Jonathan Clements's Blog, page 66

Mob Rule

BENJAMIN GRAHAM was Warren Buffett’s teacher and mentor. He also ran an investment fund that specialized in uncovering demonstrably undervalued stocks.

One day in 1926, Graham was at his desk, reading through a government report on railroads, when he noticed a potentially important footnote. It referenced assets held by a number of oil pipeline companies. But there wasn’t a lot of detail, so Graham boarded a train to Washington and found his way to the Interstate Commerce Commission (ICC), where he thought he might get more information.

What Graham uncovered in the ICC’s dusty offices confirmed what the footnote had suggested—that many pipeline companies, due to a quirk of history, held assets that were worth far more than the companies themselves. Northern Pipe Line’s shares, for example, were trading at $65, but the company held bonds worth $95 per share. It was about as obvious an investment opportunity as ever existed. Graham began purchasing Northern shares and, after discussions with the company’s management, eventually unlocked $110 per share for investors. This investment was an almost no-lose situation, but it was one that other investors hadn’t noticed because the information was so inaccessible.

Today, the world is different. The sort of data that Graham had to look for in a government filing cabinet are now readily available online. Rarely, if ever, is there public information that isn’t in digital form. It’s for that reason that the market is regarded as more efficient today. Stock prices are seen as being more accurate because the relevant data have been factored in.

This development is generally seen as positive. Greater access to information allows investors to make more fully informed decisions. You may recall Enron, for example, where an accounting fraud brought down the company. What caused the fraud to unravel? A reporter named Bethany McLean took a close look at the company’s annual report online and concluded that the numbers didn’t add up.

She published her initial findings in the March 2001 issue of Fortune, and by December the company had filed for bankruptcy. It was a stunning fall, all prompted by the research of a single reporter working from her desk. Looking at examples like this, today’s market seems far more efficient than it was in Graham’s time, when Enron might have been able to continue its fraud undetected for far longer.

In a recent paper, though, Clifford Asness, an investment researcher and fund manager, suggests that conventional wisdom might be wrong—that the market might be less efficient today than it was in the past, despite the improved access to data. To support his claim, Asness looks at market valuation as a proxy for market efficiency. Specifically, he looked at the valuation gap between the most expensive and least expensive stocks, and examined how that gap has changed over time. What he found is that this ratio has been rising steadily for years and, through a number of lenses, it has become more extreme. You can see an illustration of this in his paper.

This valuation trend is evidence of inefficiency, Asness argues, for the simple reason that it’s irrational for investors to overpay for stocks. It’s a pillar of market efficiency, in fact, that prices should reflect all available data. Asness reasons that if investors were reading the data rationally, they’d be making different decisions, and that would cause the valuation gap to close. But that’s not what’s happening.

If investors have more information today, why would they be making decisions that seem contrary to the data? Asness explores a variety of possible explanations. In the end, he concludes, ironically, that it’s the internet itself that’s made the market less efficient.

On the one hand, the web can be a source of reliable information—as it was for Bethany McLean. But on balance, Asness calls it a “fever swamp” of misinformation. In the past, there was the notion of the wisdom of crowds, which posited that groups of people together make better decisions. But Asness feels that today’s social media has produced the opposite result, turning large groups of people into “a coordinated clueless and even dangerous mob.”

We saw this sort of un-wise mob dynamic with the meme stock craze in 2021, when groups of investors bid up the shares of bankrupt and nearly bankrupt companies. Their leader: a YouTube personality who called himself Roaring Kitty. That year also saw a boom in special purpose acquisition companies (SPACs) and other questionable investments.

While that period was perhaps extreme, the valuation data Asness presents suggest that the market is still less efficient than it used to be. The gap, in other words, between the most highly valued growth stocks and the most depressed value stocks doesn’t have a rational basis. If investors were looking more carefully at valuations, this argument goes, some of the most expensive growth stocks would see their valuations moderate, and some of the more depressed value stocks would see their price rise.

What’s the antidote? Asness believes that eventually reason will prevail. “Assuming a valuation change will continue to go on forever is obvious folly.” But he also knows that the current situation may not correct any time soon: “[D]epressingly, I’m saying you can do the right thing and still be wrong for about 30 years.” In other words, the market looks like it’s being irrational, but it might stay that way, perhaps for a while.

Where does this leave investors? In building a portfolio, I’d avoid making any big bets. If you start with a fund that tracks an index like the S&P 500—which includes both growth and value stocks—you’ll benefit regardless of which way things turn out. But recognizing that the market today is more heavily weighted toward growth stocks, you might incorporate a modest position in a fund that tilts toward value. That way, the bulk of your portfolio will be diversified, but you’ll have a thumb on the scale toward the stocks which, according to the data, are undervalued. If they eventually come back to life, you’ll benefit. If they don’t, you won’t have given up too much.

Most important, I’d avoid going to any one extreme. On the one hand, I’d stay away from riskier, growth-oriented funds like Invesco QQQ ETF. To be sure, their performance has been head and shoulders above the rest, but past performance doesn’t guarantee future results. And according to the data, these are the stocks that are most overpriced.

At the same time, as Asness says, the market isn’t always rational. I wouldn’t interpret the data he presents as reason to go in the other direction, to become overly conservative. When it comes to the stock market, as I’ve suggested before, try to take a balanced, center lane approach.

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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Sticking With Stocks

AT A FAMILY DINNER in the early 1980s, I remember one of my brothers—probably then age 20 or so—saying, “But isn’t the economy built on sand?”

My economist stepfather offered one of his trademark droll responses: “The economy’s always built on sand.”

The same could be said for the stock market. In the minds of many investors, it’s always teetering on the verge of collapse. After two years of rising share prices, and amid concerns about high stock valuations, the election, a possible recession and the Federal Reserve’s next move, that sense of unease seems especially acute right now.

Worried about a possible stock market decline? Here are five questions to ask yourself.

