Jonathan Clements's Blog, page 243
December 19, 2021
Training the Mind
WITH THE SURGE of urbanization in the 19th century, many folks became concerned by the seeming rise in bad behavior. This behavior could be illegal���such as theft���or legal but undesirable, like alcohol abuse.
Nascent social sciences, including sociology and psychology, developed two alternative theories. ���Moral Deficit��� theorists said people engaged in bad behavior because they were internally ���weak.��� You might have seen a movie scene where a hysterical person is slapped with the admonition to ���get a hold of yourself.��� Or you might be familiar with the approaches of The Salvation Army and YMCA, both of which use Christian principles to teach people how to strengthen their mind, body and spirit.
On the other side was ���Moral Purity,��� or the belief that temptation could bring down even the strongest person. These theorists advocated attacking supply rather than demand, most famously by initiating Prohibition.
Over a century later, our debates seem all too familiar. For the ���war on drugs������or any other ���war on���������what���s the best approach? Do we address demand through education or, instead, should we attack supply by going after its purveyors? Or do we just conclude that the behavior is innate and not worth resisting?
Like many social concepts, these same principles can be applied to microeconomics and even personal finance. Why do we overspend? Are we weak, with an uncontrollable desire for admiration that impels us to buy all the trappings of success? Or are we simply inundated with too many nudges to spend, and can���t resist the siren call of consumerism?
Even more confusing, what���s the solution?
Perhaps a better approach is that of another early reformer, Jane Addams. As part of the settlement house��movement, Addams avoided focusing just on the isolated bad behavior. She advocated looking at the whole person, even the whole society, to see the conditions that led to the rise of undesired behavior.
Considered the founder of modern social work, Addams believed in a holistic approach. Bring together all different classes of society to work together. Teach struggling people skills so they can lift themselves up. Have government and other overseeing entities support and protect the path of opportunity.
In terms of personal finance, Addams���s approach would not just focus on the bad behavior, such as overspending, but look into its root causes. What are the conditions that are reinforcing spending? Are we poorly trained at making budgets? Are we trying to match a lifestyle that society expects of us?
Perhaps if we stop and look at the bigger picture, we���ll realize that spending today is borrowing from our future self. Perhaps, to overcome our failure to save, we can tap into our desire to have enough money to help loved ones.
This kind of ������mindset training��� is at the heart of many financial and media literacy programs in schools. For anyone past school age, it's never too late to learn. If someone eats a poor diet, we should look at what���s behind it, mentally and physically. Ditto for all other types of consumption.
Nascent social sciences, including sociology and psychology, developed two alternative theories. ���Moral Deficit��� theorists said people engaged in bad behavior because they were internally ���weak.��� You might have seen a movie scene where a hysterical person is slapped with the admonition to ���get a hold of yourself.��� Or you might be familiar with the approaches of The Salvation Army and YMCA, both of which use Christian principles to teach people how to strengthen their mind, body and spirit.
On the other side was ���Moral Purity,��� or the belief that temptation could bring down even the strongest person. These theorists advocated attacking supply rather than demand, most famously by initiating Prohibition.
Over a century later, our debates seem all too familiar. For the ���war on drugs������or any other ���war on���������what���s the best approach? Do we address demand through education or, instead, should we attack supply by going after its purveyors? Or do we just conclude that the behavior is innate and not worth resisting?
Like many social concepts, these same principles can be applied to microeconomics and even personal finance. Why do we overspend? Are we weak, with an uncontrollable desire for admiration that impels us to buy all the trappings of success? Or are we simply inundated with too many nudges to spend, and can���t resist the siren call of consumerism?
Even more confusing, what���s the solution?
Perhaps a better approach is that of another early reformer, Jane Addams. As part of the settlement house��movement, Addams avoided focusing just on the isolated bad behavior. She advocated looking at the whole person, even the whole society, to see the conditions that led to the rise of undesired behavior.
Considered the founder of modern social work, Addams believed in a holistic approach. Bring together all different classes of society to work together. Teach struggling people skills so they can lift themselves up. Have government and other overseeing entities support and protect the path of opportunity.
In terms of personal finance, Addams���s approach would not just focus on the bad behavior, such as overspending, but look into its root causes. What are the conditions that are reinforcing spending? Are we poorly trained at making budgets? Are we trying to match a lifestyle that society expects of us?
Perhaps if we stop and look at the bigger picture, we���ll realize that spending today is borrowing from our future self. Perhaps, to overcome our failure to save, we can tap into our desire to have enough money to help loved ones.
This kind of ������mindset training��� is at the heart of many financial and media literacy programs in schools. For anyone past school age, it's never too late to learn. If someone eats a poor diet, we should look at what���s behind it, mentally and physically. Ditto for all other types of consumption.
The post Training the Mind appeared first on HumbleDollar.
Hall of Mirrors
LAST WEDNESDAY, the Federal Reserve���s policymaking committee concluded its quarterly meeting with two big announcements. First, the Fed is going to scale back its monthly purchases of Treasury securities. Because these multi-billion-dollar purchases have helped keep interest rates low, the Fed's objective here is to let interest rates begin to rise. That was the first��announcement.
The��second��is that the committee expects to raise its��benchmark��rate by nearly a full percentage point next year. Since the Fed usually raises rates in increments of a quarter-point, this implies at least three rate increases in 2022. This is a significant turnabout from the ultra-low-rate policy the Fed���s been pursuing since the pandemic started last year. Because other interest rates across the economy are indirectly tied to the Fed���s benchmark rate, the objective is to nudge rates higher.
Why the Fed���s sudden shift���which some have dubbed the Powell Pivot? In a word, inflation. Because higher rates make it more expensive for people to finance big purchases, they���re the government's most effective tool in fighting inflation. Higher rates are intended to slow the economy. At the extreme, rate increases can even put the economy into recession. Result: Higher rates are generally bad for share prices.
How did the stock market react to Wednesday���s news? Contrary to intuition, all of the major market indices immediately moved��higher. Why? One possible explanation is that investors were relieved to see the Fed finally taking action. For months, Fed Chair Jerome Powell had been maintaining that the current bout of inflation was ���transitory.��� But with mounting��evidence��to the contrary, investors had become skeptical and worried that the Fed was out of touch with reality. While higher rates aren't great for stocks, taking action to raise rates was nonetheless received positively. That's because it was a sign that the Fed was taking action to contain runaway inflation, which would have been far worse for stocks.
As a kid, I remember people joking about the notion of double reverse psychology. But in many ways, that seems to be the stock market���s specialty. Intuition might lead you to expect one result. But things often turn out differently. While it might seem maddening that the market often shifts in unexpected ways, it���s an important dynamic to understand. Indeed, there are other situations where the market can deliver results that run contrary to intuition.
