Jonathan Clements's Blog, page 201
July 10, 2022
When to Sell
At times like this���when the headlines are almost all negative���the standard advice is to avoid panicking and stay focused on the long term. I agree with that, and indeed��the data��are clear: Investors who attempt to time the market with ���tactical��� trades often suffer whipsaw. But that doesn���t mean we should bury our heads in the sand. There are at least four situations in which it might make sense for investors to sell during a down market.
1. Cash flow.��The first���and most obvious���reason you might sell stocks is to meet cash needs. In general, I recommend that investors hold at least three years of expenses in cash or bonds, if not more. But what if your portfolio wasn���t structured that way before the market dropped, and you find yourself with insufficient cash and bond holdings to meet upcoming expenses? It might seem like an unpleasant prospect to sell now. That���s understandable. Ideally, we would only sell when the market is strong. Nonetheless, I wouldn���t hesitate to sell.
Yes, the market is down. But relative to past downturns, things really aren���t so bad. The S&P 500 is off 18% in 2022. While that might sound like a lot, that���s relative to a high point���and comes after more than a decade of almost continuous gains. Compared to just three years ago, for example, the S&P 500 is up 37%, and bonds are down only 3%. Unloading investments at today���s prices is hardly a fire sale. If selling some shares at today���s prices would help you to build a cash reserve, I wouldn���t hesitate. You could then sleep easy, even if the market dropped further.
2. Suboptimal holdings.��In my view, there are four types of investment that are less than ideal. First are highflying investments���things like speculative technology stocks. Second are stocks or funds that simply have a lackluster outlook. Unlike highflying stocks, lackluster ones probably won���t drop too much. Instead, the risk is that they simply won���t��gain��very much. Many banks and old-line industrial companies fit in this category. Third are high-cost mutual funds. On average, funds with higher expenses have underperformed funds with lower expenses. The fourth category includes private funds, where transparency and liquidity are generally low. As I���ve noted before, publicly traded stocks rarely go to zero. But I���ve seen private fund investments lose all their value more than once.
If you hold investments that fit any of these categories, my advice would be to look for a way to get out. When the market is high, such an exit might carry a tax cost. But with the market lower today, you might be able to exit a suboptimal investment with little or no taxable gain. The proceeds could then be reinvested immediately into investments that are more promising or less risky. The nice thing about a swap like this is that you wouldn���t be a net seller while prices are low and you wouldn���t be changing your asset allocation. Instead, you���d simply be upgrading your portfolio.
3. Tax losses.��Even if your portfolio isn���t saddled with suboptimal holdings, market downturns offer another potential benefit. Tax-loss harvesting is the strategy by which an investor sells an investment and then immediately purchases a replacement with the proceeds. That provides a valuable and flexible tax benefit. First, the investor could use that loss to offset capital gains on other sales. If there are no gains, up to $3,000 of the loss could be applied against ordinary income, such as wages. To the extent that there are unused losses beyond that, those could be carried forward to future years.
Here���s what makes tax-loss harvesting so powerful: When you do a swap like this, you can collect the tax advantage without substantially changing your portfolio. Under IRS rules, you can���t sell an investment just to book the loss and then immediately buy it back. In fact, the rules say that you can���t buy back anything that is ���substantially identical.��� Otherwise, it���s called a wash sale and the tax benefit is voided.
You can, however, buy back an investment that���s��similar���just not identical. Suppose, for example, you own a fund that tracks the S&P 500. If you sold that, you���d have several options for replacing it. You could buy a total stock market fund. That sounds like a different investment, but it has an overlap of more than 80% with the S&P 500, so its performance shouldn���t be too different. While the IRS has never precisely defined its ���substantially identical��� litmus test, most advisors agree that a swap like this wouldn���t run afoul of the rules.
Alternatively, you could swap into a fund that follows a large-cap index other than the S&P 500. Vanguard, for example, offers a fund that tracks the CRSP large-cap index (symbol: VV) and one that tracks the Russell 1000 large-cap index (VONE). If you were to compare the historical performance of these two funds to an S&P 500 index fund, you���d find them to be very similar���but not identical.
Another key point about tax-loss harvesting: By immediately replacing the investment you sell with a fund that���s similar, you again aren���t a net seller, so you shouldn���t feel you���re doing something unwise by selling while the market is down.
4. Imbalances.��Another reason you might sell, even though the market is down, is to correct a significant portfolio imbalance. These imbalances can take many forms. Some investors have a concentration in a single stock. I often see accounts, for example, that have disproportionate holdings in Apple or Amazon. In both cases, these imbalances are the result of great performance in recent years. Nonetheless, a big holding of a single stock represents a significant risk. Imbalances can also find their way into portfolios via mutual funds that are concentrated in certain parts of the market���technology stocks, for example. Similarly, imbalances can crop up on the bond side.
