Jonathan Clements's Blog, page 247
December 4, 2021
Inflation Bites
FINANCIAL PLANNERS often ask new clients about their first money��memory. Mine was about an early encounter with inflation. It involved a favorite childhood snack named fuchka, a popular street food in Kolkata, where I grew up.
The snack is a ball-shaped flatbread, filled with spicy potato mash and topped with tamarind water. As you crunch its crispy shell, the magical flavors burst in your mouth and take your tastebuds on a rollercoaster ride. As a child, this occasional savory treat was my main motivation for earning pocket money.
In my elementary school days, our neighborhood street-food vendor used to sell three pieces for 10 paisa���roughly one cent at that time. I rarely had more than five paisa, for which the vendor gave me just one piece. I challenged his math and demanded fairness. Pestered by this argumentative little boy, he agreed to give me an extra piece with every other purchase. I felt proud of my negotiation skills.
My joy didn���t last long. Out of nowhere, the vendor raised the price to two pieces for 10 paisa. No more extra pieces for me. This came as a surprise. My little mind couldn���t comprehend how and why prices could increase overnight. Angry and frustrated, I ran home to my mother and drew her attention to this injustice.
To my disappointment, my mother seemed more sympathetic toward the vendor than her own son. She told me that prices go up over time but couldn���t explain why. Her advice: Sign up for more chores to boost my pocket money.
My childhood snack is 100 times pricier these days, compared with a threefold rise in U.S. hot dog prices over the same period, reflecting India���s far higher inflation rate in recent decades. Today, inflation doesn���t surprise me. What does is the realization that my mother isn���t the only one who���s clueless about its causes.
The snack is a ball-shaped flatbread, filled with spicy potato mash and topped with tamarind water. As you crunch its crispy shell, the magical flavors burst in your mouth and take your tastebuds on a rollercoaster ride. As a child, this occasional savory treat was my main motivation for earning pocket money.
In my elementary school days, our neighborhood street-food vendor used to sell three pieces for 10 paisa���roughly one cent at that time. I rarely had more than five paisa, for which the vendor gave me just one piece. I challenged his math and demanded fairness. Pestered by this argumentative little boy, he agreed to give me an extra piece with every other purchase. I felt proud of my negotiation skills.
My joy didn���t last long. Out of nowhere, the vendor raised the price to two pieces for 10 paisa. No more extra pieces for me. This came as a surprise. My little mind couldn���t comprehend how and why prices could increase overnight. Angry and frustrated, I ran home to my mother and drew her attention to this injustice.
To my disappointment, my mother seemed more sympathetic toward the vendor than her own son. She told me that prices go up over time but couldn���t explain why. Her advice: Sign up for more chores to boost my pocket money.
My childhood snack is 100 times pricier these days, compared with a threefold rise in U.S. hot dog prices over the same period, reflecting India���s far higher inflation rate in recent decades. Today, inflation doesn���t surprise me. What does is the realization that my mother isn���t the only one who���s clueless about its causes.
The post Inflation Bites appeared first on HumbleDollar.
December 3, 2021
Beyond Dollars
���RIFFING OFF��� is a term used in music and particularly jazz. It describes when a musician picks up a musical line played by another musician and then runs with it, adding his or her own style or take.
I love riffing off my co-writers���and when they riff off me. I also do it sometimes with HumbleDollar��articles and blog posts. I read a thoughtful piece and then, as the day goes on, I think about the core concept or even just a single line, and let my mind dwell on it.
That happened when I read a recent Richard Quinn piece. He began by recalling his grandmother���s silver napkin rings, and then went on to discuss his and his wife���s collection of Waterford glass. I was struck that he conceded that today���s monetary value of the accumulated crystal might not be all that much, but that���in terms of memories���such items were ���priceless.���
That got me thinking. I wanted for very little growing up. But I have almost nothing physical left from all the accoutrements of a privileged childhood. What I do hold on to is a tiny terra cotta pot.
One day, my father brought home a group of these pots, one for each member of the family. He proceeded to paint one thing on each: a crew cut on the big one represented my father, a '60s updo my mother, nerdy glasses my bookish brother, deep blue eyes my sister. As for me, the youngest, there was the tiniest pot���with an open, yelling mouth. My dad hung all the pots on the patio together, and they became priceless. I still have mine, and I believe my siblings still have theirs.
Another time, my father brought home a stack of large cardboard boxes from his factory. I don���t recall who started it, but everyone in the family joined in making a long tunnel. It was just before Halloween, so we started adding creepy things inside, creating our own haunted crawl-through house.
We offered to let trick-or-treaters crawl through it to get to the candy. It was a neighborhood hit, and I remember rushing my own door-to-door collecting, so I could get home and help my family run the tunnel for others. Years later, my wife, sons and I riffed off that memory, creating our own neighborhood Halloween haunted tunnel, though with more modern tech. That���s now a family favorite memory for a new generation.
I share with Dick the experience of offering formerly valued items to my children, only to be met with a resounding ���meh.��� But let���s not lose sight of the things that have value beyond dollars and beyond what we can sometimes appreciate: the memories, the family moments, the unseen glue that connects us. Those are the family treasures we should guard and cherish.
I love riffing off my co-writers���and when they riff off me. I also do it sometimes with HumbleDollar��articles and blog posts. I read a thoughtful piece and then, as the day goes on, I think about the core concept or even just a single line, and let my mind dwell on it.
That happened when I read a recent Richard Quinn piece. He began by recalling his grandmother���s silver napkin rings, and then went on to discuss his and his wife���s collection of Waterford glass. I was struck that he conceded that today���s monetary value of the accumulated crystal might not be all that much, but that���in terms of memories���such items were ���priceless.���
That got me thinking. I wanted for very little growing up. But I have almost nothing physical left from all the accoutrements of a privileged childhood. What I do hold on to is a tiny terra cotta pot.
