Jonathan Clements's Blog, page 73
March 14, 2025
What Worries You? By Jonathan Clements
As you ponder the years ahead, what’s at the top of your list of concerns? Here are 10 possibilities:
A stock market crash
Deteriorating health
Running out of money
Cuts to Social Security
Being alone
Family financial demands
Falling behind inflation
Long-term-care costs
What’ll happen after your death
Being compelled to move
Or does something else top your list of worries? Let’s hear what’s keeping you up night and what you’re doing to address your concerns.
A stock market crash
Deteriorating health
Running out of money
Cuts to Social Security
Being alone
Family financial demands
Falling behind inflation
Long-term-care costs
What’ll happen after your death
Being compelled to move
Or does something else top your list of worries? Let’s hear what’s keeping you up night and what you’re doing to address your concerns.
The post What Worries You? By Jonathan Clements appeared first on HumbleDollar.
March 13, 2025
What Would You Take? By Dennis Friedman
In 2020, the Silverado fire broke out near our city. At the time, I couldn’t imagine that fire would threaten our home because it would have to burn a large part of our town to get to us. Surely, the firefighters would have it under control before there was mass destruction. Then, the Palisades and Eaton fires this year destroyed thousands of structures fueled by low humidity and strong winds. I now realize we might not have been as safe as I thought we were.
Lately, I’ve wondered how I would react if we lost our home and personal belongings in a disaster. Would it break me — financially and emotionally? I don’t think so. However, you never really know until it happens to you.
If a fire destroyed our home, our homeowners association has insurance that would rebuild the exterior structure and the common areas. We would be responsible for the interior and our personal belongings. We have enough insurance that I believe we could rebuild without taking a huge out-of-pocket hit.
My wife and I strive to live a minimalist lifestyle. We don’t have a lot of belongings. We don’t own expensive luxury items. Rachel doesn’t like wearing jewelry, but she does love nice clothes. Most of her clothes come from stores like Talbots and J.Jill, not high-end clothiers. She also loves sales, so she rarely pays full price. Our home is not jam-packed with furniture and electronic gadgets. We drive two economy cars, 2020 Honda Civic and 2007 Honda Fit, so it wouldn’t be a hardship to replace them.
I’m not attached to our stuff, but if there was a fast approaching fire, and we only have a few minutes to evacuate, there are few things that I would grab in a hurry. I would take our medication, cash we stashed for emergencies, and my mother’s old jewelry box that contains my dad’s wedding ring and some of our important documents, such as passports and birth certificates. I would also snatch an old family photo of my parents, sister, and me, with our dog sitting in front of the Christmas tree. It was taken when my dad was trying out the timer on his new camera. It’s the only photo I have of us together with the family dog. At the time, I was just starting college.
As long as Rachel and I can survive a disaster, that’s what matters most to me. Losing Rachel is the one thing that could break me, not the stuff we own.
If you only had a few minutes to evacuate your home in a disaster, what would you take?
Lately, I’ve wondered how I would react if we lost our home and personal belongings in a disaster. Would it break me — financially and emotionally? I don’t think so. However, you never really know until it happens to you.
If a fire destroyed our home, our homeowners association has insurance that would rebuild the exterior structure and the common areas. We would be responsible for the interior and our personal belongings. We have enough insurance that I believe we could rebuild without taking a huge out-of-pocket hit.
My wife and I strive to live a minimalist lifestyle. We don’t have a lot of belongings. We don’t own expensive luxury items. Rachel doesn’t like wearing jewelry, but she does love nice clothes. Most of her clothes come from stores like Talbots and J.Jill, not high-end clothiers. She also loves sales, so she rarely pays full price. Our home is not jam-packed with furniture and electronic gadgets. We drive two economy cars, 2020 Honda Civic and 2007 Honda Fit, so it wouldn’t be a hardship to replace them.
I’m not attached to our stuff, but if there was a fast approaching fire, and we only have a few minutes to evacuate, there are few things that I would grab in a hurry. I would take our medication, cash we stashed for emergencies, and my mother’s old jewelry box that contains my dad’s wedding ring and some of our important documents, such as passports and birth certificates. I would also snatch an old family photo of my parents, sister, and me, with our dog sitting in front of the Christmas tree. It was taken when my dad was trying out the timer on his new camera. It’s the only photo I have of us together with the family dog. At the time, I was just starting college.
As long as Rachel and I can survive a disaster, that’s what matters most to me. Losing Rachel is the one thing that could break me, not the stuff we own.
If you only had a few minutes to evacuate your home in a disaster, what would you take?
The post What Would You Take? By Dennis Friedman appeared first on HumbleDollar.
My Favorite Websites
Portfolio Back Test: https://www.portfoliovisualizer.com/analysis
Calculators: Retirement, How long will my money last, Etc. https://www.saving.org
Compound calculator: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
Sector Performance: https://www.barchart.com/stocks/market-performance
https://novelinvestor.com/sector-performance/
Fund overlap: https://www.etfrc.com/index.php
Can you add to my list?
The post My Favorite Websites appeared first on HumbleDollar.
March 12, 2025
Morningstar’s Report on Comparing 10 Year Returns on Active vs Passive Funds
To follow up on a recent post by Steve Abramowitz:
A Morningstar article published 3/11/25 addressed this subject looking at performance over the past 10 years.
It found that less than one out of every four active funds topped the average of their passive rivals over the 10-year period ended December 2024.
Long-term success rates were highest among bond and real estate funds.
The prospective payoff for choosing a winning fund versus the penalty for picking a loser.
In the case of US large-cap funds, the distributions skew heavily negative.
The opposite tends to be true of fixed-income and real estate categories, where long-term success rates have generally been higher and excess returns among surviving active managers have skewed positive over the past decade.
Finally Morningstar found that funds in the cheapest quintile succeeded more often than funds in the priciest one (28% success rate versus 17%) over the 10 years through 2024.
Morningstar has reported innumerable times that lower cost funds almost always outperform higher cost ones. With so many funds in so many investment categories available, why would anyone pick the high cost fund?
As Jack Bogle was fond of saying, “you get what you don’t pay for”.
The post Morningstar’s Report on Comparing 10 Year Returns on Active vs Passive Funds appeared first on HumbleDollar.
Better Angels
IN THE 1990s, Mark Cuban started one of the first internet companies, a video streaming service called Broadcast.com, and later sold it to Yahoo for several billion dollars. With some of the proceeds, he bought the Dallas Mavericks NBA franchise and sold that as well, taking home another several billion dollars.
And for 16 seasons, Cuban appeared on the reality TV show Shark Tank, in which entrepreneurs present ideas to a panel of prospective investors. Surprisingly, though, Cuban acknowledged that the net result of the dozens of investments he’d made on Shark Tank was that he’d lost money. “I’ve gotten beat,” he said.