1. How much money will you need from your portfolio over the next five years? Historically, over most five-year periods, stocks have notched gains, even if they posted sharp losses at some point during that stretch. That’s why I typically suggest that folks get money they’ll need to withdraw from their portfolio over the next five years out of stocks and into nothing more adventurous than high-quality short-term bonds. That way, even if share prices plunge, investors should be able to sit tight and postpone any selling until share prices recover.

Indeed, when I talk to investors, I typically find they’d have no financial need to sell stocks over the next five years. Between their regular income—whether it’s from a paycheck, Social Security or a pension—and the money they have stashed in bonds and cash investments, they could easily wait out a big stock market decline. Still, there is risk—the risk these folks will make a panicky decision and dump stocks at depressed prices.

2. How much in new savings will you add to your portfolio in the years ahead? If you’re 30- or 40-years old, the biggest part of your future retirement portfolio is likely the cash you’ll invest between now and when you quit the workforce.

Let’s say you’re age 40, you have a $200,000 portfolio that’s entirely in stocks, and you’ll save $10,000 a year—or $250,000 total—between now and age 65. Arguably, your retirement nest egg is just 44% in stocks. Moreover, at least some of the money you’ll sock away over the next 25 years could be used to take advantage of stock market declines.

A key reason we’re free to invest heavily in stocks early in our adult life is our human capital—the fact that we don’t need regular income from our portfolio because we’re collecting a paycheck. As I see it, counting future savings as part of our cash holdings is one way to factor our human capital into our portfolio’s design.

3. How much of your wealth is invested in stocks? The market is a whiny child that’s forever throwing tantrums and demanding our attention. Yet, despite all the focus on the stock market’s ups and downs, it’s often a relatively small portion of many folks’ wealth.

Think of everything you own: stocks, bonds, cash investments and real estate. If you’re taking a broad view of your wealth, you might also include the value of your human capital, any business you own, Social Security, and any pension or income annuity you're entitled to. For those who aren’t retired or close to it, their ability to earn an income is likely their most valuable asset. You might even put a value on your household possessions and the cars that you own, though I’d discourage this. These probably aren’t things you can readily sell—because you can’t reasonably live without them.

Result? Do the math, and you’ll likely find stocks are a small part of your overall wealth, and hence any market slump would put only a modest dent in how much you’re worth.

4. How much could you potentially lose in a market crash? In a bear market decline, stocks lose some 35% on average. To think about what that loss might mean in dollar terms, take the total value of your stock portfolio and multiply it by 0.35.

Would that sort of short-term loss freak you out—or would you take it in stride? I suspect most folks will find the potential dollar loss is modest relative to their total wealth. But if the possible short-term hit seems unbearably large, this is probably a good moment to dial down your stock exposure, while share prices are near their all-time high.

5. How bad is the economy? The stock market’s long-run return is driven by growth in corporate earnings, and that hinges on the economy.

If the economy contracts, and you assume it keeps shrinking for many years, it’s easy to justify a huge drop in the stock market because of the massive hit to corporations' intrinsic value. That’s the sort of scenario that many investors—both professionals and amateurs—are apparently assuming whenever a recession looms and they think it makes sense to unload shares at 20% or 30% off. And yet, to find a stretch where we had negative economic growth for more than two calendar years in a row, you’d have to go back to the 1930s and 1940s.

What about recent decades, during which the government has been quicker to step in and help revive economic growth? The U.S. economy has been far less rocky. For instance, inflation-adjusted gross domestic product contracted 2.6% in 2009’s Great Recession and 2.2% during 2020’s pandemic. In both cases, the economy made up that lost ground the following year.

In other words, while a huge stock market decline might make sense if the economy shrank for multiple years in a row, that simply hasn’t happened in recent decades. Feeling nervous? Ignore your fellow investors—and instead pay attention to the U.S. economy's remarkable resilience.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles.

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Begin by Quitting

MANY FOLKS CLAIM TO be ready for retirement, both financially and psychologically. But they’re often surprised to discover that the reality is different from what they expected.

I started planning well in advance of my 2023 retirement. I read dozens of books on the subject, and talked to many classmates and friends who’d already retired. Of all the books and videos that I reviewed, one talk on YouTube stood out: a TEDx Talk by Dr. Riley Moynes on the four phases of retirement. The four phases he identifies are honeymoon, loss of identity, trial and error, and reinvention.

Based on my observations of recent and long-term retirees in two 55-plus communities, these four phases do indeed reflect what happens in retirement. But I also think two further phases need to be added.

Phase 1: Honeymoon. New retirees start traveling to exotic places, visit long-lost friends and relatives, and splurge on expensive things. Freedom from a nine-to-five job is liberating. Decades of saving and investing provide sufficient cash flow and a big enough nest egg to make retirement feel like one long vacation.

This phase can get derailed by unforeseen events. I know many who retired during the pandemic and stayed home for a while. The retirement honeymoon can also get derailed by a sudden change in your health or your partner's, or by the need to care for elderly parents.

Moynes says that, “Phase 1 lasts for a year or so, then it begins to lose its luster. We begin to feel a bit bored, and we ask ourselves, ‘Is that all there is to retirement?’”

When I retired, I didn’t spend much time in the honeymoon phase. I was clear about what I wanted to do and got busy right away.

Phase 2: Loss of identity. This is the phase when folks start regretting that they retired. They feel the loss of their old routine, their interactions with colleagues and their identity.

Moynes says that, "Phase 2 is also where we come face to face with the three Ds: divorce, depression and decline, both physical and mental. The result of all of this is we can feel like we have been hit by a bus.”

Phase 2 is a challenge that some retirees struggle to escape. Sometimes, health issues crop up, derailing dreams of an active lifestyle.

Phase 3: Trial and error. “In phase 3, we ask ourselves: How can I make my life meaningful again?” says Moynes. “How can I contribute? The answer often is to do things that you love to do and do well.”

