Jonathan Clements's Blog, page 340

On My Mind

LIKE OTHER writers for this site, I blog often about what���s happening in my own life���my financial mistakes, early retirement, health scares I���ve had, my mother���s death and more. Here are four updates:

Spending. When it comes to parting with money, I have a Dr. Jekyll and Mr. Hyde personality. I sit home at night wearing three layers of clothing, two pairs of socks and a hat because I���m too cheap to turn on the furnace���and yet I don���t hesitate to spend hundreds of dollars to be pampered at a five-star hotel.

I guess it���s the same reason people spend thousands of dollars to ride in comfort in a luxury vehicle, while also dealing with the inconvenience of waiting in long lines at Costco to save on gas. We all pick our battles when it comes to cutting expenses. But ultimately, you need to pick at least some battles if you���re to win the ongoing war between spending and saving.

Caregiving. After my mother passed away, I found I had more time for myself. I was able to develop closer relationships with friends and family, and that brought more happiness to my life.

But that also led to feelings of guilt. I often asked myself, ���Is it okay to enjoy my life after losing a loved one? Does that mean I don���t really miss my mother that much?��� Of course not. I imagine that is something that���s always in the back of your mind when you lose someone close to you.

Estate planning. As the successor trustee for my mother���s trust, I���ve learned four lessons as I settle her estate:

Having a trust makes life so much easier for your heirs. It���s not only less time-consuming, but also less expensive for your loved ones. Why? You avoid lengthy delays in probate court and there should be fewer legal fees.
It���s important to consolidate your holdings. Why? The fewer financial institutions you have accounts with, the less time your loved ones will spend filling out paperwork and dealing with different institutions, each with their own requirements for closing accounts.
Having a checking account in your trust makes it easier for your successor trustee to issue the proceeds to the beneficiaries. Why? The checking account can be used as a holding account as funds are collected from various financial institutions. Then a check to each beneficiary can be written from the trust checking account. This is also a good way to create a paper trail for assets received and disbursed.
Vanguard Group is not only an excellent institution for investing your money, but also it provides great customer service for trustees and beneficiaries. It sends the required documents to your online Vanguard account. A customer representative then instructs you on how to fill out the paperwork. The rep stayed on the phone with me until all the documents were completed. I can���t say enough about the help I received.

Annual checkups. I just made an appointment with my primary care physician for my annual checkup. I often wonder why more people with health insurance don���t get checkups every year.

Perhaps it���s because they���re unaware that they should. In a 2015 survey of insured adults conducted by Cigna, ���45% of Americans say they don’t know that they should have an annual checkup���and half are unaware that if they have insurance, there is no cost for the annual checkup. In fact, most Americans are more in tune with when their pets need to have their shots than when they should go for their own checkup.���

Preventative care is not only first line of defense in combating illness, but also in protecting you from costly medical bills. That���s important to remember as you save for retirement and other financial goals.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include Turning the Page,��Journey’s End��and��So Many Benefits. ��Follow Dennis on Twitter��@DMFrie.

Do you enjoy articles by Dennis and HumbleDollar’s other writers? Please support our work with a�� donation .

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Going Without

I RECENTLY READ about a trendy way to lose weight: intermittent fasting. Supposedly there are also health benefits. That got me thinking.

I���ve been roundly criticized for bashing the financial independence/retire early movement, otherwise known as FIRE, and for arguing that average Americans spend unnecessarily on all kinds of stuff, thus hampering their long-term financial security. My point of view hasn���t changed. But I���ve found room for compromise: Think of it as periodic financial fasting.

I maintain that this strategy can work at virtually all income levels. Alas, it���ll still be an uphill battle to make converts. Surveys show most people would rather cut back spending in retirement than spend less today. No doubt that sounds easy���until you���re retired. At the same time, however, 87% of Americans appear willing to make tradeoffs to catch up on retirement savings.

