Jonathan Clements's Blog, page 370

Five Mistakes

WHEN I TAUGHT economics, I would present students with the financial misunderstandings that people often have���and which the study of economics can help them avoid. Examples? Here are five widespread misconceptions:

Mistake No. 1: The rarer something is, the more valuable it is. Economics really doesn���t care about rare things���meaning those things that are few in number. Instead, economics deals with scarce��things, which are things for which there���s greater demand than current ways to fulfill that demand.

Why does this matter? People get tricked all the time into buying things because there aren���t many of them or because they may not be around tomorrow. How often is your interest piqued by the phrases ���limited offer��� or ���for a limited time���? The items involved may indeed be rare. But for them to be scarce, you need to actually want them. Do you? Or have the marketers prompted you to feel a false sense of urgency for something you don���t really desire?

Mistake No. 2: Comparing choices is about comparing benefits.��There���s a reason it���s called cost/benefit analysis. You need to consider not just the benefits of each choice, but also the costs. Everything has a cost���including not only the initial price and any ongoing expense, but also the lost benefit from not opting for the other choice.

Mistake No. 3: You borrow from others.��When I ask students who they borrow from when they charge something to a credit card, most will say ���the bank.��� But the right answer is ���your future self.��� The debt will have to be repaid by your future self, along with any interest owed. In effect, you���re betting that the money you borrow is worth more to you today than it is to your future self.

Mistake No. 4: Savings are what are left when you don���t spend.��When people get money, they look to spend it. If they can���t find anything they immediately want to buy, they hold on to it. This makes saving money seem like the last choice, the fallback option after looking at all the shiny objects currently on offer.

A better way to think about savings: View them as future spending. Do I want to spend now or delay spending until later, when���thanks to prudent investing���the money might have more buying power? By framing the issue this way, you also remind yourself that you won���t be the same person in the future���and that your future self will likely have greater financial needs and more expensive tastes.

Mistake No. 5: The goal is always greater wealth.��Today, many financial services are about ���wealth management.��� But in the end, we don���t want more money, but rather greater contentment, satisfaction and even happiness.

Money is merely a tool. To use economic jargon, it���s a factor in the production of your happiness. Figure out your goals and then figure out how money can help you get there. It might even be that earning less money, and perhaps spending more time with family, is what you should really be aiming for.

Jim Wasserman is a former business litigation attorney who taught��economics and humanities for 20 years. His previous articles for HumbleDollar were Spoonful of Advice,��Under the Influence and��Gaming the System. Jim���s three-book series on teaching behavioral economics and media literacy,���� Media, Marketing, and Me , �� will be published in early 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 participates in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and then purchase books or other merchandise, you don’t pay anything extra, but we make a little money. HumbleDollar has no other affiliate marketing relationships.

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Don’t Concentrate

WHO DOESN���T like free money? I know I do. If you���ve worked for a major U.S. corporation, you have probably also been offered free money. But there���s a potential downside���in the form of a large, undiversified investment bet.

What am I talking about? Let���s start with the matching employer contribution that���s offered in about half of 401(k) plans. You put in a portion of every paycheck and your company then matches all or half of your contribution. In years past, the employer match often had to be invested in company stock. Today, most plans either offer more flexibility in investment choice or they allow you to diversify out of company stock after a specified holding period.

But employees often don���t sell, because of the net unrealized appreciation (NUA) strategy, which provides a tax incentive to retain, rather than diversify, those shares. NUA allows accumulated appreciation on your employer���s stock to eventually be taxed as capital gains, rather than as income.

Employee stock purchase plans (ESPPs) are another benefit plan that encourages employees to own company stock, offering the chance to purchase shares at discounts of as much as 10% or 15%. ESPPs also provide favorable tax treatment on the discount, provided the stock is held for two years or longer. While smaller in dollar amount, some plans have an associated dividend reinvestment plan (DRIP) that allows dividends to be reinvested in company stock, again usually at some discount.

Matches, NUA, ESPPs and DRIPs all encourage employee stock ownership, but they pale in comparison to the potential accumulation through grants of stock options. Options come in two main forms , incentive stock options (ISOs) and nonqualifying stock options (NSOs), each of which has slightly different tax treatment. But both have the same result: employees owning yet more shares.

Add all these incentives together and even everyday employees can accumulate lots of stock���and senior executives can amass massive amounts. Throw in some decent share price increases over the decades, and you have many employees ending up with a significant portion of their wealth in their employer���s stock.

From a shareholder���s viewpoint, having employees exposed to stock performance is great. But from the employees��� viewpoint, concentrating wealth in their employer���s stock hugely increases their financial risk. After all, their employer also provides them with a paycheck.