This is a period of trial, error and experimentation. There could be many disappointments as you figure out what works for you. You might find yourself taking classes, trying new hobbies and expanding your social network. You may also decide to downsize or move.

This is the phase I’m in now, trying out different things. My writing for HumbleDollar is one such experiment.

Phase 4: Reinvent and rewire. This is the stage where we try to get the most out of retirement. Moynes encourages us to ask, “What’s the purpose here? What’s my mission? How can I squeeze all the juice out of retirement?”

In this phase, you’re reinventing yourself to make meaningful contributions. This could be one of the happiest phases. I see retirees starting a blog, a business or a charity, or helping the needy and volunteering. There are many ways to make contributions that are deeply satisfying.

To the above four phases, I’d add two more phases to cover the entire spectrum of retirement.

Phase 5: Routine. As you get older, your energy level decreases. You pick a routine to follow every day. A daily walk, healthy eating and meeting friends become important. I see retirees enjoying the simple things in life. It’s a blessing if you can maintain good health. This is also the time to develop a plan to manage your next phase.

Phase 6: End of active life. While you can skip one or more of the previous phases, going through the end of active life is almost inevitable. Your mobility may be affected, and you may need help managing daily activities.

Even if you’ve prepared the necessary estate planning and financial documents, you must still come to terms with the fact that your time on earth is limited. The death of a spouse or a terminal health diagnosis are shocks you may need to bear. Major life changes can include moving closer to children or to a continuing care retirement facility.

I’ve been lucky so far. The future, however, is impossible to predict—and no doubt many challenges lie ahead.

Sundar Mohan Rao retired after a four-decade career as a research and development engineer. He lives in Tampa in a 55-plus community. Mohan's interests include investing, digital painting, reading, writing and gardening. Check out his earlier articles.

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Having the Last Word

IT WAS 1982 OR thereabouts. After attempting to be a landlord for several years, I decided it wasn’t for me. I sold the house and the four-family apartment building I’d been managing.

The final task in closing out this adventure would come at tax time. Keeping the books was the one aspect of being a landlord that I didn’t mind. I understood how accumulated appreciation would be recaptured and how capital gains tax would affect that year’s taxes.

Off to Sam the CPA I went, with my carefully prepared handwritten ledger of debits and credits. After a few anxious weeks, I finally received a call from Nancy, Sam’s administrative person. Great. My taxes were finished and ready for pick up.

Whoa, my balance due was $1,000 more than I’d calculated. In 1982, that was a formidable amount of money. As I reviewed the return, however, I realized Sam had made an error. My crude number-crunching turned out to be correct. This was the moment I learned an inconvenient truth about the tax prep business.

Most CPAs are up to their eyebrows in tax returns more complex than the Form 1040. The preparation of simple individual tax returns is often completed by an assistant or less experienced seasonal worker, whose work often isn’t even reviewed by the CPA.

What the heck? I was paying for Sam the CPA to do my taxes, not his secretary. That’s when I decided that I didn’t have to pay someone to screw up my taxes when I could mess them up myself for free. Twenty years later, Dan’s Tax Prep was born. But that’s not what I’m here to talk about today.

We last updated our wills seven years ago, after Chris and I got married. Marriage introduced new complexity to our estate plan, especially regarding beneficiaries. The attorney we hired interviewed us to understand our intentions and to offer suggestions.

One of our ideas was to file a transfer-on-death affidavit with the county to keep the house out of the probate court. Our attorney thought that naming two unrelated families—mine and Chris’s—on the affidavit could lead to differences of opinion when the time came to sell the house.

On the one hand, that made sense to us. On the other hand, it went against our desire to avoid probate. Still, we decided to take the counselor’s advice and not file the affidavit.

When we received a draft of our new wills for review, they were riddled with typographical errors affecting our names, address and other contact information. The meat of the wills was fine, which led me to a couple of conclusions.

First, a careless employee using a boilerplate software program prepared the documents. Second, it was never reviewed by the attorney. Sound familiar?

We recently moved into a new home. I brought up the idea of revisiting the transfer-on-death affidavit. Chris suggested that we file the affidavit naming only my daughters as the beneficiaries, thus avoiding the problem of unrelated parties fighting over the house’s sale.

Keeping in mind the lackluster job done by the attorney seven years earlier, and the fact that I’m pretty darned good at filling out forms, I researched the process involved with filing an affidavit. It didn’t look difficult. I purchased WillMaker software, which includes the transfer-on-death real estate affidavit tailored to Ohio.

I simply followed the prompts in the program. I had to make a trip to the county recorder to obtain a copy of my deed, along with a reference to the prior deed on the property. With the finished affidavit in hand, I made another trip to the county where it was reviewed and filed.

Now, all of our financial accounts and the house will pass to our beneficiaries via payable-on-death or transfer-on-death affidavits. All that’s really disposed of by our wills is the stuff inside our home. I suspect some of our stuff will be taken by the kids and some donated to those in need. I have every reason to believe that this will be accomplished without conflict and without the need to involve the probate court.

With the filing of the affidavit, however, the house will not pass via our wills. This means that our wills need to be updated again. Since there’s not much in the wills, I’m taking a stab at them as well.

I’m using the WillMaker program to complete our updated wills. I carefully compared the new wills with the old ones, and found all of the elements of each to be in agreement. The software allowed us to divide the property into unequal shares, to name each grandkid in case their mother has passed, and to name a custodian for any minor children.

In addition to documents like health care directives and powers of attorney, the software also has a template for letters to survivors. I’m enjoying writing mine. My hope is to leave ‘em laughing.

I probably wouldn’t have attempted this project if the software didn’t come with a money-back guarantee, but it seems to work well. I do have the added advantage of having a son-in-law who worked as an estate attorney in Ohio before taking a job with his alma mater in Indiana. He’ll grade my homework.

