Jonathan Clements's Blog, page 245
December 10, 2021
Humbly Received
EVEN AS I'VE WRITTEN regularly for HumbleDollar over the past year, I���ve also learned a lot from the other writers. There have been specific tips I���ve picked up, as well as more general strategies that have influenced my thinking.
For instance, John Lim and others have touted the benefits of Series I savings bonds, with their virtually risk-free interest rate, currently set at a whopping 7.12%. My wife and I took the plunge, opened TreasuryDirect accounts and bought the maximum allowed.
The comments on articles can likewise be helpful. Recently, a reader mentioned that, thanks to a couple of promos, he was getting 1.1% on his Marcus online savings account. My Marcus account was yielding 0.5%, so this got my attention. I referred my wife and she opened a Marcus account, getting us both a 0.5% interest bonus for three months. Then we joined AARP, which got us another 0.1% for two years.
Adam Grossman���s article on how to analyze the total cost of owning a particular mutual fund is a great tool. I���ve used it in deciding whether to sell some actively managed funds I bought decades ago and which now have significant unrealized capital gains.
Charles Ellis���s recent article on fees reinforced, in a dramatic way, my belief in a low-cost index fund approach. His same logic applies to fees paid to an advisor, strengthening my resolve to stay with my do-it-yourself approach for as long as I have enough marbles remaining.
More generally, just seeing so many HumbleDollar contributors and commenters embracing the same basic principles���start early, keep fees low, diversify, trade infrequently, maintain a healthy cash reserve and so on���has been helpful. It reinforces what I���ve personally learned, often the hard way, and gives me confidence that I���m on the right path.
Sometimes, the dividends paid by the site are unique and completely unexpected. A while back, I mentioned my hobby of collecting pocket knives, and how I sell some of them each year to benefit organizations that help our canine friends.
A reader with a knife question got in touch. He had owned an unusual pocket knife decades ago, but sadly lost it. He asked my help in finding a replacement. The pocket knife gods were with us. I found one on eBay, and also gave the reader some eBay tips I���d picked up over the years. He won the auction for the knife and, to show his gratitude, made a contribution to a very worthy dog organization I���d mentioned in my article.
For instance, John Lim and others have touted the benefits of Series I savings bonds, with their virtually risk-free interest rate, currently set at a whopping 7.12%. My wife and I took the plunge, opened TreasuryDirect accounts and bought the maximum allowed.
The comments on articles can likewise be helpful. Recently, a reader mentioned that, thanks to a couple of promos, he was getting 1.1% on his Marcus online savings account. My Marcus account was yielding 0.5%, so this got my attention. I referred my wife and she opened a Marcus account, getting us both a 0.5% interest bonus for three months. Then we joined AARP, which got us another 0.1% for two years.
Adam Grossman���s article on how to analyze the total cost of owning a particular mutual fund is a great tool. I���ve used it in deciding whether to sell some actively managed funds I bought decades ago and which now have significant unrealized capital gains.
Charles Ellis���s recent article on fees reinforced, in a dramatic way, my belief in a low-cost index fund approach. His same logic applies to fees paid to an advisor, strengthening my resolve to stay with my do-it-yourself approach for as long as I have enough marbles remaining.
More generally, just seeing so many HumbleDollar contributors and commenters embracing the same basic principles���start early, keep fees low, diversify, trade infrequently, maintain a healthy cash reserve and so on���has been helpful. It reinforces what I���ve personally learned, often the hard way, and gives me confidence that I���m on the right path.
Sometimes, the dividends paid by the site are unique and completely unexpected. A while back, I mentioned my hobby of collecting pocket knives, and how I sell some of them each year to benefit organizations that help our canine friends.
A reader with a knife question got in touch. He had owned an unusual pocket knife decades ago, but sadly lost it. He asked my help in finding a replacement. The pocket knife gods were with us. I found one on eBay, and also gave the reader some eBay tips I���d picked up over the years. He won the auction for the knife and, to show his gratitude, made a contribution to a very worthy dog organization I���d mentioned in my article.
The post Humbly Received appeared first on HumbleDollar.
The Bogle Method
TIME TO PLAY MARKET strategist. Trying to figure out what sort of U.S. stock returns we can expect over the next 10 years? Nobody knows for sure, of course. But we can at least think about it in a reasonably logical way���by using what some folks call the Bogle method.
What���s that? In a 1991 article for the Journal of Portfolio Management, Vanguard Group founder John Bogle���who died in January 2019���laid out a relatively straightforward method for estimating stock returns. He subsequently revisited the idea a number of times, including in his book Common Sense on Mutual Funds. Here���s what the Bogle method tells us about today���s expected stock returns:
Dividends. This is the one component of future returns that���s known for sure. For buyers of the S&P 500 today, the starting dividend yield is some 1.3%, which is very low by historical standards. Over the past 50 years, the S&P 500���s yield has averaged 2.8%.
Earnings. To the dividend yield, Bogle would add expected earnings growth. Assuming 2021���s corporate profits come in as expected, the S&P 500 companies will have notched average annual growth in earnings per share of 7.3% over the past five decades, or 3.3% a year after adjusting for inflation.
I���m inclined to assume future earnings growth will be similar, but there are no guarantees. Even over decade-long stretches, earnings growth has been all over the map. The S&P 500���s earnings per share grew an inflation-adjusted 2.4% a year in the 1970s, fell 0.7% a year in the 1980s, grew 4.7% in the 1990s, slid 1.9% in the 2000s and soared 8.7% in the 2010s.
I was surprised by this variability. Over the past 50 years, there���s never been a single year when real (inflation-adjusted) GDP grew by 8.7%, let alone notching that rate for an entire decade. Similarly, in the 2000s, when earnings per share shrank by 1.9% a year, after adjusting for inflation, there was only one year when real GDP was negative.
Still, over the past five decades, real GDP grew 2.7% a year, similar to the 3.3% growth rate in inflation-adjusted earnings per share. There may be a short-term disconnect between the two because, say, a recession causes a big hit to reported corporate profits, but GDP and corporate earnings should roughly track each other over the long haul.
Based on the difference in yield between 10-year Treasury notes and 10-year inflation-indexed Treasurys, bond investors expect 2.5% annual inflation over the next decade. If we assume earnings per share grow 3.3 percentage points faster, we���re looking at 5.8% nominal growth in earnings. Add the 1.3% dividend yield, and that puts us at 7.1%.
This is what Jack Bogle called the stock market���s investment return. But is this what investors will get? That brings us to the Bogle method���s third factor.
Speculation. For investors to earn 7.1% a year from the S&P 500 over the next decade, the S&P 500 stocks would need to finish the 10-year period with the same price-earnings (P/E) ratio that they collectively have today.