Result: If the company gets into trouble, employees could lose both their livelihood and a big chunk of their savings. Experts typically recommend having no more than 5% to 10% of your wealth in your employer���s stock���with good reason. Think Enron, Kodak, Lehman Brothers and even GE.

Moreover, concentrated stock ownership can be detrimental even for employees of non-bankrupt companies. What if the share price flatlines for an extended period? Nearly a quarter of the 30 stocks in the Dow Jones Industrial Average have been largely flat over the last five years, even as the S&P 500 has gained roughly 50%. Employees of these solid Dow companies have incurred the opportunity cost of lost market gains���and that may more than offset the advantages of their various benefit plans.

Every friend I know who worked for a major corporation for many years has accumulated significant, if not excessive, company stock. A broker friend several years ago told me of an unnamed client who had accumulated thousands of his employer���s shares in his 401(k)���and those shares constituted more than 75% of his wealth.

The client asked the broker for a plan to reduce the excessive holdings. Knowing the client was reluctant to sell, the broker suggested unloading 2% of the stock each year. This meant it would have taken 50 years for the client to divest all his holdings, and he wouldn���t be done until after age 110. Even then, the client refused to sell any shares, because he fundamentally loved his company, didn���t want to lose future tax benefits and felt selling 2% each year was too aggressive.

At one point, my employer stock holdings peaked at perhaps 40% of my investment portfolio. The gains were great, but I knew I owned too much. I began to lighten up and diversify, even though the company was rock solid. Later, as retirement approached, I reduced my employer stock holdings more aggressively. While I still own plenty of the stock and enjoy the dividends, today my holdings are at a more comfortable level of around 10% of my portfolio.

John Yeigh is an engineer with an MBA in finance. He recently retired after 40 years in the oil industry, where he helped manage and negotiate the financial details for multi-billion-dollar international projects. John’s previous articles were No Free Ride, Other People’s Stuff and All Stocks.

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Twelve Principles

WHEN WALL STREET builds a better mousetrap, investors are generally the mouse. Want to avoid getting caught by the Street���s costly, fad-driven selling machine? Here are a dozen principles that have served me well as I���ve helped folks manage their money:

Accept that markets are generally efficient. This means that, at any given moment, individual securities are priced correctly and incurring additional costs in hopes of finding a mispricing is wasteful���though apparent mispricings will often seem obvious in retrospect. In short, active management does not consistently add value through either security selection or market timing, which is why my firm invests almost exclusively in index funds and other passively managed vehicles.
Despite the market���s overall efficiency, there are a few anomalies that appear to be both pervasive (they exist in most markets) and persistent (they exist most of the time). The most significant of these anomalies are value and momentum, though there���s evidence of others as well. We tilt portfolios toward factors such as value and momentum that appear to reward investors over time.
It also appears that, while stocks of smaller companies don���t outperform larger companies, once you adjust for the greater risk involved, it does appear that factor tilts such as value and momentum may be larger among smaller companies���which is why we tilt portfolios toward smaller companies.
The aforementioned tilts to various factors lead to tracking error. What this means is that the portfolios we build won���t exactly track well-known indexes, such as the S&P 500. Over time, we expect our portfolios to outpace widely followed benchmarks, though this isn���t guaranteed, and it can sometimes take a while for this to happen.
Both diversification and cost control are crucial. We use mutual funds and exchange-traded funds to gain exposure to various asset classes, because they can offer broad exposure, low costs and low turnover.
Diversification across risky asset classes, such as owning both U.S. and foreign stocks, is beneficial in prosperous times, because it ensures exposure to whatever area is currently doing well. But during market turmoil, the benefit of this diversification largely vanishes, because these risky asset classes all decline together. Diversification still works, however���but it���s the diversification that comes from holding safe assets, such as investment grade bonds. If everything in your portfolio is going up, you aren���t diversified.
From peak to trough, U.S. stocks declined between 45% and 55% in 1973-74, 2000-02 and 2007-09. During poor markets, investors should expect the risky portion of their portfolios to decline by roughly half. For example, an investor with a $1 million portfolio that���s 60% stocks-40% bonds should periodically experience a decline to $700,000. This is the necessary pain to achieve the higher returns that are expected from risky assets. If stocks did not occasionally experience losses, they would cease to be priced attractively enough to generate superior returns. As financial advisors, it���s our job to make sure client portfolios are positioned at an appropriate level of risk, and that our clients neither increase their risk-taking when things look rosy (e.g. 2006) nor decrease it when the outlook is frightening (e.g. 2008).
For international exposure, we invest in smaller companies and emerging markets companies, rather than large companies in developed countries. The reason: Small-cap international and emerging markets offer much greater diversification benefit to an investor who already owns large U.S. companies.
For additional diversification, we generally invest a portion of client portfolios in alternative investments, such as real estate investment trusts, high-yield (junk) bonds, master limited partnerships and hedge-fund-like investments. While it would be imprudent to place a large percentage of a portfolio in these investments, they can���in smaller amounts���improve a portfolio���s risk-return profile.
Depending on clients��� inflation exposure outside of their portfolio���such as whether any pension they have is inflation-adjusted or not, and how much of their debt is long-term and fixed-rate���a significant portion of their bond portfolio may be allocated to inflation-indexed Treasury bonds.
While we review portfolios and the market environment frequently, we make changes very infrequently. Yes, it makes everyone feel better to ���do something,��� rather than simply stay the course. But turnover has costs and generally doesn���t add value. As Warren Buffett has said, ���Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.��� He also stated, ���Lethargy, bordering on sloth, should remain the cornerstone of an investment style.��� Once a client���s portfolio is invested appropriately, we will not do much trading, aside from opportunistic tax-loss harvesting. This is a sign of prudence and patience, not inattention. We do not trade simply to appear busy.
If we manage multiple household accounts for a family, we will manage them as one portfolio to increase trading efficiency, tax efficiency and so on. Thus, when viewed in isolation, individual accounts may have what appears to be an ���odd��� investment allocation���but it is indeed appropriate when viewed in the context of the family���s overall portfolio and life circumstances.

