Jonathan Clements's Blog, page 359

Nothing to Chance

MY WIFE AND I take some over-the-top precautions to protect our financial accounts. Why? After 40 years of working, our life���s savings boil down to digits stored on computers. No one anymore holds stock and bond certificates, stuffs money in mattresses or buries gold in the backyard. The integrity of those digits is all important.

Here are our 11 strategies���which go way beyond the normal account and password protection recommendations:

We only deal with major institutions. Several friends have their retirement funds invested through small, boutique wealth advisors. I know of one advisor who operates on his own out of his house. These small advisory firms likely provide great service. But to me, they seem ripe for mischief. Bernie Madoff is just one of many rogue investment advisors who have gone astray with Ponzi schemes or excessive commissions.
We maintain 13 financial accounts split up among eight institutions���unlike many friends, who have consolidated all assets into one huge account. Just like portfolio diversification, we feel institutional diversification lowers risk, by reducing the fallout from a cyberattack or other issues with any single institution, while also marginally broadening our investment choices.
We separate our investment accounts from our daily cash management and banking accounts. Except for occasional cash transfers from two investment accounts, these various accounts aren���t linked. The low interest rates of recent years minimize the penalty for maintaining larger bank cash balances.
For our larger investment accounts, we utilize two-factor authentication, and also must painstakingly locate and input cumbersome passwords for each log in. We almost never save investment account passwords on any device. We don���t use any password manager or other lockable software, and we don���t maintain a spreadsheet with a list of passwords. We also feel ���the cloud��� isn���t our friend when it comes to protecting financial and other information.
Likewise, we don���t use account aggregation services or download financial data to budgeting, tax or other software. Instead, we manually update our gross assets���our balance sheet���and our budget every six months. This ensures our accounts remain segregated and discrete. We also feel semi-annual updates are sufficient to allow us to tweak estimated tax payments and rebalance our investments. Unlike many friends, we don���t spend much time sweating daily, monthly or quarterly changes in the markets or our accounts.
We have some retirement accounts that we never access digitally, so there���s no username and password to be stolen. The investment selections for these accounts are in a set-it-and-forget-it mode.
We never access investment accounts from our phones, a notebook computer or some other portable device. Never, ever. Most friends trade stocks, review balances, move money and complete other financial transactions with ease from their cellphone anywhere in the world. We know our approach is old school. But with a conservative and diversified portfolio, we never feel compelled to take prompt investment action. In an emergency, we could always call our financial institutions.
We only use one device to access the larger accounts, which is locked up when traveling.
Like most folks, we probably do not change passwords frequently enough, especially as our logon routines are so cumbersome. The good news is, we don���t have to sync new passwords on multiple devices.
We regularly download account statements, but these aren���t readily found in the event of a house break-in. Retaining these backups could prove invaluable, should any institution have problems with its own records.
We have advised our kids about the location of our accounts and passwords.

John Yeigh is an engineer with an MBA in finance. He retired in 2017 after 40 years in the oil industry, where he helped negotiate financial details for multi-billion-dollar international projects. ��His previous articles include Hers, His and Ours,��Unloaded��and Getting Schooled.

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

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June’s Hits

WHAT CAUGHT readers’ attention last month? Here are the seven articles on HumbleDollar that garnered the most page views:

Math vs. Emotion
Not as Advertised
Father Knew Best
Down the Drain
An Old Man’s Gripes
Out on a Lim
Building Wealth

An article from May, Farewell Money, also continued to attract a heap of readers. What about our Saturday morning newsletters? The most widely read was Developing Story.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook .��His most recent articles include Third Rail,��Get Happy��and Where It Goes . Jonathan’s ��latest books:��From Here to��Financial��Happiness��and How to Think About Money.

HumbleDollar makes money in three ways: We accept��donations,��run advertisements served up by Google AdSense 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 merchandise, you don’t pay anything extra, but we make a little money.

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Playing Nice

JUST BEFORE Thanksgiving in 2017, a heartwarming story hit the news. A young woman from Philadelphia named Katelyn McClure had run out of gas on the highway and found herself stranded. By chance, a homeless veteran named Johnny Bobbitt was nearby and, in an act of selflessness, he gave McClure his last $20 to buy gas.

After making it home safely, McClure wanted to express her gratitude, so she set up a GoFundMe page to help Bobbitt get back on his feet. The story spread quickly online and the pair drew national attention.��Good Morning America��called Bobbitt a ���Good Samaritan��� and hailed McClure for her ���honorable deed.��� In response to the publicity, thousands contributed through GoFundMe, raising an incredible $400,000 for Bobbitt.

