Jonathan Clements's Blog, page 345

Fashion Statement

SOME PEOPLE are into fashion, changing what they wear depending on the season, their whims or what others say should adorn our bodies. In fact, I would go so far as to say some of us are addicted to clothes.

Don���t believe me? Check out sites like Poshmark, which���it says���is ���a vibrant community powered by millions of Seller Stylists, who not only sell their personal style, but also curate looks for their shoppers, creating the most connected shopping experience in the world.��� Got that?

My wife has a favorite phrase, ���I have nothing to wear,��� which is often followed by ���Talbots is having a sale.��� Nothing to wear? I���m not sure how she reaches that conclusion, given that it���s impossible to get into her closets to make a determination. I can���t imagine how much all that ���nothing��� has cost and I don���t intend to try. Next winter, we���re going on a month-long cruise. The ���what to wear��� conundrum is already popping up. Oh my.

Meanwhile, for most of my life, I���ve been told what to wear, except while off duty in the army and you don���t want to see those pictures. I have not purchased my own clothes in 50 years. That���s been left to my wife and daughter���and that���s fine with me. I���m as opposed to entering a shopping mall as I was to entering the catacombs in Rome. Trust me, I tried.

When I see the price of clothes, it brings on a cold sweat. Given they are mostly made in developing countries in Southeast Asia with tiny labor costs, why aren���t we as incensed with the markups on clothes as we are with the price of prescription drugs?

And by the way, what���s wrong with my 10-year-old sweater? It still works���and it doesn���t have moth holes, either. As I write this, I am interrupted, ���You have on a black jacket with blue pants.��� Yup, and the jacket is 15 years old and I got it free at a golf outing. What���s your point? I guess I forgot to ask what I should wear. Shame on me.

During our recent move, I discovered a dozen shirts and several pairs of shoes I didn���t know I had and had never worn. Since I didn���t buy them, I can���t imagine how they got in my closet. Just this morning, I was told I ���needed��� some new shirts. I pointed out the unused ones in my drawer and was told they were old. I���m old, too. Should I be worried?

I have three sets of underwear. In the name of organization, ���someone��� has taken to labeling them���”Cape��� for our vacation home, ���travel��� for going places other than the Cape and a blank set for every day. In other words, three times more underwear than I need. My greatest fear is that a pair marked ���Cape��� is found in the hamper at home.

In case you think I���m engaging in hyperbole, consider that the average person spends around $161 per month on clothes. Women spend 76% more than men do���an average $150 to $400 per month. By some estimates, that���s $125,000 on clothes in a lifetime. Hmmm, that $125,000 would generate $5,000 a year in retirement income, assuming a 4% withdrawal rate, and I���m not even counting the investment gains the money could have earned. Sorry, have I gone too far?

I recall a story from a compatriot in the employee benefits business. He was giving a presentation on a new health benefits program. When he got to copays, an incensed employee stood up and shouted, ���Have you any idea how much money it takes to keep two teenagers in Reeboks?��� It seems $200 spent on health care is not the same as $200 spent on clothes.

The fall season 40% off coupons are starting to arrive. I guess that���s a good thing. We all know the math: If you buy something you don���t need but get 40% off, you���ve saved money, right? I���m looking forward to significant savings in advance of our next trip, especially when the perfectly good but old is replaced by what somebody thinks I need.

Left to my druthers, I���d be in an old flannel shirt and jeans from September to May. They���re comfortable and affordable, but it���s a fashion statement that elicits pitying looks. Ah, there���s the senior citizen who���s simply too frugal. Don���t believe me? Go high-end shopping sometime dressed in my uniform and see how you���re treated.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include You’re on Your Own,��What’s Your Plan��and��Staking Your Claim.��Follow Dick on Twitter��@QuinnsComments.

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

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At the End

IT STARTED innocently. A doctor���s visit. A blood test. Results. Admit to hospital for ���a couple days of observation��� that instead cascaded, over six days, into my husband���s death at age 71. His death certificate states ���etiology unknown.��� While doctors suspected prescribed medication, we will never know just what caused his liver to fail.

Throughout, the situation had been confusing. Clarity regarding treatment options���and the likely outcome from procedures���were in short supply. He and I and doctors made medical decisions in the face of this uncertainty and without regard to costs. Crucially useful was my husband���s advance medical directive, completed a decade earlier when we updated our wills. I kept this at hand to reference as we made decisions. Language in directives is ambiguous and can be a poor fit to clinical decisions. Yet the directive was essential to working through differences of opinion among family members and to obtaining, in the final hours, a frank assessment from attending doctors and clinicians.

Amid many roundtrips at all hours between home, hospital, airport and hotels, I lost my identification twice. Once, I was paying for parking at the hospital lot kiosk. I cancelled my credit and debit cards before getting my wallet back two days later, less the cash. ���Nobody turns wallets in, ever,��� said the hospital security guard as he handed it back.

