Jonathan Clements's Blog, page 78

Why I Don’t Drink

HUMANS HAVE ALWAYS celebrated the good times in their lives. These can be massive occasions, such as New Year’s Eve in New York City’s Times Square, or small and personal, such as birthdays. Celebrating is good. But what happens when it’s not?

Adults tend to celebrate with alcohol. For people like me, who lean toward shyness, alcohol can allow us to let loose. It feels good. We smile. People smile back. All is good. Until the morning after.

I have had many of those "mornings after" in my adult life. I normally recovered nicely and moved on. Until my final morning after.

It was 1986. I had a date with my then-girlfriend, now my wife, when she was the hostess at her company’s office party. She suggested that I wait in a side room while the party was going on. To help me relax, she suggested I have some wine until the party was over. We would then go out afterward.

That was great until I got a buzz on. At this point, the office party was over and we were invited to continue the party at a bar at South Street Seaport in lower Manhattan. Following that, we ate out on the company’s dime at a steak restaurant, where the wine continued to flow.

The next morning, I woke up in my future wife’s Manhattan apartment with the worst hangover of my life. I had to drive to my job in New Jersey, where I endured eight hours of agony. To make matters worse, I was scheduled to teach my Dale Carnegie class that night, so I couldn’t head home to recover.

As apparent punishment for my night out, the subject of my class that night was enthusiasm. I didn’t feel qualified to teach the topic in my hungover state, but I did it anyway.

After my recovery, I assessed the situation and realized I was a binge drinker. I didn’t have a strong urge to drink. But once I got a buzz on, I just wanted to get drunk. This was not a good practice in New Jersey at the time, since it had newly enforced DUI laws.

I was driving to work back then. I made the decision that I needed to give up drinking—cold turkey. I haven’t had a drink since, not even at my wedding. The fun of celebrating isn’t worth the price if it can cost you your job, your driver’s license or your marriage.

I’m not against drinking. We have alcohol in my house because my wife and our friends drink. I simply abstain. As a binge drinker, I don’t have a strong urge to drink that first cocktail. I’m lucky that way.

Still, I’ve paid a price for not drinking. Companies expect you to drink at company functions. By not drinking, I was my usual shy, quiet self, surrounded by rowdy, loud, happy people. This put me in an even more isolated state. The more they drank, the louder they got, until the jokes they were telling were lost on me. At that point, I usually headed for the exit.

As with all things in life, balance is important. Knowing who you are and how to handle yourself in various situations will help you navigate your social and professional life. Being at the party is different from being the life of the party. Be sure you know the difference.

The post Why I Don’t Drink appeared first on HumbleDollar.

Worth Repeating

IN THE FINANCIAL world, some topics are serious, others not so much. Since it’s the holiday season, it seems appropriate to look back at some of the past year’s lighter moments.

No joke. In 2019, artist Maurizio Cattelan unveiled a collection he called Comedian. The item that received the most attention: a sculpture that consisted only of a banana duct-taped to a wall. The banana gained fame when it sold at a Miami auction for $120,000.

But that wasn’t the end of the story. Just before Thanksgiving this year, Sotheby’s auctioned another of Cattelan’s bananas. Perhaps owing to inflation, it sold for quite a bit more. A crypto entrepreneur and billionaire named Justin Sun beat out competitors with a bid of $6.2 million.

Shortly after winning, Sun had a thought. “Eating it at a press conference can also become a part of the artwork’s history,” Sun said. That’s exactly what he did. Later, Sun commented on the taste: “To be honest, for a banana with such a back story, the taste is naturally different from an ordinary one.”

Eye of the beholder. If a banana is taped to a wall, does that make it art? That’s debatable, but I don’t think it compares to the work of Italian artist Salvatore Garau. In 2021, he unveiled what he called an “immaterial sculpture.” It was literally invisible. But as Garau explained it, immaterial doesn’t mean that the sculpture doesn’t exist. In fact, the sculpture is delivered with a certificate of authenticity certifying that the sculpture exists in the artist’s mind.

The first “immaterial” sculpture sold for about $18,000, so naturally Garau chose to build on this success. He later unveiled another invisible work in front of the New York Stock Exchange building. This installation was backed by the Italian Cultural Institute, which sent representatives to the unveiling ceremony. It was as if The Emperor’s New Clothes had come to life.

In the years since, Garau has added to his immaterial series. He unveiled “Buddha in Contemplation” in the Piazza Della Scala in Milan. Because the sculpture was invisible, a white square on the ground let observers know where it was. And earlier this year, Garau presented "Invisible Buddha.”

How does Garau justify his invisible works? “My sculptures are carved from air and spirit,” he says. Does that make any sense? It’s unclear—but he’s certainly a good salesman.

On principle. In June 2019, a Pennsylvania woman named Jennifer Montgomery purchased two bottles of Perrier water from her local Sheetz convenience store. For the purchase, Montgomery was charged 24 cents in sales tax.