David Hultstrom is the president of Financial Architects LLC in Woodstock, Georgia. To read more of David���s writing, check out his blog.

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Full Speed Ahead

SOME 200 MILLION Americans say they want to write a book. Yet typing 50,000 words into a cohesive story can appear to be a monumental undertaking���and it might seem like only individuals with the freedom to retreat to a cabin in the woods will ever become published authors.

Making the long financial journey to retirement, so you quit the workforce with a nest egg large enough to replace your working income, can seem equally daunting. Indeed, it���s so daunting that many workers fail to even start, while others save at only a snail���s pace.

What to do? Writing a book and saving for retirement have one thing in common: They both require maintaining a sustainable average speed. What do I mean by that? At issue is the average pace you notch day after day, as you work toward your goal.

For book authors, it comes down to the number of words they write daily. Similarly, retirement savers can focus on the amount saved monthly for retirement. The benefit of this way of thinking: Small actions, if repeated consistently, can turn into major accomplishments.

Business owner and author Donald Miller once provided this tip to aspiring authors: Write 500 words every day for 100 days. There���s your 50,000-word book, equal to some 200 pages. This breaks down a huge goal into a manageable daily task, writing about two pages per day.

Focusing on a high but sustainable average speed is also the best approach to saving for retirement. Extreme frugality may help cut your spending for a short period of time. But it���s unlikely to be the right long-term strategy, because it���s so easy to get knocked off course. Your HVAC system might fail during a winter cold snap or you might get hit with an uninsured medical expense.

Instead, over the course of your career, I���d focus on maintaining a high average speed toward retirement. Here are four strategies that you���ll help you keep up your savings rate:

1. Invest more during good times.��Even if you have a regular salary, you���re bound to have better income years than others. Received a year-end bonus or inheritance? Use it to pay off any lingering debt or make the maximum contribution to your retirement account.

2. Slow down during the lean times. Find yourself living paycheck to paycheck? Consider cutting back on your retirement contributions, so you can make sure your life���s financial foundation remains intact. That means refilling your emergency fund, while also avoiding consumer debt. An important aspect of maintaining a high average speed: not coming to a crashing halt.

3. Make sure you���re properly insured.��As a working professional, one of your most valuable assets is your ability to earn an income. This is also known as your human capital. Protect this asset with health and disability insurance. Even the best financial plans will fall short if you suffer a sudden interruption in your income.

4. Gift to a donor-advised fund.��Charitably inclined? During your years of higher income or lower expenses, consider not only saving more, but also contributing to a donor-advised fund. This allows you to make a one-time charitable gift, while giving you the flexibility thereafter to spread out your contributions to the charities of your choice. An added perk: The lump-sum gift may put you over the standard deduction threshold for that tax year, so your contribution is tax-deductible.

Ross Menke is a certified financial planner and the founder of�� Lyndale Financial , a fee-only financial planning firm in Nashville, Tennessee. He���s passionate about helping folks make financial decisions that reflect their true purpose. Ross���s previous blogs include Up to You,��No Money Down, Cut It Out��and Too Familiar. Follow Ross on Twitter�� @RossVMenke .