One day, my father brought home a group of these pots, one for each member of the family. He proceeded to paint one thing on each: a crew cut on the big one represented my father, a '60s updo my mother, nerdy glasses my bookish brother, deep blue eyes my sister. As for me, the youngest, there was the tiniest pot���with an open, yelling mouth. My dad hung all the pots on the patio together, and they became priceless. I still have mine, and I believe my siblings still have theirs.
Another time, my father brought home a stack of large cardboard boxes from his factory. I don���t recall who started it, but everyone in the family joined in making a long tunnel. It was just before Halloween, so we started adding creepy things inside, creating our own haunted crawl-through house.
We offered to let trick-or-treaters crawl through it to get to the candy. It was a neighborhood hit, and I remember rushing my own door-to-door collecting, so I could get home and help my family run the tunnel for others. Years later, my wife, sons and I riffed off that memory, creating our own neighborhood Halloween haunted tunnel, though with more modern tech. That���s now a family favorite memory for a new generation.
I share with Dick the experience of offering formerly valued items to my children, only to be met with a resounding ���meh.��� But let���s not lose sight of the things that have value beyond dollars and beyond what we can sometimes appreciate: the memories, the family moments, the unseen glue that connects us. Those are the family treasures we should guard and cherish.
The post Beyond Dollars appeared first on HumbleDollar.
Mix and Match
MY PORTFOLIO HAS evolved over my 35 years as an investor, as I���ve learned more and as new funds have become available. A total stock market index fund? Sure, I���ll consolidate money in that. An emerging markets index fund? Yeah, a modest stake looks promising. How about a small-cap value index fund? The academic literature says that makes sense.
Today, I own a dozen different Vanguard Group mutual funds, each giving me exposure to a different part of the global financial markets. Some have had excellent performance. Some haven���t. The poor performers don���t much bother me. That���s the price you pay for portfolio insurance���otherwise known as diversification.
Instead, what nags at me is the complexity. As I approach age 60 and ponder working less, do I really want to keep tabs on all these funds and rebalance them periodically? Am I being overly clever? This has led me to consider five possible investment mixes, all involving Vanguard funds:
Targeting Retirement. Perhaps the simplest solution would be to opt for a single Vanguard target-date fund for my longer-term money, plus a money-market fund to hold money that I���ll spend over the next few years. This will become a more appealing option in February, when Vanguard will lower its target-date fund expenses to 0.08%, equal to 8�� a year for every $100 invested. Vanguard Target Retirement 2030 Fund might be the right choice for me. In January 2030, I���ll turn age 67.
Almost my entire portfolio is in traditional and Roth retirement accounts, so the potential tax-inefficiency of a target fund, as it rebalances and shifts to bonds over time, isn���t an issue. Instead, my bigger concern is the relatively modest stock allocation of Vanguard���s target funds once they���ve passed their target retirement date. The stock allocation continues to fall, reaching just 30%. That���s way too low for my taste. I could compensate by buying, say, the 2040 or 2045 fund���but those, too, will eventually land at 30%.
One-Stop Shopping. Instead of one of Vanguard���s target-date funds, I���ve toyed with buying one of its LifeStrategy funds, plus���once again���a money market fund to cover upcoming spending. Vanguard���s four LifeStrategy funds don���t change their stock-bond mix over time. Instead, each of the four funds has a fixed asset allocation, ranging from 20% to 80% in stocks. For instance, Vanguard LifeStrategy Moderate Growth Fund aims to keep 60% in stocks at all times.
Like Vanguard���s target funds, the LifeStrategy funds hold a diverse collection of Vanguard index funds. One downside: Unlike the target funds, the LifeStrategy funds aren���t slated for an expense cut, which means I���d pay a tad more���0.11% to 0.14% a year, depending on which of the four I chose.
The Classic. If I bought a Vanguard Target Retirement or LifeStrategy fund, I���d be getting something akin to the classic three index-fund portfolio���a total U.S. stock market fund, a total U.S. bond market fund and a total international stock fund���with some foreign bonds and maybe some inflation-indexed bonds also thrown in.
But there���s a case to be made for buying the three funds directly, rather than as a package. The overall annual expenses would be a tad lower. I could also hold stocks and avoid bonds in my taxable account, which should be more tax-efficient. In addition, I could limit my selling to bonds if I needed to generate cash during a stock market decline. By contrast, if I owned a target or LifeStrategy fund, selling during a market decline would mean selling a little of everything, including stocks���not something I���d want to do. Still, I could probably sidestep that risk by keeping perhaps five years of spending money in a money-market fund or a short-term bond fund.
Three to Two. Instead of the classic three-fund portfolio, I could make things even simpler by going for two total market funds���Vanguard���s Total World Stock ETF and its total U.S. bond market fund���plus a cash account for upcoming spending needs.
I���d argue that Vanguard Total World represents the ultimate in stock indexing: You get every stock in the world of any significance bought according to its market value. To me, it���s the quintessential buy-hold-and-forget stock market investment.
Indeed, I���m thinking of purchasing the fund in my Roth accounts, which I hope to leave untouched and instead bequeath to my kids. Because that���s my goal, I can take plenty of risk and owning 100% stocks makes sense. I���d also consider buying Vanguard Total World Stock in my regular taxable account���if I were starting from scratch today. But instead, I already own a stock index fund in that account with hefty unrealized capital gains, and it doesn���t make sense to take that tax hit to swap over to Vanguard Total World Stock.
Going in Style. Today, I use index funds to overweight U.S. and foreign value stocks and small-company shares, as well as emerging markets. Meanwhile, I have my bond holdings split between a short-term government bond fund and a short-term inflation-indexed bond fund.
I���m not quite ready to abandon these portfolio tilts. But I���m toying with housing them within my traditional IRA, while devoting my various Roth accounts entirely to Vanguard Total World Stock. Thereafter, as I ease into retirement, I may gradually abandon these tilts. Where will I move the money? I���m not 100% sure.
