Jonathan Clements's Blog, page 74

Four Thoughts

WHEN I STARTED writing about personal finance in the late 1980s, my focus was on giving “actionable” money advice. Here, at the end of my career, I’m more interested in offering thoughts that’ll help folks with all areas of their life, financial and otherwise.

I’m not sure how many articles I have left in me. Fingers crossed, it’ll be many more than my current diagnosis suggests. But whatever the case, here are four thoughts that I'd like readers to remember:

1. Worry less. As I eye the exit, my mind keeps coming back to the same notion: I hope folks can find a way to spend less time fretting, and not just about their finances.

We are, alas, hardwired to worry. That’s how our hunter-gatherer ancestors were able to survive countless dangers and reproduce, thus ensuring we’re here today. But constant worry isn’t necessary for survival anymore. Instead, it’s often a waste of time, one that mostly serves to make us unhappy.

Want to fret less? Start by pondering what stresses you out. Is there a way to address your fears? Often, when it comes to money, the path to less worrying involves simplifying our finances, keeping a healthy cash reserve, settling on the right stock-bond mix, making sure we diversify broadly, limiting debt, buying the right insurance, getting our financial affairs organized and listening less to market pundits.

Sometimes, our anxiety is the result of our own procrastination. We might dillydally over buying life insurance or getting a will drawn up. Sometimes, we’re worrying about issues over which we have no control, and what we need is some level of acceptance.

The unfortunate reality is, we’ll never stop worrying. But perhaps we can at least deal with our big fears, so our stress level isn’t quite so high, and sweat less over the small stuff. No, it doesn't much matter whether we rebalance every year or every two years, or whether we have 75% in stocks rather than 70%, or whether our credit card pays 2% cash back on restaurant spending instead of 1.5%. 

2. Talk it through. So much nonsense could be avoided by discussing the issues that estrange us from others, rather than assuming we know what they're thinking. We might imagine that folks are out to cause us harm. But often, the reason for their apparently unkind behavior has nothing to do with us and everything to do with some misfortune in their life about which we have no clue.

Similarly, we can save a lot of time by asking about the matters that puzzle us, rather than worrying that our questions will lead others to view us as ignorant. I’ve sat through countless meetings where someone finally confesses, “Sorry, I don’t understand….” At that point, a majority of participants then admit that they too are confused.

3. Think for yourself. When folks raise their voice and pound the table, we sit up and take notice. Perhaps we shouldn’t. I’ve found that the loudest folks often least understand the issue at hand. Instead, they’re noisily trying to justify their own choices, about which they aren’t all that confident.

We also shouldn’t allow ourselves to be bullied into action by popular opinion, whether it’s reflected in the words of neighbors, colleagues or market pundits. In addition, we shouldn’t let ourselves be swayed by stock and bond prices, believing the pattern we see in market prices offers some message about the future. Got a sensible, low-cost, diversified portfolio? It’s important to stand our ground, even as those around us flit from one investment to another.

When folks offer seemingly sensible advice, keep in mind that there’s more than one way up the mountain. Personal finance is indeed personal. What makes sense for others may not make sense for you—because you have a different financial situation and different emotional makeup. Yes, we can learn a lot from others, but we shouldn’t necessarily mimic their actions. My advice: Listen when others tell you what they themselves have done. But don’t listen when they tell you what you ought to be doing.

4. Understand what’s influencing you. We aren’t just swayed by those around us, by the media, by advertising and by recent market returns. We’re also influenced by the past—the good and bad experiences that shape our fears and values.

What are the situations we seek to avoid? How do we like to spend our time? Why do we use our money in the way that we do? Events in our past—perhaps involving our parents or our schooling—likely bear heavily on our behavior today, even if we no longer remember many of those incidents.

Still, it’s worth getting a good handle on our values and fears. For instance, I hate the sense that I’m under attack, I loathe pretense and boasting, and it can ruin my day if I know a bad meal awaits me. All this I can trace to my time at English boarding school.

Perhaps nothing is more important in managing money, and in how we conduct ourselves more generally, than knowing ourselves. No, you’ll never totally get there. I know I haven’t. But the more we understand about ourselves, the better we can cope with our fears—and the more we can create a life where we’re truly happy.

This is my final week writing the lead Saturday newsletter article. In future weeks, you'll be treated to Adam Grossman's wisdom, with my wife Elaine overseeing the newsletter. Meanwhile, I plan to continue contributing articles and Forum posts for as long as I'm able.

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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Among Friends

ONE OF THE PERILS of being a HumbleDollar contributor is that you sometimes get hit up for advice that you aren’t necessarily qualified to give.

Such was the case recently when I was having breakfast with an old buddy. The topic turned to money and investments. Joe and I have been good friends since the days when we played on the high school basketball team. We try to get together every month or so to catch up and reminisce about old times.

These days, our conversations tend to revolve around aging joints, Medicare and, of course, retirement. Both of us turned age 65 last year. While I’m now semi-retired after leaving the corporate world three years ago, Joe is still gainfully employed as a minister for a local church. His goal, if he can make it happen financially, is to step back from the work world in the next four or five years.