For instance, with all of the talk about inflation, there���s been increased interest in Treasury Inflation-Protected Securities (TIPS). With both an inflation-protection guarantee and government backing, they seem like the ideal investment right now. If you looked at recent performance, it would appear to confirm that hypothesis. Over the past year, short-term TIPS��have risen more than 5%���far more than comparable non-inflation-protected��Treasury��bonds, which have actually lost a fractional amount.
But here���s the problem: Past performance doesn���t guarantee future results. In this case, TIPS prices today already reflect an assumed inflation rate that���s much higher than it was a year ago. To gauge this assumption, investors consult a metric known as the breakeven rate. That���s the rate of inflation that���s implicitly priced into TIPS bonds.
At this time last year, that rate stood at 1.9%. Today, it���s 2.7%. This breakeven rate means that investors purchasing TIPS today are counting on inflation being 2.7% or higher. If it���s any lower than that, TIPS investors stand to lose money relative to conventional Treasury bonds. In other words, TIPS bonds were, in hindsight, a good deal a year ago, when no one was worried about inflation. But now that nearly everyone is worried about inflation, the most obvious defense against inflation is offering a much less effective defense.
The TIPS phenomenon is similar in many ways to the challenging nature of growth stocks. Consider Zoom Video Communications. When the pandemic first hit in February 2020, Zoom shares took off. Between March and October of last year, the stock rose 400%. But investors who bought in after that runup have seen the shares lose well over half of their value. While Zoom shares are still up more than 70% from March of last year, that isn���t much better than the S&P 500, which has gained 54% over the same period, but with far less volatility. And Zoom isn���t alone. Shares of Peloton Interactive, for example, have followed a nearly identical trajectory. Just like with TIPS, the problem is that a good investment can turn into a bad���or, at least, less good���investment once everyone starts paying attention to it.
The risk posed by growth stocks is well understood. Anyone who lived through the 1990s or similar crazes knows how these things usually turn out. But sometimes the trap is more subtle. Between 2005 and 2010, emerging markets stocks looked like a great investment. The BRICs���short for Brazil, Russia, India and China���were a��favorite��topic of conversation. Investors marveled at economic growth that was double or triple that of the U.S. With younger, faster-growing populations and export-oriented economies, they looked like a no-lose proposition.
But things didn���t turn out quite that way. Just like TIPS and Zoom and Peloton, these countries��� stocks were, as the saying goes, priced for perfection. That is, the share prices already reflected an assumption of continued strong economic growth. But to invoke another investment clich��, trees don���t grow to the sky. Growth in those countries slowed���and emerging markets stocks have vastly��underperformed��U.S. stocks over the past 10 years.
Another situation that can whipsaw investors: when the ���smart money��� appears to have spoken. I recall a situation several years ago in which a startup company was developing a medical therapy. The list of angel investors read like a Who���s Who of prominent physicians in that particular specialty. To laypeople, it looked like an ideal investment endorsed by a long list of experts. But things didn���t go as planned when the company tried to bring its product to market. The company is now close to shutting down.
It���s one thing when experts speak. It���s another thing entirely when experts in positions of power speak. That presents an even more treacherous trap for investors. Let���s come back to the Powell Pivot. Careful observers may notice that this week���s policy shift was hardly Powell���s first.
Back in 2015, the Fed had started a series of incremental rate increases. In its usual careful fashion, those increases continued steadily through 2019. Because the economy was strong and unemployment was low, those increases were expected to continue. The Fed had communicated that there was no apparent need to cut rates. And yet it happened. Whether it was due to��political��pressure or other reasons, Powell abruptly reversed course and began lowering rates. That was well before the pandemic, and few expected it.
An often-used expression in the investment world is that things are never as good or as bad as they seem. These examples, I think, help explain why that���s the case. Whether it���s TIPS or growth stocks or interest rates, investment markets are often like a hall of mirrors. Math, intuition and the opinions of experts and even policymakers often fail in their predictive abilities. And not only do they fail, but they often point in the opposite direction. The lesson: This is another reason I believe the best approach for investors is to combine two simple ingredients when building a portfolio: a large amount of diversification���and a minimal amount of fiddling.
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��second��is that the committee expects to raise its��benchmark��rate by nearly a full percentage point next year. Since the Fed usually raises rates in increments of a quarter-point, this implies at least three rate increases in 2022. This is a significant turnabout from the ultra-low-rate policy the Fed���s been pursuing since the pandemic started last year. Because other interest rates across the economy are indirectly tied to the Fed���s benchmark rate, the objective is to nudge rates higher.
Why the Fed���s sudden shift���which some have dubbed the Powell Pivot? In a word, inflation. Because higher rates make it more expensive for people to finance big purchases, they���re the government's most effective tool in fighting inflation. Higher rates are intended to slow the economy. At the extreme, rate increases can even put the economy into recession. Result: Higher rates are generally bad for share prices.
How did the stock market react to Wednesday���s news? Contrary to intuition, all of the major market indices immediately moved��higher. Why? One possible explanation is that investors were relieved to see the Fed finally taking action. For months, Fed Chair Jerome Powell had been maintaining that the current bout of inflation was ���transitory.��� But with mounting��evidence��to the contrary, investors had become skeptical and worried that the Fed was out of touch with reality. While higher rates aren't great for stocks, taking action to raise rates was nonetheless received positively. That's because it was a sign that the Fed was taking action to contain runaway inflation, which would have been far worse for stocks.
As a kid, I remember people joking about the notion of double reverse psychology. But in many ways, that seems to be the stock market���s specialty. Intuition might lead you to expect one result. But things often turn out differently. While it might seem maddening that the market often shifts in unexpected ways, it���s an important dynamic to understand. Indeed, there are other situations where the market can deliver results that run contrary to intuition.
For instance, with all of the talk about inflation, there���s been increased interest in Treasury Inflation-Protected Securities (TIPS). With both an inflation-protection guarantee and government backing, they seem like the ideal investment right now. If you looked at recent performance, it would appear to confirm that hypothesis. Over the past year, short-term TIPS��have risen more than 5%���far more than comparable non-inflation-protected��Treasury��bonds, which have actually lost a fractional amount.
But here���s the problem: Past performance doesn���t guarantee future results. In this case, TIPS prices today already reflect an assumed inflation rate that���s much higher than it was a year ago. To gauge this assumption, investors consult a metric known as the breakeven rate. That���s the rate of inflation that���s implicitly priced into TIPS bonds.
At this time last year, that rate stood at 1.9%. Today, it���s 2.7%. This breakeven rate means that investors purchasing TIPS today are counting on inflation being 2.7% or higher. If it���s any lower than that, TIPS investors stand to lose money relative to conventional Treasury bonds. In other words, TIPS bonds were, in hindsight, a good deal a year ago, when no one was worried about inflation. But now that nearly everyone is worried about inflation, the most obvious defense against inflation is offering a much less effective defense.
