Jonathan Clements's Blog, page 39
July 11, 2025
Lindy’s Law
OVER THE JULY FOURTH weekend, a friend asked me what I thought about the new financial instrument known as a “stock token.” Developed by the online broker Robinhood, a stock token is designed for investors to buy stakes in private companies such as OpenAI, creator of ChatGPT. It’s a novel concept because private company investments are typically inaccessible to individual investors.
Despite the appeal, I urged caution. Why? These tokens may not perform as expected because they aren’t the same as actual equity in a company. In fact, we still don’t know exactly what they are.
With respect to the token linked to its stock, OpenAI issued this statement: “These ‘OpenAI tokens’ are not OpenAI equity. We did not partner with Robinhood, were not involved in this, and do not endorse it…. Please be careful.”
In an interview, Robinhood’s CEO, Vlad Tenev, didn’t dispute that the tokens “are not technically equity.” But, he argued, “it’s not entirely relevant that it’s not technically an equity instrument.”
To better understand tokens, you could consult Robinhood’s website. It explains that tokens are “derivatives tracked on the blockchain that follow traditional stock and ETF prices, giving you exposure to the U.S. market.” In other words, when you buy one of these tokens, what you’re buying isn’t actual company stock. It may be similar to a stock option, but it isn’t clear.
This complexity of definition is the first reason I’m wary of investments like this. Fortunately, these tokens aren’t currently available in the U.S. Regulations prohibit them. In Europe, where they are available, Robinhood’s regulator, the Bank of Lithuania, has opened an investigation, which may provide more clarity.
In the meantime, though, there’s a more fundamental reason to be wary of investments like this, and it stems from an idea known as Lindy’s law.
Before it closed in the 1960s, Lindy’s delicatessen in New York was a popular gathering spot for professional comedians, and a frequent topic of conversation was the relative success and career longevity of their peers. Over time, a rule of thumb developed: Comedians who had been around for a long time were more likely to have many more years in front of them. Newer performers, on the other hand, might or might not last. They hadn’t yet stood the test of time.
In a 1964 article in The New Republic, Albert Goldman dubbed this phenomenon “Lindy’s law,” though he was quick to acknowledge that it wasn’t necessarily a blinding insight. He simply observed that new things need time to prove themselves. But “despite its awesome air of common sense,” Goldman wrote, Lindy’s law may nonetheless be useful as a guide.
Over time, Lindy’s law has been applied to other fields, and I believe it’s especially applicable in finance because new financial innovations need to be tested through a variety of economic environments. This takes time. Consider the hedge fund Long-Term Capital Management, which was founded by a group of well-known economists, including more than one Nobel Prize winner. It got off to a fast start. In its first year, it returned 21%. In its second year, it gained 43%, and in its third year it delivered 41%. But in its fourth year, an unexpected event in the bond market caused the fund to suffer catastrophic failure and shut down. It turned out the fund’s quantitative strategy was flawed. But the flaw was one that an investor, when looking at the fund’s pedigree and strong early returns, couldn’t have predicted.
That’s an extreme example. But in financial markets, it illustrates the importance of giving new innovations time to be stress tested. That’s the primary reason I’d be cautious with Robinhood’s new tokens. And it’s for that same reason I’d tread carefully when it comes to other new inventions, such as Robinhood’s event contracts, which allow people to bet on elections and other events. I’d be similarly cautious with other financial creations, such as non-fungible tokens (NFTs), leveraged and inverse ETFs, special purpose acquisition companies (SPACs) and cryptocurrencies. These are all still very new, but they have gained in popularity since the pandemic. A recent writeup in The Wall Street Journal carried the headline “Meme Stocks and YOLO Bets Are Back.”
As Albert Goldman noted, Lindy’s law is largely common sense, but I believe it’s useful in making investment decisions. When we choose to be cautious with newly created financial instruments, it’s not because we can accurately predict how they’ll work out. And it’s not because we’re Luddites, reflexively opposed to anything new. Lindy’s law tells us it’s rational to stick with tried-and-true investments because they have proven themselves through multiple market cycles.
It’s important to emphasize, though, that Lindy’s law is a guideline, not a rule, meaning there can be false positives. For example, products such as whole life insurance have been around for decades, but I believe they’re still not great investments. Therefore, longevity alone is not sufficient to vet an investment.
Lindy’s law may also produce false negatives. It can cause investors to be overly cautious, rejecting anything that’s new just because it’s new. That would be a mistake too. Lindy’s law encourages us to move slowly, but it doesn’t mean we should never invest in anything new or do anything different. As Goldman wrote, “the factors that determine success or failure are a good deal more complicated than the rule suggests.”
Lindy’s law can, though, help us think about risk management. It tells us that when something is new—no matter how logical, safe or secure it may seem—we should be more careful. In situations involving new financial instruments, investing small amounts, or investing incrementally, may make more sense.