This might not sound newsworthy. But to Montgomery, the sales tax she was charged was an injustice—because Pennsylvania taxes soft drinks but not water. Montgomery filed a request for a refund with the Pennsylvania Department of Revenue, but her request was denied.

Montgomery then filed suit against the state. In Montgomery vs. Commonwealth of Pennsylvania, she sought a refund of her 24 cents. Among the points she made: Perrier is naturally sparkling when it comes out of the ground, so it shouldn’t be put in the same category as artificially carbonated drinks like soda.

The court disagreed. Earlier this year, after a five-year battle, the court affirmed the Department of Revenue’s position that Perrier is indeed a soft drink and should be subject to tax. Though Perrier is just water, the court said, it is nonetheless carbonated, and that makes it subject to tax.

Poorly executed. When it comes to the lottery, disputes and malfeasance are common. But a Florida couple made news this year with an unusual effort to defraud their state lottery. Kira Enders and her boyfriend, Dakota Jones, decided to tape together two losing tickets in such a way that it appeared they had the winning numbers for a $1 million jackpot. But when Enders showed up at the lottery office in Pensacola, officials were suspicious, so they decided to question Enders and Jones separately.

When asked why the ticket was taped together, Enders explained that the ticket had fallen out of her car on a rainy day and gotten wet. Then, before letting it dry, she had tried scratching it, and that’s what caused it to come apart. That’s the reason, she said, that it was taped together.

It might have been a plausible explanation, but when he was questioned, Jones told a different story. The couple had been out for a walk on a country road in DeFuniak Springs, he said, when they happened upon a severed ticket lying in the road. They decided to tape the pieces together, and that’s when they realized it had the winning numbers.

The Escambia County sheriff was not impressed: “It was clear to the lottery officials, and obviously clear to us, that she had taken two tickets with different, you know, one side had one serial number, the other side had the other serial number on it…. If you're gonna try to claim a million dollars, you've got to do a lot better than this,” he said. They now face prosecution.

Policy proposal. Nothing in personal finance seems to generate as much disagreement as cryptocurrency. The late Charlie Munger called it “rat poison,” while others see it as the future. Some even see it as the solution to our national debt.

Cynthia Lummis is a senator from Wyoming who has proposed a “strategic bitcoin reserve” to be held by the federal government. She compares it to the government’s strategic petroleum reserve, but sees it as even more valuable. If bitcoin appreciates, as she expects it will, it could allow us to pay off the federal debt. “Put future Americans on a better footing, unencumbered by debt that they never supported or benefitted from,” she’s said.

Not everyone is convinced. In an exchange with Lummis on Twitter, hedge fund manager Cliff Asness has called the proposal “ridiculous” and “idiotic,” and challenges her to explain why we shouldn’t also have a “strategic Powerball reserve.”

Charitably inclined. The philosophical debate over cryptocurrency probably won’t be settled any time soon. But this year, there’s been one crypto story I suspect everyone can get behind.

Back in 2016, James Fickel was a 25-year-old software developer who also enjoyed trading stocks and cryptocurrencies on the side. In a well-timed bet, Fickel made a six-figure investment in the cryptocurrency Ethereum. At the time, it was trading for about 80 cents. Now, it’s over $3,000, making Fickel a billionaire. What he’s done with his winnings, though, is heartening. Fickel started a foundation and is giving away not just millions, but hundreds of millions, to support medical research.

Looking ahead. Is there anything we can learn from these stories to carry into the new year? In my view, there’s one common theme. Modern Portfolio Theory creator Harry Markowitz used to describe diversification as “the only free lunch” in finance. That’s because it doesn’t cost anything to diversify, but the benefits can be enormous.

The above group of stories, however, suggests there may be another free lunch available to investors, and that’s simplicity. A simple portfolio generally results in lower costs and lower taxes. It’s also easier to monitor and manage. Perhaps best of all, a simple approach can help us sidestep many of the financial hucksters and schemers out there—whether they’re promoting cryptocurrency, invisible sculptures or anything else.

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 Worth Repeating appeared first on HumbleDollar.

Four Questions

IT'S SEVEN MONTHS since I received my terminal diagnosis. Cancer is now the reality that looms over each day, and it's been a rocky road, though the latest abdomen scan suggests I'll be around for a while longer.

Where’s my head at? Here are four questions I’ve been asking myself—questions, I suspect, that might also be interesting to those who aren’t facing a terminal diagnosis.

1. Am I afraid of dying? No, but I am afraid of not living. In particular, there are two things I’ll miss.

First, I love the day to day—the blue sky, leaves dancing down the sidewalk, morning coffee, afternoon naps, an evening glass of wine, chatting about the day with Elaine. Words like mindful and intentional tend to hit my gag reflex—too touchy-feely for my taste. Still, that’s what I’m trying to do, to be mindful of all that’s around me and intentional about how I use my time. The world is an amazing place, and I hate the idea that I’ll no longer get to revel in its daily joys.

