Jonathan Clements's Blog, page 57

The Silent Compounding Cost of a 1% Fee

We often hear about the power of compounding returns—how investments grow exponentially over time. But there’s a lesser-known side to compounding: the cost of ongoing financial advisor fees.

Consider a $1,000,000 portfolio growing at 7% annually. Over 10 years, that could grow to about $1,967,151—if left untouched. But add a seemingly modest 1% annual advisory fee, and your ending value drops to roughly $1,779,056. That’s a $188,000 difference.

Why such a large gap?

Each year, the fee reduces your balance before it compounds. And as your portfolio grows, the fee—calculated as a percentage of a growing total—gets larger. You’re not just paying 1% on your original investment. You’re paying it on your gains too.

Here’s how it breaks down:

Total fees paid over 10 years: ~$140,572Lost potential growth: ~$47,523Total cost of the 1% fee: ~$188,095

This isn’t to say advisors don’t provide value. Many offer guidance that can help investors avoid costly mistakes. But before paying ongoing fees, ask yourself:

Am I getting value that justifies this cost?Could I replicate these results with a low-cost investment strategy?Is fee-based, as-needed advice a better fit?

A 1% fee may seem small, but over time it can quietly erode a significant portion of your wealth. Understanding the compounding cost is essential to making wise long-term financial decisions.

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Quinn’s latest rant has serious consequences

My favorite, beautiful word is “consequences,” and how it seems to be ignored.

We tend to forget that no matter what we do, there will be a result, a reaction. There will be consequences, some intended, others not.  We tend to address one problem but fail to think through possible consequences. 

The best examples are at the national level. Apply a surcharge such as IRMAA and people will attempt to keep income lower.  

Roth accounts were intended to increase retirement savings, but mostly help the income levels that need it the least.  Only about 11% of taxpayers have a Roth IRA and those folks anticipate being in higher tax brackets in the future. 

When tariff news points them higher, the market declines and vice-versa. Somebody is anticipating consequences. 

Tax-free income such as from Social Security will have adverse consequences for the SS and Medicare trust funds, but seniors like the idea and don't think about the consequences. 

I fear for my children and grandchildren as they will be dealing with the massive federal debt and deficits we seem not to worry about. 

No property taxes for those of us over 65 means higher taxes for younger people or reduced services and funding of schools or both. But the mistaken attitude seems to be seniors already paid their share. 

States like NJ seek more tax income from high earners and then have to react when those citizens leave the state. 

On the personal level, making minimum payments on a credit card has dire consequences. Taking those two year olds to DisneyWorld may make you feel good - the kids won’t remember, but paying off that experience may last longer than the lines you endured. 

Should a health insurance deductible apply to use of an emergency room? They are applied because the ER is frequently used in appropriately. The goal is to discourage that use, but the consequence may be a financial hardship for appropriate use. 

I read people complaining that their health insurance denied a valid claim, but it turns about the claim was applied to their deductible so no claim was denied. Lower deductibles lead to higher premiums. More use of insurance means higher premiums, but few people make that connection. Frequently you can tie those consequences to lifestyle, but do so at your own risk. Many people are sure health insurance is a scam and premiums are driven by profits and CEO pay. Not true. 

When policymakers seek to save money on Medicare by cutting physician and other payments and limiting drug prices, shouldn’t we consider the impact? Squeeze a balloon and it expands in a different place. Do we expect lower payments simply to be absorbed with no consequence on the under age 65 population? Not likely. 

My father was a chronic smoker. Several packs a day. Heart disease and emphysema to the extent he couldn’t walk across a room were his consequences. So far I have managed to escape effects from years of second hand smoke growing up, but I grew up with asthma. 

Living above ones means may feel good in the near term, but the longer term consequences not so much. 

On the other hand, a bit of frugality during working years may lead to a more enjoyable retirement. 

I maintain that virtually everything is connected in some way, our society, our world for that matter. I think as a society and individuals we need to think things through, be more aware, more attuned to possible consequences before we act - or not. 

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Smart idea or not? Converting Vanguard mutual funds to Vanguard ETFs

It seems that converting my (non-IRA and non-Roth IRA) Vanguard mutual funds to the corresponding  or equivalent ETFs is a smart tax move to make.

However, then I read this in Vanguard's information about making the conversion.

By making the conversion, I will be giving up the average cost basis of the shares I had purchased years ago, and applying the FIFO (First In First Out) cost basis.

This is what Vanguard says:

"If you are already locked into the average cost method by a sale, transfer, partial conversion or other disposition of your Vanguard mutual fund shares, we’ll have you exit the average cost method for any eligible shares of Vanguard mutual funds and apply the FIFO cost basis method prior to this conversion to the ETF share class. This means share lots acquired prior to the conversion will be listed individually with the averaged cost."

