Jonathan Clements's Blog, page 330

Enforcing the Rule

THE MOST POPULAR retirement income strategy is built around the so-called 4% rule. Three-quarters of financial advisors say they use some variation on this approach. But is it safe?

The 4% rule specifies that you withdraw 4% of your nest egg’s value in the first year of retirement. Thereafter, you increase the dollar amount withdrawn each year at the inflation rate. Based on historical U.S. stock and bond returns, that strategy should carry you safely through a 30-year retirement.

But there’s concern the strategy won’t work in today’s world, especially with bond yields so low. A 2013 paper by Wade Pfau and two other researchers even suggested the strategy might suffer a 57% failure rate over a 30-year retirement. In other words, there’s a good chance that retirees will run out of money.

What to do? In another study, Pfau proposed a different way to think about retirement income. He looked at a hypothetical 65-year-old couple whose lifestyle required a 4% inflation-adjusted withdrawal rate. He plotted how 1,001 different product combinations might perform if the couple were trying to meet two objectives: generating spending money and preserving financial assets.

Pfau found that the best way to meet those two goals was with a mix of stocks and single premium immediate annuities, or SPIAs. SPIAs shouldn’t be confused with other types of annuity, like equity-indexed annuities and variable annuities, which are far more costly and typically a bad deal for investors.

Meanwhile, Pfau found that relying on a traditional portfolio of stocks and bonds produced some of the worst outcomes. For instance, at 50% stocks and 50% SPIA, there was a 94% chance to meet lifetime spending needs, while leaving the couple with about 60% of their assets at death. But with 50% stocks and 50% bonds, there was an 88% chance of meeting spending needs, but with only 38% of assets left upon death.

In other words, immediate annuities can help retirees meet their retirement spending goals, while still preserving more of their assets. Many retirees will find that latter notion counterintuitive, because buying an immediate fixed annuity means turning over a big chunk of their assets to an insurance company.

Why are immediate annuities so helpful to a retirement income strategy? Longevity risk—the risk of running out of money before you run out of time—is retirement’s greatest financial risk. If you live well into your 80s and beyond, there’s a grave danger you could suffer financially because of persistent inflation, a stretch of lousy investment returns or high health care expenses, including the cost of long-term care.

Immediate fixed annuities can help protect against these financial perils. Along with Social Security and any pension you’re entitled to, they ensure you’ll have monthly income, no matter how long you live.

Annuities also have the virtue of simplicity. That’s an important advantage. As retirees grow older, they often struggle to make good financial decisions. On top of that, income annuities and other predictable income streams can improve retiree happiness, and may even provide the incentive to keep going and live a longer life. As Jane Austen wrote in Sense and Sensibility two centuries ago, “If you observe, people always live forever when there is an annuity to be paid to them.”

Despite all these benefits, immediate fixed annuities remain one of the financial world’s least popular products. Even insurance agents don’t make much effort to sell them, because the commissions they earn on immediate fixed annuities are small. But if your goal is a more comfortable, less anxious retirement, you might want to ignore the naysayers—and stash a slice of your nest egg in immediate fixed annuities.

In 2017, Jiab Wasserman left her job as a financial analyst at a large bank and is now semi-retired. Her previous articles include When You’re No. 2, Grab the Wheel and In Withdrawal .  Jiab and her husband Jim, who also writes for HumbleDollar, currently live in Granada, Spain. They blog about downshifting, personal finance and other aspects of retirement—as well as about their experience relocating to another country—at  YourThirdLife.com .

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Should You Sell?

WHEN STOCKS slump, experts are often quick to advise investors to sit tight or, better still, buy more. But that won’t be the right advice for everybody.

Christine Benz, Morningstar’s director of personal finance and one of my favorite financial writers, recently penned an article listing five questions to ask yourself if you’re pondering whether to reduce your stock exposure during a bear market. I figured I’d work through the five questions—and see what I could learn about my own finances.

1. How soon until you’ll begin spending? This a key question as you decide whether you need to “de-risk,” even after your portfolio has tumbled. The closer you are to drawing down from your nest egg, the less time you have to let the stock market recover.

My wife and I are both age 62. She still works fulltime and expects to continue doing so for a few years. I’m semi-retired, with a pension and some consulting income. We would like to delay starting Social Security until we’re at our full Social Security retirement age of 66 and possibly later.

We haven’t needed to touch our retirement savings yet, and don’t expect to until my wife stops working fulltime. At that juncture, we’ll have to supplement my pension with withdrawals until we turn on Social Security. The upshot: We probably have at least two years until we need to start tapping our retirement accounts.

