Jonathan Clements's Blog, page 186

Going the Distance

ON THE CORNER OF MY desk, there are two binders. One contains my financial plan and the other my longevity lifestyle plan. One is no good without the other. How can I know if I���ve saved enough money if I don���t have a clear idea of what I want to do in retirement and how much that lifestyle will cost me?

The financial services industry���s focus has been on financial planning, with the objective of helping people accumulate as much money as possible. That falls short of what retirees need for a successful retirement. The industry���s focus needs to be broadened to include longevity planning���how people can live their best life for as long as they can. Here are three of the building blocks of longevity planning:

Longevity risk. While living longer is a terrific thing, it comes with the rising risk of running out of money. ���It is not realistic to finance a 30-year retirement with 30 years of work,��� says John Shoven, a Stanford University economics professor. ���You can���t expect to put 10% of your income aside and then finance a retirement that���s just as long.���

This risk is only going to grow, thanks to medical advances. What happens if they come up with a pill in 10 years that will help you live to age 150? Will you be able to afford it?

Longevity of income. How are you preparing yourself financially for a longer life? People who retire in their 60s now can have 30 years or more ahead of them. Traditionally, people relied on the three-legged stool of personal savings, Social Security and possibly a pension.

Additional sources of money may be required to go the whole distance. Will you need to work part-time? Downsize to a smaller home? Take out a reverse mortgage?

Longevity of health. The good news is, a person���s longevity and health are���80% of the time���determined by the lifestyle choices they make, such as diet and exercise. The bad news is, many people are making poor life choices, resulting in preventable diseases that often lead to some form of disability. It can cost them years of infirmity.

"The average American spends the last 12+ years of life with their activities at least partially and often seriously curtailed by illness, injury, or cognitive impairment,��� according to the 2022 report entitled Longevity and the New Journey of Retirement. ���Among those 65+, 88% are managing at least one chronic condition and nearly two-thirds have two or more chronic conditions. Over the age of 85, one in three Americans has Alzheimer���s or related dementias.���

Added to this is the financial toll of health care costs, which can catch people off guard. The report says that a ���couple needs an estimated $445,000 to cover health care costs in retirement. It���s no surprise that health care costs have become retirees��� number-one financial worry.���

Retirement requires some of the most important decisions we will ever make. It involves major changes that will either positively or negatively impact the rest of our life. People contemplating retirement need to be aware that it comes with significant emotional, psychological, physical, social and financial implications that will affect their overall well-being. These challenges need to be fully understood and prepared for���before we quit the workforce.

Believe it or not, most retirements fail for non-financial reasons, rather than for financial ones. I don���t want that to happen to you, so���for the past year and a half���five of my friends and I have been working on a new book, called Longevity Lifestyle by Design, to help people prepare for a successful retirement. Our mission is to help as many retirees as possible, which is why we���re giving the book away for free.

It was written to equip retirees, and those preparing for retirement, with the framework, insights and strategies to live their best���and longest���life. After reading it, you���ll know exactly what you need to do, what not to do and, most important, why. Click on this link to download your free copy.

Mike Drak is a 38-year veteran of the financial services industry. He���s the author of Retirement Heaven or Hell , published in 2021, as well as an earlier book, Victory Lap Retirement . Mike works with his wife, an investment advisor, to help clients design a fulfilling retirement. For more on Mike, head to�� BoomingEncore.com . Check out��his earlier articles.

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Getting to the Number

WHAT WILL RETIREMENT cost? One solution to this riddle is to save as much as we can and hope it���ll cover our expected expenses. Finding the right answer���the exact amount of savings required���can involve hours of calculation, and even then there���s a fair amount of uncertainty.

At my financial planning firm, we help clients with this calculation. Our starting point: We believe the foundation of most retirement plans should be Social Security. Many Americans choose to take Social Security earlier than their full retirement age (FRA). There are downsides to taking Social Security early, of course, the greatest of which is a permanently reduced benefit.

Waiting to file until age 70 is in most people���s best interest, I believe. Their eventual benefit will grow 8% for each year they defer filing beyond their FRA, yet many people feel they can���t afford to wait. At our firm, we help build an income bridge so clients can more easily defer Social Security until 70.

We use a portion of their portfolio to make up for the missing Social Security benefit. Our clients get the same income they would have received had they filed early. The bridge tends to take away feelings of loss and provides them with needed income.

