Jonathan Clements's Blog, page 187

Starting at the End

MY FAVORITE BOOK of all time is The 7 Habits of Highly Effective People. The title may be the only thing that author Stephen Covey has ever written that I don���t like. This book and all of Covey���s work are exploding with life, integrity and meaning. I believe he does an incredible job conceptualizing the most important questions of a well-lived life. If you can���t tell, I���m a bit of a disciple.

There���s a chapter on habit No. 2 that I find particularly significant. Habit No. 2 is ���begin with the end in mind.��� The chapter starts with a thought exercise.

It goes something like this: Imagine you���re attending a loved one���s funeral. Envision your outfit. Picture driving to the chapel, finding a parking spot and approaching the chapel. As you get to the door, you see flowers and hear the soft organ music. You walk in and see some of your friends, family and other acquaintances who were close to the deceased. You feel the shared sorrow of loss, but also the joy of memories shared. You head toward the casket.

As you peer over the side of the coffin, you come face to face with yourself. This is your funeral three years from today. All your friends and family have gathered to remember your life and express their remembrances of you.

Now, four people are going to speak about you: a close family member, a best friend, a work peer and a member of a community you were involved in. What do they say? How do they describe you? What kind of family member were you? What kind of friend were you? What values do they assign to your legacy? What type of person were you?

This exercise helps define what success means to each of us. Most important, what do we wish they���d say about us? I���m guessing that it isn���t ���he made a lot of money��� or ���she was so busy all the time��� or ���he never lost an argument��� or ���she held the strongest grudges.���

��I would imagine that most of us would hope for ���she loved people so well��� or ���he had integrity��� or ���she was someone you could count on��� or ���he made the world a better place.���

By putting life into perspective this way, we truly begin with the ultimate end in mind. What values, achievements and contributions do we want to be remembered for? What is the measure of a well-lived life? It seems to me that often we get so caught up in our routine and we���re so convinced of our invincibility that we fail to ponder what we want out of our time.

As someone who makes a living by talking with people about money issues, there���s one question I come back to again and again: If we had just three years to live, what would be the focus of those years?

How many people would say ���work more��� or ���buy more stuff���? So often, it seems we prioritize the wrong things. We make all kinds of sacrifices to make more money. But what sacrifices are we willing to make to spend more time with loved ones?

Stephen Covey offers a way to really drill down and get serious about what we want out of our life. He recommends everyone create a personal mission statement. Writing down our personal mission is a great way to define success and get a better handle on our life���s purpose and meaning.

Covey would say we should read it frequently and evaluate how well we���re fulfilling our mission. Also, by reviewing our personal mission statement before any big decision, we have a clear framework to evaluate the costs and benefits of any life choice. My recommendation: Spend time thinking about the end. Yes, it can be uncomfortable. But it also provides a powerful perspective that can guide us through the years ahead.

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

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A Dark Place

WHERE WOULD WE BE without the internet, social media, and our smartphones and smartwatches? Can you remember a time when you couldn���t look up the answer to a trivia question at a cocktail party? I love answering the phone on my watch. It takes me back to Dick Tracy.

There I was, going along happily in my online universe���until I got an email from McAfee���s identity theft protection service alerting me that my phone number had been found on the dark web. I got the McAfee service courtesy of T-Mobile, my wireless provider, after its data breach. What ensued was an onslaught of spam. Some of the texts were ridiculous, others almost believable.

As if that wasn���t disturbing enough, not long afterward, McAfee alerted me that my Social Security and driver���s license numbers were also purportedly found on the dark web. My initial reaction was panic.

I went to McAfee���s website and did everything it told me to do. Because my phone number had been found on the dark web, it said to be on the lookout for suspicious calls and to contact my phone carrier if they got out of hand. Changing my phone number was recommended only as a last resort. The website also suggested that I:

Put my name on the National��Do Not Call��Registry. I was already on it.
Check my credit reports. Done. I do this continuously.
Check all financial accounts. I also do this continuously.

I knew that last year the Federal Communications Commission had started requiring large telecom companies to adopt a technical protocol known as STIR/SHAKEN. This requires that calls must originate from the phone number that appears on your phone. I���ve seen the robocalls I receive fall sharply because of this requirement, so I felt this would also happen with the unwanted texts I was getting. Sure enough, after the initial flurry of spam texts, they seem to have leveled off. I���ve taken to making a copy of unwanted texts, sending them to 7726 (SPAM) and blocking their numbers.

