Jonathan Clements's Blog, page 34
July 24, 2025
The Bond Fund Crash: What I Learned When “Safe” Investments Tanked
An article yesterday by David Lancaster detailing his bond fund investments going pear-shaped during the 2022/23 bond market crash got me thinking about what I have actually learned from this costly experience that took many of us by surprise.
Like David, I perceived bond funds as a "safe" or "stable" investment, assuming they behaved like individual bonds held to maturity. The recent downturn, however, exposed my lack of understanding. When rates rose rapidly, the market value of the bonds within the funds dropped. Since bond funds are perpetual and do not "mature" to par, investors saw the value of their fund shares decline.
My key takeaway was my lack of personal education. This, in my opinion, underscores the importance of understanding the precise mechanisms of any investment product, not just its broad asset class, to really grasp its risks and potential behavior in different market conditions. I failed with this and paid the price. Unfortunately, it was a costly lesson learned, but if nothing else, I have now had a practical demonstration of why I need to understand what I invest my money in.
My second takeaway: buying individual bonds in a bond ladder and holding to maturity is an effective strategy to navigate this risk. Holding an individual bond to maturity ensures you receive your original principal back. Daily price fluctuations become irrelevant if you do not intend to sell. Unlike my previous bond funds, which continuously rebalanced and reflected current market values, holding individual bonds isolates me from market volatility for that specific bond. I concede this will work better for short to medium term time frames and this is how I will be using them.
While buying individual bonds has definitely required more effort on my part, they offer me predictability and principal return at a defined date. That is a stark contrast to the bond funds in my portfolio during the recent downturn. My "buy and hold" approach to individual bonds has given me a path through interest rate turbulence, although inflation risk is still an issue. As a side note, there's a fantastic online tool for building UK government bond ladders. I don't think I would have managed without it.
Quite possibly over the coming years other nasty investment surprises will rear their ugly heads. My hope is I am now in a better position to insulate myself from these "unknown unknowns" by only investing in things that I clearly understand. I think this philosophy can be extended to other asset classes whether it's equities, real estate, commodities, or alternative investments. I definitely intend to double down on my education and hope for the best.
The post The Bond Fund Crash: What I Learned When “Safe” Investments Tanked appeared first on HumbleDollar.
July 23, 2025
The Boy Who Couldn’t Risk
I prepared this article as "homework" for a personal finance elective at a college-preparatory high school I might be contributing to in the Fall. Perhaps it would be helpful to parents whose kids are smitten with the Magnificent 7 or crypto.
After a stock market decline, people may perceive more risk than before, when the decline may have taken some of the risk out of the market.
---Robert Shiller
The investor’s chief problem—and even his worst enemy---is himself.
---Benjamin Graham
Patty wants to go to the prom with Danny. But with barely two weeks left before the affair, Peter asks her out. Does Patty accept Peter’s invitation or does she wait for her first choice to come through? Play it safe or go for it.
Steve is struggling with a different kind of dilemma. He knows Samantha would accept a date in a heartbeat, but the prom is the last chance for him to have a date with Maria, the exotic transfer student from Brazil. Does Steve choose his good friend or roll the dice with a secret flame?
You Can’t Escape Risk
How much risk can you take without becoming a little anxious? Are you a high or low risk-taker? Could you skip much of chapter 5 because the War of 1812 is so-o-o boring? Samantha doesn’t bother to go over her lecture notes for the final because on the midterm old man Hendrickson only tested on the readings. What about Steve? He reviews everything so as not to be blindsided.
Taking risk doesn’t end with becoming a high school senior. Do you apply to more than one safety school or enroll in calculus to compensate for your low math SAT score. Then, it’ll be making a traditional family or not, and charting a safe or more challenging career. Each stage of life comes with its own bundle of risks and associated anxieties. Nobody gets a free pass.
Investment Risk Tolerance
Success in the stock market partly hinges on knowing your risk tolerance and how it influences your investing behavior. Let’s say your portfolio has lost 20% in the past two months, a rare but not impossible occurrence. Do you buy more stocks at a good price, stand pat or exit in a panic?
What happened to the market? It wasn’t just the market—you were holding too many high-flying technology stocks like Palo Alto Networks and media stocks like Netflix. If you had sprinkled in a goodly number of established companies’ more stable stocks like Coke or Kraft Heinz, you might have lost 10% instead of 20%.
But if after several months high-octane stocks fully recovered from the selloff, you would only recoup only that 10% rather than 20%. Could you handle a treacherous ride to perhaps score really big bucks or are you more comfortable with a smoother, less harrowing experience? Samantha, the test-taking acrobat, might be enveloped in self-criticism if she missed most of the rebound.
What about Steve, the guy who couldn’t make up his mind over the steadfast Samantha or beauteous Maria? He was lucky, a factor which frequently masquerades as investment savvy. His indecision led to doing nothing, which ironically kept him in for the rally. Are you a quick-thinking Samantha or a reluctant Steve? Know thyself and get comfy with your risk tolerance before you take your first plunge.
Let’s look at the four major types of risk. These entail the market itself, interest rates, inflation and unpredictable events.