What���s my strategy? Start by tracking every penny you spend over a 30- to 60-day period. Once you have your list, check off each item that isn���t essential spending���and be honest. This exercise will also help you figure out if living paycheck to paycheck is more about your spending than how much you earn.

Here���s an idea of what counts as essential spending: food, housing, clothing, transportation, utilities and health care, including those insurance premiums. Everything else is discretionary. That said, there���s also a great deal of wiggle-room within the essential category. A case of soda at the grocery store or leasing a luxury car are questionable for the essential category. Streaming services and premium cable channels are not utilities.

Next, decide which of the items on your list you can do without���not forever necessarily, but for a period of time. You may decide to alternate your fasting. For example, give up designer coffee for two months and then give up eating out for the next two months. For many people, that could easily yield a few hundred dollars over a couple of months. When it comes to a big item like vacations, tone it down for a year. Whatever works for you. After you���ve accumulated a pool of savings, it���s time to invest.

Building an emergency fund comes first. After that, you need to settle on a retirement strategy. How about a traditional or Roth IRA? At some point, maybe you���ll also open a regular, taxable brokerage account.

You can buy a mutual fund from Fidelity Investments or Charles Schwab with as little as $1, but $250 would be a more meaningful start. What if your goal is to buy an individual stock? You might invest once you���ve accumulated $1,000. Using an online broker, you can elect to buy $1,000 worth of a stock and receive whole and fractional shares in your account. My point: You don���t need a fortune to get started.

Be sure to reinvest all distributions from your funds and all dividends from your individual stocks. True, when you start out, the sums available for reinvestment will be modest. Don���t be deterred. Growth will come as the process continues. The amount you can save will, of course, depend on your income and the discretionary spending you abstain from.

There may be another benefit to all this: You could become addicted to saving and investing. Like the super-rich, you may discover it���s the quest that���s exciting���and you���ll be inspired to keep going and save even more.

Don���t be concerned about the stock market���s ups and downs. Every dip in the value of a mutual fund or an individual stock means you can buy more shares through investing and reinvesting. You���re running a marathon, not a 100-yard dash.

Like the idea of financial fasting? You might supplement the money from spending cuts with income from a part-time job. Work at it for a few months and build up your initial investment. Even $500 or $1,000 helps.

The immediate goal is to get out from under the ���I can���t afford to save��� mindset. Yes, you can. As Shakespeare put it, ���Things won are done, joy���s soul lies in the doing.���

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Getting Catty,��Give Until It��Hurts��and��Food for Thought.��Follow Dick on Twitter��@QuinnsComments.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Attitude Adjustment

MONEY HAS ALWAYS caused me stress. As a child, I worried my parents didn���t have enough, even though I had no idea what sum would have been considered enough for our family of six. In college, I worried about accumulating debt. I ended up living so frugally that I managed to save nearly all of the Pell grant that the government awarded me. I not only graduated debt-free, but also had a sizable emergency fund in place as I moved into adulthood.

In my 20s and 30s, mortgages and car loans burdened me with anxiety. I fretted about not saving enough, while simultaneously worrying about how much I should spend to appear outwardly successful to friends and family. As a perfectionist, with a hint of OCD, I would sometimes spend hours combing over bank statements and checkbook registers, making sure my accounts balanced to the exact penny.

Divorce plunged me into an entirely new relationship with money. Initially, I feared I wouldn���t be able to support myself. I reverted back to the extreme frugality of my college years. Once I realized my income was more than adequate for my lifestyle, I began saving nearly 50% of my paycheck. I believed if I ever wanted to retire, I needed to be in extreme savings mode. My anxiety shifted to the investment decisions I was making. Was I being too conservative? Was I being too risky? Every major stock market fluctuation, whether it was positive or negative, had me questioning my choices.

These days, my personal net worth hovers close to $500,000. Just two years ago, I believed hitting that��number would make me feel secure. Now I realize there���s likely no number that will make me feel completely comfortable. I���m capable of imagining numerous disasters that could wipe out the exact sum of money I���ve accumulated.

