Jonathan Clements's Blog, page 220
April 2, 2022
Drip, Drip, Drip
Our club was composed of family and friends. We met monthly. When we started, investing was largely a manual process. There were few discount brokers and even they charged relatively high fees. You bought and sold with a phone call, and mailed checks for payment. Meanwhile, many mutual funds had significant investment minimums that were above our modest means.
At the outset, we decided to invest half of our pooled money in blue chip stocks. To avoid brokerage fees, we started dividend reinvestment plans (DRIPs) with the companies we wanted to invest in. We eventually had accounts with Exxon Mobil, Merck, GE, Motorola and Ford. To set up these plans, some companies required investors to be an existing shareholder, meaning we had to buy at least one share on the open market.
Thereafter, the DRIP typically allowed us to purchase shares directly from the company involved, sometimes in amounts as little as $10. Many companies would sell us shares either commission-free or for a modest fee. We would also reinvest our dividends in additional shares. Some companies even sold their shares at a discount to the current market price, though this seems to be infrequent nowadays.
DRIPs were a great way to slowly accumulate shares of a quality company, offering a simple way to dollar-cost average into our chosen stocks. Automatic dividend reinvestment compounded our returns.
The downside of DRIPs included their tax treatment. Dividends were���and are���taxed in the year they���re received, even if you reinvest them. Also, selling can be tricky. DRIP shares are generally not marketable on the stock exchange. Rather, the shares are purchased and redeemed directly from the company. When our club sold shares, companies would often charge a fee of $5 to $15.
My brother and I discussed whether DRIPs still make sense today. With low- and zero-cost brokerage firms available, many of the barriers to investing are gone. Charles Schwab, for example, offers a basically free trading platform with no account minimum. When you purchase securities or funds, you can opt to reinvest your dividends.
Fidelity Investments and Vanguard Group offer similar services. And robo-advisors such as Betterment offer diversified portfolios with automatic rebalancing, tax-loss harvesting, dividend reinvestment and no investment minimum, all for 0.25% of assets per year. The day of the DRIP may have passed. But in its time, it was a valuable tool for those of us with modest sums to invest.
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April 1, 2022
A Rocky Road
MY PATH TO FINANCIAL freedom began when I was seven years old. Of course, I didn’t know that at the time, but that was when money became something I started to worry and care about.
I was living with my mom and my sister in a one-bedroom apartment in San Francisco when my dad came over to bring us Valentine’s candy. Mom and Dad had been separated for a few months, and within minutes of his arrival, they began screaming, yelling and throwing our candy at each other. The next day, when my sister and I came home from school, our grandmother was waiting for us at the front door. She told us that our mom was in the hospital after attempting suicide.
For the next three months, I lived with my grandmother, and my sister went to live with our aunt and uncle, while Mom healed in the hospital. When she came back to live with us again, she advised me that I was now the man of the house, and it was partly my responsibility to help take care of her and my sister. Money was tight. But thanks to my grandmother’s generosity, we had an inexpensive apartment to live in. Most of the time, I didn’t realize that we didn’t have much.
My first job came at age nine. I would take my grandfather’s shoeshine kit to the corner and offer to shine shoes for a quarter. We lived a few blocks from the Haight-Ashbury district, where hippies roamed, many without shoes. The shoe-shining business wasn’t very profitable, but fortunately there was a bar on the corner. I had a gapped-tooth smile that some people found irresistible, especially after a few drinks. On most nights, I would go home with enough to buy a candy bar or two and have a few coins left over to give to my mom.
I got my first real job in sixth grade, when I began selling newspapers after school. The better the headlines, the better my take-home pay each night. I averaged $2 to $3 a day, and I gave my mom $8 a week toward rent. I was probably one of the few 12-year-olds who had to pay rent, but I was also one of the few who had a couple of dollars to spend each week.
Despite my mom’s strong encouragement—and even demand—that I save something, I usually dropped just a quarter into my piggybank at the end of the week. I would spend my savings on a couple of packs of baseball cards or a ticket to see my beloved Giants or 49ers. Tickets for kids were only 50 cents in those days, and the games were much more exciting to me than having a rainy-day fund.
Under the influence. I don’t think any of us can get to a place of financial freedom or peace until we’ve dealt with the money-related stories and experiences of our youth. Whenever I’ve had the opportunity to lead classes or coach people on handling money, I ask them to reflect on the lessons and values—many of them unexamined—that they have carried from childhood.
I’ve known wealthy people who are constantly anxious about money. Others think of money as evil or feel guilty about having too much. Still others decide that saving and budgeting are for fools. Usually, they were taught these perspectives when they were growing up. Some rebel at their childhood experiences, and choose to be as different financially from their parents as they can.
In my case, my mom was always worried about money. We rarely took vacations, and my parents were always fighting in court about alimony and child support payments. She thought that working was more important than education. Thus, when I turned 17, I focused on working fulltime as a fast-food manager instead of going to college.
