Jonathan Clements's Blog, page 31
August 2, 2025
Should I Be Concerned?
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August 1, 2025
Worth 1,000 Words
I’ve found that this strategy works well in personal finance, and earlier this year I described some of the images that I rely on most. Below are several more.
1. Back in 2011, an Illinois man named Wayne Sabaj was in his yard when something caught his eye. Upon closer inspection, it turned out to be a package containing a large amount of cash—about $150,000. Sabaj never found out who had buried these funds or why. This sort of thing is not uncommon. Homeowners doing renovations regularly find cash hidden in backyards, basements and bedroom walls.
For me, this is a reminder that many financial decisions are subjective and in the eye of the beholder. To be sure, most people hold their money in the bank, where it’s safe and can earn interest. But not every financial decision has to be strictly optimal. As I often say, there are two answers to every financial question: what the numbers say and how you feel about it. In my view, as long as a financial decision doesn’t carry undue risk, we shouldn’t worry what someone else might think.
2. You may remember the name Keith Gill, or his alter ego, Roaring Kitty. Gill is the day trader who gained fame in 2021 when he helped drive up the share price of the failing retailer GameStop. That, in turn, caused the failure of a multi-billion-dollar hedge fund which had been betting against GameStop. Gill accomplished all of this from his basement in suburban Boston.
This, in my mind, illustrates a growing phenomenon in the market. It’s what hedge fund manager Cliff Asness refers to as the “less efficient market hypothesis.” The internet, and social media in particular, have spawned what he calls “a coordinated clueless and even dangerous mob.” That’s in contrast to the long-held belief that investors should benefit from having more information. This year’s resurgence of so-called meme stocks suggests that Asness may be right. This less-than-rational behavior is another reason to take the long view in investing.
3. Tax rules are complicated and change frequently. But there’s one rule that’s easy to remember, thanks to a hapless fellow named Alvan Bobrow. In 2014, Bobrow, a tax attorney, came to the attention of the IRS when an audit revealed he’d taken advantage of the rules governing IRA rollovers. These rules allow an investor who wants to transfer the balance of a 401(k) or IRA to hold the funds temporarily in his or her checking account—but only for 60 days.
What Bobrow realized, however, was that if he held multiple IRA accounts, he could make continuous use of his IRA dollars by daisy-chaining multiple 60-day rollovers, one after the other, without formally withdrawing the funds, which would have been taxable. Because of the Bobrow case, the IRS clarified the rules. Now, a taxpayer is allowed only one rollover like this per 12-month period. There is, however, no restriction on another type of transfer known as a direct rollover. With this approach, the funds never pass through the investor’s checking account, so you’d never risk running afoul of the rule that tripped up Alvan Bobrow.
4. An incident in 2009 illustrates why diversification is important. A Tel Aviv woman named Anat observed that her elderly mother had been sleeping on the same worn mattress for years. Wanting to do something nice, Anat had a new mattress delivered and put the old one out with the trash. Unfortunately, as Anat later found out, her mother had been holding her entire life’s savings in her mattress—more than $1 million. Anat enlisted a team to search through several landfills for the mattress but without luck. This is an extreme example, but it illustrates why even investments that seem safe can carry risk.
5. Imagine you’re furnishing a new home. Where would you start? For most people, it might be a table and chairs for the dining room or a couch for the living room. I doubt, though, that you would start with something as minor as an umbrella stand. That might seem obvious. Problem is, that’s the way the media tend to talk about investments, focusing on hot stocks, famous fund managers and the like.
What the data say, however, is that it’s much more important to focus on the overall asset allocation of a portfolio. Yes, individual investment choices matter. And sometimes they make all the difference—if you happened to catch a stock like Nvidia, for example. But for most people, most of the time, asset allocation is the primary driver of a portfolio, and that’s where I’d put most of my focus.
6. Should you hold cash in your portfolio? Until interest rates rose a few years ago, that was viewed as suboptimal. Conventional wisdom argued that it made sense to hold only a minimal amount of cash, enough to cover any upcoming withdrawals. But investors’ experience in 2022 illustrates why cash isn’t a bad investment.