If investing in startups—often referred to as angel investing—is so challenging, even for someone in Cuban’s position, does it have any merit as an investing strategy? To answer this question, we can first look at the reasons it’s so challenging, and then look at why it might still be worth considering.
Perhaps the most frustrating challenge is that the world of investments isn’t always logical. As an example, Cuban points to Ring, a company that makes doorbell security cameras. In 2013, the company presented on Shark Tank, but Cuban declined to invest, as did all but one of his fellow “sharks.” He thought the valuation was too high, that the company would require too much capital to expand and that competition would make it difficult to succeed. But five years later, Amazon acquired the company for $1 billion.
In Cuban’s view, though, he didn’t make a mistake, arguing that if Amazon hadn’t purchased the company, “they wouldn’t be here.” That’s because, despite its popularity, Ring was losing money. The investment world, in other words, is subject to a lot of randomness. Companies that, on paper, don’t look like they should succeed sometimes turn into successes. And companies that look like they’re doing everything right can sometimes fail. Timing often has a lot to do with it, and that can make angel investing endlessly frustrating.
Another challenge for angel investors: There’s the notion that the ideal startup founder should look like Bill Gates, Michael Dell or Mark Zuckerberg—20 years old and living in a dorm room. For that reason, older founders are sometimes dismissed. But the reality is, older founders, on average, tend to be more successful. According to one study, the ideal age for a founder is 45. But because they’re so well known, founders like Gates, Dell and Zuckerberg contribute to the myth that entrepreneurs need to be young to be successful. This misconception can lead angel investors astray, making them more inclined to invest in founders who might look the part, but who, according to the data, are not as likely to succeed.
Angel investing carries other challenges. Unlike more mature companies, startups tend to be focused on a single product, and that makes them inherently more risky. Startups also tend to be cash-constrained because they don’t have access to public markets, and banks will often lend only with personal guarantees.
In addition, investing in startups frequently requires a great degree of trust. Mark Cuban describes investing in a company that seemed promising at first, “but I’d look at [the founder’s] Instagram, and he’d be in Bora Bora, and two weeks later, he’d be in Vegas, then Necker Island…. Next thing you know, all the money’s gone.” Cuban says he lost $1 million on that investment. While larger public companies certainly aren’t immune to malfeasance, that risk is amplified with smaller companies, where there’s less oversight.
If angel investing is so difficult even for someone as successful as Cuban, what does that mean for everyday investors? In general, I’m an advocate of simple investments, and angel investments are anything but simple. That said, I do see four reasons you might not dismiss it out of hand, despite the steep odds.
1. The first, and perhaps most compelling, reason: Even investments with long odds sometimes succeed. Despite the sobering startup failure rate, there are enough successes to make angel investing attractive.
2. Sometimes an investment makes sense from a relationship perspective. If you know a founder and believe in that person, or simply want to be supportive, sometimes that’s reason enough. In addition, a personal relationship may help mitigate the Bora Bora problem Cuban described.
3. Angel investing can be fun. I remember once, early in my career, making a presentation to a group of prospective investors. They gathered each week at their country club for breakfast and invited a startup company founder to join them. The founder would answer questions while the investors enjoyed their breakfasts. Afterward, the group would spend the morning playing golf together. The reality is that visiting startup companies, hearing their pitches and meeting their founders can be an enjoyable activity. If investment returns are secondary, this may be a valid reason to pursue angel investing.
4. A startup might carry appeal because it’s on a mission to make the world a better place.
If you do choose to make some startup investments, what steps could you take to manage risk? I have two suggestions.
First, diversify. To the extent that diversification is important with standard investments, it’s even more important, in my view, when it comes to private investments. Among professional venture capitalists, there’s a rule of thumb that only one or two out of every 10 investments will turn into a home run. And as Mark Cuban’s experience with Ring illustrates, winners aren’t always easy to predict. So, if you want to make some angel investments, I suggest building a portfolio. Importantly, the idea isn’t to mitigate losses. Rather, when it comes to angel investing, diversification is important so you cast a net wide enough to capture some winners.
Second, to manage the overall risk of making these kinds of investments, I suggest setting a cap on the total you invest. For example, you might allocate up to 10% of your portfolio to non-public investments.
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.
And for 16 seasons, Cuban appeared on the reality TV show Shark Tank, in which entrepreneurs present ideas to a panel of prospective investors. Surprisingly, though, Cuban acknowledged that the net result of the dozens of investments he’d made on Shark Tank was that he’d lost money. “I’ve gotten beat,” he said.
If investing in startups—often referred to as angel investing—is so challenging, even for someone in Cuban’s position, does it have any merit as an investing strategy? To answer this question, we can first look at the reasons it’s so challenging, and then look at why it might still be worth considering.
Perhaps the most frustrating challenge is that the world of investments isn’t always logical. As an example, Cuban points to Ring, a company that makes doorbell security cameras. In 2013, the company presented on Shark Tank, but Cuban declined to invest, as did all but one of his fellow “sharks.” He thought the valuation was too high, that the company would require too much capital to expand and that competition would make it difficult to succeed. But five years later, Amazon acquired the company for $1 billion.
In Cuban’s view, though, he didn’t make a mistake, arguing that if Amazon hadn’t purchased the company, “they wouldn’t be here.” That’s because, despite its popularity, Ring was losing money. The investment world, in other words, is subject to a lot of randomness. Companies that, on paper, don’t look like they should succeed sometimes turn into successes. And companies that look like they’re doing everything right can sometimes fail. Timing often has a lot to do with it, and that can make angel investing endlessly frustrating.
Another challenge for angel investors: There’s the notion that the ideal startup founder should look like Bill Gates, Michael Dell or Mark Zuckerberg—20 years old and living in a dorm room. For that reason, older founders are sometimes dismissed. But the reality is, older founders, on average, tend to be more successful. According to one study, the ideal age for a founder is 45. But because they’re so well known, founders like Gates, Dell and Zuckerberg contribute to the myth that entrepreneurs need to be young to be successful. This misconception can lead angel investors astray, making them more inclined to invest in founders who might look the part, but who, according to the data, are not as likely to succeed.
Angel investing carries other challenges. Unlike more mature companies, startups tend to be focused on a single product, and that makes them inherently more risky. Startups also tend to be cash-constrained because they don’t have access to public markets, and banks will often lend only with personal guarantees.
In addition, investing in startups frequently requires a great degree of trust. Mark Cuban describes investing in a company that seemed promising at first, “but I’d look at [the founder’s] Instagram, and he’d be in Bora Bora, and two weeks later, he’d be in Vegas, then Necker Island…. Next thing you know, all the money’s gone.” Cuban says he lost $1 million on that investment. While larger public companies certainly aren’t immune to malfeasance, that risk is amplified with smaller companies, where there’s less oversight.