Mom began receiving disability benefits when I was in junior high school, which meant that my sister and I got free school lunches every day. The cafeteria food was far better than the peanut butter and jelly sandwich, along with an apple, that I’d otherwise bring to school. Still, getting free lunches—and wearing shoes that were too small and clothes that had been bought in bargain basements—often embarrassed me. Maybe that’s why, even though I worked up to 30 hours a week in high school, I never had much money in my pocket for long.
At 16, I discovered betting on horse racing. I was working across the street from Bay Meadows Racetrack in San Mateo, California. I found out that, although I was not yet 18, they were happy to let me bet illegally—and usually lose. Over the next five years, I became increasingly addicted to gambling. By 21, I had lost a girlfriend I thought I would marry, was thousands of dollars in debt from legal and illegal “borrowing,” and was so emotionally and spiritually bankrupt that I considered killing myself.
Fortunately, I got help with my addiction and stopped gambling. I repaid all my debts, got a new job, and slowly began to build a new life. Financially, I was still wobbly. When I got a new credit card, I thought it meant that I had spending money equal to whatever the credit limit was. Annual percentage rates? That was the fine print I didn’t need to read as long as I made the minimum monthly payment.
When I met with a friend to review my finances for the first time, he had me track every penny I spent for 30 days. I was shocked to discover that I’d spent $500 more than I planned. No wonder the balance owed on my credit card kept rising.
Sunday school. I was a financial work-in-progress when I met Kathleen. I was 26, living in a subleased, badly furnished apartment in San Francisco. She was a single mother with a three-year-old son, Justin, living in a new apartment across the bay in Alameda. I liked her and Justin a lot.
The first time I went to her apartment to take them to a movie, however, I almost ran away in horror. Kathleen had a budget stuck to her refrigerator door. It wasn’t a general budget, but one that detailed every dollar spent, covering such categories as food, rent, childcare and savings. Amazingly, despite making less money than I did and paying more for rent, Kathleen was able to save money every month. I felt good if I was able to pay $25 over the minimum payment on my credit card. Savings? Not a chance.
Despite my financial defects, she saw enough in me to say yes to my marriage proposal. I had to borrow to buy an engagement ring. But after we married, I learned the Kathleen style of accounting. We set aside money for all our expenses when we got paid, and always included savings as part of our budget. I followed Kathleen’s example and joined the 401(k) at my job. I realized I’d been throwing away the 6% company match that had been on offer for the past three years.
Within six months of our wedding, I was promoted at work. We had more money than either of us had had before. That helped us not only save for the house we were about to buy, but also allowed us to travel and buy new furniture. We could get used to this, I thought at the time. I started listening to financial shows on the radio and reading financial advice books.
We bought our first house on our first anniversary. We weren’t sure we could afford it, but everyone told us they felt the same way when they made the leap. By the end of the next year, Kathleen had given birth to our son, and we were a family of four.
While my financial education helped me understand the difference between an index fund and a savings bond, I found the second step on my road to financial freedom at an unusual place for me: church. Kathleen had been raised a Catholic, but when it came to church, I was barely a “CEO”—Christmas and Easter Only. Friends told us the local nondenominational church was great and invited us to come one Sunday. The community was inclusive and celebrated many paths to divinity and wisdom. We learned a lot, and our kids did, too. Although we were part of that church for only a few years, one lesson there changed our financial lives forever.
Each Sunday before the offering, the minister or a layperson would say something about generosity. One Sunday, a couple around our age, who had a young daughter, talked about the power of tithing. I think I rolled my eyes at first. But as I listened to their story about losing anxiety about money and growing in generosity, I became intrigued.
When we got home and talked about it, my wife said she was intrigued, too. I began learning about tithing, which is the practice of giving 10% to God, a religious tradition or the greater good. There seemed to be something special about giving 10%, apart from making the math easy. We looked at our budget and decided we could afford to give away 10% of our income—after we paid taxes, mortgage, food, insurance and contributed to savings each month.
Giving and receiving. Kathleen was still keeping a detailed budget. We knew that our version of tithing from leftover funds meant that we would be giving away only about $18 a month. Still, it was 10% of something. Every few months, one of us would suggest giving away a full 10%, before we’d paid for food or insurance or set aside money for savings. Each time we tried it, we’d gulp a bit. But it felt so good that we didn’t want to stop.
To our surprise, one year we both agreed to give 10% off the top—even before taxes. Each payday, we’d transfer the money into a special checking account and donate it wherever we thought it would do the most good. That was more than 30 years ago, and we’ve done it ever since. It is, by far, my most important financial and spiritual practice.
Why? Because when we started tithing, our worries about having enough money slowly melted away. It took a while, but money seemed always to be there when we needed it. We started to believe that we would have enough. Money no longer seemed scarce if we could afford to give 10% away before seeing to our own needs.
Now, some people can find faith without any experience or evidence. Not me, especially in my younger days. I gained faith through experiences like these that gradually let me trust others, myself or a higher power. I was taking risks and seeing how things played out. That’s why we started small with tithing and took a couple of years to build up to giving away 10% of everything.