The TIPS phenomenon is similar in many ways to the challenging nature of growth stocks. Consider Zoom Video Communications. When the pandemic first hit in February 2020, Zoom shares took off. Between March and October of last year, the stock rose 400%. But investors who bought in after that runup have seen the shares lose well over half of their value. While Zoom shares are still up more than 70% from March of last year, that isn���t much better than the S&P 500, which has gained 54% over the same period, but with far less volatility. And Zoom isn���t alone. Shares of Peloton Interactive, for example, have followed a nearly identical trajectory. Just like with TIPS, the problem is that a good investment can turn into a bad���or, at least, less good���investment once everyone starts paying attention to it.
The risk posed by growth stocks is well understood. Anyone who lived through the 1990s or similar crazes knows how these things usually turn out. But sometimes the trap is more subtle. Between 2005 and 2010, emerging markets stocks looked like a great investment. The BRICs���short for Brazil, Russia, India and China���were a��favorite��topic of conversation. Investors marveled at economic growth that was double or triple that of the U.S. With younger, faster-growing populations and export-oriented economies, they looked like a no-lose proposition.
But things didn���t turn out quite that way. Just like TIPS and Zoom and Peloton, these countries��� stocks were, as the saying goes, priced for perfection. That is, the share prices already reflected an assumption of continued strong economic growth. But to invoke another investment clich��, trees don���t grow to the sky. Growth in those countries slowed���and emerging markets stocks have vastly��underperformed��U.S. stocks over the past 10 years.
Another situation that can whipsaw investors: when the ���smart money��� appears to have spoken. I recall a situation several years ago in which a startup company was developing a medical therapy. The list of angel investors read like a Who���s Who of prominent physicians in that particular specialty. To laypeople, it looked like an ideal investment endorsed by a long list of experts. But things didn���t go as planned when the company tried to bring its product to market. The company is now close to shutting down.
It���s one thing when experts speak. It���s another thing entirely when experts in positions of power speak. That presents an even more treacherous trap for investors. Let���s come back to the Powell Pivot. Careful observers may notice that this week���s policy shift was hardly Powell���s first.
Back in 2015, the Fed had started a series of incremental rate increases. In its usual careful fashion, those increases continued steadily through 2019. Because the economy was strong and unemployment was low, those increases were expected to continue. The Fed had communicated that there was no apparent need to cut rates. And yet it happened. Whether it was due to��political��pressure or other reasons, Powell abruptly reversed course and began lowering rates. That was well before the pandemic, and few expected it.
An often-used expression in the investment world is that things are never as good or as bad as they seem. These examples, I think, help explain why that���s the case. Whether it���s TIPS or growth stocks or interest rates, investment markets are often like a hall of mirrors. Math, intuition and the opinions of experts and even policymakers often fail in their predictive abilities. And not only do they fail, but they often point in the opposite direction. The lesson: This is another reason I believe the best approach for investors is to combine two simple ingredients when building a portfolio: a large amount of diversification���and a minimal amount of fiddling.
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 Hall of Mirrors appeared first on HumbleDollar.
December 17, 2021
Under the Tree
EVERY YEAR AROUND this time, I think about one of the most memorable events in my life.
As a child, I was fascinated by trains. My father was a railway tower signal man during the Second World War and later a station master. My first toy trains were plastic and battery operated, not true electric trains. One year, I pleaded for a real set. To my surprise, American Flyer trains were under the tree Christmas morning.
Also under our Christmas tree, for as long as I can remember, was a large green Lionel standard gauge engine. That engine was all that was left of my father���s train set from 1920, when he was age 10. It meant a lot to him���and to me.
One year, several weeks before Christmas, my mother���a woman short on sentimentality and long on frugality���casually mentioned that she���d sold the engine for $100. I was stunned. I never learned how the sale came about or why my father agreed to it, if he indeed did. My parents lived solely on Social Security, but they didn���t need $100 that badly.
I didn���t make an issue of the sale when my mother mentioned it, but my wife knew how upset I was. Unbeknownst to me, she learned who bought the engine and talked the collector into selling it to her for the same $100.
I took the engine to a train shop and, to my surprise, it still worked after sitting idle for more than half a century. I bought a 1920 transformer and some track. I found a collector who sold me five cars of the type that originally went with the engine.
When my parents came to our house Christmas day, the train was running under our tree. My mother looked stunned and asked how I got the engine, but didn���t say anything further. My father just stared as the train ran by and said nothing, but I think I saw a tear or two. Yes, there are many things more important than money���not least our memories and our personal treasures.
The post Under the Tree appeared first on HumbleDollar.
The Future Seen
I WAS WRITING magazine stories back in 1996, recommending stocks and mutual funds. Privately, I worried that readers might think I had some genuine insight���and they might even invest in the ways I suggested.
Propelled by that fear, I favored safe stories, like the best electric utility stocks or the outlook for U.S. savings bonds. I ransacked the library, looking for sure-fire, can���t miss investments. Surprisingly, I found one���something called an index fund.
Twenty-five years ago, indexing wasn���t brand new, but it was still a hard-to-explain novelty. Yet, when I looked at the fund performance tables, my eyes got wide. I read the book by John Bogle again, looking for a flaw���but finding none.
I had to see for myself. I drove from Washington, D.C., to Vanguard Group���s headquarters in Malvern, Pennsylvania. Bogle was CEO when Vanguard opened the first index fund for retail investors in 1976. Two decades later, when I visited the Vanguard campus for the first time, he had just shed the CEO title, but was still a looming presence at the firm.
Bogle had resigned to undergo heart transplant surgery, and his clothes still hung loosely on his frame. ���My energy has returned,��� he told me. ���I���ve never been a pessimist, but I���m more optimistic than ever.���
Bogle had worked relentlessly to realize the vision of his senior year thesis at Princeton. It held that a mutual fund company might maximize sales by minimizing the costs it charged investors. His thrifty imprint was all around us. Motion detectors turned off the lights in unoccupied rooms. There was no executive dining room. Everyone went through the cafeteria line with a tray.
The capstone of Bogle���s less-is-more notion was Vanguard���s 500 Index Fund, which owned all the stocks in the S&P 500 index in proportion to their market value. It captured the index���s return, minus costs. Because the fund was managed mainly by computer, its expenses were puny even then���0.2% a year, or 20 cents for every $100 invested. That was less than one-seventh the average cost of its competitors.
���If you operate at high cost, don���t bother to bring out an index fund,��� Bogle said. ���Only a fool would buy it.���
As its 500 fund gathered assets, Vanguard used the fund���s economies of scale to whittle down fees still further, which left even more of the returns in the hands of shareholders. Bogle���s recently installed successor as CEO, Jack Brennan, told me that day that this was ���a virtuous circle,��� as he swirled his right hand around his knee.