If angel investing is so difficult even for someone as successful as Cuban, what does that mean for everyday investors? In general, I’m an advocate of simple investments, and angel investments are anything but simple. That said, I do see four reasons you might not dismiss it out of hand, despite the steep odds.
1. The first, and perhaps most compelling, reason: Even investments with long odds sometimes succeed. Despite the sobering startup failure rate, there are enough successes to make angel investing attractive.
2. Sometimes an investment makes sense from a relationship perspective. If you know a founder and believe in that person, or simply want to be supportive, sometimes that’s reason enough. In addition, a personal relationship may help mitigate the Bora Bora problem Cuban described.
3. Angel investing can be fun. I remember once, early in my career, making a presentation to a group of prospective investors. They gathered each week at their country club for breakfast and invited a startup company founder to join them. The founder would answer questions while the investors enjoyed their breakfasts. Afterward, the group would spend the morning playing golf together. The reality is that visiting startup companies, hearing their pitches and meeting their founders can be an enjoyable activity. If investment returns are secondary, this may be a valid reason to pursue angel investing.
4. A startup might carry appeal because it’s on a mission to make the world a better place.
If you do choose to make some startup investments, what steps could you take to manage risk? I have two suggestions.
First, diversify. To the extent that diversification is important with standard investments, it’s even more important, in my view, when it comes to private investments. Among professional venture capitalists, there’s a rule of thumb that only one or two out of every 10 investments will turn into a home run. And as Mark Cuban’s experience with Ring illustrates, winners aren’t always easy to predict. So, if you want to make some angel investments, I suggest building a portfolio. Importantly, the idea isn’t to mitigate losses. Rather, when it comes to angel investing, diversification is important so you cast a net wide enough to capture some winners.
Second, to manage the overall risk of making these kinds of investments, I suggest setting a cap on the total you invest. For example, you might allocate up to 10% of your portfolio to non-public investments.
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 Better Angels appeared first on HumbleDollar.
March 11, 2025
Assumptions matter most
Some people are enamored with the word tariffs. My new favorite word is assumptions.
I was listening to a podcast today and they told a story of a person who went to two financial planners seeking to determine if his retirement plan was sufficient. The first planner told him he had a 95% chance of success. The second said 75%. Naturally, he went with the first planner, but failed to ask the key question. What assumptions were used in the calculation?
There are so many assumptions to consider - spending levels and patterns, life expectancy, inflation over 30 years or so, risk tolerance, a legacy goal and then there is the biggy, investment returns and the variables within that investment mix and more.
I never had to deal with this, but it sounds scary while extremely important. As the podcast noted, even a 1% difference in investment return assumptions can make a significant difference in the projection - and the income reality in the future.
Turns out in the example which enticed the individual, the 95% success, used aggressive investment return percentages with little deviation. Nevertheless, the - likely unrealistic 95% - was too enticing.
I was surprised to learn from the planners on the podcast that hardly anyone asked about the assumptions used when they presented a client with a plan.
I doubt I would know all the questions to ask, but I know using conservative assumptions would lower my stress even if it meant working a little longer.
How about you? Do you know the assumptions your future is based upon?
I was listening to a podcast today and they told a story of a person who went to two financial planners seeking to determine if his retirement plan was sufficient. The first planner told him he had a 95% chance of success. The second said 75%. Naturally, he went with the first planner, but failed to ask the key question. What assumptions were used in the calculation?
There are so many assumptions to consider - spending levels and patterns, life expectancy, inflation over 30 years or so, risk tolerance, a legacy goal and then there is the biggy, investment returns and the variables within that investment mix and more.
I never had to deal with this, but it sounds scary while extremely important. As the podcast noted, even a 1% difference in investment return assumptions can make a significant difference in the projection - and the income reality in the future.
Turns out in the example which enticed the individual, the 95% success, used aggressive investment return percentages with little deviation. Nevertheless, the - likely unrealistic 95% - was too enticing.
I was surprised to learn from the planners on the podcast that hardly anyone asked about the assumptions used when they presented a client with a plan.
I doubt I would know all the questions to ask, but I know using conservative assumptions would lower my stress even if it meant working a little longer.
How about you? Do you know the assumptions your future is based upon?
The post Assumptions matter most appeared first on HumbleDollar.
All In the Numbers by Dennis Friedman
March 10 market sell-off was a good example of two kinds of investing risks: overall market and stock-specific risks.
When you invest in a single stock, you are not only subject to overall market risk, but also risks that are unique to that company.
When you invest in a broad-based index fund, you can minimize both risks by diversifying.
March 10, 2025 Stock Market sell-off:
Dow Jones -
Dow Jones Industrial Average -2.08%
S&P 500
Standard & Poor’s 500. - 2.70%
NASDAQ
NASDAQ Composite - 4.00%
VTI
Vanguard Total Stock Market - 2.72%
TSLA.
Tesla, Inc. -15.43%
When you invest in a single stock, you are not only subject to overall market risk, but also risks that are unique to that company.
When you invest in a broad-based index fund, you can minimize both risks by diversifying.
March 10, 2025 Stock Market sell-off:
Dow Jones -
Dow Jones Industrial Average -2.08%
S&P 500
Standard & Poor’s 500. - 2.70%
NASDAQ
NASDAQ Composite - 4.00%
VTI
Vanguard Total Stock Market - 2.72%
TSLA.
Tesla, Inc. -15.43%
The post All In the Numbers by Dennis Friedman appeared first on HumbleDollar.
March 10, 2025
Traveling First Class in Vanguard’s International Stock Index Fund by Steve Abramowitz
Need a vacation from our turbulent market? Go first-class with Vanguard’s Total International Stock Index Fund. Why do I need foreign stocks? After all, they’ve drastically underperformed the S&P in the last few years—and let’s face it folks—the world is in turmoil.
The whole idea of plunking some money down on foreign stocks gives many investors the heebie-jeebies. You’re not a victim of home country bias, you’re just being prudent, right? Aren’t almost all foreign economies—especially government-heavy and bureaucratic Europe—weaker than ours and so grow more slowly? And what about political upheaval? Those are valid concerns, but in fact over time and across many different periods of international unrest, foreign stocks have fared almost as well as our own.
So what would I gain? Two big advantages. You’ll have less bouncing around in your portfolio. Although international and domestic stocks are highly correlated, sometimes our market zigs when the rest of the world’s markets zag.
You also benefit from increased diversification. Don’t be a wise guy. I know many highly regarded investment advisory services maintain you can achieve the same desired result by simply investing in large-cap U.S. stocks that derive substantial revenue from overseas operations. I protest that's just not so. For one thing, exporters’ products may not be affected by local developments in quite the same way as their international counterparts. Another twist is that small companies don’t conduct as much business on foreign soil as large ones, so the stay-at-home investor steeped in small caps does not partake in as much of the benefits (and risks) of a global reach.