One experience taught us a lesson that we would never forget, and converted me to a faithful tither for the rest of my days. When Kathleen was pregnant with our son Lucas, our friends and family members threw her a baby shower. I was allowed to drop in just to say hello, but was shooed away so the party could begin. When Kathleen came home, she brought many presents, including some for Justin.
Feeling a bit left out, I decided I wanted more than a two-week vacation when my son was born. This was in the late 1980s, before paternity leave became a workplace benefit. Friends warned me that I would kill my career if I asked for two months off without pay. But I wanted to be there to support Kathleen, to get to know my new baby and to help Justin adjust to having a little brother.
Kathleen was working fulltime, and she was going to take 10 weeks off, using maternity leave plus vacation time. We reviewed our budget and figured out that if I took a two-month leave of absence, we would drain almost all our savings. We decided that it was a once-in-a-lifetime experience and worth the risk.
When I asked my boss for the time off, he eagerly granted my request. He told me he wished he’d taken as much time off when his kids were born more than 20 years earlier. I don’t share this story to show what a great dad I was, but to reveal how it helped us progress on our road to financial freedom.
When I went back to work, my boss called me into his office and told me he was giving me a 20% raise. That was unheard of at this Fortune 50 company. Raises were set by human resources using the latest cost-of-living figures, plus perhaps a one- or two-percentage point bump for good work. Two weeks later, I was promoted and received an additional 10% raise. My wife, who had been planning to go back to work the next month, stayed home instead—for the next seven years.
Whenever I tell this story, I need to add a few caveats. Does this mean that once you start tithing, money begins falling from the sky? I don’t think so. Perhaps when I was away from work on leave for two months, my value became clearer to my employer. Or maybe someone was impressed that I had my priorities in the right order. I’ll never know. The true meaning of this story, for me, is that doing the right thing is always the right thing to do. Even when the finances don’t seem to make sense.
Most people will tell you that their road to financial freedom took some learning, some hard work, and some luck or even grace. I believe that luck is far more important than most realize. Factors such as where and when we are born, whether we learn good financial practices or not, and the stock market’s performance during our peak earning years are far more consequential to our outcome than our financial expertise. Because we can’t control our circumstances, it’s important to always practice good values—because, when we have good values, I find that things have a way of working themselves out.
Doing the right thing. As a recovering compulsive gambler, I know that my risk tolerance is higher than most people’s. My wife and I have learned how to balance each other out. Her tolerance for risk is much lower than mine. In January 1994, we learned both how similar and different we are.
We came home one night to find a message to call Kathleen’s doctor. Our worst fears were confirmed when the doctor answered the phone. My wife had been diagnosed with breast cancer at age 36. It was too early to know how bad it was, but we both imagined the worst. That night, as we held each other tight, I told her that I thought this “might be one of the best things to ever happen to us.” I cringed, and I still cringe, at having said that, but it was what was in my heart. And it turned out to be pretty true.
The next few weeks were a blur of tests and discussions about so many things we had never considered before. That’s what having a potentially terminal illness can do. I had a busy job as a sales manager, so I took some days off to help with everything. I soon realized that a few days off wasn’t going to be enough.
Coincidentally, my company was downsizing and offering severance packages to those with more than 10 years of service. At 35, with a successful team and a seemingly bright future, I was not the intended target of the offer. After talking with Kathleen, however, we agreed that the eight months of severance pay and the time off would be good for all of us.
She couldn’t have dreamt of what I would come up with next. We had recently watched the movie Lost in America, about a couple that sells everything, buys an RV and sets off to see the country. We both agreed that we wanted to do that—someday. After we learned that Kathleen’s cancer was relatively mild, I proposed that we buy a used RV and take the kids on a trip around the country so we could reconnect as a family. I knew that time passes way too quickly, and this opportunity might never come again.
She said what most spouses who have cancer and a jobless husband probably would say: “You are out of your mind. No way!” Fortunately, Kathleen had been part of a support group for mothers for six years. When they heard of my insane idea, they said that she would be crazy not to go. So we did.
In April 1994, we loaded our used 27-foot RV with our 13- and six-year-old sons, as well as our nephew, and started down Interstate 5 to see the country. On our first night at a campground, I realized I had forgotten how to clean out the RV’s sewer hose. I worried we’d be carrying sewage across the country. Thankfully, we discovered a community of RVers who were happy to help and teach us at every stop along the way. We visited 26 states over the next three months, seeing things we had only dreamed about, while also learning so much about our country and each other.
When we returned home, I got a job in a smaller city, and my wife got her dream job: driving a 25-foot bookmobile for the library. As I said, do the right thing, and the money will work out.
Getting to enough. At my new job, I discovered I was growing tired of the corporate world. After a year, my boss called me into his office. He told me that if my numbers didn’t improve, they would have to fire me in three months. I told him that, given changes in the market, I wasn’t going to make the goal.
That Sunday, I went to our new church. It was Ministry Sunday, and they talked about the importance of ministry and asked for money to help support seminarians and ministerial training. I thought it must be an annual event. It was not. It had been held on only one Sunday in the previous 30 years.