Second, it pains me that not only won't I get to grow old with Elaine, but also I won’t see what the years ahead hold for my children and grandchildren. Who will they become? What triumphs will they enjoy? How will they cope with the hardships thrown their way? Most of us get to the point where we focus less on our own life, and instead live more through the eyes of others. I was just starting to enjoy that new life phase, but now it’s about to get snatched away.

2. Am I using my time in the best way possible? Mostly, I’ve spent the past seven months doing what I’ve done for years, which is to sit at my laptop, writing and editing. Maybe this work doesn’t bring happiness in a laugh out loud kind of way, but it does give me a profound sense of satisfaction.

Are there other things I ought to be doing? Even before my diagnosis, Elaine and I had a travel wish list. Over the past seven months, we’ve managed three trips. But we’ve also canceled one because I landed in hospital—and we’re aware that, from now on, every plan we make is tentative. It feels like time is increasingly short, the world is getting smaller, venturing far from our Philadelphia home is more daunting, and perhaps our “bucket list” time could soon be over.

Am I upset? When you know time is running low, it makes you think hard about how you use your days and weeks. Would I be distraught if I never went to Europe again? Probably not. Instead, what I fear most is the moment when I no longer have the energy to make some small difference in the world, which is why you’ll find me sitting in front of my laptop tomorrow, and the day after, and—I hope—the day after that.

3. Why aren’t I angrier about my diagnosis? I consider myself fortunate. I’ve spent my career doing what I love and—despite some rough times—I’ve had a mostly happy life. What if it had been otherwise? If I’d been stuck in a job I hated, waiting for retirement to get my reward, I imagine I would indeed feel cheated, and I wouldn’t be nearly so sanguine about my diagnosis.

Do you hate your job? Are you in an unhappy relationship? Suppose that, like me, you were given a year to live. Would you regret the life you’ve led and, if so, should you take steps to change it now?

4. How can I prepare to be my future self? In an Oct. 25 Forum post, I wrote, “As best I can tell, my stage 4 cancer hasn’t had any impact on my physical abilities. Indeed, most days, I feel pretty good. I’d always thought death would be easier to accept because of the pain involved and the endless interactions with the medical establishment, which would slowly sap my will to live. But so far, it hasn’t been that way.”

Ironically, it was about then that I started feeling a whole lot worse, thanks to the back pain caused by the cancer spreading to my spine. Radiation earlier this month brought substantial relief. Nonetheless, I feel my illness has moved me fast forward into old age. It can be difficult to imagine who we’ll become—but, as I’ve discovered, there’s a risk we’ll become that person with extraordinary speed. How can we better prepare ourselves? In retrospect, I’m grateful for two lifelong habits.

First, before my diagnosis, I was in good physical shape, and that’s stood me in good stead over the past seven months. I’ve worked out pretty much every day for three decades, ever since I started training for my first marathon. Clearly, this didn’t stop one of my genes from going rogue and causing cancer. On the other hand, because I was in good shape when I got my diagnosis, it’s helped me to weather the treatment reasonably well and, I believe, bought me a little extra time.

Second, my financial affairs were fairly well-organized before my diagnosis. Since then, I’ve made a big push to simplify my finances even further, and to throw out old papers and unwanted possessions. The amount of work has been significant. Still, without my earlier efforts, it would have been far more onerous.

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

The post Four Questions appeared first on HumbleDollar.

A Lifetime of Loss

WE SUFFER LOSSES throughout our life. During our youth, we might leave old chums behind when our family starts fresh in a new town or when we go away to college. Later, a job loss or a divorce could leave us drained both financially and emotionally. But for most of us, our senior years are when loss hits hardest.

Our body is often the first casualty, especially the face we see in the mirror each morning. At some point, the dents and dings of time take their toll on that image. My own visage is covered with sun-damaged skin and topped by silver hair. I’ve grown used to the view, but occasionally I’m startled by the realization I look old.

Achy joints and stiff muscles add another dimension to the picture. My complaints are minor, usually no more than a nuisance, but probably portend more serious problems down the road. Vision and hearing deficits have already arrived. The ophthalmologist is keeping an eye on my cataracts, and my wife says I’m overdue for hearing aids.

Meanwhile, gravity is beginning to win—again. We all start life held fast to the earth, staying put where we’re placed. As our strength grows, most of us commence to roll, then progress to sitting and crawling, until we eventually lift ourselves to our feet and begin to walk.

We may stay in motion for decades, never thinking of life without mobility. Young bodies generally do our bidding. They run all day until we drop into bed with exhaustion, then jump up at dawn to begin the race again. But one day, our strength begins to fade, or we’re laid low by injury or disease.