Market Risk
We’ve just gotten a glimpse of market risk. Although bull markets that ramp up stock prices are more common than bear markets that drive them down, timing the peaks and valleys of the cycle has eluded even the most renowned of market seers. If you take a plunge when stocks are approaching the top, you will be vulnerable in the near-term. That’s why most market observers recommend you stay in the market for at least three years, so you will have time to regain any losses.
Interest Rate Risk
Stock prices are very sensitive to changes in interest rates. The mortgage rate determines the cost of the loan homebuyers must pay back to the bank along with the principal amount. Today that rate is 7%, about the historical average. Lower rates translate into more home buying since more people could afford a mortgage loan, spurring sales of household products like appliances and furniture. Lower interest cost also stimulates business activity as more firms are able to pay for inventory and expansion. Higher interest rates contract business and real estate transactions, dampening the outlook for the economy and stocks.
Inflation Risk
But every so often when times are good and people have more money in their pocket, competition for goods and services drives up prices to unaffordable levels. The government may raise interest rates to tamp down the overheated economy, eventually lowering prices to where people can cover their living expenses and companies can initiate projects. In the meantime, the slowdown in activity usually hurts stock prices.
Event Risk
Additional investment risks originate from outside the financial markets and cannot be prevented by the unsuspecting investor. Both of the two major risks of this kind are considered event-related. A common such occurrence is a sudden development that threatens to decrease the company’s sales and lower profits. This sometimes happens when the operations of a fast-food restaurant like McDonald’s or Chipotle are interrupted by a health scare. More calamitous were the two crashes involving Boeing’s vaunted 737 MAX 8 airliner in 2018 and 2019. Although the stocks of companies impacted by tainted food usually recover once the problem is resolved, Boeing’s reputation and production have never returned to their pre-crash levels. Today, the stock sits at less than half of what it was then.
The second kind of external shock to stock prices is sometimes referred to as a “black swan.” A poignant example was the Covid pandemic. It kept people at home, devastated businesses and ushered in the bear market of 2022, when stocks lost 18%.
Risk Tolerance vs. Risk Capacity
Risk tolerance is very different from risk capacity. The first is a relatively stable personality trait, whereas your capacity to withstand risk changes over time as your life situations and financial needs change. If you’re planning to buy a home and anticipating a high monthly mortgage payment, your ability to absorb a market reversal will be reduced. To be sure, the most dangerous pairing of risk tolerance and capacity is the high risk-taker unprepared for a big financial hit.
So, What’s Your Own Risk Tolerance?
Now for some fun in the interest of enhancing your self-awareness as an investor. Before you is the most widely used risk tolerance inventory in the world of finance. With only 13 questions, it yields a reasonably accurate picture of the test-taker’s ability to overcome the adversities inherent in stock investing:
https://www.kitces.com/wp-content/upl...
Circle the best answer for you and then total up your score. There’s no reason to “cheat” or fret. Neither high nor low risk taking is inherently good or bad—whether higher or lower is more appropriate depends on the situation and context.
A Confession
Remember that Steve who couldn’t decide whether to take the stalwart Samantha or the evocative Maria to the prom? The guy who lucked out by freezing after a market meltdown, so he never sold at the bottom and rode the market right back up? That Steve was me. I took Samantha, the more deserving and the safer, as is my wont.
After a stock market decline, people may perceive more risk than before, when the decline may have taken some of the risk out of the market.
---Robert Shiller
The investor’s chief problem—and even his worst enemy---is himself.
---Benjamin Graham
Patty wants to go to the prom with Danny. But with barely two weeks left before the affair, Peter asks her out. Does Patty accept Peter’s invitation or does she wait for her first choice to come through? Play it safe or go for it.
Steve is struggling with a different kind of dilemma. He knows Samantha would accept a date in a heartbeat, but the prom is the last chance for him to have a date with Maria, the exotic transfer student from Brazil. Does Steve choose his good friend or roll the dice with a secret flame?
You Can’t Escape Risk
How much risk can you take without becoming a little anxious? Are you a high or low risk-taker? Could you skip much of chapter 5 because the War of 1812 is so-o-o boring? Samantha doesn’t bother to go over her lecture notes for the final because on the midterm old man Hendrickson only tested on the readings. What about Steve? He reviews everything so as not to be blindsided.
Taking risk doesn’t end with becoming a high school senior. Do you apply to more than one safety school or enroll in calculus to compensate for your low math SAT score. Then, it’ll be making a traditional family or not, and charting a safe or more challenging career. Each stage of life comes with its own bundle of risks and associated anxieties. Nobody gets a free pass.
Investment Risk Tolerance
Success in the stock market partly hinges on knowing your risk tolerance and how it influences your investing behavior. Let’s say your portfolio has lost 20% in the past two months, a rare but not impossible occurrence. Do you buy more stocks at a good price, stand pat or exit in a panic?
What happened to the market? It wasn’t just the market—you were holding too many high-flying technology stocks like Palo Alto Networks and media stocks like Netflix. If you had sprinkled in a goodly number of established companies’ more stable stocks like Coke or Kraft Heinz, you might have lost 10% instead of 20%.
But if after several months high-octane stocks fully recovered from the selloff, you would only recoup only that 10% rather than 20%. Could you handle a treacherous ride to perhaps score really big bucks or are you more comfortable with a smoother, less harrowing experience? Samantha, the test-taking acrobat, might be enveloped in self-criticism if she missed most of the rebound.