But I���m thinking of perhaps splitting my traditional IRA, putting longer-term money in Vanguard LifeStrategy Growth, with its 80% stock exposure, and money earmarked for spending in the years ahead in a short-term government bond fund. But whatever funds I settle on, one overriding principle will guide my thinking: As I age, I want my financial life to be simpler.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
"While the new variant is concerning, it���s not a totally new ballgame," says John Lim. "We���ve been here before and survived. The likelihood that investors will panic to the same degree seems low."
Is it time to have the talk with your children���the one about paying taxes and handling credit cards? Adam Grossman offers five strategies for��raising money-savvy kids.
"Working out regularly increases our odds of living longer and having quality golden years," notes James Kerr. "What good is retiring early with a couple of million if we don���t have the health to enjoy it?"
Picking stocks is tricky. Timing the market is futile. Ignoring daily market fluctuations is liberating. Matt White recounts three investing maxims���which he learned playing fantasy football.
"The market can deliver a lot of down days," writes Rob Carrigg Jr. "Only over the long term does the view improve. Over decades, the odds of gain are far greater in the financial markets than at the craps table."
Why travel? It boosts happiness, nurtures the brain, and gives us new perspective on both the world and our own lives, says Jiab Wasserman.
Also be sure to check out the past week's��blog posts, including Bill Ehart on buying a car, Dick Quinn on retirees' income needs, Mike Zaccardi on the Great Resignation, John Goodell on purchasing clothes, Sonja Haggert on Post-It Notes, Sanjib Saha on his favorite store and Jim Wasserman on family treasures,
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.
Today, I own a dozen different Vanguard Group mutual funds, each giving me exposure to a different part of the global financial markets. Some have had excellent performance. Some haven���t. The poor performers don���t much bother me. That���s the price you pay for portfolio insurance���otherwise known as diversification.
Instead, what nags at me is the complexity. As I approach age 60 and ponder working less, do I really want to keep tabs on all these funds and rebalance them periodically? Am I being overly clever? This has led me to consider five possible investment mixes, all involving Vanguard funds:
Targeting Retirement. Perhaps the simplest solution would be to opt for a single Vanguard target-date fund for my longer-term money, plus a money-market fund to hold money that I���ll spend over the next few years. This will become a more appealing option in February, when Vanguard will lower its target-date fund expenses to 0.08%, equal to 8�� a year for every $100 invested. Vanguard Target Retirement 2030 Fund might be the right choice for me. In January 2030, I���ll turn age 67.
Almost my entire portfolio is in traditional and Roth retirement accounts, so the potential tax-inefficiency of a target fund, as it rebalances and shifts to bonds over time, isn���t an issue. Instead, my bigger concern is the relatively modest stock allocation of Vanguard���s target funds once they���ve passed their target retirement date. The stock allocation continues to fall, reaching just 30%. That���s way too low for my taste. I could compensate by buying, say, the 2040 or 2045 fund���but those, too, will eventually land at 30%.
One-Stop Shopping. Instead of one of Vanguard���s target-date funds, I���ve toyed with buying one of its LifeStrategy funds, plus���once again���a money market fund to cover upcoming spending. Vanguard���s four LifeStrategy funds don���t change their stock-bond mix over time. Instead, each of the four funds has a fixed asset allocation, ranging from 20% to 80% in stocks. For instance, Vanguard LifeStrategy Moderate Growth Fund aims to keep 60% in stocks at all times.
Like Vanguard���s target funds, the LifeStrategy funds hold a diverse collection of Vanguard index funds. One downside: Unlike the target funds, the LifeStrategy funds aren���t slated for an expense cut, which means I���d pay a tad more���0.11% to 0.14% a year, depending on which of the four I chose.
The Classic. If I bought a Vanguard Target Retirement or LifeStrategy fund, I���d be getting something akin to the classic three index-fund portfolio���a total U.S. stock market fund, a total U.S. bond market fund and a total international stock fund���with some foreign bonds and maybe some inflation-indexed bonds also thrown in.
But there���s a case to be made for buying the three funds directly, rather than as a package. The overall annual expenses would be a tad lower. I could also hold stocks and avoid bonds in my taxable account, which should be more tax-efficient. In addition, I could limit my selling to bonds if I needed to generate cash during a stock market decline. By contrast, if I owned a target or LifeStrategy fund, selling during a market decline would mean selling a little of everything, including stocks���not something I���d want to do. Still, I could probably sidestep that risk by keeping perhaps five years of spending money in a money-market fund or a short-term bond fund.
Three to Two. Instead of the classic three-fund portfolio, I could make things even simpler by going for two total market funds���Vanguard���s Total World Stock ETF and its total U.S. bond market fund���plus a cash account for upcoming spending needs.
I���d argue that Vanguard Total World represents the ultimate in stock indexing: You get every stock in the world of any significance bought according to its market value. To me, it���s the quintessential buy-hold-and-forget stock market investment.
Indeed, I���m thinking of purchasing the fund in my Roth accounts, which I hope to leave untouched and instead bequeath to my kids. Because that���s my goal, I can take plenty of risk and owning 100% stocks makes sense. I���d also consider buying Vanguard Total World Stock in my regular taxable account���if I were starting from scratch today. But instead, I already own a stock index fund in that account with hefty unrealized capital gains, and it doesn���t make sense to take that tax hit to swap over to Vanguard Total World Stock.
Going in Style. Today, I use index funds to overweight U.S. and foreign value stocks and small-company shares, as well as emerging markets. Meanwhile, I have my bond holdings split between a short-term government bond fund and a short-term inflation-indexed bond fund.
I���m not quite ready to abandon these portfolio tilts. But I���m toying with housing them within my traditional IRA, while devoting my various Roth accounts entirely to Vanguard Total World Stock. Thereafter, as I ease into retirement, I may gradually abandon these tilts. Where will I move the money? I���m not 100% sure.
But I���m thinking of perhaps splitting my traditional IRA, putting longer-term money in Vanguard LifeStrategy Growth, with its 80% stock exposure, and money earmarked for spending in the years ahead in a short-term government bond fund. But whatever funds I settle on, one overriding principle will guide my thinking: As I age, I want my financial life to be simpler.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
"While the new variant is concerning, it���s not a totally new ballgame," says John Lim. "We���ve been here before and survived. The likelihood that investors will panic to the same degree seems low."