It felt like God had kicked me in the behind. I had done a little preaching at the first church we had found, and I had been studying spirituality and religions for a long time. Every time I took an aptitude test, the ministry placed near the top of my suitable vocations. I met with the church ministers and applied to enter a seminary.
After three months, my employer did fire me. By then, however, I had been accepted to seminary and had lined up a sales-training job that I could work at fulltime in the summer and part-time during school terms. My wife was willing to return to fulltime work. We looked at our budget again. This time, we couldn’t figure out how to tithe and save, so we jointly—with some prayer—decided that tithing was more important.
Most of my seminary colleagues were younger than me, and many of them were taking on huge amounts of student debt. Graduate-school debt limits are designed for those becoming lawyers and doctors—not ministers. I was appalled at the naiveté most of my colleagues had about money. I designed a course, “Financial Management for People Who Don’t Want to Bother,” and offered it to my seminary and, eventually, to seminaries around the country.
My money journey had been a long and sometimes rocky road. Sharing my financial lessons and hardships helped deepen my understanding of the basics. It also gave me a way to gratefully share my knowledge in the hope that it could help someone else.
After graduating from seminary, I served congregations for eight years and then became the founding executive director of our ministers’ association. Every year, I made a point of preaching about money—not only how to raise it, but also how it affects us and the way we live. Most ministers I know don’t discuss money, and especially dislike having to ask for it. Most congregants hate hearing about it, too.
But we have a problem in this country and maybe in the world. We need to ask ourselves: How much is enough? We need to work through the feelings and lessons we learned when we were young. Is a job that saps our spirit worth it just because we can have the newest car or nicest house? How do we reconcile the vast differences in wealth accumulation in our society? How do we teach young people about managing their money for today and for tomorrow, too?
When I was 59, I decided it was time to leave the ministers’ association. When Kathleen and I met with our financial advisors, they told us that I probably wouldn’t have to work again because we had saved so much. I scoffed and thought there was no way that could be true. After all, it took me more than 20 years to make as much as a minister as I’d made in my final year in my corporate job.
In addition, we were one of the rare couples who had sold a home in California after eight years and only broke even. Since I became a minister, we’d barely cleared a profit on the next two homes we sold. How could we have enough to live on for the rest of our lives?
That was almost five years ago. I have worked only part-time since then. It appears the financial advisors were right. All those years of careful spending and diligent saving did indeed do the trick. I won’t need to begin taking Social Security until I turn 70. My wife, who is still working, will begin her benefit whenever she decides to retire. That will be when she no longer enjoys her work. Her paycheck won’t be a factor in the decision.
I feel extremely fortunate. I still can’t believe that I probably don’t have to make another dime in my life. I plan to work as long as I can, doing what I want to do, with the people I want to do it with. I wish I had some secret to pass on, but I really don’t.
There are some practices, however, that have worked for me: Tithe, save steadily, invest prudently, and pray that luck and love enter your life. I can’t guarantee this will result in financial freedom. I can guarantee, however, that you will have a life that others will envy, no matter their net worth. It will feel pretty good, too.
Don Southworth is a semi-retired minister, consultant and tax preparer living in Chapel Hill, North Carolina. He recently completed his Certified Financial Planner education. Don is passionate about the intersection between spirituality and money, and he encourages people to follow their callings wherever they lead. Follow Don on Twitter @Calltrepreneur and check out his earlier articles.
The post A Rocky Road appeared first on HumbleDollar.
Off the Hook
I duly signed up and linked one financial account. I then dodged the complimentary checkup and subsequently used my newfound wealth to purchase a portion of a good-enough HP computer.
I thought I was home free until I inadvertently answered a phone call from a member of my “Personal Capital team,” who again offered me the complimentary financial checkup. I couldn’t bring myself to hang up, so we made pecuniary small talk until I’d made an appointment.
As soon as I hung up, I realized that I had just chatted with staff. Apparently, “Mr. Big,” the actual financial advisor, was too important a fisherman to cast his own lines.
Mr. Big called a few days later and asked a few perfunctory questions. He then assured me that Personal Capital would use “sector and style weighting, risk minimization, and tax optimization [to] build a personalized portfolio based on your unique situation and goals” that would return more than the S&P 500 and with less risk.
I agreed to update my financial dashboard at Personal Capital with all my financial accounts, and we agreed to meet again in a couple of weeks to discuss great things.
Mr. Big, or Blake to use his given name, called me at the duly appointed time and introduced his colleague, who was either included to provide specific analysis of my unique financial needs or help sink the hook into this medium-sized fish. For the next hour, we spoke freely about a variety of investment topics, highlighted as follows:
Personal Capital does not use S&P 500 or other market-weighted index funds. Instead, it creates a “smart weighting” (that’s trademarked, by the way) that uses tactical allocations based on historical risk-return ratios to minimize stock-specific risk, maximize return and achieve the desired factor weightings.
As an investor slides into retirement, it’s important to have a tax strategy.
Clients can access quarterly investment committee conference calls where various macro and microeconomic trends are discussed.