But if I deploy new cash or shift some money from U.S. funds into international ones, aren’t I just trading? Not necessarily, though I know many readers will disagree here. I’d call it repositioning for the long-term. Several reputable market observers advocate as much as a 40% allocation to foreign companies. To be sure, Vanguard’s popular Total World Stock Index Fund (VTWAX) holds a 40% international weighting, which accurately reflects the current relative value of U.S. and foreign markets. That level may be too high for you, but maybe you’d feel comfortable with a 20% allotment to the Vanguard Total International Stock Index Fund (VTIAX)
Let’s say you’re curious. How to proceed. Take a look at VTIAX. Besides the trademark low Vanguard fee, it gives you representation in the Far East as well as Europe and has two additional perks. Unlike many international funds it has a notable weighting in small and midcap stocks and also a reasonable stake in emerging markets.
Despite a strong showing out of the gate this year, foreign stocks may still be undervalued when compared with our own. It could be an opportune time to start or add to a long-term position. But remember, if you prefer a convenient and comprehensive one-stop vehicle for a global commitment, check out the total world fund mentioned earlier.
Bon voyage.
The whole idea of plunking some money down on foreign stocks gives many investors the heebie-jeebies. You’re not a victim of home country bias, you’re just being prudent, right? Aren’t almost all foreign economies—especially government-heavy and bureaucratic Europe—weaker than ours and so grow more slowly? And what about political upheaval? Those are valid concerns, but in fact over time and across many different periods of international unrest, foreign stocks have fared almost as well as our own.
So what would I gain? Two big advantages. You’ll have less bouncing around in your portfolio. Although international and domestic stocks are highly correlated, sometimes our market zigs when the rest of the world’s markets zag.
You also benefit from increased diversification. Don’t be a wise guy. I know many highly regarded investment advisory services maintain you can achieve the same desired result by simply investing in large-cap U.S. stocks that derive substantial revenue from overseas operations. I protest that's just not so. For one thing, exporters’ products may not be affected by local developments in quite the same way as their international counterparts. Another twist is that small companies don’t conduct as much business on foreign soil as large ones, so the stay-at-home investor steeped in small caps does not partake in as much of the benefits (and risks) of a global reach.
But if I deploy new cash or shift some money from U.S. funds into international ones, aren’t I just trading? Not necessarily, though I know many readers will disagree here. I’d call it repositioning for the long-term. Several reputable market observers advocate as much as a 40% allocation to foreign companies. To be sure, Vanguard’s popular Total World Stock Index Fund (VTWAX) holds a 40% international weighting, which accurately reflects the current relative value of U.S. and foreign markets. That level may be too high for you, but maybe you’d feel comfortable with a 20% allotment to the Vanguard Total International Stock Index Fund (VTIAX)
Let’s say you’re curious. How to proceed. Take a look at VTIAX. Besides the trademark low Vanguard fee, it gives you representation in the Far East as well as Europe and has two additional perks. Unlike many international funds it has a notable weighting in small and midcap stocks and also a reasonable stake in emerging markets.
Despite a strong showing out of the gate this year, foreign stocks may still be undervalued when compared with our own. It could be an opportune time to start or add to a long-term position. But remember, if you prefer a convenient and comprehensive one-stop vehicle for a global commitment, check out the total world fund mentioned earlier.
Bon voyage.
The post Traveling First Class in Vanguard’s International Stock Index Fund by Steve Abramowitz appeared first on HumbleDollar.
March 7, 2025
Asking the Editor
NINE MONTHS AGO, Jonathan Clements shared with readers that he’d been diagnosed with an incurable form of cancer. It was devastating news, especially for longtime readers, many of whom regard Jonathan not only as a journalist but also a friend. I count myself among them, so I was grateful that Jonathan agreed to sit for an interview to share more about his background, his early years and his current thinking.
You’ve joked that, when you’re in England, people think you’re American, but when you’re in America, people think you’re English.
I was born in London. But when I was three, my father moved our family to the U.S. to work for the World Bank in Washington. Just before I turned 10, he got posted to Bangladesh for four years, at which point my brothers and I got packed off to boarding school in England. I ended up spending nine years at an English boarding school, which probably explains a lot.
Can you say more about that?
It was a great education and a really rough way to spend your adolescent years. If you take young males and put them in close captivity for days on end, things do not work out well. It was a brutal environment, and you couldn’t escape.
It was during this period that I got interested in economics. I was also writing for the school magazine. I wrote a piece when I was at boarding school that ended up getting published in the school magazine under the headline, “Organ Transplant Fails.” It was about how the school spent £30,000 on a new organ for the church when other facilities were being neglected. Somehow, I managed to get it published, which earned me the enmity of a host of people. But in many ways, that was my entrée to becoming a journalist.
That’s when you knew you wanted to go into journalism?
Just before my 19th birthday, I took the Cambridge entrance exam, but I had nine months until I was meant to be up at Cambridge and needed to do something in the months ahead. By then, my parents were back in the U.S., so I phoned up a local newspaper in suburban Washington called the Potomac Almanac. That’s where I cut my teeth. I spent the next eight months working there. It was a small paper. I ended up as the education reporter, the sports reporter, the police reporter and the business reporter. It was so much fun.
The editor of the paper was this wonderful woman called Leslie Leven. She was probably the most important mentor I had.
Tell me about Cambridge.
I immediately got involved with the student newspaper and ended up as editor. To give you an indication of how I spent my time at Cambridge, in my second-to-last term, I went to exactly four lectures. I spent the rest of my time working on the paper.
The student paper came out every Friday, and it was put to bed on Thursday night. So, every Thursday night, I didn’t go to bed. We’d paste up the paper through the night, generally finishing around 7 a.m. Then we would go out to breakfast, head back to our rooms, fall asleep, and then get up around midday. Now, I can’t stay up past 9 p.m.
After college?
I worked for a specialty finance magazine in London called Euromoney. I did that for 13 months, and then decided that I wanted to be back in the U.S. I moved to the New York area without a job. I got a position as a reporter at Forbes magazine. Now, when you hear "reporter," it sounds like it’s a decent position, but reporter really means I was a fact checker.
After 23 months at Forbes, I managed to get promoted to staff writer. I was given the mutual funds beat and did that for a year and a half. I then got hired away by the Journal. I covered mutual funds for the Journal for a few years.
Do you remember your first article for the Journal?
It was about Dreyfus Corporation. I remember, when that article came out, sitting on the New York City subway and watching somebody read my article, which was a strange experience.