By effectively swapping risk assets like stocks for a larger guaranteed Social Security benefit, we hedge the risk that folks will outlive their other savings���and, for many, move retirement from a possibility to a reality. Now I hear what you���re saying���that I���m removing a piece of their portfolio to annuitize it. Yes and no. Unless they die early in retirement, they���ll get back the money in the form of a larger stream of guaranteed income, and that income will be delivered when it���s truly needed.

Many of my clients worry that Social Security won���t go the distance. Yes, the Social Security trust fund will be depleted by 2034, according to the latest estimate from the system���s trustees. Benefits may eventually be means tested, meaning they���re trimmed for those with higher incomes. But for those already collecting Social Security, I believe the likelihood of a benefits reduction is low.

For married couples, the longer the higher-earning spouse defers, the greater the survivor benefit that the lower-earning spouse will potentially receive. One objection I hear: Lower-earning spouses lose their entire benefit when they inherit the higher benefit of their spouse. This is true. But the surviving spouse���s cost of living should be lower for items such as food, health care and certain utilities. A financial planner can put a pencil to these expenses to calculate how your budget might change.

It can feel strange to no longer have a paycheck once you retire. To replace it, you���ll need to liquidate savings to sustain your lifestyle. The traditional approach is to withdraw 4% annually���in addition to guaranteed income from pensions and Social Security.

For instance, if you need $100,000 a year in retirement, you and your spouse might receive $50,000 from Social Security and $20,000 from pension income. That means you need to draw another $30,000 from savings. A quick calculation suggests you���d need savings of $750,000, assuming a 4% withdrawal rate.

Many clients say that once they have $1 million saved, they should be fine. Is this true? That depends on living costs and goals. Do you have legacy aspirations, including leaving money to charity or to family? Do you want to see the world, play golf five times a week or join a country club? You need to think about more than just a big round number.

Digging deep into what your life might look like tells us how much money you could need. Of course, it���s not just about the amount of assets. It���s also about how they���re invested. For individuals with a large nest egg but little guaranteed income, sequence-of-return risk comes into play. This is the risk of encountering down years at the start of retirement.

It���s human nature not to want to take money out of a depreciated asset. When the market is down, however, you may be forced to sell investments to cover living expenses. Once you���re forced to sell that asset, you may never recover your portfolio���s value when the market goes back up. How do you offset this risk?

Adding in guaranteed income sources, such as single premium immediate annuities and deferred income annuities, including qualified longevity annuity contracts, is one way to do it. Some of these can be purchased with a cost-of-living adjustment rider, where annual payments increase by, say, 2% or 3% each year. Having 60% to 70% of your expenses covered by guaranteed income���whether Social Security, pension or annuities���greatly reduces longevity risk.

Some people aren���t comfortable annuitizing, which is fine. We can help them ladder Treasurys or other bonds to produce the income they need. There���s limited risk of principal loss���provided they hold the bonds to maturity.

Finally, we���ll stress test a retirement plan, factoring in such things as higher inflation rates and tax rates to see how the plan stands up to such challenges. We can even factor in a 25% cut to Social Security benefits.

People often get ���to��� retirement haphazardly. They gather assets through their career, hoping to have enough wealth to get them over the finish line. I help them start planning ���for��� retirement, which involves discussing what your day-to-day will look like and stress-testing the possibilities that may derail your new life.

Kevin Thompson is a former Major League Baseball player and now CEO of 9Innings Capital Group LLC . He is a Certified Financial Planner �� and Retirement Income Certified Professional ��. Kevin graduated from the University of Texas at Arlington in 2011 with a degree in finance. His previous��articles were Home Sweet Whatever and��Big League Lessons.

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Buy It Later

I ADVISED LAST OCTOBER that loading up on holiday gifts ahead of the main shopping season probably made sense, given problems with the supply chain. Foreign manufacturers were struggling to produce enough goods, plus many items were stuck in ships anchored off the ports of Los Angeles and Long Beach, California. Parents across the country, flush with cash, were frantic about getting their kids the latest hot toys.

What a difference a year makes. While the supply chain isn���t exactly operating smoothly, several indicators suggest the situation has greatly improved. Moreover, many U.S. retailers over-ordered during the past two years, as inventories depleted amid the pandemic-induced spending boom. Problem is, at this juncture, it seems folks prefer services like travel and eating out, rather than buying a big screen TV or new athletic gear.

