rest of the office crew for the opportunity. I wasn���t sure if I���d get paid. As I walked in, they handed me an envelope and asked me to sign my name to confirm I���d received my earnings for the night. It was $40.

I was happy to be paid, and thought it was a fair amount, given my experience���or lack thereof. It wasn���t their fault that I chose to live in Iowa, so the fee didn���t even cover my travel expenses. Right after me, the tag team in the semi-main event came in. They signed their papers and counted their money. I thought I overheard the number was $150 each.

They were happy with it, as they had a booking for the next night as well. I talked a bit with the wrestler in that evening���s main event, and I overheard him tell another guy that he���d flown in from Tulsa, with his ticket paid for by the promotion company. My best guess is he was getting $200 that evening, but I���m speculating.

Sad to say, the realities of being an independent wrestler haven���t changed much since then, and certainly haven���t kept up with inflation. Forty dollars is still a typical payday for my efforts in the ring if it���s a local match near my home. What has changed is that merchandise sales have become a bigger part, or even the majority, of many independent wrestlers��� pay.

When I began wrestling, the industry had transitioned away from an earlier era of territory wrestling, where the regional stars were able to make a good living. By 1996, the only athletes making serious money in the U.S. were under contract with the two national organizations: WWE and the now-defunct World Championship Wrestling.

Today, landing a wrestling contract is no longer the only route to financial success. In the last 10 years, a new type of professional wrestler has emerged���the true independent. They can make a living on the independent scene, or at least enough that they only require a part-time job to supplement their pay. This affords them the opportunity to make their craft their sole focus. They can take as many quality bookings as they want, and aren���t limited to weekend matches. They can devote the hours needed to eat well, train at the gym, improve their in-ring work, develop a strong social media presence and sell their merchandise online.

As you develop a name for yourself, your fee begins to increase. Today, it's not uncommon for an independent star to make $300 or more per appearance. Throw in T-shirt sales and other merchandise, and young wrestlers can make an okay living as they try to reach the bigtime.

The journey gets fun as you reach out to promotors, or they seek you out. Making $100 can be the first milestone. Having a promotor fly you in is another step up. If you keep your calendar full, have a healthy social media presence and negotiate your value well, you can be off to the races.

As the years went by, the guys who started with me���and who made it to the big show���were the ones who made wrestling their primary job. For some, it was by taking a vow of poverty and cutting expenses to the bone. Others began to make enough cash with wrestling that, as long as they kept their cost of living low, they survived.

Recently, WWE superstar Sami Zayn visited the Black & Brave Wrestling Academy in Davenport, Iowa, where I train, and took questions from students. He shared that he���d lived with his parents in Montreal until he was age 27. Even after developing a name for himself on the independent wrestling scene, he stayed with his parents until signing with the WWE. Living with his parents allowed him the luxury of focusing on his career.

For me, I���ve been fortunate to work with a local Iowa promotion company, SCW Pro. That���s meant regular bookings and a 30-minute drive to most shows. The crowds are healthy, often 200-plus, and the fans support their wrestlers. I typically come home from a show with $150 to $225.

SCW Pro���s promotions have grown in recent years, along with the crowds. I���ve had some great payoffs at some of its bigger events. Many a Sunday morning, I���ve used the previous evening���s wrestling money to buy groceries for the week and take my family out to dinner.

For whatever reason, my wrestling earnings are more satisfying than the exact same amount garnered through overtime at the local chemical plant where I work fulltime. On the days when I don't sell much merchandise and have a small payday, I just chalk it up to being part of the deal.

As a Hispanic bilingual luchador���one who���s been doing this a long time���I���m in demand at Hispanic festivals, Cinco de Mayo events and county fairs. At these shows, I can command more of a guarantee, making $100 to $150 sometimes. Combine that with my merchandise sales and I���ve had some great payoffs in the past 10 years.

My wife and I took our first trip to Los Angeles in 2014, all paid for by wrestling, thanks to a generous promoter based in Des Moines. This summer, my son and I drove to Kansas City and took in a weekend of Major League Baseball, had an overnight stay and fantastic barbecue. Again, it was all paid for by my professional wrestling. I���ve had six shows in the last two years where I grossed $700, plus many more in the $300 range.