In each of these cases, there might be nothing wrong with any one individual holding. The problem is the risk they present in aggregate. Harry Markowitz, the father of Modern Portfolio Theory, said it best. In his��initial work��back in the 1950s, he used railroad company stocks to explain the concept of diversification. There���s nothing inherently wrong with railroad stocks, he explained. But if a portfolio consists of��only��railroad stocks, that���s a problem. Companies in the same industry are often affected by the same economic factors. A portfolio may seem diversified, but if too many of its holdings are concentrated in one area, it may be far riskier than it appears.
���One hundred securities whose returns rise and fall in near unison afford little more protection than the uncertain returns of a single security,��� Markowitz explained. If you identify an imbalance like this among your holdings, that���s another situation in which it may be worth selling even when the market is down���and even if correcting the problem will generate a tax bill.
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.The post When to Sell appeared first on HumbleDollar.
July 9, 2022
Take a Bow
AS WE WATCH OUR portfolios get pummeled by 2022���s imploding financial markets, this might not seem like the time for self-congratulation. After all, Vanguard Total Stock Market Index ETF (symbol: VTI) is down 19% in 2022, while Vanguard Total Bond Market ETF (BND) has lost almost 11%.
But ponder this: If you'd been less sensible with your money, your results could have been far, far worse. In particular, take a bow if you:
Didn���t buy cryptocurrencies. Bitcoin��has plummeted 53% this year���and that's better than many other��cryptocurrencies.
Didn���t invest in special purpose acquisition companies, otherwise known as SPACs. For instance, De-SPAC ETF (DSPC) has slumped 63% in 2022,��Defiance Next Gen SPAC Derived ETF (SPAK) is off 36% and��Morgan Creek Exos SPAC Originated ETF (SPXZ) is down 33%.
Didn't purchase nonfungible tokens or the companies looking to make money from them. Defiance Digital Revolution ETF (NFTZ), which says it tracks an index "comprised of equity securities of global publicly listed companies with relevant thematic exposure to the NFT (non fungible tokens), blockchain and cryptocurrency ecosystems," has nosedived 63% this year.
Didn���t buy Cathie Wood���s ARK Innovation ETF (ARKK), which became the talk of the financial world after it soared 153% in 2020, only to shed 23% last year and another 50% this year.
Didn���t give up on international diversification. No, internationals stocks haven't been big winners this year. But they've held up slightly better than the broad U.S. stock market, as evidenced by Vanguard FTSE All-World ex-U.S. ETF (VEU), which is down 18%, its performance helped by emerging markets. Indeed, Vanguard FTSE Emerging Markets ETF (VWO) is off 15% this year, better than both the broad U.S. stock market and developed foreign markets.
Didn���t give up on value. Maybe your portfolio has a tilt toward value stocks, which have been one of this year���s most resilient stock market sectors, with Vanguard Value ETF (VTV) sliding just 8%. Maybe you simply stuck with your total market index fund, resisting the urge to load up on growth stocks. Yes, Vanguard Total Stock Market ETF (VTI) has lost 19% in 2022. But Vanguard Growth ETF (VUG) has tumbled 27%.
Didn���t reach for yield. Vanguard Long-Term Treasury ETF (VGLT) is down 22% this year, Vanguard Long-Term Corporate Bond ETF (VCLT) has also fallen 22% and Vanguard Emerging Markets Government Bond ETF (VWOB) has slid 20%.
Lost "just" 11% on your bonds and 19% on your stocks? Cheer up. This year, that gets you bragging rights at the neighborhood barbecue.
The post Take a Bow appeared first on HumbleDollar.
July 8, 2022
Margin for Error
Everything that happens to us, including our embarrassments and misfortunes, is material we can apply toward better handling the future. David Epstein, author of Range: Why Generalists Triumph in a Specialized World, believes such events are also the key to finding meaning and fulfillment. He notes that, “Our insight into ourselves is constrained by our roster of previous experiences. We actually have to do stuff, and then reflect on it.”
It's through our adversities that we are given the opportunity to lead an interesting life. The old Irish blessing says, “May you be poor in misfortune, rich in blessings.” Perhaps it should be recast as, “May you be rich in blessings and misfortunes.” Which brings me to my money journey.
Twin challenges. I was age 36, and working for a financial services firm in Portland, Oregon, when I was lucky enough to get pregnant. I have endometriosis—a condition that affects one out of every 10 women, can take up to 10 years to diagnose and can cause infertility. One of the best investments I’ve ever made: pursuing answers about my condition—and then getting help.For $10,000, my husband and I were blessed with two “positive” pink lines, something many with my condition can only dream of. On the spectrum of infertility treatments, $10,000 is quite inexpensive. We didn’t have to endure in vitro fertilization or other, more involved courses of action.
Shortly into my pregnancy, however, my luck turned. What started as routine nausea and fatigue escalated into countless doctor appointments, visits with various specialists and extended hospital stays. At just 27 weeks and six days, I gave birth to our twin daughters in an emergency delivery.
There’s nothing that can prepare you for this type of storm. Overnight, we went from a September due date to a June delivery. Instead of dealing with months, we were thinking in minutes. At every step, we had to make decisions where there were more questions than answers.