Now, Joe is one of the kindest, most caring people I know—traits that have served him well in his career as a pastor and spiritual counselor. He’s the first to admit, though, that investments are not his strong suit, and it doesn’t help that the ministry isn’t exactly a highly paid profession.

Joe’s wife doesn’t make big bucks either as a hairdresser and yet, despite their limited means, they have managed to raise four kids, who are all now out of the nest and married. Joe and his wife own their house, which is mortgage-free, and they have been careful to steer clear of carrying credit card balances and other high-interest debt.

As for retirement assets, they have two buckets of funds: a 403(b) plan sponsored by the church, which matches 50% of the contributions that Joe makes to it, and a rollover IRA where Joe has consolidated retirement funds from previous employers.

This is where the problem comes in.

About five years ago, as Joe explained to me over eggs and toast, he handed over management of his IRA to an advisor friend from church who works at Edward Jones. It was a big move for Joe and his wife, since the majority of their retirement assets are in that IRA.

Unfortunately, the portfolio has not performed well. Over the past five years, the account is up only 4% net of fees. This is despite the portfolio climbing 26% over the past year, buoyed by the overall market’s rising tide.

While Joe and his wife are happy about the recovery in their balance over the past year, they aren’t at all pleased with the fact that their seven-figure IRA is barely larger today than it was when they handed it over to their friend five years ago.

Joe’s wife is pressing him to move the account from Edward Jones to Vanguard Group, which manages their 403(b) plan. While Joe sees the sense of this, he’s concerned about the impact on the relationship with their friend at church.

“Do you have any suggestions?” Joe asked me.

My first thought was that we were in dangerous territory. I learned long ago that money and friendships don’t mix, and I’ve been careful over the years to avoid financial entanglements that involve friends or family members. It’s a surefire way to either ruin a relationship or end up with subpar results, and sometimes both.

I told Joe that, while I have an MBA and possess a basic understanding of finance and investments, I’m not a financial advisor and don’t consider myself qualified to give financial advice. It was for this reason, I told him, that I have my own retirement portfolio being managed by an independent advisor at Vanguard.

Joe said he understood, but would still welcome any thoughts I might have. So, I gave him a Boglehead’s perspective on the basics of investing: the difference between active and passive funds; the power of indexing and dollar-cost averaging; the advantages of trying to track the long-term performance of the overall market rather than attempting to beat it; the importance of minimizing management expenses and fees in delivering results.

I asked Joe what funds his portfolio at Edward Jones was invested in. Sure enough, when Joe showed me the account, it was loaded up with active funds that charged commissions and high fees. This likely explained why Joe’s one-year performance of 26% was below the S&P 500’s 32%.

The gut punch for Joe came when I told him what my own fund performance at Vanguard has been over the past five years: 90% vs. his 4%.

That was it, he said. He was going to talk to his friend at church and inform him he was moving his rollover IRA to Vanguard. If it damaged their relationship, so be it. This money was too important to his and his wife’s future security.  

I reminded Joe that past performance is no guarantee of future results, and that it was possible his portfolio, when rolled over to Vanguard, could underperform his Edward Jones portfolio in the short term. Joe acknowledged this, but said the risk was worth it.

He thanked me profusely for my help and we left the restaurant. I admit that I gave a sigh of relief, feeling confident that I’d stayed within the bounds of providing factual information without giving financial advice. As I drove home that morning, it struck me that the test of a good friendship—just like that of a good investment portfolio—is how it fares over the long term.

Author and blogger James Kerr is a former corporate public relations and investor relations officer who now runs his own agency, Boy Blue Communications. His debut book, “ The Long Walk Home : How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life’s Purpose,” was published in 2022 by Blydyn Square Books. Jim blogs at  PeaceableMan.com . Follow him on Twitter  @JamesBKerr  and check out his previous  articles .

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Take a Seat

MILESTONES MARK the growth of a child as she moves from infancy through school age. In similar fashion, we adults tend to measure our life’s progress with “firsts” or other significant events. Perhaps we remember the feeling of maturity that came with our first kiss or our first job. Milestones help us attach meaning to the course of a life that sometimes seems beyond our control.

Financial milestones often command special significance, like my first “real” job at age 15. My older brother got me hired by a company building a bank. My parents surprised me with unusual lenience by letting me drive myself in a borrowed vehicle, though I was still a few months from having an unrestricted license.

On my first day, my initial task was enlarging the vent hole for the concrete vault with a hammer and chisel. Next came breaking up a sidewalk with a sledge hammer. I thought I was lucky to be called away from that work, but instead found myself hauling heavy landscaping timbers in the rain at the boss’s friend’s beach house. I got back to the jobsite wet and covered with sand. When I pointed out to the foreman that I’d had no lunch, he begrudgingly let me leave with the admonition to “hurry back.” Instead, I hurried to my truck, hurried home and never looked back. I don’t say that with pride, but I have no regrets.