After that, I only carried keys, phone, my driver���s license and my backup credit card, and lost the license and credit card a couple of days later. It would be two months before I could replace my driver���s license with a new picture ID. In the interim, I carried my passport card and a printout listing my appointment with the DMV to replace my driver���s license.

At the end, I was bedside with our three teenagers. Afterward, before leaving for home, our youngest asked me to promise two things: ���Take care of yourself��� and ���Don���t spend money on stupid stuff we don���t need.���

Fifteen minutes after the children left with a friend, the head nurse gave me a handout on death and asked where to send the mortal remains. Our careful and frugal life together was over. No more deciding together. No more sharing costs of anything. No more splitting the bill for family nights out. Numerous expenditures���many I had never contemplated���were unbudgeted for this calendar year. The proverbial meter was running, and I didn���t yet know where I was going.

Here are just five of the lessons I learned during this grueling period:

Plan for what���s expected and expect the unplanned.
Photocopy your driver���s license or state ID, and file it with your emergency materials. Also store a photo of it on your phone. In a pinch, your old, expired license is better than none at all.
Spend final hours with your loved one focusing on each other and making one another as comfortable as possible. Avoid spending those hours looking for advance directives and talking about funeral plans. Put your planning documents in an obvious place that can���t be forgotten. What didn���t get planned in advance will eventually get done anyway.
Accommodate immediate and extended family, so all can have as much time together as possible. Minimize quarrelling among yourselves about medical care and what will happen next. Keep a copy of the advance directive on your person.
Don���t expect an advance medical directive to substitute for having a patient advocate present when making key decisions.

This is the first article in a series. Catherine Horiuchi is an associate professor in the University of San Francisco’s School of Management, where she teaches graduate courses in public policy, public finance and government technology.

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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Value for Your Cash

TERM LIFE insurance is best for most people: It���s affordable, simple to understand and provides the two or three decades of coverage they need. But that doesn���t mean that permanent ���cash value��� life insurance is always bad.

The most obvious situation: You actually need insurance permanently. Suppose you���re a business owner and you want to provide money for your family to pay inheritance taxes. By buying life insurance, you���d make sure your family receives a pool of income-tax-free money upon your death, plus���if you held the policy in an irrevocable trust���the proceeds would also avoid estate taxes.

Alternatively, you might be the parent of a special-needs child who will always be dependent on you���and you want to ensure his or her financial future. In these situations, a 30-year term policy might get the job done. But the only way to guarantee your family is protected is with permanent insurance, whether it���s a whole life, universal life or variable universal life policy.

Another situation: Let���s say you���re a high-income earner who is maxing out your 401(k) and IRA, and you���re looking to sock away additional money for retirement. With a variable universal life policy, you could invest your premiums in the stock market and have the money compound tax-deferred for decades. If it turns out you don���t need the cash value for retirement and you still own the insurance when you die, your policy will pay out all the earnings as an income-tax-free death benefit to your beneficiaries.

Keep in mind that the fees within the policy are higher than if you just invested in mutual funds���and to get the tax-free gains you need to hold the policy until death. Still, for high-earning individuals with other savings to cover their lifetime needs and who have a long time horizon, the tax benefits of this strategy can be powerful and outweigh the higher investment expenses.

More recently, permanent policies have been used for nursing home costs. If you���re looking for long-term-care insurance, you might check out hybrid policies. These are technically universal life or whole life policies, but they���re designed for long-term-care needs. They provide long-term-care benefits if you need care, but return your premiums in the form of a death benefit if you pass away without needing care. The market for these products has grown steadily and current annual sales top $1.5 billion.

If you find yourself in one of these or another situation where a permanent policy might fit, here are some ways to make sure you get the right coverage and the best value for your money:

1. Be clear on your goals. Is your primary goal life insurance or retirement savings? What���s your budget? Are there other features that are important to you, such as long-term-care or critical illness protection? The clearer you are on your goals, the more likely you are to find a policy that meets them.

2. Customize your policy. Permanent policies���particularly universal and variable universal life���are incredibly flexible. There are a multitude of policy forms, premium structures and riders that can be used to optimize a policy to your needs. For example, if your primary goal is pure life insurance coverage, you could structure your policy to have minimal cash values, so that all your premiums are going to cover your death benefit.

On the other hand, if your goal is retirement savings, you could structure a policy to minimize the death benefit but maximize your cash value���s growth. It���s not uncommon for optimized policies to start building significant cash value in just a few years, whereas an ���off-the-shelf��� policy might not have a cash value that���s higher than the total premiums paid for 15 years or more.

3. Work with an expert you trust. This might seem obvious, but it���s worth emphasizing. Permanent insurance gets complicated very quickly and limited information is available online. It���s also very easy for unscrupulous agents to steer you toward products that maximize their commission, so it���s important to work with someone who puts your needs first.