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Higher Taxes?

FEDERAL RESERVE Chairman Jerome Powell appeared before Congress late last month and spoke in serious terms about the country’s debt situation. It���s worth understanding what Powell said���and how that might impact your investments.

Powell’s message: ���The U.S. federal government is on an unsustainable fiscal path.��� Specifically, ���debt as a percentage of GDP is growing, and now growing sharply, and that is unsustainable by definition.���

Powell’s remarks mirrored those of the Congressional Budget Office (CBO). In June, the ��CBO��reported��that, ���Under current law, federal debt held by the public is projected to increase sharply over the next 30 years��� to 152% of GDP. ���That amount would be the highest in the nation���s history by far.��� To put that in perspective, the CBO explained that interest payments alone would grow to equal what we spend on Social Security, the government’s largest budget item.

Why dwell on these grim figures? It���s important, I believe, because ultimately there are only a few solutions to this problem���and one of them is to raise taxes. In fact, it isn’t that taxes��might��go up. Rather, they���re currently��scheduled��to go up. At the end of 2025, most of the favorable 2017 tax rate changes will expire. Unless Congress acts to prevent it, personal tax rates will revert to 2017���s levels.

To be clear, my goal isn���t to worry you. If economic growth is better than expected or interest rates are lower than expected, our debt would grow more slowly and Congress might delay the increases. Still, no one has a crystal ball, so it makes sense to prepare. What planning steps can you take today to protect yourself against higher tax bills down the road?

For the most part, your tax bill in any given year is simply a function of your income. Yes, you can make adjustments around the margins���with charitable contributions and tax-deferred savings, for example���but you don’t have a whole lot of options from year to year. Where you do have more control, however, is with your tax rate once you���re retired. But it requires planning. Here are three steps to consider.

First, build tax-free savings. There are a few ways to build tax-free savings, but the most efficient is a Roth account, which allows your investments to grow entirely free of income and capital gains taxes. In fact, if you can build up assets in a Roth account, there���s a double-barreled benefit: Roth withdrawals are tax-free and, because of that, you may end up with a lower tax rate on all of your other income. There are at least four ways to build Roth savings:

Roth 401(k) plans.��Some employers offer a Roth option within their 401(k). While some might opt for traditional 401(k) contributions���to capture the immediate tax deduction���this is where I would bear in mind Powell’s comments. If tax rates are higher in the future, you might be better off foregoing today���s tax deduction to build tax-free assets for the future. If you aren���t sure, I would at least consider splitting the difference, putting half of your contributions into a Roth.
Roth IRAs.��Even if your employer doesn’t offer a Roth option in your 401(k) or 403(b), you can still contribute to a Roth account on your own, via a Roth IRA. Depending upon your income level, you might have to contribute via the backdoor method, but everyone is eligible, as long as they have enough earned income. The annual contribution limit is now $6,000 per person.
Roth conversions.��If you have accumulated IRA assets, you can convert a portion to a Roth IRA. The catch is that you’ll have to pay tax this year on the amount you convert. But depending upon where you are in your career, if tax rates rise in the future, you might be better off paying taxes at today’s rates. It isn���t an easy decision to voluntarily trigger a tax bill���especially a big one���but it’s worth considering before 2026���s scheduled tax increase.
Super-funding.��If your employer doesn’t offer a Roth option, and you’re not satisfied with the $6,000 IRA contribution limit, there is another approach that might work. In an��article��last October, I described a method for ���super-funding��� a Roth IRA via after-tax contributions to a 401(k). If your employer permits it, this is a powerful way to build a substantial Roth balance.

Second, don’t overlook taxable savings. If you’re in a high tax bracket, you may feel compelled to contribute as much as possible to tax-deferred accounts. In general, this makes sense. But don’t overlook the value of saving in a taxable account. This will allow you to further diversify your sources of income in retirement. Depending upon your particular mix of income and assets, this may allow you to better control your tax rate over the years, especially after age 70��, when you���ll be required to take minimum withdrawals from your traditional retirement accounts.

Finally, don’t forget about estate taxes. Following the 2017 rule changes, federal estate taxes are no longer much of a consideration for most people. The exclusion���meaning the amount one can pass to heirs tax-free���doubled to more than $11 million per person, or $22 million for a married couple. Many people took this as an opportunity to cross estate taxes off their list of concerns.