How did the review by my son-in-law work out? He caught a glaring error that could have affected my well-laid plans. When my oldest daughter married 22 years ago, she kept the name Smith. After 22 years, and with everyone referring to her by her husband’s surname, that little factoid was so far back in my mind that I never thought about it.

I've corrected our wills. I'll also need to fix the error on our account beneficiary designations, as well as the real-estate affidavit I filed with the county. Everything else was in order. But it illustrates the importance of having a professional examine your will and similar documents.

For 30 years, Dan Smith was a driver-salesman and local union representative, before building a successful income-tax practice in Toledo, Ohio. He retired in 2022. Dan has two beautiful daughters, two loving sons-in-law and seven grandchildren. He and Chris, the love of his life, have been together for two great decades and counting. Check out Dan's earlier articles.

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In Love With Bonds

WHEN I WAS GROWING up, I’d receive Series E savings bonds as birthday gifts from my parents. It was the start of many to come. My parents had great respect for savings bonds and, as I got older, I came to hold them in high regard as well.

Savings bonds never offered the highest interest rate. At a defense plant where I worked, a guy in the accounting department questioned my bond buying. He noted that savings bonds paid less interest than the certificates of deposit then available. I just shrugged my shoulders.

I know why I kept buying the bonds. They were something I was familiar with since childhood, plus it was an easy way to invest. When I began working full-time, I purchased savings bonds through payroll deduction. The deductions were automatic, so the money was gone before I could spend it.

In 1976, when I got married for the first time, the guests—who were our college friends—all gave us savings bonds. When I signed up for the U.S. Coast Guard’s Officer Candidate School in 1978, we were able to buy bonds through payroll deduction. I did.

When my current wife and I got married in 1987, once again our friends gave us savings bonds. And I continued buying them through payroll deduction for many more years. That ended when my employer introduced a 401(k) savings plan, and I switched my payroll deductions to buying mutual funds through the 401(k) instead.

But I held onto the savings bonds I’d acquired. They continued to earn interest for 30 years, and I typically only cashed them in when they matured.

On top of that, my mother kept buying savings bonds for my brother and me, as well as for her grandkids and great-grandkids. When my mother gave me all of my bonds, I stored them in a safe-deposit box at the bank until they matured.

In 2004, I converted some of my Series E bonds to HH bonds. These had a maturity of only 20 years, but—if you converted—it postponed the tax bill on matured Series E bonds for those two decades. HH bonds paid 1.5% in annual interest for 20 years. Coming into 2024, I still owned those HH bonds, which all finally mature this year.

When Series I bonds were introduced, I was hesitant. I was used to earning a fixed rate on my savings bonds. I bonds were different, offering a fixed rate and a variable rate. The variable rate reflects inflation, while the fixed rate represents the gain over and above inflation. I purchased Series I bonds rather than EE bonds when the fixed rate on I bonds was at least 1%.

My love affair with savings bonds has mostly come to a close. Buying a financial instrument with a 30-year maturity seems silly at my age.

Still, I continue to own many savings bonds. I hold them as dry powder should I ever need money. They’ve never been the vehicle that more sophisticated investors use. Yet, when banks were paying close to 0% interest after 2008’s Great Financial Crisis, my Series E bonds were still paying 4%. It made me feel good that this stodgy relic from the past was outshining other savings options.

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Underwater Overseas

IS IT WORTH OWNING international stocks? There’s far from universal agreement. The traditional argument for investing outside the U.S. is straightforward: diversification—since domestic and international stocks don’t move in lockstep, and sometimes diverge significantly.

At the same time, however, international stocks have lagged behind their U.S. counterparts for so many years that it’s been trying the patience of even the most tenacious investors. Domestic stocks have outpaced international stocks in eight of the past 10 years. On average, over that period, the U.S. market has returned 12.3% a year, while the most commonly referenced index of international stocks has delivered 4.6% annually. On a cumulative basis, domestic stocks have more than tripled, gaining a cumulative 219%, while international stocks have gained just 57%.

That’s enough to make any reasonable person question the value of investing outside the U.S. Though the long-term data indicate a benefit to diversifying, we need to be cautious in using the past as a guide to the future. The economist John Maynard Keynes commented that, “In the long run, we are all dead.”

So why, in the face of recent data, would anyone stick with international stocks? Below are five reasons I still recommend international holdings.

1. Performance. Despite Keynes’s quip about the long run, the reality is that you don’t have to go back too far to find periods when international stocks were doing quite well. Most notably, in the years after the dot-com market crash in 2000, international stocks held up much better. If you’d been in retirement at the time and relying on your portfolio for monthly withdrawals, that would have been a great benefit.

One challenge in assessing international stocks—which contributes to the debate around them—is that historical data on markets outside the U.S. is limited. Reliable figures on U.S. shares go back to 1926. But data on international markets go back, in most cases, no more than 50 years. But in the data we have, there’s a clear pattern of U.S. and international stocks taking turns as the better performer. On a chart, their relative results look a bit like a sine wave, oscillating back and forth. International stocks saw periods of outperformance in the mid-1970s, the mid-80s and the mid-90s.

2. Valuation. While valuation metrics such as price-to-earnings (P/E) ratios aren’t entirely predictive of future returns, there’s something of a relationship. When markets are expensive, future returns tend to be lower. Owing to years of relative underperformance, that’s now an argument in favor of international markets.

The P/E of the S&P 500 today is 21, while the comparable figure for the EAFE (Europe, Australasia and Far East) index of developed international markets stands at just 14. Emerging markets are even cheaper, at 12. Some are quick to point out that domestic stocks deserve higher valuations, owing to the preponderance of fast-growing technology companies here. I agree with that. Nonetheless, the valuation gap between U.S. and international stocks has grown. Thus, international markets, on a relative basis, are historically cheap. That may present an opportunity.