What about Steve, the guy who couldn’t make up his mind over the steadfast Samantha or beauteous Maria? He was lucky, a factor which frequently masquerades as investment savvy. His indecision led to doing nothing, which ironically kept him in for the rally. Are you a quick-thinking Samantha or a reluctant Steve? Know thyself and get comfy with your risk tolerance before you take your first plunge.
Let’s look at the four major types of risk. These entail the market itself, interest rates, inflation and unpredictable events.
Market Risk
We’ve just gotten a glimpse of market risk. Although bull markets that ramp up stock prices are more common than bear markets that drive them down, timing the peaks and valleys of the cycle has eluded even the most renowned of market seers. If you take a plunge when stocks are approaching the top, you will be vulnerable in the near-term. That’s why most market observers recommend you stay in the market for at least three years, so you will have time to regain any losses.
Interest Rate Risk
Stock prices are very sensitive to changes in interest rates. The mortgage rate determines the cost of the loan homebuyers must pay back to the bank along with the principal amount. Today that rate is 7%, about the historical average. Lower rates translate into more home buying since more people could afford a mortgage loan, spurring sales of household products like appliances and furniture. Lower interest cost also stimulates business activity as more firms are able to pay for inventory and expansion. Higher interest rates contract business and real estate transactions, dampening the outlook for the economy and stocks.
Inflation Risk
But every so often when times are good and people have more money in their pocket, competition for goods and services drives up prices to unaffordable levels. The government may raise interest rates to tamp down the overheated economy, eventually lowering prices to where people can cover their living expenses and companies can initiate projects. In the meantime, the slowdown in activity usually hurts stock prices.
Event Risk
Additional investment risks originate from outside the financial markets and cannot be prevented by the unsuspecting investor. Both of the two major risks of this kind are considered event-related. A common such occurrence is a sudden development that threatens to decrease the company’s sales and lower profits. This sometimes happens when the operations of a fast-food restaurant like McDonald’s or Chipotle are interrupted by a health scare. More calamitous were the two crashes involving Boeing’s vaunted 737 MAX 8 airliner in 2018 and 2019. Although the stocks of companies impacted by tainted food usually recover once the problem is resolved, Boeing’s reputation and production have never returned to their pre-crash levels. Today, the stock sits at less than half of what it was then.
The second kind of external shock to stock prices is sometimes referred to as a “black swan.” A poignant example was the Covid pandemic. It kept people at home, devastated businesses and ushered in the bear market of 2022, when stocks lost 18%.
Risk Tolerance vs. Risk Capacity
Risk tolerance is very different from risk capacity. The first is a relatively stable personality trait, whereas your capacity to withstand risk changes over time as your life situations and financial needs change. If you’re planning to buy a home and anticipating a high monthly mortgage payment, your ability to absorb a market reversal will be reduced. To be sure, the most dangerous pairing of risk tolerance and capacity is the high risk-taker unprepared for a big financial hit.
So, What’s Your Own Risk Tolerance?
Now for some fun in the interest of enhancing your self-awareness as an investor. Before you is the most widely used risk tolerance inventory in the world of finance. With only 13 questions, it yields a reasonably accurate picture of the test-taker’s ability to overcome the adversities inherent in stock investing:
https://www.kitces.com/wp-content/upl...
Circle the best answer for you and then total up your score. There’s no reason to “cheat” or fret. Neither high nor low risk taking is inherently good or bad—whether higher or lower is more appropriate depends on the situation and context.
A Confession
Remember that Steve who couldn’t decide whether to take the stalwart Samantha or the evocative Maria to the prom? The guy who lucked out by freezing after a market meltdown, so he never sold at the bottom and rode the market right back up? That Steve was me. I took Samantha, the more deserving and the safer, as is my wont.
The post The Boy Who Couldn’t Risk appeared first on HumbleDollar.
Don’t Discount Luck
Ben Carlson's column today is titled "The Ovarian Lottery". Where and when you were born has a whole lot to do with how your life turns out. You could be capable of becoming a great artist, but if you were born female for most of human history you wouldn't be able to reach your potential. Born a serf in medieval Europe? You were going to stay a serf. Sure, hard work helps, but if your particular talent isn't in demand, it only helps so much. Just ask the North Carolina furniture and textile workers laid off after NAFTA.
He also has a quote from Nick Maggiulli: "If you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year. Sometimes, when you start investing can be more important than anything else". When you start drawing down also matters, of course.
I got lucky: I was born to a middle class family in England right after WWII. That meant adequate food, excellent (free) education and good (free) medical care, plus getting into the tech business when it was just taking off. Being born in, say, North Korea at the same time would have been a very different story.
He also has a quote from Nick Maggiulli: "If you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year. Sometimes, when you start investing can be more important than anything else". When you start drawing down also matters, of course.
I got lucky: I was born to a middle class family in England right after WWII. That meant adequate food, excellent (free) education and good (free) medical care, plus getting into the tech business when it was just taking off. Being born in, say, North Korea at the same time would have been a very different story.
The post Don’t Discount Luck appeared first on HumbleDollar.
Help! Why is the total lifetime accumulated Social Security benefit more important than the monthly amount?