Is it time to have the talk with your children���the one about paying taxes and handling credit cards? Adam Grossman offers five strategies for��raising money-savvy kids.
"Working out regularly increases our odds of living longer and having quality golden years," notes James Kerr. "What good is retiring early with a couple of million if we don���t have the health to enjoy it?"
Picking stocks is tricky. Timing the market is futile. Ignoring daily market fluctuations is liberating. Matt White recounts three investing maxims���which he learned playing fantasy football.
"The market can deliver a lot of down days," writes Rob Carrigg Jr. "Only over the long term does the view improve. Over decades, the odds of gain are far greater in the financial markets than at the craps table."
Why travel? It boosts happiness, nurtures the brain, and gives us new perspective on both the world and our own lives, says Jiab Wasserman.
Also be sure to check out the past week's��blog posts, including Bill Ehart on buying a car, Dick Quinn on retirees' income needs, Mike Zaccardi on the Great Resignation, John Goodell on purchasing clothes, Sonja Haggert on Post-It Notes, Sanjib Saha on his favorite store and Jim Wasserman on family treasures,
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 Mix and Match appeared first on HumbleDollar.
Drive Buy
THOSE OF US WHO aspire to be shrewd investors try to buy when opportunities present themselves, while avoiding ���crowded��� trades.
I broke that last rule when I recently bought a second car. Yes, prices are skyrocketing as a result of supply-chain bottlenecks and strong consumer demand. But I had a good reason: My son���s entering the fulltime workforce���and he���s taking over use of my current car.
It was the worst time to put myself at the mercy of car dealers. I knew I���d overpay by thousands of dollars. Yet, given the circumstances, I think I did pretty well.
First, I had saved a lot. I socked away what I could every month over a period of years for an eventual car purchase. My daily drive is a 2014 Volkswagen Jetta, so I knew I���d need to replace it eventually.
I had also saved 2020���s second stimulus check of $1,400. In addition, I���d benefited from a cash gift Mom made to all her children a couple of years ago. I parked that in my online savings account.
Result? I was able to plunk down $18,719 at the dealership, with no talk about financing and what rate I���d get. Almost any rate would have been more than I was willing to pay, given today���s low savings yields.
I estimate���thanks to a handy online car-loan calculator���that I saved about $1,000 in interest, assuming a three-year loan in the 3% range.
While my emergency savings are depleted, I feel my job is secure now after the initial pandemic scare. I hope to bank the $400 or $500 a month I would otherwise have paid on the car loan.
The second reason I did well: I had good advice. Ben is a friend and colleague at work, and a real car-buying expert. To identify a car to buy, Ben recommended that I search area dealers��� inventories on Cars.com. He also told me to ask the dealer for an ���out the door��� price before I went there.
That���s how I found a blue 2017 Volkswagen Jetta with 46,000 miles for $16,941. It was offered by a small, independent dealer close to my apartment.
The dealer provided the ���out the door��� price to me in a text message. It included taxes that were accurate for the state of Maryland, and fees that were reasonable, according to Ben.
There were many VWs which drew my attention at a larger dealer in Alexandria, Virginia. But Ben advised me that dealer fees are much lower in Maryland.
My experience at the local dealer���who asked for a cashier���s check���was relatively quick and hassle-free. I took my son along, so he could learn about the car buying process.
In selecting a car, I adjusted my expectations to financial reality. A more expensive model with nicer trim would have befitted my self-image as an older man of at least some means. I had my eye on a Passat with leatherette seats and a sunroof.
But my income and my bank account couldn���t support that. I went with the Jetta, which has base trim and cloth seats.��Despite my tight budget, the 2017 Jetta I bought is worlds above the 2014 model I drive. It includes modern conveniences that I���ve never had in a car, including a backup camera and heated sideview mirrors.
I took what the market gave me���another humble vehicle, but one with a reasonable price under the circumstances, and no financing costs.
The post Drive Buy appeared first on HumbleDollar.
Brain Food
MY MOST MEMORABLE experiences are family vacations���and that includes the mishaps. Those become the stories we laugh about years later.
For instance, when our boys were young, we took an overnight train from Bangkok to northern Thailand. We found ourselves trapped for three days in Chiangmai by an unexpected torrential flood. Multiple times, we had to modify our plans for getting back to Bangkok. Finally, we got a flight on a small airplane. As we walked up to the plane, we saw tons of fuzzy yellow baby chicks loaded under the plane���which delighted our boys.��Today, the boys don���t remember much about Chiangmai. But they���ll never forget the flight with the fuzzy baby chicks.
More recently, during a trip that Jim and I took to Istanbul, our inexperienced taxi driver got lost in the historic district. At 2 a.m., he dropped us off in a dark alley on the wrong side of the Hagia Sophia mosque and told us to walk to the hotel. Adding insult to injury, he tried to overcharge us by $2. The hotel was only a 10-minute walk. But in the heat of the moment, we spent 30 unproductive minutes arguing with the taxi driver, who spoke little English.
Traveling doesn���t just give us colorful stories and good laughs for years to come. It turns out that it brings additional and unexpected benefits. As John Steinbeck wrote in Travels with Charley in Search of America, ���We do not take a trip; a trip takes us.��� Here are three reasons to pack your bags and head to parts unknown:
1. Travel brings happiness. A 2014 study found that people were happier when they traveled, and not just while on the trip. Just anticipating a trip can make you happier for 15 days beforehand, while the after-glow from a trip can last for a month after your return.
2. Travel is good for the brain. Jim and I are no longer spring chickens; we���re more like late-summer chickens. During our five days in Istanbul, I only managed to learn a single Turkish���te��ekk��rler. It means thank you.
But it doesn���t matter how fast or slow we learn new languages. What matters is we challenge ourselves, and help our brain by taking it off autopilot. When I���m in an unfamiliar place, I have to think about small things, even something as simple as reading a menu of unfamiliar foods or how to say ���thank you��� in a different language.