Just last week, Nike reported a huge 44% quarterly jump in inventory. The retailer���s stock is now down more than 50% from the all-time high notched late last year. At the same time, big-box retailers like Walmart and Target have periodically cautioned Wall Street about their inventory��gluts. Shares of those two household names are down sharply, too.

Just how much has the supply and demand dynamic shifted over the past 12 months? Look to the Consumer Price Index. At its peak several months ago, core goods inflation hit 12% for the trailing 12 months. While still elevated, analysts at Bank of America expect deflation for core goods, perhaps late next year. What about inflation among core services, like travel and dining out? That might not reach a high until right around Christmastime. Wouldn���t you know it?

Put it all together, and I think waiting until the last minute to buy things like toys, jewelry and electronics could save you a few bucks this holiday season. Retailers are bloated with goods and might slap on big discounts later this quarter. But unfortunately, traveling to see loved ones, eating out and even cooking an elaborate holiday dinner will likely be costlier than ever.

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Spend the Time

A FAVORITE QUOTE in the world of personal finance comes from Ernest Hemingway���s 1926 novel The Sun Also Rises.

���How did you go bankrupt?��� Bill asked.

���Two ways,��� Mike said. ���Gradually, then suddenly.���

Money troubles are a common theme throughout literature. Charles Dickens probably summed it up best. In��David Copperfield, a fellow named��Micawber laments: ���Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.���

The message:��Overspending is probably the quickest route to financial unhappiness. That���s hardly new information. A��new study, however, sheds further light on this topic. Titled ���Understanding and Neutralizing the Expense Prediction Bias,��� the research explores a question that���s��often��overlooked:��Why��do people overspend? The study uncovered an interesting explanation.

In their experiment, the authors asked people to estimate what their spending would be over the coming week. At the end of the week, participants��reported their actual spending. The result, as you might guess: The subjects regularly underestimated their spending���by 12% to 25%, on average.

They repeated this for four weeks, and each week the results were about the same. Then, for the fifth and final week, the subjects were split into two groups. The first group was asked to estimate their spending just as they had in prior weeks. The second group was given an additional prompt: They were��told to think of three reasons why their spending in the fifth week might end up higher. They were given examples, such as an unexpected car repair or a medical bill.

That made all the difference. At the end of the fifth week, the first group continued to underestimate its spending. But the second group���the one that received the additional prompt���ended up with much more accurate estimates. They actually overestimated their expenses by a hair.

The conclusion: In estimating their spending, people have a good handle on their fixed expenses���things like rent, mortgage and car payments. But they overlook expenses that are more variable.

I���m not surprised by this finding. In my experience, most people have a hard time estimating their household spending. Despite all the tools available to track expenses���from Quicken to Mint to YNAB���it turns out to be a task so difficult and so tedious that many��simply give up.

Even though��Quicken and its peers��have advanced over the years, the reality is that the problem���s complexity has advanced faster than the solutions. In the old days, families might have had one bank account and maybe one credit card. But with the allure of��rewards points and discounts, the number of credit cards in many people���s wallets has multiplied. On top of that, we have money coming and going through services like Venmo.

The growth of subscription-based services has also contributed to the complexity. It���s led many to feel out of touch with their own finances. In the past, money didn���t leave our bank accounts��unless we chose to pay a bill. Today, that balance of power is reversed: If we don���t want to continue being billed automatically, we have to navigate a company���s website or 800 number to request that the service be canceled.

The result: Most people today can tell you generally��whether their income exceeds or falls short of their expenses. But beyond that, most are hard pressed to provide a specific number. Fortunately, there are solutions.

The gold standard is to hire a bookkeeping service. But that���s a step most people aren���t willing to take. In addition to the cost, many folks��justifiably worry about the risk of fraud, and they���re uncomfortable allowing anyone else such a detailed look at their finances.

There are other approaches. While software works for many people, it also requires a fair amount of babysitting to download and check the data. An alternative, ironically, is to��rely on old fashioned bank statements. Even if you don���t receive them in the mail anymore, you can download them from your bank���s website.

Right at the top, they���ll usually provide a total of all the dollars that came into your account��and all the dollars that went out. Without worrying about all the individual transactions, these summary numbers can provide a good understanding of your income and expenses. Even if a lot of your spending is on credit cards, this strategy can still work as long as you pay your credit card bills from your bank account.

Beyond the obvious, what���s the value in having a more detailed picture of your expenses? I see several��benefits. First, if��you���re in your working years and looking ahead to retirement, it���s important to estimate what I call ���core expenses.��� These are the expenses that will be with you in retirement. For most people, that will be a different, and lower, number than during their working years.