It was a wonderful story. The only problem: It was a complete fraud. McClure spent most of the funds on herself, buying a BMW and gambling in Atlantic City, with Bobbitt receiving relatively little. Both ended up pleading guilty.

To be sure, these sorts of things are rare. But they serve as a reminder to be cautious when making charitable contributions. Before writing a check, here are eight steps you should take to vet an organization:

1. Status.��If you don���t have prior experience with an organization, your first question should always be:��Is this an actual charity? A good starting point to sniff out fraud is the IRS���s��Tax Exempt Organization Search tool, which will tell you if an organization is a registered nonprofit. Note that donations to political candidates, political parties and lobbying organizations are not tax-deductible, so they won���t appear in the database.

2. Structure.��Many charities are structured as feeder organizations, collecting donations and then distributing them to other charities. While there���s nothing wrong with this per se, it does add a layer of overhead expenses, leaving less for actual charitable work. Ask yourself whether this is the most efficient way to support the causes you care about.

3. Use of funds.��In general, when charities raise money, they use it in one of three ways: to support operations, fund a capital project���such as a new building���or add to their endowment. Each has its merits. Still, when you make a gift, think about how the organization will be using it. If your gift is large enough, keep in mind that you can attach restrictions.

4. Financial health.��Is the organization on a solid financial footing? If you aren���t sure, check its tax return, called a Form 990. These are available publicly. You can find them in a variety of places online, including FoundationCenter.org. Alternatively, if you use a donor-advised fund, such as the one run by Fidelity Investments, it may provide access to 990s.

Religious institutions are exempt from filing 990s. In lieu of that, they should provide some sort of financial report. If an organization doesn’t offer any kind of financial disclosure, I see that as a deal breaker. I wouldn���t support an organization that refuses to tell donors how its money is being used.

5. Efficiency.��Assuming you���re able to access a financial report, examine how the organization spends its money. In particular, see how much is spent on marketing and executive salaries vs. actual on-the-ground charitable work. A Form 990 won���t tell you everything, but it does include executive salaries, which is often a good indicator of the organization���s fiscal habits.

6. Financial trends.��What has been the trend in revenue and expenses? Are contributions growing or shrinking? On the expense side, are expenses growing more slowly or more quickly than revenue? While the numbers may not tell you everything, you could use them as a basis for asking questions of the charity���s staff.

7. Governance.��In addition to scrutinizing top executives��� salaries, look closely at their qualifications. Who runs the organization and how long have they been in place? What has been the trend in revenue and expenses under their leadership compared to prior administrations?

8. Fair dealing.��I used to participate in an annual charitable event���until I discovered on its Form 990 that the organization was paying out a seven-figure sum for ���management expenses��� to a family-owned firm. Was there anything improper going on? Maybe not, but it���s impossible to know. When charitable dollars are involved, I think it���s reasonable to insist on absolute transparency.

Looking to research a charity? In addition to the��FoundationCenter.org, other useful sites include��CharityNavigator.org��and��GuideStar.org.

Adam M. Grossman���s previous articles��include Stepping��Out,��Math vs. Emotion��and��Don’t Bank on It. Adam is the founder of��Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He���s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter��@AdamMGrossman.

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Third Rail

IF I���M EVER feeling lonely, all I need to do is write about certain financial topics���and soon enough my inbox is brimming with emails, some vehemently disagreeing, others offering vigorous nods of assent.

A dozen of those topics are covered in HumbleDollar���s new chapter devoted to great debates���issues like whether money buys happiness, when to claim Social Security and whether individual bonds are superior to bond mutual funds. But those subjects aren���t the only ones that stir up readers. Here are four other contentions that are almost guaranteed to trigger pointed comments:

1. Budgeting is for the irresponsible.��To be sure, some folks budget because it gives them a greater sense of control over their finances. But I���d argue that, if you���re saving a decent chunk of your income toward retirement and other goals, it doesn���t much matter much how you spend the rest of your paycheck���and there���s no need to budget.

Instead, the people who need to budget are those who aren���t saving enough, and who need to figure out where their money goes and become much more deliberate about their spending. For these folks, budgeting���especially if they make a point of writing down every dollar they spend���can unleash a newfound frugality.

But most of the time, I suspect budgeting is like dieting: Most folks who try it don���t get the results they desire, because���without a total commitment to change���it simply feels too much like deprivation.