Scientists used to believe the brain only changed during childhood. Now, it���s widely accepted that neuroplasticity���the ability of the brain to change���is present throughout our lives. People who travel to new places, keep learning languages and continue to experience new things are far less likely to develop cognitive decay, according to��Dr. Michael Merzenich.
3. Travel brings new perspectives. Travel changes us, sometimes in unpredictable ways. When coming home from developing countries, like Vietnam or Cambodia, I have more appreciation for my surroundings and good fortune.
My most memorable travel moment was walking El Camino, the pilgrim���s route in northern Spain. I felt fully alive and present in the moment. The walk gave me a sense of connection with others, and tested my mental���as well as physical���strength.
���Travel,��� wrote former Los Angeles Times travel editor Catharine Hamm, ���requires you to be braver than you think you are, whether it's for a week or a year, and involves the joy of finding a better, smarter, stronger self that lasts well past the day you put away your suitcase if, indeed, that day ever comes.���
Jiab Wasserman, MBA, RICP��, has lived in Thailand, the U.S. and Spain. She spent the bulk of her career with financial services companies, eventually becoming vice president of credit risk management at Bank of America, before retiring in 2018.��Head to Linktree to learn more about Jiab, and also check out her earlier articles.
For instance, when our boys were young, we took an overnight train from Bangkok to northern Thailand. We found ourselves trapped for three days in Chiangmai by an unexpected torrential flood. Multiple times, we had to modify our plans for getting back to Bangkok. Finally, we got a flight on a small airplane. As we walked up to the plane, we saw tons of fuzzy yellow baby chicks loaded under the plane���which delighted our boys.��Today, the boys don���t remember much about Chiangmai. But they���ll never forget the flight with the fuzzy baby chicks.
More recently, during a trip that Jim and I took to Istanbul, our inexperienced taxi driver got lost in the historic district. At 2 a.m., he dropped us off in a dark alley on the wrong side of the Hagia Sophia mosque and told us to walk to the hotel. Adding insult to injury, he tried to overcharge us by $2. The hotel was only a 10-minute walk. But in the heat of the moment, we spent 30 unproductive minutes arguing with the taxi driver, who spoke little English.
Traveling doesn���t just give us colorful stories and good laughs for years to come. It turns out that it brings additional and unexpected benefits. As John Steinbeck wrote in Travels with Charley in Search of America, ���We do not take a trip; a trip takes us.��� Here are three reasons to pack your bags and head to parts unknown:
1. Travel brings happiness. A 2014 study found that people were happier when they traveled, and not just while on the trip. Just anticipating a trip can make you happier for 15 days beforehand, while the after-glow from a trip can last for a month after your return.
2. Travel is good for the brain. Jim and I are no longer spring chickens; we���re more like late-summer chickens. During our five days in Istanbul, I only managed to learn a single Turkish���te��ekk��rler. It means thank you.
But it doesn���t matter how fast or slow we learn new languages. What matters is we challenge ourselves, and help our brain by taking it off autopilot. When I���m in an unfamiliar place, I have to think about small things, even something as simple as reading a menu of unfamiliar foods or how to say ���thank you��� in a different language.
Scientists used to believe the brain only changed during childhood. Now, it���s widely accepted that neuroplasticity���the ability of the brain to change���is present throughout our lives. People who travel to new places, keep learning languages and continue to experience new things are far less likely to develop cognitive decay, according to��Dr. Michael Merzenich.
3. Travel brings new perspectives. Travel changes us, sometimes in unpredictable ways. When coming home from developing countries, like Vietnam or Cambodia, I have more appreciation for my surroundings and good fortune.
My most memorable travel moment was walking El Camino, the pilgrim���s route in northern Spain. I felt fully alive and present in the moment. The walk gave me a sense of connection with others, and tested my mental���as well as physical���strength.
���Travel,��� wrote former Los Angeles Times travel editor Catharine Hamm, ���requires you to be braver than you think you are, whether it's for a week or a year, and involves the joy of finding a better, smarter, stronger self that lasts well past the day you put away your suitcase if, indeed, that day ever comes.���
Jiab Wasserman, MBA, RICP��, has lived in Thailand, the U.S. and Spain. She spent the bulk of her career with financial services companies, eventually becoming vice president of credit risk management at Bank of America, before retiring in 2018.��Head to Linktree to learn more about Jiab, and also check out her earlier articles.The post Brain Food appeared first on HumbleDollar.
December 2, 2021
Save ���Til It Hurts
I FREQUENTLY FIND myself criticized when I state my fiscally conservative views on saving and spending in retirement. One fellow recently said I had no compassion and I was scaring people.
If folks are frightened by my urging them to retire with the ability to replace most of their preretirement income, then perhaps they should be scared.
I���m also criticized because I have a pension, and so don���t rely on investments for my income. As a result, I���m told, I don���t understand most people���s situation today.
I do know what it means to make ends meet, however. My monthly pension in 2021 is the same as it was in 2010 when I retired, and that���ll never change.
Today, most workers are on their own, with no pension plan to count on. They need to accumulate a large pile of savings to generate their desired retirement income. To me, that���s even more reason to aim high, and preferably for 100% income replacement.
When I bring up the topic of income replacement, an underlying issue frequently pops up. Individuals want to retire in their 50s or early 60s. They conclude that, if my ideas are followed, they���ll have to work longer. Maybe that���s what���s scary to them.
I retired at 67. By working longer, I knew my pension would replace 100% of my base salary. If you retire at 55, the numbers are much harder. If you start with 70% income replacement and think it���ll get you through 30-plus years of retirement, you're dreaming���unless, that is, your idea of a retirement lifestyle means significant changes, and not for the better.
There���s another area of confusion: expenses versus spending. They aren���t the same. People who create detailed retirement budgets based on their expenses are shortsighted. Expenses are what you need to live. Spending is how you want to live, and can include any number of extras���from travel to home remodeling to helping children and grandchildren.