Marketing was offering six months of free wealth management if I signed up before the offer ended in five days—and paid a fee of 0.89% of assets thereafter.
They did provide a detailed analysis of my portfolio. I needed more international stocks, more U.S. bonds, more international bonds, more alternatives and a skosh less cash. I also needed to start thinking about the net unrealized appreciation ramifications of the company stock in my 401(k) and maybe a consultation with a CPA was in order regarding my tax strategy going forward.
I wasn’t a fan of the “smart weighting” special sauce. To me, it seemed like they had data mined back to 1990 to find a specific portfolio that outperformed the S&P 500.
The quarterly investment committee conference calls also had no allure. I used to find all that stuff fascinating but—now that I’m retired—I just can’t be bothered. Also, the “buy now, while supplies last” had a QVC vibe and was “not cool,” and I specifically told Blake so.
We agreed that “marketing was sometimes not that helpful.” He tried to set up a followup appointment, but I wriggled off the hook.
It wasn’t a complete waste of time, though. A benefit of these calls is that it forces you to compile all your assets, review your financial plan, make the necessary updates—and hopefully provides the inspiration to act.
The post Off the Hook appeared first on HumbleDollar.
Testing the Waters
There were two kinds of swimmers during those hot, humid Iowa summers. One group didn���t even hear the entire announcement. They were already enthusiastically running, yelling and jumping feet-first into the pool. The other group walked to the pool, tested the water with one foot and then waded in bit by bit, gradually getting used to the temperature.
Traditionally, most people have thought of and planned for retirement as a defined event. But like my fellow swimmers from childhood, there are different ways to approach it. From my reading and research, along with conversations with colleagues, friends and former classmates, I���ve come to view retirement as more of a process than an event.
I���m an advocate for planning a phased retirement. Begin to reduce your commitments to work and career over time to better orient yourself to what your retirement might be like. Less time devoted to your career leaves more time to test out retirement experiences, reassess your expectations and make changes as needed.
Over the past two years, it seems we���ve heard even more about retirement than usual.��Some workers were forced into a sooner-than-planned retirement due to COVID-related furloughs and layoffs.��Some opted out of the workplace for a variety of personal reasons. Many others are vague on their plans. They talk of ���working just a few more years and then I���ll be done.��� But there���s no clear timeline and it seems as though they���re just postponing decisions.
Even the terminology can be confusing. While the term ���retirement��� is well-accepted, most attempts to describe something more flexible have fallen flat. Unretirement? That doesn���t work for me. It sounds like you retired too soon, didn���t know what to do and went back to work fulltime. Semi-retirement and other phrases like it sound both passive and static.
In a less-than-scientific poll, I asked readers of my blog to vote on the term that best describes a gradual, planned shift from work to retirement. About 50 responded. The winner by a wide margin was ���phased retirement.���
Phased retirement is an approach to retirement that���s actively planned and managed. It allows you to look at and experience all aspects of retirement before, ahem, taking the plunge.
The focus shouldn���t be on the financial aspects alone. While those are important, most retirees I���ve spoken to were well-prepared financially but failed to plan for and adapt to the social, physical and mental aspects. Contrary to the advertisements, retirement is not just golf and dinner out with friends every day. There���s a lot of time to fill.
My research and thinking about my own retirement goals started more than 10 years ago while I watched a mentor navigate the process. He modeled every step. Some of it was planned, but oftentimes he encountered some new life situation that caused him to think anew. But since he was ���phasing��� his retirement, it was never a major change. Just a course correction.
When I asked him how he was easing back on his professional career, he used a metaphor. He talked about landing the plane slowly and smoothly before arriving at the gate.
He held leadership roles as a fulltime employee at several large companies.��His first phase was to retire from a large company to join a consulting company that could market his skills.��It was fine with him if he didn���t always have work. That was a part of his plan to wind down his working hours and begin to explore other interests. Eventually, he took on only certain projects and, near the end of many years of transition, he would take on projects for only one specific client.
Start planning your phased retirement now. Could you reduce your workload at your current employer? Or would you prefer a clean break with some time off followed by part-time work? What will you do to make your additional free time productive and enjoyable? If you put off exploring other interests, like travel and adult learning, you may find someday that you have little time or energy left to embrace them.
Planning for these changes in a phased way could help you minimize any disruptions to your lifestyle, and help you better acclimate and embrace the changes.
Repeat after me: ���You may now slowly enter the water.���
Dan McDermott is an information technology executive in Minneapolis. He and his wife Sarah split their time between Minnesota and Arizona. They have two grown children. Dan works hard to learn about cryptocurrency from his son and Instagram from his daughter. Going for a long, leisurely run is his precious thinking time. Check out Dan's blog.The post Testing the Waters appeared first on HumbleDollar.
March 31, 2022
March’s Hits
If you think saving for retirement is tough, try generating��retirement��income. Rick Connor looks at the pros and cons of two popular strategies.
What's the best age to claim Social Security? As Howard Rohleder discovered, there's no single ideal age, but rather a range of ages that are pretty much equally good.