Despite my rough start, followed by a few tough years, my financial journey eventually smoothed out. The milestones began passing by with some regularity for my wife and me. Whether frugal by nature or nurture, our aggressive saving—and lack of troubles—left ample money from each paycheck to ladle into growing retirement accounts. I kept close tabs on the burgeoning balances, excited to see the numbers rising, despite the market plunges that come along every few years.

The first total that truly grabbed my attention was in the low six figures, an amount I suspect is surpassed by the annual income of some folks reading this. It’s many times less than the sum in our current portfolio, but it was huge at the time. While I knew we were still a lengthy trek from retirement, seeing that figure convinced me our spartan living was worth it.

Since then, other milestones once on the distant horizon are now in the rearview mirror. Our daughter’s college tuition is secure. My wife’s retirement is paid for, awaiting her decision to hang up her part-time work. Even my own phased retirement is already in motion, as my boss and I try to sway administration over to our plan for my shift to a part-time position.

All these milestone goals are linked to money, and for good reason: They each demand a truckload of dollars. But one elusive goal with a relatively small cost was snatched from me by nothing more than my own stubbornness.

Some 15 years ago, my wife and I spent some of our savings on new furniture, including a comfy leather chair to replace my inexpensive recliner. I loved my new chair, but it didn’t recline. That was fine for a decade, until I started hankering to own a recliner again. I dreamt of drifting off into an afternoon nap after a post-lunch talk with my wife, without the need to walk the achingly long distance to the bedroom. Trouble was, the purchase seemed such an indulgence that I couldn't pull the trigger without tying it to a money goal.

Fool that I am, I chose to tag it to our total retirement account balance. The milestone I was aiming for was a big round number. My restless nature was still uneasy with the thought of a special purchase just to be lazy, so the self-denial was comforting. Even so, the destination appeared not too distant in the superheated, post-pandemic stock market. Though I knew better, I thought the market run-up might last long enough to propel me to my target.

Instead, I proved that predicting the market is the path to disappointment. Just as I was preparing to search out New Year’s deals on recliners in January 2022, the market swerved in the other direction, away from my new chair.

My wife suggested I get the chair anyway, that I was silly to suffer when we could afford to part with a bit of savings to buy a lot more comfort. She was right. I had no control over the stock market, and we were well past the “tipping point” where our annual savings might appreciably affect our portfolio’s total balance. Still, my new chair was spinning in the wind of market whim, and I refused to veer from my charted course.

But despite my obstinance, the story has a happy ending. The stock market has never bumped along the bottom forever. Our stocks did recover and, indeed, zoomed past the milestone they’d failed to reach before. True to character, I dragged my feet in ordering my reclining chair, but I’m finishing this article a few days after its delivery.

Are recliner naps a meaningful milestone on the road to a happy life? My afternoons have been busy, so I’ve yet to find out. But I’ll keep you posted.

Ed Marsh is a physical therapist who lives and works in a small community near Atlanta. He likes to spend time with his church, with his family and in his garden thinking about retirement. His favorite question to ask a young person is, "Are you saving for retirement?" Check out Ed's earlier articles.

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Hole Truth

SOON AFTER GRADUATING college and starting work, I visited a dentist I found in the Yellow Pages for a long overdue teeth cleaning and exam. Although I had never had a cavity, the dentist informed me that I had multiple cavities that urgently needed to be filled. Naïve me allowed this dentist to fill the two supposed cavities of most concern.

Somewhat traumatized, I avoided dentists for a time. Finally, I queried several older coworkers, who recommended another dentist. Over the next 15 years, this dentist never filled a single cavity, including those that Dr. Yellow Pages said needed filling. 

When I transferred to a job in a new location, wiser me asked coworkers to suggest a dentist. The recommended dentist filled just two cavities over the next three decades.

In 2022, my wife and I moved to a new state, and I again needed to find a new dentist. We asked several contacts, but their recommended dentists weren’t accepting new patients. No worries, we thought. Finding a reputable dentist should be easy, thanks to Yelp and Google reviews. Moreover, our insurance network covered just a few dentists in our rural area, making the research quick.

My wife visited the new dentist first, and her teeth received a clean bill of health. On my subsequent visit, the dentist advised that my teeth had three cavities that needed filling. I hadn’t had a new cavity in decades, and none was found at a check-up six months earlier. I also had no tooth discomfort or sensitivity.

I asked for more details about the alleged cavities, and the dentist responded that my insurance would cover nearly all the costs. I again queried about the specific teeth and cavity concerns. The dentist summarized that I had three cavities that needed prompt attention, but didn’t provide any specific information. The cheerful dentist then reemphasized the positive news that my insurance would cover almost all the costs. I would only incur a nominal out-of-pocket co-pay.

I balked and walked.

Five months later, I arranged a check-up with my former dentist in our old locale. As you might guess, I had zero new cavities requiring attention.

Both my wife and son had a nearly identical experience: cavities diagnosed during their initial dental exams post-college. Fortunately for our cavity-less son, we had warned him not to succumb to a potentially overzealous dentist until he obtained a second opinion.