As a physical therapist, the core of my practice is helping folks either remain in motion or get moving again. Whether pain, weakness or some other ailment hinders movement, we join forces to combat whatever is stopping them or slowing them down. Often, we win, but many times the victory is incomplete, especially for older bodies. When that happens, we’re both forced to face the pain of loss.

As a therapist, I’m a spectator to this real-life drama. But for my patients, it can be a constant companion that haunts their waking hours and robs them of sleep.

Grappling with injury or illness is physically demanding. The cost in pain, money and time away from our lives is dear. Add to this the mental struggle, which can be even more severe, especially the realization that life afterward may never be the same. Even if we escape experiencing a single debilitating event during a long life, we may still be cognizant of the creeping loss of vigor that comes with age.

Many mourn the loss, but others seem to take the slowdown in stride. Consider a gentleman I met a few months back: He’s in his late 80s, with health issues beginning to curtail his once active lifestyle. From all appearances, he accepts his decline with grace. He’s cheerful, witty and expresses gratitude for his life. But I discovered that, underneath a veneer of contentment, he carries a different kind of burden.

When we first met, he told me of his first marriage, and of a daughter born with cognitive deficiency. He was a strong advocate for her and others like her, lobbying his state legislature for favorable laws and helping to found a special school. But she died in middle age, and his wife’s death followed several years later. He was resigned to spending his remaining years in solitude, but instead met and married a vibrant woman a few years his junior. With a beaming face, he told me, “I’m lucky I found her.” He seemed satisfied with his life.

At our last meeting, though, some of the façade fell away. He briefly recounted the family history I’d heard before. This time, however, as he brushed over memories of the past, instead of a smile, his eyes welled up with tears. I was mostly mute as he told me, in halting words, how he still grieves for his deceased wife and daughter. What words could I offer as salve for such a painful recollection?

More recently, at a chance reunion with an old acquaintance, another loss that often comes with age came up in the conversation. This man is a retired physician, age 86. I ran into him, accompanied by his wife, during a checkup at my ophthalmologist’s office. I told his wife I had good memories of him as a respected physician in our hospital, as well as a disciplined physical therapy patient in my clinic.

I could see that the doctor was getting around well, and asked if he had visited his home in India. He confirmed that he had, but that airports are confusing. “It’s dementia,” he said matter-of-factly, and added that his waning cognition also keeps him from driving farther afield than our little town. I glanced at his wife, and saw the same stoic expression that her husband wore. Though I can’t be sure, I departed our meeting feeling they both accepted his decline as just the natural course of life.

Both of these men are more than two decades my senior, and I observed at least a part of my future in them. Even at 62, I already feel the inevitable downward pull of gravity on my body. Though I still have the hardiness to dig my garden and split firewood by hand, I’m slower getting it finished. And the last hour or two of my 10-hour workday is a little more taxing than it once was.

How do we equip ourselves for the losses that inevitably come our way? Prudent financial planning is part of the answer. Life insurance won’t take the sting out of a loved one’s death, but it can replace income that’s vital for the family that remains. Likewise, disability insurance can mitigate the financial pain of illness or injury. In the retirement years, a robust cushion of savings can remove worry and cover practical solutions for the challenges that come with aging.

But money can’t replace companionship. It also won’t buy a cure for the heartbreak that comes with dementia. And what about dealing with the reality of our own physical decline?

I’m no expert on the subject. As I indicated above, I'm a spectator to a drama, with my patients occupying the stage. Perhaps a more accurate metaphor is player-coach, sharing the same hazards and headwinds we all face as we try—usually unsuccessfully—to make it to the end of the game with all parts of our life intact.

Despite a picture that may seem bleak, there’s plenty of space for hope. When life is harsh, we humans seem to draw on a resilience that can handle all manner of misery. And those with religious faith know the comfort and strength it can offer. We don’t know what troubles tomorrow will bring, but there’s no profit in worrying about them today, though I sometimes do. That said, I pray we realize our turn will eventually come and that, when it does, we’re given the grace to face it.

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.

The post A Lifetime of Loss appeared first on HumbleDollar.

Filling Our Cups

DURING A PROJECT meeting at my old employer, a member of our team was constantly raising questions without offering any solutions. Afterwards, the team leader commented, “This guy always thinks his cup is half empty. Nothing will ever satisfy him.”

We’ve all known such people. Is there anything wrong with their attitude? It depends. My boss told me during my first week, “Never be satisfied with the status quo. Find ways to improve everything. That’s the only way you’ll move up in the organization.” Our civilization has made tremendous advances because people weren’t satisfied with the way things were. That can be a good thing—but only if it’s followed by steps to fix the problems identified.

The “cup half-empty” group can be overly pessimistic. I’ve known several folks who always find fault with how things are. They may say they have high standards, but others might describe them as “very demanding” or “perfectionists.”

Meanwhile, the “cup half-full” group can be overly optimistic. They’re the ones who say cheerfully, "Good morning. What a great day,” even when the sky is cloudy and the forecast isn’t good. They tend to be positive almost all the time. People tend to like optimists, and research shows optimists are typically happier than pessimists.

