Jonathan Clements's Blog, page 25
July 4, 2025
Reason 65 not to buy individual stocks
At this point, it will usually be mentioned that buying and selling individual stocks results in increased (and earlier) taxes due to having to pay tax on your capital gains when you sell the stock.
What is never mentioned is that now you have enter this sell transaction on Schedule D of your federal tax return. Now as I get older, I find this more and more frustrating as tax preparation software (I mean you TurboTax) does everything they can to increase the complexity and the effort required.
Now if all this data entry wasn’t bad enough (i.e. carpel tunnel syndrome), you have to trust your broker correctly entered the cost basis on Form 1099-B. In the past I detailed an issue I had with E*TRADE incorrectly classifying a tax-free spinoff of shares of Brookfield Renewable Partners (BEP) as taxable. I’m thankful that I noticed and that E*TRADE agreed with my reclassification dissertation.
With the market reaching new highs I have been selling some of my stocks – not because I have any insight, but because my portfolio was getting a little stock heavy. While I know I should sell based on each stock’s intrinsic value, I instead focused my pruners on those stocks with minimal capital gains or even better a capital loss. You see my pruning plan has more to do with minimizing income prior to this year’s Roth conversion and less to do with helping ensure an efficient market.
The stock I’m currently looking to snip is AbbVie (ABBV). Now to make my case against individual stocks even more compelling, I never even bought these eight shares myself. Back in 2016 I read what must have been a fascinating article written in the eBay of stock analysis, Seeking Alpha (“most of its products have been previously used”).
It was an arbitrage play, based on a Pfizer (PFE) buyout of Allergan (AGN). The (very) basic idea being, Pfizer made an offer to buy Allergan at a (very) nice premium, and an investor (me) could still capture a fair amount of it and thereby lock in a 15% annualized return. For those dividend zealots it was framed as being able to turn Pfizer’s 4% yield into, hold on to your hats . . . 5%!
So, I bought 10 shares at $295.55 a share and soon after . . . the deal fell through. Apparently the U.S. Treasury wasn’t as excited and I was about Pfizer buying the smaller Allergan and reincorporating the new company in Ireland to drastically reduce its taxes. Like most investors who celebrate their wins by telling everyone how smart they are and their losses by erasing it from their memory, I (very) soon forgot I even owned Allergan. This made things a little confusing in 2020 when I noticed on my 1099-B that I had $1,932.35 of proceeds from Allergan. After a little research I determined that a slightly less ridiculously sounding company called AbbVie (ABBV), had bought out my ten shares of Allergan and in return given me eight shares of AbbVie and some cash.
Instead of doing an all-stock deal which would have made things tax and 1099-B free or doing a taxable all cash deal, which would have required just one final tax entry, AbbVie decided to do a combo (increased taxes and reporting complexity).
It gets even better though as the cost basis E*TRADE listed on my 1099-G was the entire cost that I paid for Allergan back in 2016 ($2,955), which gave me a nice little capital loss of $1,028. Back in 2020 after realizing this I may not have realized the oddness of the accounting (or cared).
So, when I recently checked on my eight shares of AbbVie I noticed they came with a cost basis of $84.22 a share, which of course made no sense.
I’m thinking of contacting E*TRADE to better understand it all. Though another option may be to immediately sell my shares, just trust that they enter the correct cost basis on my 2025 1099-G and then hopefully play a little Dylan next April . . .
Why wait any longer for the world to begin?
You can have your cake and eat it too.
Bob Dylan, “Lay Lady Lay”
PS: BTW, it just dawned on me that this could be a reason to buy individual stocks.
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July 3, 2025
The Big Garden Dilemma: Aging in Places vs. Future Planning
As I've talked about recently I'm currently at my holiday home but strangely I'm thinking about my other house. I wanted to share something that's been on my mind a lot lately, a kind of internal debate, I'm good at them! My wife, Suzie and I are in our late 50s, and we've reached a point where we feel it's starting to feel important to get ahead of the curve and plan for our future living situation, rather than being forced into a decision down the road.
Our current home, in many ways, seems absolutely perfect for "aging in place." Two of its four bedrooms and a full bathroom are on the ground floor. That’s a huge plus for peace of mind about accessibility later on. We also get to enjoy spacious living spaces including a large sunroom with a log burner, which is a fantastic spot to cozy up in the winter. Location-wise, it's pretty ideal: we're just minutes from a regular public transport stop and only a 15-minute walk from a hospital with a primary care facility on the same plot.
But then we have the half-acre garden. This big space, with its lawns, shrub borders, flower beds, and mature trees, was a massive selling point when we bought the place 20 years ago. It was perfect for our young girls and still gets plenty of use from the grandkids. Still, as I look ahead 15 or 20 years, the thought of the sheer maintenance demands of such a large garden is becoming concerning. It's a lot of work that at the moment I enjoy.