And so, as I enter the new year, I find myself committing to change my emotional reaction toward money. I���m hoping to shift my focus from one of fear to one of calm. I know it won���t be easy. Unlike a commitment to increase physical activity, there���s no Fitbit to measure the incremental improvements in our emotional state.

For now, I’ve vowed to check my retirement account balance once a month rather than once a day. I���m trying not to obsess over the Zestimate valuation of my home, knowing it isn���t likely to fall or increase $20,000 overnight. I���m also allowing myself to enjoy the money��I have. I remind myself it���s okay to go out to lunch occasionally. I tell myself to go ahead and buy the book I���ve been looking forward to reading, rather than waiting months for it to make its way to the library shelves.

The next 10 years of my life are likely to contain some major financial upheavals. I���m hoping to leave fulltime work behind. I���m planning to relocate to a different state. I doubt I’ll ever be completely at ease with money. But I���m hoping that���with a little attitude adjustment���I���ll embrace these changes and even relax a bit.

Kristine Hayes is a departmental manager at a small, liberal arts college. Her previous articles include Few Absolutes,��Why FI��and��Pet Project. Kristine��enjoys competitive pistol shooting and hanging out with her husband and their three dogs.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Risky Option

AS A KID, my most revered manmade invention was not a train or a record player, but rather the Swiss Army pocketknife. When I saw it for the first time at a friend���s home, I was fascinated that it could cut paper, open bottles, file nails and more. I marveled at the engineering beauty and wished I had one of my own.

Years later, I was in Switzerland for a short business trip and had some free time for souvenir shopping. I saw a Wenger Swiss Army knife and fondly remembered my childhood wish. Without a second thought, I bought one that had a dozen or so attachments.

After returning home, I was eager to show off my new toy to my wife and daughter. I used it wherever I could. My daughter was amused to discover the child in her dad. My wife teased me about my sudden interest in kitchen chores. Sadly, a minor mishap soon ended my excitement.

My wife was trying to open a jar that was stubbornly jammed. I offered to help and took out my pocketknife to showcase its versatility. The first few attempts failed, and yet I didn���t want to give up on my favorite tool. I opened more blades and applied pressure. The knife slipped and I badly cut my hand.

I recalled this incident a few years ago, when I was learning about financial derivatives, and specifically stock and index options. I was intrigued by Warren Buffett���s view of derivatives as ���financial weapons of mass destruction.��� I researched online, attended webinars and even studied a 1,000-page book. It struck me that options were the Swiss Army knife of investment tools. They���re elegant, versatile and nifty, but also deceptively dangerous even for experienced investors.

Their elegance lies in the simplicity of the basic concept. An option is a timebound contract between two parties to either acquire or sell an underlying security at a preset price. The option buyer pays an upfront cost���the option premium���for the right to do the actual trade. The buyer hopes that the price of the underlying security will move favorably before the contract expires. The option seller gets the premium. In return, the seller is contractually obligated to honor the trade, which occurs at the buyer���s discretion. Options give investors the ability to bet that a stock or market index will be above or below a certain price within a certain time period.

How does it work in practice? Let���s take the example of Bob, an active stock investor. Bob is bullish about Contoso Corp. He���s convinced that the stock will soon break out from its current $50 share price, so he buys an at-the-money call option that���s valid for a month. The option gives Bob the right, but not the obligation, to buy 100 Contoso stock at today���s price for one month. For this limited time privilege, Bob pays an option premium of $3 per share���a total of $300 plus commission for his option trade.

Why does Bob buy a call option instead of buying the stock outright? Perhaps Bob is waiting for his monthly paycheck before coughing up $5,000 for the stock. Or maybe he wants to limit his potential loss. There can be many reasons Bob prefers the call option to buying the stock.

Who sells the call option to Bob? Let���s say it���s Sam, who owns 100 Contoso shares. Sam doesn���t think that the stock is going anywhere soon. He���s content owning Contoso for its regular dividend, but he doesn���t mind earning an extra $300 by selling the call option to Bob. Sam takes on the short-term obligation to sell his Contoso shares to Bob at today���s price, should Bob want them anytime this month.