3. Exposure to value. What’s been driving the U.S. market higher in recent years? For the most part, it’s the handful of technology stocks now known as the Magnificent Seven: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. Together with one more—Broadcom—technology stocks hold eight of the top 10 slots in the S&P 500, accounting for more than 30% of the total value of the index.

By contrast, what are the largest companies outside the U.S.? Only half are technology companies. The other five of the top 10 international stocks include four pharmaceutical companies and a food manufacturer.

Through one lens, you might view this as a strength of the U.S. market and a point of weakness for markets outside the U.S. But as I noted a few weeks back, growth stocks like the Magnificent Seven don’t always outperform. Value stocks, on the other hand, are distinctly less exciting, but they’ve demonstrated stronger performance than their staid appearance might lead investors to believe. And since value stocks like food and pharmaceutical companies dominate international markets, that gives international stocks a value tilt.

For that reason, adding international stocks to a portfolio can help better balance the mix between growth and value. To be sure, growth stocks like the Magnificent Seven have delivered impressive performance in recent years. But as the standard investment disclaimer states, past performance does not guarantee future results.

4. Defense. As I noted earlier, the top stocks in the S&P 500 account for a disproportionate share of the overall index. The top 10 total more than 35%. When these stocks are doing well, that’s a benefit. But should one of them run into trouble, the top-heavy nature of the U.S. market presents a risk.

By contrast, when you invest outside the U.S., concentration is less of a concern. That’s for two reasons. First, most international markets don’t have any companies on the same enormous scale as the largest firms in the U.S. Second, because most international indexes contain stocks from multiple markets, that helps to limit the weighting of any one company. In a total international markets fund, for example, the top 10 stocks account for just 10% of the total.

5. Currency diversification. International stocks can help diversify a portfolio along another dimension: currency. I wouldn’t recommend buying currencies as a standalone investment, because of their volatility and lack of intrinsic value. But as an added benefit of owning international stocks, currency diversification can provide an additional, potentially helpful source of diversification.

If you want to include international stocks, what’s the right percentage? As I often do, I recommend a “center lane” approach. Today, international markets account for about 40% of the global stock market’s total value. But there’s no rule that says your portfolio must also hold 40%. Personally, I recommend 20%. Why? For starters, if you live in the U.S. and your bills are in dollars, that’s a good reason to hold most of your investments in dollars.

Indeed, there are reasons you might tilt your portfolio toward the U.S. market even if you live outside the U.S. Jack Bogle, the late founder of Vanguard Group, held 100% of his personal portfolio in domestic stocks. Among the reasons he cited: The U.S. has “the most innovative economy, the most productive economy, the most technologically advanced economy and the most diverse economy.”

It’s an important point. While other countries have produced successful companies, the U.S. is unique in the number and size of the companies it’s produced. For that reason, I wouldn’t hesitate to hold the lion’s share of your portfolio in domestic stocks—but there are also good reasons to look beyond our borders.

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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Turned Upside Down

FOUR MONTHS AGO, I was told I might have just a year to live. It’s been a whirlwind ever since.

I’ve been inundated with messages from acquaintances and readers, gone to countless medical appointments, my diagnosis has received a surprising amount of media attention, I’ve been hustling to organize my financial affairs, and Elaine and I have taken two trips.

Where do things stand today? Here’s what’s been going on.

Medical update. After three radiation treatments to zap the 10 cancerous lesions on my brain and an intense opening round of infusion sessions, I’ve now settled into an every-three-week chemotherapy and immunotherapy program.

I typically feel a little rough for the four or five days after each chemo session, and then things improve. There’s a fairly predictable series of side-effects, including insomnia, nausea, constipation, acne, cracking of the skin on my fingertips, hair thinning, mouth sores and feet swelling. I find the side-effects are eased by exercising every day and downing countless glasses of water, though—thanks to all that water—it also means I regularly feel like a four-year-old who suddenly screams, “I got to go.”

Is the treatment working? So far, so good. Two months ago, a brain MRI and abdomen scan showed the cancer has, for now, stopped spreading. I’m slated for another abdomen scan on Monday, and another brain MRI in early November. This happy state of affairs will eventually end, and I’ll need another treatment plan if I’m to keep my cancer at bay. Still, it seems I’ll get more than the year that was initially predicted.

Health insurance. In late May, over a 14-hour stretch starting Sunday lunchtime, I went from a local hospital system’s urgent care clinic to its emergency room to the intensive care unit. What was all this costing? Would my insurance cover it? I believe we should all strive to be smart consumers of medical services. But the truth is, these are not questions I could have got answered at the time, even if I’d thought to ask them.

Indeed, when I did start asking about insurance coverage, nobody seemed to know. Instead, I fell back on the assumption that my costs would likely be capped by my policy’s $5,800 annual out-of-pocket maximum. But I wasn’t 100% sure.

What if my hospitalization, along with the various tests and procedures, needed insurance pre-approval? What if one of the doctors who treated me was out of network? As it happens, all has been fine.

Still, I look at the insurance company’s explanations of benefits (EOB) and shake my head. For instance, there’s the 26-page EOB statement from June 12 for a $80,513.60 hospital bill. My health insurer deemed $15,024.65 to be allowable, with $2,552.63 owed by me and $12,472.02 paid by the insurer. Was I charged the right amount? Count me among the clueless.

Clearing out. I’ve been slowly working through a handful of boxes housing old tax returns, letters, financial statements, photos, mementos and more.

Along the way, I’ve tossed a bunch of letters from when I was in college. Glancing through those letters, I’m not sure I would have liked my 19-year-old self. I come across as self-absorbed and pretentious, and I’m glad my kids will no longer get the chance to see that side of my younger self. Want to present a carefully curated version of who you were to future generations? Maybe it’s time to clean out the basement.

In sorting through all this stuff, I have two guiding assumptions. First, if I leave behind too many personal papers, there's a risk my family will give them a quick glance and then trash the lot. This is a case where less is more.