It’s difficult to articulate what it feels like to see your babies failing to breathe—for their hearts to stop while alarms go off and lights flash in the neonatal intensive care unit (NICU). The babies simply weren’t yet at the gestational stage where they had developed the capability to consistently remember to breathe. Every ounce of you wants to react, to pop open their isolette incubators, and start digging through wires and tubes to help.
But as counterintuitive as it sounds, the right antidote was to do nothing. The babies needed a chance to recover on their own. If they didn’t, the nurses would flick their feet or lightly stroke their skin to stimulate a response. Through this process, they were simultaneously training the babies' brains and setting the pace for our marathon. Watching these nurses care for our babies offered an important lesson: The novice reacts while the professional responds.
The best nurses did something else differently: They spent considerably more time bedside than they did chart-side. They got to know their newborn patients at a level that enabled them to make calls that the numbers or protocol didn’t always support. I didn’t walk away from the NICU experience remembering every blood oxygen saturation level or the breakdown of nutritional intake from the dietitian. I walked away feeling incredibly grateful and confident in the team that cared for our babies.
I came to appreciate their empathy and EQ—emotional quotient—just as much, if not more, than their IQ. All too often in finance and other endeavors, we focus on the prescription and not enough on the diagnosis. We don’t spend enough time wrestling with and analyzing the inputs. We flip the 80-20 rule, spending too much time with the 80% and not nearly enough with the 20% that matters most.
A lifetime’s preparation. There’s less than a 1% chance of having a pregnancy like mine. The cost involved was staggering. Yet my husband and I weren’t entirely unprepared. Before we ever stepped foot in the delivery room, we’d spent many years laying the groundwork, financially and otherwise.
For me, that preparation began early, learning money habits by watching my parents, especially my father Ole. He was both a sports enthusiast and a total nerd. As a tenured veterinary pathology professor, Ole’s work attire would mainly consist of Clarks dress shoes, Wrangler pants with a belt that often missed at least one loop, a collared shirt and coke-bottle glasses. He was the king of brown bag lunches and DIY. His fashion sense reflected his unassuming nature and humility. From him, I learned that wealth accumulates thanks to the money you don’t spend.
Layered on top of that was my education and career as a financial advisor. I’ve learned that much of financial success is related to behavior, that managing money is less a hard science and more of a soft skill. Taking action, for the sake of doing something, doesn’t build wealth. Adhering to a sound strategy—and focusing on what we can control—ultimately enriches us the most, while also allowing more time for the important things in life.
Ever since my husband and I were married in 2014, there were two things in our lives that we’ve been maniacally consistent about: saving money and investing in ourselves. Don’t get me wrong: We love indulging in good food, beer, wine and friends—the prerequisites for the good life in Portland. We do our best to align our money and our time with what’s important to us: adventure, knowledge, financial independence, experiences. But we also minimize or cut out the rest. Our financial approach is simple. We devote our money to things we care about, make sure we spend less than we earn, and invest the difference.
That’s not to say we haven’t had missteps. One of the biggest: We overpaid for our first home, which wasn’t uncommon in Portland in 2015. Three months into homeownership, we discovered how many shortcuts were taken by the home’s previous owners and how much we needed to fix.
It was December 2015 and one of the wettest winters on record in Portland. Our new neighbors invited us to their annual holiday party, where we met another neighbor who asked my husband a few things about her house and the weather. This led him to look in her home’s crawlspace, where he found a few feet of standing water. We incorrectly assumed ours was dry.
Our house had a sump pump, and it had clearly failed. The one-year insurance that came with the house purchase would replace it, but only after the three feet of standing water was gone. We MacGyvered a make-shift sump pump by placing a bucket full of holes and a pump from Home Depot in the deep end of the water. An attached garden hose then carried the water to the street through the exterior crawlspace vent. After the water was mostly gone, it became evident that the flexible insulated conduit from the heating and air conditioning ducts was damaged. This, in turn, led us to discover multiple other problems, which required a complete renovation of every single heating and air conditioning duct throughout the house. It was close to $8,000 for all the work.
Other projects followed. Our largest started as a fence replacement and turned into a 360-degree structural landscaping renovation, involving retaining walls, fencing, drainage, sewer and gas lines, irrigation, plants and lighting. The final push was creating a covered and heated patio that my husband tackled. That unknowingly set us up for social distancing when the pandemic hit six months later.
Two days after we’d finished that project, we finally brought home our twins. It was September 2019—the month they were meant to be born. The twins had spent 87 days in the hospital’s neonatal intensive care unit. The hospital bill for each baby was well north of $1 million. We were profoundly grateful for good insurance and for 2010’s Affordable Care Act, which prohibits insurers from setting a lifetime dollar limit on coverage. Our policy’s annual out-of-pocket cost was capped at $14,000. That was a hefty sum but one that pales next to the total medical cost that our twins incurred.
Our ability to make it out of this storm with our finances intact wasn’t just the result of health insurance. It also hinged less on the savings we had added over the years and more on what we had subtracted—the expenses we chose not to take on. We may have overpaid for our 1962 fixer-upper, and yet its value to us has proven far greater. When we bought the house, we made sure we could qualify for the mortgage with just one of our incomes.