4. Understand your risks. Most permanent policies have some elements that aren���t guaranteed. For instance, the investment returns or the cost of insurance might not be guaranteed. Make sure you work with an agent who shows you projected cash values under guaranteed and non-guaranteed scenarios, so you understand the range of possibilities. Also make sure that if the worst-case scenario comes to pass, and you only get those minimum guaranteed values, that the policy still works for you.

5. Plan for the long term. According to the Society of Actuaries, close to 40% of permanent life policyholders lapse their policies in the first five years. By year 10, that number is close to 60%. If you purchase a permanent policy, make sure you can afford to keep it permanently, so you get the protection you signed up for.

6. Do an annual review. It���s important to review your policy annually, assessing performance and ensuring your policy is still giving you the protection you need. If it���s underperforming and you need to increase your premiums to keep it in force, better to know that earlier, so you have plenty of time to fix the problem.

Dennis Ho is a life actuary and chief executive of  Saturday Insurance , a digital insurance advisor that helps people shop for life , disability and long-term-care insurance, as well as income annuities . Prior to co-founding Saturday, Dennis spent 20 years in the insurance industry in a variety of actuarial, finance and business roles. His previous articles for HumbleDollar include Waiting Game ,  End Game  and Policy Decisions . Dennis can be reached via  LinkedIn  or at  dennis@saturdayinsurance.com .

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Last Questions

TAKING CARE of aging loved ones is almost always difficult. You���re worried about them and want them to be comfortable and happy. But they���re also concerned about you and what you���ll have to deal with after their death���settling their estate, funeral costs and the hassles involved.

As my grandmother approached the end of her life, we asked questions that I was initially afraid to ask. But it was the right thing to do: Answering those questions relieved stress for both my grandmother and my entire family. Here are five of the questions we tackled:

1. Do you have life insurance? We found out my grandmother had life insurance, but we didn���t know what kind or who the beneficiaries were. We discovered my uncle was the sole beneficiary and hence would receive everything. We updated the list of beneficiaries, so all of my grandmother���s children were included.

2. What sort of funeral would you like? It sounds a little dark to ask someone who���s still alive about their funeral plans, but it can be helpful. We talked with my grandmother about what she expected at her funeral. We discussed how each person in the family would be involved, if she would like to be buried or cremated, and ways to pay for a funeral. We found out where she wanted to be buried and got an idea of how much her funeral might cost, so we���d know if her life insurance would cover the expense. To my surprise, my grandmother said she felt relieved about these plans, since she knew we wouldn���t be left to figure it out on our own.

3. Do you have a will? If you have any assets���which most people do���you should create a will. Assets include more than just cash, cars and real estate. It also includes other possessions that are considered valuable, like jewelry, and paintings.

To avoid family fights and make sure possessions were divided fairly when my grandmother died, we got legal help and prepared a will. We went over things that each person in the family wanted. When there were items that multiple people wanted, my grandmother did a great job of mediating, so each person was happy with the items they would receive. We also found out about a few assets my grandmother had that no one knew about and that weren���t documented as assets. We added those to the will, so they wouldn���t be lost later on.

4. What debts do you have? I���d normally be afraid to ask someone if they had any financial debts to repay. It���s a personal question, but it���s good to know about when you���re dealing with an aging relative. When they die, you don���t want to be surprised by the need to deal with tens of thousands of dollars in debt you didn���t know about. We found out what my grandmother still owed on her house, cars and credit cards.

5. Have you loaned anyone money? We also found out that my grandmother loaned significant sums to a few people��� mostly family members���and the loans weren���t recorded in any legal documents, but rather in a notebook. We may have eventually found the notebook and seen that people owed her money, but there���s also a good chance the notebook would have been thrown out. We properly documented the loans, so anyone who owed money would have it deducted from their share of the inheritance.

Morgen Henderson is a writer from the beautiful mountains of Utah. She covers a variety of topics, ranging from travel and lifestyle to tech and personal finance. When she’s not typing��away at her computer, you can find her baking desserts and traveling the globe. Follow Morgen on Twitter @Mo_Hendi.

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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Admission of Guilt

WE���RE FASCINATED by the recent college admissions scandal���and the wealthy parents and celebrities who were arrested. This drama has all the elements of a reality television show. The parents, who get starring roles as villains with no moral compass, scheme to ensure their children gain admission to sought-after colleges.