Second, if I don’t throw out unneeded financial documents, my family will assume they’re important. Ditto for personal possessions. If I don’t toss the stuff I don’t care about, there’s a risk my family will imagine these items had some value to me, sentimental or otherwise. Again, less is most definitely more.

As I plow through the boxes, I’ve been making snap decisions, but I doubt I’m being too hasty. Between 2011 and 2020, I moved four times. Each time, I shed a fair number of possessions. The good news: There’s nothing I’ve regretted throwing out, and I'm confident that’ll also be true this time around.

Tripping. Last year, before my diagnosis, Elaine and I started compiling a travel wish list—the Shetland Islands, an Alaska cruise, the Amalfi Coast, the Galapagos Islands, that sort of thing. All this daydreaming went out the window with my diagnosis.

What trips could we realistically take in the time I have remaining—trips that, ideally, wouldn’t be too taxing and, if necessary, could be cancelled at short notice? Before my diagnosis, we had three vacations booked. But none fit with my chemo schedule, plus I was concerned not to spend more than a week at a time away from home and hence away from my doctors.

The upshot: So far, Elaine and I have taken a weeklong trip to Ireland that had previously been scheduled for 12 days, and had a long weekend away with my two children and their families. We’re about to fly to Paris. We’ve also changed the dates for a previously scheduled London trip, swapped from an 11-day Caribbean cruise to a shorter one, and started making arrangements for a second trip to Ireland. There are more trips I’d like to take, including visiting my beloved Hope Cove, but that hinges on my health.

Two minds. When I first heard my diagnosis, I quickly made peace with my fate. It may not have been what I wanted, but it came with certainty—and we humans like certainty.

Today, I find myself more torn. On the one hand, I know the next brain MRI, or body scan, or blood test may show I’m starting to lose my battle with cancer. On the other hand, there’s a good chance I’ll be healthy enough to travel through at least late spring 2025, and I’m excited about the trips we’re planning. That excitement is putting a dent in my stoicism. Should I accept the finality of my diagnosis or allow myself to dream about a future that likely won't happen? I find I’m struggling to do both.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles.

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Misplaced Trust

WHEN I WAS A YOUNG adult, my parents sat me down and explained that I might at some point inherit money from my grandfather’s trust, which had also helped put me through college. My grandfather passed away in 1984, and his wife—my father’s stepmother—became the trust’s beneficiary.

My father was an only child. The trust stipulated that, if his stepmother died before him, he would receive two-thirds of the trust, while my two siblings and I would share the other third. But my father died relatively young, predeceasing his stepmother. This meant that, when my father’s stepmother—my step-grandmother—died, my siblings and I would each receive a third of the trust, instead of the one-ninth we would have gotten if my father had still been alive.

My step-grandmother passed in January 2005, and we began receiving information from the bank that was administering the trust. Our individual portions were delivered in cash, stocks and bonds, which were transferred into my Charles Schwab account. In addition, we each inherited shares in a golf course in Canton, Ohio. It wasn’t so much money that we could quit our jobs, but enough that it could make some things easier.

At the time we received this windfall, I was age 44. I was married with two daughters, then 16 and 11. My husband and I were gainfully employed. He was an attorney for a state agency, while I was a university professor. We made enough money to live comfortably but not lavishly in Northern California, but we had little money saved for retirement or for our kids’ college. Neither of us, though we were well-educated professionals, knew much about managing money.

Doug Texter wrote last year about the purposeful way he handled a family inheritance. Unlike Doug, when we got the inheritance, we weren’t prepared to deal with it wisely. Though we did a few things well, we made some mistakes, too.

No regrets. Our older daughter was a junior in high school when we received the inheritance. She was a brilliant student, and it was great to tell her that she could apply to whatever schools she aspired to and not worry about the cost.

As it turned out, she ended up going to the University of California at Berkeley, not a private school, but it still wasn’t cheap. Even in 2006, when she started college, we were probably spending $25,000 a year on tuition, room, board and other expenses. But we have no regrets about allowing her to pursue her degree without taking on debt.

We also took a couple of great trips in 2008—a first vacation to Europe for my husband and me to celebrate our 25th anniversary, and a family trip to New Zealand when I was invited to speak at a couple of academic conferences in Auckland. Though I leveraged points and miles for the Europe trip and got some of my expenses paid for the Auckland trip, being able to supplement those sources with my inheritance allowed us to make some special memories.

One of the first things we did when we got the trust money was to buy our older daughter a car, for which we paid cash. While buying new cars isn’t always a great financial decision, in this case it turned out well: Today, she’s still driving that 2005 Mazda3 hatchback. When our younger daughter turned 16 in 2010, we bought her a car, as well. We also made some needed updates to our home, investments that paid off years later when we sold that home at a substantial profit.

Finally, because we had extra money to backfill our household budget, my husband and I began fully funding our retirement accounts every year. At that point, as state employees, we both had access to 403(b) and 457 accounts. Being able to max out those retirement vehicles saved us a lot in income taxes, and it was great to jumpstart our retirement savings.

Wish I had a mulligan. Because of my ignorance, I wasn’t smart when tapping the trust for money. I didn’t like dealing with all the individual stocks and the bond funds, so I rolled everything into Vanguard Group’s low-fee mutual funds. I’d started reading Money magazine, so at least I knew to do that much.

But I didn’t look to minimize taxes when selling the stocks. To this day, I still don’t know whether it was a dumb idea to divest myself of those stocks, some of which were blue chips. Then, when the 2008-09 recession hit, I was selling the mutual funds at greatly reduced values to pay college bills and fund our retirement accounts. I’m certain I didn’t handle any of this very well.