A bit of web research confirms that dentistry is an inexact science and regulations differ from that of other medical fields. If you’re getting a sudden case of increased recommended dental procedures without having tooth issues or discomfort, the advice is to seek a second opinion and be a strong advocate for yourself.

After we told our insurance company about our experience, it agreed to expand the choice of in-network dentists.

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Out of Left Field

THIS MONTH MARKS the five-year anniversary of the start of the pandemic. That makes this a good time to look back and ask what lessons we might learn.

In early 2020, when COVID-19 was first identified in the U.S., the stock market dropped 34% in the space of just five weeks. But later in the year—after the Federal Reserve stepped in with its bazooka—the market rebounded, ending the year in positive territory. For full-year 2020, the S&P 500 actually rose 18%. Most remarkably, from the low point in late March to the end of the year, shares gained 70%. This provided a unique opportunity for investors who had the fortitude to rebalance their portfolios and buy stocks when things looked bleakest.

But that, of course, is easier said than done. During times of crisis—when the market presents what should be attractive buying opportunities—several factors conspire against us. It’s worth understanding these dynamics so we can recognize them the next time a crisis rolls around.

The first dynamic is what you might call the Mark Twain effect. An aphorism attributed to Twain is that history doesn’t repeat, but it does rhyme, and that certainly applies to the stock market. When it comes to market downturns, historically they’ve all ended the same way—with the market recovering and eventually going higher. But that’s the easy part. Where they’ve differed—and where they probably always will differ—is in their origins.

In the 1970s, it was an oil embargo. It 2000, it was the bursting of the technology bubble followed by the attacks on 9/11. In 2008, it was the failure of Lehman Brothers. In 2022, it was inflation.

Because each crisis is so different, no one can be sure how bad it will get or how long it will last. And because of that, each one feels uniquely terrifying. That’s typically what causes markets to drop suddenly at the start of a crisis. But unfortunately, that only compounds the atmosphere of panic.

Because of this panic, logical thinking tends to get tossed aside. That’s the second dynamic we see during crises. Back in 2020, I suggested a thought experiment to help combat this. The idea was to imagine an unrealistically extreme scenario and then to calculate the effect on the stock market. This requires just a simple three-step process.

The first, for simplicity, is to choose a single company for this analysis. Next, make the extreme assumption that the company might lose an entire year of profit as a result of the crisis. Finally, use a valuation technique known as discounted cash flow to calculate how that lost year of profit should—strictly according to the numbers—affect the company’s stock price. The premise of discounted cash flow is that it assumes a company should be worth the sum of all of its future cash flows, adjusted for inflation.

For this exercise in 2020, the company I chose was Procter & Gamble, which makes things like soap and shampoo. Let’s revisit how the numbers would have looked to an investor at the start of the pandemic.

At the time, P&G was worth about $300 billion and was earning about $10 billion a year. Therefore, to assess the impact of losing an entire year of earnings, we would simply subtract $10 billion from P&G’s market value. The result: P&G shares should have been worth just 3% less. After all, $10 billion is 3% of $300 billion. But because of the panic and the absence of logical thinking, P&G’s shares fell more than 20% in the early days of the pandemic.

Of course, some companies will always fare better than others during a panic, so you might repeat this exercise using other representative companies. The key conclusion would likely be the same, though: Stocks almost always drop to irrationally low levels during crises because panic replaces logic. But as the P&G example illustrates, market downturns usually represent buying opportunities—not based on faith but on the numbers.

Why does logic go out the window when crises occur? One cause is the din of storytellers. Especially during crises, market commentators go into overdrive. And since it’s anyone’s guess how things will turn out, they’re free to paint whatever picture they wish. You might wonder, though, why anyone would listen to them. We all know no one has a crystal ball.

Psychologist Steven Pinker offers an explanation. For evolutionary reasons, he says, our minds have learned that to survive, we must always be looking to make sense of the world around us. In fact, for survival, it’s critical to understand cause and effect in our environment. But that’s a problem, Pinker says, because sometimes this part of our brain gets carried away, telling stories and drawing conclusions even when they’re completely made up. The mind, he says, becomes a “baloney generator.”

Unfortunately, the media contributes to this phenomenon. Look at a financial news site, and you’ll notice that many of the headlines are presented in this format: “Market Rises as Inflation Fears Cool.” At first glance, this might seem like a perfectly reasonable statement.

The problem, though, is the word “as,” which implies a cause-and-effect link where one may not exist. I call that a problem because, on any given day, innumerable variables combine to drive the market in one direction or another. Headlines like this, however, lead investors to believe that these relationships are simple, scientific and predictable when they’re not.

Economic experts also contribute to this problem. In April 2020, the managing director of the International Monetary Fund referred to the pandemic as “humanity’s darkest hour.” Around the same time, a well-known hedge fund manager commented on TV that “hell is coming.” To be sure, the pandemic was terrible, but hyperbole like this, in my view, only contributes to the sense of panic.