"How can anyone plan for the future if the future is unknowable?" asks Adam Grossman. "The idea of a margin of safety helps reconcile this inherent contradiction."
Worried about rising interest rates? Mike Zaccardi offers some thoughts on how to navigate today's treacherous bond market.
If you're considering a continuing care retirement community, Howard Rohleder offers some pointers on what you get, the costs involved and the key questions to ask.
How can you best prepare for long-term-care costs? John Lim's intriguing suggestion: Instead of relying on Medicaid or buying LTC insurance, consider deferred income annuities.
Meanwhile, among the site's shorter blog posts, March's best-read pieces were Tanvir Alam's I Won't Be Selling, Andrew Forsythe's Credit Where It's Due, Mike Zaccardi's Tough on Quitters, Kenyon Sayler's Buy What You Value and Missing Out, Dick Quinn's What, Me Worry��and John Goodell's Don't Be Deceived.
What about our twice weekly newsletters? The three most popular were Sanjib Saha's Freed by Frugality, Bill Ehart's Finding My Balance and Mike Zaccardi's Sites Worth Seeing. The first two will be part of the book My Money Journey, scheduled for publication by Harriman House in March 2023.
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 March’s Hits appeared first on HumbleDollar.
Won’t Fly Itself
As life gets back to normal, we’re watching this play out in real time. Demand is rising and supply can’t keep up, driving prices higher. We’ll be seeing this in airline tickets, and not just because of skyrocketing oil prices. At issue is the forecasted shortage of airline pilots. When there are too few pilots, the number of flights is going to diminish. When that happens, demand will outstrip supply and ticket prices will rise.
Forecasts from respected sources say there will be a shortage of 12,000 to 14,000 pilots by 2024. In further out years, the forecast gets even gloomier. Once it begins in earnest, the airlines will be forced to park aircraft and cancel flights. It’s already happening at some carriers.
Airlines have said that they will begin cancellations with the smaller regional jets and work up from there. This will curtail flights to smaller cities and may even leave some of those markets with no air service.
How did this happen?
Back in the early 1980s, airlines decided to save money by farming out small-city flying to commuter airlines. Those commuter airlines grew, hired pilots and paid them next to nothing. Pilots took those jobs as a stepping stone to the major airlines, where they could make more money.
This worked fine for a while, as the industry grew following deregulation. Eventually, however, the rapid growth stopped and lots of pilots were stuck making little money at the smaller carriers. Prospective pilots saw this and realized that the cost of becoming a pilot wasn’t worth the reward. It simply took too long to recover their investment.
Meanwhile, military-trained pilots weren’t willing to take a pay cut to join a commuter airline and instead moved into other industries besides flying. On top of that, fewer new pilots were being trained. The military is not putting out pilots like it used to because fewer are required with the advent of drones and other military capabilities.
A large retirement wave began to hit the major airlines about 15 years ago because pilots were required to leave at age 60. The Federal Aviation Administration recognized this was creating a problem and raised the retirement age to 65. This helped for a while. But the pay was still too low to get new folks interested in the career. That disparity finally caught up with the airlines. We now have an industry that’ll have too few pilots to fly its planes, especially as travel picks up now that COVID appears to be receding.
The airlines caused the problem by not paying pilots enough. It was a poor business decision. That’s no longer an issue. They have realized their mistake and now the compensation is fair, even at the smaller regional carriers. But there’s still a problem getting folks to make the $100,000 or so investment needed to become a pilot, which is in addition to earning a college degree. It takes time and money for a pilot to become “airline qualified.”
To address the problem, United has started its own flight school. It also no longer requires a college degree. I imagine others will follow suit. Aviation programs at colleges are still a good source of candidates but can’t graduate enough qualified pilots. The problem will exist for a while until the airlines can replace the substantial number of retiring pilots with new hires.
Airlines, like other businesses today, are making an extra effort to hire diverse candidates. For example, United says it will train around 5,000 pilots by 2030 through its new aviation academy, with the goal of at least half being women and people of color. American is also pushing hard for its new pilots to be “the best and most diverse” pilots in the airline business. This could expand the candidate pool. But it could also work the other way, lengthening the time it takes to fill the pilot slots that are becoming available.
The pilot shortage problem will eventually be solved. But until it is, look for diminished service to smaller cities, fewer flight choices to larger markets, higher fares and full flights. Yes, there will be somebody in that middle seat—and it could be you.
Tom Kubik recently retired from American Airlines after 42 years as a pilot. Working on both the management and union side of the business, he saw prosperity, bankruptcy and the disappearance of pension plans. Faced with this upheaval, he also had a side business as a homebuilder. Today, Tom and his wife still travel extensively. Three children and seven grandchildren keep them on the go. Check out Tom's earlier articles.The post Won’t Fly Itself appeared first on HumbleDollar.
Won���t Fly Itself
As life gets back to normal, we���re watching this play out in real time. Demand is rising and supply can���t keep up, driving prices higher. We���ll be seeing this in airline tickets, and not just because of skyrocketing oil prices. At issue is the forecasted shortage of airline pilots. When there are too few pilots, the number of flights is going to diminish. When that happens, demand will outstrip supply and ticket prices will rise.