It’s been mentioned on HD many times. Rick Connor mentioned it today. I even asked Gemini what was most important, monthly income or total lifetime benefits. Apparently Pipers calculator uses accumulated lifetime benefit as a decision guide.
My monthly pension is most important. I care less what the accumulated amount may be - unless I can become a significant actuarial loss in good health, but it’s financially irrelevant. The fact my pension and SS are both lifetime benefits is important, but that is not the question
The Gemini answer was lifetime benefits are most important for the following reasons which to me have nothing to do with the question. Doesn't this answer support the idea that monthly income amount is most important?
Why Total Lifetime Benefits are More Important:
Longevity Risk: The biggest fear in retirement is running out of money. Social Security provides a guaranteed, inflation-adjusted income stream for the rest of your life. If you live a long life (which is increasingly common), a higher monthly benefit that lasts for more years will result in a significantly larger total amount collected.
Inflation Protection: Social Security benefits receive Cost-of-Living Adjustments (COLAs). A higher starting monthly benefit means your COLAs will be applied to a larger base, leading to even more significant increases in dollar terms over time, further boosting your total lifetime income.
Spousal and Survivor Benefits: Your claiming decision can impact the benefits of your spouse and/or survivors. If you are the higher earner, delaying your own benefit can mean a substantially larger survivor benefit for your spouse if you pass away first. This contributes to the household's total lifetime benefits.
Irreversibility (Mostly): While there are some limited circumstances where you can change your claiming decision (like withdrawing an application within 12 months), generally, once you start collecting, that decision largely locks in your benefit amount for life. You can't easily go back and "undo" claiming early to get a higher future monthly payment.
My monthly pension is most important. I care less what the accumulated amount may be - unless I can become a significant actuarial loss in good health, but it’s financially irrelevant. The fact my pension and SS are both lifetime benefits is important, but that is not the question
The Gemini answer was lifetime benefits are most important for the following reasons which to me have nothing to do with the question. Doesn't this answer support the idea that monthly income amount is most important?
Why Total Lifetime Benefits are More Important:
Longevity Risk: The biggest fear in retirement is running out of money. Social Security provides a guaranteed, inflation-adjusted income stream for the rest of your life. If you live a long life (which is increasingly common), a higher monthly benefit that lasts for more years will result in a significantly larger total amount collected.
Inflation Protection: Social Security benefits receive Cost-of-Living Adjustments (COLAs). A higher starting monthly benefit means your COLAs will be applied to a larger base, leading to even more significant increases in dollar terms over time, further boosting your total lifetime income.
Spousal and Survivor Benefits: Your claiming decision can impact the benefits of your spouse and/or survivors. If you are the higher earner, delaying your own benefit can mean a substantially larger survivor benefit for your spouse if you pass away first. This contributes to the household's total lifetime benefits.
Irreversibility (Mostly): While there are some limited circumstances where you can change your claiming decision (like withdrawing an application within 12 months), generally, once you start collecting, that decision largely locks in your benefit amount for life. You can't easily go back and "undo" claiming early to get a higher future monthly payment.
The post Help! Why is the total lifetime accumulated Social Security benefit more important than the monthly amount? appeared first on HumbleDollar.
In Short-Term Limbo
As I shared a few weeks ago, I’m in the process of moving the money from my workplace retirement accounts at Fidelity to my rollover IRA at Schwab.
This, like other aspects of my retirement transition, has had its bumps in the road. Fidelity will only mail a check to your home, no electronic or direct transfers, so I called them a couple of days before we left San Diego last week to begin the process. The phone call went smoothly, and we had already completed the process of transferring my 403B account, when the agent said, “Oh. You can’t roll over your 457 or DCP accounts until you’ve been separated (he actually said “terminated,” which I balked at) for 31 days.” So now I have to call again next week to do the other half of the transfer.
So I paid $25 to have my check from the 403B expedited and got a UPS notification that it would be delivered on Monday (7/21). I (wrongly) thought someone would have to sign for it, so I made sure someone was home all day, though it didn’t arrive until 8:40 p.m.—and then was just tossed on our doorstep with a doorbell ring. The envelope made it clear that it was financial papers. I hate the idea that such a large check could have been sitting in front of our condo if we hadn’t been there (or worse, in front of our building—some UPS drivers don’t bother looking up the code to get in).
On advice of the Schwab rollover specialist, I hand-delivered the check to the local Schwab branch yesterday rather than putting it back into the mail. The guy there told me it should get deposited into my IRA by this afternoon and then I’d have to decide how to invest it. We talked for a couple of minutes about the upcoming August 1 tariff “deadline” and whether it might be prudent to hedge my bets for a couple of weeks by just putting the funds into a money market account for now. He said that’s what he would do if he were in my shoes. His argument is that the market has already corrected upwards, assuming Trump will again not go through with the tariffs, and it’s not likely to make another big jump if Aug 1 comes and goes without much drama. It could go down if Trump actually follows through this time, though. My husband, who keeps up with this stuff way more than I do, agrees with this analysis.
Any thoughts?
This, like other aspects of my retirement transition, has had its bumps in the road. Fidelity will only mail a check to your home, no electronic or direct transfers, so I called them a couple of days before we left San Diego last week to begin the process. The phone call went smoothly, and we had already completed the process of transferring my 403B account, when the agent said, “Oh. You can’t roll over your 457 or DCP accounts until you’ve been separated (he actually said “terminated,” which I balked at) for 31 days.” So now I have to call again next week to do the other half of the transfer.