I used to wonder if I was an optimist or a pessimist. I got my answer when visiting my son some years ago. He was driving with the gas tank less than 10% full. I was constantly pointing out that he needed to fill up. He thought I was stressing unnecessarily. In fact, I fill the gas tank every time it drops below the 50% mark. That may be overly cautious, but that’s me.

One survey found that 46% of those age 65 and below are optimistic, versus 66% for those who are older. Life has a way of teaching us to ignore meaningless shortcomings and focus on the big issues. That’s a good thing. I’ve seen my own attitude change with age. I’ve become less stressed about things that I can’t control.

Such attitudes carry over to our finances. Pessimists take steps to ensure they don’t lose money by, say, holding a high allocation to bonds and cash. They may constantly worry about a market downturn. Meanwhile, optimists take risks in investing, perhaps betting heavily on highflying momentum stocks. They may also lose big during market downturns.

How do you go from a “half-empty” to a “half-full” person? If you opt for a smaller cup and pour in the same amount of water, you now have a full cup. In other words, you need to change your frame of reference. For example, if your finances are tight because you own a big home, it may be time to downsize and cut your expenses. Your financial cup will be fuller, leading to less stress. 

You might have heard of the “missing tile” syndrome. You focus on a single missing piece in a beautiful tiled wall. You zero in on the negative and ignore all the positive things you have. The result is misery.

I didn’t have a good grasp of this until I saw a friend of mine after a gap of five years. His first greeting was, “What happened? You lost some hair.” I was surprised. We had so many things to catch up on. Why was he talking about my hair? It dawned on me later that he had been bald from an early age and his “missing tile” was his hair. He was focusing on everyone else's hair, thereby making himself miserable.

Focusing on the negative is a common problem that leads to stress in relationships, finances and life more generally. I’ve suffered from this myself. I have a nice car, though not the latest model, but I’m happy with it. Still, there’s a little scratch. Every time I got in the car, I noticed the scratch and it made me a little less happy. Nobody else notices, because the scratch is so small. But it’s the negative I kept focusing on.

Lately, I’ve learned to ignore the scratch. I’d encourage you to do the same. This holiday season, I plan to count my blessings, avoid comparisons and stop worrying about things I don’t have control over. My goal is to be thankful—and to think of my cup as always being at least half full.

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

The post Filling Our Cups appeared first on HumbleDollar.

Three’s Company

I SPENT MANY HOURS reading articles and books about retirement before I actually retired. I knew I’d retire eventually because of how often I found myself out of work. Studying retirement became one more thing I needed to do so I could be successful.

Under the category of retirement, grandparenting was a frequent subject. This is understandable since many retirees are or soon become grandparents.

My situation is different. My special-needs son will not get married or have kids. My son is not financially self-sufficient, and so is unlikely to be able to support a wife and children.

I see my future as three’s company. My son will continue to live with my wife and me until we die or we need to move into an assisted living facility.

We’re blessed to have a child who is self-sufficient, for the most part, with personal maintenance. He can take a shower by himself. He can make his own breakfast, lunch and dinner, too, so long as it involves opening a package, and then either eating the meal directly or first heating it in the microwave.

Anything more and he needs to wait for his mother, since his father is no more skilled at cooking than he is. He’s self-sufficient as long as someone will do his laundry and any cooking. And that someone would be either his mother or me.

I play tag-team with my wife. During the months that she was called upon to take care of her dying parents, I stayed with my son while she went to South Carolina and Long Island, New York. When I wanted to go on a solo road trip, she stayed with our son.

While our day-to-day activities resemble a house with three roommates, we don’t feel comfortable leaving my son alone in the house for any length of time. My wife and I can go out on a date, just not overnight.

Many retirees take advantage of an empty house to recapture the single days before they got married. They also take vacations by themselves, without kids or grandkids. This is not easily doable for us.

We’ve never set up a formal babysitting arrangement for my son. His default babysitter is my wife’s sister—his aunt—who’s retired. But she has grandkids who need watching, and a retired husband who wants a travel partner.

That means that wherever we travel, our son goes, too. Three people can’t travel as cheaply as two. Accommodations are usually quoted for two. Additional members of the traveling party are added at a higher price.

That added cost is fine when we go to an amusement park. It wouldn’t work if we wanted to take a couples-only cruise. Two’s company. Three’s a crowd.

It can feel the way I felt in high school, when I didn’t have a girlfriend. All my friends went on dates while I sat at home. Now all these smiling, happy retirees in the brochures are on their fun cruises, while I’m home with my son. As much as I’d love to travel with just my wife, that’s not in the cards.

We did go to Italy by ourselves once. My son spent the week with his aunt at a Lutheran summer camp on Lake George, New York, where he’s spent many summers with his cousins. It was great for him, as it was for us.