Suppose the S&P 500 ends the year at 4700, close to Friday���s close. That means we���d be at a P/E ratio of roughly 25, assuming reported earnings for 2021 come in as expected. (A nerdy aside: At year-end, the S&P 500���s P/E will appear higher because, at that juncture, companies won���t yet have reported their 2021 earnings.)
Will the S&P 500 be at a P/E of 25 at year-end 2031? Your guess is as good as mine. Consider the range of possibilities:
If the S&P 500���s P/E rose to 30, it would add 1.8 percentage points a year to the market���s performance, boosting returns to 8.9% a year.
If the P/E fell to 20, in line with the 50-year average, it would shave 2.2 percentage points a year off the market���s gain, lowering returns to 4.9% a year.
If the P/E fell to 17, in line with the 100-year average, it would knock 3.8 percentage points a year off the market���s return, leaving stocks at just 3.3% a year.
Feeling queasy about the stock market���s prospects? Let me toss in even more uncertainty. Over the past 50 years, corporate earnings per share have benefited from widening profit margins, declining corporate tax rates and an end to dilution. Profit margins could narrow and corporate tax rates could rise, hurting earnings growth over the decade ahead. On the other hand, it seems dilution, which is caused by companies issuing ever more shares, is no longer a big issue, thanks to stock buybacks. Those buybacks may ensure inflation-adjusted earnings per share grow faster than the 3.3% I assumed above.
Where does all this leave us? I think we can draw two key conclusions. First, the Bogle method suggests we should ratchet back our return expectations for the next 10 years. It seems unlikely that the S&P 500 will notch 10% a year, and it could return far less. That���s the bad news.
The good news: Even if U.S. stock returns are grim, investors should still make more than they would with bonds. Yes, the ride for stocks will be rougher than that for bonds. But that rougher ride should be rewarded���even if it isn���t richly rewarded.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
Socialize. Stay active. Remain productive. Keep learning. Break routines. Mike Zaccardi details the key lessons he learned from spending a year in semi-retirement���at age 34.
"The market always reacts to news," notes Adam Grossman. "Its fast reactions make it��seem efficient. But whether the market���s reactions ultimately make sense is a different question."
Want a hedge against inflation? Forget trading commodities, says John Lim, and instead consider buying oil company shares. His pick: TotalEnergies.
"If you���re working with a financial planner and she says your probability of success is 50%, don���t panic," writes Rick Connor.��"It���s likely not a bad starting point as you approach retirement."
The poverty rate is projected to fall to 7.7% of the population in 2021, down from 13.9% in 2018. But how? Greg Spears explains this surprising success story.
"Most people could use a reality check on their retirement expectations," argues Dick Quinn. "Let���s face it: 25 to 30 years is a long time to live on someone else's assumptions."
Also be sure to check out the past week's��blog posts, including Howard Rohleder on buying cars, Dennis Friedman on investment courage, Jim Wasserman on property taxes, John Yeigh on Roth IRAs for kids, Ron Wayne on dollar stores��and Andrew Forsythe on the investing life.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.
What���s that? In a 1991 article for the Journal of Portfolio Management, Vanguard Group founder John Bogle���who died in January 2019���laid out a relatively straightforward method for estimating stock returns. He subsequently revisited the idea a number of times, including in his book Common Sense on Mutual Funds. Here���s what the Bogle method tells us about today���s expected stock returns:
Dividends. This is the one component of future returns that���s known for sure. For buyers of the S&P 500 today, the starting dividend yield is some 1.3%, which is very low by historical standards. Over the past 50 years, the S&P 500���s yield has averaged 2.8%.
Earnings. To the dividend yield, Bogle would add expected earnings growth. Assuming 2021���s corporate profits come in as expected, the S&P 500 companies will have notched average annual growth in earnings per share of 7.3% over the past five decades, or 3.3% a year after adjusting for inflation.
I���m inclined to assume future earnings growth will be similar, but there are no guarantees. Even over decade-long stretches, earnings growth has been all over the map. The S&P 500���s earnings per share grew an inflation-adjusted 2.4% a year in the 1970s, fell 0.7% a year in the 1980s, grew 4.7% in the 1990s, slid 1.9% in the 2000s and soared 8.7% in the 2010s.
I was surprised by this variability. Over the past 50 years, there���s never been a single year when real (inflation-adjusted) GDP grew by 8.7%, let alone notching that rate for an entire decade. Similarly, in the 2000s, when earnings per share shrank by 1.9% a year, after adjusting for inflation, there was only one year when real GDP was negative.
Still, over the past five decades, real GDP grew 2.7% a year, similar to the 3.3% growth rate in inflation-adjusted earnings per share. There may be a short-term disconnect between the two because, say, a recession causes a big hit to reported corporate profits, but GDP and corporate earnings should roughly track each other over the long haul.
Based on the difference in yield between 10-year Treasury notes and 10-year inflation-indexed Treasurys, bond investors expect 2.5% annual inflation over the next decade. If we assume earnings per share grow 3.3 percentage points faster, we���re looking at 5.8% nominal growth in earnings. Add the 1.3% dividend yield, and that puts us at 7.1%.
This is what Jack Bogle called the stock market���s investment return. But is this what investors will get? That brings us to the Bogle method���s third factor.
Speculation. For investors to earn 7.1% a year from the S&P 500 over the next decade, the S&P 500 stocks would need to finish the 10-year period with the same price-earnings (P/E) ratio that they collectively have today.
Suppose the S&P 500 ends the year at 4700, close to Friday���s close. That means we���d be at a P/E ratio of roughly 25, assuming reported earnings for 2021 come in as expected. (A nerdy aside: At year-end, the S&P 500���s P/E will appear higher because, at that juncture, companies won���t yet have reported their 2021 earnings.)
Will the S&P 500 be at a P/E of 25 at year-end 2031? Your guess is as good as mine. Consider the range of possibilities:
If the S&P 500���s P/E rose to 30, it would add 1.8 percentage points a year to the market���s performance, boosting returns to 8.9% a year.
If the P/E fell to 20, in line with the 50-year average, it would shave 2.2 percentage points a year off the market���s gain, lowering returns to 4.9% a year.
If the P/E fell to 17, in line with the 100-year average, it would knock 3.8 percentage points a year off the market���s return, leaving stocks at just 3.3% a year.
Feeling queasy about the stock market���s prospects? Let me toss in even more uncertainty. Over the past 50 years, corporate earnings per share have benefited from widening profit margins, declining corporate tax rates and an end to dilution. Profit margins could narrow and corporate tax rates could rise, hurting earnings growth over the decade ahead. On the other hand, it seems dilution, which is caused by companies issuing ever more shares, is no longer a big issue, thanks to stock buybacks. Those buybacks may ensure inflation-adjusted earnings per share grow faster than the 3.3% I assumed above.