So I paid $25 to have my check from the 403B expedited and got a UPS notification that it would be delivered on Monday (7/21). I (wrongly) thought someone would have to sign for it, so I made sure someone was home all day, though it didn’t arrive until 8:40 p.m.—and then was just tossed on our doorstep with a doorbell ring. The envelope made it clear that it was financial papers. I hate the idea that such a large check could have been sitting in front of our condo if we hadn’t been there (or worse, in front of our building—some UPS drivers don’t bother looking up the code to get in).
On advice of the Schwab rollover specialist, I hand-delivered the check to the local Schwab branch yesterday rather than putting it back into the mail. The guy there told me it should get deposited into my IRA by this afternoon and then I’d have to decide how to invest it. We talked for a couple of minutes about the upcoming August 1 tariff “deadline” and whether it might be prudent to hedge my bets for a couple of weeks by just putting the funds into a money market account for now. He said that’s what he would do if he were in my shoes. His argument is that the market has already corrected upwards, assuming Trump will again not go through with the tariffs, and it’s not likely to make another big jump if Aug 1 comes and goes without much drama. It could go down if Trump actually follows through this time, though. My husband, who keeps up with this stuff way more than I do, agrees with this analysis.
Any thoughts?
The post In Short-Term Limbo appeared first on HumbleDollar.
How Was I to Know?
In January 2020, I invested 150K I had inherited from my parents from the sale of their house. I knew it would be years before I would tap this money, so I invested in Vanguard’s intermediate bond fund in my brokerage account. I had learned that bonds were a safer investment than stocks and I could earn a somewhat higher return than in CDs that were paying next to nothing in interest. By September of ‘21 I was looking like a genius as I had earned 10K. But then came the bond crash and by April of ‘24 I had lost 6K. Now, after 5 1/2 years of investing these funds, I have gained a whopping 4K, a 0.5% gain.
I just read in a Morningstar that, in the past 150 years, there have been only 3 bond bear markets, and of course we know the last one was THE worst in history of the bond markets.
I was trying to be a responsible investor with the cash portion of my inheritance, but how was I to know we would face the worst bond market in history?
Oh well, c’est la vie!
At least overall I haven’t lost any of the money.
P.S. This year I “cut my losses” and took a 21K capital loss and reinvested the money in a short term bond fund as we are hoping to spend some on a new porch. However if the tariffs on Canadian lumber go through that dream may become a financial nightmare.
I just read in a Morningstar that, in the past 150 years, there have been only 3 bond bear markets, and of course we know the last one was THE worst in history of the bond markets.
I was trying to be a responsible investor with the cash portion of my inheritance, but how was I to know we would face the worst bond market in history?
Oh well, c’est la vie!
At least overall I haven’t lost any of the money.
P.S. This year I “cut my losses” and took a 21K capital loss and reinvested the money in a short term bond fund as we are hoping to spend some on a new porch. However if the tariffs on Canadian lumber go through that dream may become a financial nightmare.
The post How Was I to Know? appeared first on HumbleDollar.
Our Homes, Our Wealth: A Tale of Two Property Paths
I'm booking flights at the moment. Suzie and I are heading to the South of England to visit my brother-in-law and family in a couple of weeks' time. They've just recently hit a major life milestone by purchasing their first home together, and we're looking forward to getting a tour by the proud owners. I'm very happy for them; I'm also very happy for myself because I'm getting free accommodation by staying with them.
My brother-in-law is in his mid-forties with a wife ten years younger and has expressed nervousness at taking on such a large debt at his age, although he accepts it's in the long-term best interest for his family.
This got me thinking about property prices and the random nature of where we happen to rest our hat and set down roots to raise our families, and how it interacts with portfolio size and retirement outcomes.
In my brother-in-law's case, the property is on the south coast of England, which is a very high-cost property area to purchase. Contrast this with my neck of the woods, where property prices are generally considerably lower, and you have an interesting financial interplay between property wealth and portfolio size and retirement planning.
My situation, living in an area with lower property prices, translated into a smaller mortgage and lower housing costs. This, in turn, freed up extra cash to invest into my portfolio and participate in market growth. It also offered the extra benefit of lowering my wealth concentration in more illiquid asset classes like property, ultimately enhancing my financial flexibility and retirement planning.
For my brother-in-law in a high-cost area, acquiring a home involved a larger mortgage and higher debt, meaning a significant portion of his income is committed to housing for many years. This financial commitment will reduce available cash for other investments, potentially slowing the growth of their portfolio. Consequently, a large percentage of their total wealth may become concentrated in a single, illiquid asset—their home—offering less portfolio diversification compared to a more varied financial investment strategy
Often, career opportunities, family ties, or personal preferences dictate where we live, and these decisions have profound financial consequences. It's like many areas of life, a bit messy and a trade-off between lifestyle, community, and financial strategy. This shows that our decisions are more often than not driven by personal human factors over the cold face of finance, and I personally believe that's just how it should be. Particularly when it gets me free accommodation!
