Jonathan Clements's Blog, page 20
July 15, 2025
Diworsification and deversification
Jason Zweig addresses the proliferation of ETFs over at the Wall Street Journal:
“deworsification: cluttering a portfolio with too many investments.
I think many investors should worry instead about deversification…..That’s the opposite of diversification. Rather than spreading your bets, you concentrate them—and that can be dangerous.”
Over at another forum there has been a running debate about how many stocks to own to achieve diversification. I’m of the opinion that owning a basket of 100 growth stocks isn’t that.
Zweig goes on “The fewer stocks you hold, and the farther away from the overall market you move, the more extreme your returns are likely to become. Your potential gains are greater, but so are your losses……If you must speculate, bear a few things in mind. First, amplifying the risk of single stocks can make you a ton of money when the market is going up. It will wipe you out when the market goes down.
Limit your bets to a maximum of, say, 5% of your total assets. That way, you’ll make a lot if you bet right but can’t wreck your financial future if you turn out to be wrong. ” [That’s what some call a sandbox for experimenting in the market]. The more recently an ETF launched, the fewer stocks it tends to own. “A lot of newer investments are taking on more risk than investors may realize,” - Daniel Sotiroff, a senior analyst at Morningstar."
When growth faltered a lot of people who had loaded up on a few individual stocks got burned. I’m not much of a stock picker, although I do own individual stocks, focus ETFs and funds. I do think there is a place for specialized ETFs and I do own a few. But as Mr. Zweig points out, you may get more (or less) than you bargained for. Some of these spin off higher dividends or emphasize sectors (the Energy Select SPDR XLE, for example).
My portfolio “ballast” is a number of ETFs/Funds which are large in scope and contain several hundred stocks. My experience has been as Zweig cautions. “Single stocks can make you a ton of money when the market is going up…”
I have sold portions or Dollar Cost Averaged out of individual stocks when they skyrocketed and I locked in impressive gains. It is to be noted I missed the top and that was expected. My ETFs are the foundation for my portfolio. I think a hybrid portfolio of individual stocks and ETFs can achieve better returns than the S&P 500. That’s been my long-term experience. Some of this can be attributed to differences in valuations. My portfolio is about 28% growth while the S&P500 is about 22%. There are other differences, too and for example, I avoid what some call the "sin stocks" which are more heavily a component of the S&P 500.
I'd suggest that there are benefits to tailoring a portfolio but as Mr. Zweig points out there are also potential risks.
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A Grievance Most Fowl: When Golf Ate My Lunch.
Yesterday afternoon I was feeling peckish and decided to indulge myself with a chicken burger. Whilst about to order the offending item I was alarmed to discover the price had increased by 125% in a matter of a week. This state of affairs caused me to question my belief that inflation was finally under control. I decided to investigate and proceed to question the waiting staff. The culprit it turns out is golf. Perplexed over the reply I decided to take myself for a stroll and think this through.
International professional golf has come to town, namely in the form of The Open Championship at Royal Portrush just a 10 minute drive from my holiday home. Along with this bandwagon has come a couple of 100,000 hungry spectators who seem to be the nub of my lunch incident.
Massive demand for the limited resource that is restaurants has caused the market economy to wake from its slumber and readjust the cost basis for food consumption in the local area. I should be happy after all I'm getting a free demonstration of the classic supply and demand phenomena in operation. Unfortunately my stomach tends to disagree with this assessment as I hurry towards the sandwich vendor further up the street. My sincere hope is they haven't got the economic memo over prices yet!
So there we go, and if I indulge in a bit of hyperbole. A pleasant wander to get some lunch in a sleepy outpost on the North Coast of Ireland can be directly impacted by the global market economy at the stroke of a club. Keep firm control of your portfolio and finances as this simple demonstration shows anyone can be affected by seemingly unrelated global events causing sudden market imbalance and a ripple effect across global stock markets as they reprice for the new information. It's all interconnected.
My only consolation to the chicken burger saga? Free tickets an old business associate has kindly given me for the practice sessions at Royal Portrush. I wonder what the micro inflation environment is like within the hospitality area? I should maybe brown bag my lunch and save a few dollars, after all, I am retired!
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July 14, 2025
I have a challenge for you. It’s one of the most significant financial and controversial issues facing the U.S.
🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄
NOW, the challenge.
Tell us why you will or will not support a form of Medicare for All replacing all the payment systems currently in place, public, employer and private plans to be funded by a combination of employer and individual taxes, income based premiums and cost sharing at the point of service.
Time to stick your neck out - Go‼️
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I have a challenge for you. It’s one of the most significant financial and controversial issues facing the United States.
Before I say what it is, let’s consider all the things Americans don’t like about health care - cost, availability, insurance companies, third-party involvement, high deductibles, premiums, etc.
🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄🙄
NOW, the challenge.
Tell us why you will or will not support a form of Medicare for All replacing all the payment systems currently in place, public, employer and private plans to be funded by a combination of employer and individual taxes, income based premiums and cost sharing at the point of service.
Time to stick your neck out - Go‼️
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Morningstar’s Historical Review of the Benefits of the 60/40 Portfolios During Market Downturns
Today Morningstar released a very interesting article exploring how a 60/40 portfolio diversification limits losses during market declines. Of note is the fact that due to the 2022 bond market swoon this portfolio has still not fully recovered.
You can read the article here:
150 Years of Stock and Bond Market Crashes: How the 60/40 Portfolio Held Up | Morningstar
Here are some highlights:
There have been 19 bear markets for stocks and three bear markets for bonds over the past 150 years—that is, periods in which these investments’ value has declined by 20% or more. This has translated into 11 bear markets for a 60/40 portfolio.
To assess the level of pain experienced in each market crash, we use a framework Kaplan calls the “pain index.” This framework considers both the depth of each market decline, as well as how long it took to get back to the prior level of cumulative value.
The 60/40 portfolio experienced less pain than the stock market during nearly every market crash of the past 150 years.
The Great Depression was 4 times more painful for the stock market than for a 60/40 portfolio. The Lost Decade, the longest period on this chart, was more than 7 times as painful for the stock market.
Though their total losses during 2020 were minor, bonds remained underwater through 2021 and had a particularly bad 2022—the one year in our whole 150-year period in which bonds didn’t provide any diversification benefit during a market downturn. Taken together, the 60/40 portfolio declined 25.1% in 2022.
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Quinn had his credit score lowered. I view credit cards as a necessary evil
As I stated more than once, my philosophy of personal finance is simply save first, spend the rest but never carry a credit card balance.
My American Express card was recently cancelled by Amx. It was a business card and they said since I no longer ran a business I couldn’t keep it. Even though I had the card since 1986, I had to apply for a new one which I did and was approved virtually instantly. I saved money on the annual fee too, and now accumulate Hilton hotel points. Now I have to travel to use them, but as soon as I figure it out, I know I can use them on Amazon purchases as well.
Then my bank United card raised its fee to $600 a year. Since I rarely fly any more I cancelled it and got a new free bank card with cash back. To my surprise since I received the card two months ago I have accumulated $233 in cash back which I can transfer directly into one of our bank accounts or apply to the card balance. Hey, it will offset the extra 3% merchants charge me to use the darn thing.
All this, despite no fault of my own, lowered my credit score. That seems rather unfair, but I have no intention of applying for any loans so no big deal.
I have to admit it’s easy to spend money with plastic and I suspect it takes some personal discipline to not over spend - even a budget won’t help with that😰
I monitor our two card balances very closely - not with a spreadsheet, just a frequent login to our bank - and pay the balances long before the due date. In fact, just a few days ago I paid enough on one card to cover several pending charges. Yup, they are holding my money and I’m losing 0.15% in interest for 20 days.
Suffice to say credit cards are the proverbial two-edged sword. If I carried the balances shown below I couldn’t sleep during my afternoon nap.
WalletHub estimates Americans paid around $254.2 billion in credit card interest and fees in 2024 alone, averaging about $154 billion annually over the past decade😱. That big number is equal to what the federal government spends in fourteen days - a fact of interest, but no consequence.
A few Gemini generated data.
Total outstanding credit card debt in the U.S. is about $1.18 trillion as of Q1 2025
Roughly 46–48% of American households have an outstanding credit card balance
Among credit card holders, about 48% carry a balance from month to month
There were over 171 million Americans carrying credit card balances, up from 155 million in Q3 2021
Among those with credit card debt:
Average balance per borrower is around $6,400–$6,580 in late 2024–early 2025
Per household, the average is slightly higher at about $8,940
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My “Dark Side” of Generosity: How I’m Curbing it in Retirement.