In your salad years, you take the bookings for the work���and the experience. In my early 20s, I met wrestler Lenny Lane, who was working part-time in Ted Turner���s World Championship Wrestling organization. He was on national television every week and was better than me at every single aspect of the game. He wrestled better. His ring gear, his physique, his ability on the microphone, even his tan was better than mine���and I���m Hispanic.

I asked Lenny how he had made it and progressed so much faster than me, despite being the same age. He shared with me the story of a promoter in Cleveland who gave him a lot of work. ���The pay was terrible, Juan,��� he said. ���But he would let me wrestle three times on every card. I���d work an opening match, wrestle again under a mask, and then come back and do a tag.���

At the same stage in my wrestling career, I���d been prideful about my pay and refused to wrestle for less than $75. I sat at home a lot. I was lucky to be wrestling once a month, while Lenny was finishing a year with more than 200 matches and valuable experience. After that conversation with Lenny, I started looking at the pay as just one factor to consider when deciding whether to seek or take a booking.

No matter how much I���m paid, if my opponent or I get injured, it���s a bad night. What counts as a successful booking? No one is hurt, the pay is good and I have a solid match���in that order of importance.

For two decades, I���ve looked at my wrestling pay as beer money, a side hustle. Not all art pays bills. Playing softball with your buddies doesn't make you money. Wrestling does, and I���m grateful that I was lucky enough to be paid for something I love. But more than the money, wrestling has helped me escape the mundane of my day job at the chemical plant. It���s full of showmanship, athleticism and colorful characters.

One of those characters is my childhood hero, Tommy ���Wildfire��� Rich. It was a thrill to meet him backstage at a show. I tried to describe it to my son, Alex, who���s inherited my love of science fiction, superheroes, bigfoot and Star Wars. I told him to imagine meeting Luke Skywalker���not the actor who portrayed him, but the actual Luke Skywalker, lightsaber and all.

Meeting ���Wildfire��� was kind of like that for me. That memory alone is worth all those $40 paydays. But such paydays are drawing to a close. At age 49, these are feeling like my last years as an independent wrestler. I have a little money to show for it all���and a lot of great memories.

Juan Fourneau���s goal is to retire at age 55. When he isn���t at his manufacturing job, he enjoys reading about personal finance and investing. Juan, who is married with two children, can still be seen in the ring on the independent professional wrestling circuit. He wrestles as a Mexican Luchador under the name Latin Thunder . Follow him on Twitter @LatinThunder1 . Check out Juan's previous articles.

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Reverse Hospitality

IN THE SOUTH, it���s common for a restaurant server or store clerk to refer to me as ���sweetie��� or ���honey.��� I���ll often respond by asking, ���How did you know my name is Sweetie?���

This will usually bring a smile to the face of even a harried worker. Our friendly banter is the worker practicing some of the charm and hospitality that the South is famous for, and me returning the courtesy with ���reverse hospitality.���

A commercial transaction doesn���t involve just money. Two people are face to face, one looking to serve and the other to be served. There are exceptions, sometimes notable, but most of the time the servers are polite and friendly. They do their best to provide what I want to buy and give me a smile while doing it. I think I have a responsibility to return the favor.

Telephone transactions are a little more challenging, but I still try to make it personal with a friendly comment or question like ���how���s the weather where you are?��� or ���do I hear chickens in the backyard?���

Am I always patient and diplomatic? No. Sometimes, I���m preoccupied with my own thoughts and needs. I view the person in front of me or on the phone as an obstacle between me and what I want, and I can be brusque. My wife can attest to that. I know, however, that I should give the other person the same courtesy and respect that I want to receive.

What does reverse hospitality get me? I can���t say for certain that it puts more money in my pocket. But I also can���t claim that I���m being purely altruistic. If I do plan to ask for a better deal or special service, I���d rather ask it of a new friend. Maybe I can charm that friend into seeing things my way.

Still, the real value that I take home is the knowledge that I may have done something to brighten the day of an overworked, underpaid and often underappreciated fellow human. And it didn���t cost me a cent.