The pandemic is—thankfully—in the rearview mirror, but we’ll face other crises in the future, and they’ll probably arrive just as COVID did: entirely out of left field. That’s why it can be helpful at a time like this, when markets are strong, to be sure your finances are prepared for whatever might come next.

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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What’s It All About?

WE'RE ALWAYS STRIVING—the next pay raise, the next consumer purchase, the next self-improvement goal. But to what end?

Our time on this earth is fleeting, our impact minimal and our legacy quickly forgotten. A decade after we’re gone, we might be remembered by family and close friends, but not by many others. And yet we keep pushing forward.

Does death’s approach shed any light on this curious behavior? Far from it. If anything, my cancer diagnosis has pushed me to strive even more. You might dismiss this as denial of what’s certain to come or perhaps a desperate grab for control in a world where I no longer have much say over my destiny.

Alternatively, you might view this as some mix of selfishness and selflessness. For the religiously inclined, perhaps I’m aiming to leave the world very marginally better for the sake of God’s glory and my own immortal soul. For the more secular, maybe my goal is to ensure my family—and hence my genes—have a better shot at surviving and reproducing.

But while I’m not sure what propels my continued striving, even at this late stage, I know it makes me feel better. As I mentioned last week, accomplishment can deliver great happiness. That brings me to the final article I wrote for The Wall Street Journal before I left in 2008 to work for six years at Citigroup, or what my journalism friends would call "the dark side."

In that piece, I listed what I felt were the three components of a happy life: a sense of security, the freedom to pursue our passions, and a robust network of friends and family.

We all want slightly different versions of these things, but I believe the hunger for all three is almost universal. Together, they have the potential to leave us feeling safe, fulfilled and happy—innate desires that we carry with us throughout our life.

Do pursuing these three things make the world a better place? Perhaps marginally. They certainly don’t seem like pursuits that should hurt those around us.

Meanwhile, they help to make every day that much sweeter. And ever since I got my cancer diagnosis, that has been my goal: I want every day to be a good day.

Faced with my grim diagnosis, I’ve refused to be angry about my misfortune, or dwell on why I got unlucky, or rail about the years I won’t have. Why waste time on such emotions? Instead, my focus has been on making the most of the days I have left.

No, not every day has been happy. Life’s hassles have a way of intruding, and those hassles have grated even more because my time is short. Meanwhile, deteriorating health is obviously no fun.

On top of that, those around me have bad days, and their distress inevitably taints my waking hours. But I view this unhappiness differently. Unlike the hassle of leaking toilets or the distress of failing health, sadness—whether it’s our own or that of others—is part of the human experience, and adds a richness to it. With shared sadness, we can draw closer to others, and those tighter human connections can make life more meaningful.

Over the decades, I’ve written a lot about money and happiness, and yet “happiness” has always struck me as the wrong word, and academic alternatives like “subjective well-being” and “life satisfaction” don’t seem any better.

Yes, happiness is a key component of a good life, but it’s hardly the only one. Instead, robust happiness encompasses not just laughter and good times, but also feeling fulfilled, a sense of purpose, a passion for life, a sense of contentment, and a feeling we’re engaged with both others and with the broader world. It’s the sense we’re truly alive and focused on what we really want and care about. Such things, I believe, are always worth striving for—even when our time is measured not in decades, but in weeks and months.

Check out the earlier five articles in this six-part series: Money Grows up,  Taking Center Stage, Mind Over Money, Taking It Personally and Never Enough.

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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Overdoing It

TWO THINGS HEAVILY influenced my financial life. The first was my short stint after college as an internal revenue agent with the IRS. The second was getting married and having five children.

Result: I’ve spent most of my adult life as a tax-averse junky using retirement accounts to get my high, so much so that there’s a risk our retirement-account withdrawals will put us in a much higher tax bracket than when we made our contributions. I’m age 67 and Cindy is 58, and today we have 98% of our financial assets in retirement accounts.

I was an internal revenue agent from 1981 to 1983. I quit because it seemed everybody who I met either hated me or was scared to death of me. Still, the job convinced me that I should legally avoid taxes at all costs. But how? Starting in 1981, 401(k)s became fairly common. The following year, traditional IRAs became available to workers with pensions. That’s when I started funding IRAs, which were then limited to $2,000 a year. I really liked the idea of avoiding taxes until retirement, which at the time was some 40 years away.

I married at age 31 and my wife was 22. Opposites attract: I was a saver and Cindy was a spender. We often clashed over spending. We never made a lot of money and budgeting never worked for us. But we agreed on one important subject, and that was having children.

I noticed that whatever we put into our checking account would mysteriously disappear by the end of the month. There were a lot of arguments over the years. We both thought that our marriage wouldn’t make it. After all, money arguments are the No. 1 reason marriages fail.

After one bitter argument, I went into my payroll account and increased the withholding for my 401(k) by a couple of percent. It made me feel better, and it seemed preferable to arguing over how much we spent. I later did the same with my wife’s withholding.