Where does all this leave us? I think we can draw two key conclusions. First, the Bogle method suggests we should ratchet back our return expectations for the next 10 years. It seems unlikely that the S&P 500 will notch 10% a year, and it could return far less. That���s the bad news.
The good news: Even if U.S. stock returns are grim, investors should still make more than they would with bonds. Yes, the ride for stocks will be rougher than that for bonds. But that rougher ride should be rewarded���even if it isn���t richly rewarded.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
Socialize. Stay active. Remain productive. Keep learning. Break routines. Mike Zaccardi details the key lessons he learned from spending a year in semi-retirement���at age 34.
"The market always reacts to news," notes Adam Grossman. "Its fast reactions make it��seem efficient. But whether the market���s reactions ultimately make sense is a different question."
Want a hedge against inflation? Forget trading commodities, says John Lim, and instead consider buying oil company shares. His pick: TotalEnergies.
"If you���re working with a financial planner and she says your probability of success is 50%, don���t panic," writes Rick Connor.��"It���s likely not a bad starting point as you approach retirement."
The poverty rate is projected to fall to 7.7% of the population in 2021, down from 13.9% in 2018. But how? Greg Spears explains this surprising success story.
"Most people could use a reality check on their retirement expectations," argues Dick Quinn. "Let���s face it: 25 to 30 years is a long time to live on someone else's assumptions."
Also be sure to check out the past week's��blog posts, including Howard Rohleder on buying cars, Dennis Friedman on investment courage, Jim Wasserman on property taxes, John Yeigh on Roth IRAs for kids, Ron Wayne on dollar stores��and Andrew Forsythe on the investing life.
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 The Bogle Method appeared first on HumbleDollar.
Home Alone
MY YEAR BEGAN WITH a fulltime job at an energy trading company. But I knew my days were numbered. I���d spent six years trading, working with clients and helping to manage risk, all while being surrounded by smart and fun people. But as side gigs, I���d also spent several years writing about finance and teaching as an adjunct professor. Writing became my passion���one that didn���t mesh well with my day job.
That���s how, in January, I found myself embarked on an uncertain endeavor: focusing solely on financial writing and university teaching. It would turn out to be a year of semi-retirement for me���an odd thing at age 34. My final semester teaching was in the spring, while freelance writing only took up 10 hours a week or so.
What did I do with my ample free time? Hit the golf course? Sit on the beach? Travel the world? None of that. My golf clubs lay dormant and I only visited the beach to take weather observations during hurricanes. I did take a quick trip to Atlanta in July���for a CFA exam-grading volunteer event.
Instead, I settled into a daily routine of writing for an hour or two first thing in the morning, then reading investment research reports and articles in The Wall Street Journal and on Morningstar.com. Exercise, walks and listening to countless financial and behavioral podcasts filled my afternoons, along with responding to the occasional client email. My evenings were quiet and short, sometimes diving into finance books. I would hit the sack by 8:30 p.m., so I���d be up early to write during my ���high performance��� time of day.
Notice how none of these activities included other people. That was my folly. I even knew that going in. Last March, I wrote an article detailing the perils of FIRE, the financial independence-retire early movement. It sounds amazing to have the financial freedom to leave a fulltime job and do as you please. But I learned through hard experience that a pre-retiree must develop a game plan for life after work. Here are five keys to a successful semi-retirement���not all of which I nailed:
1. Socialize. I wrote last March, ���I need to stay active and social. No two ways about it.��� Be social? I earned a big fat ���F��� on that one.
2. Stay active. I crushed that���I haven���t missed a day of exercise and I savored the Florida sun as I walked many miles daily. I���ve also been getting plenty of healthy shut-eye.
3. Remain productive. My business has grown and it more than pays the bills. I am able to contribute the max to my solo 401(k) and IRA this year. I plan to continue with my various side gigs.
4. Keep learning. I love reading and researching. It might be the most fun part of my day. Time flies when I���m writing and reading. I���ve also gotten used to listening to podcasts at 1.8 times regular speed���a big win.
5. Break routines. Routines are sometimes good. They���re like mental shortcuts to help us focus on more creative and important tasks. For me, I can get so beholden to a routine that I stress about missing a step. With every day feeling kind of the same, I���ve tried to ignore the clock and go with my gut more. Memories are not made with checklists. Spontaneity spices up life.
Why didn���t I socialize more? As an introvert, I rarely pounce on opportunities to get out of the house and go make small talk with acquaintances. In hindsight, the social benefits of fulltime work are something I didn���t fully appreciate. Chatting it up in the break room or on the trading floor, while not the most productive use of time, is almost like part of the benefits package.
From a business point of view, my year as a freelance writer has been fantastic. I���ve worked on many interesting projects with smart people, all through email, phone calls and Zoom. I believe my financial writing has improved, thanks to large doses of helpful and positive feedback. Nothing feels better than when I deliver something of value to clients.
But my year as a FIRE poster child is drawing to a close. I���ll most likely be working fulltime again by early 2022. It won���t be in energy trading or managing a portfolio. Instead, I���ll be doing what I think I do best���writing about investments and communicating financial issues.
Over the past year, I���ve learned some valuable lessons about what works for me and what I struggle with. I envy those in the FIRE crowd who find fulfillment in life without a fulltime job. But right now, that isn���t for me. My goal for 2022: To use the extra income from my new job not to invest every last dollar in tax-advantaged accounts and index funds, but to be intentional about getting out and about more.
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. Mike is also a finance instructor at the University of North Florida. Follow him on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com��and check out his earlier articles.
That���s how, in January, I found myself embarked on an uncertain endeavor: focusing solely on financial writing and university teaching. It would turn out to be a year of semi-retirement for me���an odd thing at age 34. My final semester teaching was in the spring, while freelance writing only took up 10 hours a week or so.
What did I do with my ample free time? Hit the golf course? Sit on the beach? Travel the world? None of that. My golf clubs lay dormant and I only visited the beach to take weather observations during hurricanes. I did take a quick trip to Atlanta in July���for a CFA exam-grading volunteer event.
Instead, I settled into a daily routine of writing for an hour or two first thing in the morning, then reading investment research reports and articles in The Wall Street Journal and on Morningstar.com. Exercise, walks and listening to countless financial and behavioral podcasts filled my afternoons, along with responding to the occasional client email. My evenings were quiet and short, sometimes diving into finance books. I would hit the sack by 8:30 p.m., so I���d be up early to write during my ���high performance��� time of day.