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Carrying On

I DECIDED TO TAKE a peek at our investment portfolio. I try not to look too often. But I was curious to see how our assets were holding up in this bear market.

What did I learn? Our retirement savings were down more than $500,000 this year, thanks to a combination of investment losses and our spending. Most of our shrinking balance is the result of falling stock and bond prices.

Still, our spending this year on travel has increased sharply. We took a five-week vacation to the U.K., as well as a number of shorter trips. As I���m writing this article, we���re on our way to France and Switzerland for three weeks. Later this year, we���re going to Vancouver, British Columbia. My wife is already planning some trips for early next year.

If it was left up to me, I���d probably hunker down for the rest of the year���because that���s what my money instincts tell me to do in this tough economic environment. But it���s not up to me. I have a wife who has a say in our finances. She says, ���Let's continue with our travel plans. We can get through these difficult times.���

When I think about it, she���s right. Here are six reasons it���s okay to stay the course with our current spending:

1. Our current investment losses aren���t real losses. They���re paper losses, also known as unrealized losses. They only become an actual money loss if we sell���and we have no intention of selling any of our long-term investments in this down market.

2. We have a cash bucket. I���m optimistic that our stocks will rebound before we���re forced to sell. The average bear market lasts 289 days. We have enough cash and Social Security income to fund our living and travel expenses for the next five years. In addition, we have a short-term bond fund in our retirement accounts to satisfy our required minimum distributions without liquidating any of our long-term investments.



3. We have high-quality investments that should rebound with the economy. If our portfolio was loaded with sector funds and individual stocks, I might be concerned about the health of our portfolio going forward. But I���m not. All our investments are in low-cost, broad market index funds that track the major indices. When the economy recovers, our portfolio should, too.

4. We have enough savings. I divided our current account balance by 25���the equivalent of a 4% withdrawal rate���to see how much we can reasonably withdraw each year from our somewhat shrunken portfolio. When I added our Social Security benefits, we should have more than enough income to fund our retirement lifestyle.

5. Our spending will improve our quality of life. I took great satisfaction in watching my savings grow over the years. When I was younger, I was willing to make financial sacrifices to propel my portfolio���s growth. But I���m at a point in my life where I want my money to work for me. I want it to make my life better. Isn't that why we skimped and saved all those years?

Our travel has brought immense pleasure to our lives���more so than having a larger retirement portfolio that, in any case, might not be needed in our later years.

6. The time is right. At age 71, this is a good time for us to travel. I���m in good health. I don���t have any physical and mental limitations. My wife is healthy, too. There���s nothing in our lives that prevents us from doing the things we want to do.

If COVID-19 taught us anything, it���s that life can unexpectedly be put on hold. Sometimes, you have to seize the moment. I believe this is our moment. Delaying our retirement wish list would be a risky proposition, especially at our age.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Check out his earlier��articles��and follow him on Twitter @DMFrie.

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Unhappy Meals

I RETIRED TWO YEARS ago this week. I���d been in a job that was a bad fit for my skills, experience and university degrees. The pay was paltry, but it was the only job I could find four years earlier.

I calculated that my Social Security and state pension would match my take-home pay because they were based on my highest earnings, which were many years earlier. COVID-19 was a threat to old guys like me and my employer was offering a modest retirement incentive, so I happily left.

I did okay on my fixed income during my first year of retirement. But in 2022, inflation has made it much more difficult to maintain my already lean standard of living. Food is the most flexible part of my budget, but it���s obviously necessary and can be cut only so much.

I managed to cope with 2021���s 6.5% increase in food prices. I cut back on treats and sweets. I started patronizing Aldi more frequently, instead of my favorite store, Trader Joe���s. Aldi lacks TJ���s funky, fun atmosphere and friendly employees, but the savings add up. At Aldi, I pay at least $1 less for organic blueberries. I can buy a pound of grass-fed organic ground beef for around $6.

But things have got rougher of late. We���ve had a 13.5% increase in the price of food at home over the past 12 months, including a 9.8% rise in 2022. That's made it hard to create healthy, tasty meals at a reasonable cost. I don���t buy all organic. But if there���s a small difference in price, I feel it���s worth avoiding pesticides.