Those low housing costs, coupled with our resistance to lifestyle creep even as our incomes increased, left us with ample financial breathing room. That allowed us to save a healthy sum in the years running up to the twins’ birth—and it gave us the financial flexibility to deal with the upheaval that followed.
Birthing a business. With the arrival of the twins, I went from working fulltime to taking six months off. I then tried for some normalcy in my life by returning to work four days a week. But I quickly found myself caught between the needs of our young daughters and the demands of work. I was trying to keep up when life took yet another unexpected turn. In March 2020, COVID-19 hit.
Like countless others, 2020 gave me an opportunity to reflect on my life’s path. I realized that what I needed and wanted for myself and my family didn’t exist. Later that year, I had a routine lunch with a colleague. We were two working professional women with young children. Research suggests this is a problem: Working mothers are less likely to be hired, taken seriously and perceived as competent. They’re also typically paid less than male colleagues with the same qualifications.
We decided to take matters into our own hands—by launching a fee-only financial planning firm, Uplevel Wealth.
The financial services business is a fairly tough industry with a decent failure rate. The intangible nature of what we do means it can take a long time to acquire clients. There are also high barriers to entry. For instance, one large custodian—the firm you use to hold clients’ investments—requires that a financial-advisory firm manage at least $50 million to use its platform. That $50 million is on the lower end of the industry’s asset minimums. Other custodians require your previous—and often much larger—employer to sign off before they’ll allow you to use their platform. Financial advice is also a business where women and minorities hold few leadership positions. A 2019 study by Bella Research Group and the Knight Foundation found that 99% of all asset management firms were owned by white men.
Despite these barriers, COVID brought some key opportunities. The pandemic forced the industry to operate virtually. This allowed my partner and me to get a better understanding of our clients’ lives. Instead of meeting them in an office, we were—aided by the internet—able to open the door to their living room, join them at the kitchen table and meet their family. It added a much-needed human element at a strange and uncertain time.
Want a richer life? Someone once said kids are the hardest, best thing you will ever do. I agree. Want financial freedom? I believe entrepreneurship is the hardest, best thing you will ever do. I was able to make that leap because of the breathing room that my husband and I built into our financial lives. To launch my new business, we used money we had saved for years in an account labeled “opportunities.”
In the short term, I believe financial freedom is the ability to thrive and experience life while you’re in it. It’s the confidence to take a sabbatical, to change direction or to cope with the unexpected with ease. It’s the ability to take a calculated risk while staying in the game. In the long term, it's the ability to determine your definition of enough, and have the humility and discipline to be satisfied once you reach it. I haven’t yet reached my enough. But I’ve been captivated by the journey—both the blessings and the misfortunes.
Anika Hedstrom, MBA, CFP, is the co-founder of Uplevel Wealth, a boutique wealth management firm serving women and professional families. She writes on motivational and behavioral aspects of financial planning, and has been featured in The Wall Street Journal, MarketWatch, Business Insider, USA Today and NerdWallet. An Oregon native, she loves the outdoors, good pinot and chasing after her young twins as they head in opposite directions. Follow her on Twitter @AnikaHedstrom and check out her earlier articles.The post Margin for Error appeared first on HumbleDollar.
Six Months On
IN EARLY JANUARY, I wrote an article describing my New Year’s resolution. My No. 1 goal was, and still is, to improve my health and fitness. It’s now six months later. Here’s a review of the results so far—the good, the bad and the ugly. Let’s start with the good:
Weight loss. I’ve shed more than 70 pounds since the beginning of the year. This has improved my life in so many ways.
Nutrition. I’ve made major changes over the past five months, including adopting a lower carbohydrate, moderate protein diet. I’m regularly eating more vegetables and salads.
Health. I had a six-month checkup with my new doctor. He was very pleased with my progress. Best of all, he’s on board with my desire to scale back my blood pressure medicine.
Fitness. This has definitely improved. I’m trying to regularly walk, bike and engage in other exercise. I’m still not where I want to be, but it’s progress.
Next up, we have the bad:
Sleep apnea. This spring, I underwent a sleep study and was officially diagnosed with sleep apnea. My wife diagnosed it years ago. I’m likely to be prescribed a CPAP machine. I’m not excited about this, but many friends have said it dramatically improved their sleep, so I’m trying to keep an open mind.
Lower back pain. I had lower back surgery in 1995, a microdiscectomy of my L4-5 region, but my back still gives me trouble. Stretching and exercise help a lot, and I’m hoping the weight loss will keep this in check.
What about the ugly? That’s a two-fer:
Knee pain. I had a total joint replacement of the right knee in September 2019. That’s worked quite well. At the time, I was offered the opportunity to have both knees done. The left knee was bad, but the right knee was really bad. I chose to do only the right knee. My left knee hasn’t been too bad over the ensuing three years, but it’s started acting up recently. Specifically, I’m having leg pain below the knee. I saw a local orthopedist and he said it’s “referred” pain from the knee, caused by my knee not being straight. This causes the muscles in the lower leg to fire any time I’m standing. I’m now considering having the left knee joint replaced in the fall.