Along those lines, probably 25 years ago, I was at a conference in Napa Valley, and I was sitting next to [Nobel Prize winner] Bill Sharpe, and I watched him read one of my articles. Not for the faint of heart. I kept waiting for him to turn to me and pass judgment. But he didn’t.
You also talked about meeting Vanguard Group founder Jack Bogle.
Jack was definitely the most memorable guy I’ve ever met. My favorite Jack Bogle story was from 2005 or 2006. Jack was in downtown Manhattan. He calls me and says, “I’ve got a couple hours until my next appointment. Can I stop by and use a desk?” And I was like, sure. So, he walks into this newsroom full of reporters who are not easily impressed and, within minutes, he has everybody’s attention. He sits down in one of the cubicles and starts making calls. It was almost like he was a journalist himself.
Jack had this relentless drive, and this plays in my head a little bit at this point in my life. He just kept going and going. He didn’t stop right up until the end, and I wondered whether his family felt neglected. But after his death, I had the opportunity to speak with one of his daughters. To my surprise, she said they used to wonder whether their dad had a job, because he seemed to be at home all the time.
Many people remember your “Getting Going” column at the Journal. How did that come about?
The Journal was a wonderful place to work, but it definitely had a distinctive culture. Giving anything that smacked of financial advice was verboten. I remember I caused an uproar by running a story on mutual funds that included the 800 numbers for the funds involved. The notion that we could help readers by telling them how to find these funds was beyond the pale. The deputy managing editor had to weigh in. He said it’s alright to include 800 numbers, but they can’t appear above the newspaper fold.
In 1994, the Journal decided they were willing to consider some columnists for the news pages, and I put up my hand. To my surprise, at age 31, I was one of three people picked. One of the others was Walt Mossberg, who wrote the technology column.
What were some of your most popular articles at the Journal?
Anything with a list, anything that mentioned my kids, and anything on the topic of money and happiness.
What’s changed since those days?
Go back to the late 1980s and through the 1990s, all the focus was on investing, how to build a portfolio, what’s the expected return, yada yada yada. Since then, people have realized that there’s a limit to how much we can optimize a portfolio. Instead, there’s a lot of focus on other issues, like helping people buy the right-size home, making sure they have all their estate-planning documents, making sure they have the right insurance policies, making sure they claim Social Security at the right age, and so on. There has been more focus on the psychological aspects of managing money. And finally, there’s now a focus on helping people figure out what money means to them.
At the Journal, you became well known for advocating index funds. At what point did you arrive at that philosophy?
At Forbes and also in my early years at the Journal, a common story format was the fund manager interview and, as part of that, the fund manager would typically offer three stock picks. Those recommendations were no better than coin flips and maybe worse. There was one guy I profiled who had a really good record. The company that was the fund’s top holding turned out to be pretty much a fraud.
Do you remember your final article at the Journal?
When I left in 2008, I wrote a piece about three ways that money can help happiness. One, money can give you a sense of financial security. Two, it can allow you to spend your days doing what you love. And three, it can allow you to have special times with friends and family. I believe that those are the three ingredients for not only a happy financial life, but also a happy life—period. It’s certainly the three things that I’m focused on.
What do you see as the next frontier in personal finance?
I still don’t think we have a good way of assessing people’s risk tolerance. There are also all kinds of interesting psychological insights that could be brought to bear on personal finance. For instance, there are the five personality types. I think that’s interesting stuff, but we need to make the connection between that and financial behavior.
Because of your upbringing, you have more of a global outlook than most investors. How do you think that’s influenced your thinking?
I own a globally diversified stock portfolio. My default investment is Vanguard Total World Stock fund. My performance has suffered because of it, but I’m not going to change. I still think that, for investors, the starting point should be the global market portfolio, and then you have to decide how you’re going to deviate from that.
Can you describe how the idea for HumbleDollar came to you?
I’d like to say I had a vision for HumbleDollar, but I didn’t. After I left Citigroup in 2014, I worked on a book called the Jonathan Clements Money Guide, which was going to be annually updated. But I realized that the day it appeared it was out of date, so I decided to put it on the web, where I could update it continuously. To make the site more interesting, I figured I’d start blogging, and I would see if other people were interested in blogging as well.
I racked my brain for months trying to come up with a name for the site. It had to be something to do with money, and I wanted a word that would express my financial philosophy. Somewhere in the middle of the night, the words “humble” and “dollar” met in my brain. I got out of bed, it was 2 a.m., and I went to GoDaddy and banged in humbledollar.com, and it was available. That’s how HumbleDollar was born.
Since your diagnosis, you’ve written about the steps you’ve taken to streamline your finances. Are there things you’ve learned that you’d recommend to others?
I’ve moved four times in the past 14 years, and each time I’ve thrown stuff out. We hang on to this stuff thinking that it’s so important, and it simply isn’t. I cannot think of anything I’ve thrown away that I want back.
What approach did you take toward financial education with your children?
Talking about money is important. But the behavior that you model is much more critical. My kids learned from my frugality. They both have very good financial habits. In fact, their financial habits are probably too good. Maybe I emphasized frugality too much.
Was frugality something that your parents modeled?
I credit the frugality to what I call our big family story. When my great-great grandfather died in 1888, the newspapers said that he was one of the richest men in England. All that money was inherited by my great-grandmother Lillian, and she lived the Downton Abbey lifestyle. She had an estate in the Cotswolds with five houses on it.
Lillian had eight kids. Three of them died relatively early on. Five of them inherited the fortune and, with one exception, the fortune was blown, often in short order. That was the story I grew up with, and the message was clear: You’ve got to be careful about money. My two brothers, my sister and I are all very different people, but all of us are frugal, and I credit this great family story.
There’s a message here for readers: Think carefully about the family stories that you tell to your kids because they’ll guide their behavior. You can lecture all you want, and they might listen to you. But if you tell a really compelling story, it can change their behavior.
Has your thinking changed about anything since your diagnosis?
In the last couple of years, I’ve become better about giving money to my kids and funding my grandchildren’s 529 plans. In retrospect, I think I should have started earlier and could have been more generous, because it’s clear to me that I’d never have been able to spend all this money I’ve accumulated, even if I did live to a ripe old age.
If you’re pretty sure that your kids have good financial habits, and you’re not going to undermine their ambitions or send them on some wayward path, by all means give them money now. Why have them live with unnecessary financial anxiety? Why not make them feel a little more financially secure? I really believe that’s one of the greatest gifts that we can give to family members, this sense of financial security.
Would you have done anything differently? You’ve joked that you would’ve had more French fries.
I love French fries. They’re probably my favorite food. But even at this late stage, I find it hard to order French fries because I know they’re unhealthy.
Over the years, you’ve mentioned that your asset allocation has always been aggressive. Can you say more about how you were able to tolerate that risk?