As a retiree, I have the time to shop for the best price, so that means weekly trips to Walmart for nonperishable foods, and Trader Joe���s and Aldi for the rest. Publix grocery stores are dominant in my area, but they���re easily the most expensive. Still, I use them for emergencies���the closest Publix is just five blocks away.

I���ve economized by making larger dishes, such as chili, casseroles and stir fry, so I can get multiple meals from each batch. Chili also freezes well. Still, there���s only so much you can do if you want to eat a varied diet that���s also healthy.

I eat one egg a day. They���re a good source of protein without eating meat, but they also cost 39.8% more than a year ago. Poultry, a healthy and less expensive alternative to red meat, is up 15.9%.

While I���m managing to continue to eat nutritious and tasty meals at home, 5.2 million older Americans face food insecurity, which the National Council on Aging defines as ���consistent lack of access to sufficient amounts of healthy food.��� Poverty is a key reason, according to the Council���s report.

I shop weekly at a dollar store, but I would never buy food there. There���s no fresh produce. The store���s refrigerated section is filled with highly processed frozen foods. Elsewhere in the store, I���ve seen few canned foods that don���t contain salt. Candy and salty snacks are abundant.

I would cut back on eating out or getting takeout���if there was any room to cut. But the fact is, I���ve gone out to dinner perhaps four times this year. It���s so rare, it���s hard to remember. I go out for lunch maybe once a month. While traveling, I am forced to eat out, and I���m amazed at the prices.

My current hope: The cost of living adjustment for Social Security in 2023 is truly significant.

Ron Wayne spent 26 years working for newspapers in Pennsylvania and Georgia before becoming the editor in the University of Florida���s main news office. During his 10 years working there, he earned his master���s degree in mass communication and taught as an adjunct in the College of Journalism and Communications. Since retiring in 2020, he���s enjoyed a simple life, including reflecting on his experiences on Medium.com . Check out Ron's earlier articles.

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To Budget or Not?

I'VE NEVER BUDGETED, meaning I���ve never planned every expense in detail. But I know many people do, especially as they look ahead to retirement.

This doesn't mean I don't know what I spend. My utility bill is $127 a month, my homeowners��� association fee is $870, my property taxes are $3,117 a quarter and my BritBox subscription is $5.99 a month. Or is it $6.99?

By the end of each month, our two credit cards are paid in full. There may or may not be much left in our checking accounts, but our spending never exceeds what���s in the bank. Our ���budget��� is set for us.

I didn���t retire until age 67 because I wanted to be sure I could generate income equal to 100% of my base salary, while also keeping up with inflation. Sure, I may have a shorter retirement than others who retired earlier, but mine is financially less stressful.

Many of those who are obsessed with keeping a budget are seeking to retire in their 50s. They���re trying to stretch their savings over a retirement that could be longer than the years they worked. I fear that may prove impossible.

Some people say they need a detailed budget to determine how much they can save. For example, according to Frugalwoods.com, ���Without a holistic picture of how much you spend every month, there���s no way to set savings, debt repayment, or investment goals. It���s a must, folks.���

Sorry, that���s backward. You save first and then see what you can spend.

Listening to a Retire with Style podcast, the commentators took two different approaches. One favored a very detailed budget. The other favored my formula of NE-S=S, meaning net earnings minus savings equals spending. This formula gives you your de facto budget.

Why stress over budgeting? If you���re about to retire, I maintain your overall spending will be the same as before, unless you���ve just paid off the mortgage. I hear someone saying, ���Wait, once you���re retired, you���ll no longer be saving for retirement, right? Can���t you live on less income?���

Yes, if you���re one of those folks who saves 30% to 40% of your income, you may have a point. But for the great majority of Americans who save far less, you���ll still need to save something when retired because your spending will rise each year, thanks to inflation.

I���m prepared to be criticized for repeating myself. But I feel my approach is the safe one. Our monthly ���spending��� includes saving something each month, plus an allowance for discretionary spending such as travel, plus a provision for surprise expenses like the two new tires I recently bought, several thousand dollars in car repairs and $8,000 in dental bills.

Your spending will change over time. But I firmly believe there won���t be a significant decline. Keep in mind that many unforeseen expenses aren���t linked to your income. The cost of a new furnace will keep rising, no matter how much income you receive this year.