Should the goal of retirement be just to cover the bare essentials? I understand the challenge of creating 100% income replacement. But remember, Social Security alone may get you 35% to 40% of the way there. Besides, what���s wrong with having some money left at the end of the month? That extra cash could help you cope with an emergency, deal with high inflation or wait��out a lengthy market downturn. And what about having extra money just for fun?
The post Save ���Til It Hurts appeared first on HumbleDollar.
Fit to Retire
I WAS RECENTLY talking with a younger acquaintance about my decision to leave the��workforce��early. I���d left a demanding career to pursue my personal passions, while I was still young and healthy enough to do so.
My acquaintance is in his early 30s. He���s single and makes a boatload of money working in IT for a pharma company. He���s also a big proponent of the FIRE (financial independence-retire early) movement. He takes part in Reddit boards and reads every investment article he can get his hands on. His goal, he told me, is to sock away every dollar he can so that he, too, can retire early one day. Hopefully even earlier than I did, he said with a grin.
Before I knew it, my young friend was telling me about his portfolio. Between his 401(k)s and taxable accounts, he���s already accumulated a portfolio that���s well into six figures. It���s spread across low-cost mutual funds and ETFs, with a sprinkling of individual stocks. Still, he said, he was always looking for investment advice. Were there any tips I could share with him for a successful early retirement?
While I have an MBA and worked in investor relations for a number of years, I make no claim to be an investment expert. I was fortunate early in my life to have read the advice of people like Warren Buffett and John Bogle. I learned from them about the power of dollar-cost averaging and investing in low-cost mutual funds that track the market. By riding those two dull horses through the ups and downs of turbulent markets, I���ve been able to achieve a modest measure of financial security for myself and my family.
But it was clear that my young friend already had these investment fundamentals well in hand. To be honest, my concern was not about his finances, but his health. Despite being young, he was at least 30 pounds overweight. He carried an unhealthy spare tire around his middle. If he didn���t get his weight under control, he may not reach that early retirement he���s working so hard for.
With all the discretion I could muster, I gave him my tip. If he wasn���t already doing it, I suggested he get started early on a disciplined exercise program that included at least two to three hours of moderate exercise every week. I told him about all the research showing that seniors in their 70s and 80s who���d been working out regularly for 30 or 40 years had the hearts and skeletal muscle health of people 30 years younger.
���The younger you start, the better off you will be,��� I said.
My friend���s face screwed up. He clearly wasn���t expecting this. I think he was hoping to get my thoughts on investing in bitcoin or buying option contracts as a way to manage downside risk. But I wouldn���t have been the person to ask about those things, anyway, since I haven���t dabbled in either.
But the value of exercise���that I could talk about. I told him that I���d started my regular workout program in my early 30s, when I was having pain in my knees and lower back. I was 20 pounds overweight at the time, and it didn���t help that I had beaten up my joints playing basketball in high school and college.
I went to see an orthopedic specialist. He took an MRI and told me he saw evidence of early arthritis and cartilage damage. Based on the shape of my knees, the doctor said, I would likely need a knee replacement in 20 years. Maybe even sooner. And oh, by the way, the doctor said���my blood pressure was a bit higher than he would like it to be.
That was all I needed to hear. I went to a physical therapist, who recommended a program of five workouts per week of 45 minutes each, mixing cardio and light weights. It included exercises to strengthen the muscles around my knees.
More than 30 years later, at age 62, I���m still at this routine. I haven���t had to replace either knee, and hope never to. My body mass index and blood pressure are where they need to be. My doctor says that I have the resting pulse and heart health of someone in his 40s. Just as important, my fitness routine helped immensely in reducing stress and managing a genetic tendency toward anxiety and depression.
I told this to my young friend not to brag, but to point out the logic of approaching investment planning and health planning with the same discipline. There���s no guarantee that starting an exercise program early will lead to a long, happy life, just as there���s no guarantee that our well-diversified investment portfolio will be able to support us all the way through our golden years.
But it���s about odds, isn���t it? Working out regularly increases our odds of living longer, and���more important���having quality golden years. What good is retiring early with a couple of million dollars if we don���t have the health to enjoy it?
My young friend thanked me for my advice and walked away. He recently called me to give me the happy news that he���d joined a gym. I hope he sticks with it. It might be the best investment decision he ever makes.
James Kerr led global communications, public relations and social media for a number of Fortune 500 technology firms before leaving the corporate world to pursue his passion for writing and storytelling. His book, ���The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life���s Purpose,��� is forthcoming in early 2022 from Blydyn Square Books.��Check out his blog at
PeaceableMan.com
. His previous articles were Challenging Myself and��Reclaiming My Life.
My acquaintance is in his early 30s. He���s single and makes a boatload of money working in IT for a pharma company. He���s also a big proponent of the FIRE (financial independence-retire early) movement. He takes part in Reddit boards and reads every investment article he can get his hands on. His goal, he told me, is to sock away every dollar he can so that he, too, can retire early one day. Hopefully even earlier than I did, he said with a grin.
Before I knew it, my young friend was telling me about his portfolio. Between his 401(k)s and taxable accounts, he���s already accumulated a portfolio that���s well into six figures. It���s spread across low-cost mutual funds and ETFs, with a sprinkling of individual stocks. Still, he said, he was always looking for investment advice. Were there any tips I could share with him for a successful early retirement?
While I have an MBA and worked in investor relations for a number of years, I make no claim to be an investment expert. I was fortunate early in my life to have read the advice of people like Warren Buffett and John Bogle. I learned from them about the power of dollar-cost averaging and investing in low-cost mutual funds that track the market. By riding those two dull horses through the ups and downs of turbulent markets, I���ve been able to achieve a modest measure of financial security for myself and my family.
But it was clear that my young friend already had these investment fundamentals well in hand. To be honest, my concern was not about his finances, but his health. Despite being young, he was at least 30 pounds overweight. He carried an unhealthy spare tire around his middle. If he didn���t get his weight under control, he may not reach that early retirement he���s working so hard for.