To paraphrase a famous line from Casablanca, my wife and I “will always have Italy.” Remembering that one trip is a very economical way to vacation.

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

The post Three’s Company appeared first on HumbleDollar.

Don’t Expect a Repeat

EARLY LAST WEEK, The Wall Street Journal ran an article with the headline “Why This Frothy Market Has Me Scared.” The author cited a number of indicators that have him worried, including a survey of investor optimism that’s at a 35-year high. Investors, the Journal said, are feeling “euphoric,” and that’s often a bad sign.

So, as we head into year-end, it’s worth taking stock of where things stand. The stock market has returned nearly 25% so far this year. That’s on top of a 24% gain last year. Over the past five years, even including the 34% decline in 2020 when COVID arrived and another double-digit decline in 2022, the S&P 500 has risen more than 85%. On a valuation basis, the price-to-earnings ratio of the S&P now stands at about 22 times expected earnings—far above its 40-year average of 16.

It’s figures like this that are giving some observers a fear of heights. Those who are particularly worried point to the crash that followed the peak in 1929 and ask why something like that couldn’t happen again today. During that unpleasant period, the Dow Jones Industrial Average slid 89% and didn’t fully recover until 1954.

While anything is possible, there are several structural reasons why, in my view, today’s market is unlikely to experience a decline of that magnitude.

Perhaps the most significant difference is that in 1929 there was no Securities and Exchange Commission to maintain order in the markets. The SEC was actually created in response to the 1929 crash and didn’t open its doors until 1934.

Today, the SEC exercises broad authority, policing public company disclosures, monitoring for insider trading and regulating investment advisory firms. While there will always be some number of hucksters peddling poor investments, the SEC works hard to root them out. By contrast, in 1929, investment markets were more like the wild west. In the eight years prior to the crash, the Dow Jones index rose sixfold, driven by unhealthy speculation.

Among the regulatory rules that have been tightened since the 1920s: margin requirements. Before the crash, investors were able to purchase stocks “on margin” in a way that’s no longer allowed today. Under the prevailing rules then, an investor could borrow up to 90% of the purchase price of a stock. The result: If that stock declined just 10%, the investor would be wiped out and forced to sell. In a bear market, when there’s already downward pressure, these kinds of forced sales can accelerate the decline, and that was a key factor in 1929. While investors can still borrow on margin today, borrowing is limited to just 50%, rather than 90%.

The Federal Reserve also provides stability today in ways that it didn’t back in the 1920s. In his book on the founding of the Federal Reserve, Roger Lowenstein illustrates how different our economy was then. He describes a German immigrant named Paul Warburg, who came to the U.S. in 1902. Having experience with the European system, which at the time was more developed, Warburg was surprised to find that the U.S. didn’t have something as basic as a central bank to maintain stability in the system.

Warburg compared the banking system in the U.S. to a town without a fire department, with each bank left to fend for itself. In 1907, when a recession caused hundreds of banks to fail, many came to appreciate Warburg’s warning, and his efforts led to the creation of the Fed in 1914.

Thus, the Fed did exist in 1929, but its mandate was very narrow: to protect the banking system against a repeat of what had happened in 1907. In the years since, the Fed’s mandate has expanded. In fact, if you consult its governing document today, you’ll see that it now views its first responsibility as maintaining a stable employment level—to help prevent financial calamities, in other words, and to help minimize them when they do happen.

With the ability to essentially print money, the Fed has enormous firepower to head off crises, especially since the money supply is no longer constrained by the gold standard, as it was in the 1920s. As Roger Lowenstein has put it, there’s now an organization to “lean against the wind” in a way that didn’t exist in 1929. We saw that most recently in spring 2020. With a single press release, the Fed rolled out a set of policy actions to help lift the economy out of recession. On that day, the stock market turned positive and began its recovery.

As a result of past crises like this, policymakers today have more experience to draw on. They’re better equipped to handle crises today because of mistakes that were made in the past. In 1932, for example, President Herbert Hoover raised taxes in an effort to shore up government finances, making life harder for people struggling through the Depression. What we know today, of course, is that the government should do the opposite during crises. It should run deficits to help support the economy. It’s doubtful a future president would make the same mistake.

Another difference between 1929 and today: Investors’ portfolios are more diversified. The first mutual fund got its start only in 1924. In 1929, most investors still held concentrated portfolios of individual stocks. Today, investors have access to a wide range of investment options and are able to diversify broadly at low cost. This, in my view, reduces volatility and is another factor that makes today’s market less susceptible to panic.

A related and final factor: In the 1920s, the technology underpinning markets was primitive. Stockbrokers worked by telephone. When the market began to drop in 1929, brokers couldn’t keep up with the volume of orders. This led to delays and errors in executing orders. According to accounts from that period, this compounded the panic and made matters worse.