This example can play out in a few possible ways. If Bob���s wish comes true and the stock rallies before the contract expires, he can exercise his right to buy the shares from Sam at the old price of $50. Since Contoso���s rally raises the market value of the call option, Bob can instead sell the option to someone who expects the rally to continue further. On the other hand, if the stock stays at $50 or falls in price, the contract expires worthless. Bob loses the entire $300 premium.

The simplicity of options ends there. Accurately predicting the direction and magnitude of price movements within a short time period is no small feat. The option pricing model is a daunting beast to master. Tax treatment can get complex, too, not to mention possible surprises because of the wash-sale rule.

Options are often touted as a versatile tool for both aggressive and conservative investors. Sweating over the possibility of an imminent downturn? Protective puts can be your portfolio insurance. Want some extra yield from your portfolio? Covered calls can ride to the rescue. There are numerous well-documented strategies for many common situations. Custom strategies for specific situations can be created, too. The choice is endless.

How useful are these strategies? The Chicago Board Options Exchange, the creator of listed options, maintains several indexes to benchmark a few common option strategies that use the S&P 500 as the underlying asset. These include the PPUT index that mimics the performance of a hypothetical S&P 500 portfolio, hedged by protective puts. They also include the BXM index, which tracks an S&P 500 portfolio in combination with covered calls. Detailed analyses of these indexes are regularly published.

Hedge funds use options widely, as do many professional money managers and institutional investors. But should individual investors like you and me dabble in options, beyond the occasional experiment for entertainment or education? The scar left by my Swiss Army knife is a constant reminder of a valuable lesson: A beautiful and versatile tool can also be very dangerous. Result? After all my research, I make occasional use of options���but I���d be reluctant to recommend them to others.

A software engineer by profession, Sanjib Saha is transitioning to early retirement. His previous articles include Thanks for Nothing,��Blessing in Disguise��and��Bonding With Bonds.��Self-taught in investments, Sanjib passed the Series 65 licensing exam as a non-industry candidate. He’s passionate about raising financial literacy and��enjoys helping others with their finances.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Turning the Page

I���M NOT THE TYPE of person who makes New Year���s resolutions. This year, however, I foresee some major changes in my life���and that���ll require some financial adjustments.

Now that my elderly parents have passed away, Rachel and I can live like a normal couple in our own home. As I mentioned in an earlier article, we will be moving into my parents��� house.

During the last several years taking care of my mother, I was constantly traveling from one house to another and living out of a suitcase. Rachel and I weren���t able to spend a lot of time living together. This year, we can. We can share the same bed, eat at the same table and take walks together. We can do the little things that bring a couple together and make life so enjoyable.

In the year ahead, the house we���re moving to will require a lot of time, work and money to make the necessary improvements and repairs. Although I���m going to sell my condo to pay for much of the work, I feel we need to reduce our spending in the near term. This won���t be easy because we already live well below our means. Still, entertainment is one area where we can reduce spending. Here are three ways we���ll cut back in 2020:

We already canceled our cable television subscription, saving us $1,680 this year. Instead, we bought a $20 indoor high-definition antenna to pick up the local broadcast stations. We also bought a $119 annual subscription to Amazon Prime, so we can watch movies and television shows.
Our travel plans will be more modest in 2020, resulting in substantial savings.
We will be eating out less often at restaurants and instead we���ll cook our meals at home.

The thing on this list I���ll miss the most: traveling. I���ve been retired 11 years and haven���t done as much traveling as I���d like because of personal commitments, especially caring for my parents. I always thought I���d wait until I retire to do most of my traveling. If I could do it over again, I would have done more traveling before I quit the workforce. Don���t fall into the trap of thinking that certain things in life should wait for retirement.