But keep in mind that, historically, estate tax rates have seen more frequent and more significant changes than income tax rates. It’s entirely possible that a future administration might bring the exclusion back down. For that reason, if you have assets greater than $5 million, I would still consider taking steps to reduce your family���s potential estate tax burden.

Adam M. Grossman���s previous articles��include Moving Target,��No Free Lunch��and��Private Matters . 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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Labor of Love

NEW YORK TIMES��columnist Ron Lieber wrote last week about ���money guru��� Jordan Goodman���and how Goodman had settled charges brought by the Securities and Exchange Commission that he’d used his radio show to promote an investment firm, without revealing that the firm was compensating him for referrals. Goodman might never have ended up in the SEC���s crosshairs, except it turned out the firm was operating a $1.2 billion Ponzi scheme.

It was a story that made me sit up and take notice���because I���ve long thought of Goodman as a fellow member of the informal fraternity of personal finance writers. It���s a relatively small fraternity: Even if we don���t know each other, we know of each other. Goodman spent 18 years at Money��magazine before striking out on his own. At least twice, I was a guest on his radio show, most recently in December.

Like Goodman, I spent two decades at a well-known publication���in my case, The Wall Street Journal���and, over the past five years, I���ve also been a solo operator. Yet nobody���s paying me $2.3 million, which is what Goodman received for promoting the failed investment firm���and which he had to return as part of his settlement with the SEC. In fact, depending on the month, I���m either breaking even on this website or losing money.

Could I be making more? Absolutely. But I choose not to. I���m not claiming to be a saint and I���m not 100% sure I���ve got the business ethics right. But in the wake of the Goodman story, I figured it was important to spell out how I personally make money���and why this website doesn���t:

Almost every day, I receive emails offering to pay me to run sponsored blog posts or insert links in HumbleDollar���s articles that will allow readers to click through to other sites. I admit it, I came close to saying “yes” once���but didn’t and have no intention of ever doing so. If HumbleDollar has a link to another financial site, it���s there because I think it could be useful to readers and not because money is changing hands.
Yes, HumbleDollar carries advertising. The site makes money depending on how often those ads are viewed (so-called impressions) and how often somebody clicks on them.

When I was at the Journal, there was a strict separation between the news and advertising departments���and members of the ad department could be fired for trying to influence news coverage. When you���re a solo operator, there���s no such church-state separation.

The good news: Even if I were inclined to let advertising influence the articles that run on this site, there���s not much risk of that happening. The advertisements are served up by Google, so I have no idea which ads are appearing���and, indeed, the ads I see may be totally different from the ones you view. The bad news: HumbleDollar makes just $1,000 to $1,500 a month from advertising���about what it costs to run the site.

If advertising doesn���t pay, what does? The big money is in affiliate marketing. If you get somebody to, say, open an investment account, you can get paid a referral fee. This is how Goodman made his $2.3 million. It���s also the modus operandi for countless websites, financial and otherwise. Why do you think there are so many sites devoted to finding the right credit card? It���s because the ���right��� credit card will pay the site a handsome referral fee���assuming somebody clicks through from the site to the credit card company and opens an account.

In early 2017, not long after I launched HumbleDollar, I signed up with two of the affiliate marketing middlemen, looked at their lists of participating companies and found a dozen that I would happily recommend���Ally Invest, TD Ameritrade, LegalZoom, places like that���and I created a page on this site that listed those relationships. A few months ago, I had second thoughts about all this and deleted all the affiliate marketing links from HumbleDollar, except those to Amazon. The Amazon links allow the site to make a little extra money from my books and others mentioned on the site, without any additional cost to buyers, so those seem pretty harmless.

But what about the affiliate marketing links to various financial firms? Why did I delete those? Even if you disclose that you���re getting a referral fee���which you should���it���s much harder to claim that the articles you run reflect your best, independent thinking. Advertisements are visually distinct from articles. That isn���t the case with many affiliate links. They���re often embedded within articles, with the author subtly or not-so-subtly directing readers to the affiliate firms. That raises an obvious question: Would those articles have been written in the way they were���or even written at all���if those affiliate marketing relationships didn���t exist?

This goes to the issue of what a website is trying to achieve. If the site���s clearly stated goal is product recommendations, affiliate links seem like fair game (though I question whether consumers fully grasp that the recommendations may be tainted). But if you run a site that claims to offer independent thinking, I���d argue those affiliate links should never appear in articles.