RSG would manifest in unpredictable ways, at random times. For instance, I was walking past the pay station at a restaurant after a dinner I was attending and, on a complete whim, decided to pay for the entire 30-person seated dinner. Another time, I promised a friend's daughter ownership of one of my (admittedly older) cars if she passed her driving test on the first attempt—and yes, I carried through on that promise. I even remember filling a person's heating oil tank when I found out they couldn't afford oil during a cold snap. The list, believe me, goes on.
I should quickly add, all this was in addition to every single one of my own expenses, investment goals, and savings being fully met and funded. I accept that this generosity stemmed from a place of reasonable abundance. But now, since I'm retired and drawing from my portfolio and fixed income, I've had to face facts: I need to stop doing it. At least to the same degree.
The simple key to control in many situations, I've found, is recognition. Once I understood the beast, I could start to tame it. I've since implemented a few simple protocols to manage my self-named RSG issue, creating a layered defense system. Sounds technical doesn't it?
My first line of defense is, ironically enough, a line itself. This line lives in my expenses spreadsheet under "discretionary generosity." Once this monthly allocation is depleted, that's it. I have to play hardball with myself; the well's dry until next month.
My second defense measure is a 24-hour cooling-off period. Before making any sudden offers of help or grand gestures, I force myself to wait a full day. This pause gives me time to properly consider the decision and its implications, rather than just acting on an impulse.
But my third, and frankly, most solid line of defense is my wife, Suzie. Now, before any RSG urgings can take hold, I run them through the "wife filter" before I commit to anything. Just for laughs, I've even put Suzie's number on speed dial, because you never know I might get the urge when ordering a Guinness in a crowded bar!
It feels good to have these boundaries in place. It means I can still be the generous person I am, but in a way that's eminently more sensible, and at the very least, it's going to stop my friends' delight in exaggerating my past hair-brained gestures even further from reality.
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July 13, 2025
Swipe, Click, Invest: Danger in the Crypto Era.
We welcomed guests to stay over at our holiday home yesterday. It was a lovely sunny day in the low 80’s and we spent our time at the beach. They're a young couple we're very close to who are getting married next week. We are looking forward to attending their wedding. They are a very sensible duo in their late twenties with good jobs, they also managed to get on the property ladder through their own hard work. I'm very proud of them; they have achieved a lot.
After our BBQ, I was chatting to the groom-to-be, and being who I am, I steered the conversation towards financial matters. I was surprised to learn they have a crypto position that had originally been a savings fund for a new car. They are now stuck with their current older car because of poor performance with the crypto asset. Some influencer was the catalyst for buying into this unregulated area he sheepishly admitted. I would consider this young couple “poster children” for their generation and if they've been impacted by the crypto social media vortex, what about others not as sensible?
As an observer of the financial world, I'm increasingly concerned watching the younger generation, smartphone in hand. It's not just the social media; it's how that tiny device dictates their financial lives, especially when combined with cryptocurrency's allure. Thankfully for this young couple it's only a temporary setback and a valuable lesson learned.
While I realise the financial landscape has drastically changed beyond recognition since I was that age. I do think financial decisions were more deliberate. We'd visit a bank or advisor, or read a newspaper, allowing time to reflect. Now, with smartphones ubiquitous, every moment can be a financial interaction. Banking apps, trading platforms, and social media feeds are a tap away, blurring leisure and financial action. This constant digital tether promotes the real possibility of short-sighted decisions, making it hard to commit to long-term goals like pension contributions or in this case saving for a car. Research even suggests smartphone financial choices are more impulsive.
This always-on connectivity makes my cautious approach to personal finance seem ancient. My thinking around pensions was akin to a marathon, a consistent drip-feed allowing compounding to work its slow magic. Today, that prudence is often drowned out by "finfluencers" – self-proclaimed gurus dominating social media. They flaunt luxury, subtly linking success to obscure digital assets like crypto, using intimate feeds to create false trust.
This narrative is dangerous. Crypto assets are highly volatile, largely unregulated, and you can lose everything. Yet, these influencers often downplay risks, or worse, promote "pump-and-dump" schemes. They hype a coin, watch its value surge as trusting followers buy in, then sell their own holdings, leaving their audience with losses. Social media algorithms, designed for engagement, prioritize sensational content – a crypto fortune story is far more "engaging" than sensible pension or savings advice.