Notice how none of these activities included other people. That was my folly. I even knew that going in. Last March, I wrote an article detailing the perils of FIRE, the financial independence-retire early movement. It sounds amazing to have the financial freedom to leave a fulltime job and do as you please. But I learned through hard experience that a pre-retiree must develop a game plan for life after work. Here are five keys to a successful semi-retirement���not all of which I nailed:
1. Socialize. I wrote last March, ���I need to stay active and social. No two ways about it.��� Be social? I earned a big fat ���F��� on that one.
2. Stay active. I crushed that���I haven���t missed a day of exercise and I savored the Florida sun as I walked many miles daily. I���ve also been getting plenty of healthy shut-eye.
3. Remain productive. My business has grown and it more than pays the bills. I am able to contribute the max to my solo 401(k) and IRA this year. I plan to continue with my various side gigs.
4. Keep learning. I love reading and researching. It might be the most fun part of my day. Time flies when I���m writing and reading. I���ve also gotten used to listening to podcasts at 1.8 times regular speed���a big win.
5. Break routines. Routines are sometimes good. They���re like mental shortcuts to help us focus on more creative and important tasks. For me, I can get so beholden to a routine that I stress about missing a step. With every day feeling kind of the same, I���ve tried to ignore the clock and go with my gut more. Memories are not made with checklists. Spontaneity spices up life.
Why didn���t I socialize more? As an introvert, I rarely pounce on opportunities to get out of the house and go make small talk with acquaintances. In hindsight, the social benefits of fulltime work are something I didn���t fully appreciate. Chatting it up in the break room or on the trading floor, while not the most productive use of time, is almost like part of the benefits package.
From a business point of view, my year as a freelance writer has been fantastic. I���ve worked on many interesting projects with smart people, all through email, phone calls and Zoom. I believe my financial writing has improved, thanks to large doses of helpful and positive feedback. Nothing feels better than when I deliver something of value to clients.
But my year as a FIRE poster child is drawing to a close. I���ll most likely be working fulltime again by early 2022. It won���t be in energy trading or managing a portfolio. Instead, I���ll be doing what I think I do best���writing about investments and communicating financial issues.
Over the past year, I���ve learned some valuable lessons about what works for me and what I struggle with. I envy those in the FIRE crowd who find fulfillment in life without a fulltime job. But right now, that isn���t for me. My goal for 2022: To use the extra income from my new job not to invest every last dollar in tax-advantaged accounts and index funds, but to be intentional about getting out and about more.
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. Mike is also a finance instructor at the University of North Florida. Follow him on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com��and check out his earlier articles.
The post Home Alone appeared first on HumbleDollar.
December 9, 2021
Undrowned Sorrows
WE ALL SUFFER, in ways large and small, from COVID-driven shortages. The global supply chain has been disrupted, affecting automobiles, furniture, building supplies and much more.
But the impact really hit home last month when my brother-in-law called and told me he couldn���t find his favorite bourbon. He lives in central North Carolina, where liquor sales are limited to state-owned stores. He had to go to three stores to find his backup brand, Maker���s Mark.
His favorite���and apparently many other bourbon fans��� first choice���is Eagle Rare. It���s aptly named. It has been very hard to find for the last year or more. Prices have gone up accordingly.
Eagle Rare is made by Buffalo Trace Distillery in Frankfort, Kentucky. The distillery also makes the eponymous Buffalo Trace, which is a fine, mid-priced ���everyday��� bourbon. It���s in short supply, too.
I searched my region for Eagle Rare. After calling 11 stores, I found one outside Atlantic City, New Jersey, that had five bottles. I was so excited to find it, I asked them to put all five aside and said I would be right over. When I got there, they had them in a box at the counter, waiting for me. After I paid, I realized that���in my excitement���I had neglected to ask the price.
It was $69.99 per bottle, a significant premium over the prices listed for Eagle Rare at most local stores. Of course, my local stores didn���t have any in stock, and couldn���t guarantee when they would have some. I paid the inflated price without complaint. But on my way out, I checked the price of comparable bourbons. Their prices were in line with what I expected. Had the Eagle Rare price gone up following my phone call?
According to industry��sources and others, there are problems at nearly every step of the alcohol supply chain. This includes sourcing glass bottles, increasing international shipping costs and a shortage of truck drivers. This creates a compounding effect, one that���s worsened the situation over the course of the pandemic.
Buffalo Trace is undertaking a $1.2 billion facility upgrade, but it will be years until its supply capability will catch up to current demand. I wonder if Eagle Rare will still have the same cachet then, or if some new brand will be the latest rave?
Whenever I find myself getting caught up in a buying frenzy, I think about behavioral economics and try to figure out what tenets I might be violating. I���m sure I���m guilty of breaking several in my chase for Eagle Rare. It���s obviously a fungible good. For a substitute, I���m partial to Angel���s Envy, which I can usually find at a $20 discount to Eagle Rare.
My story has a happy ending. I brought the Eagle Rare to our annual Thanksgiving week family reunion. My brother-in-law was very happy���and, equally important, happy to share.
But the impact really hit home last month when my brother-in-law called and told me he couldn���t find his favorite bourbon. He lives in central North Carolina, where liquor sales are limited to state-owned stores. He had to go to three stores to find his backup brand, Maker���s Mark.
His favorite���and apparently many other bourbon fans��� first choice���is Eagle Rare. It���s aptly named. It has been very hard to find for the last year or more. Prices have gone up accordingly.
Eagle Rare is made by Buffalo Trace Distillery in Frankfort, Kentucky. The distillery also makes the eponymous Buffalo Trace, which is a fine, mid-priced ���everyday��� bourbon. It���s in short supply, too.
I searched my region for Eagle Rare. After calling 11 stores, I found one outside Atlantic City, New Jersey, that had five bottles. I was so excited to find it, I asked them to put all five aside and said I would be right over. When I got there, they had them in a box at the counter, waiting for me. After I paid, I realized that���in my excitement���I had neglected to ask the price.
It was $69.99 per bottle, a significant premium over the prices listed for Eagle Rare at most local stores. Of course, my local stores didn���t have any in stock, and couldn���t guarantee when they would have some. I paid the inflated price without complaint. But on my way out, I checked the price of comparable bourbons. Their prices were in line with what I expected. Had the Eagle Rare price gone up following my phone call?
According to industry��sources and others, there are problems at nearly every step of the alcohol supply chain. This includes sourcing glass bottles, increasing international shipping costs and a shortage of truck drivers. This creates a compounding effect, one that���s worsened the situation over the course of the pandemic.
Buffalo Trace is undertaking a $1.2 billion facility upgrade, but it will be years until its supply capability will catch up to current demand. I wonder if Eagle Rare will still have the same cachet then, or if some new brand will be the latest rave?