Another item on my list of life changes for 2020: reconnecting with long-lost friends. Last year, I got in touch with one of my college professors and it was a thrill. I was researching an article on Social Security and discovered one of my professors wrote one, too. I contacted him and discovered he���s the same nice guy I���d known in college. After reading his article, I realize I���m still learning from him after all these years.

In 2020, I hope to contact other friends from earlier years. As you get older, you realize there are fewer opportunities to turn back the clock and reconnect with the people from your previous life. I remember my elderly mother would stare at old photos of friends and muse, ���I wish I���d stayed in touch with them.���

But when I think about my life, there���s little else that I want to change. I realize I already have pretty much everything I need. I have my health, enough money for the lifestyle I want and a great supporting cast, including Rachel, friends and family. Why would I want to change any of that?

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include Journey’s End,��So Many Benefits��and��Peace of Mind. ��Follow Dennis on Twitter��@DMFrie.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Got You Covered

IT���S THAT TIME of year again���when magazine editors put on their Nostradamus hats to offer up get-rich-quick schemes for the new year. ���What China���s Best Investor is Buying Now,��� reads the cover of��Fortune, along with ���40 Stocks for the New Decade.��� The magazine even praises perennially unpopular Goldman Sachs. ���Not your father���s��vampire squid,��� Fortune says.

These kinds of headlines seem comical, but it turns out they may be good for more than just entertainment. A few years back, two analysts at Citigroup developed what they dubbed the ���magazine cover indicator.��� The premise, they said, is that when a magazine ���finally devotes a cover to a market trend, company, country or person, the story… has been in vogue for some time and is likely past its peak.��� In other words, the magazine cover indicator is a��contrary��indicator. By the time an investment appears on the cover of a magazine, it may be time to��sell, not buy.

How did Citi���s analysts reach this conclusion? They went back to 1998 and collected each of��The Economist���s weekly covers���nearly a thousand in all. Then they looked for headlines that included an ���emotional or hyperbolic portrayal��� of an investment. Their findings: In nearly 70% of cases, the covers were wrong within one year.

And, of course, it isn���t limited to��The Economist. Its prognosticators are no worse than other publications���. In fact, one of the most famously incorrect headlines appeared on the cover of��Businessweek, now Bloomberg Businessweek.��In summer 1979, the magazine declared ���The Death of Equities.��� Almost immediately, the stock market took off. Over the subsequent 20 years, the S&P 500 rose more than 13-fold.

Citi���s analysts aren���t the only ones to make this observation. Economist Paul Krugman once wrote, ���Whom the Gods would destroy, they first put on the cover of��Businessweek.���

Does this mean you should drop everything and start trading based on magazine covers? As you might guess, I don���t see this as a workable strategy���for two reasons.

First, while amusing, I would take this research with a grain of salt. I think it���s more right than wrong, but I���m not sure how scientifically rigorous it is. In fact,��The Economist, in its��own defense, argues that headlines are subject to interpretation, making it difficult to grade them on a strictly quantitative basis. Complicating matters,��The Economist��points out���correctly���that there is a disconnect between economic performance and stock market performance. They don���t move in lockstep. To use its example, a headline reading ���UK RIP?��� shouldn���t be narrowly interpreted as a recommendation against British stocks. It���s difficult to know how the analysts at Citi scored potentially ambiguous headlines like this.

The second reason I���d be skeptical is that sometimes magazine commentators are right. A notable example: In August 2007, Jim Cramer, writing in��New York magazine, issued a��clear warning��about the housing market. By then, only a few cracks had become visible. It was a full year before the bottom really fell out, so Cramer was definitely out in front with his warning. I call this example notable because Cramer is routinely ridiculed for his��over-the-top��style��and mixed��track record. But in this case, he was absolutely right.

This illustrates why I see the magazine cover strategy as unusable. If the buttoned-up folks at��The Economist��can be so wrong on occasion and the wild-eyed likes of Jim Cramer can be so right, it���s hard to know who to trust and when. This is not the foundation for a reliable trading system.