2. How flexible is your retirement date and spending plan? The closer you are to retirement, the less flexibility you have and the lower your portfolio’s risk level ought to be. While we’ll probably both stop working in a few years, we have some options. My wife is an experienced nurse—and very employable. The current situation has been hard on her and her colleagues, and it may change her mind on how long she wants to work. I could look for additional consulting opportunities or even fulltime engineering work if necessary.

Our spending is relatively modest, with one notable exception. We have a vacation home on the New Jersey shore, and it has a new mortgage. We agree that we probably don’t want to own two houses forever. We’ve also agreed to evaluate things over the next five years and choose a less costly living situation. If we had to, we could sell one of our homes or rent out the vacation home.

3. How extreme is your asset allocation? As of Jan. 1, our portfolio was 60% stocks, 30% bonds and 10% cash. We’re globally diversified through low-cost index funds.

After leaving fulltime employment in 2017, I rolled over my 401(k) into my IRA. I used that opportunity to build a cash bucket for our retirement. I’ve kicked myself many times over the past three years for not putting the money into stocks, but I’ve resisted the temptation. Result? We have two to three years of cash available before we’d have to start selling stocks or bonds. We think our current asset allocation is generally in line with our risk tolerance.

4. How viable is your plan currently? I view this question in terms of margin of safety. Does your plan show you have enough income sources and savings to live a comfortable retirement? If you have more than enough for the rest of your life, you might reduce risk by locking in your portfolio’s current value with lower risk, lower reward assets.

Six weeks ago, I would have felt much better answering this fourth question. Still, I just completed a quarterly update of our family balance sheet. Our retirement accounts are down 13.5% since the beginning of the year. That doesn’t sound too bad in light of the market’s performance.

I’ve been using MaxiFi financial planning software. I analyzed our retirement plan using our updated account balances. I’m still comfortable with the margin of safety. On balance, our plan is still viable.

5. Can you mentally tolerate further drawdowns? This is a harder question to answer. I intentionally reduced the risk in our portfolio a few years ago to help with this. During the December 2018 correction, I stayed calm and stuck with our plan. But we’ve never suffered anything like the current situation. In my mind, the uncertainty is far greater than anything I’ve ever experienced.

Still, having a solid plan—one with a safety margin—helps a lot. It might sound trite, but it also helps to maintain some perspective and realize our family’s financial situation is far better than that of many others. We could have a happy retirement even if our income was much lower. The bottom line: I’m okay with our portfolio’s stock allocation—though less comfortable than a few months ago—and will likely stick with it. I may even move some money into stocks.

Richard Connor is  a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include This Too Shall Pass, Think Like a Retiree and Not Too Late . Follow Rick on Twitter  @RConnor609 .

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Under Pressure

ON APRIL 14, 1988, Captain Paul Rinn was the commanding officer of the USS Samuel B. Roberts when it struck a mine in the Persian Gulf. The resulting explosion tore a 21-foot hole in the side of the frigate. Almost immediately, the ship began taking on water and multiple fires broke out.

Naval protocol for this situation was clear: Put out the fires first, then worry about patching the hull. But after just a few minutes of firefighting, Rinn realized he would need to ignore protocol or the ship would sink before the fires were out. He immediately directed the crew to begin patching the hull with any available materials, including clothing and bed sheets. Thanks to Rinn’s judgment, the ship was saved and no lives were lost.

Some 20 years later, while flying out of New York’s LaGuardia Airport, Captain Chesley Sullenberger faced a similar situation when his plane lost power in both engines. While a later analysis indicated that Sullenberger could have made it back to the airport, he understood the danger of attempting a landing in such a densely populated area, so he opted for a seemingly risky water landing on the Hudson River. As you probably recall, the plane landed safely and, again, no lives were lost.

The dangers of making decisions under stress are well understood, which is why Rinn and Sullenberger are both lauded as heroes. In both cases, there was no ready playbook. Instead, they combined equal doses of skill, judgment and intuition to make the miraculous possible.

What can ordinary people learn from them? I hesitate to compare financial decision-making to the life-and-death choices faced by these two men. But it’s worth exploring ways we can also combine logic and intuition to manage the financial stress that many of us feel today.