When interest rates rose sharply, both stocks and bonds dropped simultaneously—stocks by 18% and bonds by 13%. An investor who held enough cash, or very short-term bonds, to meet withdrawals for that entire year, however, would have been able to avoid selling stocks or bonds when both were down. If you’re thinking about how to structure your portfolio, it’s worth keeping 2022 in mind.
7. In the 1983 movie Trading Places , a key plotline hinges on the annual Florida orange crop. According to the story, it had been a cold winter in Florida. Because of that, the expectation was that the orange harvest would be weak and thus orange prices would move higher. As it turned out, though, the harvest wasn’t any worse than usual—despite the weather—and prices didn’t move higher.
This was just a movie, but this dynamic plays out frequently in investment markets. Investors piece together what looks like a logical story, but for one reason or another, things don’t work out as expected. This is another reason I suggest taking the long view with investments. It’s just too difficult to predict how any given piece of short-term news will affect investment markets.
8. If you’ve ever taken care of toddlers, you know how exhausting it can be. But if they’re both in front of you, and not running around in different directions, it can be a lot easier to keep an eye on them. This illustrates why I recommend building a simple portfolio. If you consolidate your investments into a smaller number of holdings and a smaller number of accounts, that won’t guarantee better investment performance. But it will almost certainly be easier to monitor and to manage.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.The post Worth 1,000 Words appeared first on HumbleDollar.
Putting Every Dollar to Work
It got me thinking about what we did right, even though we weren’t consciously working towards any particular goal.
Upon reflection, what we did right:
We took every spare dollar and either paid down debt or invested into broad stock market funds. In early days it was into simple managed funds, in later days into index funds.
Worked really hard and grabbed every opportunity possible.
We had no interest in expensive material items. We bought either used cars or cheap new cars and kept them for a long time. We bought houses well below the local average price.
We were lucky – good health, stable family.
What we didn’t worry about:
Tax minimization - Our accountant would obviously recommend certain steps we should take to reduce our tax and we would follow that advice. But we never sat down and agonized over how to structure our finances based upon tax we might have to pay.
Emergency funds - In Australia it seems pretty common for home mortgages to have a re-draw facility, so any extra payments on our home loan could be withdrawn if we had a significant emergency arise.
Market timing - Dollar cost averaging all the way!
Personal finance can end up really complex. People can agonise over the detail of so many choices.
I’m no expert, just an average guy reflecting on how we got here. My feeling is that simple is better. Map out a strategy that works for you, as simple as possible, and stick to it.
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Putting every dollar to work
Nearing the end of our recent catch-up with our financial adviser, the general discussion turned to how we ended up where we are now. At 59 and 51 respectively, my wife Cindy and I are in a fortunate financial position. We never set out with aims of early retirement, or a target number that we wanted to reach. And despite that, we ended up in good shape.
It got me thinking about what we did right, even though we weren’t consciously working towards any particular goal.
Upon reflection, what we did right:
We took every spare dollar and either paid down debt or invested into broad stock market funds. In early days it was into simple managed funds, in later days into index funds.Worked really hard and grabbed every opportunity possible.We had no interest in expensive material items. We bought either used cars or cheap new cars and kept them for a long time. We bought houses well below the local average price.We were lucky – good health, stable family.What we didn’t worry about:
Tax minimization - Our accountant would obviously recommend certain steps we should take to reduce our tax and we would follow that advice. But we never sat down and agonized over how to structure our finances based upon tax we might have to pay.Emergency funds - In Australia it seems pretty common for home mortgages to have a re-draw facility, so any extra payments on our home loan could be withdrawn if we had a significant emergency arise.Market timing - Dollar cost averaging all the way!Personal finance can end up really complex. People can agonise over the detail of so many choices.
I’m no expert, just an average guy reflecting on how we got here. My feeling is that simple is better. Map out a strategy that works for you, as simple as possible, and stick to it.
The post Putting every dollar to work appeared first on HumbleDollar.
July 31, 2025
My First Retirement Report Card
I'm three months retired today, my goodness the time has flown by!
When I managed my own business I always collated business figures into a quarterly report for better performance monitoring and to help give me a feel for how things were going. I guess the urge to do so is still ingrained within me, and I thought I'd do a similar but more holistic exercise with a first quarter retirement report for the quarter ending 07/31/25.
Key Financial Metrics
Spending vs. Budget: I'm pleased to observe spending has been within anticipated levels, although it has to be noted it's at the upper boundary of projected consumption rates and monitoring is recommended to identify reasons.