Toe pain. For a decade or more, I’ve had a problem with the joint at the base of my left big toe. I thought it might be a bunion, but a podiatrist diagnosed it as a “horribly arthritic joint.” He prescribed loose fitting shoes. A decade later, it has progressed to the point where it hurts a little most of the time and occasionally a lot, depending on my activity level and choice of footwear. I saw a local foot and ankle specialist and he thinks it can be surgically improved. This surgery will require about six weeks of rehab, during which I’ll have limited mobility. I’m considering having this done in January.
I’m generally pleased with my progress this year. Two things have really helped me. First is a company named Virta that sponsors programs aimed at helping people with diabetes, prediabetes and hypertension. My previous employer offered access to the program through its early retiree health insurance. The program provides dietary guidance and health monitoring. The company also provides the equipment to monitor blood levels, weight and blood pressure, as well as behavior coaching. The best part: It’s fully paid for by my previous employer.
The other thing that has helped enormously is that my wife volunteered to join the Virta program with me. Doing the program together has been great. She has also lost a significant amount of weight and is feeling more energetic. We encourage one another, and collaborate on meals and making sure we stay active and hydrated. I’m pretty sure I wouldn’t have made as much progress if I’d been doing this alone.
In a couple of months, I’ll be signing up for Medicare. Except for my left knee and left foot, I feel healthier than I have in years. I’m encouraged that my increased emphasis on getting and staying healthy will reduce future medical expenses. More important, I’m really hoping it’ll lead to a more active and enjoyable retirement.
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Calling for Yield
IF I SAID YOU COULD corral a yield of almost 12% by holding most of the stocks in the Nasdaq 100 index through an exchange-traded fund (ETF), would you think I���ve been smoking something? Well, you���d be wrong.
Global X Nasdaq 100 Covered Call ETF (symbol: QYLD) has pumped out a humongous dividend for more than 100 consecutive months, ever since its 2013 inception. But first a caveat that many will view as a tragic flaw: QYLD is a pure income investment, one that���s best held in a retirement account. The opportunity for capital gains over the long haul is nil. Indeed, QYLD was off 15%��for 2022 through yesterday's close, though that���s substantially better than the 26% loss for Invesco���s Nasdaq 100 ETF (QQQ), which doesn���t sell call options and instead simply tracks the Nasdaq index.
Let���s begin by reviewing the covered call strategy���s short but checkered history. It���s been controversial ever since its advent in the early 1980s. Seen as a way to garner high income while still enjoying some modest stock market gains, the strategy quickly became a darling of the brokerage and mutual fund industries, thanks to the commissions and fees it generated. But the roaring bull market that took hold in 1982 soon punctured the marketing hype. A long stock position saddled with short options simply couldn���t keep up with a soaring stock market.
How does the covered call strategy work? An investor might establish a covered call by simultaneously buying a stock and selling the corresponding call options. The investor is long the stock but, by hedging with call options, has given up upside in return for the income from selling the calls. How hedged is the investor? That depends on how close the call option���s strike price is to the stock price. The closer those two prices, the stronger the hedge and the less bullish the position. If the prices are very close, the investor will collect a larger call premium, but it���s more likely that the stock will be called away, so the upside is very limited if the stock appreciates.
As you might sense, the strategy has many moving parts and can seem dauntingly complicated. Enter covered call ETFs. These funds are as easy to trade as any other ETF. They come with the well-known perks of low cost and transparency. The covered call rigmarole is done much more cheaply and effectively than you could do it on your own.
Indeed, I believe a lot of the credit for the rejuvenation of the covered call idea belongs to the innovative folks at Global X Funds, which launched the Nasdaq 100 Covered Call ETF. The company now hosts a suite of three additional covered call ETFs, one each for the S&P 500, the Russell 2000 and the Dow Jones Industrial Average. Toss in tiny stock market dividend yields, modest interest rates and a bear market, and���voila���we���ve seen a surge of interest in the covered call strategy. QYLD is the most popular ETF of the Global X covered call group, with net assets ballooning from $4 billion to almost $7 billion in less than a year.
How might you use option-income ETFs in today���s dour market climate? The big attraction, of course, is the 12% current yield. Payouts from QYLD are monthly and reasonably steady. You might reinvest those dividends in additional shares or spend the income, while you wait for the bull market to return.
The potential compounding over many years could be very attractive, especially when we recall that the average total return for stocks over the past century hovers around 10%, plus those returns fluctuate more than that of a covered call ETF. Still, we need to put an asterisk next to that 12% yield. Buyers of call options are willing to cough up higher premiums when stock prices are more volatile, as they are today. When the market calms down, so too will the excess premiums, and QYLD���s yield will no doubt subside to a level closer to the stock market���s historical annualized total return.
The more jaundiced among you may have noticed I���ve avoided labeling the covered call strategy as ���conservative.��� Option-income ETFs shouldn���t be promoted as conservative. They offer only a partial hedge in a declining market. The option premiums are only large enough to offset part of a market slide. As we���ve seen this year, holders of covered call ETFs lose money in market selloffs, perhaps suffering losses equal to 55% of their benchmark index.