A 2014 survey claims that, after three years, retirees are living on 66% of pre-retirement income, on average, with more than half saying they live as well or better than when they were working. Is that possible? I���d like to see their pre- and post-retirement budgets.

Thoughts on budgeting vary widely. A comment from a friend has me bumfuzzled: ���I started keeping a budget for one main reason. Financial advice websites kept saying we needed to have $X in annual income. I knew that wasn���t true since we lived on much less than our income for many years and lived comfortably, while putting away quite a bit. So, to determine if we could afford to retire early, I needed to figure out our real expenses/spending.���

No website can accurately say that you need $X in income. At best, it can estimate the financial resources you need to generate $X in income.

I just read a comment on a retirement blog. The commenter had $550,000 in savings, plus Social Security, and asked if that was sufficient to retire. What kind of question is that? Maybe yes, maybe no.

If, at the end of the month, there���s no money left in the bank, or if credit card balances can���t be paid off in full, an assessment of spending is necessary. That���s when a detailed look at where the money goes is important. Make adjustments and move on.

If that���s not your situation, you don���t need to spend hours constructing a detailed budget. That���s especially true if you���re trying to predict spending over decades of retirement���unless you just like playing with numbers.

My oft-maligned notion is that you start retirement with income equal to 100% of your base salary. For most people, Social Security will get them to 40% of that target. That 100% income replacement will provide the financial cushion necessary for a less-stressful retirement���but you might have to work past age 60 to achieve it.

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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Hoping for Despair

THERE���S AN INVESTOR sentiment chart that gets dusted off and passed around after long periods of market malaise. Using the chart, active investors aim to identify when people have given up on stocks, so they can buy shares at the point of maximum pessimism.

Looking back, it appears that late 2021 marked the chart's ���euphoria��� phase, and we���ve since been descending through the stages that follow���anxiety, denial, fear and so on. Which phase are we currently in? We���ll only know in retrospect. Still, it was another harsh couple of days for the stock market at the end of last week. Those big down days followed big gains on Monday and Tuesday. Investors might feel like this market just can���t get back on its feet.

This year has been among the worst on record for broad stock and bond index funds. Consider that a portfolio allocated 60% to U.S. stocks and 40% to domestic bonds was down more than through September. Factor in inflation, and that���s nearly a 26% decline.

Charlie Bilello found that only the awful year of 1931 featured a worse return for the 60-40 portfolio. With the Great Depression in full swing, a balanced portfolio lost 27.3% that year. What was different then, though, is that there was severe deflation���to the tune of 8.9% that year, according to the Federal Reserve Bank of Minneapolis. This year, economists at Goldman Sachs expect the Consumer Price Index to rise 6.2%. Result? Adjusting for inflation, 2022 could potentially rank as the worst year on record for the 60-40 portfolio.

How does that make you feel? It���s no doubt a gut punch for folks who recently retired and no longer have regular savings with which to buy today���s cheap stocks and bonds. By contrast, for those still saving for retirement, it���s quite likely a great time to invest.

Feeling frustrated about 2022���s market losses? Remember, it���s after times like this���when folks feel financially down and out���that massive long-term wealth is typically generated. Buying when stocks are off 25% has historically produced great long-run gains. What about bonds? There���s also good news there: Today���s higher yields mean reasonable returns are likely in the years ahead.

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Misjudging the Speed

FOR ELON MUSK, IT HAS���to use his own��words���been a ���very intense seven days.��� Just over a week ago, Tesla��demonstrated��a new prototype product, a robot called Optimus. A week ago, it��announced��that it had delivered a record number of new vehicles in the third quarter.��And, on Wednesday, a rocket built by SpaceX, one of Musk���s other companies, completed a successful launch from Cape Canaveral, carrying astronauts to the International Space Station.

At the same time, a cloud of controversy always seems to trail Musk. For most of this year, he has been in litigation with Twitter, which he offered to buy in April, reversed course and then, last week, said he was interested once again. This past week, Musk also proposed a��peace plan��for Ukraine that��unleashed��vitriol from around the world.