The lively plot doesn���t bother with common concerns, such as how to afford the high cost of college tuition, which continues to rise much faster than inflation. Instead, this drama highlights the sexy theme of parents using illegal means to secure a guaranteed invitation for their children to the ���winners��� circle.���

Teenagers and younger adults have had an especially strong reaction to the scandal. It bothered them that, in certain cases, parents had an unspoken agenda and took action without their children���s knowledge. The sense of family entitlement sent the message that societal rules didn���t apply to them. I heard one teenager joke, ���No need to study for the SATs now. I���ll have a professional test taker get a high score for me.��� Another laughed, ���I���ll just skip practice. Mom or Dad can photoshop me into the varsity team picture.���

Yet this scandal has a silver lining. Since this story has inter-generational interest, it���s a great topic for a family discussion. Some aspects you might delve into:

How would the student feel if parents took illegal steps to guarantee his or her college admission? How important is it for parents to have confidence in their child?
How do we each define success? How important is status and money?
Moral character. What value do we place on honesty? Does the end justify the means?

While there are no easy answers to these questions, I encouraged one couple to use the scandal to spark a discussion with their high school senior, since he had followed the story with intense interest. The son���s feeling was that parents who act behind their child���s back demonstrate a lack of confidence in their child���s ability. He added that, if the student found out, it would damage the trust between child and parents.

How to define success? The parents and their high schooler had distinct perspectives. They all agreed that it would be great if the student ended up happy with his career choice. Yet the parents��� goals for their child mirrored more traditional aspirations, such as a career in a well-regarded profession���and that would be helped by their son���s acceptance to a good college. The student, by contrast, gravitated toward careers that seemed cool to him and his peers.

The most interesting part of their discussion involved moral character. They agreed it���s far easier to measure money than good character. While the son wanted a comfortable lifestyle, he was determined to follow a principled path to reach his goals. His parents may not have been thrilled with the careers he���s currently pondering���but they were pleased their son had ethical concerns and wasn���t focused solely on his own self-interest.

Rand Spero is president of Street Smart Financial, a fee-only financial planning firm in Lexington, Massachusetts. His previous articles include Life Support,��Monthly Affliction��and��Self-Sabotage. Rand ��has taught personal finance and strategic planning at the Tufts University Osher Institute, Northeastern University’s Graduate School of Management and Massachusetts General Hospital.

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No Comparison

THIS MONTH saw the publication of a remarkable biography:��The Man Who Solved the Market��chronicles the life and career of hedge fund manager James Simons. Over the past 31 years, Simons���s Medallion Fund has clocked average returns of 66%��per year. Even after Medallion’s fees���which are the highest in the industry���investors took home average returns of 39% a year.

By way of comparison, the U.S. stock market historically has returned about 10% a year. To put this in further perspective, investors who put $1,000 into Medallion at the beginning of 1988 would have seen their investment grow to nearly $28��million by year-end 2018.

How did Simons accomplish this? The short answer is that no one knows the full details���or, rather, no one is permitted to speak about it. Simons, who had been a math professor before he left for Wall Street, developed an algorithmic approach to trading. Instead of engaging in the usual sort of stock analysis���evaluating a company���s products, management and financial results���Simons instead looked for ���signals��� buried deep within trading data. According to a colleague, Simons doesn���t make money on every trade, but he gets it correct just enough of the time. ���We���re right 50.75 percent of the time,��� said the colleague, ���but we���re 100 percent right 50.75 percent of the time.��� Parenthetically, he said, ���You can make billions that way.���

As an individual investor, how should you think about this���or��should��you even think about it?

One approach would be to simply ignore Simons, to recognize him as an anomaly. After all, his results have been so outstanding that he���s literally in a league of his own. He���s done better than Warren Buffett, Peter Lynch, George Soros���everyone. It���s hardly worth comparing your results to his, just as you wouldn���t lose sleep if you couldn���t keep up with an Olympic swimmer or sprinter. It would be unhealthy and unrealistic to even give it a second thought.

But what about comparisons that are more realistic���to colleagues, friends and neighbors? Should we worry about how our successes measure up relative to theirs? This requires a delicate balance, because you want to compare in ways that are productive and don’t risk leaving you demoralized. Here’s how I’d approach it:

1. Develop a personal yardstick.��Everybody has their own goals. Some want to send their children to private school, while others want to retire early. Some like to travel, while others like to give to charity. Some like the security of money in the bank, while others say, ���You can’t take it with you.���

Because no two people are alike, I recommend developing your own personal yardstick for success. Maybe your goal is to save $1 million. If that’s the case, build out a year-by-year plan for yourself, then measure yourself only relative to that plan. This will help you stay on track���and it carries another valuable benefit: If your neighbor shows up in a new BMW, you won’t necessarily have to employ willpower to ignore it or suppress feelings of envy. You can simply recognize it as part of your neighbor���s plan and not part of yours. While it may sound like a platitude to say that you should view other people as different and not better, I really believe that is indeed the case when it comes to financial planning.

2. Recognize that it’s the journey that matters.��My father, who is in his 80s, has a friend who retired on his 50th birthday. While that may seem like the very definition of success, academic research suggests otherwise. Counterintuitive as it may sound, hitting the jackpot isn’t what makes us most content. Rather, it’s the regular day-to-day feeling of progress in our work that makes us happiest.