I don't want to make the conversion from Vanguard mutual funds to Vanguard ETFs  if it will be a bad decision from a tax perspective when it comes to changing the cost basis to FIFO.

I need some help from the Humble Dollar community. What are your thoughts folks?

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How was your Mother’s Day?

This holiday can be a stressful one for many families.  Who plans it? Who hosts it? Do you go out for a meal or cook or cater in?  Who is invited?  Who can actually come (geographically and other commitments)?  How does everyone get along?

After an exhausting but great Mother's Day at our Jersey shore home on a beautiful day here my wife and I collapsed as I reflected on how lucky we are compared to many families including many of our friends.   We had our 2 daughters, son-in-laws, their parents (except for one dad who lives out of state and is divorced from his mom) and our 4 grandchildren together.  Spending most of the day together, we all got along well and had a fun day (some bike riding, walking along the beach, and some boardwalk activities).  Yes it was a lot of work to set up, prepare food and drinks (everyone made or brought something)and clean up after everyone left, but it was worth it (even my wife thought so…LOL).   We are fortunate that our family lives reasonably close and we can include the in-laws so our kids don’t have to “decide where” or split their time on holidays like this one.
How was your Mother's Day?

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Retirement as you like it

Here I sit on my deck, the blue sky is cloudless. It is 74 degrees, no wind and quiet except for the birds making their views known. My view of anything beyond 50 feet is blocked by thickly leaved trees.  

Between writing, I read commentary about tariffs, trade, economies on Project-Syndicate, a daily updated compilation of articles from scores of international writers. I’m also reading about the Salem witch trials and Ben Franklin’s rise to fame and testimony before Parliament about taxing the colonies - where have I heard about taxes before? 

It’s a day to do nothing except what I want. It’s a day to be retired and enjoy. The doctor visits are over - for this week at least. My new eye doctor said I was a delight- perhaps a shock to some HD readers. He said most of his patients my age were grumpy, complaining and slouching in the chair. I delight in not acting or being perceived to be my age. 

Yesterday I drove four hours roundtrip to my brother in laws 80th birthday party. During lunch several locals were talking and complaining about their property taxes. $3,200 was outrageous for 3.5 acres of property I was told. The fellow nearly choked on his crab cake when I told him we paid $13,500 on our condo with zero land. 

Talk about projects in retirement. My brother in law has a fully equipped garage/shop on his property where he builds cars and their motors and everything else related. I couldn’t even handle Lincoln Logs and this guy takes old cars apart and puts them back together just like new. 

I’m trying to finish reading a book and he has a “new” 1963 Pontiac Grand Prix he built, races and shows. I feel inadequate. He has a government pension, a very modest 457b balance, but doesn’t care and lives as he enjoys.  

Retirement as you like it seems possible, at least if you live in rural Pennsylvania surrounded by corn fields with the nearest supermarket 10 miles away. That does sound appealing- some days. 

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Assisted Living – How will you choose?

There have been many discussions about assisted living and CCRC in HD. As I learn about how they staff and manage these facilities, there are many unanswered questions.
Currently, about 65% of elderly are cared for by their families at home. For 13% of those who aren’t living with family, the gap is partially filled by assisted living establishments. The median cost of care is $5,900/month, but ancillary services are extra. That can bring that cost over $15,000/month. Every extra service is billed for maximum profit. Staffing shortages, more medical needs of patients due to older age, sparse state regulations, and profit driven private equity and corporate ownership has created an environment where compassionate care is not easy to find.
Choice of such facilities has to be made carefully. However, this is not always possible. In most cases, one has a week or so to make a decision which is "crisis driven." When you visit such facilities, you are shown beautiful buildings, with nice lawns, fountains, and shuttle buses. I visited about half a dozen such facilities in multiple states and they are, no doubt, impressive. But the ground reality on daily care may be very disappointing due to staffing shortage and profit mind set.
Here is an article that provides a good overview of the industry and issues.


https://www.theguardian.com/society/ng-interactive/2025/may/01/nursing-home-assisted-living-costs-care
Here are my questions:

What have been your experiences with assisted living facilities? Are non-profits any better? How will you choose a facility for a loved one or yourself? Is assisted living in a CCRC any better?

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Staying Alive

“Don’t ask what the world needs. Ask what makes you come alive, and go do it. Because what the world needs is people who have come alive.” — Howard Thurman

When I last checked in with you we were waiting to move to California to be closer to our, now, 18-month granddaughter. I shared the wisdom I had gotten from a six-day silent retreat. As Paul Harvey used to say, “now for the rest of the story”.