2. Children aren���t cheap.��Many people believe children are priceless. I can assure that this is not the case���and I have decades of bills to prove it. This has not deterred me from having two children or taking partial responsibility for two stepchildren.

I���m not saying that choosing to have children should be a financial decision. But I do think parents need to have their eyes wide open. Raising children is costly, making it harder to achieve other financial goals, such as early retirement.

That cost potentially includes paying $100,000, and perhaps far more, for college. I don���t think parents are duty-bound to cover their kids��� higher education expenses. But I do believe they have an obligation to guide their children���s college choices���and to dissuade their kids from attending a college that involves student loans they���ll be hard-pressed to repay.

3. An emergency fund is an unemployment fund.��Financial emergencies may not be foreseeable, but most of them should be manageable if we have a modest amount of savings. The big exception: getting laid off.

One rule of thumb suggests keeping emergency money equal to six months of living expenses. I���ve always presumed it���s stated that way because the big financial risk is being out of work for that long. If you were, the cost could run into the tens of thousands of dollars.

What about other financial emergencies, such as a hefty car repair bill, a broken furnace or major medical expenses? The cost should be under $10,000. Take major medical expenses. Many policies have an annual out-of-pocket maximum, such as 2019���s $7,900 for an individually purchased policy. I���m not saying $7,900 wouldn���t sting. But you could run through far more money if you lost your job.

One implication: If you���re retired, you don���t need to hold nearly so much emergency money���and perhaps none at all. As part of your retirement income strategy, you might keep five years of portfolio withdrawals in cash investments and short-term bonds. What if you got hit with a surprise expense? You could always dip into your five-year stash, and then replenish from longer-term investments whenever the market allows.

4. Paying down a mortgage is a solid investment.��I���ve been arguing this one for years���but it���s become a whole lot easier to make the case. The 2017 tax law roughly doubled the size of the standard deduction, while capping the itemized deduction for state, local and property taxes at $10,000. Result: Many folks now get little or no tax benefit from their mortgage interest, especially if they file as married filing jointly or head of household.

Let���s say you have a mortgage charging 4%. If you aren���t getting a tax deduction for the mortgage interest, it���s costing you the full 4%. You should earn more than that over the long haul by buying stocks.

What if your inclination is to purchase bonds? You might come out ahead if you buy bonds in a 401(k) where you���re getting a matching employer contribution. Even if you aren���t getting the match, you might do better if you buy bonds yielding more than 4% in a tax-deductible or Roth retirement account. But the odds are, you���ll also be taking far more risk. How so? The return from paying down a mortgage is guaranteed���but, in today���s world, a bond yielding more than 4% will involve some risk of default.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook .��His most recent articles include Get Happy,��Developing Story,��Where It Goes��and�� Down the Drain . Jonathan’s ��latest books:��From Here to��Financial��Happiness��and How to Think About Money.

HumbleDollar makes money in three ways: We accept��donations,��run advertisements served up by Google AdSense 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 merchandise, you don’t pay anything extra, but we make a little money.

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Basket Case

UPON RETIREMENT, I picked up additional duties at home. One was cooking and the other was grocery shopping, both of which I enjoy. The shopping part furthers my ability to observe people, a favorite pastime.

I have concluded that you can tell a great deal about people���s spending and lifestyle habits simply by what���s in their shopping cart. And you can tell quite a bit about individual responsibility and personal behavior by what people do with their empty shopping cart. I have no scientific evidence to support my observations. But I���m confident I���m on to something.

���Healthy, wealthy and wise,��� exhorted Poor Richard. (No relation.) That���s a good way to assess the contents of shopping carts.

But before we get to that, consider the disposal of the shopping cart. Is it too much to ask people to return the cart to the corral or to where they got it? It would appear so. Rather, the frequent routine is to leave it where it was emptied���in a parking space, between two cars or simply pushing it aside, freeing the cart to dent someone else���s car.

I once saw a cart pushed across a parking lot. It took off down the hill, slamming broadside into a car just pulling into the lot. The perpetrator simply walked away, seemingly oblivious to his actions. What does all this say about our sense of responsibility, our level of laziness and our indifference to others?

In addition to the parking lot slobs, there are the wanderers. These are people who believe the store���s cart is their personal conveyance, no matter where they roam. Look around a strip mall. You���ll find the pharmacy cart near the supermarket, the fashion store���s cart by the pharmacy, and a cluster of them six blocks away. What are people thinking? Not very wise, in my view.