The other dumb thing I did was to sell the golf course shares. I didn’t like owning them. I had to pay taxes on them every year, and they added cumbersome paperwork. When our younger daughter started college, I felt I needed more cash, so I arranged to sell the shares. My brother had sold his shares right away, too, and we both lived to regret it. I got about $40,000 for the shares, money which was helpful in the moment. But a few years later, the golf course was sold to a developer. My sister, who had held onto her shares, got about $200,000 for her stake.

If I had it to do over, the first thing I’d do is march into a financial planner’s office and get advice about how to handle the windfall. I’m certain I could have been much smarter about the whole thing. I’m kind of embarrassed when I think about it now.

Dana Ferris and her husband live in Davis, California. She’s a professor in the writing program at the University of California, Davis, and is the author or co-author of  nine books on teaching writing and reading to second language learners. Dana is a huge baseball fan and writes a  weekly column  for a San Francisco Giants fan blog under the nom de plume DrLefty. When not working, she also loves cooking, traveling and working out. Follow Dana on X @LeftyDana and on Threads, and check out her earlier articles.

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Luxury on Rails

I LOVE TO TRAVEL—and it runs in the family. My parents were avid travelers, with my father receiving a generous travel allowance from his work every four years.

In addition, my father always managed his time and budget for numerous other trips. After his passing, my brother and I took turns maintaining the travel tradition with our mom, until plans were disrupted by the pandemic.

After retiring this year, I eagerly anticipated visiting my mother in India and taking her on a grand tour. I’d considered several options, ranging from an African safari to a leisurely tour of Vietnam. I called my mother to finalize our plans.

To my surprise, she wasn’t as enthusiastic as I’d hoped. In her late 70s, she was uncertain about traveling overseas because of her chronic back pain and lack of confidence in her strength. I was disappointed but didn’t give up. I continued searching for suitable options that might work for her.

I vaguely recalled hearing about luxurious train tours of India that were popular with foreign tourists. It dawned on me that, while my mother had been to most of India’s tourist spots, she might be interested in a fresh and unique experience. With renewed hope, I opened my laptop to research luxury train travel in India.

My search revealed several such trains that attract affluent retirees from around the world. These tours cater to people with mobility challenges, or to those who might feel uneasy traveling in India on their own.

Just like a small-group luxury cruise, these trains provide a hassle-free, all-inclusive experience with a focus on safety, care and comfort. A common theme across these different trains was a hefty price tag, quite steep by Indian standards.

My mother was intrigued and seemed open to the idea, particularly because she loved traveling by train. Adding to the allure, my aunt—who I’ve written about in a previous article—was able to join us. Without further hesitation, I made a reservation before they could change their minds.

A train named Deccan Odyssey looked promising, but I struggled to find reliable contact information due to changes in ownership after the pandemic. I took a chance and reached out to the most intuitively named website. It turned out to be one of the tour’s few authorized agents.

Soon, a real person contacted me with a price quote. Since we were three passengers, I opted for the pricier suite, rather than a regular cabin for two. The cost—even with a low-season discount—was steep enough to give me pause, but I overcame my reluctance, figuring that money is only valuable when used to fulfill deeply personal goals, such as sharing a once-in-a-lifetime experience with people closest to my heart.

Everything was arranged in time and, on a pleasant March afternoon, we departed from Kolkata and headed to New Delhi, the starting point of our tour. Sadly, the train tour itself got off to a rough start.

We arrived at the designated train station in New Delhi at 5 p.m. as instructed, only to find that the train was delayed due to an emergency. The company tried to make the wait more bearable by providing refreshments and live entertainment to the passengers.

The train eventually arrived after 10 p.m., and the staff promptly assisted all passengers with boarding. Inside, the train was absolutely stunning, like a miniature five-star hotel on wheels. A personal butler and an attendant guided us to our suite and gave us an overview of the amenities.

Our suite featured a bedroom with a twin bed, another room with a sofa bed and writing desk, and two ensuite bathrooms with showers. The rooms had panoramic windows, blackout curtains, beautiful decor and fresh flowers. It was beyond anything we’d imagined.

It was time for dinner, so we headed to the onboard restaurant through a series of plush, carpeted corridors and elegantly decorated coaches. The restaurant’s impeccable service and gourmet menu could rival any fine-dining experience in an upscale hotel.

We enjoyed our sumptuous dinner and headed back to our suite. The tour manager soon came by to introduce herself and offer another sincere apology for the unexpected delay. “We’ll make up for the inconvenience,” she said.

We all slept soundly that night, thanks not only to the long and tiring wait, but also to the soothing, rhythmic motion of the train. The next morning, as we gazed at the tranquil landscape outside our windows, someone knocked at the door. It was our butler with morning tea and the attendant to make our beds.

We reached Agra, the city of the Taj. Stepping off the train onto the carpeted platform reserved for us, we were greeted with fresh garlands and a tilaka on our foreheads. A small troupe of artists danced to the folk tunes of the shehnai and dhol, transforming the platform into a ceremonial stage.

Our private guide led us to our SUV for the daylong city tour. Our first destination was the Taj Mahal. Although my mother and aunt had seen it before, it was my first time visiting. The site was very crowded. Only after we got inside could I see why it’s called one of the Seven Wonders of the World.

We had a fabulous lunch at a posh restaurant. My mother, feeling a bit worn out, suggested that we stick to the less strenuous sights in the afternoon. After our sightseeing, the car dropped us at the train station entrance, where our butler and a security guard were waiting to walk us back to the train. The dinner that evening featured local specialties.

The next day, we reached Sawai Madhopur, the gateway to the Ranthambore National Park. At the station, we experienced another welcoming ceremony, this time reflecting the culture of the state of Rajasthan. We then boarded a safari vehicle and entered the tiger reserve, where we saw an abundance of birds and animals. We were also fortunate to spot a tiger up close, though only for a short while.