Meanwhile, because my driver���s license number had been found on the dark web, the security site suggested contacting the Department of Motor Vehicles, and also checking my credit reports and financial accounts. Regarding my Social Security number, the site suggested I call the Social Security Administration directly.

Before doing so, I decided to go to McAfee���s website for more information. Surprise: The information in its scary report about the dark web wasn���t mine. The data, driver���s license number and Social Security number all belonged to someone else���a person in a different state.

The report contained that person���s name, address and phone number. Thank goodness only the last digits of the person���s driver���s license and Social Security numbers were displayed, or McAfee would have created a data breach of its own.

I finally decided to call McAfee. The first person I spoke to was baffled by what had happened and transferred me to a specialist. During the transfer, the phone hung up. I called back and, after repeating my predicament, was told that it would be taken care of, everything was fine and not to worry. I sensed that the individual wanted to get me off the phone quickly.

McAfee subsequently asked me to fill out an evaluation of my experience. I explained what had happened and hoped to find out what had been done to rectify the error. Several follow-up emails told me the issue had been resolved. Feedback was requested, including about the person so anxious to get me off the phone.

What have I learned from all this? No matter what security service you use, ultimately you have to look out for yourself.

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Looking Not Seeing

IN THE NAVY, THEY USED to say, ���You don���t get what you expect, you get what you inspect.��� Inspections played a major role in how the Navy determined the competency and capability of a warship. For nuclear-powered submarines, the most important inspection was the Operational Reactor Safeguard Exam, or ORSE, which rhymes with horse.

A team of experts thoroughly inspected all aspects of a submarine���s nuclear power plant. This covered everything from material readiness (���verdigris on valve stem���), to written exams (���draw the main seawater system���), to reviewing documentation (���the strike-through on page 15 wasn���t initialed���), to simulating a reactor leak (���excessive time was required���).

Everything was fair game and, when it was all done, the ship was given a detailed report and a definitive grade: above average, average or below average. An above-average or average rating meant that life���and careers���could go on as normal for officers and crew. A below-average grade meant that a new captain and chief engineer might be in order, with comprehensive training for everyone else.

I played a small role in two ORSE exams, which resulted in two average ratings, thankfully. They were so painstakingly comprehensive that, when they were over, the Navy felt confident in the crew���s ability to safely operate the reactor���and I started thinking about getting into another line of work.

It would be nice if home inspections were as definitive and comprehensive as an ORSE. After reviewing my last three home inspections, I���ve found they are not.

The inspectors were generalists and therefore may not have been capable of inspecting all of a home���s individual components. The last inspector I dealt with inspected my heating, ventilation and air conditioning (HVAC) systems, finding no significant issues. Later on in the year, after the evaporator coils on the air conditioning started freezing up, it was found to have a refrigerant leak that required a complete replacement. As the inspector never checked the refrigerant pressure, there was no way his report could have alerted us to the problem and the system���s eventual costly failure.

All three inspectors, while no doubt properly trained, had no background in the building trades. Two had spent careers in information technology and the third inspector had been in some other line of work. While they all met the professional qualifications, how can you properly inspect a home if you���ve never helped build or repair one?

To be clear, I���m not talking about incompetent inspectors who perform cursory inspections���although this is also an issue, according to Consumers' Checkbook. Even the best-trained inspector who performs a detailed review can���t be expected to be an expert on roofs, HVACs, foundations, plumbing and electrical.

At the end of my three home inspections, each inspector provided me with a list of deficiencies���in some cases quite extensive���along with numerous photos. They seemed to go out of their way, however, not to offer an overall grade or broad subjective judgment about the condition of the house.

My last inspector mentioned a roof ���patch/repair was beginning to show cracking at edges,��� but made no assessment of the overall condition of the roof or how long it might last before a total replacement would be required. This is perfectly acceptable under the International Association of Certified Home Inspectors��� Standards of Practice, which states, ���An inspection does not determine the life expectancy of the property or any components or systems therein.���

I also don���t like that I hired my inspectors through my real estate agent each time. This set up a conflict of interest. If the inspector found something that would kill the deal, why would the agent recommend him ever again?