In his book Antifragile, Nassim Taleb talks about the value of Lindy’s law but notes that “it’s a noisy indicator.” It should be expected to work “on average, not in every case,” he says, and I think that’s the right way to think about it. Indeed, it’s possible that investments that look speculative today may, in time, prove themselves. In the case of Robinhood’s new tokens, I’m still skeptical. But only time will tell.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Despite the appeal, I urged caution. Why? These tokens may not perform as expected because they aren’t the same as actual equity in a company. In fact, we still don’t know exactly what they are.
With respect to the token linked to its stock, OpenAI issued this statement: “These ‘OpenAI tokens’ are not OpenAI equity. We did not partner with Robinhood, were not involved in this, and do not endorse it…. Please be careful.”
In an interview, Robinhood’s CEO, Vlad Tenev, didn’t dispute that the tokens “are not technically equity.” But, he argued, “it’s not entirely relevant that it’s not technically an equity instrument.”
To better understand tokens, you could consult Robinhood’s website. It explains that tokens are “derivatives tracked on the blockchain that follow traditional stock and ETF prices, giving you exposure to the U.S. market.” In other words, when you buy one of these tokens, what you’re buying isn’t actual company stock. It may be similar to a stock option, but it isn’t clear.
This complexity of definition is the first reason I’m wary of investments like this. Fortunately, these tokens aren’t currently available in the U.S. Regulations prohibit them. In Europe, where they are available, Robinhood’s regulator, the Bank of Lithuania, has opened an investigation, which may provide more clarity.
In the meantime, though, there’s a more fundamental reason to be wary of investments like this, and it stems from an idea known as Lindy’s law.
Before it closed in the 1960s, Lindy’s delicatessen in New York was a popular gathering spot for professional comedians, and a frequent topic of conversation was the relative success and career longevity of their peers. Over time, a rule of thumb developed: Comedians who had been around for a long time were more likely to have many more years in front of them. Newer performers, on the other hand, might or might not last. They hadn’t yet stood the test of time.
In a 1964 article in The New Republic, Albert Goldman dubbed this phenomenon “Lindy’s law,” though he was quick to acknowledge that it wasn’t necessarily a blinding insight. He simply observed that new things need time to prove themselves. But “despite its awesome air of common sense,” Goldman wrote, Lindy’s law may nonetheless be useful as a guide.
Over time, Lindy’s law has been applied to other fields, and I believe it’s especially applicable in finance because new financial innovations need to be tested through a variety of economic environments. This takes time. Consider the hedge fund Long-Term Capital Management, which was founded by a group of well-known economists, including more than one Nobel Prize winner. It got off to a fast start. In its first year, it returned 21%. In its second year, it gained 43%, and in its third year it delivered 41%. But in its fourth year, an unexpected event in the bond market caused the fund to suffer catastrophic failure and shut down. It turned out the fund’s quantitative strategy was flawed. But the flaw was one that an investor, when looking at the fund’s pedigree and strong early returns, couldn’t have predicted.
That’s an extreme example. But in financial markets, it illustrates the importance of giving new innovations time to be stress tested. That’s the primary reason I’d be cautious with Robinhood’s new tokens. And it’s for that same reason I’d tread carefully when it comes to other new inventions, such as Robinhood’s event contracts, which allow people to bet on elections and other events. I’d be similarly cautious with other financial creations, such as non-fungible tokens (NFTs), leveraged and inverse ETFs, special purpose acquisition companies (SPACs) and cryptocurrencies. These are all still very new, but they have gained in popularity since the pandemic. A recent writeup in The Wall Street Journal carried the headline “Meme Stocks and YOLO Bets Are Back.”
As Albert Goldman noted, Lindy’s law is largely common sense, but I believe it’s useful in making investment decisions. When we choose to be cautious with newly created financial instruments, it’s not because we can accurately predict how they’ll work out. And it’s not because we’re Luddites, reflexively opposed to anything new. Lindy’s law tells us it’s rational to stick with tried-and-true investments because they have proven themselves through multiple market cycles.
It’s important to emphasize, though, that Lindy’s law is a guideline, not a rule, meaning there can be false positives. For example, products such as whole life insurance have been around for decades, but I believe they’re still not great investments. Therefore, longevity alone is not sufficient to vet an investment.
Lindy’s law may also produce false negatives. It can cause investors to be overly cautious, rejecting anything that’s new just because it’s new. That would be a mistake too. Lindy’s law encourages us to move slowly, but it doesn’t mean we should never invest in anything new or do anything different. As Goldman wrote, “the factors that determine success or failure are a good deal more complicated than the rule suggests.”
Lindy’s law can, though, help us think about risk management. It tells us that when something is new—no matter how logical, safe or secure it may seem—we should be more careful. In situations involving new financial instruments, investing small amounts, or investing incrementally, may make more sense.
In his book Antifragile, Nassim Taleb talks about the value of Lindy’s law but notes that “it’s a noisy indicator.” It should be expected to work “on average, not in every case,” he says, and I think that’s the right way to think about it. Indeed, it’s possible that investments that look speculative today may, in time, prove themselves. In the case of Robinhood’s new tokens, I’m still skeptical. But only time will tell.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.The post Lindy’s Law appeared first on HumbleDollar.