For example, in retirement, your mortgage might be paid off and, if you have children, they���ll likely be out of the house, out of school and on their own. If you have a reliable breakdown of your expenses today, that will allow you to identify and��total up��your��core expenses. You can then use that number to��calculate a savings target for retirement. By comparing that target to your current savings rate, you'll know whether you need to make a change in��your spending.

You would, of course,��want to make a change if you discover��you aren���t saving enough. That���s clear. But there���s a more subtle problem that affects some people: They���re�����saving��too��much���and unnecessarily spending less than they could. Some people do this simply out of habit. Frugality is in their DNA. I suppose that���s okay. But other people spend too little��out of fear. Because they haven���t done the math, they don���t realize that they could be spending more. For those folks, running the numbers can help them relax and enjoy life more.

Having a good understanding of your expenses can also help you prioritize. One fellow I know charted his spending using a��Pareto chart. Named for the Pareto Principle���often called the 80-20 rule���a Pareto chart makes it easy to see which expense categories really matter. In other words, if you were looking to cut your expenses, a Pareto chart would clearly indicate where to start. If your dog groomer seems expensive, for example, but he accounts for less than 1% of your budget, it���s probably not worth looking for a replacement.��Instead, you���d want to use that time to hunt for even a small percentage��savings in one of��your larger spending categories.���

Accurate spending information��also carries benefits for retirees. On the one hand, you want to avoid depleting your assets too quickly. On the other hand, if your assets have grown, you may realize that you���re in a position to spend or give away more.

A final benefit���one that���s especially helpful during periods of financial uncertainty such as 2022: Any information that can provide a greater understanding of our finances, and thus give us a greater sense of control, can be invaluable. Unlike all of the things outside our control���including the stock market, inflation and geopolitical worries���our own spending is a lever that���s well within our control. Even if we don���t make any changes to our spending, there���s a sleep-at-night benefit to simply having this information.

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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Back to Fundamentals

WHAT DO ALL BEAR markets have in common? By definition, stock prices must fall at least 20%. But often, that���s pretty much where the similarity ends.

For instance, ponder the differences between 2020���s one-month, 34% plunge in the S&P 500 and this year���s grinding nine-month descent, which saw the S&P 500 yesterday close 25% below its early January high.

The 2020 slump had folks fretting about the economic shutdown and possible deflation, while this year���s big worry is surging inflation amid a 53-year low in unemployment. Indeed, if you factor in this year���s loss to inflation, stock market investors have suffered a hit in 2022 that rivals that of early 2020.

As inflation has accelerated in 2022, the yield on the benchmark 10-year Treasury note has jumped from 1.51% at year-end 2021 to 3.81% as of Friday. That���s meant double-digit losses for the broad bond market, leaving even conservative investors licking their wounds. By contrast, in early 2020, Treasurys rallied as stocks plunged, offering some solace to diversified investors.

Every bear market is not only different from earlier declines, but also each one feels different���with unique issues that trick us into thinking the problems will snowball and the financial damage will be permanent. Such feelings aren���t surprising: If every bear market seemed similar, we���d all be emotionally prepared and there would be little or no panic.

That raises the question: Have we seen any panic this time around? Market soothsayers look for it, saying share prices won���t bottom until we see ���capitulation.��� I have my doubts about such market ���wisdom.��� Still, we certainly had days in September when investors appeared to dump stocks indiscriminately, notably Sept. 13, when the Nasdaq Composite fell more than 5%. I find signs of indiscriminate selling encouraging because it means share prices may have become detached from their intrinsic value and perhaps offer a great buying opportunity. And, yes, I���ve been regularly adding to my stock funds throughout this decline.

On the other hand, what looks like indiscriminate selling may, this time around, be a revaluation of stocks in the face of higher interest rates. Think of today���s share prices as the sum of all expected corporate earnings, with those future earnings discounted. As interest rates rise, expected earnings get discounted at a steeper rate, and the haircut is especially steep for earnings in more distant years.

With growth stocks, investors are betting on company profits that may not materialize for many years. Result: Growth stocks have been hit especially hard by 2022���s rising interest rates, while value stocks have held up better. But whether it���s growth or value stocks, when rates rise, almost all will get their prices trimmed. That���s why big down days can feel like indiscriminate selling but may, in fact, be entirely rational.