Using a home inspector can bring peace of mind to a buyer about many little things like ���the anti-tip bracket was missing from the range��� or the ���microwave exhaust fan lightbulb was out.��� I have doubts about how effective inspectors are at detecting major issues that could compromise the safety and integrity of your new home.

What can a buyer do? First, there���s value in knowing that a home inspector can���t provide a comprehensive inspection. Even if you vet them, hire good ones, accompany them on their inspection and ask the right questions, you need to realize that many potential issues are beyond their technical competence.

Second, there could be a way around this problem for a well-organized home buyer. A colleague once told me he skipped hiring a home inspector. Instead, he hired a roofer, an HVAC tech and a general contractor to each separately inspect a home he was buying. He said the cost was about the same as the general home inspection, but the amount of technical expertise brought to bear was significantly greater.

Michael Flack blogs at��AfterActionReport.info. He���s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles.

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Stock Raving Mad

ONCE YOU GET BEYOND index funds, I���m out of my league, so I ask this as a naive investor. Can someone please explain the stock market to me? Okay, I guess that���s a trick question���because I don���t think anyone can explain the financial markets to anyone.

I���ve heard that markets are forward-looking. If that���s true, how come stocks react wildly to information that has been publicly anticipated for days, even weeks? Why the big surprise?

Take inflation. It���s high, we all know it���s high, and we all know it���ll take time to bring it down. Yet the day after an announcement that inflation is no better than the previous month, the markets tank. Who���s not paying attention to the news?

I���m mystified when the price of a stock falls because the company���s earnings miss analysts��� estimates. Why can���t it be that the analysts messed up and the company is doing just fine?

The price of a stock fluctuates mostly based on earnings and anticipated earnings. Why? If a company beats its earnings estimate, why should its stock price rise? Investors are willing to pay more for a company with growing earnings, I���m told. But even if earnings rise, an earnings announcement can tank the price of a stock if the company���s profits are off by a few cents a share���in a single quarter, no less. It sounds like pure gambling to me.

Ah, earnings. Why should I care about earnings, anyway, if they���re not shared with me? I like dividends, at least they���re real. The company gives its shareholders some of what it earns. On the other hand, if earnings are rising and dividends are not, we���re back to the never-ending argument that earnings growth leads to higher stock valuations.

It���s even more mystifying when a company pays no dividend while its stock soars���in anticipation of what? Dividends someday? The anticipation of higher earnings can cause a stock to rise, yet still there���s no dividend. The company is reinvesting in the business, we���re told. What does that mean to me?

By themselves, earnings are suspect. How were they generated? Was there a stock buyback that increased earnings per share without a rise in overall profits? Or maybe expenses were cut, layoffs conducted. Seems to me such earnings are bogus.

I track one stock closely, my former employer���s. It accounts for 40% of my non-retirement investments. The stock has paid���and increased���dividends for 115 years. I���ve been reinvesting mine in more shares for the past 52 years. I���d say that���s a pretty stable stock.

Yet, within the past six months, the ���experts��� have set target stock prices of $87, $84 and $75. As I write this, the share price is $62.85. At the same time, the recommendations have been to ���buy,��� ���hold��� and ���sell������sometimes all at the same time from differing analysts. What value is there in all these predictions? What are average investors to think, or is all this guesswork for traders betting on a 50-cent change in share price?

At the end of the day on Sept. 20, The Wall Street Journal reported, ���Stocks fell Tues��day ahead of the Fed��eral Re��serve���s next pol��icy de��ci��sion as in��vestors grap��pled with the im��pact of ris��ing rates on cor��po��rate earn��ings and val��u��a��tions.��� Wait, investors were surprised? And, again, there���s that obsession with short-term earnings.

On Sept. 21, the markets were up at noon, even though everyone knew the Fed was meeting that day and likely to raise interest rates by 0.75 percentage point. The headlines blared, ���Another big interest rate hike is coming.��� No surprise at all. Sure enough, interest rates were raised exactly as predicted and the markets dropped���big time. My question is, what did investors learn at 2 p.m. that they didn���t know at 1:59 p.m.?