With all the discretion I could muster, I gave him my tip. If he wasn���t already doing it, I suggested he get started early on a disciplined exercise program that included at least two to three hours of moderate exercise every week. I told him about all the research showing that seniors in their 70s and 80s who���d been working out regularly for 30 or 40 years had the hearts and skeletal muscle health of people 30 years younger.
���The younger you start, the better off you will be,��� I said.
My friend���s face screwed up. He clearly wasn���t expecting this. I think he was hoping to get my thoughts on investing in bitcoin or buying option contracts as a way to manage downside risk. But I wouldn���t have been the person to ask about those things, anyway, since I haven���t dabbled in either.
But the value of exercise���that I could talk about. I told him that I���d started my regular workout program in my early 30s, when I was having pain in my knees and lower back. I was 20 pounds overweight at the time, and it didn���t help that I had beaten up my joints playing basketball in high school and college.
I went to see an orthopedic specialist. He took an MRI and told me he saw evidence of early arthritis and cartilage damage. Based on the shape of my knees, the doctor said, I would likely need a knee replacement in 20 years. Maybe even sooner. And oh, by the way, the doctor said���my blood pressure was a bit higher than he would like it to be.
That was all I needed to hear. I went to a physical therapist, who recommended a program of five workouts per week of 45 minutes each, mixing cardio and light weights. It included exercises to strengthen the muscles around my knees.
More than 30 years later, at age 62, I���m still at this routine. I haven���t had to replace either knee, and hope never to. My body mass index and blood pressure are where they need to be. My doctor says that I have the resting pulse and heart health of someone in his 40s. Just as important, my fitness routine helped immensely in reducing stress and managing a genetic tendency toward anxiety and depression.
I told this to my young friend not to brag, but to point out the logic of approaching investment planning and health planning with the same discipline. There���s no guarantee that starting an exercise program early will lead to a long, happy life, just as there���s no guarantee that our well-diversified investment portfolio will be able to support us all the way through our golden years.
But it���s about odds, isn���t it? Working out regularly increases our odds of living longer, and���more important���having quality golden years. What good is retiring early with a couple of million dollars if we don���t have the health to enjoy it?
My young friend thanked me for my advice and walked away. He recently called me to give me the happy news that he���d joined a gym. I hope he sticks with it. It might be the best investment decision he ever makes.
James Kerr led global communications, public relations and social media for a number of Fortune 500 technology firms before leaving the corporate world to pursue his passion for writing and storytelling. His book, ���The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life���s Purpose,��� is forthcoming in early 2022 from Blydyn Square Books.��Check out his blog at
PeaceableMan.com
. His previous articles were Challenging Myself and��Reclaiming My Life.The post Fit to Retire appeared first on HumbleDollar.
December 1, 2021
My Favorite Store
WHEN I MOVED to the U.S. for work, a friend graciously helped me settle in. He shared many useful tips, one of which was to become a Costco member. I���m glad I heeded my friend���s advice. I���ve saved thousands of dollars over the years and found the store���s service to be exceptional.
In recent years, my Costco shopping has expanded to include not just everyday purchases, but also luxury��items, gas, tires, electronics and vacations. I bought a piece of jewelry from the warehouse this year to surprise my wife on her milestone birthday. Thanks to the no-fuss return��policy, she was able to exchange it for another ring that fit better.
Recently, we needed to replace our washer and dryer. I checked out Costco���s online store���something I���ve rarely used. I found models that were highly rated by Consumer Reports . The price was higher than I���d hoped, but it included delivery, installation and hauling away the old machines. I went ahead and placed the order.
In a few days, I got the delivery confirmation and a two-hour window for the delivery. The crew showed up on time. In less than an hour, the new appliances were installed and running.
The next week, I had to go online again to download the manuals. To my surprise, I noticed a 25% price drop on the same models that I���d purchased. I was disappointed to miss the promotion, but I also had a feeling that Costco would somehow make it right.
Indeed, Costco has a price��adjustment policy for people in my situation. If an item goes on promotion within 30 days of purchase, Costco refunds the difference. All I had to do was fill out a simple online form. The refund appeared on my credit card account in three days. No questions asked.
No wonder the company is doing so well.
In recent years, my Costco shopping has expanded to include not just everyday purchases, but also luxury��items, gas, tires, electronics and vacations. I bought a piece of jewelry from the warehouse this year to surprise my wife on her milestone birthday. Thanks to the no-fuss return��policy, she was able to exchange it for another ring that fit better.
Recently, we needed to replace our washer and dryer. I checked out Costco���s online store���something I���ve rarely used. I found models that were highly rated by Consumer Reports . The price was higher than I���d hoped, but it included delivery, installation and hauling away the old machines. I went ahead and placed the order.
In a few days, I got the delivery confirmation and a two-hour window for the delivery. The crew showed up on time. In less than an hour, the new appliances were installed and running.
The next week, I had to go online again to download the manuals. To my surprise, I noticed a 25% price drop on the same models that I���d purchased. I was disappointed to miss the promotion, but I also had a feeling that Costco would somehow make it right.
Indeed, Costco has a price��adjustment policy for people in my situation. If an item goes on promotion within 30 days of purchase, Costco refunds the difference. All I had to do was fill out a simple online form. The refund appeared on my credit card account in three days. No questions asked.
No wonder the company is doing so well.
The post My Favorite Store appeared first on HumbleDollar.
Quitting Retirement
DRIVING PART of the nation���s labor shortage is a wave of early retirements dubbed the ���Great Resignation.��� A red-hot housing market and booming stock market have made it financially easier for many to quit traditional nine-to-five employment, as has employers��� embrace of part-time, work-from-home positions. Add to that virus concerns and parents��� difficulty finding child care, and you���ve had a perfect storm for the labor market.
According to a recent article in The Wall Street Journal, those exiting the labor market weren���t your typical job-quitters and job-switchers. The article notes that the Federal Reserve Banks of Kansas City and Dallas concluded there are 1.5 million more retirees as of April 2021 than would have been expected, assuming pre-pandemic retirement rates had simply continued.