Don���t get me wrong: I think��Kiplinger���s,��Money��and their peers offer a wealth of valuable information. If you���re looking for advice on managing debt, buying a car, paying for college or any number of other important questions, they���re a great resource. Just be sure to avert your eyes when they���or anyone else���reaches for their crystal ball.

Adam M. Grossman���s previous articles��include An Unkind Act,��The REIT Stuff��and��Candy Land . 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 .

Do you enjoy the articles by Adam and HumbleDollar’s other writers? Please support our work with a�� donation .

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Humble Bragging

WE���RE THREE-YEARS-old, and we���ve grown to become something I never intended. When I launched HumbleDollar on Dec. 31, 2016, my plan was to take my money guide���which had previously appeared as an annual paperback���and make it freely available on the web. I also had plans to write an article every week or so and have others occasionally blog for the site.

Since then, HumbleDollar has morphed into a fulltime job that doesn���t pay me a salary and a site that���I like to think���occupies a small but unique place in the internet���s ongoing financial conversation:

Readers visited 937,000 of the site’s pages in 2017, more than 1.7 million in 2018 and almost 2.6 million last year, for a total of over 5.2 million pages. The market for thoughtful financial writing is, alas, fairly small. Still, I���d love to see the site garner a much larger audience.
Before I launched HumbleDollar, I blogged occasionally at JonathanClements.com. But I didn���t want the new site to be solely about me, so I went hunting for a new name and URL. Some time after midnight, I found myself lying in bed, mulling variations on the word humble. A middle-of-the-night internet search revealed that HumbleDollar.com was available.

Since then, I���ve taken further steps to ensure the site isn���t about me. Early last year, I removed my photograph, along with a brief bio, from the homepage. Nobody complained. From the site���s navigation bar, I deleted the tab devoted to my books. Nobody seemed to notice.

In 2019, HumbleDollar ran 365 articles���one for every day of the year���and those articles were penned by more than 30 contributors. I���ve only met a few of the site���s writers in person. But thanks to their willingness to share their financial stories with readers, I feel like I���ve come to know all of them. It���s a great privilege to have these folks writing for the site.
HumbleDollar has a distinct financial philosophy. We believe the goal is to be rational about money, but we���re all too aware of our human failings. We think there���s far more value to be added by focusing on broader financial issues���saving enough, buying the right size home, getting our estate in order, keeping debts manageable���than by trying to second-guess the financial markets. We believe that money can buy happiness, but it takes far more thought than most people imagine.

To bring this philosophy into sharper focus, I introduced a manifesto last year, which now appears in bite-size chunks on the homepage. That manifesto joins a series of other short homepage items, including ���Numbers,��� ���Think,��� ���Act��� and ���Truths.���

Over the past 12 months, I added five chapters to the site���s money guide: Portfolio Builder, Life Planner, Big Ideas, Great Debates and Humans. Big changes like that tend to catch readers��� attention. But I���m also constantly making smaller changes to the guide, whether it���s updating numbers or adding new insights. If you haven���t spent serious time exploring the money guide, I���d encourage you to do so.
In 2019, I changed the way the site seeks to cover its costs, which run around $18,000 a year. Early on and with far too little thought, I did what so many financial blogging sites do���I signed up for various affiliate marketing relationships with financial firms. That meant the site would earn a fee every time a reader opened an account or bought a product from one of these companies.

But I quickly came to realize the whole thing was unethical, akin to brokers making money by flogging the products that pay them the highest commissions. In 2019, I axed all of these marketing arrangements���except the one with Amazon, which I view as pretty innocuous, because it isn���t in the financial services business.