That leaves open the possibility of running advertisements for affiliates, and then���if readers click through and buy���potentially receiving referral fees, rather than the usual advertising revenue from impressions and clicks. But even that seems a little sketchy: You���re tying a financial site���s business success to readers actually buying specific financial products and services. Personal finance writers often criticize brokers and insurance agents, because these financial salesmen have an incentive not to act in your best interest, but to sell you products that pay them a commission. Is it any different when a financial website gets paid a fee if readers purchase products or services from certain financial firms?

After months of wrestling with the issue, I decided I didn���t want any whiff of impropriety, so I ditched all affiliate marketing links to all financial firms. When I was at the Journal, we were repeatedly told to avoid anything that would call into question our reporting. That nagging voice in my head simply won���t go away.

Over the past few years, thousands of you have signed up to receive HumbleDollar���s free newsletter. I keep getting asked the question, so here���s the answer: No, dear readers, I don���t sell the email list to others and have no intention of doing so.
So how do I put food, as well as a fair amount of red wine, on the Clements family table? I sell books, get occasional paid speaking gigs and pull a little from savings each year. I also do work for Creative Planning, a registered investment advisor in Overland Park, Kansas. I sit on the firm���s advisory board and investment committee, write an article for clients every three months and���this just started���host a monthly podcast, along with the firm���s president. In return, Creative pays me a fixed quarterly retainer.

Whenever I do an article or podcast for Creative, I mention it on HumbleDollar, because I (immodestly) believe readers will be interested in what I���m saying. But I don���t discuss Creative���s advisory services on this site. There would no point: HumbleDollar���s readers are do-it-yourself investors, not those looking to hire a fulltime financial advisor.

The bottom line: I view this website as a public service. If traffic keeps growing���March looks like it may be the site���s best month ever���I���ll eventually make a little money. But that isn���t the overriding goal. Instead, HumbleDollar is my way of sharing what I���ve learned over the past three-plus decades, telling the stories of the site���s guest bloggers, and staying part of the larger conversation about money and its role in our life. It���s my semi-retirement job that eats up maybe 60 hours a week. If folks keep reading���and readership keeps growing���that���ll be reward enough.

Follow Jonathan on Twitter��@ClementsMoney��and on Facebook.��His most recent articles include February’s Hits,��Mixing It Up��and Eight Questions. Jonathan’s��latest book:��From Here to��Financial��Happiness.

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State of Change

I���VE LIVED in Oregon most of my life. When I was growing up, agriculture, logging and fishing were the state���s dominant industries. In the 1970s and 1980s, the economy began transitioning from one based on natural resources to one rooted in technology, travel and manufacturing. A few decades ago, companies like Weyerhaeuser and Georgia-Pacific were among the state���s leading employers. These days, Intel is the largest, keeping more than 20,000 Oregonians gainfully employed.

But it isn���t just Oregon���s private sector that���s seen plenty of change. There���s also been upheaval among the state���s colleges and universities���the world where I���ve made my living for the past three decades.

In 2018, Marylhurst University, a small, private, liberal arts college���located in one of Oregon���s wealthiest areas���abruptly closed. The school had struggled financially for years. Student enrollment, which peaked during the Great Recession, had steadily declined as the economy rebounded.

Other small colleges are also showing signs of financial fatigue. At the beginning of February, the Oregon College of Art and Craft announced it, too, would be closing its doors. The college reported a nearly $700,000 operating loss in its 2017 tax filings.��Earlier this year, Concordia University, a private college located in the greater Portland area, announced it would be discontinuing six of its��degree programs. Concordia officials announced the change as part of an ongoing effort to stabilize the school���s finances. The university had reported a $7.9 million operating loss in 2017.

Public universities in the state are dealing with declining��enrollment numbers. In 2018, officials at Portland State University saw the number of students registering for classes on campus drop by nearly 3%. Several other in-state schools reported similar declines. With the average cost of��tuition and fees at private colleges topping $32,000 per year���and public universities charging between $9,000 and $24,000 per year���it perhaps isn���t surprising that schools are finding it more difficult to attract students.

I suspect “degree inflation” is beginning to alter the way both employers and high school students view the value of a college degree. Employers may be beginning to realize college graduates aren���t necessarily prepared to fill the jobs they���re creating. Young people may be beginning to realize they aren���t necessarily prepared to take on a large amount of debt to fund an education that might not lead to a high-paying job.

Intel recently announced they���ll be expanding their computer chip manufacturing facilities located in Oregon. Jobs at the facility, including positions like manufacturing equipment��technicians, require a high school diploma and a few months of relevant experience. Such experience can be obtained by participating in a school robotics club, shop class or a variety of extra-curricular activities. With an average salary of $45,000 per year, entry-level manufacturing technicians at Intel would be making about $10,000 a year more than the average��high school��graduate.