I’ve always had a strong faith in capitalism and in the stock market. I’ve never had any doubt during a market decline that share prices would recover. I’ve almost always had at least 80% in stocks. Right now, I’m at 92%. My diagnosis has not changed my allocation because I’m not investing for myself anymore. I’m investing for Elaine and for my kids.
In your writing, you’ve shared that you aren’t feeling negative emotions about your diagnosis. In fact, you wrote that your first reaction was, “I’m okay with this.” Can you say more about that?
I feel like I’ve been very fortunate. It’s not that bad things haven’t happened in my life. They have. But I’ve been able to spend my life doing what I love. I have a close-knit family, and I’ve largely been free of financial worry. All in all, I feel like I’ve managed to get a whole lot out of my life.
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.
You’ve joked that, when you’re in England, people think you’re American, but when you’re in America, people think you’re English.
I was born in London. But when I was three, my father moved our family to the U.S. to work for the World Bank in Washington. Just before I turned 10, he got posted to Bangladesh for four years, at which point my brothers and I got packed off to boarding school in England. I ended up spending nine years at an English boarding school, which probably explains a lot.
Can you say more about that?
It was a great education and a really rough way to spend your adolescent years. If you take young males and put them in close captivity for days on end, things do not work out well. It was a brutal environment, and you couldn’t escape.
It was during this period that I got interested in economics. I was also writing for the school magazine. I wrote a piece when I was at boarding school that ended up getting published in the school magazine under the headline, “Organ Transplant Fails.” It was about how the school spent £30,000 on a new organ for the church when other facilities were being neglected. Somehow, I managed to get it published, which earned me the enmity of a host of people. But in many ways, that was my entrée to becoming a journalist.
That’s when you knew you wanted to go into journalism?
Just before my 19th birthday, I took the Cambridge entrance exam, but I had nine months until I was meant to be up at Cambridge and needed to do something in the months ahead. By then, my parents were back in the U.S., so I phoned up a local newspaper in suburban Washington called the Potomac Almanac. That’s where I cut my teeth. I spent the next eight months working there. It was a small paper. I ended up as the education reporter, the sports reporter, the police reporter and the business reporter. It was so much fun.
The editor of the paper was this wonderful woman called Leslie Leven. She was probably the most important mentor I had.
Tell me about Cambridge.
I immediately got involved with the student newspaper and ended up as editor. To give you an indication of how I spent my time at Cambridge, in my second-to-last term, I went to exactly four lectures. I spent the rest of my time working on the paper.
The student paper came out every Friday, and it was put to bed on Thursday night. So, every Thursday night, I didn’t go to bed. We’d paste up the paper through the night, generally finishing around 7 a.m. Then we would go out to breakfast, head back to our rooms, fall asleep, and then get up around midday. Now, I can’t stay up past 9 p.m.
After college?
I worked for a specialty finance magazine in London called Euromoney. I did that for 13 months, and then decided that I wanted to be back in the U.S. I moved to the New York area without a job. I got a position as a reporter at Forbes magazine. Now, when you hear "reporter," it sounds like it’s a decent position, but reporter really means I was a fact checker.
After 23 months at Forbes, I managed to get promoted to staff writer. I was given the mutual funds beat and did that for a year and a half. I then got hired away by the Journal. I covered mutual funds for the Journal for a few years.
Do you remember your first article for the Journal?
It was about Dreyfus Corporation. I remember, when that article came out, sitting on the New York City subway and watching somebody read my article, which was a strange experience.
Along those lines, probably 25 years ago, I was at a conference in Napa Valley, and I was sitting next to [Nobel Prize winner] Bill Sharpe, and I watched him read one of my articles. Not for the faint of heart. I kept waiting for him to turn to me and pass judgment. But he didn’t.
You also talked about meeting Vanguard Group founder Jack Bogle.
Jack was definitely the most memorable guy I’ve ever met. My favorite Jack Bogle story was from 2005 or 2006. Jack was in downtown Manhattan. He calls me and says, “I’ve got a couple hours until my next appointment. Can I stop by and use a desk?” And I was like, sure. So, he walks into this newsroom full of reporters who are not easily impressed and, within minutes, he has everybody’s attention. He sits down in one of the cubicles and starts making calls. It was almost like he was a journalist himself.
Jack had this relentless drive, and this plays in my head a little bit at this point in my life. He just kept going and going. He didn’t stop right up until the end, and I wondered whether his family felt neglected. But after his death, I had the opportunity to speak with one of his daughters. To my surprise, she said they used to wonder whether their dad had a job, because he seemed to be at home all the time.
Many people remember your “Getting Going” column at the Journal. How did that come about?
The Journal was a wonderful place to work, but it definitely had a distinctive culture. Giving anything that smacked of financial advice was verboten. I remember I caused an uproar by running a story on mutual funds that included the 800 numbers for the funds involved. The notion that we could help readers by telling them how to find these funds was beyond the pale. The deputy managing editor had to weigh in. He said it’s alright to include 800 numbers, but they can’t appear above the newspaper fold.
In 1994, the Journal decided they were willing to consider some columnists for the news pages, and I put up my hand. To my surprise, at age 31, I was one of three people picked. One of the others was Walt Mossberg, who wrote the technology column.
What were some of your most popular articles at the Journal?
Anything with a list, anything that mentioned my kids, and anything on the topic of money and happiness.
What’s changed since those days?
Go back to the late 1980s and through the 1990s, all the focus was on investing, how to build a portfolio, what’s the expected return, yada yada yada. Since then, people have realized that there’s a limit to how much we can optimize a portfolio. Instead, there’s a lot of focus on other issues, like helping people buy the right-size home, making sure they have all their estate-planning documents, making sure they have the right insurance policies, making sure they claim Social Security at the right age, and so on. There has been more focus on the psychological aspects of managing money. And finally, there’s now a focus on helping people figure out what money means to them.
At the Journal, you became well known for advocating index funds. At what point did you arrive at that philosophy?
At Forbes and also in my early years at the Journal, a common story format was the fund manager interview and, as part of that, the fund manager would typically offer three stock picks. Those recommendations were no better than coin flips and maybe worse. There was one guy I profiled who had a really good record. The company that was the fund’s top holding turned out to be pretty much a fraud.
Do you remember your final article at the Journal?
When I left in 2008, I wrote a piece about three ways that money can help happiness. One, money can give you a sense of financial security. Two, it can allow you to spend your days doing what you love. And three, it can allow you to have special times with friends and family. I believe that those are the three ingredients for not only a happy financial life, but also a happy life—period. It’s certainly the three things that I’m focused on.
What do you see as the next frontier in personal finance?