Now, about what���s in those carts. I marvel at the incredible amount of junk food, soda and such. Between sugary drinks and snacks, supermarkets have three or more aisles devoted to them. Americans spend over $1 billion a year on pretzels and Twinkies combined, and $65 billion on soda alone. Sadly, my observations show this buying is common among young people accompanied by children, who can���t wait until checkout before diving into the goodies. So much for our hopes to be healthy���and perhaps wealthy, too.

At the other end of the spectrum are the health-conscious shoppers. Everything they buy is organic and costly. You would think using less chemicals would make food cheaper, but the prices say otherwise. It sounds logical that we shouldn���t put chemicals in our bodies. But there���s no clear evidence of better health outcomes from going organic. It is clear, however, that doing so may impact our goal of being wealthy.

Next, we have carts filled with convenience food. These are the folks who have ���no time��� or inclination to cook, so they buy prepared. I had one shopper tell me she was beyond peeling and cooking a potato, so she bought prepared mashed potatoes marketed by a large restaurant chain. I tried some. They were quite tasty���and expensive���and why not? A half-cup portion contained 25% of the recommended daily intake of sodium. This one puts a dent in healthy, wealthy and wise, I���d say.

Finally, we have the granddaddy of all shopping carts, the oversized ones at the big box stores. They allow you to buy stuff you don���t need, and probably shouldn���t be buying in huge quantities, on the theory you���re saving money. Per teaspoon, I guess buying mayo by the gallon could conceivably save money. Ditto for junk food. I���m putting this one in the ���neither wealthy nor wise��� category. Heck, it���s often not healthy, either.

Now, if only I could link my shopping cart theorem to the ���living paycheck to paycheck, can���t afford to save and don���t have $400 for a financial emergency��� dilemma, I might solve all manner of societal problems. Can���t afford to save? Let me at your shopping cart and I���ll find at least $10 for your IRA. What about health care costs? The U.S. is the only developed country on the top 20 list of most obese countries. Can that be traced to the contents of the lowly shopping cart? Maybe not entirely. We also need to consider the $117 billion we spend each year on fast food. That isn���t healthy, wealthy or wise. But that���s another story.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Bad to Worse,��Missing the Point��and��An Old Man’s Gripes.��Follow Dick on Twitter��@QuinnsComments.

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

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Bundle of Joy

ON A RECENT VISIT to the U.S. from our home in Spain, I used one of my last days to do some shopping, including purchasing a new laptop power cord to replace one that failed the night before. I have a Dell computer, so I entered the store confident I could easily buy a cord tailor-made for my brand.

���We only sell universal power cords,��� the clerk told me.

���I don���t need to power the entire universe, just my Dell laptop,��� I replied.

The clerk then enthusiastically explained that the power cord they sold came with nine replaceable power tips, so it could be used on any model laptop. It also cost $50.

���You don���t have a cord for just a Dell?��� I asked.

���No, but this does them all. It can power up all your laptops.���

I then explained that, like most laptop users, I only had the one.

���So what happens if you get another from another brand?��� The clerk relentlessly kept selling.

���Laptops all come with power cords nowadays,��� I replied, revealing my long-held expectation that, with every electronics purchase, you also get the method for powering it.

In the end, however, I needed the cord, so I paid and left.

Hoping to forget the sticker shock from what, up until now, had been the least interesting part of my computer, my wife and I went to one of our old neighborhood Italian restaurants for lunch. When we got there, however, we were again sticker-shocked. Maybe it���s that we have been paying euro prices for almost a year, but lunch was $12 per entr��e. In Spain, that amount could easily get you two meals. Yes, the portions were huge���my chicken parmesan was a breast and a half���but the price was still a bit of a surprise.

As we drove home, my wife (the financial mind) and I (the economics guy) talked about all the big prices we were seeing in the States. Then I said a single word: bundling. My wife silently nodded, and we both shook our heads in tandem at the pervasiveness of this insidious trend.

For those unfamiliar with the term, bundling is when a seller appears to give buyers a good deal by offering more while charging less than if the items had been bought separately. Want the tennis cable TV channel for $5 a month? You have to buy the ���country club package��� that gives you both the tennis and golf channels for $7.50.

It���s a good deal, unless you really don���t want the golf channel, in which case you���re stuck paying $2.50 extra for something you don���t use. Sound like a small cost? Bundles can add up fast.