Whenever I find myself getting caught up in a buying frenzy, I think about behavioral economics and try to figure out what tenets I might be violating. I���m sure I���m guilty of breaking several in my chase for Eagle Rare. It���s obviously a fungible good. For a substitute, I���m partial to Angel���s Envy, which I can usually find at a $20 discount to Eagle Rare.
My story has a happy ending. I brought the Eagle Rare to our annual Thanksgiving week family reunion. My brother-in-law was very happy���and, equally important, happy to share.
The post Undrowned Sorrows appeared first on HumbleDollar.
The Investing Life
MY PARENTS WERE financially comfortable but not rich. Some of their friends, though, were rich. The men always seemed to die before their wives, resulting in a few wealthy widows in my parents��� social circle.
I recall glancing at the annual report of a company for which my dad had done some work. One of the widows was listed as a board member and her occupation was stated as ���investor.��� I asked my dad what that meant and he replied that it meant she had enough money that simply managing it was a part-time job.
Through my working career, that intriguing idea stuck in my mind. I think I was forming an unconscious goal that, in retirement, I���d actually have a new job���as an ���investor.��� I���m retired now, and our net worth doesn���t come close to that of those wealthy widows I remember, and yet managing our financial affairs really does amount to a part-time job.
We have investment accounts at Vanguard Group and Charles Schwab, including taxable accounts, Roth IRAs and a SIMPLE IRA from my working days. We also have accounts at Chase, our brick-and-mortar bank, as well as a handful of savings accounts and no-penalty certificates of deposit at various online banks.
My wife and I each have a health savings account, with linked brokerage accounts at TD Ameritrade. Recently, we each opened a TreasuryDirect account and made our first Series I savings bond purchases. There���s an old Lincoln Financial variable annuity from back when I didn���t know any better. There���s also a modest trust from my long-deceased grandmother that still requires some attention and oversight.
In addition, my old law-firm partner and I own a piece of investment real estate, which has always been complicated but which we hope we can finally sell in our lifetimes. On top of all that, I help my wife with her duties as executor of her dad���s estate, which consists of some rental properties in south Texas.
My daily routine: After walking the dogs and working out, I grab some coffee, sit down at the computer and dive in. Am I now an ���investor���? Not even close to the widows from my youth, but maybe ���pee-wee grade.��� Is it a dream come true? Not really. My main goal is to start simplifying all of this. But in the meantime, it sure beats working for a living.
I recall glancing at the annual report of a company for which my dad had done some work. One of the widows was listed as a board member and her occupation was stated as ���investor.��� I asked my dad what that meant and he replied that it meant she had enough money that simply managing it was a part-time job.
Through my working career, that intriguing idea stuck in my mind. I think I was forming an unconscious goal that, in retirement, I���d actually have a new job���as an ���investor.��� I���m retired now, and our net worth doesn���t come close to that of those wealthy widows I remember, and yet managing our financial affairs really does amount to a part-time job.
We have investment accounts at Vanguard Group and Charles Schwab, including taxable accounts, Roth IRAs and a SIMPLE IRA from my working days. We also have accounts at Chase, our brick-and-mortar bank, as well as a handful of savings accounts and no-penalty certificates of deposit at various online banks.
My wife and I each have a health savings account, with linked brokerage accounts at TD Ameritrade. Recently, we each opened a TreasuryDirect account and made our first Series I savings bond purchases. There���s an old Lincoln Financial variable annuity from back when I didn���t know any better. There���s also a modest trust from my long-deceased grandmother that still requires some attention and oversight.
In addition, my old law-firm partner and I own a piece of investment real estate, which has always been complicated but which we hope we can finally sell in our lifetimes. On top of all that, I help my wife with her duties as executor of her dad���s estate, which consists of some rental properties in south Texas.
My daily routine: After walking the dogs and working out, I grab some coffee, sit down at the computer and dive in. Am I now an ���investor���? Not even close to the widows from my youth, but maybe ���pee-wee grade.��� Is it a dream come true? Not really. My main goal is to start simplifying all of this. But in the meantime, it sure beats working for a living.
The post The Investing Life appeared first on HumbleDollar.
Withdrawal Pains
TWO MONTHS AGO, I fessed up to my addiction to financial market news. Despite knowing better, I���ve followed the markets closely for years and would update my portfolio almost daily. Based on some comments my article received, it appears I���m not alone.
In the article, I vowed not to check my portfolio until New Year���s Day 2022. How���s my experiment gone thus far���and what have I learned?
My attempt to go cold turkey hasn���t been entirely successful. Though I���ve looked at my portfolio far less often, curiosity sometimes gets the better of me. Over the past two months, I���ve checked in on the market or my portfolio a handful of times. Still, compared to my old ways, I count this as a small victory.
One thing I discovered is just how addictive financial market data can be. Kicking the habit has been far more difficult than I���d imagined. Some days, I felt an intense craving for market quotes that were just a few keystrokes away. Usually, though not always, I managed to fight the urge.
Another revelation���perhaps obvious in hindsight���is just how difficult it is to insulate oneself from market data. Both The Wall Street Journal and Bloomberg have an electronic ���ticker tape��� displayed prominently across their websites. Even HumbleDollar recently implemented this feature on its homepage, displaying daily price changes for a dozen exchange-traded index funds representing broad market segments. I felt like a smoker trying to quit but being bombarded by images of cigarettes dancing across my computer screen.
By the way, if anyone working for these news outlets is reading this, may I offer a suggestion? Allow subscribers to opt out of seeing dynamic market quotes. Unfortunately, I have a sneaking suspicion that such feeds drive user addiction���I mean, engagement.
With regard to checking my portfolio, I resorted to a financial hack that���s been somewhat effective. I set up alerts for every position I own. Fortunately, my portfolio is pretty simple. I would be notified if any holding increased or decreased by 10% in price, or reached a new 52-week high or low. No alerts meant that nothing earth-shattering was going on.
I���ve received just a handful of alerts over the past two months. Two bond funds hit 52-week lows. A stock fund hit a 52-week high. Finally, a gold-mining ETF broke above the 10% threshold I���d set.
How many of these alerts did I act upon? Exactly zero. A waste of time, perhaps. But for me, the alerts provided a measure of reassurance that my portfolio hadn���t gone completely off the rails.
Overall, spending less time fussing over market noise provided me with greater equanimity. While I���m disappointed that I haven���t been able to break the habit completely, I���m determined to beat this addiction one way or another. Stay tuned.
In the article, I vowed not to check my portfolio until New Year���s Day 2022. How���s my experiment gone thus far���and what have I learned?
My attempt to go cold turkey hasn���t been entirely successful. Though I���ve looked at my portfolio far less often, curiosity sometimes gets the better of me. Over the past two months, I���ve checked in on the market or my portfolio a handful of times. Still, compared to my old ways, I count this as a small victory.