While there’s no magic bullet, I recommend starting with an awareness of what stress does to us. You’ll then be in a better position to use stress to your advantage, rather than letting it control you. Below are three aspects of stress that have a bearing on financial decision-making:

1. Information. A key characteristic of any stressful situation: Information is incomplete, inaccurate or simply unavailable. That’s absolutely the case today. The health impact of the coronavirus is still an open question. Beyond that, we don’t know what the result will be for financial markets.

Unfortunately, that doesn’t stop people from offering their own theories, opinions, anecdotes and predictions. Today, even some people with seeming expertise are employing alarmist language. On Friday, for example, the Managing Director of the International Monetary Fund called this “humanity’s darkest hour.”

How can you turn this to your advantage? Think in terms of half steps. If you’re considering actions such as reducing your portfolio’s risk level, taking more risk, rebalancing, making gifts for estate planning purposes or completing a Roth conversion, don’t jump in with both feet. Instead, take a partial step. That will give you the peace of mind that comes with knowing you’ve taken some action, while still leaving your options open for later, when you’ll have more and better information.

In addition, I’d be careful not to let others tell you how to think or feel. If you’re hearing people use phrases like “Armageddon” or “humanity’s darkest hour,” take a step back, sharpen your pencil and simply evaluate how the current situation is impacting you. Everyone is in a different position, so you shouldn’t let other people’s views or emotions influence your decisions.

2. Time. If you’ve ever taken a standardized test, you know that limited time also induces stress. Since financial markets move quickly, and no one knows whether the next move will be up or down, you may feel the urgency to take action.

How can you turn this to your advantage? My advice: Slow down. Make a plan. You don’t know what will happen, but it’s fairly easy to imagine the full range of scenarios. Even if it’s just for your own benefit, write down what you’ll do in each scenario. That way, if the stock market rises 20%, or it falls 20%, or your pay is cut, or any other scenario develops, you’ll have a plan. This, in my view, is the best way to combat time urgency.

3. Focus. Psychologists have found that the human mind tends to narrow its focus when stress levels increase. This makes sense. When the fight-or-flight instinct kicks in, our minds focus only on the danger at hand. In many ways, this is a good thing. In academic experiments, researchers have found that stress-induced focus sometimes helps people make better decisions. We focus on what really matters and worry less about the details.

But there’s a downside. Research has also found that, at times of stress, people fail to consider the full range of potential solutions. It’s quicker and easier to take some action—any action—than it is to sit down and research alternatives. But this isn’t optimal.

How can you turn this to your advantage? Again, sharpen your pencil. Use focus to your advantage by translating the financial stress you feel into specific questions. Then, as you search for answers, do everything you can to widen your field of view. Read widely. Consult with friends, family members, colleagues—whoever you trust. Try to gather a range of ideas and opinions. While every financial crisis is different, the toolbox of solutions doesn’t change a whole lot. Make sure you consider all options before taking action.

This is especially important in today’s situation. Isolation is working against us. Irrational fears build on themselves if we don’t have an opportunity to talk them through. So now, more than ever, be sure to stay in touch with others.

Adam M. Grossman’s previous articles include Unpleasant Surprise, Keeping Busy and Harder Than It Looks . Adam is the founder of  Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter  @AdamMGrossman .

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Facts of Life

THE PLOT, THE SCRIPT and the characters may have changed. But we’ve seen this movie before.

The current stock market swoon strikes many folks as unprecedented: It’s the frantic financial sideshow to a devastating global tragedy—one that’s seen 1.1 million people fall ill and 60,000 die, with every expectation that the numbers will be many multiples worse before the COVID-19 pandemic is over.

Yet, on closer inspection, 2020’s bear market doesn’t seem so different from earlier market declines. Once again, we’re being reminded of some crucial facts of financial life. Here are seven of them:

1. Our risk tolerance isn’t stable.

Rising share prices turn us into fearless stock jockeys, while tumbling prices reduce us to cash-loving cowards. What about “buy low, sell high”? At times like this, investors toss such basic commandments out the window.

Indeed, I’ve been fielding panicked emails from readers for the past month. I tell folks to think about what sort of portfolio they would feel comfortable holding today and then, once the stock market recovers, they should build that portfolio. But guess what? It’s advice I’m 100% confident will be ignored. Many of these folks will sell stocks now, only to renew their embrace of risk when the market is hitting new highs.

2. Losses wreak havoc with compounding.

If you had invested $100 on Feb. 19, when the S&P 500 notched its all-time high, you’d have been down 34% to $66.08 by March 23. That’s when the S&P 500 hit its recent low. What will it take to recoup that 34% loss? To go from $66.08 to $100, you need a 51% gain. As of yesterday’s market close, we’ve clawed back 11%. I’m confident we’ll eventually recoup the rest.