The next few days flew by as we traveled across four states in a week. Each morning, we arrived at a new place, relished the grand reception and set out for our excursions. We toured the Pink City of Jaipur and drove up to the Amer Fort, marveled at the exquisite crystal collections at the City Palace of Udaipur, and enjoyed a vibrant cultural performance inside the majestic Laxmi Vilas Palace of Vadodara.

Our next destination was to visit the Ellora Caves near the city of Aurangabad. Despite the scorching sun, the wheelchair services allowed my mother and my aunt to comfortably admire the great Kailasa Temple, a remarkable monolithic rock-cut structure renowned for its intricate carvings and grand architecture.

Just as we were getting accustomed to its luxury and extravagance, our train reached its final destination of Mumbai, where another treat awaited me. Smith and Sabya, two dear friends who live in Mumbai, visited us at our hotel. We strolled down Marine Drive, savored street food, and laughed and chatted just like old times. That evening—and the entire train trip—has become one of my most treasured memories.

Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and co-founder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib's earlier articles.

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Don’t Build Without It

YEARS AGO, I SAW a Looney Tunes cartoon starring Daffy Duck and Elmer Fudd. As always, good old Elmer was trying to kill a duck for dinner, only to be outsmarted by the much cleverer Daffy.

In this particular episode, Daffy is playing a game of catch with his duck friends outside Elmer’s house. An overthrown ball crashes through a window. Elmer comes out and says, “Who broke that glass? Someone is going to pay for that.” The ducks all bump into each other in their efforts to run away.

Elmer gets outfoxed, of course, but you don’t have to be a patsy like him when it comes to home repairs or remodeling. Imagine you’ve hired a contractor to work on your house. What happens if the contractor breaks a window or, worse still, drops a load of roofing shingles onto your new car?

You may have done your due diligence in selecting a contractor by getting a recommendation from your neighbor, obtaining numerous quotes and reviewing the contractor’s Better Business Bureau ratings, so you might assume that your contractor will replace the broken glass or pay for your car’s bodywork.

But instead, you may get the runaround. Maybe the contractor is broke. He may keep making promises without undertaking the repairs. He might even abandon your job without warning.

To keep from getting fleeced, request a certificate of insurance from the contractor before he steps foot on your property. This one-page document typically tells you if the contractor or his subcontractor has three insurance policies in force: a general liability policy, a worker’s compensation policy and a commercial auto policy.

What do these three policies cover? First, the general liability policy will cover any damage the contractor does to your property, such as a broken window or dented car.

Second, the worker’s compensation policy covers his workers if they get injured on the job. Worker’s compensation is no-fault, meaning no matter how or why the worker was injured, the policy will pay the employee while he’s laid up.

Third, the commercial auto policy is similar to the general liability policy, except it covers injuries or damage caused by his vehicles on your property. Say a worker plows through your garage door. A commercial auto policy should cover your loss.

If the contractor can’t provide a certificate of insurance, be cautious. You might be working with a small-time operator who you know and trust—or someone who’s fly-by-night. It all might work out fine. But if it doesn’t, it’s potentially your loss.

While these three policies are essential safeguards, there are two more insurance coverages you might want for big projects. If you’re making major renovations to your house, you might confirm that the contractor has a builder’s risk policy in force.

A builder’s risk policy insures against damage to buildings that are under construction. It can cover losses caused by fire, hail, windstorms, vandalism or theft, among other perils. Coverage continues during construction and ends when the job is done.

If you have a very large project, you probably should ask for a contractor performance bond. This policy, which is secured by the contractor, would make you whole should the contractor not complete the work spelled out in your contract. The bond would pay you for the unfinished portion of the promised work if you’re named on the performance bond.

Surprises happen so often in construction that mishaps seem more like certainties. Insurance won’t solve the runaway problem of cost overruns. But it can help protect against damage to your home, your car, a worker’s health and your finances.

The Urge to Splurge

"MONEY PIT" USUALLY refers to an old home that needs constant repair. But the term can also apply to anything on which we spend endless money.

For instance, in my teenage years, I saw guys use every paycheck they got to buy something new for their car. It might be a new piece of chrome, a stylish set of wheels or a new stereo. It seemed like there was never an end to the spending. After a while, they’d enter their tricked-out cars in auto shows, where they’d be admired by other guys who also spent too much on their cars.

There are two types of people in this world: savers and spenders. You either find a reason not to spend money—which means you save it—or you find any reason in the world to spend it.

For many people, their home is the chief reason to spend. This is the classic money pit. They serially remodel the kitchen, bathrooms, basement and garage. Outside, they can always justify building an extension, a deck, a swimming pool, a cabana or even a new shed to store all the stuff they buy for home maintenance. The possibilities are endless.

Some improvements are justified, of course. If some house-related spending allows you to lead a better life, I’m all for it. Years ago, my wife’s family added an above-ground pool to their house on Long Island, New York. It gave her cousins from New York City a good reason to visit during the hot summer months. Their house became a gathering place for the extended family, and provided my wife with many happy childhood memories.

Run a business out of your house? Creating a home office is a worthwhile expense—but redecorating that office every year seems excessive. For the spenders of this world, though, such expenditures are easily justified.

What about the other person living in the house? Does he or she feel the money is well spent—or wasted? Could it have been better used for the kids' college education or to fatten the family’s retirement savings?

Money can be spent or saved. Spending all of it or, worse still, borrowing to spend, inevitably leads to money problems. My advice: Unless the money is being used for the betterment of all involved, try to steer clear of money pits of any kind.

David Gartland was born and raised on Long Island, New York, and has lived in central New Jersey since 1987. He earned a bachelor’s degree in math from the State University of New York at Cortland and holds various professional insurance designations. Dave’s property and casualty insurance career with different companies lasted 42 years. He’s been married 36 years, and has a son with special needs. Dave has identified three areas of interest that he focuses on to enjoy retirement: exploring, learning and accomplishing. Pursuing any one of these leads to contentment. Check out Dave's earlier articles.

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