One thing I discovered is just how addictive financial market data can be. Kicking the habit has been far more difficult than I���d imagined. Some days, I felt an intense craving for market quotes that were just a few keystrokes away. Usually, though not always, I managed to fight the urge.
Another revelation���perhaps obvious in hindsight���is just how difficult it is to insulate oneself from market data. Both The Wall Street Journal and Bloomberg have an electronic ���ticker tape��� displayed prominently across their websites. Even HumbleDollar recently implemented this feature on its homepage, displaying daily price changes for a dozen exchange-traded index funds representing broad market segments. I felt like a smoker trying to quit but being bombarded by images of cigarettes dancing across my computer screen.
By the way, if anyone working for these news outlets is reading this, may I offer a suggestion? Allow subscribers to opt out of seeing dynamic market quotes. Unfortunately, I have a sneaking suspicion that such feeds drive user addiction���I mean, engagement.
With regard to checking my portfolio, I resorted to a financial hack that���s been somewhat effective. I set up alerts for every position I own. Fortunately, my portfolio is pretty simple. I would be notified if any holding increased or decreased by 10% in price, or reached a new 52-week high or low. No alerts meant that nothing earth-shattering was going on.
I���ve received just a handful of alerts over the past two months. Two bond funds hit 52-week lows. A stock fund hit a 52-week high. Finally, a gold-mining ETF broke above the 10% threshold I���d set.
How many of these alerts did I act upon? Exactly zero. A waste of time, perhaps. But for me, the alerts provided a measure of reassurance that my portfolio hadn���t gone completely off the rails.
Overall, spending less time fussing over market noise provided me with greater equanimity. While I���m disappointed that I haven���t been able to break the habit completely, I���m determined to beat this addiction one way or another. Stay tuned.
The post Withdrawal Pains appeared first on HumbleDollar.
Poverty Halved
IF YOU���RE LIKE ME, you almost dread looking at the morning newsfeed. This is why I���m happy to share some good news: The U.S. poverty rate has been cut nearly in half. What���s more, it was accomplished while the economy was practically flat on its back, with tens of millions out of work.
When I was a Washington, D.C., reporter in the mid-1990s, I reported from some of the poorest neighborhoods in Baltimore, Camden and Washington. The policies then being tried���limiting cash assistance and upping the penalties for drug crimes���made conditions even more desperate. The poor, it seemed, would always be with us.
But now researchers at the Urban Institute project that the poverty rate has been cut to 7.7% of the population in 2021, compared to 13.9% in 2018. In raw numbers, some 20.5 million people have risen above the poverty line within the past year. That���s greater than the population of New York, Los Angeles, Chicago and Houston combined.
���Cutting poverty in half in the midst of a recession is the social-policy equivalent of defying gravity,��� notes Jason DeParle, who covers the poverty for The New York Times. How was it done? A combination of scientific thinking and pure luck.
Congress asked the National Academies of Sciences, Engineering, and Medicine to identify evidence-based programs that could cut childhood poverty in half. In 2019, the Academies recommended a package of program expansions, including:
Increasing the earned income tax credit, which encourages work by returning the taxes withheld from the paychecks of low-income workers.
Making the Child and Dependent Care Tax Credit fully refundable, so the parents would get a check even if it was greater than the taxes they owed.
Raising food stamp benefits���now called SNAP, for Supplemental Nutrition Assistance Program���by 35%.
In normal times, such costly recommendations might have gathered dust. But then came luck���in this case, bad luck. When COVID-19 shut down much of the face-to-face economy, Washington grabbed the Academies��� recommendations off the shelf and wrote them into the huge relief bills being rushed through Congress.
It���s often said that bipartisanship is dead, but I���d have to politely disagree. The two parties competed to show which one was more generous over the past 18 months. As a result, the emergency bills they passed contained these additional geysers of spending:
Stimulus checks were sent at three different times. All but the most affluent families of four should have received $11,000 since March 2020.
The Child and Dependent Care Tax Credit was paid forward, so parents didn���t have to file a tax return to obtain the money. The credit was also broken into monthly payments and directly deposited into parents��� bank accounts.
The federal government topped off state unemployment benefits with $300 extra per week at two different times in 2020 and 2021. Many people made more money unemployed than they had while working.
This avalanche of money was an about-face from the policy of benign neglect I���d seen in the mid-1990s. Back then, Washington was worried it had created a permanent underclass, and so began throttling back on welfare payments. Millions of people who���d lost welfare benefits found their way to low-wage jobs.
But the pendulum of federal largess (or lack thereof) may have swung too far. During the Great Recession of 2007-09, far more money was spent bailing out the big banks and Wall Street firms than helping homeowners facing foreclosure. Some 10 million families lost homes. Fast forward to 2020: Lawmakers were determined not to neglect hard-pressed workers again, especially in an election year.
Most of these newly expanded programs will soon expire, unless the Senate passes one more big relief bill this year. If that fails, it���s easy to anticipate that poverty will begin to tick up again. Still, at least we now know what levers to throw, should we want to attack poverty again.
Meanwhile, the current success of these programs has left us with a related headache: How do we pay for these programs���without a surge in the federal deficit and a follow-on spike in the inflation rate?
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.
When I was a Washington, D.C., reporter in the mid-1990s, I reported from some of the poorest neighborhoods in Baltimore, Camden and Washington. The policies then being tried���limiting cash assistance and upping the penalties for drug crimes���made conditions even more desperate. The poor, it seemed, would always be with us.
But now researchers at the Urban Institute project that the poverty rate has been cut to 7.7% of the population in 2021, compared to 13.9% in 2018. In raw numbers, some 20.5 million people have risen above the poverty line within the past year. That���s greater than the population of New York, Los Angeles, Chicago and Houston combined.
���Cutting poverty in half in the midst of a recession is the social-policy equivalent of defying gravity,��� notes Jason DeParle, who covers the poverty for The New York Times. How was it done? A combination of scientific thinking and pure luck.
Congress asked the National Academies of Sciences, Engineering, and Medicine to identify evidence-based programs that could cut childhood poverty in half. In 2019, the Academies recommended a package of program expansions, including:
Increasing the earned income tax credit, which encourages work by returning the taxes withheld from the paychecks of low-income workers.
Making the Child and Dependent Care Tax Credit fully refundable, so the parents would get a check even if it was greater than the taxes they owed.
Raising food stamp benefits���now called SNAP, for Supplemental Nutrition Assistance Program���by 35%.
In normal times, such costly recommendations might have gathered dust. But then came luck���in this case, bad luck. When COVID-19 shut down much of the face-to-face economy, Washington grabbed the Academies��� recommendations off the shelf and wrote them into the huge relief bills being rushed through Congress.