After we started having kids, it didn’t make sense for Cindy to continue working full-time. She worked one day a week as a bank teller for 12 years, before going back full-time. While she was working part-time, I made sure that we contributed the maximum each year to both our IRAs. I also contributed a large percentage to my 401(k).

It was at this time that I started buying tax software. Before we would file our taxes, I’d use the software to run “what if” scenarios, so we could use our child tax credits in conjunction with retirement-account contributions to zero out our tax liability.

Eventually, because of our large tax-deductible retirement contributions, we got to the point where we couldn’t use all of our tax credits. Still, we continued to make those retirement contributions. But we also started converting traditional IRAs to Roths, which led to more potentially taxable income and allowed us to use up the credits without generating a tax liability. During this time, I was working up to three jobs, including my part-time employment in the Army Reserve, where I served until age 60. I retired from my civilian job at 59.

How did my wife take all this?

Cindy didn’t really like it, but somehow money put into retirement accounts would never get touched. Contributions served two purposes. They increased our retirement savings, while also limiting our spending. My feeling was, if things got too tight, we could always lower our retirement contributions or take a loan against our 401(k) balances. The loans only happened a few times for small amounts.

Our arguments over money grew less frequent. Any time I thought Cindy was spending too much, I’d remind myself that we were still super-saving for retirement, and my anger would pass.

Our five children picked up on our tight-money ways. They attended public colleges in Kentucky that are relatively inexpensive. They had part-time jobs and paid internships during high school and college. They also received multiple merit-based scholarships, though no non-merit aid. One lived at home during college.

Even though we gave our children little financial help toward college, each graduated with money in the bank and no debt. Our last child graduated when I was age 65. Four are engineers and one is an elementary school teacher. Three have master’s degrees. Believe me, we’ve had other major problems with our children, but handling money hasn’t been one of them.

We’ve continued converting our traditional IRAs to Roths long after our eligibility for the child tax credit passed. Yep, we’re actually paying taxes now, but keeping it in the 12% bracket. Today, about 21% of our retirement accounts are Roths. I plan on continuing to convert until I start drawing Social Security at age 70 or perhaps until required minimum distributions begin at 73—provided, that is, we can remain within the 12% tax bracket.

Cindy still works full-time. She contributes the max to her 401(k), and we also max out our IRAs. She’ll retire next July at age 59. We pretty much live on my Army Reserve pension, a tiny pension from a civilian job, and whatever is left from Cindy’s salary after her 401(k) contributions.

More disciplined people could no doubt have done better. But we’re both happy with how things have worked out. We now splurge more on our adult children and grandchildren. We can also eat out and travel without worrying about money. In fact, I suspect we enjoy these things more than most—because we’ve done so little of them in the past.

Ken Begley has worked for the IRS and as an accountant, a college director of student financial aid and a newspaper columnist, and he also spent 42 years on active and reserve service with the U.S. Navy and Army. Now retired, Ken likes to spend his time with his family, especially his grandchildren, and as a volunteer with Kentucky's Marion County Veterans Honor Guard performing last rites at military funerals. Check out Ken's earlier articles.

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Easy Does It

ONE OF MY FIRST employers allowed me to buy savings bonds through withholding from my weekly salary. It seemed like magic. Ever since, automatic payroll deductions have been an important part of my financial life.

My payroll deductions expanded to include my health insurance and my 401(k) contributions. It just felt good to me, kind of like the practice of regularly giving 10% of your income to the church.

On the other hand, payroll deductions are also how we pay taxes, which doesn’t seem like such a blessing. This culminates with the annual ritual of filing my income tax return. That’s when I learn whether I’ve withheld enough.

I’ve never used a preparer or accountant to calculate how much tax I owe. I prefer to avoid paying someone else to do something I can do myself. That’s my fallback position for many such chores. If I can do it myself, I will. I’ll pay someone for the harder things, like fixing my teeth or repairing my car.

Besides, when I do my own taxes, the government checks my work. If I make an arithmetic error, I get a letter from the IRS or my state’s tax department. It points out my mistake and informs me how much more I owe or—on a good day—how much more the government owes me.

To be honest, I’m not sure whether my do-it-yourself method has saved me money. If I miss a deduction to which I’m entitled, I’m paying an extra tax for my stubborn independence.

I started feeling more confident that I was getting my fair share of all the tax breaks when I began using TurboTax. The software asks a lot of questions that I’d never thought about to help me explore possible ways to save on taxes.

Yet there’s still a problem: TurboTax won’t challenge me if my entries are wrong. Luckily, whenever I’ve misunderstood a question—and seen the resulting taxes I owe—I’ve been able to backtrack and correct my misinterpretation.

In the end, TurboTax tells you how much you owe or the amount of your refund. I find it unsettling, wondering whether the taxman is going to demand more of my income. So far, I’ve never been in a position where the amount demanded has exceeded my ability to pay. Still, tax season is a stressful time for me and, I imagine, for many others.

This stress leads me to prefer to be owed a refund rather than having to write a check to the Treasury.  I know, I know, I’ve heard it many times: Why make an interest-free loan to the government? Just pay Uncle Sam what you owe and no more. In the meantime, use your money to your own advantage. I get it.