An internet search showed I could have gotten a Dell-only charger for under $20. But since I didn���t have the luxury of time to await delivery, I had to splurge for a power cord that would charge not just my laptop, but every computer in the neighborhood. Neither I nor my diet-advising wife wanted me to eat so much at the Italian restaurant. Yet there lay the huge meal on my plate, daring me to consume it all and then remain awake and productive for the afternoon.

Some might ask why this is a problem, given that we do seemingly get extra value for the extra money. It���s true bundling often works to our advantage, such as phone plus internet packages, or even the jumbo pack with the extra rolls of toilet paper. Bundling, however, can also have cumulative negative effects, both for individual consumers and for society at large���for three reasons.

1. Wasting resources.��Bundling seems innocuous, because most times what���s thrown in isn���t scarce. But consider how often those ���extras��� end up in the trash. You need a flapper valve for your toilet, so you buy the entire toilet repair kit and toss most of it away. Many people will use more paper towels to clean the same spill if they have extra rolls in the pantry.

Those little bits add up. We���re quickly facing a landfill problem from all the accumulated waste. Even worse, it was��reported��last year that Americans waste about a pound of food per person per day, even while many go hungry.

2. Overconsumption.��If you don���t want to waste that extra portion of served food, you might take it home for later. Or you just go ahead and eat it right away, waistline be damned. America is truly a consumer society, even if that consumption hurts��our health. And while food bundling strains our belts, large-ticket bundling strains our ability to save for retirement.

In 2003, when my wife and I were searching for a home in a good school district, we were shown mega-houses that came with two or three family areas (never mind that having separate sitting spaces defeats the entire notion of a ���family area���), plus other amenities (saunas, pools, extra-large bathrooms) that we really didn���t need, but which were bundled together at luxury home prices. We certainly didn���t want to commit to a long-term mortgage for bells and whistles we weren���t planning to use. Yet it was harder to find a less expensive ���basic��� home than a tricked-out one.

3. Pricing people out.��When home shopping, we held out until we found a fixer upper that was near a good school. We were lucky. Many others want to give their kids an opportunity to go to a good school but can���t find housing they can afford.

People will justify bundling by saying nobody���s forcing you to buy the bundle. But often, it���s the only choice. Try asking Netflix if you can pay for just the movies you want to watch.

Bundling is also a reminder that it often takes money to save money.�� A buy-in-bulk store might offer three weeks��� worth of supplies for what a consumer would spend in two weeks���arguably a bargain. But if shoppers only have enough money to pay for each week as it comes, they can���t avail themselves of the bargain. There���s lately been demand by��millennials, who are more likely to live alone, to downsize products and not offer savings only to those who buy in large quantities. Will that make any difference? We���ll see.

Jim Wasserman is a former business litigation attorney who taught��economics and humanities for 20 years. His previous articles include Getting Played,��The S Word��and��Applying Pressure. Jim���s three-book series on teaching behavioral economics and media literacy,���� Media, Marketing, and Me , ��is ��being published in 2019.��Jim lives in Granada, Spain, with his wife and fellow HumbleDollar contributor, Jiab. Together, they write a blog on retirement, finance and living abroad at�� YourThirdLife.com.

HumbleDollar makes money in three ways: We accept��donations,��run advertisements served up by Google AdSense 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 merchandise, you don’t pay anything extra, but we make a little money.

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Not as Advertised

I VISUALIZED a retirement far different from the one I���ve experienced. Before I quit the workforce, I thought my retirement would be a carefree life where I could do what I want, when I want. I could work, travel, sleep all day. There would be few limits. Why? I had no money issues and few responsibilities.

Today, that seems like a dream.��Since retiring, I realize my retirement is constantly changing. Unexpected events and expenses can derail the best-laid plans. Here are 10 things I���ve learned in the decade since leaving my job:

1. Working in retirement. I retired from Boeing at age 57 with a plan that included working as a part-time contractor until my mid-60s. Instead, I worked just six months at another aerospace company���until I learned my father was seriously ill. I was never able to go back to work, because both my parents��� health declined and they needed my help. The lesson: Never bank on working after retirement for financial reasons. There are too many unknowns.

2. Long-term care. After watching my father struggle for three years with cancer, I know the importance of having some sort of long-term-care plan for your waning years. During the last two years of my father���s life, he needed help with many daily activities, including bathing, eating and dressing himself. Medicare generally doesn���t provide long-term care. Since my parents didn���t have long-term-care insurance, my mother, sister, brother-in-law and I provided the necessary care. If you don���t have insurance, you���ll likely need a family member or friend to be there for you.