I broke my silence at the retreat to interview for my dream retirement job - being an usher for the San Francisco Giants. Despite the fact my wife told me when I applied “they aren’t going to hire a 67-year old with two replacement hips,” they did. I accepted the offer of a part-time, minimum-wage job and the opportunity to commute from North Carolina to California to do it.  Another consequence of the good luck and timing of saving/investing over the years. 

I had been a bit lost and depressed since November. The election results and our inability to find a place to live in California had been getting me down. The new job, and the Howard Thurman quote above, inspired me to move towards what makes me come alive. I decided to start working on my long-planned memoir with baseball as its main theme. I fell in love with baseball (and Willie Mays) in 1965 when I was seven and my family was falling apart.  Perhaps it could help save me again when the country seems to be falling apart. 

I started writing during spring training and started the new job in April. It’s been a whirlwind. I’ve been interviewing baseball fanatics like myself. Current and former writers, announcers, players and fans - including members of the HumbleDollar community. (If you are one please let me know!) Baseball gives them and me joy - and joy always makes me come alive. The faith of taking a job without a place to live paid off - we are closing on a new house in two weeks and the cross-country move will begin when we sell our house in North Carolina.

We face many challenges as we age and prepare for, or enter into, retirement. HumbleDollar helps us with the financial challenges but just as important can be finding and/or remembering what makes us come alive. The twinkling in my granddaughter’s eyes as she remembers my face, the smiles of six-year and sixty-six year olds as they walk into the ballpark and the conversations with people I never dreamed I would meet to talk about the memories and heartbreaks of baseball give me joy these days. And I feel more alive. I know that’s what I need now, I hope and pray it is what the world needs now too.

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Go for the Gold?

IT’S BEEN QUITE A YEAR for gold investors. While the stock market has struggled, gold hit a new all-time high, topping $3,500 per ounce just a few weeks ago.  Year-to-date, gold has gained nearly 30%, while the S&P 500 is in negative territory. This has certainly grabbed people’s attention—but does gold make sense for your portfolio?

To answer this question, let’s start by looking at the arguments favoring gold. Supporters typically point to two key attributes, both of which have contributed to its rise this year. First, gold has a reputation as being an effective inflation fighter. Second, it’s viewed as a safe haven during times of economic uncertainty.

Gold’s reputation as a bulwark against inflation stems mainly from the 1970s. Decades prior to that, the exchange rate between gold and the U.S. dollar had been fixed at $35 an ounce under an agreement known as the Bretton Woods system. But that system became untenable, and in the early 1970s gold prices were allowed to float freely. What happened next cemented gold’s reputation.

In less than a decade, gold jumped nearly 20-fold, from $35 to $650. This jump coincided with a period of unusually high U.S. inflation, which at one point hit nearly 14%. Many investors concluded that gold and inflation must be linked. Because the 1970s were also a period of stock market malaise, the decade ended with gold looking like an ideal investment.

While the 1970s were an exceptional period for gold, enthusiasts point to a much longer history. When archeologists excavated tombs from ancient Mesopotamia, they found gold jewelry, including headdresses, bracelets and earrings, dating back some 5,000 years. They found the same thing in the tombs of Egyptian pharaohs. (Tutankhamun’s mask contained more than 20 pounds of gold.)

In other words, gold is arguably the world’s oldest store of value in continuous use, and that, too, has contributed to its unique reputation.

A reason for its longevity is perhaps that gold, unlike traditional paper money, isn’t under the control of any government, helping to preserve its value. By contrast, it’s easy for governments to issue new currency, which has the effect of debasing the value of existing money in circulation, including consumers’ paychecks and savings. We witnessed that during the pandemic. To support the economy, the Federal Reserve created approximately $3 trillion, much of which Congress distributed in the form of stimulus checks. This was a key contributor to the inflation spike we saw in 2022.

Unlike paper currency, which can be created at the whim of any government, the supply of gold grows very slowly due to the cost and effort involved in mining. Indeed, the World Gold Council estimates that if all of the gold ever mined were fashioned into a single cube, it would measure just 72 feet on each side.

To illustrate the stability of gold, fans cite the notion that an ounce of gold has always translated—more or less—to the cost of a men’s suit. They argue that this rule of thumb has held true at least since the Roman empire. Does the data really support this? It’s debatable. True or not, stories like this contribute to gold’s reputation.

Gold’s longevity, scarcity and independence from government control help explain why it’s earned its unique status as a safe haven during periods of uncertainty, which is the second key benefit cited by gold supporters.