My brother-in-law is in his mid-forties with a wife ten years younger and has expressed nervousness at taking on such a large debt at his age, although he accepts it's in the long-term best interest for his family.
This got me thinking about property prices and the random nature of where we happen to rest our hat and set down roots to raise our families, and how it interacts with portfolio size and retirement outcomes.
In my brother-in-law's case, the property is on the south coast of England, which is a very high-cost property area to purchase. Contrast this with my neck of the woods, where property prices are generally considerably lower, and you have an interesting financial interplay between property wealth and portfolio size and retirement planning.
My situation, living in an area with lower property prices, translated into a smaller mortgage and lower housing costs. This, in turn, freed up extra cash to invest into my portfolio and participate in market growth. It also offered the extra benefit of lowering my wealth concentration in more illiquid asset classes like property, ultimately enhancing my financial flexibility and retirement planning.
For my brother-in-law in a high-cost area, acquiring a home involved a larger mortgage and higher debt, meaning a significant portion of his income is committed to housing for many years. This financial commitment will reduce available cash for other investments, potentially slowing the growth of their portfolio. Consequently, a large percentage of their total wealth may become concentrated in a single, illiquid asset—their home—offering less portfolio diversification compared to a more varied financial investment strategy
Often, career opportunities, family ties, or personal preferences dictate where we live, and these decisions have profound financial consequences. It's like many areas of life, a bit messy and a trade-off between lifestyle, community, and financial strategy. This shows that our decisions are more often than not driven by personal human factors over the cold face of finance, and I personally believe that's just how it should be. Particularly when it gets me free accommodation!
The post Our Homes, Our Wealth: A Tale of Two Property Paths appeared first on HumbleDollar.
July 22, 2025
Family Dynamics, Part 2: Supporting Adult Children
As I mentioned in my last post, I've been thinking about various ways that complex family dynamics can affect one's own finances, especially when we're in or headed toward the retirement years. Today's topic is about having adult children on the "family payroll," long after one might have assumed they'd be completely independent.
A 2024 study published by the Pew Research Center reported that about one-third of young adults (ages 18-34) still live with their parents and that about 55% of American parents provide varying degrees of financial assistance or support to their young adult children. There are a lot of factors that contribute to this finding, such as the high cost of housing and education as well as setbacks caused by the 2008-09 recession (for Millennials in particular) and the pandemic (for Gen Z).
For the sake of narrowing this discussion, let's exclude the following fact patterns:
The young adult is in college and the parents are paying all or some of their expenses.
The young adult is physically or mentally disabled and for that reason will never be financially independent.
The family has cultural or religious beliefs that lead young adult children to continue living with their parents, until or sometimes even after they're married.
Instead, let's focus on young adults who are not still in college, who are seemingly capable of earning a living, and whose family/cultural norms do not dictate their continuing to live at home.
Obviously, those of us who are parents want our adult children to be independent, self-sufficient, thriving, and happy. We want that for their best interests and we want it for our own financial well-being. Few of us signed up to support our children for a lifetime, and most of us can't afford to do so. But what happens when those adult children can't or won't become independent?
It's easy enough to talk about boundaries or "tough love," but some situations are not as obvious as they might seem to outsiders. In observing my own family and those of my friends, there can be a long continuum between someone who truly has special needs and must be cared for and someone who is "adulting" with competence and excellence. Many young adults struggle with mental and emotional health issues that can sap their energy for getting an education, earning a living, and being completely self-supporting. Especially if they perceive that their parents have the means to help them, it can be hard for them to accept that they can or should take complete responsibility for themselves, especially in a world with high costs and a challenging employment landscape.
Two of my acquaintances, both younger than I am, have young adult (20s) sons who were not able (in one case) or willing (in the other) to complete college. Both moms have allowed their sons to continue living at home but require them to work to pay their own personal expenses. One of them actually charges her son a modest rent--but (unbeknownst to the son) is putting that rent money into a high-interest savings account to give him a boost once he finally does move out. That is one way to handle things.
If the young adult living at home with their parents isn't a good option for the family, parents might choose to help with specific expenses--keeping the child's cell phone on the family plan, or paying their health insurance premium, to give a couple of examples--but only on the condition that the child is making a good faith effort to work and earn money. And if the parents are financially involved in the adult child's life, they should, in my opinion, be able to demand that the young adult "open the books" or share their budget, for accountability. But I'm here to tell you that these conversations can be very, very fraught.
As I've shared in my writing here before, one of my adult daughters went through a very rough period starting in 2022 that included her being seriously injured twice in car accidents just 14 months apart. This set her financial independence back a great deal as she recovered physically and emotionally from the accidents. Thankfully, she didn't sustain any permanent or life-altering injuries, but it took her awhile to get back on her feet (literally, in the case of the second accident--she had a badly broken ankle and was not allowed to be weight-bearing for five months and was in a boot for seven--but also mentally). Now she has a new job and things are stabilizing financially for her.
We provided a lot of financial support during this period. Both of us were working and had disposable income, and we could afford to do so, though our long-term savings goals took a hit. Over the past year or so, as she's been (mostly) physically recovered but slow to return to work, we've struggled with when and how hard we should push her, especially given my imminent retirement date. On the one hand, yes, of course we should expect her to be mostly independent by now, but on the other--she has been through a tough patch. So, at least for us, it hasn't always been obvious how to proceed through this.