I still don’t think we have a good way of assessing people’s risk tolerance. There are also all kinds of interesting psychological insights that could be brought to bear on personal finance. For instance, there are the five personality types. I think that’s interesting stuff, but we need to make the connection between that and financial behavior.
Because of your upbringing, you have more of a global outlook than most investors. How do you think that’s influenced your thinking?
I own a globally diversified stock portfolio. My default investment is Vanguard Total World Stock fund. My performance has suffered because of it, but I’m not going to change. I still think that, for investors, the starting point should be the global market portfolio, and then you have to decide how you’re going to deviate from that.
Can you describe how the idea for HumbleDollar came to you?
I’d like to say I had a vision for HumbleDollar, but I didn’t. After I left Citigroup in 2014, I worked on a book called the Jonathan Clements Money Guide, which was going to be annually updated. But I realized that the day it appeared it was out of date, so I decided to put it on the web, where I could update it continuously. To make the site more interesting, I figured I’d start blogging, and I would see if other people were interested in blogging as well.
I racked my brain for months trying to come up with a name for the site. It had to be something to do with money, and I wanted a word that would express my financial philosophy. Somewhere in the middle of the night, the words “humble” and “dollar” met in my brain. I got out of bed, it was 2 a.m., and I went to GoDaddy and banged in humbledollar.com, and it was available. That’s how HumbleDollar was born.
Since your diagnosis, you’ve written about the steps you’ve taken to streamline your finances. Are there things you’ve learned that you’d recommend to others?
I’ve moved four times in the past 14 years, and each time I’ve thrown stuff out. We hang on to this stuff thinking that it’s so important, and it simply isn’t. I cannot think of anything I’ve thrown away that I want back.
What approach did you take toward financial education with your children?
Talking about money is important. But the behavior that you model is much more critical. My kids learned from my frugality. They both have very good financial habits. In fact, their financial habits are probably too good. Maybe I emphasized frugality too much.
Was frugality something that your parents modeled?
I credit the frugality to what I call our big family story. When my great-great grandfather died in 1888, the newspapers said that he was one of the richest men in England. All that money was inherited by my great-grandmother Lillian, and she lived the Downton Abbey lifestyle. She had an estate in the Cotswolds with five houses on it.
Lillian had eight kids. Three of them died relatively early on. Five of them inherited the fortune and, with one exception, the fortune was blown, often in short order. That was the story I grew up with, and the message was clear: You’ve got to be careful about money. My two brothers, my sister and I are all very different people, but all of us are frugal, and I credit this great family story.
There’s a message here for readers: Think carefully about the family stories that you tell to your kids because they’ll guide their behavior. You can lecture all you want, and they might listen to you. But if you tell a really compelling story, it can change their behavior.
Has your thinking changed about anything since your diagnosis?
In the last couple of years, I’ve become better about giving money to my kids and funding my grandchildren’s 529 plans. In retrospect, I think I should have started earlier and could have been more generous, because it’s clear to me that I’d never have been able to spend all this money I’ve accumulated, even if I did live to a ripe old age.
If you’re pretty sure that your kids have good financial habits, and you’re not going to undermine their ambitions or send them on some wayward path, by all means give them money now. Why have them live with unnecessary financial anxiety? Why not make them feel a little more financially secure? I really believe that’s one of the greatest gifts that we can give to family members, this sense of financial security.
Would you have done anything differently? You’ve joked that you would’ve had more French fries.
I love French fries. They’re probably my favorite food. But even at this late stage, I find it hard to order French fries because I know they’re unhealthy.
Over the years, you’ve mentioned that your asset allocation has always been aggressive. Can you say more about how you were able to tolerate that risk?
I’ve always had a strong faith in capitalism and in the stock market. I’ve never had any doubt during a market decline that share prices would recover. I’ve almost always had at least 80% in stocks. Right now, I’m at 92%. My diagnosis has not changed my allocation because I’m not investing for myself anymore. I’m investing for Elaine and for my kids.
In your writing, you’ve shared that you aren’t feeling negative emotions about your diagnosis. In fact, you wrote that your first reaction was, “I’m okay with this.” Can you say more about that?
I feel like I’ve been very fortunate. It’s not that bad things haven’t happened in my life. They have. But I’ve been able to spend my life doing what I love. I have a close-knit family, and I’ve largely been free of financial worry. All in all, I feel like I’ve managed to get a whole lot out of my life.
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 Asking the Editor appeared first on HumbleDollar.
March 2, 2025
Don’t Assume You Know
THE U.S. STOCK MARKET has historically delivered similar returns under both Democrat and Republican administrations. For that reason, my view is that investors shouldn’t worry too much about who occupies the White House, and I tend to stay away from investment discussions that involve politics.
But sometimes, the news coming out of Washington dominates the headlines in a way that can’t be ignored. Such is the case today. Moreover, with the stock market faltering recently, investors have been asking questions about the new administration’s policies and wondering how they might respond.
To think through this question, we can start with a closer look at the two policies that have received the most attention: the imposition of higher tariffs and the creation of a new cost-cutting department under the leadership of Elon Musk.
Tariffs raise a number of concerns. Most obvious is that they could result in higher prices for American consumers. Some consumers are already stretched thin by the recent spike in inflation, and further price increases would be unwelcome.
On top of that, tariffs can have broader implications for the economy. When prices are higher, people can’t afford as much, and that can cause the economy to slow. When the economy slows, corporate profits fall and that, in turn, can lead to lower stock prices.
In addition, there’s the risk that other countries could retaliate in response to U.S. tariffs, imposing their own tariffs on American goods. That could hurt domestic manufacturers. It’s for all these reasons that economists are nearly unanimous in seeing tariffs as a bad idea.
What about the new Department of Government Efficiency (DOGE)? This initiative too is raising concerns because it seems to be focused primarily on reducing government headcount. Since the federal government employs about three million people, the worry is that significant cuts could materially affect unemployment.
Compounding that would be a dynamic economists call the multiplier effect. When people lose their jobs, they aren’t able to spend as much, and that can lead to a slowing of the economy. They might also sell their houses, leading to downward pressure on home prices. A further concern is that, if the government workforce is cut too significantly, critical services might be impacted.
That, I think, summarizes the key concerns around these new policies. The question, though, is how to respond, and that’s the hard part. It’s hard because the negative scenarios I described above are all realistic but not necessarily guaranteed.
The use of tariffs, for example, could end up being temporary and just a negotiating tactic to achieve political aims with other countries. If that’s the case, then there would be little, if any, inflationary impact.
Even if higher tariffs were put in place permanently, they aren’t guaranteed to cause the spike in inflation that many fear. That’s the view of Scott Bessent, the new U.S. Treasury secretary, who explained the administration’s thinking in a recent interview.