Still, this highlights the brutal impact of losses on investment compounding. Don’t want it to be so brutal? You can avoid far steeper losses by diversifying broadly and keeping at least some money in bonds and cash investments. You can also speed your portfolio’s recovery by rebalancing during the market decline and by adding fresh savings to your stock portfolio.

3. In Treasurys, we should trust.

During 2008’s financial crisis, Treasury bonds posted gains, while almost everything else lost ground. It was yet another lesson many folks failed to learn. Indeed, in the hunt for something that’ll post gains when stocks are suffering, many investors stubbornly ignore Treasurys, while embracing all manner of costly, complicated and unreliable alternatives.

Among them: hedge funds, “liquid alt” mutual funds, real estate funds and bitcoin. I’ve largely soured on alternative investments, with the exception of gold stock funds. And even gold stocks require a remarkably strong stomach for volatility. Still, they have once again proven their mettle (pun intended) at a time of market mayhem.

4. Bonds are less risky than stocks—except when we go to trade.

Many investors are scratching their head over the recent bond market weakness, which saw steep short-term losses among municipal and corporate bonds. What went wrong? A key problem: The bond market is far more fragmented than the stock market.

For instance, Vanguard’s Total Stock Market Index Fund tracks the CRSP U.S. Total Market Index, which contains 3,500 stocks. By contrast, Vanguard’s Total Bond Market Index Fund tracks the Bloomberg Barclays U.S. Aggregate Float-Adjusted Index, which includes more than 11,000 bond issues.

And that’s just the tip of the iceberg: There are an estimated 30,000 U.S. corporate bond issues outstanding and a million different municipal bonds. With so many issues on offer, it’s hardly surprising that—when investors and market makers get spooked and become reluctant to buy or sell—the bond market doesn’t function so well.

5. If we wait for stocks to get cheap before buying, we’ll likely wait an awfully long time.

After 2020’s brutal first quarter, you might imagine that U.S. stocks would appear cheap based on yardsticks like dividend yield, price-to-earnings (P/E) multiples and cyclically adjusted P/E multiples. And shares are indeed cheaper, but they’re hardly bargain priced by historical standards.

Of course, we may get there yet, but I wouldn’t count on it. Even if share prices fall further, we’re likely to see disappointing corporate earnings and cuts in dividends, which may conspire to make stocks look more expensive, not less. On top of that, stock market valuations have been trending higher over the past four decades. That trend, I suspect, won’t ever reverse.

6. To earn handsome long-run returns, we must run the risk of severe short-term losses—and those losses occur with brutal regularity.

Over the past 50 years, we’ve had the 1973-74 stock market crash that accompanied the OPEC oil embargo, 1977’s market decline, the early 1980s stock market swoon born of skyrocketing inflation and a double dip U.S. recession, 1987’s harrowing market crash, the 1990 slide triggered by Iraq’s invasion of Kuwait, 1997’s Asian Contagion, the 2000-02 slump unleashed by the dot-com bust and the 9/11 terrorist attacks, the 2007-09 crash driven by the Great Recession, 2018’s losing year and 2020’s coronavirus crash.

The bottom line: Big market declines happen at least once a decade, and yet we’re shocked—shocked!—every time. To grasp the stock market’s turbulence, check out the annual returns for the S&P 500. The frequent losses may strike some as unnerving, but I’m comforted by looking at the year-by-year results. I remember so many of these declines, including the anguished declarations of doom, and yet every one of them proved fleeting.

7. If an investment offers high expected returns, there must be high risk—even if we can’t figure out what that risk is.

When the S&P 500 was at its all-time high just over six weeks ago, I suspect the vast majority of investors knew that owning stocks was risky, even if they didn’t fully appreciate the magnitude of that risk. After all, even when stocks are rising, it’s hard not to notice the day-to-day turmoil.

Instead, I suspect today’s most surprised investors were those who loaded up on rental real estate. In particular, I think about the folks who took out large mortgages to buy apartments and houses, and then aimed to cover their borrowing costs with short-term rental income from customers of Airbnb, Vrbo and similar services.

It might have looked like easy money (or somewhat easy, given the work involved in cleaning up after short-term tenants) and less risky than being the landlord of a single tenant, who might fail to pay the rent and prove difficult to evict. But as we’ve discovered, there was a serious risk—the risk that the entire world would hunker down at home and stop traveling.