Wouldn’t we all prefer more financial security rather than less? Of course. But the research says that, ironically, your neighbor who sold his business to Google may not be as happy as the person who���s still working toward that goal. Achieving long-desired life objectives can be anticlimactic and leave people feeling a lack of purpose. They’ve even found this to be true among Nobel Prize winners.

3. Don’t judge a book by its cover.��There���s an expression among financial planners that you really don’t know someone until you’ve seen their tax return. I���ve found this to be true. While I can’t quantify it, I have seen very little correlation between people’s bank accounts and their lifestyles. The lesson: Don’t measure yourself against your neighbors or your friends, because what you see is just part of the story���and that part may be awfully deceptive.

Adam M. Grossman���s previous articles��include A Graceful Exit,��Time Out��and��Staying Home . 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 .

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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Count the Cash

WHEN WE THINK about portfolio building, we tend to think first about stocks. They���re our engine of investment growth���and the source of endless anxiety. Indeed, to make stock market investing palatable, we take all kinds of precautionary measures, including diversifying broadly, adding bonds, throwing in cash, purchasing gold and goodness knows what else.

But maybe we have this all wrong. Perhaps, instead, we should start with cash: how much we currently have in safe, liquid investments, how much we expect to receive in the years ahead and how much we���ll need in the near future. Once we have a handle on our cash situation, we���re free to invest the rest of our portfolio as we wish���including potentially stashing much or all of our money in stocks.

Sitting pretty. How much cash should we hold? In addition to a modest sum in our checking account to cover the next month���s bills, we should all hold some cash or cash-like investments, whether we���re in our 20s or our 80s. This money might sit in a savings account, certificates of deposit or a high-quality short-term bond fund.

Think of it as comfort cash. It can ease our worries, knowing we have a backstop if we have a surprisingly expensive month���and it can help us avoid the financial anxiety suffered by four out of 10 Americans, who apparently either couldn���t cover a $400 unexpected expense or, to do so, would need to borrow or sell possessions.

How much comfort cash should we keep? It���s partly about sleeping at night, but also partly about being prepared for financial emergencies. That���s an especially big issue for those in the workforce, because the big financial emergency is getting laid off.

What about retirees? Because losing their job is no longer a risk, arguably they need little or no emergency money. But they may still need a heap of cash for another reason: to cover their spending needs in the years ahead.

Coming in. As a rule of thumb, money we���ll spend over the next five years should be out of stocks and riskier bonds. Instead, it should be invested in nothing more daring than a short-term bond fund. So how much cash do you need from your portfolio over the next five years?

For many folks, the answer will be zero���because they have enough cash coming in from elsewhere. If you���re in the workforce, your spending over the next five years will likely be more than covered by your paycheck, and thus there���s no need to hold anything more than comfort cash. Ditto for retirees who can cover their entire living costs with Social Security, plus any pension, annuity and rental income. For both these groups, investing heavily in stocks could make sense, provided they have the tenacity to stick with their holdings through the inevitable market turmoil.

The case for investing heavily in stocks is especially strong for those in their 20s and 30s, and not just because they have a long investment time horizon. A digression: There was a rather tedious debate in the 1990s about whether stock market returns are mean reverting. If they are, periods of bad returns will be followed by stretches of good performance, and thus long-term stock investors with diversified portfolios should eventually get rewarded. But if markets aren���t mean reverting and instead performance is totally random, there���s no assurance stocks will deliver the highest return, no matter how long we hang on.

So if young adults shouldn���t invest heavily in stocks simply because they have a long time horizon, why should they? In a nutshell: Because they don���t need to hold cash. In fact, if you���re in your 20s or 30s, your portfolio will likely be the net recipient of cash over the next three or four decades.

Suppose you���re age 30 with $50,000 saved. You make $80,000 a year, save 12% of income and plan to retire at 65. Ignoring inflation and future pay raises, you���ll add $336,000 in new cash to your portfolio over the next 35 years. In other words, even if your $50,000 is entirely in stocks, your portfolio is arguably super-conservative, given the $336,000 in cash still to be invested.

Going out. What if you���re retired and, over the next five years, will need to take regular annual withdrawals from your portfolio? You should calculate the total dollar amount you���ll need and then move that sum into cash investments and high-quality short-term bonds.

Let���s say you���re withdrawing 4% of your portfolio each year. You might keep 20% of your money in cash investments, to cover the next five years of portfolio withdrawals, and then invest the other 80% in stocks and riskier bonds.

Each year, part of that 4% withdrawal would be covered by the dividends and interest kicked off by your investments. Suppose your portfolio���s overall income yield is 2%. If you have a strong stomach for risk, you might keep less than 20% of your portfolio in conservative investments, knowing that your portfolio���s yield will cover half your withdrawals in the years ahead.

What if you���re withdrawing not 4% each year, but just 3% or even 2%? In retirement, the stronger your stomach for risk and the lower your withdrawal rate, the less cash you need to hold���and the more you could potentially allocate to stocks. That would be rational.