Even critics of the administration have argued that higher tariffs may result in only modestly higher inflation. In November, Alan Blinder, an economist who served in the Clinton administration, wrote an opinion piece that carried the headline “Trump’s Economic Plan Has Inflation Written All Over It.” But when he broke down the math on prospective tariffs, his conclusion was that consumer prices might rise, at most, by 3%. And Blinder notes, it would be a “one-shot price increase.”
Similarly, DOGE’s efforts to cut back on the federal workforce may not have the negative impact that many fear. To be sure, the impact is negative for those who lose their jobs, and I don’t minimize that. DOGE’s objective, though, is to reduce the government’s annual deficit, which has reached alarming levels in recent years. Reducing the deficit would help bring down interest rates. That would benefit both the government as well as everyday consumers. And since interest payments now account for one-seventh of the federal budget, the impact of reducing interest rates could be considerable.
In short, the ultimate impact of these new policies is not a foregone conclusion. Proponents and opponents each have their own views, but it’s too early to know for sure how the administration’s policies will affect the economy now and into the future. As you think about your own portfolio, you may find the following analogy helpful.
Nassim Taleb, author of The Black Swan, compares investment markets to a pool table. When you hit the first ball, you can be pretty sure where it’s going to go. A skilled player might even be able to control what happens when that first ball hits the next one. But beyond that, it’s anyone’s guess. Things are just too random.
That image, I think, does a good job illustrating the dilemma investors face today. It’s hard enough to know what will happen in the short term. It’s even harder to know what will happen in response. And it’s nearly impossible to know how that will all net out to affect investment markets a year or two or three from now. And thus, it’s nearly impossible to know what action an investor should take.
That might sound like an unhelpful conclusion, but the good news is that we don’t need to be able to see the future to guard against negative outcomes.
Instead, this is the approach I recommend: As a thought experiment, let’s assume that all of the negative predictions are borne out—that the tariffs and cost-cutting do result in a recession and a stock market downturn. If we assume that these negative outcomes are guaranteed, investors can then ask themselves a question which is, I think, much easier to answer. How should my portfolio be positioned for a market downturn?
The good news: This is a question that investors should always be asking themselves. It has, to a great degree, a straightforward answer: An investor’s best defense is asset allocation and diversification. If you have sufficient resources outside the stock market—in some combination of bonds and cash—you should be well positioned to weather even a multi-year disruption to the market.
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.
But sometimes, the news coming out of Washington dominates the headlines in a way that can’t be ignored. Such is the case today. Moreover, with the stock market faltering recently, investors have been asking questions about the new administration’s policies and wondering how they might respond.
To think through this question, we can start with a closer look at the two policies that have received the most attention: the imposition of higher tariffs and the creation of a new cost-cutting department under the leadership of Elon Musk.
Tariffs raise a number of concerns. Most obvious is that they could result in higher prices for American consumers. Some consumers are already stretched thin by the recent spike in inflation, and further price increases would be unwelcome.
On top of that, tariffs can have broader implications for the economy. When prices are higher, people can’t afford as much, and that can cause the economy to slow. When the economy slows, corporate profits fall and that, in turn, can lead to lower stock prices.
In addition, there’s the risk that other countries could retaliate in response to U.S. tariffs, imposing their own tariffs on American goods. That could hurt domestic manufacturers. It’s for all these reasons that economists are nearly unanimous in seeing tariffs as a bad idea.
What about the new Department of Government Efficiency (DOGE)? This initiative too is raising concerns because it seems to be focused primarily on reducing government headcount. Since the federal government employs about three million people, the worry is that significant cuts could materially affect unemployment.
Compounding that would be a dynamic economists call the multiplier effect. When people lose their jobs, they aren’t able to spend as much, and that can lead to a slowing of the economy. They might also sell their houses, leading to downward pressure on home prices. A further concern is that, if the government workforce is cut too significantly, critical services might be impacted.
That, I think, summarizes the key concerns around these new policies. The question, though, is how to respond, and that’s the hard part. It’s hard because the negative scenarios I described above are all realistic but not necessarily guaranteed.
The use of tariffs, for example, could end up being temporary and just a negotiating tactic to achieve political aims with other countries. If that’s the case, then there would be little, if any, inflationary impact.
Even if higher tariffs were put in place permanently, they aren’t guaranteed to cause the spike in inflation that many fear. That’s the view of Scott Bessent, the new U.S. Treasury secretary, who explained the administration’s thinking in a recent interview.
Even critics of the administration have argued that higher tariffs may result in only modestly higher inflation. In November, Alan Blinder, an economist who served in the Clinton administration, wrote an opinion piece that carried the headline “Trump’s Economic Plan Has Inflation Written All Over It.” But when he broke down the math on prospective tariffs, his conclusion was that consumer prices might rise, at most, by 3%. And Blinder notes, it would be a “one-shot price increase.”
Similarly, DOGE’s efforts to cut back on the federal workforce may not have the negative impact that many fear. To be sure, the impact is negative for those who lose their jobs, and I don’t minimize that. DOGE’s objective, though, is to reduce the government’s annual deficit, which has reached alarming levels in recent years. Reducing the deficit would help bring down interest rates. That would benefit both the government as well as everyday consumers. And since interest payments now account for one-seventh of the federal budget, the impact of reducing interest rates could be considerable.
In short, the ultimate impact of these new policies is not a foregone conclusion. Proponents and opponents each have their own views, but it’s too early to know for sure how the administration’s policies will affect the economy now and into the future. As you think about your own portfolio, you may find the following analogy helpful.
Nassim Taleb, author of The Black Swan, compares investment markets to a pool table. When you hit the first ball, you can be pretty sure where it’s going to go. A skilled player might even be able to control what happens when that first ball hits the next one. But beyond that, it’s anyone’s guess. Things are just too random.
That image, I think, does a good job illustrating the dilemma investors face today. It’s hard enough to know what will happen in the short term. It’s even harder to know what will happen in response. And it’s nearly impossible to know how that will all net out to affect investment markets a year or two or three from now. And thus, it’s nearly impossible to know what action an investor should take.
That might sound like an unhelpful conclusion, but the good news is that we don’t need to be able to see the future to guard against negative outcomes.
Instead, this is the approach I recommend: As a thought experiment, let’s assume that all of the negative predictions are borne out—that the tariffs and cost-cutting do result in a recession and a stock market downturn. If we assume that these negative outcomes are guaranteed, investors can then ask themselves a question which is, I think, much easier to answer. How should my portfolio be positioned for a market downturn?
The good news: This is a question that investors should always be asking themselves. It has, to a great degree, a straightforward answer: An investor’s best defense is asset allocation and diversification. If you have sufficient resources outside the stock market—in some combination of bonds and cash—you should be well positioned to weather even a multi-year disruption to the market.
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 Don’t Assume You Know appeared first on HumbleDollar.