Finding Flat-Fee Financial Advisors
I noticed that in the post by Dick Quinn - beyond-fees-is-using-a-financial-advisor-advisable , couple of folks had mentioned having flat-fee advisors. I see that it is lot easier to find advisors that charge a % of the assets under management but one that I am not fond of.
Have read mixed reviews about FACET, have found two sites that have flat-fee FAs
https://www.flatfeeadvisors.org/
https://saragrillo.com/2022/03/14/flat-fee-financial-advisors/
Are there other resources that one can look up?
Part of the "holistic" approach, here are the topics that I thought I would get the FA to take a look at (in no particular order):
Investment management - review, rebalance, consolidate as required
Social Security timing
Retirement planning and income
Trust and estate planning
Tax planning - Roth conversions
Insurance planning - long-term care insurance
Cash flow planning - generate a monthly "pay check"
Thanks!
Have read mixed reviews about FACET, have found two sites that have flat-fee FAs
https://www.flatfeeadvisors.org/
https://saragrillo.com/2022/03/14/flat-fee-financial-advisors/
Are there other resources that one can look up?
Part of the "holistic" approach, here are the topics that I thought I would get the FA to take a look at (in no particular order):
Investment management - review, rebalance, consolidate as required
Social Security timing
Retirement planning and income
Trust and estate planning
Tax planning - Roth conversions
Insurance planning - long-term care insurance
Cash flow planning - generate a monthly "pay check"
Thanks!
The post Finding Flat-Fee Financial Advisors appeared first on HumbleDollar.
A spooky and alarming thing relating to the two AI articles posted:
This has nothing to do with finance, but I thought it was highly fascinating and that you would find it interesting.
Thinking about AI and LLMs after authoring one of the articles and reading the other, I copied four of my Humble Dollar posts into Google Gemini and asked for a profile of the author. It was unbelievably accurate about my education, lifestyle, age, lifestyle choices, financial standing and general personality type and outlook on life… really spooky and slightly alarming.
The post A spooky and alarming thing relating to the two AI articles posted: appeared first on HumbleDollar.
Highway Robbery
LAST YEAR, I fouled up my Pennsylvania EZ Pass account. I bought a used car in Maine and forgot to add it to my EZ Pass account. Much later, when I got back up to Maine this Memorial Day, my post office box was bulging with dunning notices from Pennsylvania, New York, Maine and Delaware.
For most of a year, I had driven from Washington D.C. to Maine blissfully unaware that my EZ Pass transponder wasn’t paying a cent. Instead, I had entered the murky world of toll by plate, where a snap is taken of my license plate and a bill is sent to my address—in this case Maine.
Two problems: Toll-by-plate charges are much higher than EZ Pass rates. Second, I don’t live in Maine in the winter, so I wasn’t getting those bills. Yes, I am loosely organized.
It was months before I turned the key on my post office box in Maine to discover I was a notorious scofflaw. New York had sent my overdue tolls for crossing the George Washington Bridge to a collection agency. Maine had piled on late fees until a $1 toll turned into a $14 charge. Delaware, however, was the highway robber.
I used to wonder how the State of Delaware could provide services without having a sales tax. Now I realize that it simply soaks the people who drive through it. A $4 toll in Delaware had blown up into a $91 charge, and this had happened to me four times.
In a blur, I wrote some checks, made some calls, and filed some appeals. Delaware dropped its tolls down to $51 each. Maine kindly rescinded all the overcharges, so I paid them $1. New York wouldn’t budge, so I paid the collection agency $55. Pennsylvania was the easiest to deal with, discounting my tolls back down to the EZ Pass rates.
I’ve learned two lessons from my experience: One, register a new car and its license plate with EZ Pass in your state. I’ll concede I should have known this, but we covered a lot of subjects in the car salesroom and I don’t remember this discussion. Two, I need to do a better job of having my mail forwarded.
By falling into this limbo, I realized that EZ Pass can be a trap. The system is not constructed to forgive and forget. It’s more like a day in the life of Franz Kafka. Tolls can become astronomical, and you’re at the mercy of each state’s transportation authority. If you’ve tried to get a Real ID, you know how well that works.
For most of a year, I had driven from Washington D.C. to Maine blissfully unaware that my EZ Pass transponder wasn’t paying a cent. Instead, I had entered the murky world of toll by plate, where a snap is taken of my license plate and a bill is sent to my address—in this case Maine.
Two problems: Toll-by-plate charges are much higher than EZ Pass rates. Second, I don’t live in Maine in the winter, so I wasn’t getting those bills. Yes, I am loosely organized.
It was months before I turned the key on my post office box in Maine to discover I was a notorious scofflaw. New York had sent my overdue tolls for crossing the George Washington Bridge to a collection agency. Maine had piled on late fees until a $1 toll turned into a $14 charge. Delaware, however, was the highway robber.
I used to wonder how the State of Delaware could provide services without having a sales tax. Now I realize that it simply soaks the people who drive through it. A $4 toll in Delaware had blown up into a $91 charge, and this had happened to me four times.
In a blur, I wrote some checks, made some calls, and filed some appeals. Delaware dropped its tolls down to $51 each. Maine kindly rescinded all the overcharges, so I paid them $1. New York wouldn’t budge, so I paid the collection agency $55. Pennsylvania was the easiest to deal with, discounting my tolls back down to the EZ Pass rates.