All this is different from 2020, when interest rates were falling, and the focus instead was on which companies would see their earnings hit hardest by the pandemic���s economic shutdown. That year���s market plunge was bigger, but the winners and losers seemed to make more sense. Goodbye, airlines and cruise lines. Hello, Netflix and Amazon.

So where do we go from here? This is the story that investors appear to be telling themselves: When inflation abates, we���ll see a decline in short-term interest rates, which are currently above longer-term rates���the infamous inverted yield curve. In the meantime, the hope is that a slowing economy won���t put too much of a dent in corporate earnings, but that���s clearly a danger. What if the economy does slow significantly? That would presumably lead the Federal Reserve to cut short-term interest rates. And that, in turn, should help spur both economic growth and the stock market.

This seems like a reasonable story. Will it turn out to be true? I have no idea.

Still, I think what���s happening in the stock market in 2022 offers an important lesson for longer-term investors. The story of the financial markets over the past four decades can be told with two data points. In September 1981, the yield on the 10-year Treasury note almost reached 16%. In August 2020, it got as low as 0.52%. The intervening decline in interest rates drove up not only bond prices, but also the value that investors were willing to put on stocks.

But the long tailwind of falling interest rates is all but spent. I suspect today���s sense of economic crisis will pass soon enough, bond prices will stabilize and stocks will rally. But without the tailwind of declining interest rates, longer-term gains for stock and bond investors will come much more grudgingly, and thus the fundamentals of smart money management will be more important than ever.

What does that mean? We need to save diligently, spend prudently���and do everything in our power to pocket whatever the markets deliver. That means buying low-cost broad market index funds, trading infrequently, minimizing taxes and standing our ground in the face of market turbulence. We may not control the direction of the financial markets, but these are things we can control.

Sound like yet another reiteration of the HumbleDollar gospel? It is indeed. That���s the nice thing about sound financial principles. The markets may change, but the principles endure.

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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September’s Hits

BELOW ARE THE 10 most popular articles and blog posts published last month by HumbleDollar. What I like about the list: The 10 pieces were penned by nine different writers.

Combine tumbling financial markets and high inflation, and you get sequence-of-return risk���a huge danger for new retirees. What to do? Rick Connor suggests five strategies.
Want to make sure your investment dollars are there when you need to spend them? Ponder how your investments match up with your goals���and what their duration is. Adam Grossman explains.
Many folks can afford to retire���but don't. Why not? Luke Smith divvies up these retirement holdouts into three groups.
Curmudgeon Dick Quinn has a retirement hero. It's his cousin Carol, who is in the midst of an 18-month, $50,000 tour of Europe, Africa, Australia and elsewhere.
John Yeigh split the difference, claiming Social Security benefits roughly halfway between age 62 and age 70. Why? John offers 10 reasons.
Focus on one thing at a time. Control what you can. Personal finance isn't all math. Logan Murray discusses three of the money values he strives to live by.
"If travel is important to you, do it while you can," writes Rick Connor. "Family members we visited echoed this advice. One lamented that she���d started slowing down when she reached age 70."
Fred Wallace lost his job at age 56 and couldn't find work. But the story has a happy ending���because he'd been saving aggressively since he was 28.
Steve Abramowitz currently owns a dozen rental properties. What about real estate investment trusts instead? After four decades as a landlord, Steve can see the appeal.
Like the idea of working remotely? Jiab Wasserman, who worked from home for seven years, offers 11 tips.

Meanwhile, among our twice weekly newsletters, the most popular were Choosing Happiness, Retiring Right and Tiresome Debates.

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A Sporting Chance

WANNA BET TOM BRADY has the real golden arm? I���ll take the other side of that wager. At the Borgata Casino in Atlantic City in 2009, Patricia Demauro's golden arm rolled the dice 154 times over four hours and 18 minutes without losing.

Yup, football is back and sports gambling is on a roll. Several states have legalized it, and many others are proceeding in that direction.

My 35-year-old son Ryan, a math jock and sports fanatic, has already signed on. He���s found the adrenaline rush of gambling to be a welcome break from the demands of teaching high school and coaching basketball.

I was concerned about the well-known nightmares of sports gambling, so it was a relief to learn that Ryan was betting responsibly and managing to hold his own. Like other professional sports bettors, he���s developed a statistical model that discourages betting on intuition and hunches.