Portfolio Performance: We achieved a very strong result, likely placing it in the top quartile for the targeted asset allocation. This was despite portfolio drag due to holding cash in the portfolio for longer than anticipated. This cash holding has now been relocated into stocks.
Withdrawal Rate: The effective portfolio withdrawal rate is 0%. This is in accordance with a first-year planning strategy to use excess cash from a business sale to minimise headspace thinking regarding drawdown in the first year of retirement operations.
Cash Reserves: Emergency and strategic opportunities deposits are fully funded with no ongoing concerns. Reallocation to ongoing best interest rates is a top management focus.
Key Holistic Metrics (wearable activity sensor data)
Step Count: 1,298,000
Jogging: 78 miles
Cycling: 397 miles
These are very pleasing numbers, well above my pre-retirement baseline, and give a strong indication that my extra spare time is being well utilized within a more focused personal health framework.
Social Engagement: Attendance at some large and numerous small social events with friends and family is continuing at a very satisfying level, and no areas of concern have been identified. Social sporting activities help bolster this aspect further, giving a very well-rounded result.
Personal Growth/Learning: A foundation course in planetary science has been identified, and an investigation into enrollment has begun.
Questionable Behaviours: Approximately 40 pints of Guinness were consumed. This is above normal historical levels and needs active monitoring, although mitigating circumstances have been identified around an extended holiday home stay, and consumption is still well within recommended personal levels.
Overall Well-being and Summary
Overall Well-being/Satisfaction Score: 90/100 (subjective but very high and definitely much improved from the pre-retirement level).
So that's my report. I think my first quarter of retirement has been a resounding success, much better than I expected and hoped for. The financial metrics are on track, and more importantly, my personal well-being and health have seen a marked improvement. This is a strong start to the long road ahead, and I'm in an optimistic mood about the future. However, I've been around the block a few times and fully understand that life has a habit of getting in the way of our best-laid plans and hopes. But "best foot forward and keep on going" is my motto!
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Is using a 529 plan a good strategy? Heck, is college worth the expense?
A July 31, 2025 article in the New York Times triggered this post. The headline reads Saving for College Once Felt Essential. Some Parents Are Rethinking Their Plans.
The article is primarily about 529 plans, but also about saving or attending college at all. One comment caught my eye as it questioned the value of college because it didn’t guarantee a good job. I wasn’t aware college ever guaranteed a job or anything else for that matter.
Nonetheless it appears 529 plans are falling out a favor, sometimes replaced by a brokerage account where the parent has access to the funds “if needed.” Now that sounds like a bad idea to me. Not unlike early withdrawals from a 401k.
We began using 529 plans when our first grandchild was born. He will be a sophomore in college this Fall. Our oldest granddaughter starts this fall as well - at the same college by chance.
Each month we contribute $100 to each grandchild’s account and another $100 on birthdays and Christmas. We used to print a “clever” note telling them what we did for their birthday, but stopped the note when one of the younger grandsons said he didn’t want a “coupon” for his birthday. Too bad, the 529 is still his present.
None of our account balances will pay for their college or even one year it appears, but it helps. So far, a portion of our 529 plans are being combined with the parents savings and scholarships to pay the first year. This allows the parents a bit more flexibility with their money and delays taking loans.
I don’t claim the 529 is always the best strategy, but they are easy to establish, they have tax advantages (sometimes tax free at the state level too) and you can set up automatic contributions as well have. Our plan’s investments are adjusted for less risk as the child nears college age.
Qualified education expenses eligible for 529 withdrawal typically include:
Tuition and fees at eligible educational institutions (colleges, universities, vocational schools, etc.).Room and board for students enrolled at least half-time (up to the amount determined by the school for its cost of attendance).Books, supplies, and equipment required for enrollment or attendance.Computers, software, and internet access used for educational purposes.K-12 tuition and fees (up to $10,000 per beneficiary per year).Apprenticeship program expenses (fees, books, supplies, equipment).Student loan payments (up to $10,000 lifetime limit per beneficiary).A 529 can be transferred among family members if necessary. The downside is withdrawals for non-qualified purposes are taxed as ordinary income plus a 10% penalty on earnings (subject to certain exceptions). Within limits, unused funds can now be placed into a Roth IRA for the beneficiary.