I’ve learned two lessons from my experience: One, register a new car and its license plate with EZ Pass in your state. I’ll concede I should have known this, but we covered a lot of subjects in the car salesroom and I don’t remember this discussion. Two, I need to do a better job of having my mail forwarded.
By falling into this limbo, I realized that EZ Pass can be a trap. The system is not constructed to forgive and forget. It’s more like a day in the life of Franz Kafka. Tolls can become astronomical, and you’re at the mercy of each state’s transportation authority. If you’ve tried to get a Real ID, you know how well that works.
The post Highway Robbery appeared first on HumbleDollar.
What to Know About The One Big Beautiful Bill
On July 4th, the president signed a significant new tax and spending bill into law. The text of the bill runs to almost 900 pages and affects nearly every corner of the tax code, including personal, business and estate tax rules.
Below I summarize the provisions I see as most relevant to financial planning. It’s important to note that many of the provisions are retroactive to the beginning of 2025.
The formal name of the law is the “One Big Beautiful Bill Act,” and it is, for the most part, positive for taxpayers. It does come at a cost, though, which I’ll address further below.
Personal income tax rates: The most significant element of the new bill is that it makes the current tax brackets permanent. Because these had been scheduled to revert in 2026 to a much higher set of rates, this should provide greater certainty as you think about financial plan for the coming years.
Standard deduction: The standard deduction is essentially unchanged but will receive a bit of an increase for 2025—an additional $750 for single filers and $1,500 for those married and filing jointly—providing a small additional tax benefit for this year.
Itemized deductions: A provision that had been the subject of significant debate was the so-called SALT cap. By way of background, prior to the 2017 Tax Cuts and Jobs Act (TCJA), state and local taxes had been fully deductible against federal income taxes. But since 2018, this deduction had been capped at $10,000 for both single and married taxpayers. The new law increases the cap but in a limited way and only for a limited time.
Between 2025 and 2029, the cap will be increased from $10,000 to $40,000, but this higher cap won’t apply to everyone. A phaseout will apply to incomes between $500,000 and $600,000. Beyond $600,000, the lower cap of $10,000 will apply. This will make tax planning especially important for those with incomes in the neighborhood of that phaseout range. For better or worse, though, this will only be an issue for the next five years, after which this provision will expire.
For business owners who had been taking advantage of a pass-through entity tax (PTET) strategy as a workaround to the SALT cap, there is good news. Despite a push by some in Congress to prohibit these strategies, they will be unaffected.
Bonus standard deduction: There has been a misconception that the new law will make Social Security exempt from income tax. That is not true, but a new provision in the law offers a benefit for many Social Security recipients: A deduction of $6,000 per person will now be available to taxpayers age 65 and older. This new deduction will be on top of existing deductions, including the existing extra deduction that already applies to those 65 and up. But unfortunately, this special deduction isn’t quite as generous as it appears. It only applies for tax years 2025 through 2028, and it comes with an income cap. It will phase out as income increases above $75,000 for single filers and $150,000 for those married and filing jointly.
Qualified business income (QBI) deduction: For business owners, the new law makes the QBI deduction permanent and enhances it a bit.
Charitable giving: When it comes to charitable giving, the new law is a mix bag, providing a benefit to some but imposing a cost on others.
Taxpayers who make charitable gifts but not enough to itemize deductions will benefit under the new law. Starting next year, single filers will be able to deduct up to $1,000 of donations, and joint filers will be able to deduct up to $2,000.
A separate new provision, however, will make charitable giving a bit less tax efficient for those who itemize. Starting next year, charitable gifts will only be deductible to the extent that they exceed 0.5% of adjusted gross income. For example, if a taxpayer has income of $100,000 and contributes $2,000 to charity, the first $500 (0.5% x $100,000) will no longer be deductible. Only the remaining $1,500 can be deducted. This provision will go into effect next year, making charitable gifts relatively more valuable in 2025 than in 2026, all things being equal.
An additional note on this new 0.5% requirement: It used to be that qualified charitable distributions (QCDs) and charitable gifts that could be itemized were the same tax-wise except for the IRMAA impact. But with the new 0.5% rule on charitable deductions, that will make QCDs—for those who meet the age threshold—relatively even more valuable starting next year.
Estate tax: Starting in 2026, the estate tax lifetime exclusion was scheduled to be cut in half, from approximately $14 million per person to $7 million. While these are both big numbers, the lower threshold would have made the estate tax a consideration for many more people. Under the new rules, the lifetime exclusion will not revert and will actually increase somewhat. Beginning in 2026, the exclusion will be $15 million per person.
This should provide much greater certainty for planning purposes. That said, no law can ever be considered truly permanent. A future administration, with a politically aligned Congress, could make the rules more punitive again, and it is a real possibility. Though the estate tax provides minimal revenue to the government, it’s a political football. For that reason, I would characterize the new rules as only semi-permanent.