Latest Articles

HERE ARE THE EIGHT other articles published by HumbleDollar this week:

Why did so many bonds fail this year to deliver the portfolio protection that stock investors expected—and what lessons can we learn? Adam Grossman digs into the story.
“It takes a globally diversified portfolio to survive a bear market,” writes Dennis Friedman. “Since we don’t know which stocks and bonds will hold up best, it’s prudent to own all of them.”
Thank first responders, donate what you can, tip generously, buy gift cards, smile at strangers and call Grandma. Mike Zaccardi lists eight ways you can help.
“My money focus has changed from me to our children,” writes Richard Quinn, as his “mystery” cruise heads toward Port Everglades. “Making sure they don’t suffer irreversible financial damage is my top priority.”
U.S. women earn 82% of what men do for equivalent work and, as a result, suffer a 33% wealth gap. How can they make up this shortfall? Financial literacy is crucial, argues Jiab Wasserman.
“This too shall pass” is a phrase that offers solace when times are bad, financially and otherwise. But it’s also a warning we should heed when times are good, says Richard Connor.
Last month on HumbleDollar, it was all coronavirus all the time. But which articles were most popular? Check out the top seven.
Stuck at home? Ray Giese’s advice: Use the time to reassess your career. He offers four tips.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Money and Me, 27 Things to Do Now and Fear Not.

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Stepping Up

COVID-19 HAS HIT all of us. Small business owners, especially those with families to support, face great financial risk. Ditto for contract workers and others with little job security. Even those with relatively steady nine-to-five white collar jobs have good reason to be nervous.

Meanwhile, those nearing retirement might need to put their plans on hold. Millennials like me, though we lived through 2008, have more financial responsibility this time around—and sense the gravity of COVID-19 and its consequences.

In short, we’re all in this together and we should all support one another as best we can. Here are eight ways you can help:

1. Donate to charity. Give food and other nonperishable items to those in need. Donate cash to help purchase medical supplies. The fiscal stimulus plan allows a $300 above-the-line deduction for charitable contributions. That means you can make a tax-deductible donation even if you take the standard deduction, rather than itemizing. In addition, there’s a growing need for blood, particularly from the younger generation, according to the Surgeon General.

2. Support first responders. Think about all the people putting themselves at risk each day to serve us: doctors, nurses, emergency medical technicians, caregivers, police officers, firefighters, delivery drivers and grocery store workers. If you know someone on the frontlines, ask him or her what you can do to help. Alternatively, you might send flowers or a gift with a note.

3. Purchase gift cards. In lieu of dining out—which is banned across much of the nation—you might buy gift cards for your favorite restaurants. Restaurant owners are in dire need of cash flow. To be sure, restaurants may go out of business as a result of this tragedy, so keep that risk in mind.

4. Tip generously. If you’re one of the millions of American families choosing takeout, leave a hefty tip. Some restaurant staff have had their hours drastically cut back and may eventually find themselves out of work.

5. Donate time. Ask local charities what you can do to assist. Check the internet to see where help might be needed in your area.

6. Call loved ones. Better still, use FaceTime, Skype or some other service where you see each other. Do you have an elderly relative in a facility that isn’t allowing visitors? Get in touch—and try to talk about things other than COVID-19. It could do wonders for happiness on both sides of the screen.

7. Attend virtual gatherings. Thanks to technology, we don’t have to attend church physically to join a service. Many congregations are meeting virtually and thereby reaping the benefits of fellowship. This, too, could boost your spirits.

8. Be nice. Offer to pick up groceries for your neighbors. Smile at strangers. Share useful information. In the age of Twitter and Facebook, a lot of criticism and misinformation get thrown around. Try to be positive on social media and provide information that’s useful and uplifting. When you’re out and about, perhaps buying groceries or picking up dinner, look employees in the eye and say a heartfelt “thank you.”

Mike Zaccardi is a portfolio manager at an energy trading firm and a finance instructor at the University of North Florida. He also works as a consultant to financial advisors on an hourly basis, helping with portfolio analysis and financial planning. Mike is a Chartered Financial Analyst and Chartered Market Technician, and has passed the coursework for the Certified Financial Planner program. His previous articles include Where’s My Refund, Scratching That Itch and Good as Gold. Follow Mike on Twitter @MikeZaccardi, connect with him via LinkedIn and email him at MikeCZaccardi@gmail.com.