To be sure, markets will always be vulnerable to crises. Human nature today is fundamentally the same as it was 100 years ago. But nearly everything else has changed and, for that reason, I don’t see the risk of a 1929-style decline being one that should keep us up at night.

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 Expect a Repeat appeared first on HumbleDollar.

Model Behavior

I'M WRAPPING UP MY final big investment. Going into it, I knew it would lose money, unleash unwanted disruption and chew up time when it’s never been more precious—and yet I still went ahead.

As readers might recall, last year, Elaine and I remodeled the kitchen in our Philadelphia home. This year, we decided we’d revamp the upstairs bathroom, despite my cancer diagnosis and the forecast that I might live just 12 more months.

To be strictly accurate, “we” didn’t decide. Rather, I decided, and Elaine reluctantly agreed. With so little time left, why would I take on a major remodeling project? There are four key reasons.

1. Easier for Elaine. Since my diagnosis, I’ve been in overdrive, trying to better organize my financial affairs. I’ve also done things that are a little out of character, such as replacing the hot water tank, even though it hadn’t yet died, and adding an air-filtration system to our heating and cooling equipment that Elaine wanted, even though the technology strikes me as unproven.

What drove these decisions? I found my answer in Dennis Friedman’s recent article. “Next on my list are replacing our home’s front windows,” Dennis wrote. “A new patio and brick wall are also on the horizon…. I want to make sure that life will be easier for my wife” after I’m gone.

Me too.

I knew Elaine wouldn’t undertake the bathroom remodeling once she was on her own. That made me more determined to go through with the project, in the hope it’ll make her life a little more comfortable after my death.

2. Addicted to progress. We humans are a restless lot—and, at least for me, that restlessness remains undiminished, despite my truncated life expectancy. Even now, I have a list of things I want to get done, and crossing off one or two of those items each day gives me a sense of purpose and satisfaction.

This extends to the current bathroom remodeling. I may not be doing the plumbing, tiling, electrical work and framing myself, and I know the boost to our home’s value will be far less than the sum we’re spending. Still, I love the feeling that, at the end of the project, our home will be even lovelier and that this improvement will be part of the world, even if I’m not.

3. Better together. Dying isn’t much fun. Along with the endless medical appointments, there are days when I don’t feel great, especially the period right after my every-three-week chemo and immunotherapy session. In recent months, the cancer has spread to my spine, so I’ve also been struggling with back pain and have had difficulty walking.

Can we change the subject to something cheerier? Enter the bathroom remodeling. It’s given Elaine and me a project to rally around. There are all the choices we’ve had to make—the tiles, fixtures, paint colors and so on. While the disruption hasn’t exactly been fun and it’s occasionally led to tension between us, I think overall the project has been a plus, giving us something to focus on other than my cancer.

4. Winding down. I may be addicted to progress, but I also know it’s time to stop adding to my to-do list and to cross off those items that remain. The bathroom remodeling is one of those items.

There’s a fistful of other items I also need to wrap up, including writing 10 final articles for HumbleDollar’s Saturday newsletter. Those 10 articles will carry the site through to March 1. Thereafter, Adam Grossman will be taking over the Saturday slot. I plan to keep writing for as long as I can. But it’s time to pass the baton.

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

The post Model Behavior appeared first on HumbleDollar.

Forget You

AT LEAST ONCE A YEAR, I watch the hilarious short YouTube clip by personal-finance author JL Collins. If you aren’t around small children and can handle liberal use of America’s favorite four-letter word, check it out. Some may recognize it as a parody of actor John Goodman’s soliloquy from the film The Gambler starring Mark Wahlberg.

The clip, however, is more than just entertaining. Its content is what keeps me and, judging from the half-million views, others coming back. In the video, Collins argues that amassing $2.5 million gives the possessor—er, shall we say—“forget-you money.” To Collins, that means no one can tell you what to do. Not your boss, not your girlfriend, nobody, because you can shine them off with, “Forget you. I’ve got [a lot of] money.”

Collins advocates an 80-20 portfolio. Put 80% in Vanguard Total Stock Market Index Fund (symbol: VTSAX), which holds every publicly traded U.S. company. With the remaining 20%, buy a broad-based bond fund (VBTLX) to “smooth the ride,” he says.

He’s not done dispensing advice to Wahlberg’s character. Collins says not to buy a house (rent, let the landlord worry about it) and drive an “indestructible” economy car. Once you’ve done all that, you’re in your “Fortress of Solitude.” I’m sure we could all quibble with the details, but overall I’ve heard worse money wisdom.

What’s he getting at with all of this advice? If you have $2.5 million and use the 4% rule, you could pull out $100,000 a year from your nest egg to live on. Nowhere in the video does it say you have to, or even should, quit working or bringing in additional money. It’s just that an 80-20 portfolio of that size gives you the comfort of knowing you have a potentially healthy income stream. From your “fortress,” you’re protected from all of the horrible things that can happen in this crazy world.