Instead, I decided to solicit donations to supplement the modest sum that the site earns from advertising. The level of support has been gratifying. Over the past eight months, more than 400 readers have contributed to the cost of running the site. Those contributions are often accompanied by kind comments���and I value those comments even more than the dollars themselves.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook .��His most recent articles include He Can Be Taught,��Hits 2017-19, Just Do It��and��Eyes Forward . Jonathan’s ��latest books:��From Here to��Financial��Happiness��and How to Think About Money.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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December’s Hits

AMID THE HOLIDAY celebrations, many folks still found time to visit HumbleDollar in December. The site notched its second-highest total monthly page views ever. What were people reading? Here are last month’s seven most popular articles:

Want to make your life better? Here are 11 simple things you can do today.
Real estate investment trusts account for 3% of the S&P 500. Adam Grossman argues there’s no reason to own more than that.
The death of a spouse is bad enough, and yet it’s often accompanied by a financial hit, notes John Yeigh���thanks to much higher tax rates.
Retired before age 63? James McGlynn explains why it���s a great time to make partial conversions from your traditional IRA to a Roth.
Maybe we should focus less on the returns that asset classes generate and more on the risks that they protect against. Adam Grossman explains.
“No one can tell you whether foreign stocks will enhance your portfolio going forward,” Bill Ehart notes. “Still, valuations are relatively low���which is one reason they could trounce U.S. stocks.”
What’s so great about Social Security? Dennis Friedman counts the ways.

Meanwhile, the most popular newsletters were Low Blows and He Can Be Taught. I track newsletter articles separately from other articles, because the former have an unfair advantage, as readers click through to the site from HumbleDollar’s weekly email newsletter.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook .��His most recent articles include Hits 2017-19,��Eyes Forward��and Saving Myself . Jonathan’s ��latest books:��From Here to��Financial��Happiness��and How to Think About Money.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Resolve to Rebalance

I CAN TELL I���m a little squishy on my investment plan, because the thought of making a public New Year���s resolution fills me with all the dread of a reluctant groom.

As I linger outside my metaphorical church, I imagine my bride wants to shackle me to allocation targets and rebalancing rules that I announce to the whole congregation. My aversion to such commitments competes with my realization that���without them���I���ll be back to my free-wandering self.

But freedom���s just another word for��� never getting to kiss the bride. It can mean wondering every darn day whether it���s time to take profits, buy the dip or indulge my latest get-rich-quicker scheme. Freedom allows us to respond to our emotions, which rarely leads to sound decisions.

I have asset allocation targets, such as 20% developed foreign stocks, 7% emerging markets, 5% real estate investment trusts, 3% inflation-indexed Treasury bonds���and 5% for a satellite position that allows me to make a small bet on any asset I think might outperform, which is currently foreign small-cap value stocks.

But I haven���t set hard and fast triggers for rebalancing. Do I bring the portfolio back to all targets every year-end? Every two years? Or adjust each asset class when it strays too much from my target percentage? What if it���s a long-suffering asset class? Wouldn���t I want to let it run above target for a bit before rebalancing? How about my satellite position���when do I take profits there, assuming I realize any? How long do I stick with the original bet before making a new one?

Meanwhile, what about my overall stock allocation target, which���at age 58���is currently 72% of my overall portfolio? Do I reduce that by a percentage point every year as I age, as I tentatively plan to do? Or do I have the freedom to increase that allocation and load up on stocks during a market rout when I think shares have gotten cheap enough? And if I manage to catch the recovery from the lows or close to it, how long do I let my stock funds run before bringing them back to my original target?

As it stands, in the absence of hard-and-fast rules, all of these things are judgment calls on my part. And judgment is the first thing to go out the window when greed, fear or passion rule.

You see my quandary. I have an investment plan, but it���s etched in the easy electrons of an Excel spreadsheet rather than in a gold band with a diamond setting. And I love fiddling with the spreadsheet. When will I be ready to tie the knot with a rebalancing regimen that���s forever?

William Ehart is a journalist in the Washington, D.C., area. Bill’s previous articles for HumbleDollar include Durn Furriners,��Oldies but Goodies��and��Mild Salsa. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart.

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True Grit for 2020

���RESOLUTE��� is the wrong adjective to describe most of us at the start of a new year. We know what we should be doing for our future self. But within weeks, days and sometimes hours, we forget about the person we���ll become.