But it might also be rational to dial down risk. In the past, I���ve mentioned the comment from friend and fellow financial author Bill Bernstein that, ���When you���ve won the game, stop playing with money you really need.��� If you have more than enough saved for retirement, you might opt to keep less in stocks, thus ensuring there���s scant risk your lifestyle will be derailed by terrible markets.

So should you take more risk or dial it down? It all depends on your appetite for risk: You need to decide whether you care more about upside potential or downside protection.

That said, if you have money that you know you���ll never spend during your lifetime, and instead plan to leave it to your heirs or to charity, I���d be inclined to invest that money largely or entirely in stocks. Assuming neither your heirs nor the charity are banking on the money, it���s going to be gravy to them���so you might as well aim for as much gravy as possible.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook .��His most recent articles include Signal Failure,��Cash Back��and��Crazy Like a Fox . 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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You���re on Your Own

A WRITER RECENTLY asked my opinion of gig economy jobs and how they could benefit retirees looking for extra income. I looked up the term to be sure my understanding was correct. It was���except we used to call the jobs ���temporaries,��� ���part-time,��� ���project work��� or ���consulting.��� As I told the writer, a gig economy job sounds pretty good for us retirees who want to keep active or supplement our income, especially if it doesn���t involve being a crossing guard.

But I���m not sure the whole gig thing is great for younger workers. I realize I���m a dinosaur when it comes to the workplace and my work experience has long been buried beneath the remains of the last Ice Age. Still, right or wrong, society must come to grips with the employment changes it���s wrought.

Gig work has helped sever the old relationship between employer and worker. Gigs provide flexibility, but they also place far greater responsibility on the individual. Gig economy workers need constantly to find new work, while also planning and taking action to safeguard their financial future, including retirement.

My experience could hardly be more different:

I worked for the same company from 1961 to 2010.
I have a pension and 401(k) plan.
I have retiree life insurance and health insurance.

In 2019, finding such a job is virtually impossible, except perhaps in the public sector. In fact, such jobs don���t even exist at my former employer. Companies have all but abandoned pensions and benefits that encourage long-term employment. At the same time, it���s near impossible to find workers who want to spend most of their life at one company.

Given what you now know about me, it���s no shock to learn that my retirement planning was minimal, because that���s all that was required. I checked the progress of my growing pension and the survivor benefits that were part of it. I monitored my 401(k). In short, I could bank on guaranteed income, health benefits and life insurance, plus survivor income for my wife.

From age 18 until the day I die, my financial life has been and will be secured by my employment with a single company. I suspect that���s a strange and perhaps even scary statement���one that younger workers simply can���t relate to.

In 1995, with my employer facing stiffer competition, benefits were scaled back for anyone hired after that year. As the person in charge of employee benefits, I initiated those changes. The company-employee relationship that started in the early 20th century was gone: No more traditional pension, no more retiree health insurance, no more retiree life insurance. Since then, my successors have made additional changes, even trimming future pension benefits that older workers were counting on.

Recently, my former employer announced that retiree health and dental benefits would cease January 2021, and be replaced with a health reimbursement account, or HRA. Previous commitments to workers are easily discarded. Paternalism is pass��.

While most Americans never had the benefits I���ve enjoyed and even fewer worked for the same employer for half a century, it���s clear that���beyond a paycheck���employers can���t be counted on as a source of financial security. The message to everyday Americans is clear:

Don���t look to one employer for more than a short period of income���maybe three to four years and even less if you���re a gig worker.
While you���re at a company, leverage every financial benefit it offers���the 401(k) match, stock purchase plans, health savings accounts and so on.
Take financial planning, including retirement planning, very seriously���and adopt a lifestyle that allows you to save for the future.
Manage your ongoing spending to account for periods without a paycheck.
Maintain a healthy emergency fund.
Don���t put too much credibility in an employer���s ���promises,��� especially if those promises involve long-term employee benefits.

Yes, you���re on your own.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include What’s Your Plan,��Staking Your Claim��and��What Do You Mean.��Follow Dick on Twitter��@QuinnsComments.

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Measuring Up

IT BAFFLES ME that people often favor stock-picking over index funds���and yet they fail to measure their portfolio���s performance against a proper benchmark. I���m not talking about those who buy a few individual stocks for entertainment or education. For them, it���s a worthwhile pastime and the stakes are low.

But there are others who ignore the evidence and arguments against active management, and devote serious money to picking stocks and timing the market in hopes they���ll earn market-beating returns. This group includes a number of people I know���folks I otherwise admire for their intelligence, critical thinking and self-awareness.