3. Lots of free time. Before I retired, I read a lot of blogs about retirees having all this free time to do whatever they wanted. I can assure you that doesn���t describe my retirement. I spend more than half my time as the primary caregiver for my mother. I���m limited in how long I can be away from her.

4. Investment strategy. I found it���s more difficult to manage your investments after you retire. Before, you���re in the accumulation phase. This can be fairly straightforward. Just contribute to a few low-cost broad-based index funds.

But when you retire, you need to come up with a drawdown strategy that���ll provide you with lifetime��income, while minimizing taxes. After struggling with this on my own, I decided to hire a fee-based financial advisor.

5. ��Taxes. I never really thought about the effect of taxes on my retirement. I knew I���d have to pay taxes on my traditional IRA, rollover IRA and 401(k) accounts. But I never took the time to calculate how my taxable income would affect my Social Security benefit and Medicare premiums.

How much you pay for Medicare Part B and the taxes you pay on your Social Security income are determined by your income level. Result: When I start my required minimum distributions from my retirement accounts at age 70��, my Medicare premiums will increase and I���ll be taxed on 85% of my Social Security benefit. I should have started converting some of my tax-deferred saving accounts to Roth IRAs earlier, so I reduced my future tax liability.

6. Fixed expenses. I can���t tell you how much better it is to retire with very few fixed expenses. Not only is it financially easier, but also it���s less stressful. I don���t have a mortgage payment���and that���s a big relief. It gives me a sense of security to know I can sharply lower my spending if I have a financial emergency.

7. Retiring together.��This can be a difficult time for couples. During your working years, you aren���t with your significant other as much. When you retire, you might need to adjust to each other���s habits and idiosyncrasies. I have a retired friend who says he likes it quiet in the morning. But when his wife gets up, she blasts the television. It drove him crazy until they were able to work out their differences.

8. Need for friends. I didn���t appreciate how important friends are until I retired. Without them, I wouldn���t be as socially connected. Hanging out with my friends has become a big part of my retirement life. It makes me feel alive. Don���t assume that, just because you have a large family, you don���t need friends. You tend to do things you enjoy with your friends, while many things you do with family might be out of a sense of obligation.

9. Retirement can be stressful. I thought, when I retired, my life would involve fewer worries. In some ways, that���s true. But taking care of an elderly parent, or losing a loved one or a best friend, can��be very stressful. Don���t get me wrong: I enjoy retirement���but it isn���t stress-free.

10. Health care expenses. One thing I wished I had done when I retired was look into getting dental insurance. Medicare doesn���t cover dental expenses and routine eye care. After I retired, I had an out-of-pocket expense of more than $5,000 for two costly dental procedures. When you retire, you need to make sure you have the right health care coverage���or you could face unexpectedly high out-of-pocket expenses.

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 A Fine Example,��Building Wealth,��Not My Priority��and��Power of Two. ��Follow Dennis on Twitter��@DMFrie.

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

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Where’s the Value?

IT���S INTUITIVE that, the cheaper a stock is when you buy it, the greater the expected risk-adjusted return. Indeed, academic research has shown this to be true. Eugene Fama and Kenneth French demonstrated in a��1992��academic paper��how, over the long term, so-called value stocks have delivered significantly higher returns than growth stocks.

Fama and French defined value stocks as those companies with a book value���the accounting difference between corporate assets and liabilities���that was high relative to their stock market value. They defined growth stocks as those with a low book-to-market ratio.

To capture the value premium, financial advisors who pay attention to academic research often recommend including a ���factor tilt��� towards value stocks. Historically, it���s proven to be a good move. Patient investors with low-cost exposure to value stocks have generally managed to achieve market-beating returns.

In recent years, however, questions have been raised about the wisdom of tilting toward value. In many countries, including the U.S., the value premium has been slightly negative since 2010. In 2018, it delivered its worst annual return of the current decade. Factor Research��found value stocks in the U.S. typically lost 17.7% of their value in 2018, compared to a 6.6% drop in the S&P 500. The figure for Europe was even worse, at 17.9%.

Some commentators have even suggested that the value premium is dead. One explanation they give: The publicity surrounding the value premium has generated fund flows which have effectively eliminated it.

Should investors give up on tilting to value? After all, value funds are more expensive than traditional index funds that track an entire market. They���re also prone to greater volatility.