I���d asked to see the fund in operation. In the slanting light of the afternoon, a Vanguard press representative and I crossed the Vanguard campus and headed into a windowless trading room. At first, it looked disappointing���just a string of grimy Compaq 486 PCs wired together. There was one keyboard.
Then, it sprang into operation. A young stock trader named Michael Buek was typing with two fingers. He was investing that day���s cash flow���$37.5 million. Within 30 seconds, a list of stocks to buy scrolled up the screen: 12,100 shares of GE, 18,100 shares of Coca-Cola, 11,500 of AT&T. The list ran to 320 names.
He downloaded the order onto a computer disk and walked across the floor. He slipped it into a terminal connected to the floor of the New York Stock Exchange. A warning appeared on the screen: "This Is a Very Large Portfolio���Use Caution." Buek double-checked a few numbers and punched the order in. The whole process took about three minutes from start to finish.
At inception, Vanguard���s index fund had been met with skepticism. The fund wasn���t trying to beat the market, just ride along with it. As Fidelity Investments Chairman Ned Johnson told the press, ���I can���t believe that the great mass of investors are going to be satisfied with just receiving average returns. The name of the game is to be the best.���
Johnson was correct in one respect���it took decades for the great mass of investors to discover indexing. But he was wrong about its returns being average. Index funds beat most fund managers handily over the years. It was a relentless competitor.
Vanguard���s indexing wizard Gus Sauter winnowed down the fund���s costs to nothing. He grew so adept at futures trading and other strategies that he���d recoup all the fund���s slender expenses. The 500 fund would beat the S&P 500 index���s annual return by a fingernail���something theoretically impossible.
Capturing the market���s return at an infinitesimal cost seemed like a sure thing, unless stocks crashed, in which case the 500 fund would suffer along with other stock funds. I told my readers it was like getting a 10-yard head start in a 100-yard dash. Today, I think I was understating the case. It���s more like knowing who would win the Super Bowl for the next 20 years running.
Index funds have beaten 85% of actively managed stock funds over the past 10 years, and 92% over 15 years. Investors have followed, pouring $1.9 trillion into index funds and ETFs since 2010, according to the Investment Company Institute. Today, Vanguard���s S&P 500 Index Fund Admiral Shares charges just 0.04%���a fifth of what it charged in 1996���and the exchange-traded version of the fund is even cheaper.
I recommended an index fund to the magazine���s readers only that one time. As my editor explained, if we endorsed index funds, we���d have nothing to put on next month���s cover.
That answer didn���t sit right with me. Later, when Vanguard contacted me about a job, I accepted. I���d seen the future���and it was going to be huge.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
"Chances are high that many investors are overly protective of themselves," argues Charley Ellis. "They are paying too high a price to feel secure���free from worries about market fluctuations."
Planning to make charitable gifts this holiday season? Adam Grossman advises asking yourself three key questions.
"Our brains aren���t wired for sound probabilistic thinking," says Patrick Geddes. "We crave the excitement of trying to outperform the market, much the same way we might crave sweet or fatty foods."
Disenchanted with low bond yields? John Yeigh���s strategy: Invest instead in dividend-paying stocks���and then write call options against his shares.
"The good news���I suppose���is that my concerns have gotten me to take action," writes Dick Quinn. "I���ve better organized my finances.��I���m ashamed to admit it took a global pandemic to motivate me."
Does a degree from an elite college ensure career ? The evidence suggests experience and talent count for far more, says Tony Isola.
Also be sure to check out the past week's��blog posts, including Jim Wasserman on instinctual desires, Rick Connor on retirees and inflation, John Lim on the Federal Reserve, Howard Rohleder on state taxes, Kyle McIntosh on today's college students, Mike Zaccardi on gift cards��and Sanjib Saha on his friend Laura.
Greg Spears worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger���s Personal Finance magazine. After leaving journalism, he spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. Greg currently teaches behavioral economics at St. Joseph���s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. He is also a Certified Financial Planner certificate holder. Check out Greg's earlier articles.
Propelled by that fear, I favored safe stories, like the best electric utility stocks or the outlook for U.S. savings bonds. I ransacked the library, looking for sure-fire, can���t miss investments. Surprisingly, I found one���something called an index fund.
Twenty-five years ago, indexing wasn���t brand new, but it was still a hard-to-explain novelty. Yet, when I looked at the fund performance tables, my eyes got wide. I read the book by John Bogle again, looking for a flaw���but finding none.
I had to see for myself. I drove from Washington, D.C., to Vanguard Group���s headquarters in Malvern, Pennsylvania. Bogle was CEO when Vanguard opened the first index fund for retail investors in 1976. Two decades later, when I visited the Vanguard campus for the first time, he had just shed the CEO title, but was still a looming presence at the firm.
Bogle had resigned to undergo heart transplant surgery, and his clothes still hung loosely on his frame. ���My energy has returned,��� he told me. ���I���ve never been a pessimist, but I���m more optimistic than ever.���
Bogle had worked relentlessly to realize the vision of his senior year thesis at Princeton. It held that a mutual fund company might maximize sales by minimizing the costs it charged investors. His thrifty imprint was all around us. Motion detectors turned off the lights in unoccupied rooms. There was no executive dining room. Everyone went through the cafeteria line with a tray.
The capstone of Bogle���s less-is-more notion was Vanguard���s 500 Index Fund, which owned all the stocks in the S&P 500 index in proportion to their market value. It captured the index���s return, minus costs. Because the fund was managed mainly by computer, its expenses were puny even then���0.2% a year, or 20 cents for every $100 invested. That was less than one-seventh the average cost of its competitors.
���If you operate at high cost, don���t bother to bring out an index fund,��� Bogle said. ���Only a fool would buy it.���
As its 500 fund gathered assets, Vanguard used the fund���s economies of scale to whittle down fees still further, which left even more of the returns in the hands of shareholders. Bogle���s recently installed successor as CEO, Jack Brennan, told me that day that this was ���a virtuous circle,��� as he swirled his right hand around his knee.
I���d asked to see the fund in operation. In the slanting light of the afternoon, a Vanguard press representative and I crossed the Vanguard campus and headed into a windowless trading room. At first, it looked disappointing���just a string of grimy Compaq 486 PCs wired together. There was one keyboard.
Then, it sprang into operation. A young stock trader named Michael Buek was typing with two fingers. He was investing that day���s cash flow���$37.5 million. Within 30 seconds, a list of stocks to buy scrolled up the screen: 12,100 shares of GE, 18,100 shares of Coca-Cola, 11,500 of AT&T. The list ran to 320 names.