I suspect that such issues tend to be very case-specific: It depends on the adult child and their circumstances, on the parents' ability and willingness to help out, and on the larger family dynamics--for example, would it work for the family for the adult child to live at home, and if so, for how long, how do other siblings (if applicable) feel about the situation, and so forth. I've found that it's easy for people outside the immediate family to judge without knowing all of the ins and outs. And this issue touches on a lot of tender spots, for both parents and adult children, about the larger relationship.
It all affects one's own financial well-being. But it's not always easy to navigate.
A 2024 study published by the Pew Research Center reported that about one-third of young adults (ages 18-34) still live with their parents and that about 55% of American parents provide varying degrees of financial assistance or support to their young adult children. There are a lot of factors that contribute to this finding, such as the high cost of housing and education as well as setbacks caused by the 2008-09 recession (for Millennials in particular) and the pandemic (for Gen Z).
For the sake of narrowing this discussion, let's exclude the following fact patterns:
The young adult is in college and the parents are paying all or some of their expenses.
The young adult is physically or mentally disabled and for that reason will never be financially independent.
The family has cultural or religious beliefs that lead young adult children to continue living with their parents, until or sometimes even after they're married.
Instead, let's focus on young adults who are not still in college, who are seemingly capable of earning a living, and whose family/cultural norms do not dictate their continuing to live at home.
Obviously, those of us who are parents want our adult children to be independent, self-sufficient, thriving, and happy. We want that for their best interests and we want it for our own financial well-being. Few of us signed up to support our children for a lifetime, and most of us can't afford to do so. But what happens when those adult children can't or won't become independent?
It's easy enough to talk about boundaries or "tough love," but some situations are not as obvious as they might seem to outsiders. In observing my own family and those of my friends, there can be a long continuum between someone who truly has special needs and must be cared for and someone who is "adulting" with competence and excellence. Many young adults struggle with mental and emotional health issues that can sap their energy for getting an education, earning a living, and being completely self-supporting. Especially if they perceive that their parents have the means to help them, it can be hard for them to accept that they can or should take complete responsibility for themselves, especially in a world with high costs and a challenging employment landscape.
Two of my acquaintances, both younger than I am, have young adult (20s) sons who were not able (in one case) or willing (in the other) to complete college. Both moms have allowed their sons to continue living at home but require them to work to pay their own personal expenses. One of them actually charges her son a modest rent--but (unbeknownst to the son) is putting that rent money into a high-interest savings account to give him a boost once he finally does move out. That is one way to handle things.
If the young adult living at home with their parents isn't a good option for the family, parents might choose to help with specific expenses--keeping the child's cell phone on the family plan, or paying their health insurance premium, to give a couple of examples--but only on the condition that the child is making a good faith effort to work and earn money. And if the parents are financially involved in the adult child's life, they should, in my opinion, be able to demand that the young adult "open the books" or share their budget, for accountability. But I'm here to tell you that these conversations can be very, very fraught.
As I've shared in my writing here before, one of my adult daughters went through a very rough period starting in 2022 that included her being seriously injured twice in car accidents just 14 months apart. This set her financial independence back a great deal as she recovered physically and emotionally from the accidents. Thankfully, she didn't sustain any permanent or life-altering injuries, but it took her awhile to get back on her feet (literally, in the case of the second accident--she had a badly broken ankle and was not allowed to be weight-bearing for five months and was in a boot for seven--but also mentally). Now she has a new job and things are stabilizing financially for her.
We provided a lot of financial support during this period. Both of us were working and had disposable income, and we could afford to do so, though our long-term savings goals took a hit. Over the past year or so, as she's been (mostly) physically recovered but slow to return to work, we've struggled with when and how hard we should push her, especially given my imminent retirement date. On the one hand, yes, of course we should expect her to be mostly independent by now, but on the other--she has been through a tough patch. So, at least for us, it hasn't always been obvious how to proceed through this.
I suspect that such issues tend to be very case-specific: It depends on the adult child and their circumstances, on the parents' ability and willingness to help out, and on the larger family dynamics--for example, would it work for the family for the adult child to live at home, and if so, for how long, how do other siblings (if applicable) feel about the situation, and so forth. I've found that it's easy for people outside the immediate family to judge without knowing all of the ins and outs. And this issue touches on a lot of tender spots, for both parents and adult children, about the larger relationship.
It all affects one's own financial well-being. But it's not always easy to navigate.
The post Family Dynamics, Part 2: Supporting Adult Children appeared first on HumbleDollar.
VG Portfolio Suggestions for Taxable Account
Trying to guide some "30 somethings" on appropriate holdings for a taxable account. I'm a little out of my element as almost all my personal investment experience has been in some type of qualified account where taxes don't matter. Christine Benz recently did a piece that suggested 3 exhange-traded funds - Vanguard Total US Stock (VTI), the Total International (VXUS) and a Tax Free Municipal Bond (VTEB) in varying asset allocations depending on risk. I'm just wondering if this is "too simple" and adding a small cap ETF, a small cap value ETF or something I haven't even considered adds some diversification away from the mega cap VTI. Looking for simple and tax efficient but don't want to sacrifice performance if adding a bit more complexity is worth the effort. Or if someone wants to talk me into mutual funds, I'm open to suggestions though it seems the tax advantages of ETFs are fairly compelling.