Not surprisingly, Tesla and its stock have been similarly unpredictable. Almost since its inception, Tesla has been a sort of Rorschach test for investors���including me. One conversation, back in 2014, stands out in my mind. After Tesla���s shares had jumped 344% the year before, I became skeptical. The shares seemed grossly overpriced. A friend, meanwhile, felt that the company was on to something and that its share price made sense.

Since that time, Tesla���s shares have��gained another 2,000%, so it���s fair to say my assessment was incorrect. In recounting this story, I���m happy to eat crow because I believe it conveys key lessons���not just about Tesla, but also about the stock market in general. These are the five ways I misjudged Tesla:

1. Growth rate.��The way most investment analysts value a stock is to extrapolate the company���s current revenue and profit figures into the future. From that, a projected future stock price can be calculated. Suppose a company is earning $5 per share today, and I think it���ll earn $7 in three years. Let���s also assume the company���s current price-earnings (P/E) ratio of 15 remains constant. That would allow me to project a future stock price of $105 ($7 x 15).

For a mature company, that���s usually a reasonable approach. But for companies that aren���t yet profitable, it���s much harder��because you have to guess when they���ll turn the corner. That was the situation with Tesla in 2014. It was growing rapidly, but it was losing money. It wasn���t until 2020, in fact, that it produced its first full-year profit.

Investment analysts trying to value unprofitable companies have two less-than-ideal options. The first is to extrapolate from current numbers, as described above. In 2014, for example, Tesla delivered 32,000 cars, up from about 22,000 the year before. An analyst might project future growth at a similar pace. The second approach would be the ���blue sky��� method, whereby an investor would simply use his imagination to paint a picture of the future.

Each approach carries a potential flaw. With the extrapolation method, the risk is that an estimate may end up being too low. That was the mistake I made. But with the second approach���the blue sky method���the risk is that an estimate could end up being too high. Neither is a great result, and we���re��really only guessing when we choose which way to go.

2. Valuation.��Not only did Tesla grow faster than expected, but the stock market also put a higher value on those profits. I expected that, when Tesla turned profitable, its price-earnings ratio would be more in line with other fast-growing companies. But sometimes investors are willing to give a company a pass, allowing its P/E ratio to remain in the stratosphere for years. Even today, after a 30% year-to-date decline, Tesla���s shares trade at 47 times projected earnings. That���s about three times higher than the overall market average and double that of a more typical fast-growing company.

3. Plans.��Suppose you or I had been able to sit down with Elon Musk in 2014, and suppose he had shared with us all the plans he had for the company. Would that have helped in making a more accurate projection for Tesla���s shares? I���m not sure it would have. That���s because Tesla has a��track record��of promoting products years before they���re released. For that reason, even if we���d received information directly from the CEO, it���s unlikely that would have led to a more accurate forecast of Tesla���s growth.

4. Competition.��For years, Tesla skeptics have argued that competition would inevitably slow its growth. That was part of my concern back in 2014. After all, an electric car is simpler to manufacture than a gasoline-powered one, so the world���s major auto makers faced no real technical hurdle in challenging Tesla.

In fact, an oft-cited rule of thumb in business is that, in new industries, ���fast followers��� tend to fare better than first movers. Google wasn���t the first to create a search engine, Apple wasn���t the first to make cell phones and Facebook wasn���t the first to create a social network. Toyota, it was widely assumed, could put Tesla in its place if it chose.

What no one counted on, though, was that Toyota would go in the opposite direction. Just recently, Toyota CEO Akio Toyoda reiterated his lukewarm view of electric vehicles. ���EVs are just going to take longer to become mainstream than [the] media would like us to believe,��� Toyoda said. He cited a lack of infrastructure, among other concerns. Whether Toyoda is right or wrong on this, the result is that he���s allowed Tesla more time���with less competition���to gain customers and build an infrastructure of��its own.