What can we do to improve our odds of success in 2020? As Stephen Covey taught us years ago in The Seven Habits of Highly Effective People, the answer is to exercise integrity at the moment of choice. That���s perhaps the most difficult behavior to implement with consistency, so here are eight supporting suggestions:

1. Start with why. In his book, Simon Sinek explains the importance of getting clear about your objectives. If you can clarify the importance of the changes you���re trying to make, you may find within you the incentive to persevere on your chosen path.

This preparation takes time and energy, and yet it may be the key to long-term success. Perhaps you���re seeing the suboptimal results of a family member���s lack of financial planning and wish to avoid his or her fate. That���s a pretty strong ���why.��� But make sure your resolution is your own and not something imposed on you.

2. Focus. There may be multiple dimensions where you���d like to improve, but it���s best to prioritize and focus on the one thing that will have the biggest impact on your life, according to author Gary Keller.

Maybe you aspire to have a generous travel budget, but your debt load is crushing you. Focus on the basics. Lose the debt and your opportunities to save will increase by a commensurate amount, plus interest. Be precise with your written plan. The greater your resolve to achieve your desired outcome, the less you leave to chance. Spend some time pondering the costs and rewards of your goals in great detail.

3. Think small. The results of years of overspending or poor nutrition can be daunting. What can you do���or stop doing���today that will begin to reverse those conditions?

���Focus on these small wins so you can make gradual progress,��� says Charles Duhigg, author of The Power of Habit. ���If you���re building a habit, you���re planning for the next decade, not the next couple of months.���

4. Be realistic. Get real about the dysfunction in your life and the amount of time it took you to create it. Chances are you have been living with it for a while, which is why you���re resolving to correct it.

The Stockdale Paradox is a warning about the downside of optimism. In an interview with Jim Collins, Admiral Jim Stockdale shared that the first prisoners to die in the Vietnamese POW camps were the optimists: ���You must never ever confuse, on the one hand, the need for absolute, unwavering faith that you can prevail despite those constraints with, on the other hand, the need for the discipline to begin by confronting the brutal facts, whatever they are.��� In short, be prepared to grind it out.

5. Automate your choices. Even the best intentions and strongest of wills can fade from exhaustion and inattention. Thus, it can help to reduce or eliminate the number of conscious choices or activities required to meet your objectives. Using automation will eliminate the most unreliable link in your financial plan���you. Research on the effects of automatic enrollment in retirement plans confirm this.

6.��Be accountable. Announce your intentions to someone who understands and supports you. Better still, tell someone who is committed to similar goals and willing to share in your success and failure. Social commitment and personal connection can be strong motivators when the going gets tough.

7. Understand why you fail. There are likely patterns in your imprudent behavior. These patterns may involve certain people, places, retail websites or recurring negative emotions. You will need to find ways to understand and intercept those triggers. Your accountability partner may be able to help or you may need to employ a professional.

8. Lose the losers. In his bestseller 12 Rules for Life, Jordan Peterson talks about the importance of making friends with those who want the best for you. Many ���friendships��� endure only because we lack the courage to end them. Jim Rohn says, ���You are the average of the five people you spend the most time with.��� If that thought scares you, maybe it should.

���Fall seven, rise eight��� is an ancient concept that���s found in many enduring cultures. In 2019, we saw many assaults on the Dawson family financial plan. Expenses that couldn���t be anticipated escalated to tens of thousands of dollars. Many times, I was reminded of the words of my friend and mentor Rafael Reyes: ���If you have the money, it���s not a problem. It���s an expense.��� While that���s true, a series of beatdowns can leave you discouraged���and cause you to capitulate. Please don���t. If you care to look, examples of��resilience abound. Take courage. Be resolute.

When not paddling, biking or shooting, Phil Dawson provides technical services for a global auto manufacturer. He, his sweetheart Donna and their four extraordinary daughters live in and around Jarrettsville, Maryland.��His previous articles include Tending the Garden,��When Brokers Fail��and��Financially Fit .��You can contact Phil via LinkedIn .

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