Beyond the garden, there's the age of the house itself, pushing 75 years now. Even though we’ve put a lot of effort into updating the interior over the last five years, ongoing upkeep is a constant task. And I know, deep down, that major remodeling is probably inevitable at some point. That thought alone makes the idea of a newer, smaller place with a more manageable garden (yard for our Mr Quinn 😉) sound incredibly appealing.
Despite how much we like our current home, the question of when to potentially move to a slightly smaller property with less garden keeps coming up in my head. There's no right answer, but now feels like a good time to tackle it.
My thinking is it's better to be proactive rather than reactive. This means we can manage any potential move in a way that suits us, without the stress of finding we need to move at a future time
There's also the minor, but still welcome, benefit of equity release. Moving to a smaller home would free up a reasonable sum of capital. What's not to like about extra cash?
So, essentially, I'm caught between the comfort and memories tied to our current home and the practical realities of future maintenance and our long-term lifestyle goals. I don't envision moving before the next five years but you just never know.
I'm curious to hear from others who have gone through similar decisions. What factors weighed most heavily for you when considering a big change like this?
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Is now the time to go long in bonds?
This may sound crazy to most readers here, but as a 45 year-old, until 2022 I had never lived in, let along invested in, a rising interest rate environment.
This is, of course, owing to the enduring bond bull market from 1981-2022 (RIP). Obviously, we all know rates rose in 2022 and have held steady for a bit. They are now mostly in the 4% range depending on duration.
As a young investor in the 2010s and early 20s, I didn't find bond interest rates in the sub-3%, sometimes sub-2% range to be a compelling investment compared to stocks.
Could now be the time to go long in bonds? Why or why not?
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Rethinking Rebalancing by Jonathan Clements
Rebalancing is primarily a risk-control strategy. As financial markets rise and fall, we may find we have more than our target portfolio percentage in large-cap growth shares, or emerging markets, or stocks generally. Rebalancing back to our portfolio targets trims our exposure, reducing the risk of a big financial hit if there’s a reversal in the market’s recent rise.
But rebalancing is also pitched as a way to boost returns. The notion: We should have portfolio targets for value and growth stocks, and large-cap and small-cap shares, and U.S. stocks, developed foreign markets and emerging markets. If, say, value stocks sprint ahead of growth stocks, we should rebalance back to our portfolio targets, potentially selling high and buying low.
Two decades ago, this struck me as a smart and easy way to boost returns. I was wrong. The problem: Market trends often persist for far longer than imagined. If you rebalance among market sectors every year or two, there’s a good chance this attempt to boost performance will achieve just the opposite, capping returns by choking off our exposure to a major market trend that still has many years to run.
We don’t have to look far to find examples of trends that lasted far longer than most investors expected. Emerging-market stocks had a long stretch of sparkling gains in this century’s first decade. That was followed by 15 years of stellar results from large-cap U.S. growth stocks. Rebalancing back to a portfolio’s target sector weightings would have limited these gains—what some would call cutting the flowers and watering the weeds.
To be sure, it would be great to shift from large-cap to small-cap stocks just as the market’s winds were shifting. But I’m not smart enough to succeed at that sort of market-timing, and I’m not sure anybody is.
What to do? My advice: Don’t rebalance among stock-market sectors and among bond-market sectors. The good news is, those of us who favor total-market index funds already avoid this sort of rebalancing. We never fiddle with, say, our mix of growth and value shares, instead letting our portfolio’s allocation change along with the market.
That doesn’t mean we should throw out the notion of rebalancing. I think it’s important occasionally to rebalance between stocks and more conservative investments, thereby keeping a portfolio’s risk level under control. Without that sort of rebalancing, an investment mix would likely become increasingly risky, as stocks grew to be an ever-larger portion of the portfolio.
For those with a contrarian bent, I’d also put in a plug for over-rebalancing during major stock-market declines. The notion: Overweight stocks when they’re deeply underwater. This is something I did during 2007-09, 2020 and 2022. But make sure this overweighting is temporary. As the stock market recovers, look to move back to your target stock percentage, so you don’t leave yourself vulnerable to a big stock-market decline.
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July 2, 2025
70 years old
To get prepared I read an article about being 70 and found a list, of all things, that I liked so much that wanted to share it. Do you have anything to add to this list?