I believe there are two very different covered call ETF strategies that are intriguing in today���s bear market. The first strategy, which I described above, is for investors who are cautious but nonetheless able to absorb much of any further market drop. These investors could either pocket the cash generated by QYLD or reinvest their distributions, letting them compound until the proceeds are needed.
Alternatively, folks could get a little opportunistic. Let���s say an investor thinks the bear market is near exhaustion. His momentum indicators say the turn is not as far away as the pundits think. He might buy shares of QYLD and be showered with dividends while he taps his fingers. When his favorite buy signal hits, he can switch into the real thing���QQQ���or its more docile cousin, the Technology Select Sector SPDR Fund (XLK). Neither fund hedges and both pay only incidental dividends, but they offer a gutsy play on a recovery in tech stocks.
I���ll subscribe to the first idea and hand off the second maneuver to those who consider themselves nimble traders. I���ve been programmed to float like a butterfly, not sting like a bee.
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.
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July 7, 2022
Man Overboard
I���M IN THE SOUP���again. Italian wedding soup, to be precise.
On special occasions, my wife and I enjoy going to a fine-dining restaurant. By this, I mean a calm, quiet atmosphere with ambiance, white tablecloths, no need to ask for the water glass to be refilled, more than one server for your table, an extensive wine list and good, creative food. Generally, such a place will attract people with similar objectives for the night. They dress and behave appropriately���or used to.
Recently, my wife and I dined at an upscale Italian restaurant. The least-expensive glass of wine was $14. Entrees ranged from $34 to $59. The service and food were excellent. The bill for dinner���with one glass of wine apiece���was about $200.
After we were seated, three couples with three children arrived. They were wearing jeans, T-shirts and sweatshirts. Most annoying was the guy wearing his baseball cap���backward���throughout dinner. I Googled it, and it���s still considered rude. In addition, one of the children was constantly running around the tables and nearly tripping the servers. For us, this brought the atmosphere down a notch.
Last December, for our anniversary, we were in another restaurant, one even better than ��this recent one. A couple sat next to us, with the guy wearing a hoody throughout the meal.
In both cases, I suspect, the restaurant would rather avoid that kind of dress. But they���re in no position to turn customers away, especially these days.
As far as getting into the soup goes, I posted my experiences and feelings on a Facebook restaurant group. I���ll never learn. Within hours, there were over 150 comments, 99% of which defended the offending diners.
One commenter thought the diners may have been poor, had received a gift certificate and couldn���t afford nice clothes. Another suggested the guy with the hat probably was sick and too embarrassed to remove it. I was told that I hated children and shouldn���t dine early to get the early bird special���or any special, for that matter.
We are a nation built on excuses, financial and otherwise.
���Children will be children,��� I was told. Underlying themes included ���times have changed,��� ���get with it��� and ���mind your own business.��� Most Facebook commenters said they didn���t care and didn���t look at other diners. So much for quiet ambiance.
In the olden days���meaning 40 or 50 years ago���when we took our four small children to a nice restaurant, they were appropriately dressed, sat on their chairs and their food was ordered from the regular menu. No spaghetti with butter. No chicken fingers. And they didn���t have an iPad or iPhone perched in front of them to keep them quiet. It became a thing in our family. When a person came by our table and complimented them, we gave them each a dime���just like John D. Rockefeller.
I have a theory as to why we leave this world when we get old. It���s not our bodies wearing out. It���s the frustrating behavior of the generations that follow. If we didn���t die naturally, we would eventually jump into the ocean on the next cruise.
Our next cruise is booked for September. I hope there are no baseball caps or hoodies in the upscale dining venues we���ve reserved. The North Atlantic is cold.
The post Man Overboard appeared first on HumbleDollar.
Buy and Hodl
I���M A FAN OF SLANG and newly coined words. Think of all the names for money we���ve had over the years, like cheese, clams and cabbage. New words catch on not only because they allow a new generation to put their stamp on the world, but also the words reflect changing attitudes.
That brings me to ���stonks,��� the name many millennials use for stocks���and one that reflects a different view of investing. No one���s sure where the word originated. It���s not related to stonk, which is military slang for an artillery��bombardment. The term seems to have been first launched into the millennial mindset with a 2017 meme. It���s thought to be a playful, perhaps ironic, misspelling of ���stocks,��� in line with other intentional mispronounciations that millennials have adopted, like HODL���short for hold on for dear life���which is often used to describe long-term cryptocurrency investors.
Why the need to use a new word for stocks? In my research, I���ve been interviewing millennials and members of Gen Z, the two generations born since 1980. Speaking with these new investors reveals a change in attitude toward money, one that hints at playful nihilism.
As a baby boomer who started investing in the 1980s, I was taught to build a portfolio with a core of solid, slow-growth stocks, such as IBM or JCPenney. Then we���d add what were then experimental risky stocks, such as those new unknowns often found on the Nasdaq, like Apple or Microsoft. Our portfolios steadily grew in value, interrupted only by blips like the 1987 crash. The best strategy was to be a tortoise, not a hare. Slow and steady wins the race.