Is there any wonder that many Americans are afraid of investing in stocks, or react irrationally when they see a decline in their 401(k)? Is there any actual difference between New York���s ���Street��� and Las Vegas���s ���strip���?

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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Trial by Fire

DURING MARKET CRISES, I���ve sometimes made bad investment decisions���and sometimes I���ve successfully done nothing.

In 2008, I was living and working in Taiwan, meaning I heard what happened to U.S. stocks after the market was closed. When it���s 4 p.m. in New York, it���s 4 a.m. in Taiwan. I was also very busy at work.

This made it easier to do nothing about the 2008 stock market meltdown. I did nothing so well that by 2011, when I returned to the U.S., the problem had resolved itself. The recovery made me look like a relative genius. I should try doing nothing more often.

When anxiety rises, the three classic reactions are to freeze, flee or fight. Fleeing or fighting without careful thought can make a bad situation worse. Freezing���or, more accurately, pausing���at least gives me the opportunity for further assessment and reflection. It may lead to a more effective, though less immediate, response.

Often in a crisis, we know things are changing but we don���t know where things are headed. Herds have been known to stampede over cliffs in the name of avoiding disaster. Investors and even algorithms can do the same thing during a market crisis.

It���s usually wiser to just follow your long-term plan. By 2020, when the pandemic started, I was surprised when things dropped so far and so fast. But I just kept on doing what I���d planned.

I rebalanced, selling the investments that hadn���t dropped as much and using the money to buy more of the ones that had dropped even further. I didn���t look like a genius, but I didn���t lose my shirt, either. By the end of the year, I had more money invested and a very respectable positive return.

This shows that a good plan consists not just of our initial investment decisions, but also of the adjustments to be made as circumstances change. These adjustments could be as simple as reinvesting dividends or as drastic as selling individual stocks when they decline by more than 10% from their most recent high.

In a time of crisis, normal review times���say, once a year or once a quarter���might need to be accelerated. Rather than changing the plan, it can be time to adjust investments to match our original intentions.

To be clear, sometimes I do make changes to my plan, not always with good results. After the Sept. 11, 2001, terrorist attacks, I thought that surely people would keep flying. I bought airline stocks. And, boy, did I lose my shirt. I didn���t know what I didn���t know. I tend to hold my opinions too dearly. I assume everyone else thinks like I do, but they don���t.

I failed to understand the capital-intensive nature of airlines���and that a lot more people wouldn���t fly for a lot longer than I ever imagined. Airlines had expensive equipment purchased on credit that was suddenly much harder to use. They had lots of people on payroll when they finally started flying again, but the planes weren���t full���and empty airplanes cost almost as much to fly as full ones. After a heap of punishment, I sold my shares.

Perhaps the only good thing I can say about 2001���s misadventure is that I helped other investors lose a little less by buying their airline shares at a terrible time. And I hope I learned some humility from the experience.

Crises present us with a good opportunity to reassess our plans and change our minds. They may bring to light the weaknesses in a strategy. The sooner we address that, the more we might benefit. Here���s what I hope I remember next time:

Crises are often better times to think than to act. When my thoughts are racing, my actions can be ill-considered. It���s only after a crisis has passed that the new reality becomes clearer.
During a crisis, I can justify any decision���good or bad���to myself. I may doubt those decisions at the time and regret them later on, but I may still act on them. That���s why a long-term plan is so valuable and worth following.
After the crisis has passed, I can always revise my strategy. Crises, once processed, can help me to become a better investor. I don���t want to react out of fear, but rather to change thoughtfully.

Steve Spinella is an international Christian ministry worker. He and his wife Laura have been married for more than 40 years. For more of Steve���s writing, check out his blog .

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A Stronger Bond

SERIES I SAVINGS bonds might be the best-performing investment in folks��� portfolios this year. With steep losses in both the stock and bond markets, I bond���s 9.62% current yield looks like a home run. But the playing field could be shifting.

How so? Yields on the federal government���s other inflation-linked bond���Treasury Inflation-Protected Securities (TIPS)���are up sharply in 2022. Result: TIPS aren���t such a bad buy today and perhaps better than Series I savings bonds.