529 accounts: Prior to the 2017 TCJA, withdrawals from 529 accounts were permitted only for higher education. The TCJA loosened that restriction, allowing withdrawals of up to $10,000 per student per year for K-12 education. Beginning next year, this limit will be increased to $20,000. Parents will also be able to use 529 funds for a broader set of educational institutions, including vocational and certification programs.
Trump accounts: The law creates a new type of savings account for children known as “Trump accounts.” They’ll be similar to IRAs but with a few key differences. Unlike IRAs, children won’t be required to have income in order to contribute, meaning that parents could begin funding one of these accounts from the time a child is born. Employers will also be able to contribute to accounts for employees’ children without the contributions counting as income. For business owners, this opens up an interesting new employee benefit opportunity. Also, a pilot program will provide a $1,000 tax credit to parents who open a Trump account, but this credit will apply initially only to children born in 2025, 2026, 2027 and 2028.
These new accounts will come online in July 2026, and the initial contribution limit will be $5,000 per year.
Cost: These new rules are almost universally positive for taxpayers. As the saying goes, however, there is no such thing as a free lunch. The Congressional Budget Office estimates that the new rules will add $3.4 trillion to the national debt over the next 10 years. That’s on top of the existing debt load of $36 trillion, which is growing at a rate of about $2 trillion per year. Because both political parties continue to show no serious interest in addressing this issue, the result is that interest expenses will continue to consume a growing portion of the federal budget. But if a future Congress chose to get serious about this issue, there is a possibility that future tax rates could move higher. For that reason, I suggest a multi-year outlook as you think about your estate plan.
The new law contains hundreds of other provisions, but upon initial review, this is what seems most important for financial planning purposes.
Below I summarize the provisions I see as most relevant to financial planning. It’s important to note that many of the provisions are retroactive to the beginning of 2025.
The formal name of the law is the “One Big Beautiful Bill Act,” and it is, for the most part, positive for taxpayers. It does come at a cost, though, which I’ll address further below.
Personal income tax rates: The most significant element of the new bill is that it makes the current tax brackets permanent. Because these had been scheduled to revert in 2026 to a much higher set of rates, this should provide greater certainty as you think about financial plan for the coming years.
Standard deduction: The standard deduction is essentially unchanged but will receive a bit of an increase for 2025—an additional $750 for single filers and $1,500 for those married and filing jointly—providing a small additional tax benefit for this year.
Itemized deductions: A provision that had been the subject of significant debate was the so-called SALT cap. By way of background, prior to the 2017 Tax Cuts and Jobs Act (TCJA), state and local taxes had been fully deductible against federal income taxes. But since 2018, this deduction had been capped at $10,000 for both single and married taxpayers. The new law increases the cap but in a limited way and only for a limited time.
Between 2025 and 2029, the cap will be increased from $10,000 to $40,000, but this higher cap won’t apply to everyone. A phaseout will apply to incomes between $500,000 and $600,000. Beyond $600,000, the lower cap of $10,000 will apply. This will make tax planning especially important for those with incomes in the neighborhood of that phaseout range. For better or worse, though, this will only be an issue for the next five years, after which this provision will expire.
For business owners who had been taking advantage of a pass-through entity tax (PTET) strategy as a workaround to the SALT cap, there is good news. Despite a push by some in Congress to prohibit these strategies, they will be unaffected.
Bonus standard deduction: There has been a misconception that the new law will make Social Security exempt from income tax. That is not true, but a new provision in the law offers a benefit for many Social Security recipients: A deduction of $6,000 per person will now be available to taxpayers age 65 and older. This new deduction will be on top of existing deductions, including the existing extra deduction that already applies to those 65 and up. But unfortunately, this special deduction isn’t quite as generous as it appears. It only applies for tax years 2025 through 2028, and it comes with an income cap. It will phase out as income increases above $75,000 for single filers and $150,000 for those married and filing jointly.
Qualified business income (QBI) deduction: For business owners, the new law makes the QBI deduction permanent and enhances it a bit.
Charitable giving: When it comes to charitable giving, the new law is a mix bag, providing a benefit to some but imposing a cost on others.
Taxpayers who make charitable gifts but not enough to itemize deductions will benefit under the new law. Starting next year, single filers will be able to deduct up to $1,000 of donations, and joint filers will be able to deduct up to $2,000.
A separate new provision, however, will make charitable giving a bit less tax efficient for those who itemize. Starting next year, charitable gifts will only be deductible to the extent that they exceed 0.5% of adjusted gross income. For example, if a taxpayer has income of $100,000 and contributes $2,000 to charity, the first $500 (0.5% x $100,000) will no longer be deductible. Only the remaining $1,500 can be deducted. This provision will go into effect next year, making charitable gifts relatively more valuable in 2025 than in 2026, all things being equal.
An additional note on this new 0.5% requirement: It used to be that qualified charitable distributions (QCDs) and charitable gifts that could be itemized were the same tax-wise except for the IRMAA impact. But with the new 0.5% rule on charitable deductions, that will make QCDs—for those who meet the age threshold—relatively even more valuable starting next year.