Then things seemed to get wonky. Fringe technology startups like the FAANG stocks turned into bedrock growth companies. Bubbles and financial crises, such as 1997 and 2007-09, made the smooth ride more of a rollercoaster. Previously sound sectors no longer seemed like safe bets���witness the housing bust that began in mid-2006.
Today, millennials confront a changed landscape. They hear tales of prior generations starting with a tiny bungalow starter home and then moving up. They face a median income-to-housing-cost ratio so bad that it���s harder to buy a house today than it was during the Great Depression.
Boomers tell millennials to cut back on avocado toast, as if saving a few dollars could offset an average of almost $40,000 in student loans or pay for skyrocketing rents. It���s a new reality, and millennials have adopted new��attitudes and new strategies to compensate.
Not surprisingly, they take boomers��� admonitions with a grain of salt. Many times, workers have a better chance of an increased��salary if they move to a new company rather than staying in one place, as we boomers often advise. Meanwhile, contrary to older folks' perceptions, millennial ways are often cheaper, such as using��ridesharing rather than owning a car.
The financial world���s vicissitudes also belie the idea of a portfolio destined for sure and steady growth. Millennials now expect the unexpected and know that today���s ���can���t miss��� idea may crash tomorrow. Got a great stock tip that turns out to be a dud? Throw up your hands and cry, ���Stonks!��� Elon Musk offers $54 per share for Twitter and yet the stock trades far lower? ���Stonks!��� So what if you���re seriously financially invested? That doesn���t mean you have to get seriously emotionally invested.
Of course, some old ways still work, and millennials know that. Despite media accounts playing up millennial frivolity, they���re contributing��more to 401(k)s than five years ago. They also like well-balanced portfolios, though���like many people���they prefer to let others do the balancing, hence the popularity of target-date retirement funds.
In addition, millennials show a strong preference��for exchange-traded funds, more so than prior generations. A big reason is the lower costs, perhaps allowing them to afford their avocado toast. Even this year, with high market volatility and accelerating inflation, younger investors are much more likely than older generations to say they���ll invest more.
It���s a different race to financial security today. The course has changed since we oldsters ran it. There are new, unexpected hazards. To us turtles, the millennials look like hares, zooming ahead and laughing at our plodding advice. But make no mistake: Just as we heard our parents��� advice, they hear us. But will they heed what we say? Only if it makes sense for the changed world that confronts them.
Jim Wasserman is a former business litigation attorney who taught economics and humanities for 20 years. He's the author of a three-book series on how to teach elementary, middle and high school students about behavioral economics and media literacy. He's also authored several educational children's books. Jim lives in Texas with his wife and fellow HumbleDollar contributor, Jiab. They have a book that examines the impact of social media influencers on youth consumerism and identity development coming out in 2023.��Check out Jim's earlier��articles.The post Buy and Hodl appeared first on HumbleDollar.
July 6, 2022
Nun Sense
WHEN I WAS WORKING fulltime, my goal was to have enough retirement savings to replace 100% of my income. I knew I could live comfortably on that amount, while still having enough left over to do the things I didn���t have time for when I had a fulltime job. I figured that was the key to a happy retirement.
But after retiring, my thinking changed, as I began focusing on how I could live longer and better. Having enough money means you can retire, but it doesn���t ensure a happy retirement. Money is just one piece of the happiness puzzle. There are other factors that are just as important.
Indeed, optimal wellbeing and aging well have nothing to do with being ���retired.��� Arguably, just the opposite is true: If you want to be happy and age well, you need to stay active and engaged, even after you quit the workforce. It���s about living your best, happiest life for as long as you possibly can. It���s about being free to do whatever you want on that particular day. It���s about having a good reason to get out of bed in the morning���something you look forward to and which puts a smile on your face.
That brings me to the famous ���nun study.��� The study found that nuns were happier with their lives than the general population and, because of their higher happiness level, they typically lived longer. A related finding: Happy nuns lived longer than unhappy nuns.
The research makes perfect sense to me. Happiness and longevity go hand in hand. All other things being equal, if we want to live longer than the average retiree, we need to be happier. The key is to stay busy, doing things that make us happy for as long as we can.
Want to live longer and be happier? If we were to summarize the recipe for success in an equation, it would have these elements: relationships + health + financial security + spirituality + positive attitude + purpose. In other words, happy people have strong loving relationships, lead healthy lives, are financially secure, and have a source of spirituality, a positive attitude and a sense of purpose.
By adhering to this formula and turning the desirable behaviors into daily habits, we increase our chances of living a longer, happier life. Unhappy retirees try to hang on and survive. Happy retirees bloom and thrive. I believe it���s as simple as that.
The post Nun Sense appeared first on HumbleDollar.