We’ve seen that dynamic this year. The White House’s new tariff policies have upended global trading patterns, and that’s impacted the stock market, as would be expected. But because of the resulting economic uncertainty, the value of U.S. Treasury bonds has also been affected. In the midst of all this, gold has become relatively more attractive to investors looking for an alternative to stocks and bonds. That explains a large part of gold’s recent rise.

The gains this year have been particularly impressive, but gold has generally moved to the beat of its own drum, which contributes to its appeal as a way for investors to diversify. In statistical terms, on a scale where zero indicates no correlation and 1 indicates perfect correlation, gold’s correlation to stocks has been quite low, averaging just 0.24 over the past 10 years.

Thus, gold seems uniquely appealing. Still, I don’t recommend it. Why? Despite its reputation, gold hasn’t always been a reliable hedge against inflation. It certainly did well in the 1970s. But aside from that, gold hasn’t always delivered. Even in 2021 and 2022, when inflation was high, gold investors didn’t do terribly well. And when inflation began to subside, gold gave up whatever gains it had achieved.

In a 2022 interview, a hedge fund manager described the frustration for gold investors. “It’s been a horrible experience,” he said. “You have high inflation, the Fed behind the curve, and gold going down rather than up…. It’s enormously disappointing.”

Why didn’t gold deliver more for investors in 2022, when inflation hit a 40-year high? In my view, it’s because gold lacks intrinsic value. That is, it doesn’t produce income. That’s in contrast to other investments like stocks, which produce dividends; bonds, which deliver interest; and real estate, which provides rent. Because gold doesn’t produce any income, its price is driven largely—if not mostly—by emotion.

There is no math that an investor can do to determine an appropriate price for gold. It’s worth only what other investors are willing to pay for it, and that, in my view, is why its price can fluctuate so widely. Gold gains in value when the economic environment seems uncertain. But when the bad news passes, its value as a safe haven suddenly becomes less valuable, cancelling out its prior gains. That’s why a long-term chart of gold prices looks a lot like a rollercoaster, lacking the same overall upward momentum as the stock market. For that reason, I would be wary of buying gold—except as jewelry.

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.

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Shoppers Spend Average of $260 on Mother’s Day??

In this weekend's Barron's, Jack Hough wrote that '.... shoppers say they’ll spend an average of $259.04 per person on Mother’s Day this year, up exactly $5 from last ..."

Sadly, my mother died several years ago. But my wife and I have two children, and they are getting her a gift. However, I can promise you that total the pair spend on their mother won't begin to approach $520+.

Does the average shopper really spend an average of $260 per person for their mother? Not that mothers don't deserve it. I always told my mom and dad that no matter what I did for them, I could never fully repay them for what they did for me.

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Tax Efficient Investing for Retirees with High Net Worth: Direct Indexing?

What would you do?

A recent 60-yr.-old retiree with a pension over $100K/yr. and rental income of ~$30K/yr. My expenses are ~$70K/yr. As you can see I have no need to withdraw any $ from my retirement accounts (~$1.09M in trad. IRA and $2.2K in Roth) or two brokerage accounts ($1.5M-a bunch of mutual funds (18) & $500K- Schwab Intelligent Portfolio-robo advisor; overall asset allocation of 85% stocks & 15% bonds.) Seriously considering doing Roth conversions before reaching RMD at 75.

I have a checking account and some emergency cash held in MM muni funds in the four accounts mentioned. All of my assets are held at Schwab. I am a DIY, "buy-and-hold" investor who likes to manage a portfolio with no/low fees and expenses, and I've had the mutual funds (index funds from Vanguards, T. Lowe Price, and some mid & small cap funds) for a long time and they have appreciated greatly over the years with serious tax consequences; it appears that some/many of them are not tax-efficient!

Due to large distributions and gains from the mutual funds, last year my taxes were very high (tail end of 32% fed. & 9.3% CA brackets). I was recommended to gradually sell the mutual funds and invest in a direct-indexing product, such as Schwab Personalized Indexing or Fidelity's "SMA- Direct Indexing, both of which have 0.4% advisory fee. Tax-loss harvesting was the major reason these products were recommended.

What are your thoughts on these products? There are pros and cons of this strategy, but directly owning hundreds of stocks will create a nightmare when unloading or discontinuing in the future.  Also, pages of 1099 to upload during tax preparation!

How about robo advisors (Betterment, M1, Wealthfront) that do tax-loss harvesting automatically for a fee (~0.25%) or direct indexing, like Wealthfront's S&P 500 Direct Indexing with .09% fee? 

Any feedback, thoughts or recommendations would be deeply appreciated, for I'm having a hard time making a decision on how to invest in tax-efficient products that cost very little or have no/low fees.

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