Ryan and I speak often. He bounces ideas and tactics off his old man, a former academic researcher. As I learned more about his approach, I recognized it as eerily familiar. I had been a fervent options and individual stock trader when I, too, was in my 30s. I���ve become fascinated by the parallels between what Ryan is doing today to inform his bets and what I did when I was trading options and stocks.

First, let���s take a glimpse into the machinations of the sports bettor. Assume the data suggest that the home court advantage in college basketball is exaggerated. Those who erroneously believe that a raucous arena necessarily dampens the performance of the visiting team will bet too heavily on the home team, and thereby skew the odds. The savvy sports bettor takes the other side.

When I was laying bets on Wall Street stocks, I remember fortifying myself with a desk strewn with newsletters that claimed they could transport me to a lifetime of leisure and abundance. Sports bettors, similarly, have instant access to a wealth of online information on teams and players, as well as courses on sports betting.

Just as I haunted numerous trading conferences back in the day, sports bettors now convene at workshops where like-minded mathematics wizards from elite universities hold court. Today, bettors���like traders���rely heavily on statistical analysis.

They employ predictive models to spew out data to show when the sports bookies are off. I relied on charts and moving averages to learn what stocks had the momentum to warrant the purchase of their options. Now the hunt is on for similar opportunities created by discrepancies between the na��ve money and the forecast of what the betting odds should be. In today���s parlance, most hardcore sports bettors are quants.

With apologies to Warren Buffett, let���s consider value investing from the vantage point of the sports bettor. Buffett compares a company���s intrinsic value to its stock price. To paraphrase Benjamin Graham, the greater the discrepancy, the larger your margin of safety. Similarly, the size of the spread between the output of the gambler���s model and the casino projection is his margin of safety. The greater the discrepancy, the higher the probability of a profit.

The drama of the Super Bowl gives savvy bettors a value play. Flush with anticipation and rooting for excitement, the public is more likely to believe that a kickoff will be returned for a touchdown than is warranted by the objective data. The emotional money on the ���yes��� bet is unrealistically large. This leads the sports bookies to increase the odds in favor of the ���no��� bet, which is now feverishly being taken by the smart money.

Jim Cramer rants that diversification is the only free lunch on Wall Street. That���s also true for sports bettors, who must spread their bets across many games to avoid a wipeout. Still, stock fund managers often invest more money in their high conviction picks, or even run a concentrated fund to prevent dilution of their investment philosophy. Bettors similarly put down more money when their models flash that the sports bookies' numbers are less accurate.

Of course, in the long run, the returns from owning stocks should be superior to those of all but the most skillful sports bettors. Stock investors may get an average annual return of 10% over 20 years, with almost no transaction costs. Sports bettors, on the other hand, must beat the house, which uses finely tuned computer models to make fat profits at the gambling public���s expense. Like the options traders of old, bettors must endure harrowing losses and unpredictable cash flows.

I���ve come to see the sportsbooks as similar to a broad index fund, a benchmark even the most storied mutual fund managers have not been able to consistently surpass. I limped off the stock trading playground by my 40th birthday, chastened and transformed into a dedicated mutual fund investor holding for the long-term.

I���ll confess to still having apprehensions about Ryan���s new pastime. I hope there comes a time when he parlays his profits as a sports bettor into stakes in mutual funds and exchange-traded index funds. There he could apply his aptitude and knowledge to enhance his financial well-being and harness the magic of compound interest. Then again, I need to remember Ryan is entitled to live out his own dream, not mine.

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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My Third Hanging

IN THE COEN BROTHERS' excellent movie, The Ballad of Buster Scruggs, James Franco���s character is set for a good old-fashioned Wild West hanging. Franco appears to accept his fate, but there���s a poor slob next to him with a noose around his neck crying inconsolably. Franco quizzically turns to him and says, ���First time?���

I cracked up when I watched that scene. It has since become a famous meme. I feel like uttering the same phrase when younger friends, coworkers and mentees come to me for personal finance advice. They���re shaken, scared and horrified by this year's stock and bond market performance.

Frankly, they should be, because most have only been investing since 2010 or so. This is the first really ugly market they���ve seen. We���re in bear market territory for the S&P 500���defined as a 20% decline from the high���and we���ve seen a��16% decline for 10-year Treasury notes in 2022. According to market commentator Charlie Bilello, a 60% stock-40% bond portfolio is on pace for its worst year since 1937.

As market veterans know, when the market declines, the doomsayers come out in droves. My favorite is ���Dr. Doom��� himself, economist Nouriel Roubini, who deftly predicted the 2008 great financial crisis. Roubini now predicts a 40% U.S. stock decline, accompanied by a long, ugly recession, according to a Bloomberg headline.