Estate tax: Starting in 2026, the estate tax lifetime exclusion was scheduled to be cut in half, from approximately $14 million per person to $7 million. While these are both big numbers, the lower threshold would have made the estate tax a consideration for many more people. Under the new rules, the lifetime exclusion will not revert and will actually increase somewhat. Beginning in 2026, the exclusion will be $15 million per person.
This should provide much greater certainty for planning purposes. That said, no law can ever be considered truly permanent. A future administration, with a politically aligned Congress, could make the rules more punitive again, and it is a real possibility. Though the estate tax provides minimal revenue to the government, it’s a political football. For that reason, I would characterize the new rules as only semi-permanent.
529 accounts: Prior to the 2017 TCJA, withdrawals from 529 accounts were permitted only for higher education. The TCJA loosened that restriction, allowing withdrawals of up to $10,000 per student per year for K-12 education. Beginning next year, this limit will be increased to $20,000. Parents will also be able to use 529 funds for a broader set of educational institutions, including vocational and certification programs.
Trump accounts: The law creates a new type of savings account for children known as “Trump accounts.” They’ll be similar to IRAs but with a few key differences. Unlike IRAs, children won’t be required to have income in order to contribute, meaning that parents could begin funding one of these accounts from the time a child is born. Employers will also be able to contribute to accounts for employees’ children without the contributions counting as income. For business owners, this opens up an interesting new employee benefit opportunity. Also, a pilot program will provide a $1,000 tax credit to parents who open a Trump account, but this credit will apply initially only to children born in 2025, 2026, 2027 and 2028.
These new accounts will come online in July 2026, and the initial contribution limit will be $5,000 per year.
Cost: These new rules are almost universally positive for taxpayers. As the saying goes, however, there is no such thing as a free lunch. The Congressional Budget Office estimates that the new rules will add $3.4 trillion to the national debt over the next 10 years. That’s on top of the existing debt load of $36 trillion, which is growing at a rate of about $2 trillion per year. Because both political parties continue to show no serious interest in addressing this issue, the result is that interest expenses will continue to consume a growing portion of the federal budget. But if a future Congress chose to get serious about this issue, there is a possibility that future tax rates could move higher. For that reason, I suggest a multi-year outlook as you think about your estate plan.
The new law contains hundreds of other provisions, but upon initial review, this is what seems most important for financial planning purposes.
The post What to Know About The One Big Beautiful Bill appeared first on HumbleDollar.
Using AI to create a robust investment plan
I’ve been dabbling in AI. Began using precursor “Expert Systems” about 20 years ago, but the new apps are more generalized and interesting. I’m aware of the limitations and anyone who wants to use something like Gemini or ChatGPT should also be aware. They can (and do) generate false information with apparent confidence. This can deceive users. Such disinformation has been given the name "hallucination" or "confabulation" by AI experts. Interesting names for inaccuracy.
However, using precise prompts seems to improve the response.
I’ve been running tests on Gemini using a range of prompts to build an in-retirement portfolio. I call these "tests" because I have my answer to compare this AI expert to. My early explorations indicate this might be a useful tool to add to my other modelling methods such as Monte-Carlo simulations. I’m also exploring approaches to a more robust withdrawal strategy. All of this is to aid my younger spouse.
If anyone is interested in Gemini's complete response, simply copy and paste my prompts into a query. However, AI being what it is, I expect every response will be slightly different.
Adding a few terms to the prompts does generate differing results. For example, I asked Gemini to:
“Provide a model of an in-retirement portfolio. The portfolio is $1,500,000. Annual withdrawal is 5%. The portfolio is to have a duration of 25 years. Provide an optimal mix of stocks and cash or bonds. Stocks may include ETFs, individual stocks in the US and global. Minimize risk.”
I used 5% withdrawal as a means to stress the response. I received a 1,000 word response. A statement of goals and assumptions (inflation, returns and withdrawal rate) were made. Then Gemini went on to provide an “Optimal Mix of Stocks, Bonds, and Cash (Risk-Minimized Focus)”, a “Detailed Asset Allocation”, “Withdrawal Strategy” and “Management & Rebalancing”. The portfolio was 50/50 bonds-cash/equities. It used specific ETFs in its examples.
Gemini summed its response this way: “This model provides a robust framework for a risk-minimized, in-retirement portfolio designed for a 25-year duration with a 5% annual withdrawal. The emphasis on high-quality bonds and diversified equities aims to generate income, preserve capital, and offer some inflation protection, all while prioritizing risk management.”
Adding Dividends. I then modified the query: ““Provide a model of an in-retirement portfolio. The initial value is $1,500,000. The initial withdrawal rate will be 5%. The duration is 25 years. Consider inflation and the possible returns from US and global stocks, as well as cash and bonds. Should dividend paying stocks be included and if so, what percentage of equities?”
I received a more detailed 1,500 word response. This portfolio was 60% bonds-cash and 40% equities. It included a list of example ETFs for stocks and bonds. The allocation percentages of each were provided. A Bucket withdrawal approach was outlined.
Gemini summed it this way: “This comprehensive portfolio model balances income generation, inflation protection, and growth, aiming to provide a sustainable retirement income stream for 25 years while effectively managing risk and leveraging the benefits of dividend-paying stocks.”