Indeed, not all higher education institutions in Oregon are struggling. Mt. Hood Community College recently announced the formation of a new partnership��with Subaru. Students at the college can enroll in an automotive technician program���a two-year, degree-granting program that comes complete with an internship at a local Subaru dealership. A recent New York Times��article noted such partnerships between car manufacturers and colleges are becoming more commonplace as dealerships look for innovative ways to fill a plethora of auto mechanic jobs.

Mt. Hood Community College estimates that students enrolled in the automotive technician program will spend a total of $17,000 for tuition, fees and books. Because the students earn a salary while completing the internship portion of their education, their overall cost for the two-year program will likely be significantly less than that. With experienced, top-level mechanics earning salaries of up to $100,000 per year, the program should create a cohort of college-educated adults who have far less debt���and much better employment prospects���than many other college graduates.

Kristine Hayes’s previous articles for HumbleDollar include A Better Trade, as well as her series of blogs about her 2018 home purchase:��Heading Home (I), (II), (III), (IV)��and��(V). Kristine��enjoys competitive pistol shooting and hanging out with her husband and her two corgis.

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Spoonful of Advice

MORE THAN 100 years��ago, Thorstein Veblen, the father of behavioral economics, explained the thinking behind most of our purchases and investments with the help of two spoons. In his seminal 1899 book, The Theory of the Leisure Class, Veblen compared a handmade silver spoon, which back then could cost up to $20 ($600 in today���s money) with a machine-made aluminum spoon that cost about 20 cents ($6 today).

Based on strict utility of purpose, there would seem no reason to spend one hundred times more for the silver one���and yet many people did it then and still do it today. There must be some other benefit to owning an expensive spoon, one that does the same job as a spoon with 1/100th��of the cost.

Veblen reckoned that the silver spoon���s added ���benefit��� for the owner derived from the personal joy of spending so much for such an expensive item and the consequent admiration the owner would garner from others. Veblen called this excessive spending ���conspicuous waste.��� He went on to give other examples of how wealthy people flaunt their money for personal validation and public envy, but the simple spoon dichotomy summarizes the concept well.

The spoon comparison also allowed Veblen to point out the riskiness, and potential cost-benefit imbalance, in using luxury possessions to gain internal and external validation. In the case of the silver spoon, the 100-times outlay is only worth it if others know of the silver spoon. If the silver spoon turns out to be a forgery, all is wasted. If the aluminum spoon is made to resemble the silver one, the admiration might be lost. Above all, the entire process depends on others sharing the same values���that owning a silver spoon is admirable���and, if not, the flaunter runs the risk of receiving scorn rather than admiration.

Even with all these caveats, Veblen didn���t address additional issues that would arise with silver spoon ownership, including the extra costs for securing the publicized thing of value, the time and cost of upkeep, the cost to replace a damaged or lost item and, possibly, the added worry over safeguarding the valuable item.

Veblen meant for his homely illustration (as he called it) about spoons to be a cautionary tale about the risks of buying to impress either oneself or others. If that lesson was good in 1899, it���s even more applicable today. As we amass wealth, we want to ���live the good life��� and reward ourselves with ���the finer things.��� We want the fancy car, exotic resort vacations and luxurious house appointed with great art���and we certainly don���t mind if others see these things and are a bit envious.

But what���s the cost? How much more do we have to spend to ���live at the right level��� and what extra ongoing upkeep do we have to pay? Most important, we aren���t just spending today���s dollar, but tomorrow���s dollar plus interest.

Whether it���s a silver or aluminum spoon back then, or a luxury automobile or a serviceable one today, is the ephemeral admiration of others or the sense of self-satisfaction worth the extra years of work to pay for the luxury choice? Ironically, in today���s FIRE���financial independence/retire early���mindset, values have been turned on their head: The greatest self-satisfaction and admiration comes not from working many years to acquire possessions that then compel us to worry and work more, but from using as many ���aluminum��� substitutes as we can, so we quickly free ourselves to pursue interests beyond saying to others, ���Look at my spoon.���

You can���t say Veblen didn���t warn you.

Jim Wasserman is a former business litigation attorney who taught��economics and humanities for 20 years. His previous articles for HumbleDollar were Under the Influence and��Gaming the System. 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.

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Up to You

INDEX FUND investing seems to grow more popular by the day���for good reason: For very little in investment costs, you can get a diversified basket of stocks, a return that matches the targeted benchmark and a tiny annual tax bill.

But now that you have yourself such a fine financial vehicle, the responsibility to be a good investor lies in your hands. Or should I say, with your emotions? Even the best investments suffer downturns and spikes in volatility.