These acquaintances are do-it-yourself investors who actively manage their investment accounts, and they do so with confidence. I���ve probed a little to find out what lies behind this confidence. My conclusion: Improper benchmarking is a common cause. In other words, many think their strategy has played out well, but���in reality���their investments have lagged behind an appropriate market benchmark. Why don���t they realize this? I���ve spotted two mistakes.

First, they���re misled by the outsized performance of a few stock picks. I have a friend from work, whom I���ll call Techie. A few years ago, he researched and bought a dozen stocks���all members of the popular Nasdaq 100��Index.

A few years later, Techie���s picks rode the bull wave upward. Two stocks did especially well, the rest not so much. The net result: Techie���s portfolio underperformed the indexes that his investments should have been benchmarked against. Yet the outperformance of the two picks, coupled with his portfolio���s overall gain, gave Techie false confidence in his stock-picking skills.

That brings me to the second error that I���ve seen drive overconfidence. This mistake affects people who make regular contributions to���and withdrawals from���their investment account.

At issue is comparing an account���s dollar-weighted return to a benchmark index���s time-weighted return. To illustrate the difference between the two, suppose you were inspired by Warren Buffett���s advice at Berkshire Hathaway���s 2004 shareholder meeting and started putting $100 in the S&P 500 each month. Ten years later, your account balance would have been close to $20,000, a handsome dollar-weighted return of more than 9% a year. But the standard benchmark return for the S&P 500 over that period was much lower���a time-weighted return of around 7%.

Why the difference? The time-weighted return assumes you bought at the beginning of the 10 years and simply held on. Meanwhile, the higher dollar-weighted return reflects the fact that you were buying regularly during a stretch when the market experienced a significant downturn and subsequent recovery. That sequence of returns would have bolstered your performance, because some of your $100 monthly investments bought the S&P 500 at very low prices. But you didn���t truly outperform the benchmark���because you were invested in the benchmark. The appearance of outperformance reflects not stock-picking ability, but rather the benefit of your mechanical dollar-cost averaging over the 10-year stretch.

This performance misinterpretation affected someone I���ll call Lucky. We both started at the same company in early 2000. We both put our annual bonus���a sizable chunk of our income���in our investment accounts. We both traded up to larger homes near the peak of the housing market in 2006. The down payment required us to sell investments at market highs. We also shared similar risk profiles.

The only difference between us is that Lucky had always favored stock-picking over indexing. He didn���t time the market or chase hot stocks. Instead, he put his money in large, well-known companies. He continued on this path because he thought he was consistently beating the S&P 500.

A few years ago, Lucky casually mentioned his consistent outperformance to me. We both use the same brokerage firm, which reports your account���s dollar-weighted return and compares it to popular market benchmarks. Lucky���s mistake: He didn���t read the fine-print and hence failed to realize that he was comparing apples to oranges���his dollar-weighted return to the S&P 500���s time-weighted return. My suggestion to both Lucky and Techie: Check that your stock picks really are measuring up���and consider index funds instead.

A software engineer by profession, Sanjib Saha is transitioning to early retirement. His previous articles include It’ll Cost You,��Mind the Trap��and��A Rich Life. 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.��

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Into a Cloud

MY GREAT-UNCLE, Jerry Kelly, was an American pilot in the Second World War. On Oct. 20, 1944, he was flying a close-support mission over Germany when his P-47 Thunderbolt was hit by anti-aircraft fire. After he radioed that he had smoke in the cockpit, his plane began losing altitude and was last seen disappearing into a cloud. Jerry was 20 years old.

More than 71 years later, a UPS carrier delivered a blue box to my home. The box contained a treasure trove���220 handwritten letters Jerry wrote home from the war. The box was a gift from my dad���s cousin, Phil, who spared no expense in shipping costs and tracked the package every hour to ensure safe delivery. Given my strong interest in Jerry���s life, Phil decided I should be the family guardian of the letters.

I���ve read each letter more than once. I now know Jerry better than most people I deal with every day. People I regularly interact with don���t work out their deepest thoughts and feelings in handwritten letters, and���even if they did���they wouldn���t let me read them.

Jerry���s letters have provided me with many valuable life lessons. Here are seven of those lessons:

1. Saving money brings focus to life. As a pilot, Jerry made a good wage and spent less than he earned. On Oct. 8, 1944, he wrote a letter to his mom expressing the satisfaction he felt from seeing his bank account balance reach $1,200, equal to $17,500 in today���s dollars. Jerry planned to study accounting at the University of Utah upon his return from the war.

Jerry���s best friend, who is still alive today, told me Jerry lived a life of high purpose. Saving money has many advantages. One advantage: It helps us maintain focus on our future. There���s a present-day benefit that comes from knowing we are providing for our future self.

2. Determine what brings you happiness, then invest in those things. Although Jerry was a saver, he wasn���t extreme in his frugality. He occasionally splurged on purchases. He knew himself well enough to know what made him happy and spent money intentionally.