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Shore Thing

AFTER A SHORT but rough tender ride, we’re now off the Zaandam and on the Rotterdam, where we are once again quarantined in our cabin, thankfully still with a balcony. We are through the Panama Canal and now near Cuba. Our three-and-a-half week “mystery” cruise is—we hope—drawing to a close.

On March 30, Colombia refused to allow a plane to land on one of its islands near us. The plane carried medical supplies for the Zaandam. Both the Zaandam and the Rotterdam were forced to continue without the supplies. There was no risk to any Colombian, but fear and politics are a powerful combination. Mexico also refused to allow the Zaandam to move a few sick passengers to a local hospital to receive treatment.

As I sit here contemplating the future, I’ve come to realize I am a senior citizen, although I still don’t feel whatever that feels like. Because of our age, my wife and I received priority transfer to the new ship. Our four children have now hatched a plot to take away our passports. Ain’t gonna happen. I still want to see Scandinavia, Iceland, maybe the Far East and more. I’ve had my fill of South America, though.

My money focus has changed from me to our children. One is a real estate agent who has seen his business dry up. Another is a project manager at a larger real estate holding company who has had his pay cut and his 401(k) match suspended. Making sure they don’t suffer irreversible financial damage is my top priority today.

We’re heading toward Port Everglades, where we face an unknown future. Will they let us dock? Will we be quarantined and, if so, where? Holland America is attempting to make flight arrangements, but the details are murky.

This reminds me of my basic training days. It wasn’t what actually happened that was stressful, but the anticipation of the unknown. Once you figured that out, it became easier to deal with. One night we crawled under live machine gun fire with tracers flying overhead. There was a strong incentive to crawl as we were taught. They told us the machine guns were pointed above the highest point on the range. That knowledge wasn’t comforting, unless you observed that the highest point was a pole sticking 10 feet in the air. The perception was worse than the reality.

Another time, we were on an obstacle course. The idea was to get through as fast as possible, while staying inbounds. It was a difficult task, unless you realized the right-side boundary was two feet away from the obstacles, thus providing a clear path if you paid close attention to the rules. Few recruits found the easy path.

Getting through this health and economic crisis also requires clear thinking, avoiding unnecessary obstacles, and playing by the rules but not being paralyzed by them. The total number of virus-affected Americans is scary and will get scarier still. But if you consider it currently represents about 0.07% of the population, you may have a different perspective. Similarly, even after its precipitous drop, the S&P 500 is still above where it was in 2017.

My investments have recovered slightly, my municipal bond funds still generate monthly income and, for now, my individual stocks still pay dividends. But all that is secondary. Since I have no plans to travel again any time soon, my travel savings account can be diverted to help my family, if it proves necessary. Heck, I’m even getting a big refund from the cruise line.

I’ll admit I’m weary from this trip. But I also know we’re among the lucky ones and what awaits us at home may be worse. Still, I’m hoping my next article will be written from my easy chair in New Jersey.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Barely Afloat, Seasick and At Sea. Follow Dick on Twitter @QuinnsComments.

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March’s Hits

THERE WAS ONLY one thing that readers were interested in last month—and pretty much only one thing that we wrote about: the coronavirus and its impact on our finances. But which of HumbleDollar’s articles were most popular with readers? Here are the top seven:

When the financial markets give you lemons, make lemonade: James McGlynn spots four opportunities amid the decline in share prices and bond yields.
What’s driving stocks lower? It’s all about the disruption to supply and demand in the real economy, says Peter Mallouk—and for that we need a health care fix, not financial incentives.
Rebalancing is one of the toughest things to do in all of personal finance, notes Adam Grossman. For many investors, the time to act has arrived.
Quarantine your emotions every time the Dow drops 1,000 points, plus nine other steps that’ll help you preserve your sanity and your portfolio during this market swoon.
“Why do experienced investors bail out of stocks at times like this?” asks Bill Ehart. “Blame it on the narratives they come to believe. The further the market drops, the scarier the stories get.”
Looking to ease into the stock market? Check out the approach used by John Lim.
You’re stuck at home. Now what? Adam Grossman offers a slew of suggestions, financial and otherwise.

Meanwhile, the most popular newsletters were 27 Things to Do Now and Money and Me.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Fear Not, Bad News and Don’t Lose It.

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Work That Asset

WHEN ASKED, most people say their most valuable financial asset is their home. But what gave them the financial wherewithal to buy that house, as well as to purchase a car, buy food and pay for vacations? It was their career. Everything that has a financial component in our life starts with our earnings potential.