He downloaded the order onto a computer disk and walked across the floor. He slipped it into a terminal connected to the floor of the New York Stock Exchange. A warning appeared on the screen: "This Is a Very Large Portfolio���Use Caution." Buek double-checked a few numbers and punched the order in. The whole process took about three minutes from start to finish.
At inception, Vanguard���s index fund had been met with skepticism. The fund wasn���t trying to beat the market, just ride along with it. As Fidelity Investments Chairman Ned Johnson told the press, ���I can���t believe that the great mass of investors are going to be satisfied with just receiving average returns. The name of the game is to be the best.���
Johnson was correct in one respect���it took decades for the great mass of investors to discover indexing. But he was wrong about its returns being average. Index funds beat most fund managers handily over the years. It was a relentless competitor.
Vanguard���s indexing wizard Gus Sauter winnowed down the fund���s costs to nothing. He grew so adept at futures trading and other strategies that he���d recoup all the fund���s slender expenses. The 500 fund would beat the S&P 500 index���s annual return by a fingernail���something theoretically impossible.
Capturing the market���s return at an infinitesimal cost seemed like a sure thing, unless stocks crashed, in which case the 500 fund would suffer along with other stock funds. I told my readers it was like getting a 10-yard head start in a 100-yard dash. Today, I think I was understating the case. It���s more like knowing who would win the Super Bowl for the next 20 years running.
Index funds have beaten 85% of actively managed stock funds over the past 10 years, and 92% over 15 years. Investors have followed, pouring $1.9 trillion into index funds and ETFs since 2010, according to the Investment Company Institute. Today, Vanguard���s S&P 500 Index Fund Admiral Shares charges just 0.04%���a fifth of what it charged in 1996���and the exchange-traded version of the fund is even cheaper.
I recommended an index fund to the magazine���s readers only that one time. As my editor explained, if we endorsed index funds, we���d have nothing to put on next month���s cover.
That answer didn���t sit right with me. Later, when Vanguard contacted me about a job, I accepted. I���d seen the future���and it was going to be huge.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
"Chances are high that many investors are overly protective of themselves," argues Charley Ellis. "They are paying too high a price to feel secure���free from worries about market fluctuations."
Planning to make charitable gifts this holiday season? Adam Grossman advises asking yourself three key questions.
"Our brains aren���t wired for sound probabilistic thinking," says Patrick Geddes. "We crave the excitement of trying to outperform the market, much the same way we might crave sweet or fatty foods."
Disenchanted with low bond yields? John Yeigh���s strategy: Invest instead in dividend-paying stocks���and then write call options against his shares.
"The good news���I suppose���is that my concerns have gotten me to take action," writes Dick Quinn. "I���ve better organized my finances.��I���m ashamed to admit it took a global pandemic to motivate me."
Does a degree from an elite college ensure career ? The evidence suggests experience and talent count for far more, says Tony Isola.
Also be sure to check out the past week's��blog posts, including Jim Wasserman on instinctual desires, Rick Connor on retirees and inflation, John Lim on the Federal Reserve, Howard Rohleder on state taxes, Kyle McIntosh on today's college students, Mike Zaccardi on gift cards��and Sanjib Saha on his friend Laura.
Greg Spears worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger���s Personal Finance magazine. After leaving journalism, he spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. Greg currently teaches behavioral economics at St. Joseph���s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. He is also a Certified Financial Planner certificate holder. Check out Greg's earlier articles.The post The Future Seen appeared first on HumbleDollar.
No Name No Problem
IS A DEGREE FROM an elite school the golden ticket? I recently read Jeffrey Selingo���s excellent book
Who Gets In and Why
���and came away with some fascinating insights.
Selingo says experience and skills often trump where someone went to college. Each year, 1.8 million students graduate from four-year colleges, with 54,000 leaving with a degree from an elite institution. Simple math confirms employers must fill jobs with more than just graduates from elite schools.
According to Selingo, "Elite colleges seem to lead to elite jobs, and in turn, elite money. Around half of Forbes's list of the most powerful people, as well as half of America's billionaires, attended top schools."
But there's a catch. Many students attending Ivy League schools come with colossal financial and social capital. Do graduates reach prosperity due to their schooling, or is their success the result of winning first prize in the genetic lottery?
A famous study by Stacy Dale and Alan Krueger leans toward the latter. They updated their own study from a decade earlier, examining the incomes of more than 30,000 adults who graduated from 30 colleges. The subjects were now in their 30s and 40s. The findings validated the power of the individual. The earnings of graduates from schools of different selectivity, but who had similar academic abilities, were essentially the same.
���A student with a 1390 SAT who went to Miami University of Ohio but was accepted by the University of Pennsylvania earned as much on average as the student with 1390 who went to Penn,��� writes Selingo. ���The average SAT scores of colleges where students applied were more likely to predict success than the school students actually attended.���
Majors and skills, it seems, count for more than attendance at a brand-name school. The College Scorecard provides some interesting data. A computer science major from the University of Illinois drew $92,200 upon graduation. The results weren't much different from a graduate of eighth-ranked Duke, who came in at $95,200. An economics major from 44th-ranked Tulane earns around $44,000, less than a Binghamton University graduate. Binghamton���s tuition is $27,383 for in-state residents. Tulane charges an astronomical $80,322 per year.
Similarly, consider a finding from Burning Glass Technologies. It found marketing majors with specific SEO (search engine optimization) and SQL (structured query language) skills brought home $20,000 a year more than those lacking these qualifications. Notably, this income data didn't vary with the college that these marketing majors attended.
Less than a third of college graduates find a job in their major. The upshot: Rather than obsessing about getting into an elite university, students should focus on acquiring skills and winning internships.
One exception is students from lower-income families. ���Earning a college degree is a crucial step up the economic ladder,��� says Selingo. ���A college education may be the only way out for those struggling to escape poverty. And, if that degree is from an elite university, the benefits are more significant.���
But for achievers from wealthy families, an elite school education isn���t required for prosperity. College is the first stop on the road we call life. Not getting into Harvard isn't a career death sentence. As B. Alden Thresher, author of the 1966 book��College Admissions and the Public Interest, wrote: "One cannot tell by looking at a toad how far he will jump."
Tony Isola���s previous articles were
Daylight Robbery
,��
403 Beware
��and��
Seven Deadly Sins
. Tony works at��Ritholtz Wealth Management, specializing in helping educators reach their financial goals using a fiduciary model. To learn more, visit his blog,��
A Teachable Moment
.��Follow Tony on Twitter��
@ATeachMoment
.
Selingo says experience and skills often trump where someone went to college. Each year, 1.8 million students graduate from four-year colleges, with 54,000 leaving with a degree from an elite institution. Simple math confirms employers must fill jobs with more than just graduates from elite schools.