However, using precise prompts seems to improve the response.
I’ve been running tests on Gemini using a range of prompts to build an in-retirement portfolio. I call these "tests" because I have my answer to compare this AI expert to. My early explorations indicate this might be a useful tool to add to my other modelling methods such as Monte-Carlo simulations. I’m also exploring approaches to a more robust withdrawal strategy. All of this is to aid my younger spouse.
If anyone is interested in Gemini's complete response, simply copy and paste my prompts into a query. However, AI being what it is, I expect every response will be slightly different.
Adding a few terms to the prompts does generate differing results. For example, I asked Gemini to:
“Provide a model of an in-retirement portfolio. The portfolio is $1,500,000. Annual withdrawal is 5%. The portfolio is to have a duration of 25 years. Provide an optimal mix of stocks and cash or bonds. Stocks may include ETFs, individual stocks in the US and global. Minimize risk.”
I used 5% withdrawal as a means to stress the response. I received a 1,000 word response. A statement of goals and assumptions (inflation, returns and withdrawal rate) were made. Then Gemini went on to provide an “Optimal Mix of Stocks, Bonds, and Cash (Risk-Minimized Focus)”, a “Detailed Asset Allocation”, “Withdrawal Strategy” and “Management & Rebalancing”. The portfolio was 50/50 bonds-cash/equities. It used specific ETFs in its examples.
Gemini summed its response this way: “This model provides a robust framework for a risk-minimized, in-retirement portfolio designed for a 25-year duration with a 5% annual withdrawal. The emphasis on high-quality bonds and diversified equities aims to generate income, preserve capital, and offer some inflation protection, all while prioritizing risk management.”
Adding Dividends. I then modified the query: ““Provide a model of an in-retirement portfolio. The initial value is $1,500,000. The initial withdrawal rate will be 5%. The duration is 25 years. Consider inflation and the possible returns from US and global stocks, as well as cash and bonds. Should dividend paying stocks be included and if so, what percentage of equities?”
I received a more detailed 1,500 word response. This portfolio was 60% bonds-cash and 40% equities. It included a list of example ETFs for stocks and bonds. The allocation percentages of each were provided. A Bucket withdrawal approach was outlined.
Gemini summed it this way: “This comprehensive portfolio model balances income generation, inflation protection, and growth, aiming to provide a sustainable retirement income stream for 25 years while effectively managing risk and leveraging the benefits of dividend-paying stocks.”
The post Using AI to create a robust investment plan appeared first on HumbleDollar.
The Value of Scratch Cooking in Retirement
Suzie and I had a delicious meal last night – slow-roasted chicken, stacked on a bed of buttery Irish champ with a Bailey's Cream-infused peppercorn sauce, very tasty! Top-quality restaurant fare. But the thing was, I made it from scratch.
I've always, for as long as I can remember, had a passion for cooking. It's one of my favourite activities and brings me immense personal satisfaction seeing people enjoy the food I've created. Now that I am retired, I plan on cooking many more delicious meals. My wife Suzie is very happy about this!
As we age, and particularly in retirement, scratch cooking is something I believe we should concentrate more of our time and energy on. The benefits are numerous and deserve thinking about. Your health is arguably the most important asset you have in later years.
Scratch cooking gives you control over the ingredients you use, but critically it also gives you control of ingredients you don't want. You can easily reduce excess salt, sugar, and unhealthy fats often hidden in processed foods or restaurant meals. If you're managing conditions like high blood pressure or diabetes, this is invaluable. You can focus on ingredients like fresh vegetables, lean proteins, and whole grains, fuelling your body with the best possible nutrition and potentially boosting your energy levels, making it easier to chase the grandkids around the park.
There's a large social aspect in cooking. It's a great excuse to invite friends to dinner with the added benefit of social interaction and pleasing company, and can become the glue that knits a loose collection of friends together into an enduring social circle beyond the dining table. In my case, it's led to organising holidays together and other fun activities, and although it goes against the grain of my article, it's also involved real restaurants other than Mark's kitchen.
But thinking about restaurants and other similar meal options like takeaway, have you ever considered the costs involved with making those your go-to options at mealtimes rather than a special treat? My favourite is an Indian takeaway, and I enjoy it on occasion. But even when I'm chomping my way down a spicy curry, maybe a cold beer beside me, I'm normally thinking about the cold hard cash I had to hand over for my dinner. I know I could make something very similar for a fifth of the price and enjoy the cooking process into the bargain.
I know it's not for everyone, but giving scratch cooking a try could be a triple whammy for your health, social wellbeing, and a silent partner working with you in the ongoing battle against rising costs and the pressure on our wallets.
On a closing note I would like to give a big thank you to the most valued partner in my creative cooking journey. Dishwasher I thank you most sincerely!
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July 10, 2025
Some people are never satisfied
The Washington Post has an article on yet another effort to cut taxes for the wealthy. This time it is stepping up the cost basis for capital gains to account for inflation. You'd think they'd at least wait for the dust to settle from the recent give away.
I don't know whether the article is behind the pay wall, it's not giving me an option to share it so I did a straight copy.