Of course, he���s joined by many other doomsters. Among them are cult investor hero Michael Burry, who predicts the ���mother of all crashes,��� according to the New York Post; the relentlessly self-promoting Robert Kiyosaki of Rich Dad, Poor Dad fame; and even eminent investors like Jeremy Grantham, who predicts the final catastrophic end of a ���super bubble.��� Any day now, someone will call this the death of equities, CNBC will trot out a ���Markets in Turmoil��� segment and a strange-looking, messiah-like man will be holding up a sign that reads, ���Repent! The end is nigh!���

Welcome to the execution. First time?

Personally, this is my third. Let me be clear: I���m defining a market execution as a long, painful, drawnout crash. This is unlike the 2018 China tariffs crash or even the 2020 COVID-19 crash. Both market declines were followed by quick recoveries. Such V-shaped market bottoms have conditioned investors to buy the dip.

There���s been no quick recovery in 2022, however. There are, instead, bear market rallies that fizzle. Buying the dip has made you feel like a dupe. This bear market is a grinder, and that���s incredibly scary for a new generation of investors.

When I first started investing in the early 2000s, the 2000-02 internet stock crash slashed the S&P 500 by 49%. This was followed by the 2007-09 crash that had a drawdown of 57%.

These were extraordinarily painful periods, but investors were richly rewarded if they hung on. In between, though, they had to deal with a market execution. Market veterans will recognize this pattern. The market grinds lower, the doomsayers come out, a historian will announce the end of the��American empire, every rally will be called a ���suckers��� rally,��� your neighbor will tell you that the market is rigged, and you���ll be tempted to sell it all just to make the emotional pain stop.

The only advice I have for you is to tune it out. Don���t check your statements. Don���t read The Wall Street Journal. Don���t listen to bloviating investors on��CNBC, except for maybe good ol��� uncle Warren Buffett, who famously quipped, ���I don���t pay any attention to what economists say, frankly��� can you name me one super-wealthy economist that���s ever made money out of securities? No.���

���Buy low��� is so very easy to say and so very hard to do. As chartist Walter Deemer says, ���When the time comes to buy, you won���t want to.��� I���ve been buying 100% stocks every month, just like I always do, and I feel like a fool every month.

I have no idea when it will stop. I have no idea if Grantham, after a decade of predicting a great crash, will finally get one. He may and, if it comes, I���ll be putting every single dollar I can into stocks. After all, I���ve already been hanged. Twice.

Tanvir Alam has been practicing corporate law for more than two decades, but you shouldn���t hold that against him. He lives in New York���s Hudson Valley with his patient wife and two skeptical teenagers. Tanvir is interested in personal finance and travel, and is trying desperately to become a runner. Follow him on Twitter @Docket75, read his blog at StealthWealthBlog.com��and check out his earlier��articles.

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Once Upon a Dime

AS A RELATIVE newcomer to the wonderful world of personal finance and investing, I���m quickly learning that there���s more to money than numbers. I���m discovering from my own experiences, as well as that of others, that psychology plays a huge role in how we handle our finances.

We���re human beings, not machines. We aren���t completely logical. Yes, logic helps the process, but logic isn���t how we regularly process and digest information. Instead, we���re driven primarily by our emotions. That���s why stories are often the best way to share information.

Our brains are wired to create stories. It's how we understand the world around us. But it isn���t always a good, positive, Disney-esque story that our minds create. Some stories are destructive and inhibiting.

Recently, I realized I���d been telling myself a story���and it wasn't a good one.

The realization came when I watched a YouTube video. The speaker in the video told a story about trying to lose weight. No matter how much he worked out, he didn't make any progress. One day, someone mentioned his obsession with chocolate���which, of course, he denied.

But then he tracked his spending. He was shocked to find out just how much chocolate he was buying each month. He went on to explain that this revelation changed everything for him. He was able to determine what caused his chocolate buying sprees and then make adjustments.

I was struck by how the way he used money told a story about him���and by how his brain somehow chose to ignore reality. I wanted to know what stories my money told about me. I already tracked my expenses, so it wasn't hard to see if anything was out of whack. I was sure there wouldn't be anything unusual in my spending.

And I was right. Everything was as it was supposed to be. Except for one section: transfers and investments. The number of transfers I���d been making seemed excessive. I dug deeper and found that I had made several transfers to invest in Fundrise and DiversyFund, two sites designed to help folks make real estate investments.