According to Bloomberg, as of last Friday, TIPS yields across the maturity spectrum, from five to 30 years, were solidly in the black, generally in the 1.3% to 1.6% range. These are so-called real yields, meaning they���re yields over and above inflation. Simply put: We can now earn a positive inflation-adjusted rate of return on TIPS.

Meanwhile, today���s buyers of Series I savings bonds will earn a yield that merely equals the inflation rate. Remember, that 9.62% yield is only good for the first six months. Thereafter, the annualized yield for each six-month stretch will bounce up and down with the inflation rate. Series I savings bonds may start looking much less attractive as early as May of next year, when rates on I bonds are reset.

In fact, if you have a short time horizon and want safety, you might want to check out very short-term TIPS. The Wall Street Journal reports that real yields are above 2% on TIPS maturing within 18 months. Gone are the days of your cash losing out big time to inflation. Based on the difference in yield between TIPS and conventional Treasurys, investors expect inflation over the next year will be muted at a little more than 2%, while the expected 10-year average inflation rate is just 2.37%.

Investors��� conviction that the economy will slow and inflation will cool can also be seen elsewhere in the Treasury market. Something that���s discussed frequently in the financial press is the dreaded inverted yield curve. The conventional two-year Treasury note finished last week at 4.2%���the highest yield since 2007���as the Federal Reserve continues down its aggressive rate-hiking path. Meanwhile, the rate on the 10-year Treasury note is just 3.69%.

That unusual situation, where you can earn a higher yield by buying shorter-term Treasurys, might not last long. The bond market seems to think the Federal Reserve will soon reverse course and start cutting short-term interest rates. That, of course, is what stock investors are hoping for. To be sure, today���s slowing economy may cause a temporary hit to corporate profits, potentially hurting stocks. But falling bond yields will have the opposite effect, making stocks more appealing relative to bonds���and heralding a revival of economic growth.

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Price Protection

INFLATION THIS YEAR has been running at more than��four times��the Federal Reserve���s target of 2%, forcing the central bank to raise interest rates multiple times. As a result, both the stock market and the bond market have been struggling. This has investors searching for alternatives.




At the top of the list for many people is gold, which gained a reputation as a bulwark against inflation in the 1970s. During that decade, when inflation was running hot, gold rose eightfold. More recently, gold climbed nearly 25% when COVID-19 first emerged in 2020.




Gold, however, also has a habit of being erratic. After its strong 2020 performance, gold dropped 4% in 2021. So far this year, it���s dropped a further 8%. What���s going on? As I���ve��discussed��before, gold lacks intrinsic value. Unlike stocks, bonds or real estate���which��do��have intrinsic value���gold doesn���t produce dividends, interest or any other kind of income. Gold is worth only what the next person is willing to pay for it, and that can vary wildly. This calls into question its inflation-fighting ability. That���s why I don���t recommend owning gold���except as jewelry.




If gold isn���t the solution, how can investors protect their portfolios in today���s inflationary environment? The most obvious answer: Treasury Inflation-Protected Securities, or TIPS. These are U.S. Treasury bonds that offer built-in inflation protection. Today, the five-year ���breakeven rate��� on TIPS is about��2.4%, meaning that TIPS prices assume inflation will drop substantially from today���s 8% or 9% level. If inflation over the next five years turns out to be higher than 2.4% a year, TIPS investors will do well. Since the jury on inflation is still out, I think TIPS are a good idea for most investors.




A close cousin of TIPS are Series I savings bonds. These must be purchased��directly��from the Treasury, there���s typically a $10,000 cap on annual purchases and you can���t sell them in the first 12 months after buying. Aside from those limitations, Series I bonds are another good way to shore up a portfolio against inflation. The rate on new bonds today is an annualized 9.6%, which is guaranteed for six months and then varies with inflation thereafter.




TIPS and I bonds make sense as part of an investor���s bond portfolio. But I don���t see either as a cure-all. After all, they���re still just bonds. Beyond their inflation adjustments, they offer very little upside. For inflation protection that carries the potential for more robust growth, there���s another asset class to consider: stocks.




This might seem surprising. After all, stocks have taken it on the chin this year. That���s true, but I don���t see this as a permanent condition. To understand why, it���s worth reviewing the fundamental driver of share prices: the profits of the underlying companies.