It���s often said that bipartisanship is dead, but I���d have to politely disagree. The two parties competed to show which one was more generous over the past 18 months. As a result, the emergency bills they passed contained these additional geysers of spending:
Stimulus checks were sent at three different times. All but the most affluent families of four should have received $11,000 since March 2020.
The Child and Dependent Care Tax Credit was paid forward, so parents didn���t have to file a tax return to obtain the money. The credit was also broken into monthly payments and directly deposited into parents��� bank accounts.
The federal government topped off state unemployment benefits with $300 extra per week at two different times in 2020 and 2021. Many people made more money unemployed than they had while working.
This avalanche of money was an about-face from the policy of benign neglect I���d seen in the mid-1990s. Back then, Washington was worried it had created a permanent underclass, and so began throttling back on welfare payments. Millions of people who���d lost welfare benefits found their way to low-wage jobs.
But the pendulum of federal largess (or lack thereof) may have swung too far. During the Great Recession of 2007-09, far more money was spent bailing out the big banks and Wall Street firms than helping homeowners facing foreclosure. Some 10 million families lost homes. Fast forward to 2020: Lawmakers were determined not to neglect hard-pressed workers again, especially in an election year.
Most of these newly expanded programs will soon expire, unless the Senate passes one more big relief bill this year. If that fails, it���s easy to anticipate that poverty will begin to tick up again. Still, at least we now know what levers to throw, should we want to attack poverty again.
Meanwhile, the current success of these programs has left us with a related headache: How do we pay for these programs���without a surge in the federal deficit and a follow-on spike in the inflation rate?
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 Poverty Halved appeared first on HumbleDollar.
December 8, 2021
Advice at a Price
THE PREDOMINANT WAY financial planners get paid is by charging a fee based on the amount of money they���re managing. The typical��industry fee I���ve seen is 1%, and it���s been that way for years. Under this model, a financial planner managing a client���s $1 million portfolio would charge $10,000 a year.
Charley Ellis���s recent article explained how this approach came into being. His article also demonstrated how a seemingly innocuous 1% fee can actually consume a large portion of a portfolio���s return. This drag on performance compounds over time.
The positive side of the model: A financial planner���s interests are aligned with the client���s. If the portfolio���s value climbs, both are better off. If it falls, the planner also makes less. An additional benefit: Clients know roughly what they���ll pay for the planner���s services in any given year.
Many planners provide a full suite of services for this 1% fee, including tax planning and preparation, estate planning, insurance planning, retirement planning and hand-holding during rough financial times. In the percent-of-assets model, clients feel as if they���ve already paid for these services and so are more likely to use them.
Still, there are other ways a planner could be paid. These include paying an hourly rate���typically a few hundred dollars per hour���for specific services. There are subscription services, with a fixed cost per month. Some companies also offer certain services or products for a fixed fee. Finally, some planners sell products, like mutual funds and insurance products, that earn them a commission.
Some of the largest names in the financial planning industry have gotten involved in the planning side of money management. Vanguard Group���s Personal Advisor Services charges a maximum 0.3% of asset per year. One of the country���s largest financial planning firms, Edelman��Financial Engines, has a ���wrap fee��� program with a sliding scale for new clients. It starts at 1.75% on the first $400,000 and drops to 0.5% on $10 million to $25 million.
I know a planner who primarily has percent-of-assets clients but also charges by the hour for consultations with clients who aren���t ready to hand over the reins of their portfolio. I���ve wondered if a hybrid model���percent-of-assets plus by-the-hour charges���would work. If you want portfolio management, you���d pay a small percentage of assets. For the other items, you���d pay an hourly fee. The total bill would be based on how complicated your situation is and the services you request.
But I can also see drawbacks with a hybrid model: If we had to pay individually for each additional service, how many of us would opt for the exciting part���setting up and managing an investment portfolio���and skip the boring parts, such as insurance planning? Indeed, the first article I ever wrote for HumbleDollar��was on a related topic: I noted that too many of us equate financial planning with investment management. That problem, alas, still exists.
Charley Ellis���s recent article explained how this approach came into being. His article also demonstrated how a seemingly innocuous 1% fee can actually consume a large portion of a portfolio���s return. This drag on performance compounds over time.
The positive side of the model: A financial planner���s interests are aligned with the client���s. If the portfolio���s value climbs, both are better off. If it falls, the planner also makes less. An additional benefit: Clients know roughly what they���ll pay for the planner���s services in any given year.
Many planners provide a full suite of services for this 1% fee, including tax planning and preparation, estate planning, insurance planning, retirement planning and hand-holding during rough financial times. In the percent-of-assets model, clients feel as if they���ve already paid for these services and so are more likely to use them.
Still, there are other ways a planner could be paid. These include paying an hourly rate���typically a few hundred dollars per hour���for specific services. There are subscription services, with a fixed cost per month. Some companies also offer certain services or products for a fixed fee. Finally, some planners sell products, like mutual funds and insurance products, that earn them a commission.
Some of the largest names in the financial planning industry have gotten involved in the planning side of money management. Vanguard Group���s Personal Advisor Services charges a maximum 0.3% of asset per year. One of the country���s largest financial planning firms, Edelman��Financial Engines, has a ���wrap fee��� program with a sliding scale for new clients. It starts at 1.75% on the first $400,000 and drops to 0.5% on $10 million to $25 million.
I know a planner who primarily has percent-of-assets clients but also charges by the hour for consultations with clients who aren���t ready to hand over the reins of their portfolio. I���ve wondered if a hybrid model���percent-of-assets plus by-the-hour charges���would work. If you want portfolio management, you���d pay a small percentage of assets. For the other items, you���d pay an hourly fee. The total bill would be based on how complicated your situation is and the services you request.
But I can also see drawbacks with a hybrid model: If we had to pay individually for each additional service, how many of us would opt for the exciting part���setting up and managing an investment portfolio���and skip the boring parts, such as insurance planning? Indeed, the first article I ever wrote for HumbleDollar��was on a related topic: I noted that too many of us equate financial planning with investment management. That problem, alas, still exists.
The post Advice at a Price appeared first on HumbleDollar.
Everyone���s an Expert
DOES ANYONE DOUBT that planning for retirement is unique for each individual?
The way we manage money, how we handle debt, our desired lifestyle and our family status are all important variables to consider. From what I observe, however, many people ignore these differences and seek a one-size-fits-all answer.
I���m addicted to YouTube. In addition to history, archeology and general education videos, I watch many retirement planning shows. I also follow retirement groups on Facebook and bloggers who embrace the FIRE (financial independence-retire early) lifestyle.
I never knew there were so many experts out there. My favorites are those who give advice after disclosing they aren���t expert advisors. A question for those who listen to these folks: What makes you think someone else can tell you���in a video or blog post���whether you can retire?