Jerry loved writing letters, watching a good movie, listening to a Glenn Miller song and drinking a chocolate milkshake with a buddy. He spent $6, or $87 in today���s dollars, on a fountain pen. He wrote almost every letter home with that pen. He purchased a radio to listen to news broadcasts and hear music. And the word ���milkshake��� is found several times in his letters.

Financial planner Allan Roth has said, ���The goal isn���t to be the richest guy in the graveyard.��� The goal, rather, is to use money to enjoy life and maximize happiness. Save money to promote future happiness. But if drinking a chocolate milkshake with a friend will bring you happiness today, then buy the milkshake.

3. Triumph is often preceded by struggle. Jerry convinced his dad���but not his mom���to sign a release form allowing him to enlist in the Army Air Corps one month before his 18th birthday. He set his sights on becoming a pilot.

He went through basic training and then began preflight training in early 1943. That summer, he started flying airplanes, but always with an instructor. His primary instructor had a temper and would yell constantly at Jerry, harshly criticizing every little mistake. Jerry worried he would wash out and never achieve his goal. But he pressed on, working and studying harder than ever before.

A breakthrough happened on Sept. 22, 1943, when Jerry soloed an airplane for the first time. He wrote home that night, ���Well, I finally did it! I soloed today!!! My heart was really pounding. But as soon as I got in the air, I felt cool and collected and calm and I just did everything I���d been taught and the rest was easy. Hooray for me. I got compliments from my instructor and everybody. My instructor said I was really on the ball today. You couldn���t dampen my spirits with three buckets of water right now.���

It has been said that courage is having done it before. After his successful solo flight, Jerry turned the corner and continued to improve as a pilot. Later in his service, he even looked back at his struggles in pilot training as one of the happiest times of his life.

4. Snatch happiness in little pieces. Here���s an example from a letter Jerry wrote on June 28, 1943, while stationed at Santa Ana Army Air Base: ���Something really surprising happened last night. We were all in bed, with the lights out after taps had been played over the loudspeaker system and we were all getting settled, then all of a sudden, out of the clear sky came the strains of Glenn Miller���s record ���Stardust.��� Somebody was playing it over the loudspeaker system, and when ���Stardust��� finished, he put on Artie Shaw���s ���Begin the Beguine.��� Oh, it was fine! It was just the nicest surprise I���ve had.���

We will likely fail in any attempt to be happy all day, every day. We can be more successful if we try to snatch happiness in little pieces.

5. Don���t underestimate the value of family dinner. In September 1944, Jerry was stationed in France and had started flying missions over Germany. He became homesick and often daydreamed about being home.

Here���s what he wrote home to his mom on Sept. 10, 1944: ���I���d sure like to sit down to your table now for a real Kelly Sunday dinner. The food situation is really sad here. Why, even Kalen stopped dreaming about his girl and now he dreams about roast turkey and all the trimmings and his mother���s hot rolls. Boy, I���d give $50 for a meal like you fixed me the night before I came in the army. Remember, roast turkey, dressing, mashed potatoes, gravy, corn, milk, bread, butter (real honest-to-goodness butter) and strawberries and ice cream. Whew! I get weak all over just thinking about it.���

Family dinner blends two things that can bring us great happiness���food and relationships. The good food makes us happy for an hour, the good relationships make us happy for a lifetime.

6. Sit in a chair and be thankful. Jerry wrote the following from Belgium on Oct. 8, 1944: ���All this talk of ���V��� day and celebrating makes me mad as blazes. This war is a long, long way from being over. All this talk of closing stores because people might go on a rampage nauseates me. The thing to do is sit down in a chair and be thankful.���

The implication: We must never forget to express gratitude to those who make sacrifices on our behalf���those who do the heavy-lifting for us. So many of the comforts and protections we enjoy have only been made possible because of the hard work and sacrifices of the heavy-lifters. One way we can show our gratitude is by the simple act of sitting in a chair and being thankful in our hearts.

7. Leave a legacy. There are many ways to leave a legacy that���ll endure after we���re gone. One way is to share our thoughts, feelings and personal experiences in written form. Keep a journal, compose a handwritten letter to a friend or family member, write your personal history or write that book you���ve always wanted to write.

The late John Bogle, founder of Vanguard Group, said in his 2018 book Stay the Course, ���Why do I write? Because books outlive one���s short existence on this planet.��� The same can be true of our letters preserved by family members who outlive us. Jerry���s letters continue to pay dividends to his family, as we read and reread his personal experiences and observations about life. Because he wrote letters, he is not forgotten. That $6 that Jerry spent on a fountain pen? It was the best money he ever spent.

Ryan Kelly is president of RFK Capital Management , a fee-only and advice-only financial planning firm that provides support to do-it-yourself investors. He lives in Sandy, Utah, near the base of the Wasatch Mountains. His favorite month is April when he can ski in the morning and play golf in the afternoon. Follow Ryan on Twitter @RyanFKelly83 .

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