It’s just that I hate paying for anything. Writing a check for underpaid taxes is something I want to avoid. I wish I could justify my feelings, but I can’t. When I calculate my tax return, if money is due to me, I’m relieved. I give the government my bank information and, magically, the money appears. I can relax for another year. Over the years, most of the credit for this relief has been due to my faithful ally—automatic payroll deduction.

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One Stock at a Time

THERE’S A CHANGE coming in the way many of us invest. But for background, it’s important first to look at a related—though seemingly mundane—investment concept known as tax-loss harvesting.

To understand how tax-loss harvesting works, consider a simple example. Suppose you purchased a stock in your taxable account for $10, and it subsequently dropped to $8. That would be unfortunate, but there’d be a silver lining: You could sell the stock to capture the $2 loss for tax purposes and then reinvest the proceeds in another stock.

Like most topics in personal finance, tax-loss harvesting is the subject of some debate. Detractors argue that the tax benefit is something of an illusion. Continuing with the above example, critics would point out that a tax-loss harvesting trade would cause the investor’s cost basis to drop, and that, in their view, would negate any benefit.

Why? The new stock’s basis would be $8, whereas the original stock’s basis was $10. That’s important because it means that when the new stock is eventually sold, the taxable gain will be $2 greater than the gain would’ve been on the original stock. And that additional $2 of gain would perfectly offset the $2 loss that was captured earlier. It’s for this reason that some compare tax-loss harvesting to a shell game: They argue that it can shift a gain from one year to another, but never truly eliminate it.

In a narrow sense, the critics have a point. But there are many cases in which harvesting losses can yield tangible benefits. Suppose you’re in retirement and taking regular withdrawals from your portfolio. In that situation, tax-loss harvesting could help you moderate the capital gains on those withdrawals.

Continuing with the example above, if you took a $2 loss on one investment, you could pair that with a $2 gain on another investment. That would allow you to free up cash from your portfolio without any net tax liability. In that way, tax-loss harvesting can help retirees keep a lid on their tax bill when drawing down a taxable account.

Even before retirement, tax-loss harvesting can be a benefit. That’s because even the most dedicated buy-and-hold investor will want to make changes to their investments from time to time, if only for rebalancing. And that’s another key benefit of tax-loss harvesting. It can help investors rebalance—and thus manage risk—more tax-efficiently.

Those are the benefits of tax-loss harvesting. But you might notice a fly in the ointment. After the strong market we’ve enjoyed over the past decade, it might be hard to find holdings with any losses to harvest. Over the past 10 years, the S&P 500 has risen 250%. Even international stocks, which are seen as laggards, have gained nearly 70% over that period. That would appear to be an obstacle to tax-loss harvesting. In other words, it’s hard to harvest losses if there are no losses to harvest. For index fund investors, this is indeed a challenge.

But now imagine that if, instead of owning a broad-market index like the S&P 500, you instead owned each of the 500 stocks individually. Then, as you looked across your portfolio, there would be both winners and losers. While Nvidia has gained 25,000% over the past 10 years, stocks like Walgreens, Warner Brothers and American Airlines have each dropped more than 50%. Forty stocks, in fact, have lost money over that period. Nearly 300 of the 500 stocks in the S&P index have gained less than the index’s overall average. If you owned these stocks individually, they’d offer opportunities to take withdrawals from a portfolio more efficiently than if you owned the index only in the form of a fund.

Wouldn’t it be cumbersome, though, to own 500 stocks individually? That brings us to a strategy known as direct indexing. It’s a way to own the individual stocks in an index, and to conduct regular tax-loss harvesting, without needing to manage the portfolio yourself. Direct indexing has existed for decades. But in the past, because of the cost, it only made sense for the wealthiest investors.

In recent years, however, brokerage commissions have largely been eliminated, and new competitors—including Vanguard Group—have helped bring down the cost. As a result, these services now cost as little as 0.15% or 0.2% a year. Yes, that’s more than a comparable index fund. But according to at least one study, the tax benefits can easily offset that cost.

In addition to the tax benefit, direct indexing offers two other advantages. First, it offers the ability to customize a portfolio. Suppose there’s an industry that runs counter to your values—tobacco, for example. With a direct indexed portfolio, you could own all of the stocks in the S&P 500, with the exception of Altria and Philip Morris, leaving you with your own custom S&P 498. With direct indexing, you could also overweight selected industries.

Another benefit of direct indexing: Suppose you have a large holding in a single stock—Apple, for example. Because of the risk, you might want to diversify. But if you bought an S&P 500 index fund—ordinarily a good way to diversify—that would pose a problem, because 7% of any dollars invested in the S&P 500 would be allocated to Apple, further increasing your exposure.

But with direct indexing, you could construct a portfolio that included all of the stocks in the index except Apple. A further benefit: Over time, losses produced by the direct indexing strategy could be used to offset gains as you whittled back your Apple shares.