One of my YouTube favorites is a retired financial advisor. He takes questions and then proceeds to construct answers using an Excel spreadsheet. He plugs in his own assumptions, including spending rates based on national averages.
A lot of videos focus on $1 million as the magic number for retirement savings. Several spend time criticizing the 4% withdrawal rate. Others claim to tell you whether you can retire and when. These experts press forward with advice without asking the person���s annual expenses or desired lifestyle.
���I have saved $750,000, can I retire?���
Who knows? Tell us about your debts, expenses, emergency fund and how you want to live. But no matter. The experts will just use national averages instead.
���I have $1 million. I���m 60. Can I retire spending $100,000 for the first 10 years, then $75,000 thereafter?���
That���s a 10% withdrawal rate. Yeah, no doubt that���ll work fine.
Here���s another good question from a video: ���How much does the average person need in retirement funds to retire comfortably?���
Well, if that average person had a nest egg of $1 million, they could generate an average $40,000. So, I guess the answer is $1 million���on average, that is. Oh yeah, define ���comfortably.���
Online experts will find ways to figure out how long that $1 million will last in retirement���with no details about your situation required. Okay, how about one detail: Where do you live? Here are your chances by city.
Sometimes, the questioner provides more details. ���We live in Maine. This is a pretty expensive state to live in. For those of you who also live in Maine or another similarly expensive state, I wonder, what would you consider a reasonable monthly budget for two?���
To that I might say, ���What���s your monthly budget today?���
All it takes to make any retirement plan work online is a willingness to manipulate the assumptions. If you assume high investment returns, plus low inflation for the next 30 years, then all will be well���and that���s an assumption, too.
���My husband is 55 and I���m 50. He would like to retire at age 60. We���ve saved $150,000 for retirement. Can we make that work?���
Nooooo problem. No Social Security for at least the first two years of retirement, no Medicare for five. Your current savings should give you about $6,000 a year to live on. But the good news is, with your low income, you can probably buy health insurance through an Affordable Care Act exchange for $1.15 a month.
Yeah, I���m being a bit snarky, but that���s a real question from a YouTube video. As I recall, the YouTube advice to this questioner was to start saving 70% of income. Or was it to get real and plan on working until age 70?
FIRE bloggers will post about their growing net worth, frugal spending and relaxed lifestyle. In reply, they���ll get touchy-feely comments praising their success and lifestyle.
Recently, a blogger told of the frugal travel habits of some young retirees living on $40,000 a year. This family of five took three or four trips a year using discount coupons, Airbnb lodging and rewards points. Their next trip is to Europe in 2022. They���ve used 300,000 frequent-flier miles to book the flights. I asked how they accumulated 300,000 miles, given their frugal lifestyle. The comment was deleted without being answered.
I���m thinking that many people who ask the type of questions I���ve mentioned are scared���or quite unsure���about where they���re headed.
Living in retirement isn���t about averages. It isn���t about what other people do or the opinions of experts, especially online instant experts who don���t know anything about you and have yet to experience many years of retirement themselves. Most people could use some one-on-one guidance from a real expert���along with a reality check on their retirement expectations. Let���s face it: 25 to 30 years is a long time to live on someone else's assumptions.
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 Everyone���s an Expert appeared first on HumbleDollar.
December 7, 2021
Schooled on Taxes
IT���S PROPERTY TAX time. Amid the holiday mail from friends, many of us get notices of payments due from our friendly local tax assessor.
No one likes getting taxed. But in many places, property taxes make up a huge part��of the funding for public education. What always surprises and irks me are those who say the tax is unfair because they don't ���use��� the public schools.
One neighbor says he has no children. Another says his children go to a private school. They contend they derive no benefit from the taxation.
It pains me every year to address this complaint, but let me say it again: We���re all getting a good deal. What you get from public education is not only the betterment of people in your community, but also many problems avoided.
That nameless store clerk you shop from? He was trained by his schooling to show up every day and work through challenges. That great, or even small, innovation that makes your life so much easier, even though you might not even notice? It was designed by someone whose passion for innovation was ignited by a great class.
Even the lost kid���who without guidance might have fallen into crime against your property or even your person���contributes positively, thanks to a coach or program at his school that taught him discipline and self-respect, and gave him a vision of a better path.
The fact is, if each of us had to pay every time public education helped or bettered our lives, directly or indirectly, we couldn���t afford it.
Public education was born out of a 19th century idea that, when the community is bettered as a whole, we all live better. That idea still works. Of course, the school system could be improved in many ways. But the answer is not cutting off funding.
If you want to make sure your tax payments generate a better return on investment, do what you do with your other funds: Stay involved and monitor performance. I���m not talking about showing up at school board meetings and demanding your favorite bugbear be excised from curriculums.
Rather, try volunteering at your local school. Share your expertise or just lend a helping hand. Even consider getting involved in school policy. School boards across the country suffer from a lack of candidates willing to do the hard work of sustained administration. People criticize public schools, yet don���t bother to vote in school board elections. It���s easy to be a booing fan in the cheap seats. Try stepping into the arena.
No one likes getting taxed. But in many places, property taxes make up a huge part��of the funding for public education. What always surprises and irks me are those who say the tax is unfair because they don't ���use��� the public schools.
One neighbor says he has no children. Another says his children go to a private school. They contend they derive no benefit from the taxation.
It pains me every year to address this complaint, but let me say it again: We���re all getting a good deal. What you get from public education is not only the betterment of people in your community, but also many problems avoided.
That nameless store clerk you shop from? He was trained by his schooling to show up every day and work through challenges. That great, or even small, innovation that makes your life so much easier, even though you might not even notice? It was designed by someone whose passion for innovation was ignited by a great class.
Even the lost kid���who without guidance might have fallen into crime against your property or even your person���contributes positively, thanks to a coach or program at his school that taught him discipline and self-respect, and gave him a vision of a better path.
The fact is, if each of us had to pay every time public education helped or bettered our lives, directly or indirectly, we couldn���t afford it.
Public education was born out of a 19th century idea that, when the community is bettered as a whole, we all live better. That idea still works. Of course, the school system could be improved in many ways. But the answer is not cutting off funding.
If you want to make sure your tax payments generate a better return on investment, do what you do with your other funds: Stay involved and monitor performance. I���m not talking about showing up at school board meetings and demanding your favorite bugbear be excised from curriculums.
Rather, try volunteering at your local school. Share your expertise or just lend a helping hand. Even consider getting involved in school policy. School boards across the country suffer from a lack of candidates willing to do the hard work of sustained administration. People criticize public schools, yet don���t bother to vote in school board elections. It���s easy to be a booing fan in the cheap seats. Try stepping into the arena.
The post Schooled on Taxes appeared first on HumbleDollar.