These early retirees face a problem, however: inflation. The Consumer Price Index (CPI) currently runs at a spicy 6.2%. Analysts see inflation averaging near that rate through much of 2022's first half. CPI is not only remarkably high, but its increase has also outpaced most economists��� forecasts for 2021.
I wonder if higher-than-expected inflation might nudge some early retirees back into the workforce next year. Sustained higher living costs, coupled with a longing for the camaraderie of the office social scene, could prompt some folks to call it quits... from calling it quits.
Early retirees, those younger than 62, can���t count on Social Security���which is indexed to inflation���to help protect their purchasing power. Owning inflation-sensitive assets like stocks, inflation-indexed Treasury bonds, real estate and commodities can soften the blow. But all those asset classes can drop in unison, too���as they did in late 2008 and early 2020.
I���m one of those workers currently on the sidelines, ready to jump back into the game. I���ve been successfully running my own business this year after leaving the corporate world in January. I���d like once again to have the structure that a fulltime job would bring to my day-to-day work life���and I certainly don���t like seeing inflation eat away at the purchasing power of my savings.
According to a recent article in The Wall Street Journal, those exiting the labor market weren���t your typical job-quitters and job-switchers. The article notes that the Federal Reserve Banks of Kansas City and Dallas concluded there are 1.5 million more retirees as of April 2021 than would have been expected, assuming pre-pandemic retirement rates had simply continued.
These early retirees face a problem, however: inflation. The Consumer Price Index (CPI) currently runs at a spicy 6.2%. Analysts see inflation averaging near that rate through much of 2022's first half. CPI is not only remarkably high, but its increase has also outpaced most economists��� forecasts for 2021.
I wonder if higher-than-expected inflation might nudge some early retirees back into the workforce next year. Sustained higher living costs, coupled with a longing for the camaraderie of the office social scene, could prompt some folks to call it quits... from calling it quits.
Early retirees, those younger than 62, can���t count on Social Security���which is indexed to inflation���to help protect their purchasing power. Owning inflation-sensitive assets like stocks, inflation-indexed Treasury bonds, real estate and commodities can soften the blow. But all those asset classes can drop in unison, too���as they did in late 2008 and early 2020.
I���m one of those workers currently on the sidelines, ready to jump back into the game. I���ve been successfully running my own business this year after leaving the corporate world in January. I���d like once again to have the structure that a fulltime job would bring to my day-to-day work life���and I certainly don���t like seeing inflation eat away at the purchasing power of my savings.
The post Quitting Retirement appeared first on HumbleDollar.
November’s Hits
WHEN FOLKS WEREN'T consuming turkey last month, they were devouring HumbleDollar articles. Which ones? Here are November's seven most popular articles:
Amassing wealth is hard���but staying wealthy can be even harder. Adam Grossman offers strategies that can help retirees and others hang on to the money they've accumulated.
"I feel like I���ve won the game and I want to take a victory lap," says Mike Drak. "I have my freedom back. I���m happy to work part of the time���but only on my terms and only doing things I love."
With work winding down, Rick Connor and his wife are fine-tuning their retirement plan. One unanswered question: Whose IRA should they draw money from first?
Transparency. Predictability. Equity. Adam Grossman discusses three principles that should guide parents' financial gifts to their adult children.
Charley Ellis is 100% invested in stocks. His late mother kept 100% of her money in a checking account. "I believe both of us got the decision right," he argues.
How much will a moderately affluent family pay for college? Kyle McIntosh ran the numbers on 20 public and private colleges���and came away with some eye-opening results.
Are you considering a career change, a gap year or early retirement? You should ask yourself four key financial questions, says Matt Trogdon.
Meanwhile, among HumbleDollar's��shorter��blog posts, the most read were Dick Quinn on his treasured��possessions and on being a��retirement pro, Sanjib Saha on the��4% rule, Kyle McIntosh on��hybrid cars, Mike Flack on��Medigap��insurance, Howard Rohleder on his stock-bond mix and Dennis Friedman on��tipping, as well as one of my own pieces.
What about our weekly newsletters? The two most popular were Bill Bernstein's When Cash Is King and Charley Ellis's Fees Are Your Foe.��It was also a strong month for John Lim's October article on��Series I��savings bonds, propelled in part by John's appearance yesterday on CNBC.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.
Amassing wealth is hard���but staying wealthy can be even harder. Adam Grossman offers strategies that can help retirees and others hang on to the money they've accumulated.
"I feel like I���ve won the game and I want to take a victory lap," says Mike Drak. "I have my freedom back. I���m happy to work part of the time���but only on my terms and only doing things I love."
With work winding down, Rick Connor and his wife are fine-tuning their retirement plan. One unanswered question: Whose IRA should they draw money from first?
Transparency. Predictability. Equity. Adam Grossman discusses three principles that should guide parents' financial gifts to their adult children.
Charley Ellis is 100% invested in stocks. His late mother kept 100% of her money in a checking account. "I believe both of us got the decision right," he argues.
How much will a moderately affluent family pay for college? Kyle McIntosh ran the numbers on 20 public and private colleges���and came away with some eye-opening results.
Are you considering a career change, a gap year or early retirement? You should ask yourself four key financial questions, says Matt Trogdon.
Meanwhile, among HumbleDollar's��shorter��blog posts, the most read were Dick Quinn on his treasured��possessions and on being a��retirement pro, Sanjib Saha on the��4% rule, Kyle McIntosh on��hybrid cars, Mike Flack on��Medigap��insurance, Howard Rohleder on his stock-bond mix and Dennis Friedman on��tipping, as well as one of my own pieces.
What about our weekly newsletters? The two most popular were Bill Bernstein's When Cash Is King and Charley Ellis's Fees Are Your Foe.��It was also a strong month for John Lim's October article on��Series I��savings bonds, propelled in part by John's appearance yesterday on CNBC.
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 November’s Hits appeared first on HumbleDollar.