The post VG Portfolio Suggestions for Taxable Account appeared first on HumbleDollar.
A Very Politically Incorrect Ramble With a Potentially Real Point: Is Your Retirement Calculator Sexist?
I'm seriously sticking my neck out with this speculative, non politically correct observation and expect to get it chopped off by someone. And deservedly so!
Last week, my wife, Suzie, spent a considerable sum of money on hair care, nail salons, and other female-focused purchases. Certainly enough to make my right eyebrow twitch slightly. I only highlight this for the sake of my speculation, not as a manly moan about female spending choices. But the spending got me thinking about retirement calculators. I know I really need to get a life!
Is there an argument to be made that single females need a bigger portfolio size upon entering retirement due to nuanced societal differences around discretionary spending between the sexes than a male looking for the same lifestyle? It's an interesting, if not too serious, point to consider. And if so, what does that say about general financial advice aimed at everyone?
When you consider this possible spending pattern and then combine it with the statistical probability of a longer female lifespan, we start getting to the point that generic financial advice might give misleading answers. This is because I'm reasonably sure these calculators don't take these factors into account and don't question the stated age of the person. To keep the thought slightly balanced, I admit to knowing a few male friends—actually, a lot—who possibly spend more on their tech gadgets and latest hobby obsessions... and they all lie about their age.
So, where was I... This touches on broader societal expectations. Women are often implicitly encouraged to invest in their appearance in ways men aren't. These discretionary expenses, while seemingly minor, can really add up, especially in retirement. A woman might genuinely feel these expenditures are essential for her well-being, whereas a man with a similar lifestyle might not have comparable costs (generally because they are slobs). Although this is very much a broad overgeneralization, I'm using it for the sake of the muse. My wife, Suzie, will hit me on your behalf... you only need to ask.
Now, if we put all this totally unacceptable gender stereotyping, brought on by a raised eyebrow, together, the cumulative effect of these factors—potentially higher discretionary spending over a longer lifespan—could significantly impact how long a retirement portfolio actually lasts. If a standard calculator suggests a person needs "X" amount to retire comfortably, that figure might be an underestimation for a female. This could be a potential oversight in generic financial planning tools that could inadvertently disadvantage single women.
Perhaps future financial models could incorporate adjustable "lifestyle multipliers" that account for gender spending norms, allowing for more personalized and accurate projections for everyone.
And perhaps you should just ignore all the above, considering it was the result of a slightly raised eyebrow and a lot of rambling speculation over the cost of, according to my wife, Suzie, "a few essential 'make me happy' items." My sample size of one person is dubious at best. I promise to keep my thoughts under better control in the future and try to provide evidence for my musings.
Last week, my wife, Suzie, spent a considerable sum of money on hair care, nail salons, and other female-focused purchases. Certainly enough to make my right eyebrow twitch slightly. I only highlight this for the sake of my speculation, not as a manly moan about female spending choices. But the spending got me thinking about retirement calculators. I know I really need to get a life!
Is there an argument to be made that single females need a bigger portfolio size upon entering retirement due to nuanced societal differences around discretionary spending between the sexes than a male looking for the same lifestyle? It's an interesting, if not too serious, point to consider. And if so, what does that say about general financial advice aimed at everyone?
When you consider this possible spending pattern and then combine it with the statistical probability of a longer female lifespan, we start getting to the point that generic financial advice might give misleading answers. This is because I'm reasonably sure these calculators don't take these factors into account and don't question the stated age of the person. To keep the thought slightly balanced, I admit to knowing a few male friends—actually, a lot—who possibly spend more on their tech gadgets and latest hobby obsessions... and they all lie about their age.
So, where was I... This touches on broader societal expectations. Women are often implicitly encouraged to invest in their appearance in ways men aren't. These discretionary expenses, while seemingly minor, can really add up, especially in retirement. A woman might genuinely feel these expenditures are essential for her well-being, whereas a man with a similar lifestyle might not have comparable costs (generally because they are slobs). Although this is very much a broad overgeneralization, I'm using it for the sake of the muse. My wife, Suzie, will hit me on your behalf... you only need to ask.
Now, if we put all this totally unacceptable gender stereotyping, brought on by a raised eyebrow, together, the cumulative effect of these factors—potentially higher discretionary spending over a longer lifespan—could significantly impact how long a retirement portfolio actually lasts. If a standard calculator suggests a person needs "X" amount to retire comfortably, that figure might be an underestimation for a female. This could be a potential oversight in generic financial planning tools that could inadvertently disadvantage single women.
Perhaps future financial models could incorporate adjustable "lifestyle multipliers" that account for gender spending norms, allowing for more personalized and accurate projections for everyone.
And perhaps you should just ignore all the above, considering it was the result of a slightly raised eyebrow and a lot of rambling speculation over the cost of, according to my wife, Suzie, "a few essential 'make me happy' items." My sample size of one person is dubious at best. I promise to keep my thoughts under better control in the future and try to provide evidence for my musings.
The post A Very Politically Incorrect Ramble With a Potentially Real Point: Is Your Retirement Calculator Sexist? appeared first on HumbleDollar.