According to Selingo, "Elite colleges seem to lead to elite jobs, and in turn, elite money. Around half of Forbes's list of the most powerful people, as well as half of America's billionaires, attended top schools."
But there's a catch. Many students attending Ivy League schools come with colossal financial and social capital. Do graduates reach prosperity due to their schooling, or is their success the result of winning first prize in the genetic lottery?
A famous study by Stacy Dale and Alan Krueger leans toward the latter. They updated their own study from a decade earlier, examining the incomes of more than 30,000 adults who graduated from 30 colleges. The subjects were now in their 30s and 40s. The findings validated the power of the individual. The earnings of graduates from schools of different selectivity, but who had similar academic abilities, were essentially the same.
���A student with a 1390 SAT who went to Miami University of Ohio but was accepted by the University of Pennsylvania earned as much on average as the student with 1390 who went to Penn,��� writes Selingo. ���The average SAT scores of colleges where students applied were more likely to predict success than the school students actually attended.���
Majors and skills, it seems, count for more than attendance at a brand-name school. The College Scorecard provides some interesting data. A computer science major from the University of Illinois drew $92,200 upon graduation. The results weren't much different from a graduate of eighth-ranked Duke, who came in at $95,200. An economics major from 44th-ranked Tulane earns around $44,000, less than a Binghamton University graduate. Binghamton���s tuition is $27,383 for in-state residents. Tulane charges an astronomical $80,322 per year.
Similarly, consider a finding from Burning Glass Technologies. It found marketing majors with specific SEO (search engine optimization) and SQL (structured query language) skills brought home $20,000 a year more than those lacking these qualifications. Notably, this income data didn't vary with the college that these marketing majors attended.
Less than a third of college graduates find a job in their major. The upshot: Rather than obsessing about getting into an elite university, students should focus on acquiring skills and winning internships.
One exception is students from lower-income families. ���Earning a college degree is a crucial step up the economic ladder,��� says Selingo. ���A college education may be the only way out for those struggling to escape poverty. And, if that degree is from an elite university, the benefits are more significant.���
But for achievers from wealthy families, an elite school education isn���t required for prosperity. College is the first stop on the road we call life. Not getting into Harvard isn't a career death sentence. As B. Alden Thresher, author of the 1966 book��College Admissions and the Public Interest, wrote: "One cannot tell by looking at a toad how far he will jump."
Tony Isola���s previous articles were
Daylight Robbery
,��
403 Beware
��and��
Seven Deadly Sins
. Tony works at��Ritholtz Wealth Management, specializing in helping educators reach their financial goals using a fiduciary model. To learn more, visit his blog,��
A Teachable Moment
.��Follow Tony on Twitter��
@ATeachMoment
.The post appeared first on HumbleDollar.
December 16, 2021
Pick Your Poison
TRAVELING DURING the holidays? As we drive east out of Ohio and into Pennsylvania, we know to fill the gas tank before we cross the border. According to the Tax Foundation, Pennsylvania has the third-highest gasoline��tax in the country, behind California and Illinois, and about 20 cents per gallon higher than Ohio.
All states have to balance their budget. But they take very different approaches. This provides 50 experiments in taxation���and those taxes influence our behavior.
Gasoline taxes are essentially user fees, and user fees are thought by many to be a fair form of taxation. After all, shouldn���t those who use the roads pay more for their upkeep? Tolls also target users and, yes, Pennsylvania has those, too. A challenge for the future is electric cars. By not paying gas tax, they���re getting a free ride (pun intended). Some might see that as a reward for going green. But who will pay for the roads?
I���ve long wondered how much Pennsylvania loses in gasoline sales to surrounding states. When I lived near the border, a coworker religiously filled up his SUV in Ohio before returning home to Pennsylvania.
Meanwhile, sin taxes seek to curb undesirable behavior or, failing that, at least fatten the state���s coffers. If you ignored your mother���s warning that smoking stunts your growth, don���t pick up a pack in New York or Connecticut, which are tied for the highest��tax at $4.35 per pack. New York City levies an additional $1.50. Variations in tax rates between states can have the presumably unintended consequence of encouraging illegal behavior. The Tax Foundation links higher cigarette taxes to increased smuggling. With only a 45-cent tax on cigarettes, could North Carolinians be funding holiday trips to see the Rockette���s Christmas Show with a trunk full of smokes?
Now that you can legally pursue cigarette alternatives, states are adding a tax on vaping products and marijuana. It would be ironic if, even as marijuana is increasingly legalized, variations in state tax rates lead to illegal smuggling, as it has with cigarettes.
If all this talk of sin taxes makes you want a stiff drink, know that New Hampshire and Wyoming level no tax at all on distilled spirits. Instead, they profit by selling through state stores. The highest spirits taxes are in Washington and Oregon, states known for their wine production.
Speaking of wine, our friends in Pennsylvania and four other states levy no tax on the grape. The biggest wine tax is in Kentucky. Perhaps a shot of bourbon will hit the spot instead.
Want a cold beer? Head to Wyoming, Missouri or Wisconsin for minimal tax. Wasn���t there a beer that made Milwaukee famous? The makers of Jack Daniel's Tennessee Whiskey are probably pleased that their state has the highest tax on beer. After all, liquor is quicker.
If instead of traveling, you���re thinking of relocating, you may want to choose a state with a low overall tax burden. New Yorkers, who face the nation���s highest tax burden, don���t have to move all the way to Alaska, which has the lowest. Instead, any of the other 48 will reduce the bite. Which one should New Yorkers choose? How about picking a state that doesn���t heavily tax their chosen sin?
All states have to balance their budget. But they take very different approaches. This provides 50 experiments in taxation���and those taxes influence our behavior.
Gasoline taxes are essentially user fees, and user fees are thought by many to be a fair form of taxation. After all, shouldn���t those who use the roads pay more for their upkeep? Tolls also target users and, yes, Pennsylvania has those, too. A challenge for the future is electric cars. By not paying gas tax, they���re getting a free ride (pun intended). Some might see that as a reward for going green. But who will pay for the roads?
I���ve long wondered how much Pennsylvania loses in gasoline sales to surrounding states. When I lived near the border, a coworker religiously filled up his SUV in Ohio before returning home to Pennsylvania.
Meanwhile, sin taxes seek to curb undesirable behavior or, failing that, at least fatten the state���s coffers. If you ignored your mother���s warning that smoking stunts your growth, don���t pick up a pack in New York or Connecticut, which are tied for the highest��tax at $4.35 per pack. New York City levies an additional $1.50. Variations in tax rates between states can have the presumably unintended consequence of encouraging illegal behavior. The Tax Foundation links higher cigarette taxes to increased smuggling. With only a 45-cent tax on cigarettes, could North Carolinians be funding holiday trips to see the Rockette���s Christmas Show with a trunk full of smokes?