Is college necessary, a good investment, does it guarantee success of any kind? Should a basic college education take 4-6 years? We need to rethink the structure of education post high school, and I think some publicly funded education beyond twelve years should be considered, but I’m not ready to give up on college.
It sure is expensive though.
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Bad Trip
Chris tripped and fell a few Sundays back. Her radius and ulna bones broke and the elbow was beyond repair. We were on a little day trip, to visit the Cleveland Aquarium.
Come the next day, the anticipated 2-3 hour surgery stretched to 7 hours. Afterwards, the surgeon, allegedly among the finest in the country for this particular procedure, reported good results. However, coming out of the long anesthesia, Chris had difficulty communicating, so was quickly rushed down the hall for an MRI. The nurses had explained the test was necessary to be certain there had not been a stroke. All Chris heard was the word stroke. When I was finally allowed into recovery, I found Chris, her face all scrunched up, struggling to hold back tears, as she waited for the results of the test. Seeing Chrissy like that made my eyes well up too. Luckily, my marginally inappropriate bedside sense of humor kicked in, and I soon had us both, as well as a couple nurses, laughing through the tears. The MRI was fine, still, our day trip would be extended a couple more days for observation.
So far things are going as they should for Chris, though her recovery will be lengthy.
It was only supposed to be a day trip. We were stuck, 100 miles from home, with no change of clothes, no meds or C-Pap contraption. Thanks to MyChart, meds were no problem for Chris. I went without my meds until I made a round trip home on Tuesday; the only one I really missed was the Rx for my restless legs. For future day trips, perhaps I will put together a go-bag with a few emergency essentials that can’t be easily purchased from a nearby department store.
Accidents happen in a heartbeat. We did okay because we were close to home, but real vacations require a little more planning. Things like proper travel insurance to pay for emergency transport home from a foreign country, or proper auto insurance if you are renting a BMW in the UK.
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I Cry More Easily Now. I Didn’t Use To
I didn’t use to understand that kind of emotion. When I was about 11, I was watching television with Uncle Lou. I don’t remember how old he was, but he was retired, and to a young kid, he seemed ancient. At one point, he started to cry. I didn’t understand why — the film didn’t seem that sad to me. But now, at 74, I do. I, too, get emotional at times without knowing exactly why.
A few years ago, I went to a gathering for Jeremy, a high school friend who had passed away. The mood was upbeat — people were eating, drinking, and chatting like it was a neighborhood get-together. I had fun seeing some of my old childhood friends.
Jeremy’s daughter spoke first, offering a few touching words about her father. Then Ron stood up, notes in hand, and started cracking jokes about Jeremy’s drinking habits — like how he could fall asleep holding a drink and never spill a drop. He kept going until his wife nudged him to wrap it up.
I had planned to say something about a different side of Jeremy — the responsible guy who always held a job from high school graduation until retirement. I thought that deserved recognition. But suddenly, I felt overwhelmed with emotion. I couldn’t explain why. This wasn’t a somber funeral — it felt more like a casual celebration.
I just sat there, silent. I knew I wouldn’t be able to hold it together. It didn’t feel like the right time or place to get emotional and risk dampening the mood. Everyone was there to celebrate, not mourn.
Looking back, I wonder why I was so emotional. These days, my oldest friends and I are gentler with each other, more appreciative of our connection. As you get older, the value of those relationships becomes more apparent.
If I reacted so strongly to Jeremy’s death, I can’t imagine how I’d handle losing my wife. My mother struggled with my father’s death. When my father passed and I started spending more time with her, she sometimes called me Sam, my father’s name. I took her to see a couple of therapists. One sold her his book, and mostly talked about himself. She even tried attending church again. But none of it relieved the pain she was feeling.
I think it was because she never gave herself time to grieve. She cleaned out his closet and packed away his things quickly, hid the photos, thinking that erasing reminders would ease the pain.
I’d do the opposite.
Rachel likes to keep her laptop on the dining room table, right by the sliding glass door, where the light pours in and the morning breeze flows through. It only gets moved when we have company. If, God forbid, something ever happened to her, I wouldn’t move it.