Forecasts from respected sources say there will be a shortage of 12,000 to 14,000 pilots by 2024. In further out years, the forecast gets even gloomier. Once it begins in earnest, the airlines will be forced to park aircraft and cancel flights. It���s already happening at some carriers.
Airlines have said that they will begin cancellations with the smaller regional jets and work up from there. This will curtail flights to smaller cities and may even leave some of those markets with no air service.
How did this happen?
Back in the early 1980s, airlines decided to save money by farming out small-city flying to commuter airlines. Those commuter airlines grew, hired pilots and paid them next to nothing. Pilots took those jobs as a stepping stone to the major airlines, where they could make more money.
This worked fine for a while, as the industry grew following deregulation. Eventually, however, the rapid growth stopped and lots of pilots were stuck making little money at the smaller carriers. Prospective pilots saw this and realized that the cost of becoming a pilot wasn���t worth the reward. It simply took too long to recover their investment.
Meanwhile, military-trained pilots weren���t willing to take a pay cut to join a commuter airline and instead moved into other industries besides flying. On top of that, fewer new pilots were being trained. The military is not putting out pilots like it used to because fewer are required with the advent of drones and other military capabilities.
A large retirement wave began to hit the major airlines about 15 years ago because pilots were required to leave at age 60. The Federal Aviation Administration recognized this was creating a problem and raised the retirement age to 65. This helped for a while. But the pay was still too low to get new folks interested in the career. That disparity finally caught up with the airlines. We now have an industry that���ll have too few pilots to fly its planes, especially as travel picks up now that COVID appears to be receding.
The airlines caused the problem by not paying pilots enough. It was a poor business decision. That���s no longer an issue. They have realized their mistake and now the compensation is fair, even at the smaller regional carriers. But there���s still a problem getting folks to make the $100,000 or so investment needed to become a pilot, which is in addition to earning a college degree. It takes time and money for a pilot to become ���airline qualified.���
To address the problem, United has started its own flight school. It also no longer requires a college degree. I imagine others will follow suit. Aviation programs at colleges are still a good source of candidates but can���t graduate enough qualified pilots. The problem will exist for a while until the airlines can replace the substantial number of retiring pilots with new hires.
Airlines, like other businesses today, are making an extra effort to hire diverse candidates. For example, United says it will train around 5,000 pilots by 2030 through its new aviation academy, with the goal of at least half being women and people of color. American is also pushing hard for its new pilots to be ���the best and most diverse��� pilots in the airline business. This could expand the candidate pool. But it could also work the other way, lengthening the time it takes to fill the pilot slots that are becoming available.
The pilot shortage problem will eventually be solved. But until it is, look for diminished service to smaller cities, fewer flight choices to larger markets, higher fares and full flights. Yes, there will be somebody in that middle seat���and it could be you.
Tom Kubik recently retired from American Airlines after 42 years as a pilot. Working on both the management and union side of the business, he saw prosperity, bankruptcy and the disappearance of pension plans. Faced with this upheaval, he also had a side business as a homebuilder. Today, Tom and his wife still travel extensively.��Three children and seven grandchildren keep them on the go. Check out Tom's earlier articles.The post Won���t Fly Itself appeared first on HumbleDollar.
March 30, 2022
Wait Till Next Year
Then the annual results roll in. That unmoving and unmanaged S&P 500 Index fund has somehow, unaccountably, beaten those deft active managers at their game.
The S&P 500���s return of 28.7% in 2021 beat 85% of actively managed large-cap U.S. stock funds, according to S&P Dow Jones Indices. The active set returned an asset-weighted average of 23.3%. That���s a great year, except in comparison with their relentless competition.
These results can hardly be called news. This is the 12th consecutive year that Jack Bogle���s invention has bested the majority of active large-cap fund managers. I���d imagine that most active managers are handsomely paid. But what are their investors thinking?
To be fair, some might be invested in those few funds whose managers do exhibit a magic touch, like the Windsor Fund when it was run by John Neff. It beat the S&P 500 handily over a 31-year run. Others could be sitting on significant profits, and don���t want to trigger capital gains taxes by selling.
But in large part, the allure of active management seems like a win for marketing. When considering the competition, Gus Sauter, onetime manager of Vanguard���s S&P 500 index fund, liked to quote Samuel Johnson on second marriages. Active management, he said, ���is the triumph of hope over experience.���
Alternatively, active fund investors could borrow a phrase from the perennially disappointed Brooklyn Dodgers��� fans of the 1950s: ���Wait till next year.��� Because experts suggest that 2022 will be���you guessed it���a stock picker���s market once again.
The post Wait Till Next Year appeared first on HumbleDollar.
March 29, 2022
Sites Worth Seeing
One of the most frequent questions from students: What sites do I visit every day? I would often share stories in class about various writing assignments and investment projects I was working on, so that probably sparked the students��� curiosity. In the end, my recommendations came down to the handful of stock market pages and financial information sites listed below.