My view: Value investing still makes sense. If you���re skeptical, here are three things to bear in mind:

1. All factor premiums experience long periods of negative returns.We shouldn���t be surprised when risk factors such as value, company size and profitability underperform from time to time. It���s part and parcel of investing. If they didn���t sometimes lag the market, they wouldn���t provide a premium at all.

2. Yes, value stocks in the U.S. have underperformed the broader market since 2010. But in other developed markets, they have fared much better. During the current decade, a globally diversified value investor shouldn���t have paid more than a small penalty.

3. The valuation spread between value and growth stocks has widened. Indeed, as a result of the relatively poor performance of value stocks over the past decade, the book-to-market spread between value and growth stocks is at about the same level it was in 1992, when Fama and French published their research. The potential for outsized returns from value stocks is greater now than it has been for some time.

But before you rush into value stocks hoping to catch an upturn, bear in mind that timing factor premiums is almost impossible to do successfully.��Outperformance tends to come in random bursts, often over a period of just a few days. A��2017 study��by AQR Capital Management concluded: ���Our research supports the approach of sticking to a diversified portfolio of uncorrelated factors that you believe in for the long-term, instead of seeking to tactically time them.���

As Warren Buffett likes to say, successful investing has far more to do with temperament than intelligence. You can know the academic literature inside out. But if you don���t have the patience and discipline to stick with your chosen strategy through thick and thin, it won���t count for anything.

Robin Powell is an award-winning journalist. He’s a campaigner for positive change in global investing,��advocating better investor education and greater transparency. Robin is the editor of�� The Evidence-Based Investor , which is where a version of this article first appeared. His previous article for HumbleDollar was Private Matters. Follow Robin on Twitter @RobinJPowell.

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Package Deals

THE INSURANCE market for long-term-care coverage has had a checkered history���and yet there���s an increasing need for LTC insurance among aging baby boomers. My advice: Forget the original standalone insurance products and instead focus on the new hybrid policies.

What went wrong with the original standalone products? They proved to be underpriced. With policyholders living longer, insurers found themselves paying out more than anticipated. Policyholders also didn���t drop their policies as often as insurers expected���and the low lapse rate meant insurance companies had less chance to book profits while incurring no LTC expenses. In response, insurers dramatically raised premiums. This repricing led to a plunge in sales, scaring consumers away from all LTC insurance.

Hybrid LTC policies, which twin a life insurance policy or a tax-deferred annuity with a long-term-care benefit, are the best solution I���ve found. They���re effectively high-deductible insurance policies. Let���s say a client buys a hybrid LTC policy with a $50,000 lump sum. The insurance company won���t have to pay out any of its own money until $50,000 of expenses have been incurred.

Most hybrid policies are life insurance products that offer an LTC benefit, and that���s what I chose for myself. Why? A hybrid life policy provides greater LTC benefits per dollar invested. But if someone isn���t healthy enough to qualify for a life policy, the annuity might be worth considering.

How does a hybrid life policy work? The LTC coverage is designed as an acceleration of the life insurance policy���s death benefit. These policies aren���t cheap���but they offer guarantees that standalone policies don���t.

For starters, premiums should never increase. If policyholders change their mind and want a refund, they can get their lump sum returned. If they have LTC expenses, they can use a multiple of the original lump-sum payment for LTC expenses tax-free. Upon death, if any LTC expenses have been less than the policy���s death benefit, the policyholder���s beneficiaries receive the difference tax-free. Policyholders may also have the option to pay extra each year to get unlimited benefits. That would eliminate one of retirement���s biggest financial risks���catastrophic LTC expenses.

I hear three major objections to hybrid policies. First, they involve a steep upfront cost. But keep in mind that it���s possible to buy these policies out of current income, rather than with a lump sum. Second, they���re more expensive than standalone policies. Many believe that the standalone policies are now priced correctly, but there are still no guarantees that premiums won���t increase over the next 25 years or more. Third, because of the bad experience with standalone LTC policies, many consumers distrust anything having to do with LTC insurance. Indeed, if I hadn���t carefully researched the specific company, product design and refund guarantees on the hybrid policy I bought, I���d have probably just self-insured and opted to worry about LTC expenses if and when the time came.

The average age to purchase an LTC policy is age 59. I purchased my hybrid policy at 56. The looming unknown expense of LTC makes retirees fearful they won���t have enough savings at some unknown future date for either themselves or their spouse. But with my LTC expenses covered by my hybrid policy, I shouldn���t have any major expenses arising in my 80s���and that���ll allow me to spend my retirement savings with far less worry.