I found out early in our relationship how much Rachel values greeting cards. When I give her one for a special occasion, she always keeps it by her laptop for weeks, until it eventually finds its way upstairs to a shelf in our hallway, displayed alongside all the other cards I’ve given her. I would keep those cards right where they are.
Those things — her pictures, her favorite places, her saved notes — would hurt to see and remind me of her every day. But I think they’d help me heal. I’d want to give myself the time and space to feel the loss and the sadness, not run from it.
I’ve learned from my mother that ignoring grief doesn’t make it go away. Facing it — little by little, everyday — might be the only real way through.
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July 30, 2025
The Dividend Reinvestment Puzzle
The names of equity-income funds imply that they are aimed at investors who desire to withdraw their higher dividends as cash flow for spending. On the other hand, equity funds are aimed at investors who seek to reinvest their lower dividends for capital appreciation. However, more than 74% of equity-income investors reinvest their dividends—a reinvestment rate similar to that of investors in equity funds. Why do investors who reinvest their dividends choose equity-income funds? This is what is called “the dividend reinvestment puzzle.”
Behavioral Finance
In their seminal 1984 paper, “Explaining Investor Preference for Cash Dividends,” Hersh Shefrin and Meir Statman offered a solution to the dividend puzzle—framing, mental accounting, and self-control. “Investors frame dividends into an income mental account, along with wages, whereas they frame capital into a capital mental account, along with retirement savings. Investors who withdraw money from their portfolios for spending, such as in retirement, use the self-control rule of ‘spend income but don’t dip into capital’ to prevent excessive spending. Investors who perceive selling shares to create homemade dividends as dips into capital prefer company-paid dividends over homemade dividends. Indeed, evidence indicates that investors place dividends in the income mental account ready for spending, whereas they are reluctant to dip into the capital mental account by selling shares.”
The full article is at The Dividend Reinvestment Puzzle: What It Means For Investors (fa-mag.com)
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Regular HD writers, readers and commentators are just not normal- in a good way
Over the several years I have been writing and commenting on HD it has been made clear that the HD community includes many sophisticated investors and planners. People who use budgets, track expenses, do their best to investigate and then make financial decisions based on information they develop. They use various type of software programs and, of course, their own spreadsheets. They analyze risk and investment expenses. They like details. They think about the future. And, it appears, they have been doing all this for many years.
See, the HD community is just not normal. They are financially literate while several reports indicate Americans score less than 50% on basic financial literacy tests- really basic. The lack of financial knowledge is estimated to cost Americans billions of dollars annually through poor decisions, overwhelming debt, and insufficient savings.
We talk about financial education a great deal, but we have a long way to go. While many HD readers and writers are comfortable with details in various ways, many people - me included- are not that thrilled with all the math, assumptions, etc. It seems to me we need to present financial matters in the simplest form possible. For example:
Save, never pay credit card interest, spend.
Compounding interest is your best friend.
Invest in index funds and never stop.
Only use debt for necessities such as a home or car, but at a level you can afford that does not interrupt saving and investing.
Start early and be patient.
What ideas do you have?
What DON’T many, perhaps most, Americans know?
1. How Compound Interest Works
Many people don’t fully grasp how interest accumulates on savings or debt.
🔹 2. Credit Scores
Few understand how scores impact loan interest rates, renting, or even job prospects.
🔹 3. Budgeting and Spending
Overspending on housing, cars, or subscriptions is common.
Financial literacy surveys show only about 40% of U.S. adults use a monthly budget. No comment from me on this one except a budget doesn’t really stop overspending, common sense does 😎
🔹 4. Debt Management
Misunderstanding how minimum payments work.
Lack of awareness about student loan terms, interest rates, and repayment options.
🔹 5. Investing Basics
Many avoid investing out of fear or lack of knowledge.
Misunderstandings about:
Stocks vs. bonds
Risk and diversification
Long-term gains and inflation
Over 60% of Americans don’t invest outside of retirement accounts.
🔹 6. Retirement Planning
Don’t know how much they’ll need to retire.
Think Social Security will fully cover expenses.
Don’t understand 401(k)s, IRAs, or employer matches.
🔹 7. Taxes
Confusion about tax brackets (many think all income is taxed at the highest bracket).
Misunderstanding deductions vs. credits.
Underutilization of tax-advantaged accounts (e.g., HSA, 529 plans).
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