Now that you can legally pursue cigarette alternatives, states are adding a tax on vaping products and marijuana. It would be ironic if, even as marijuana is increasingly legalized, variations in state tax rates lead to illegal smuggling, as it has with cigarettes.
If all this talk of sin taxes makes you want a stiff drink, know that New Hampshire and Wyoming level no tax at all on distilled spirits. Instead, they profit by selling through state stores. The highest spirits taxes are in Washington and Oregon, states known for their wine production.
Speaking of wine, our friends in Pennsylvania and four other states levy no tax on the grape. The biggest wine tax is in Kentucky. Perhaps a shot of bourbon will hit the spot instead.
Want a cold beer? Head to Wyoming, Missouri or Wisconsin for minimal tax. Wasn���t there a beer that made Milwaukee famous? The makers of Jack Daniel's Tennessee Whiskey are probably pleased that their state has the highest tax on beer. After all, liquor is quicker.
If instead of traveling, you���re thinking of relocating, you may want to choose a state with a low overall tax burden. New Yorkers, who face the nation���s highest tax burden, don���t have to move all the way to Alaska, which has the lowest. Instead, any of the other 48 will reduce the bite. Which one should New Yorkers choose? How about picking a state that doesn���t heavily tax their chosen sin?
The post Pick Your Poison appeared first on HumbleDollar.
A Beautiful Mind
I STARTED MY CAREER with a little-known engineering company called SAI. It���s now called SAIC, short for Science Applications International Corp., a publicly traded and internationally renowned technology firm. But when I started in 1980, there were only a few thousand employees and several small, independently run offices scattered across the country.
SAI was started in 1969 by Dr. J. Robert Beyster, a nationally recognized expert in nuclear physics and national security. He started the company with the dual tenets of technical excellence and employee ownership. The firm attracted exceptional people who wanted not only to do great technical work, but also to benefit financially.
I worked for SAI from 1980 to 1986. The five engineers on staff at my office all had PhDs in engineering from leading schools. They were experts in the complex physics governing space vehicles reentering the earth���s atmosphere.
The smartest of them was also the youngest. Darryl had an undergraduate degree from Purdue and graduate degrees from the University of Pennsylvania. He had an exceptional grasp not only of physics, but also the complex mathematics needed to analyze challenging space systems.
Darryl was a true polymath. He was interested in music, sports, politics and literature. He bought a Toyota, espousing the financial benefits of low-priced, high-reliability cars. He was the person who introduced me to personal financial planning. He explained what an IRA was and the benefits of tax deferral.
He loved to discuss the seeming insanity of market volatility. Darryl also encouraged me to participate in the employee stock plan, explaining that the stock was valued on the company���s financial performance. Those stock purchases provided my wife and me with the down payment for our first home.
After six years, I moved to another company. Darryl and I kept in touch for a while, but eventually drifted apart. Each year, however, we exchanged Christmas cards, including a personal note explaining what each of our families was doing.
Thirty years later, we still exchange Christmas cards and notes. The last decade or so included the sad news that Darryl was showing signs of cognitive decline. Each year, it got worse. We just received this year���s card. Darryl has been placed in a residential facility.
It makes me sad to think that such a wonderful mind���and such a nice person���is suffering the ravages of dementia. I���ll always be grateful for the role he played in my career and my financial education.
SAI was started in 1969 by Dr. J. Robert Beyster, a nationally recognized expert in nuclear physics and national security. He started the company with the dual tenets of technical excellence and employee ownership. The firm attracted exceptional people who wanted not only to do great technical work, but also to benefit financially.
I worked for SAI from 1980 to 1986. The five engineers on staff at my office all had PhDs in engineering from leading schools. They were experts in the complex physics governing space vehicles reentering the earth���s atmosphere.
The smartest of them was also the youngest. Darryl had an undergraduate degree from Purdue and graduate degrees from the University of Pennsylvania. He had an exceptional grasp not only of physics, but also the complex mathematics needed to analyze challenging space systems.
Darryl was a true polymath. He was interested in music, sports, politics and literature. He bought a Toyota, espousing the financial benefits of low-priced, high-reliability cars. He was the person who introduced me to personal financial planning. He explained what an IRA was and the benefits of tax deferral.
He loved to discuss the seeming insanity of market volatility. Darryl also encouraged me to participate in the employee stock plan, explaining that the stock was valued on the company���s financial performance. Those stock purchases provided my wife and me with the down payment for our first home.
After six years, I moved to another company. Darryl and I kept in touch for a while, but eventually drifted apart. Each year, however, we exchanged Christmas cards, including a personal note explaining what each of our families was doing.
Thirty years later, we still exchange Christmas cards and notes. The last decade or so included the sad news that Darryl was showing signs of cognitive decline. Each year, it got worse. We just received this year���s card. Darryl has been placed in a residential facility.
It makes me sad to think that such a wonderful mind���and such a nice person���is suffering the ravages of dementia. I���ll always be grateful for the role he played in my career and my financial education.
The post A Beautiful Mind appeared first on HumbleDollar.
Positive but Not
MY EXPERIENCE with COVID-19 began on March 4, 2020. That morning, I got off a plane in Buenos Aries. While standing in line with my passport, I noticed several people wearing masks, so I put one on as well. Back then, we were being told to go about our business. ���It���s like a bad cold.��� If only.
We boarded our ship for a 30-day cruise, which I documented in five articles for��HumbleDollar. On that cruise, the real nature of COVID became clear as they announced a new death among the passengers every few days.
My wife and I got through those 30 days unscathed, despite eating and traveling by bus and plane with a friend who, after returning home, went on to spend two weeks in the ICU.
We got vaccinated as soon we could. Having taken every vaccine available during my lifetime, and experienced childhood diseases now rare, I have no tolerance for the anti-vaccine crowd or even those who claim personal choice over the common good. But that���s another story.
Having been fully vaccinated against COVID, I had confidence in my immunity. I may even have picked up a few antibodies on the ship. Or maybe not.
A month or so ago, my daughter was having a family gathering. I had a runny nose and a cough, but no fever. I really didn���t feel bad. My daughter and my wife ganged up and insisted that I get tested. Confident in my immunity, I went to a local testing site.
They took the swab and left me sitting alone in the room. ���I will be back in 10 minutes,��� the technician told me. All the while, I was watching the testing device tick away. Then it made a noise and I looked at the screen. ���Positive,��� it read. I was shocked. How could it be? I���ve been playing by the rules for the past year and a half.
When the technician returned, despite the protocol, I convinced her to do another test with a different machine. Ten minutes later, she returned and said, ���Bad news, it���s positive.��� I was shaken.