Take a young adult making $60,000 a year. Assuming a 2% annual raise, he or she would haul in nearly $3 million over a 35-year career. Our objective should be to continually improve the trajectory of our earnings, so we enjoy greater total career income.

Problem is, life often has other plans for us. The coronavirus—with its devastating impact on many folks’ income—is just the latest example. Every day that we don’t maximize our full earnings potential is a day of earnings lost forever.

But there’s a silver lining: Today’s stay-at-home orders, social distancing and self-quarantines provide us with time to reassess our career. We should ponder who we are, who we want to become and what impact we’d like to have on the world. Intrigued? Here are four tips:

Align your purpose, passions and paycheck . Too often, I’ve heard young adults say the career they wanted during college isn’t the career they thought it would be. They tell me their chosen profession doesn’t match their passions or offer them a sense of purpose. Some earn handsome paychecks. But because their jobs don’t align with their purpose and passions, the money seems unimportant.

Indeed, if you feel stress getting out of bed in the morning, it’s likely that your values and your career aren’t aligned. It’s time to consider a career reboot. To that end, spend time exploring your purpose in life, the passions that drive you to succeed and what career might appropriately compensate you.

Discover your natural abilities . Newsflash: Your employer doesn’t care about your purpose and passions. Instead, your employer will pay you for how well you use your natural abilities to help the organization achieve its goals.

Still, if you better understand your natural abilities, and you’re able to articulate how you can apply them to your current job, your employer is more likely to give you the assignments you want—and you’ll have a work life about which you’re passionate and which gives you a sense of purpose.

Keep learning . Your expensive college degree, alas, has a limited shelf life. You must continually reinvest in yourself, so you learn new skills and ways of thinking. There’s an old saying, “If you aren’t growing, you’re dying.” The same holds true for your career and hence your earnings potential.
Turn that income into wealth . At some point, we all want to call it a day and do something else with the time we have remaining. We wish to pursue another purpose or apply our natural abilities in another way. It’s called financial freedom.

With that goal in mind, adopt good financial habits. Take full advantage of your workplace benefits, including the employer match in your 401(k), medical benefits, paid time off and so on. Invest regularly in a diversified portfolio and keep at it for the long term. Create written financial and life goals to guide your spending decisions. Build up an emergency fund. Look to protect yourself and your family from unforeseen events with insurance and estate planning.

After 30 years in corporate sales, Ray Giese, CFP, CCSP, MS, launched an encore career with his coaching practice, Career & Financial Pathways LLC . His goal is to help people align their purpose, passions and paycheck so they achieve financial freedom, while realizing greater personal and career satisfaction. Ray’s previous article was Inject Discipline.

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This Too Shall Pass

ONE OF MY FATHER’S favorite sayings was, “This too shall pass.” Recent events have made me dwell on its meaning—and wonder where the phrase came from.

It seems to have originated as a Persian adage. It was employed in a speech by Abraham Lincoln before he became the 16th president: “It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: ‘And this, too, shall pass away.’ How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction!”

I always considered the saying to be a tonic to help us get through difficult times. It never occurred to me that I should ponder those words when times were good. But Lincoln correctly identified the two key messages captured by this short phrase. In 2020, we’ve experienced both our “hour of pride”—new all-time highs in the stock market—and the “depths of affliction,” including the coronavirus, a collapsing economy and a stock market crash.

Hour of pride. We’ve seen astonishing U.S. stock market returns over the past decade. History’s longest-running bull market made us all feel like investing geniuses. Despite reasonable concerns about high valuations and a constant—if hardly deafening—barrage of naysaying from the permanent bears, many of us continued to ride the bull to dizzying heights.

True, we may have done some annual rebalancing. Perhaps we were chastened by the late 2018 correction. But when a recovery rapidly followed in 2019, we wished we had bought more at the bottom. Each new market high made us feel superior to the annoying bears, who just knew the next crash was right around the corner.

Count me among those caught in this emotional maelstrom. A few years ago, when I retired from fulltime work, I used a 401(k) rollover as an opportunity to reduce my stock exposure. On many occasions during the next few years, I wished I’d put all or some of that money into stocks. I bought a little, but I kept most of the rollover in conservative investments. As recently as the end of last year, when I created our family balance sheet, I rued not putting it all into stocks.

Depths of affliction. Over the past six weeks, we’ve experienced cascading fears about the pandemic, accompanied by wild swings in the stock market. We’re rightly scared for our health, our families, our communities, our livelihoods and our financial future. There’s very little we can do to combat this threat, save the mundane tasks of washing hands, sanitizing and self-quarantining. The full impact on our daily lives and the economy are still to be determined.