5. Unforeseen factors.��In assessing a company���s prospects, the factors discussed above are usually the most significant. But they aren���t the only ones. What else could have gone wrong for Tesla? Consider just a few potholes the company has avoided:

As noted above, Musk has been unpredictable, both professionally and personally. That could have led to his departure from Tesla���either for internal political reasons or of his own volition. At age 51, with��10 children and as the world���s wealthiest person, that wouldn���t have been unheard of.
The company could have made a strategic error. Today, Tesla���s original high-end models���the Model S and Model X, which each cost more than $100,000���account for less than 5% of the company���s sales. If the company hadn���t developed new products, growth might have been much slower.
Numerous other factors, too, could have slowed Tesla���s growth. Gas prices might have been lower, dampening interest in electric cars. Lithium might have been in tighter supply than it already is. Another company might have had a breakthrough with battery technology. A bug in Tesla���s self-driving technology might have caused a catastrophic lawsuit. The list is nearly endless. In hindsight, Tesla���s success looks inevitable. But onetime competitors like Fisker���now bankrupt���prove that success wasn���t guaranteed.

What can you learn from this story? As I���ve noted many times before, stock-picking is immensely challenging. That���s why, at the risk of sounding like a broken record, I always recommend index funds. But it���s also instructive, I think, to see exactly why this is the case.

While Tesla may be unique, it���s also representative of the challenges that stock-pickers face. Look at any company, and you���ll observe strengths and weaknesses. Unfortunately for investors, though, what we can observe represents just a fraction of what can potentially impact a company.

This story also helps explain another piece of��research��I���ve mentioned in the past: Finance professor Hendrik Bessembinder has found that just 4% of all stocks account for all of��the��stock market���s historical outperformance relative to Treasury bills. This strikes many people as an almost unbelievable statistic. But Tesla���s performance���a gain of about 11,000% over the past 10 years���helps buttress Bessembinder���s finding. That, too, is another reason to own index funds. Even if you dismiss a highflier the way I did, at least you���ll benefit from owning some stake in it.

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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Losing My Cool

IF THERE���S ONE THING that causes more marital stress than money, it���s the thermostat. I figured combining both into one article would be nothing less than genius.

As I grow older, I���ve come to appreciate my father���s fascination with the thermostat, because now I, too, am constantly adjusting it. In my case, based on the current and future temperature, humidity and cloud cover, the adjustments are in the most economical direction. My wife is a set-it-and-forget-it kind of gal, which in the summer wouldn't necessarily be an issue, except that she sets it on brrrrr, which is right between nippy and hypothermia.

A few months back, cold air stopped issuing from the living room duct. Since our home has two air-conditioning systems, the situation wasn���t catastrophic. I knew, though, that immediate action was required. If the now slightly overworked second system crapped out, a stay at a ���nice��� hotel would be required���"nice��� being a word that strikes fear into the heart of any husband.

I contacted the outfit that had performed an annual HVAC inspection a few months prior, at which time no issues were detected. The firm was booked up for the next few days. That made me both upset and elated���upset that they couldn���t arrive instantaneously, but elated to know I wasn���t the only person having cooling issues.

That same day, my wife had been visiting a girlfriend who was also in the middle of a cooling crisis. She was able to arrange for her friend���s HVAC guy to stop by our place the next day. The fact that his name was also Mike made it seem like fate.

Given that the evaporator coil inside the air handler was a block of ice and the exterior suction line was equally ice bound, my experience as a naval nuclear propulsion officer���along with skillful use of the internet���informed me that the issue was low refrigerant. Mike concurred and, if I remember correctly, was quite impressed by my refrigo-logical know-how. Two pounds of R-410a were duly injected and I was duly charged $65 a pound.

A week later, guess what? The cool air stopped issuing and the ice returned. An appointment with Mike was made, with him subsequently ghosting me. I was getting desperate, so desperate that I reached out for help via Angi. That���s what they call Angie���s List these days.

The company that Angi personally recommended for me got the job done, which in the end required an entire new HVAC system. The owner of the company, Bryan, also informed me that low refrigerant pressure means only one thing���your air-conditioning system has a leak.

That brings me to a few weeks ago, when my recently overworked second AC system stopped issuing cold air. Bryan was contacted again. Since there was no icing present, I was at a loss. The HVAC tech determined that, once again, low refrigerant was the culprit. He recommended that some R-410a be injected.