10 Commandments of Happiness:
Display kindness
Show tolerance
Smile
Guard your health
Give back to society
Use common sense
When the traffic light turns yellow, take that as a cue NOT to charge across the street
You don’t have to win every argument
Exercise daily
If your friends let you down, find new friends
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A Gift Worth Reading by Dennis Friedman
I wasn’t the best student, but if they had quizzed me on what was going on in the world, I’d like to think I'd have aced the test.
Newspapers became such a big part of my routine that, even when I was pinching pennies, I always made room in the budget for subscriptions. While I was living in Long Beach, California, in a small studio apartment above a garage on an alley, I subscribed to multiple newspapers. One of them was a printed edition of an out-of-town newspaper: the Cleveland Plain Dealer .
For me, reading the newspaper wasn’t just about staying informed—it became a cornerstone of how I approach life. It helped me make better decisions and, ultimately, live a more fulfilling life.
That’s why, when a friend's daughter was graduating from college, Rachel and I were brainstorming gift ideas. We decided on cash, but I also suggested a digital subscription to a major newspaper. I was hoping it would provide her with valuable insights to help guide her in life’s big decisions.
If I had to recommend three articles to help Laura make smarter, more informed choices in her next phase of life, here’s what I’d choose:
Learn the Secret Ingredients to Doubling Your Money–Time: In his New York Times article, Jeff Sommer interviews Charlie D. Ellis about his new book, Rethinking Investing: A Very Short Guide to Very Long-Term Investing . The key takeaway? Ignore the fear-driven headlines and focus on the long-term. If you invest with decades in mind, today’s threats to the stock market won’t matter much. Instead, we should focus on “the remarkable record of compounded, reinvested stock returns over many decades."
The article offers striking data about compounding: If you had invested $1,000 in the S&P 500 sixty years ago and reinvested all your dividends, you’d have nearly $390,000 today. That’s the exponential power of time at work.
Discover the Quiet Power of Walking: In his Athletic article, Rustin Dodd writes about how Bruce Bochy, a Major League Baseball manager and a lifelong walker, discovered the value of walking. His long, peaceful walks gave him time to think—about lineup decisions, game strategy, and tough conversations with players.
After a tough loss to Milwaukee, while managing San Francisco, he decided to take a four-mile walk back to the team’s hotel. When he arrived, he realized how much better he felt. Walking became his routine and allowed him to explore many cities and neighborhoods of San Francisco during his career.
But Bochy is not alone. Steve Jobs, the former Apple CEO, held walking meetings. It has been said that Ernest Hemingway walked along the Seine in Paris to find relief from writer’s block.
Build a Financial Life That Actually Makes Sense: Jonathan Clements is one of the clearest, most practical voices in personal finance. I’ve followed his columns in The Wall Street Journal for years, and his advice has helped shape how I handle money.
In Want to Bolster Your Finances? Follow These 25 Principles—a standout piece from his book The Best of Jonathan Clements: Classic Columns on Money and Life —he touches on everything from investing to insurance to home ownership. One line always stuck with me:
“Don’t invest in a vacuum. If you are dutifully saving for a long and active retirement, it makes no sense to smoke, drink heavily, and never exercise.”
It’s a great reminder that financial health doesn’t mean much if your physical health is falling apart.
This article doesn’t just tell you what to do with your money; but it shows you how to think about your money.
Newspapers taught me how to think and how to make better decisions. I hope Laura finds the same value in her subscription. And if one day she finds herself walking to clear her head, investing for the long haul, or quoting a finance column to a friend—I’ll know that gift was exactly what she needed.
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Holy Cow! Holding The Line in a Market Stampede
The cow nearest me bolted, and like a ripple effect, the whole herd panicked. Most alarmingly, they all charged after me, pressing against the fence! On the other side of a very flimsy-looking fence, I was really rattled but eventually passed the field. The problem was I had to go back past this herd to return home. After giving myself 10 minutes to gather my composure and feeling very vulnerable, I gingerly pushed my bike back past without incident, but I've been constantly playing the scene over in my mind since. It was very scary.
When thinking about this experience, it brought to mind how the markets can sometimes react in a herd-like way. My "freewheel mistake" was like a major bad news event for the market, causing an initial sell-off until the herd mentality leads to a stampede as fear spreads, just like my charging bovine pursuers.
The feeling of being rattled and the urge to flee is what investors experience during these downturns. The problem of going back past the cows is like the investor's dilemma after a crash: how do you re-enter when the fear is fresh?
In my terrifying encounter, there was a fence... a very flimsy one, as I imagined in my panic, but a fence nonetheless. In the investing world, that fence is your risk-adjusted, fully diversified portfolio. It's the protective barrier that guards you from the full market stampede. Some parts of the portfolio may feel flimsy, taking a hit, but others hold strong, preventing the stampede from rolling over you.