July 5, 2022
Changed by the Trip
THE LONGER WE LIVE, the more perspective we have���and the more foolish many of our earlier beliefs seem. We start our adult journey confident that we���ll make our mark on the world and that the financial rewards we collect will greatly enhance our life. By the time we reach retirement, things look quite different. Here are five things I've learned along the way:
1. Fame is fleeting. How many entertainers, sports stars and politicians have each of us forgotten? At their peak, it seemed like these folks would be remembered forever. In many cases, forever turned out to be a decade, maybe two.
This extends to financial celebrities. Back in the late 1980s and early 1990s, financial observers like Dan Dorfman, Elaine Garzarelli and Hugh Johnson enjoyed what seemed like an enviable fame. Today, they���re forgotten or rarely mentioned.
2. Material circumstances matter little. I���ve lived in both cockroach-infested apartments and beautiful homes with stunning views, and I know which I prefer. But I can���t say with 100% confidence that I���m happier today than I was when I was young and broke.
To be sure, this is partly a problem of memory. I simply can���t recall my state of mind three or four decades ago. Still, when I think of the times in my life when I was notably happy or unhappy, it had nothing to do with where I lived, my net worth or the car I drove, and a lot to do with life���s highs and lows���things like falling in love, getting divorced and losing a parent, as well as career successes and failures, both my own and that of my children.
3. Triumphs and tribulations seem small. Humans are hardwired both to worry and to strive. But looking back, all our worries���to the extent we can even remember them���appear to be a colossal waste of mental energy, while the goals we struggled to achieve now seem of little import.
I could happily do without further worrying, but worries continue to dog me. What about the striving? That still strikes me as worthwhile. But the key, I believe, is to strive for what each of us believes is important, rather than focusing on success as defined by our parents, our friends or corporate America���s relentless marketing machine. It's also crucial to pursue goals where we���re confident we���ll find the journey enthralling, even if our accomplishments ultimately seem modest.
Perhaps the accomplishments that lose their luster the fastest are career achievements, especially once we retire or move on to another job. It���s jarring how quickly we can go from valued employee to nonperson, our years of labor barely remembered by an ever-dwindling band of former colleagues.
An aside: Our nonperson stature with our old employer makes a mockery of all those earnest messages we���d received from human resources, assuring us that the organization was concerned about our wellness, work-life balance, mental health and whatever else was that year���s favored flavor of corporate compassion. My sense is that small businesses can���sometimes���be truly caring organizations. But when it comes to bigger companies, I think millennials have it right: These organizations deserve scant loyalty because they show none.
4. Time is more valuable than money. In our 20s and 30s, amassing both money and possessions seem like worthy goals, for good reason. At that stage in our life, we typically don���t have much money and we still have plenty of time to enjoy the possessions we acquire.
Matters look quite different for those of us who are retired or almost so. Today, I find throwing or giving away possessions liberating. I���m much more parsimonious with my time than with my money. Want to irritate me? I won���t like it if you overcharge me���but I���ll be furious if you waste my time.
5. Change gets old. Every new generation reinvents the world, leaving those of us from earlier generations struggling to make sense of what���s happening. Part of it is physical. I���m simply not going to fly down the street at highway speeds balanced on an electric scooter, let alone an electric unicycle.
But my reluctance to embrace change also, I think, reflects an unwillingness to commit brain power to something that seems unlikely to improve my life. Will I really be happier if I devote time to learning more about TikTok, cryptocurrencies, nonfungible tokens and the metaverse? I doubt it.
That said, I���m in awe of younger generations, and their ability to navigate an increasingly complicated world with seemingly boundless energy. To judge from comments on this site, others are more scornful of today���s young adults. Guess what? When we were teenagers and in our 20s, older generations were also scornful of us. I may not be willing to ride an electric unicycle at 60 miles per hour. But I���m happy to watch others try.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.The post Changed by the Trip appeared first on HumbleDollar.
Checking on You
WE���VE ALL HEARD of the three credit bureaus, Equifax, Experian and TransUnion, which compile our all-important credit reports. But have you heard of ChexSystems?
ChexSystems generates reports on bank customers, typically using banking history from the past five years to assess the risk that customers pose to their banks. Those risks are reflected in blemishes on a consumer���s banking history, such as overdrafts and unpaid fees. In some instances, ChexSystems warns banks about potential fraud. Never heard of ChexSystems? It���s probably because you don���t have a history of overdrafts or unpaid fees on your checking account.
If you���re like me, you���ve probably always assumed that getting a checking account was a simple matter of going to the bank and filling out an application. After all, you���re giving the bank your money. Why would the bank refuse it?
But it might.
Perhaps an unpleasant divorce led to negative account balances or involuntary closure of an account. Perhaps you owned a joint account with someone who wasn���t as careful. Perhaps you were hit with identity theft. Perhaps you made an honest mistake.
Did these affect your banking score? ChexSystems��� website is amazingly user-friendly. By completing a form on its site, you can get a report online or through the mail. You can also request a copy of your ChexSystems��� consumer score. There���s even a tab with resources should you suspect identity theft, including how to place a security alert or security freeze on your consumer report.
The post Checking on You appeared first on HumbleDollar.