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Estrangement & Estates
I've been thinking about family dynamics and how they affect financial decisions, and this will be the first of several posts on various applications of this topic.
This first one is a hard one to talk about: It's family estrangement, specifically a family member(s) going "no contact" with or otherwise walking away from other family member(s). It's not as unusual as you might think--there is growing research on the topic, and some estimate that more than 30% of American families have an estranged family member. The reasons for this alarming trend are sociologically complex.
One expert on the topic is psychologist Joshua Coleman, who's written a couple of books and many articles based on insights from his own practice and his research. He notes that while about half of the estrangement situations happen for reasons we'd all consider legitimate (e.g., clearly abusive behavior), others are harder to peg, and what one adult child might consider a "toxic" on the part of their parents might be incomprehensible to their sibling.
As I said, it's complicated. Sometimes, according to Coleman, the estranged family members might find a way back to each other. In other cases, the person is (most likely) gone forever.
The question arises as to the implications estrangement has for one's estate. Coleman urges parents with an estranged adult child not to cut them out of their will, arguing that this will just exacerbate an already painful situation. However, others might argue that if a family member has chosen to exit the family, causing pain by so doing, they are no longer entitled to family resources--and including them in an estate plan might even seem or be disrespectful to other family members who have been hurt by their actions.
I'll be vague, but we have an estrangement situation in my extended family. One relative decided to rewrite their will to exclude the estranged family member. A different relative decided not to exclude them. There are a lot of hard feelings within the family about this person's abandonment of people who love them. Some have even said that they wouldn't be welcome at a funeral or memorial service, having chosen to opt out of the deceased person's life while they were still with us.
One thing we've learned from consulting with an estate attorney: If someone wants to exclude a close family member from an inheritance, they have to specifically state that in the will. Just leaving them out isn't adequate.
What is your experience with or observation about family estrangement and specifically its impact on estate planning or other family resource allocations?
This first one is a hard one to talk about: It's family estrangement, specifically a family member(s) going "no contact" with or otherwise walking away from other family member(s). It's not as unusual as you might think--there is growing research on the topic, and some estimate that more than 30% of American families have an estranged family member. The reasons for this alarming trend are sociologically complex.
One expert on the topic is psychologist Joshua Coleman, who's written a couple of books and many articles based on insights from his own practice and his research. He notes that while about half of the estrangement situations happen for reasons we'd all consider legitimate (e.g., clearly abusive behavior), others are harder to peg, and what one adult child might consider a "toxic" on the part of their parents might be incomprehensible to their sibling.
As I said, it's complicated. Sometimes, according to Coleman, the estranged family members might find a way back to each other. In other cases, the person is (most likely) gone forever.
The question arises as to the implications estrangement has for one's estate. Coleman urges parents with an estranged adult child not to cut them out of their will, arguing that this will just exacerbate an already painful situation. However, others might argue that if a family member has chosen to exit the family, causing pain by so doing, they are no longer entitled to family resources--and including them in an estate plan might even seem or be disrespectful to other family members who have been hurt by their actions.
I'll be vague, but we have an estrangement situation in my extended family. One relative decided to rewrite their will to exclude the estranged family member. A different relative decided not to exclude them. There are a lot of hard feelings within the family about this person's abandonment of people who love them. Some have even said that they wouldn't be welcome at a funeral or memorial service, having chosen to opt out of the deceased person's life while they were still with us.
One thing we've learned from consulting with an estate attorney: If someone wants to exclude a close family member from an inheritance, they have to specifically state that in the will. Just leaving them out isn't adequate.
What is your experience with or observation about family estrangement and specifically its impact on estate planning or other family resource allocations?
The post Estrangement & Estates appeared first on HumbleDollar.
Beyond fees, is using a financial advisor, advisable? If you do or don’t why?
There was a discussion recently on HD about the costs/benefit of a financial advisor.
I have more questions. Who needs a financial advisor and why? I have looked up the pros and cons and certainly a case can be made for using an advisor, but not always.
I have never used an advisor, but that doesn’t mean I wouldn’t be better off if I did. I asked at Fidelity, but the fee percentage - I think it was 1% a few years ago - turned me off.
How does your advisor add value for you? Does it go beyond just where to invest?
Is your financial situation better having used an advisor?
Does your advisor make specific investment recommendations and, if so, do you always follow them? Does your advisor have authority to make or change investments without your approval each time?
Any other thoughts on using an advisor these days?
I have more questions. Who needs a financial advisor and why? I have looked up the pros and cons and certainly a case can be made for using an advisor, but not always.
I have never used an advisor, but that doesn’t mean I wouldn’t be better off if I did. I asked at Fidelity, but the fee percentage - I think it was 1% a few years ago - turned me off.
How does your advisor add value for you? Does it go beyond just where to invest?
Is your financial situation better having used an advisor?
Does your advisor make specific investment recommendations and, if so, do you always follow them? Does your advisor have authority to make or change investments without your approval each time?
Any other thoughts on using an advisor these days?
The post Beyond fees, is using a financial advisor, advisable? If you do or don’t why? appeared first on HumbleDollar.