How do you get back in past the fear? My solution was to "gingerly push my bike." Your solution is dollar-cost averaging. Instead of jumping back in, you gradually invest, helping to manage the risk and volatility. Trust your fence – your portfolio and plan – even when it feels flimsy.
I had a very scary experience miles from anyone, late in the evening and in an isolated area, and I have to tell you, coming up with this article isn't much compensation for it. But if it in any way helps one person hold their nerve during the next market stampede for the door, it will make the experience that little bit easier.
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July 1, 2025
Breaking Up 2
It’s been almost 4 months since I began account transfers to Fidelity.
I began on March 3 with a $500 deposit to open a joint cash management account. I also ordered and soon received a stack of free checks. (For the benefit of Gen Z and some Millenial readers, checks are little pieces of paper that grandparents use instead of cash). Next came the money market account transfer from an existing firm, which I call our disaster fund. I established an IRA account at Fidelity and began transfers of my IRA from the old firm. Then began monthly transfers of excess funds from our local bank's checking account. That account pays about .04% interest, versus nearly 4% at Fidelity. This change alone will put about an extra $1k in our pocket each year. At today's rates of course. Next was setting up and testing billpay at Fidelity. All worked smoothly except it insists on snail-mailing a check for my CITI Mastercard. Fidelity reps have been unable to explain this to me. I applied for and received a Fidelity VISA rewards card that pays 2% on all purchases. This card will replace the CITI Mastercard. I wonder if this was Fidelity’s plan by refusing to electronically pay the CITI card. Next came transferring my wife's IRA. This had to be done in several steps due to the old firms policies. Last week for the first time I paid all the monthly bills via Fidelity Billpay. Yesterday I changed 5 autopaid bills to Fidelity from our local bank. That chore took most of a rainy Toledo afternoon. I need to make a stop at our local bank to downgrade our checking account to one that does not require a minimum monthly deposit in order to remain fee free. Our final chore is transferring the direct deposit of our Social Security benefits and IRA distributions. That will be a job for the next rainy afternoon.We will still have 2 dinky pension checks deposited to our local bank for ATM withdrawals and other conveniences.
Breaking up really is hard to do, still, having things consolidated will make life easier for my wife and/or my kids after my human card is revoked.
One final thought. I count my money a couple times each year. In the past I had to visit 8 or more websites to pull the numbers together. Now I just click on Fidelity’s “Full View” button and everything magically appears. Easypeazy.
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Quinn asks, is there anything wrong with keeping it simple?
Okay, my level of financial and retirement simplicity is not for everyone. I get it, people want details, they like to analyze, to plan and project the future. But tracking every penny spent? Hey, if that makes you happy and you feel better, go for it.
I try to cover all the bases too, I want to be prepared for the vicissitudes of life as FDR said about Social Security. For me that boils down to big picture stuff. Income streams, investments, survivor benefits and insurance of various types, including LTC, life and umbrella liability coverage.
To me, my idea of retirement income replacement covers the big picture so I say what more do I need to deal with. Inflation perhaps? That’s what designated income focused investments are for. Do I know what inflation will be in the years ahead? Assuredly not, but nobody else does either.
Reading HD over the years, I wonder if some level of analysis and planning can be too much. More stress, perhaps inaction - analysis paralysis if you will.
Clearly we need to think about the future and try our best to plan, but there is just so much we can control regardless. Do we delay decisions until everything seems perfect and perhaps deny ourselves something we may enjoy?
I see several major questions:
What kind of lifestyle do I want in retirement?
Am I willing to compromise and how?
Do I foresee any major changes like relocation?
How much income can I reasonably expect to generate and from where, and how much provides a secure income stream?
Retirement can be a long time, with many unknowns and uncontrollable events. I say stick with the big picture and stop playing with the assumptions in your planning tool. It doesn’t know any more than you do.
“It's not in the stars to hold our destiny but ourselves. “Better three hours too soon than a minute too late." W. Shakespeare
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Ever heard Down the Middle?
I'm betting that a large number of fellow HumbleDollarians have never heard of a podcast called Down the Middle (Down the Middle Archives | Creative Planning). It is a pod hosted by our fearless founder Jonathan Clements and co-hosted by Peter Mallouk of Creative Planning. You can find it on Apple or anywhere podcasts are found.
It's released only once a month at the beginning of the month. It's one of the pods I most look forward to. Each episode is only about 10 or 15 minutes long, so the good news is if you've never heard of it, you can catch up on a year's worth of episodes in little time.
In the past, Jonathan has been reluctant to promote (or allow promotion) of this pod, but I'm hoping he'll let this one through. I find the content very edifying, and I think it's great to hear his voice. If you're into podcasts, check it out.
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