James McGlynn CFA, RICP, is chief executive of Next Quarter Century LLC��in Fort Worth, Texas, a firm focused on helping clients make smarter decisions about long-term-care insurance, Social Security and other retirement planning issues. He was a mutual fund manager for 30 years. James is the author of��Retirement Planning Tips for Baby Boomers. His previous article for HumbleDollar was Last Call.

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Stepping Out

IT���S GRADUATION season. Entering the workforce? Here are five steps to help you jumpstart your financial life:

1. Manage your debt.��If you���re like many graduates, you have student loans. Depending on how much you owe, you may be wondering how best to allocate your new paycheck. Should you direct every available dollar toward your loans or does it also make sense to begin saving? While everyone���s situation is unique, I have two suggestions.

First, take the time to understand your student loans. Don���t just pay the amount shown on your statements. Instead, consider the rate and balance on each one, and then design a strategy to maximize the benefit of each payment.

You might also consider refinancing with a private lender. But before you do that, I���d learn about the federal government���s income-driven��repayment plans. If this all sounds like a root canal, you could hire a student loan consultant, who will review your statements and show you exactly what to do. These consultants don���t charge a lot and could end up saving you quite a bit.

Second, don���t put savings on hold. Even though your debt load may feel overwhelming���and it may be at rates higher than you could earn on your savings���it���s important to build a cash cushion. This will give you financial flexibility and allow you to think longer term. It���ll also help you avoid turning to high interest rate loans, if you ever find yourself in a pinch. Most important, it will get you in the habit of living on less than you earn.

More broadly, try to avoid putting your life on hold because of your student debt. This is��an increasingly common phenomenon. Instead, by making a plan, you���ll be able to sleep better at night and move forward with your life.

2. Consider total compensation.��When choosing where to work, look beyond the salary. Yes, your pay rate is important, but many employers also offer valuable benefits. In particular, when considering job offers, look closely at each employer���s retirement plan.

Do they offer a traditional pension? If not, what does their 401(k) or 403(b) look like? Do they match contributions? If so, at what rate and how quickly does the money vest? If you���re going to work for a public company, will you receive stock options or restricted stock units? What other benefits are available���graduate school tuition, for example? And what does the company���s health plan look like? All of these could make an enormous difference, so be sure to choose a job based on total compensation, not just the salary.

3. Learn to work.��One of the odd things about school is that they never teach you much about��how��to work. Rarely does anyone show you how to succeed in the workplace.

There are lots of theories on productivity, and I don���t necessarily endorse one over the other. Rather, I suggest reading widely to discover an approach that works best for you. The following four books are a useful starting point, even though they don’t always agree with one another:��Grit by Angela Duckworth,��Outliers��by Malcolm Gladwell,��Range by David Epstein and��Atomic Habits by James Clear. If you don���t have time for an entire book, then I suggest one article, “Smarter, Not Harder” by Shane Parrish.

4. Know when to exit.��Fifty years ago, the economist Albert Hirschman penned a small book titled Exit, Voice and Loyalty. The central idea is that we all have three choices when an organization isn���t meeting our needs: We can leave (exit), speak up (voice) or stick around with our heads down (loyalty). While Hirschman���s book is somewhat academic, you can find similar concepts���in a much more colorful format���in Robert Sutton���s��The Asshole Survival Guide.

The reality is, every workplace will be infected with some number of managers who are truly poisonous���yelling, swearing, insulting, throwing things, fostering internal competition���and you���ll have to decide whether to hang around or exit stage left.

5. Avoid ���advisors.�����At some point, one of your classmates will find his or her way into the insurance industry. And one day, that person will find his or her way to your doorstep. He or she will explain to you how it���s in��your��best interest to buy something called whole or variable or universal life insurance.

My advice: Run, don���t walk, in the other direction. In my work as a financial planner, I have seen innumerable people saddled with policies that provide too little coverage for too much money. In all but the rarest cases, I don���t think anyone should ever buy one of these products. According to one well-known financial blogger, upwards of 75% of people who buy these policies end up regretting the decision. If you need life insurance, in the vast majority of cases, you’ll be better off with simple, low-cost term coverage.

Adam M. Grossman���s previous articles��include Math vs. Emotion,��Don’t Bank on It��and��Danger Ahead . 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 three ways: We accept��donations,��run advertisements served up by Google AdSense 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 merchandise, you don’t pay anything extra, but we make a little money.

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