What troubles me most is the impact on long-term financial planning. Why commit to regularly saving for a house deposit when an influencer promises tenfold returns on a new token in months, instantly visible on your phone? This shift from patience to instant, speculative gains could be catastrophic for a secure footing in life. Money meant for compounding and saving is exposed to extreme volatility, often disappearing.
Many young people don't realize cryptoassets are largely unregulated, meaning protections from financial regulator's is nonexistent . If an exchange collapses, there's no safety net.
Previous generations before the digital age built retirement on prudence and in general a skepticism of "get rich quick" schemes. Many in this generation face constant digital temptation, amplified by the smartphone, to gamble their future. My earnest hope is that they develop the critical thinking to choose legitimate advice over social media's siren song, protecting their money for the life they truly deserve.
With regards to my young, soon-to-be-wedded friends, after a long discussion over the evening pointing out the difference between investing and speculation and other wide-ranging aspects of finance, I'm very confident they're on the right path to success due to their own sensible efforts and perhaps a little nudge from myself. I wish them well on the long road ahead.
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July 12, 2025
Conserving cash
A couple weeks ago, the team I was part of was eliminated. My boss- and his boss-were also laid off, along with about 10 of us. The industry is facing significant headwinds, and our organization was no exception.
This is the first time in my life I've been laid off, and I never imagined finding myself in this situation. I've always believed in strong work ethic in creating and delivering value to both the organization and the customer.
Life happens, of course. I'm a big believer in the idea that when life gives you lemons, you make lemonade. I have no doubt I'll land on my feet again - sooner rathern than later - and I've been actively looking for a new opportunity in the Greater Philadelphia area.
From a personal finance perspective, I've shifted into the cash-conservation mode, while aiming to minimize the disruption to my family. I've paused contributions to our two kids' 529 plans, extra principal payment our mortage, and Roth IRA contributions for both my wife and myself.
I'd welcome your input: what other financial moves you think might be helpful for those of us navigating a layoff? Thank you.
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Framed by his Side Hustle?
I bumped into a friend a few months ago. I knew he'd retired about two years prior, and since I was just on the cusp of doing so, I steered the conversation toward how he was enjoying himself.
As we talked, he revealed he was pretty stressed out and far too busy to enjoy himself. Surprised by this confession, I pressed him for the reason.
It turns out, being good with his hands, he had always fancied having a go at picture framing and purchased some equipment for this endeavor. He thought he could maybe make a few dollars and fill a bit of his spare time. Things have gone better than he expected, and it's snowballed into an enterprise taking up all his time, to the extent he may as well be working full-time and more! He's also breached the UK turnover threshold for sales tax (VAT) and needs to register with the tax authorities and keep detailed records of his sales. He's somehow let it get out of control because he doesn't want to let customers down.
Thinking about it during our conversation, I remarked he was maybe letting himself and his wife down, and that was possibly more important than the customers. That may sound a bit blunt, but I knew he and his wife had been looking forward to his retirement and had quite a few plans to enjoy their time together, which now seemed to be on long-term hold.
We finished our conversation and went our separate ways. But this got me thinking: side hustles in retirement are possibly not always what they're cracked up to be. Maybe my friend should have thought things through a bit more, and although he couldn't have known he was going to get so busy, having some guidelines around what is "enough" for his retirement project would have paid dividends. More time with his wife and plans, for one thing.
What might he have done differently? In my mind, keeping his turnover down would have been a critical step, and limiting the number of hours he devoted to the side hustle would have been another. Learning that "no" is a sentence all by itself and doesn't need any explanation would have been a good start. He could still have had an enjoyable pastime and a bit of money in his back pocket without robbing himself of the most valuable asset there is: time for himself and family.
Because he knows I have a financial and business background, he had asked for help with his sales tax problem. I politely declined helping, pointing out I was soon retiring myself and wanted to keep my time free for my own future plans and projects. I hope the next time I see him, my blunt message got him to think things through, or maybe my more subtle message about plans for my own retirement time gives him pause to reconsider his own original retirement goals. My final thought as I left my friend was how ironic his very success has really been his retirement failure.
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