If you were to look at a chart of the S&P 500 index over time and lay it side-by-side with a chart of the S&P companies��� combined profits, you would see that they mirror each other quite closely. The relationship isn���t perfect. But if you take a longer-term perspective, market prices���on average���tend to follow corporate profits.




What are we seeing in corporate profits today? This is where it gets interesting. Read the headlines, and you might think companies are in trouble, struggling with higher costs for energy, raw materials and payroll. Those factors don���t seem like they���d bode well for stocks.




But that would overlook a critical factor: companies��� ability to raise prices. Consider��Hershey. The cost to make its candy products has increased this year. But at the same time,��it's��been able to pass a good bit of these increases along to customers in the form of higher prices, thus preserving much of��the company���s profit margin.




Some companies have more of an ability to raise prices than others. But so far, it���s clear that corporate America has, on average, been managing the inflation squeeze fairly well. You can see this in companies��� gross margins���the difference between the price at which a company sells its products and what it costs to make them.






What do we see in public companies��� gross margins? Among the companies in the S&P 500, gross margins have improved, on average, by 0.6% this year. For comparison, gross margins increased by 0.2% between 2018 and 2019���the most recent normal, pre-pandemic years. In other words, companies have so far done a fine job passing along price increases to customers and thus maintaining their profits.




Gross margins are one measure of corporate profits. Another measure���and the one that matters most to investors���is earnings per share. The results on that score have been similarly positive. In total, S&P 500 companies��� earnings are��projected��to grow by 8% this year. In 2023, earnings are projected to notch another 8% or 9% increase.




Because share prices ultimately track corporate earnings, these numbers are clear evidence, in my view, that stocks offer solid protection against inflation. You might, however, dismiss this as an academic exercise. After all, stocks are down this year even though profits are up. There���s no denying that, but there���s an explanation������one that, in my opinion, should help investors maintain their faith in stocks.




As noted earlier, stock prices��generally��follow corporate profits, but they don���t move in lockstep. Here���s how I���d think��about it: Imagine two people driving to the same destination but taking different routes. They���ll diverge along the way. But in the end, they should converge upon the same place. That���s how I look at the stock market. Divergence is what we���ve seen this year. Corporate profits are positive, but the market is negative. Convergence will happen down the road.




There���s a ratio to measure the relationship between stock prices and corporate profits. You���re probably familiar with it: It���s the price-earnings, or P/E, ratio. This is a useful measure because it helps explain what we���re seeing in the market this year.




At the start of 2022, the P/E on the S&P 500 stood at 23. But as share prices have fallen even as earnings have climbed, it's fallen to just 17 today. That���s a roughly 25% decline. In industry terms, this is called multiple compression. It���s what typically occurs in periods of increased investor anxiety. But there���s no reason to believe this will be permanent. When today���s dark clouds give way to��clearer skies, it���s reasonable to expect the market���s P/E to expand again. When that happens, we���ll see the opposite of what we���ve seen this year: Stock��prices will rise disproportionately faster than earnings.




When will that happen? I can���t put a date on it, but it���s easy to see what might make that a reality: anything that helps allay investors��� present��concerns���a resolution to the war in Ukraine, for example. When��positive developments like this arrive, stock market investors will likely be rewarded. In the meantime, I wouldn���t worry about this year���s difficult environment.




I also wouldn���t worry if things get worse before they get better. In recent public statements, the Federal Reserve indicated its intention to continue raising rates, even at the risk of pushing the economy into recession. That very well could happen. Indeed, some observers believe the economy is already technically in��recession. Still, I wouldn���t let that hurt your confidence in the stock market as a reliable tool for building wealth and protecting against inflation over time. Remember: The stock market never moves in a straight line. But historically, over the long term, it���s always taken patient investors��where they've wanted to go.

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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Save the Savers

I LEARNED IN COLLEGE economics classes that there���s a time value to money. A dollar today is worth more than the promise of a dollar a year from now. Result? If you���re going to promise me a future dollar, you have to make it worth my while by paying me some interest.