But I couldn't remember my rationale for making those transfers, so I used a strategy I learned while working at a lumbermill. It's called the ���five whys.��� The notion: You keep asking why until you find the root cause of a decision.

Why did I originally choose to invest in Fundrise and DiversyFund? My sister had asked me about DiversyFund. Meanwhile, I���d heard of Fundrise from various sources.
Why did I want to invest? They seemed like a good way to get into real estate. I had cash for a house down payment, and I was getting frustrated waiting to find an affordable house.
Why was I frustrated? It felt like I���d missed my opportunity to buy a house. It was frustrating to see the real estate market go up and up and up.
Why do I want to buy a house? I���m tired of living under someone else's rules. I want ���my own kingdom.���
Why do I want a kingdom? After moving around for much of my 20s, I want a place I can finally call home. I���m ready to be part of a community. I want a place where my younger siblings can come when they need to get away from everyday life. I want a place where I can house friends and family who are going through a rough patch���something I saw my parents do. Most important, I want a place where I can raise a family with my future bride.

I realized I���d been telling myself a negative story. I began believing that homeownership was unobtainable. I didn���t think through all the possibilities, including the possibility that property prices might stop skyrocketing. All I could see were the challenges. With this mindset, the only option became platforms like Fundrise and DiversyFund, which allowed me to tell myself, "Well, at least I have some real estate investment exposure."

Yet, when I think about owning a house, I���ve never cared about the investment potential. That was never my goal. But my mind had decided that these investable assets were somehow a substitute for what I really wanted���a place I could call home. I realized my investments were ways to pacify myself, to make me feel a little bit better in the short term. But in the long term, they didn't achieve what I truly want.

Money isn't just dollars and cents. It can be a way to look at ourselves from the outside. What story does your money say about you? Try taking a closer look. You might be surprised at what you learn.

Kelechi Iwuaba is an engineer, a Nigerian-American and a self-taught finance nerd who lives in Atlanta. He loves talking about all things finance to anyone willing to listen. In his free time, Kelechi creates finance videos, records the ���Rambling Mind��� podcast and writes a blog. He loves volunteering at his local church and playing soccer at every opportunity. Follow him on Twitter @KelechIwuaba.

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Birthday Wishes

MY WIFE RECENTLY ASKED me if there was anything I wanted for my 65th birthday. She was racking her brain for a special gift, but was coming up empty.

I thought for a while, but couldn���t think of anything I really wanted. We have all the stuff we need. We���re blessed with a wonderful family, we live in a great beach town and we have enough assets for a comfortable retirement. We���ve spent 2022 working on our health and fitness, and we���ve made significant gains. What more could I want?

But the question nagged at me and I finally thought of some things I���d really like for my birthday. One of the common themes on HumbleDollar is the superiority of experiences over possessions. My wife and I embrace that ethic and are planning to take advantage of our retirement years to capture as many experiences as possible. These can be simple or grand. I think mixing the sublime and the prosaic makes life interesting.

I���d like to see more of Western Europe.
I want to visit Alaska and the Pacific Northwest.
I���d like to visit the American and Canadian Rockies.
I want to go to the Canadian Maritime provinces and see the tidal bore at the Bay of Fundy.
I hope to visit many of the wineries in my home state.
I���d like to take regular day trips with my wife to explore nearby parks, museums and towns.
My goal is to maximize the use of our National Parks��Senior Pass.

After I drew up that list, I came up with a second list���one that includes loftier ambitions. These may be tough to attain, but I think we should focus on what���s really important to us as we age. None of the things on my second list can be bought at the mall or on Amazon.

I���d like to celebrate my 50th, 60th and 75th wedding anniversaries with the love of my life.
I���d like to see my grandsons graduate elementary school, middle school, high school and college, and get married.
I���d like to watch my grandsons play baseball, basketball and soccer, or whatever sport they favor.
I���d like to see my children turn age 60. That���s the point at which my mother-in-law said she felt old.
I���d like to maintain my cognitive skills, mobility and independence for as long as possible.
I want to see close family and good friends as much as possible.
I wish to find ways to be useful to the greater world.
I wish to be decent, kind and brave.

Just as I was finishing this piece, I read an��article on HumbleDollar about two different types of happiness. The idea of eudaimonic happiness clicked immediately. As it turns out, I have many birthday wishes. None includes more stuff.

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