The good news is���because I was vaccinated���my breakthrough case was indeed mild, like a bad cold. I was lucky. But the state health department called to be sure I quarantined for 10 days. I���m making progress. Last time, after the cruise, it was 14 days of quarantine. By the way, my wife tested negative.
But now, I feel vulnerable like never before in my life. Could it happen again, but maybe worse? Leaving the house without my mask has become as traumatic as forgetting my phone.
My stress grew after I told a few friends���with whom I���d had contact���about my test results. The word got out, triggering an email alert���in red text���from our condo association. It said there was a COVID-positive person in the complex. No name was given, but I felt shunned nevertheless.
We received our booster shots three weeks after I tested positive. But even that hasn���t diminished my feeling of vulnerability. I���m on edge when shopping or in a restaurant. Every time one of my grandchildren doesn���t feel well, I worry. It seems nothing will be the same again.
The good news���I suppose���is that my new concerns have gotten me to take action. I���ve better organized my finances and papers. I���ve also updated my final instructions, thinking more about what my children need to know. I���m ashamed to admit it took a global pandemic to motivate me to act.
I have a $10,000 credit from our ill-fated cruise that must be used in 2022. I���m thinking that it will go in the loss column, despite my yearning to travel again.
My outlook on life and my retirement are forever changed. I suspect that���s true for many people, especially those less fortunate than me.
Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive.��Follow him on Twitter��@QuinnsComments��and check out his earlier��articles.
The post Positive but Not appeared first on HumbleDollar.
December 15, 2021
Giving Experiences
GIFT CARDS ARE BIG business. More than $28 billion is expected to be spent on gift cards this holiday season, with an average value of almost $50 per card, according to the National Retail Federation���s winter holidays report. This season, consumers want gift cards above all else, says the survey, and restaurants are the most popular category.
I���ve changed my mind about gift cards. I used to think they were a ridiculous way to show appreciation. I would sarcastically ask, ���Why not just give cash?��� After all, gift cards are just a more restricted form of cash. Some even expire���and many go unused.
Still, I���ve come to see gift cards as a way to give an experience. That���s important for cheapskates like me who find every excuse in the book to avoid going out and having fun. Sometimes, you can go too far in delaying gratification.
Gift cards to restaurants, shows, movies and even retail stores can be a great present for homebodies���particularly with so many people now also working from home. It can be all too easy to confine ourselves to a solitary apartment, neglecting human interaction. Research shows that one key to happiness is cultivating relationships with others. Like good financial habits, developing positive friendships and spending time with family are often easier said than done.
While retail gift cards aren���t magical elixirs guaranteed to deliver mental happiness and social connections, they can help. What���s more���for penny-pinching folks like me���now is the time of year when many places offer discounts or other promotions on gift cards. One popular pitch: ���Buy a $50 gift card, get a $10 bonus card.��� That sounds good to me.
I���ve changed my mind about gift cards. I used to think they were a ridiculous way to show appreciation. I would sarcastically ask, ���Why not just give cash?��� After all, gift cards are just a more restricted form of cash. Some even expire���and many go unused.
Still, I���ve come to see gift cards as a way to give an experience. That���s important for cheapskates like me who find every excuse in the book to avoid going out and having fun. Sometimes, you can go too far in delaying gratification.
Gift cards to restaurants, shows, movies and even retail stores can be a great present for homebodies���particularly with so many people now also working from home. It can be all too easy to confine ourselves to a solitary apartment, neglecting human interaction. Research shows that one key to happiness is cultivating relationships with others. Like good financial habits, developing positive friendships and spending time with family are often easier said than done.
While retail gift cards aren���t magical elixirs guaranteed to deliver mental happiness and social connections, they can help. What���s more���for penny-pinching folks like me���now is the time of year when many places offer discounts or other promotions on gift cards. One popular pitch: ���Buy a $50 gift card, get a $10 bonus card.��� That sounds good to me.
The post Giving Experiences appeared first on HumbleDollar.
Kids These Days
A FEW WEEKS BACK, Jonathan Clements wrote an article reminding readers that they, too, likely made financial missteps in their younger days. His article was in response to comments by HumbleDollar��readers about the perceived lack of financial discipline shown by those currently in their late teens and early 20s.
Before my recent career change, I would���ve had the same opinion as many readers. With my new job teaching accounting to undergraduates, however, my perspective has changed. While it���s hard to ignore the pricey lattes accompanying many students to class, I���m bullish on the financial future of today���s college students.
First, most students are hustlers. Because of the high cost of college, students often work one or more jobs to help pay for college. I have one student who closely monitors his DoorDash app and knows the optimal times of the week to jump in his car to deliver food. This DoorDash driving is on top of his other work and athletic commitments.
I also see students taking advantage of internship opportunities. Given the tight labor market, there���s high demand for student workers among local businesses, especially in accounting. I have one student who will have two paid internships during the spring semester. Instead of relaxing because of a lighter-than-usual course load, she���s ramping up the experience���and income���she���ll collect before she graduates.
Another trend I���ve seen: Students are much more interested in stock investing than I was as an undergraduate in the 1990s. I���m regularly approached by students who want to learn how to read financial statements and do fundamental stock analysis. I recently had lunch with a freshman who was keen to learn about the meaning of price-earnings ratios and dividend yields. This student now researches stocks and sends investment ideas to me on a regular basis.
A final heart-warmer for HumbleDollar readers: I recently helped the DoorDash driver open a Roth IRA. He���s now investing every month in an S&P 500 index fund.
Before my recent career change, I would���ve had the same opinion as many readers. With my new job teaching accounting to undergraduates, however, my perspective has changed. While it���s hard to ignore the pricey lattes accompanying many students to class, I���m bullish on the financial future of today���s college students.
First, most students are hustlers. Because of the high cost of college, students often work one or more jobs to help pay for college. I have one student who closely monitors his DoorDash app and knows the optimal times of the week to jump in his car to deliver food. This DoorDash driving is on top of his other work and athletic commitments.
I also see students taking advantage of internship opportunities. Given the tight labor market, there���s high demand for student workers among local businesses, especially in accounting. I have one student who will have two paid internships during the spring semester. Instead of relaxing because of a lighter-than-usual course load, she���s ramping up the experience���and income���she���ll collect before she graduates.
Another trend I���ve seen: Students are much more interested in stock investing than I was as an undergraduate in the 1990s. I���m regularly approached by students who want to learn how to read financial statements and do fundamental stock analysis. I recently had lunch with a freshman who was keen to learn about the meaning of price-earnings ratios and dividend yields. This student now researches stocks and sends investment ideas to me on a regular basis.
A final heart-warmer for HumbleDollar readers: I recently helped the DoorDash driver open a Roth IRA. He���s now investing every month in an S&P 500 index fund.
The post Kids These Days appeared first on HumbleDollar.