Are there downsides to direct indexing? As noted earlier, there’s the cost. In addition, some people dislike the idea of holding hundreds of individual stocks; it seems messy.

Another downside of direct indexing is that the tax benefits are front-loaded. Over time, as the market rises, there will be fewer losses available to harvest. Still, I believe direct indexing can continue to provide tax benefits far into the future. Even if, after a decade or two, most stocks in a portfolio have gains, there’ll always be some stocks that have gained more than others.

Result: At any given time, if you were looking to take a withdrawal, there’d still be a tax benefit even if none of your holdings had losses. You could cherry pick from among your holdings to limit the gains on each sale. Moreover, to meet charitable goals, you could donate the most appreciated shares, such as Apple or Nvidia, thus sidestepping the gains.

Another potential risk with direct indexing is that a portfolio can ossify over time. Without the benefit of new cash, the ability to make changes can become constrained by unrealized gains. And this can cause a direct indexed portfolio to slowly drift away from its benchmark. This is where mutual funds have an advantage. Because there are always investors coming and going, mutual funds have the benefit of being able to deploy new cash on a daily basis, and that gives them the ability to stay right in line with an index.

For these reasons, I don’t recommend direct indexing as a substitute for index funds. But I do see it as a good complement. It is, I think, a strategy well worth considering.

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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Never Enough

MANY FINANCIAL IDEAS are tough to embrace. But perhaps the toughest can be summed up in one simple word: enough.

Will we ever feel like we have enough and that we’ve accomplished enough? Accepting that we have enough and done enough might seem like worthy goals, a serene acceptance that’s possible for those at peace with themselves and the world around them. Indeed, for many, “retirement” and “enough” seem to be pretty much synonymous, a declaration that the pursuit of “more” is over.

But that isn’t where my head is. Even now, I’m not sure I’ll ever declare “I’m done,” which is weird, because I sure don’t have the time to do much about it.

And I don’t think I’m alone. In their 60s, and with decades potentially ahead, I suspect many retirees—and perhaps most—aren’t quite done, and I’m not sure it’s necessary. There’s great pleasure to be had in life’s striving. While we might want to temper our pursuit of more, I’m not sure we should seek to squash it entirely.

Amassing more. We spend our lives running on the hedonic treadmill, imagining the next accomplishment—the new house, the seven-figure portfolio, the promotion—is all that stands between us and happiness, only to discover that success soon leaves us dissatisfied and hankering after something else.

This desire for more doesn’t seem to disappear with retirement. Most of us spend three-plus decades amassing money to fund our post-work life and yet, when the time comes, we’re often reluctant to let our dollars go. How many times have you read HumbleDollar commenters gleefully note that their portfolio today is larger than when they retired?

Such sentiments are understandable. After a lifetime of saving, it’s hard to watch our money slip away. And if an ever-growing portfolio brings someone happiness, why should the rest of us object?

Still, the desire for more can create two key problems. First, consider the comment from financial author Bill Bernstein: “When you’ve won the game, stop playing with the money you really need.” In their pursuit of an ever-larger portfolio, retirees might take too much risk—and imperil their financial future.

Second, folks may shortchange their retirement by failing to spend in ways that could enhance their happiness during their final years. This, I think, is one virtue of Social Security benefits, pensions, immediate fixed annuities and laddered bond portfolios. All are designed to generate income, so folks feel they have permission to spend the money involved.

Struggling to let go of the dollars you’ve amassed? Consider making gifts to charity and loved ones. These aren’t just an alternative to spending. Such gifts are also an acknowledgment that we have enough—and the resulting sense of abundance may prompt us to be more generous with ourselves.

Scoring goals. Even as we struggle to accept that we’ve amassed enough, we’re also reluctant to declare that we’ve done enough.

Humans are a restless, relentless bunch, always looking to improve their lives in one way or another. This drive, I’d argue, is a good thing: It not only helps the individuals involved, but also it can spur economic growth and make society a better place for everyone.

Yes, retirees and those near the end of their career will often proclaim that they’ve reached the point where they’ve done enough, and they’re now happy to cruise through their remaining years. But I’m not entirely sure I believe them.

These folks might be content to step off the workplace hamster wheel, and they might fiercely resist my frequent suggestion that they consider working part-time during their early retirement years. Yet retirees often replace their professional aspirations with goals of their own choosing, such as reading a book every week, or visiting all 50 states, or pursuing their favorite hobby. And I see nothing wrong with that. There’s great happiness to be had from accomplishment.

Will we ever feel like we’ve done enough? I suspect not. We might be willing to declare that we’re done with career goals, but I doubt most of us will ever feel like we have nothing left to achieve.

Still, we might try to cut ourselves a little slack, especially as we age. How? I like to make a daily to-do list, preferably one that isn’t too long, so I know what success looks like for that day. Clearing each day’s list allows me to head into evening with a pleasurable sense of accomplishment—and the chance to recharge and reflect before tackling the next day’s list.

Check out the four earlier articles in this six-part series: Money Grows up,  Taking Center Stage, Mind Over Money and Taking It Personally.

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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