There are so many types of data-digging you can do when it comes to stocks, bonds, mutual funds, portfolio management, news, charts���the list goes on and on. I gravitate to simple, quality charts and one-stop shops. I try to avoid sites I have to register for and, heaven forbid, whip out my credit card to use. Being on the impatient side, I also don���t want to spend too much time creating my own graphs, tables and data series.
Here are four fantastic free sites that meet my standards and offer great visuals:
Yardeni.com. Economist Ed Yardeni���s treasure trove has pretty much all the economic information, in chart form, you could want. Many of Yardeni���s charts are updated daily.
Fidelity.com. I hop over to Fidelity Investments��� site whenever I want to compare exchange-traded funds (ETFs) or even individual stocks. What I find especially useful are the research reports available on just about every stock and ETF. While the site and an account are free, some tools require you to have a Fidelity login.
Vanguard.com. Want to see charts on index funds? Vanguard Group is your place. There are easy-to-read tables and pie charts that detail what���s inside the index funds so many of us own. Another feature I like is Vanguard���s target-date fund explanations and portfolio glide path visuals. I���ve shared that page with my students during asset allocation lectures.
Fred.StLouisFed.org. Any economic geek knows FRED, short for Federal Reserve economic data, the popular public website run by the Federal Reserve Bank of St. Louis. The charts might take some tweaking, but you can find almost any economic barometer you want. I use it often when citing data in my day job. The ���download to Excel��� feature makes creating charts simple.
College kids love the excitement of the markets. I would urge them to be cautious, but I still wanted to equip them with the best day-to-day pages for stock-watching. I have four websites that provide great market summaries, which I prefer over clunky news sites:
TradingView.com. As a freelance market analyst, I keep a watchlist of index ETFs, commodity prices, interest rates and even some cryptocurrencies. I use TradingView���s charts to plot data that can go back decades. It���s helpful to keep a long-term perspective.
Koyfin.com. Want the best one-stop market view? Go here. View market performance by sector, along with what���s happening with international index ETFs. I���d encourage my students to use Koyfin to graph fundamental company numbers, such as a firm���s price-earnings ratio or its historical sales trends. That���s quite handy for completing homework assignments.
StockCharts.com. Not surprisingly, given the site���s name, this is a favorite place for stock charts. But I also like to use its performance graphs when prospecting for mutual funds and index data. Its sector ���perf charts��� web page is a regular stop for me.
Finviz.com. Popular with many day traders, my favorite tool here is the market and ETF heat map. Users can also use the ���bubbles��� feature to plot index numbers, such as a graph of firms by market size or a dual-axis plot of S&P 500 companies��� market capitalizations and dividend yields.
I have a call to action for HumbleDollar readers: In the comments section below, let me know your favorite free financial resources. If there are enough great suggestions, next time I teach, this could even become my students��� go-to article for the best free financial tools. Maybe they���ll even be able to ditch those costly textbooks.
Mike Zaccardi is a freelance writer for financial advisors and investment firms. He's a CFA�� charterholder and Chartered Market Technician��, and has passed the coursework for the Certified Financial Planner program. Follow Mike on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com��and check out his earlier articles.
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Showing an Interest
It helps to have a little background on these long-ago entrepreneurs. Paper carriers were independent contractors with the local newspaper. We were given a territory���the route. We purchased the papers from the newspaper company and then delivered them to our customers. Every other week, we would also go around to our customers and ask for payment for the preceding two weeks. When they paid us, we gave them a tiny, preprinted receipt.
Of my 60 customers, I remember only two clearly. Neither was really a bad customer, but I remember the two extremes���my favorite customer and the one that caused me headaches.
Mrs. Kramer was my favorite customer. She was almost always home when I was collecting money. She usually rounded up her bill by a quarter or 30 cents. If she was going out of town for a few days, she would pay two weeks ahead. When I next collected after her return home, we���d settle up the difference for the days she was gone.
Mrs. Kramer always asked how I was doing in school or Scouts. On winter days, she would offer me hot cocoa. I never took her up on the offer, but it was nice knowing she was thinking about me. In December, she usually gave me a tip of $2 or $3.
My least favorite customer was the doctor. The doctor���s family was seldom at home. I often extended them credit for eight or even 12 weeks of newspapers. Even as I waited to collect from the doctor, I was paying the newspaper company. When I was able to collect, we settled up for the exact amount due. In December, the doctor would usually give me a $10 tip���by far the most generous of my customers.
From a total dollar perspective, I probably got more money from the doctor over the course of a year. But from a cash flow perspective, Mrs. Kramer was a more reliable customer.�� I had many good customers, but only one who took an interest in me���a young paper carrier.
I���m sure that both the doctor and Mrs. Kramer were loved by their families. I doubt either of them based their perception of themselves on what a young paper carrier thought.
But it did cause me to think about which type of customer I want to be. My barber,��snow shoveler and lawn service may not remember me 43 years from now. But if they do, I���d prefer to be remembered as a good customer who was grateful for the service they provided���and as somebody who took an interest in their life.
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