This was certainly true in 1980, when I graduated with an economics and management major. Admittedly, inflation was even higher back then. Still, one-year Treasury bills were paying almost 11% and the newly popular money market mutual funds were yielding more than 12%. Today, after rates hovering near zero for years, one-year Treasury bills are yielding over 4% for the first time since 2007, while my money market fund is paying more than 2%.

The years of low interest rates have been perpetuated by one financial crisis after another: the dot-com bust, the Great Recession and the COVID-19 economic shutdown. Just as one crisis abated and rates started to rise, another crisis came along. One consequence is we have an entire generation who think that near zero interest rates are ���normal.���

There are also powerful economic players who relish this situation. Stock investors see share prices propelled higher as folks seek an alternative to the tiny return on their cash. Businesses can borrow to make capital investments at a low cost. Real estate investors and developers can also borrow cheaply to launch their projects. Perhaps most significant, governments can run larger deficits because their borrowing costs are low.

Who loses? One answer is responsible individual savers. This was true of my mother. She had diligently saved all her life, shopping carefully and preparing for retirement. When she retired, she had no debt of any kind, while keeping a lot of cash in certificates of deposit and money market funds. As I watched interest rates slide to near zero during her retirement, it occurred to me that she was funding other people���s extravagance.

She died in 2019. I���ve now taken her place as a retiree who saved my pennies and who hasn���t had any debt for the past 20 years. Interest rates are now inching up and the financial press says the markets are speculating that the Federal Reserve will raise rates for a while and then ���pivot��� to bring them back down once inflation is under control. Recently, Barron���s had a columnist suggest an alternative: that rates will go up sufficiently to control inflation���and then plateau at that higher level.

What a novel concept: Savers would once again be rewarded for their prudent habits. Fed Chair Jerome Powell hasn���t called to get my opinion. But I���ve got to think that a positive yield on cash���one that matches or exceeds the inflation rate���would provide a proper and healthy incentive to think twice about borrowing unnecessarily and, instead, to save prudently for the future. Rather than hoping for a return to low rates, maybe we should hope for a plateau at higher levels that encourages sensible financial behavior.

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Retiring Right

THE CLOSER IT GETS, the more attention I pay.

���It,��� in this case, is retirement. In January, I���ll celebrate my 60th birthday. I have no intention of fully retiring, but I am thinking about how to work less, travel more and prep my finances for the years ahead. As I sketch out my plans, I���m drawing not only on a lifetime of writing and thinking about personal finance, but also on an even more valuable resource: you.

I never intended for HumbleDollar to be so heavily focused on retirement���but, then again, I didn���t start the site with any great, overarching plan. Still, the fact is, many of the site���s writers and readers are retired or close to it, and that���s reflected in the articles we publish and the comments that readers post. I���ve learned so much from both. In particular, here are seven lessons I���m taking to heart:

1. Travel early in retirement. Got foreign lands you want to see? Don���t delay. That���s a theme Rick Connor recently touched upon.

There���s a moment���probably in our 70s���when international travel will simply seem too arduous. On top of that, the risk grows that we may have a medical issue that either derails our plans or necessitates getting medical help abroad.

I���ve never bought trip-cancellation insurance. But once you���re in your 70s, it seems like a smart move. Ditto for international travel health insurance. As we get older, that can become fairly expensive. The upshot: Before our 70s are done, we might find we���re less inclined to head abroad and instead our travel focus may turn to trips within the U.S.

2. Plan for long-term care (LTC), but don���t necessarily buy traditional LTC insurance. James McGlynn has written about his preference for hybrid LTC policies. Hybrid policies don���t carry the risk of big premium increases���an ongoing problem for those covered by��traditional LTC insurance.

Meanwhile, other writers and commenters have suggested alternative approaches, including paying out of pocket or signing up for a continuing care retirement community. Howard Rohleder recently discussed the latter option. Thinking of self-insuring? If you delay claiming Social Security benefits, you can lock in a healthy stream of regular income that might cover perhaps half of potential nursing home costs.

3. The big win isn���t claiming Social Security late. Rather, the big loss is claiming benefits early. After playing around with OpenSocialSecurity.com, Howard��realized that he could claim benefits at any point from his full Social Security retirement age of 66�� onward and get close to maximizing the ���present value��� of his expected benefits.