You need to put safeguards in place, so you protect yourself from yourself���from making panicky decisions during periods of market mayhem. How do you do that? You need a plan:

1. Draw up an investment policy statement.��It���s crucial to have a written document that stipulates your investment process, so there���s no debate about how to invest your money at any given time. Your investment policy statement���or IPS���should spell out the target asset allocation and long-term objective for your various investments. At times of market volatility, you can refer back to your investment policy statement to confirm your next investment moves.

2. Settle on a rebalancing strategy.��When should you rebalance your portfolio back to the target allocation specified in your IPS? There are two possible strategies: time-based and percentage-based.

A time-based approach means you rebalance your portfolio every year or every six months, regardless of how it���s allocated at that point in time. You get in the routine of rebalancing on a specific date���your birthday or Jan. 1, for example.

Meanwhile, a percentage-based rebalancing process requires ongoing monitoring. You only rebalance when a specific asset has drifted from its target percentage by, say, 10% or 20%. Let���s say your target percentage for U.S. stocks is 50%. You might rebalance when U.S. stocks fall to 40% of your portfolio or climb to 60%.

3. Set criteria for new investments.��As you become more financially successful, you���ll be presented with more and more investment opportunities. But as the value of your portfolio grows, you may also feel more stress from daily price fluctuations, because the dollars involved can be frighteningly large.

The key to handling all this is to follow a set process for evaluating new investment options, so you don���t make snap decisions. That process should consider things like investment costs, risk and whether the new investment fits with your current holdings. One advantage: When a friend, family member or financial salesperson presents you with a can���t-miss investment opportunity, you���ll have a ready excuse for not taking the bait.

Ross Menke is a certified financial planner and the founder of Lyndale Financial, a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross���s previous blogs include No Money Down,��Cut It Out��and��Too Familiar. Follow Ross on Twitter @RossVMenke.

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Lighten the Load

WE SPEND TOO much time thinking about what���ll make us happy. We���re always looking for the next high. This morning, we plan our Starbucks coffee in hopes it���ll somehow makes us feel happy. If that doesn’t work, we look for something else, perhaps lunch at a nice restaurant or a weekend getaway to a favorite location.

Don’t get me wrong: There���s nothing wrong with trying to find happiness with these types of experiences. But I think we���re missing the other half of the happiness equation: We should also focus on what makes us unhappy.

I have to admit, I’m kind of a “glass half-empty” person. Maybe I focus on the pessimistic side of life too much. But it doesn’t hurt to take a daily inventory and ask yourself, ���What are some of the unpleasant things in my life that I’d like to offload?��� I think that, if we spent more time trying to eliminate the things that make us unhappy, we could lead more satisfying lives���an idea that���s backed up by academic research.

Do you ever wake up in the morning and think about all the unpleasant projects that are on your plate? Fixing the leaky faucet, painting the living room, cleaning the house, mowing the lawn and countless other unpleasant experiences all have the potential to ruin your day.

If we spend our money on offloading these nagging projects onto someone else, our daily lives would be enriched. We���d also have more time to enjoy the things that do make us happy.

I spent much of one day trying to fix a leaky 40-year-old outdoor faucet. I explored every hardware store in town looking for the right size washer to fit this obsolete fixture. After finally finding a washer that barely fit, I said, ���Never again.��� I’m not going to let these types of chores ruin my day. Next time, I’ll pay a plumber to fix the problem.

You won���t see me crawling under a sink to fix a leaky pipe, climbing a ladder to trim a tree, or mopping the floors and washing the windows of my house. Nope, I’m going to spend money and hire someone else to do that work. I only want to participate���or, preferably, not participate���in these unpleasant life experiences on my terms.

Meanwhile, pleasant experiences aren���t always what they���re cracked up to be. Don’t you dread the drive home from a weekend getaway, thinking about having to go to work the next day? It’s like a hangover from too much alcohol the night before.

Instead of spending money on dinner at a fancy restaurant, how about spending it to hire someone to handle an unpleasant chore around the house? I find avoiding an unpleasant experience can be just as satisfying as enjoying a pleasant one.

My new goal: Never again climb a ladder, hold a crescent wrench, push a lawnmower, pick up a mop or lift up the hood on my car. If I can accomplish this, I figure I���ll be on my way to finding true happiness.

Dennis Friedman retired at age 58 from Boeing Aerospace Company. He enjoys reading and writing about personal finance. His previous articles include Rescue Dog,��Little Jack��and��Cancel the Movers . Follow Dennis on Twitter��@DMFrie.

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