What to do? I think we need to heed the wisdom of Lincoln. Knowing that our society has survived the depths of affliction—wars, terrorism, recessions and other pandemics—should give us some solace. There are many people who have dedicated their lives to helping us get through times like this. With pride, I count my wife among them. She’s been a nurse for 40 years and has spent her life in the care of others. Be grateful for those, like her, who are working so hard to keep us safe and to sustain the life we know.

As horrifying as things seem today, I believe we will come through this. It may take longer and hurt more than we expect, but we will survive. The stock market will come back and we will see new highs. We will have our hour of pride once again.

When that happens, let us recall Lincoln’s words and remember that good times will also pass—and be sure to keep that perspective, so we not only build investment portfolios that will weather all seasons, but also truly appreciate the many wonderful moments in our lives.

Richard Connor is  a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Think Like a Retiree,  Not Too Late  and Cheat Sheets . Follow Rick on Twitter  @RConnor609 .

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When You’re No. 2

WE ALL KNOW financial literacy is important. But it’s especially important if you’re a woman.

According to the Gates Foundation, “No matter where you are born, your life will be harder if you are born a girl.” Today is Equal Pay Day—the day when U.S. women finally earn enough to “catch up” with men’s earnings from the previous year. Women in the U.S. earn 82% of what men do for equivalent work and, as a result, suffer a 33% wealth gap. Women also have less access to borrowed money than their male counterparts.

All this leaves women with less control over their daily life. Think about a female applicant who is rejected for a new job because of her weak credit report. Or a woman who’s stuck in a relationship because her husband controls the family’s money.

More than 50 years ago, Avis ran an advertising campaign that said, “When you’re not the biggest in rent a cars, you have to try harder. We do. We’re only No. 2.” I’m not advocating that women accept today’s unfairness. But gender inequality isn’t going away any time soon. In the meantime, women will have to work harder and know more to propel themselves ahead—and financial literacy is one way to compete better on an unequal playing field.

Marcus Aurelius, the famous stoic Roman emperor, wrote in his Meditations that “if you submit to the frustration with a good grace, and are sensible enough to accept what offers itself instead, you can substitute some alternative course.” Here are five workarounds that I’ve found have provided “alternative courses” for me:

Be a smart consumer and self-advocate. Because of the pink tax, women get hit twice—first with less pay and again when they pay more for products. What to do? Think unconventionally. For instance, there’s no difference between men’s and women’s tennis shoes, so I often buy men’s—because they’re cheaper. Don’t be intimidated. Ask questions and negotiate for a better deal, especially on a big-ticket item like a mortgage. Advocate for yourself in your career by asking for a raise or promotion, or by negotiating for better benefits.
Understand the importance of credit scores. Sellers want to give the best deal to their best customers. An excellent credit score will put a woman in an elite group of customers, giving her more power to obtain the best rate on a mortgage or a credit card, and lower premiums on homeowner’s and car insurance. That higher credit score can also get you quicker approval from utilities and cellphone companies. More employers are using credit histories when conducting background checks for both new and existing employees. This can impact the hiring and advancement for women.
Understand the power of compounding. Combined with time, compounding can turn regular savings into a large nest egg. It’s crucial to save as much as you can and as early in your adult life as you can. But compounding can also work against you: Cumulative interest on loans can turn a molehill of debt into a mountain. Avoid credit card debt. Keep other borrowing to a minimum.
Similar to compounding, small positive steps can produce extraordinary long-term results. Take good care of yourself physically and mentally. Eat healthily, stay physically active and get enough sleep. These small positive habits will help reduce medical costs, both now and in the future. More important, they’ll help you to feel good, reduce stress and have the confidence to face life’s challenges.
If you aren’t used to making financial decisions, start small, but start somewhere. Overwhelmed by the idea of buying another car? Try purchasing new tires for the car you already have. Don’t have a checking or savings account in your own name? Find a bank that has no required account minimum, so you can start saving sooner rather than later. Do research ahead of time, so you go into these transactions with confidence—and come out with what you want.

In 2017, Jiab Wasserman left her job as a financial analyst at a large bank and is now semi-retired. Her previous articles include Grab the Wheel,  In Withdrawal  and Time Well Spent .  Jiab and her husband Jim, who also writes for HumbleDollar, currently live in Granada, Spain. They blog about downshifting, personal finance and other aspects of retirement—as well as about their experience relocating to another country—at  YourThirdLife.com .

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