Indeed, as OpenSocialSecurity illustrates, what you really want to avoid is claiming benefits early. If you take Social Security at, say, age 63 or 64, you might fall far short of maximizing your benefit, especially if your life expectancy is better than average.

4. Downsize before it becomes too daunting. Like international travel, the idea of moving grows less appealing as we age���and, if we wait too long, we may find ourselves in a home that���s difficult to maintain and navigate.

Many of the site���s commenters and writers, including Dick Quinn, have talked about rearranging their lives so they can age in place. I���ve also taken such steps myself���in part because I���ve seen what happens if folks fail to do so. My maternal grandparents looked into downsizing but never pulled the trigger. Result: By the time my grandmother died, her home was in such poor shape���I can still vividly recall the ceilings marked by mold and water stains���that the buyers tore the place down and rebuilt it from the ground up.

5. Simplify, simplify, simplify. This is another theme I���ve taken to heart, and I���m hardly alone. Dennis Friedman has written about how he���s consolidated his money at two financial firms, would like to shrink his portfolio from six exchange-traded funds to three, and is sticking with a single university health system, so his medical records are in one place.

6. Time is more valuable than money���and that means good health is priceless. As I���ve grown older, I���ve come to appreciate how precious time is. But to get the most out of that time, we need good health, as Dennis recently reminded��readers. Careful eating, moderate drinking and regular exercise all help. But even with all that, nothing���of course���is guaranteed.

7. We need to retire for a reason. We shouldn���t retire simply to escape work. Rather, we should retire because there���s something better we'd like to do with our time. Mike Drak has written about this theme frequently, and Jim Kerr is living it with the book he���s working on.

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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On the Sidelines

ONE OF THE GREAT blessings in life is grandchildren. In fact, as I think back on our childrearing years, skipping the children and going right to the grandchildren would have been great. Just kidding, Rick, Chris, Caryn and Craig.

Here I sit as a retiree on a Saturday morning, what to do, what to do? Are you kidding me?

When you have 13 grandchildren all living within an hour or so from your home, weekends are always booked���with sports. You have your choice of sports, too. There���s the most popular: soccer. There���s football���being in the marching band counts. Plus there���s baseball, lacrosse, track and basketball.

Several of our grandkids play multiple sports. Today, we have baseball and soccer games. Tomorrow, it���s two baseball games and three soccer matches. We aren���t going to make them all, but we���ll be putting some extra miles on the car for sure.

It was at one of the baseball games three years ago that my wife was hit with a line drive and lost sight in her eye. Needless to say, we are extra careful where we sit these days. We���ve learned a lot about ballfields since, including that many are not constructed to safety codes or maintained properly. Be careful where you sit.

Sports seem to consume a great deal of time these days, and not only on weekends. There are practices during the week. Getting from here to there with multiple children playing on different teams must be quite a chore for parents.

When I was a boy, l walked a mile or so to play���quite badly���on a Little League baseball team. My parents never came to a game. My father worked six days a week, and we didn���t have a car. In any case, my mother never had a license.

I don���t know how the grandkids do it, but they seem to thrive. I don���t know how they wear those 20-pound backpacks to school, either. Hey, I���m old, we carried our books covered in newspapers as we walked to school. I count that as a sport.

What does all this activity cost? Big bucks. There are fees to join a team and the league, plus you have to buy uniforms, the required footwear, equipment and perhaps lessons. Then there are sometimes travel expenses. Some of the teams travel considerable distances for tournaments���even out of state. Once you���re at a game, the snack bar lures you in for a hot dog or a pretzel.

The typical parent spends $693 per child each year on youth sports, and that���s just the basic stuff. Some families pay $9,000 to $12,000 annually on elite programs, depending on the sport. That excludes what���s spent on private lessons. Many parents struggle between wanting to do the best for their children and the financial burden. That burden, of course, weighs especially heavily on low-income families.

Playing sports has become a trap, I believe. Parents don���t want to deny their children what their peers have, plus they believe sports are healthy. They���re willing to sacrifice time and money in the hope that sports will give their child a valuable experience���and perhaps a route to college.

In many ways, it���s not unlike when we sent our children to college. We sacrificed a lot to fix those college decals on our cars��� rear windows, all in the hope that we were setting up our children for a prosperous adult life.

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