I then asked something along the lines of, ���Where did it go?��� He asked if I���d like him to check for a leak. To that, I replied, ���Yeah, that might be a good idea.��� Well, I���m proud to announce a leak was detected in the evaporator coil. Leak sealant and two pounds of R-410a were duly injected and I was duly charged $150 a pound.

A happy ending, however, was not to be had. A week later, cool air again stopped issuing. Two weeks and $2,500 later, a new evaporator coil was installed.

Just in time for fall.

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Counting Down

I AM NOW AGE 78���the same age at which my father died 34 years ago. I���m starting to think about dying, though I have no immediate plans to do so.

Of course, my father effectively smoked himself to death, unleashing a combination of heart disease and emphysema. I���ve been a no-smoking zone my entire life. No, I���m not depressed and I���m not being maudlin. But if Queen Elizabeth can���t go on forever, what hope is there for us commoners?

My feelings aren't helped by Facebook. I���m a member of several Facebook groups where I receive regular reports of the demise of friends and former colleagues, many of whom are younger than me. I���m afraid to check the obituaries these days. We humans like to use the phrase ���if anything happens.��� But we all know the translation.

This site has been a big part of my retirement���I���ve written some 180 articles and blog posts���so I figure maybe I���ll get an obituary. I���ve even been thinking about an epitaph: ���Here lies a humble man with nary a dollar to his name.���

Statistically, I have almost nine years left. I���ll take that and even more���provided I remain reasonably healthy and know where I am. Some data say men age 70 and older have a 5.7% chance of living to 100. I���m not thrilled with those odds. But according to AARP���s magazine, you can better them a bit by living in a city, communicating with friends and relatives, and being spiritual. Seems like minimal effort. I hope texting counts.

Nine more years would allow me to meet one of my goals: to see at least one grandchild graduate college and get some benefit from the 529 plans my wife and I have funded. It would also ensure that all my grandchildren would be old enough to remember me���if they so choose. Pretty selfish, eh?

At this stage, running out of money is virtually impossible, thanks to my pension. My goal of leaving a legacy to our four children is also important���though my top priority is making sure my wife is financially secure, no matter what.

A couple of years ago at a restaurant with family, while we were all on vacation, the subject of not being immortal came up. How that happened between the clam chowder and the lobster rolls, I can���t recall. But I piped up, ���I want to be cremated.��� I hope the family took me seriously. I���m a bit claustrophobic and the thought of spending eternity in a��� well, you know, that scares me. Besides, cremation is cheaper.

What I think about these days���not obsessively���is whether I���ve thought of everything. My wife and I both have wills, a family trust, various directives��and so on. We���ve spelled out how our vacation home will be handled among the children. We want to avoid the fighting among siblings that I���ve seen destroy families.

We���ve promised the grandfather clock to our youngest son. Beyond that, all our personal possessions are up for grabs, though maybe not the jewelry���we only have one daughter. By the way, who wants the collection of wooden model planes built by my father during the Second World War?

For my wife, there���s a 50% survivor annuity on my qualified pension and a 75% survivor benefit on my supplemental pension. Life insurance will also provide her with two years��� worth of living expenses. Then there���s my Social Security benefit. Did I mention my wife is four years older than me? It���s okay, she knows I tell people���and, besides, she doesn���t read HumbleDollar.

I���m thinking her income needs will be taken care of, even without touching my IRA or our other investments, but they���re there if needed. I purposely bought some investments that generate regular income. There are two high-dividend individual stocks, along with some bond mutual funds that mostly generate tax-free interest. That means there would be additional income available to cover our condo���s property taxes and homeowners��� association fees.

My wife is the primary beneficiary on my IRA���a rollover from my 401(k)���with the children secondary. All our other investments are held jointly.

In a big red folder, I put monthly and quarterly financial statements, as well as screen shots of who to contact to collect my pension and insurance benefits. There are also copies of balances for my various health accounts, and how to access them, along with instructions for my wife, so she can continue Medigap coverage using the health reimbursement account funded by my former employer.

I���m glad I won���t be the one who has to go through all this. I don���t like paperwork. Have I thought of everything? Probably not. There are things that happen after our death over which we have limited or no control.

Still, there���s one thing that scares me more than anything else. What if I���m the surviving spouse?

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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