After hearing that speech, who wouldn’t want forget-you money? I know I did, and I think that’s the reason the idea stayed with me all these years. This year, upon rewatching the clip, I realized that I’m not too far from Collins’s unforgettable figure. Then it hit me that the video was released many years ago—in 2016. With inflation on everyone’s mind, I knew $2.5 million during the Obama administration didn’t have the same buying power today.

I visited the Bureau of Labor Statistics’ inflation calculator to see how Collins’s advice translates to today’s dollars. According to the calculator, to equal $2.5 million in 2016 dollars, you’d need almost $3.3 million in 2024. While that took some wind out of my sails, I already instinctively knew that I couldn’t be that close to forget-you status.

As I previously wrote, my wife and I are 10 to 12 years from retirement. By then, to keep pace with inflation, the forget-you amount will be higher still. Even before tracking the forget-you index, I knew from my mentor that I had to invest in things that—at a minimum—kept pace with inflation. Being in my 30s and 40s, that meant stocks.

Even today, our portfolio has very little in bonds. It’s almost exclusively in low-cost stock-index funds. Another sizable portion is in my wife’s employer’s publicly traded stock, which is outside our control. While we’d prefer to invest that money in mutual funds, the company stock has done fine and is a dividend aristocrat.

So, will I ever be able to say “forget you” to my boss or Mark Wahlberg or anyone else? I think so. As currently designed, our portfolio should outpace inflation and allow us to achieve a comfortable retirement. I might never use the same colorful language that Collins did. Still, if you find yourself asking me to do something 10 years from now and I say “no,” just know that in the back of my mind are two words I recall hearing from JL Collins.

Licensed in both Ohio and Kentucky, Ben Rodriguez practices real estate law in Cincinnati, where he lives with his wife and daughters. Since 2009, Ben's made a hobby out of personal finance by reading books and articles on the subject, and also listening to podcasts. Check out his earlier articles.

The post Forget You appeared first on HumbleDollar.

My Humble Abode

SIPPING MORNING coffee on the porch of my 40-year-old aluminum box in the Sonoran Desert, I’m pondering the cost of housing.

My affordable unit sits on cement piers at the end of a street within an age-restricted park, at the sparsely populated edge of Tucson. Few jobs exist nearby. Civic amenities are modest. Summer weather is challenging, with heat, thunderstorms and seasonal rattlesnakes. Still, these conditions have created a financially comfortable place for a retiree to live.

There isn’t enough affordable housing in the U.S., a problem that’s now affecting my children in high-cost-of-living California. That isn’t a problem at my desert property in Arizona, and there’s a lesson here for other states.  

My one-bedroom park unit cost me less than $50,000 for a home on a spacious lot in a high desert landscape worthy of an army of selfie-seeking visitors. I have a covered double driveway that also serves as a ramada-like shelter for neighborly potlucks and other uses beyond protecting my car from sun, rain and hailstones.

There’s a small patio, a workshop for retirement hobbies and an attached laundry shed. Utilities are included in the lot’s rent, except the electric bill, which has been modest despite summer cooling costs. I’m experimenting with pay-as-you-go internet access since I’m not yet a year-round resident.

Why isn’t there more affordable housing like mine? Explanations and accusations abound as politicians argue over what’s to be done. Housing is a major expense whether we buy or rent, live alone or together.

Our sense of well-being is tied to finding suitable digs that don’t stress our finances. We all want a home where cost increases can be absorbed by pay raises or the returns on our retirement investments.

In 2000, California’s first-time buyers could purchase a house for under $100,000, with a monthly mortgage payment of $826. If housing prices had risen at the rate of inflation, those homes would cost $180,000 today. Instead, the lowest tier of housing in the state runs nearly $500,000. At that price, monthly mortgage payments hit $3,630.

Wages have not risen at this rate, increasing pressure on the government to improve housing affordability. Since 2020, mortgage payments in California have risen by over 80%, while rents have increased more than 40% most everywhere in the state.

Affordable housing projects in major California cities cost the government as much as $1 million for a one-bedroom unit. Market rate apartments rent for $2,000 a month, and higher downtown. Even with roommates, rents derail well-intentioned spending plans and leave little or nothing for retirement savings.

You don’t live in California? This problem affects you, too, as California’s stressed population leaves for elsewhere. Even some Texans and Floridians are moving to places that suit them better, feeding complaints that these new arrivals are boosting the cost of living in their new states. Among these nomads are many retirees moving to stretch their dollars. I never thought this would include me, but I’m now a part of this story.

In my 55-plus community, trash is picked up curbside twice a week. I grab a small trash bag from under the sink and put it a few steps away at the edge of my lot.

Back home, trash day is a weekly wrestle down a long driveway with giant, wobbly-wheeled, government-issued trash cans sporting broken lids. Three cans in all, for ordinance-required sorting into green waste, recyclables and ordinary rubbish.

Here in Tucson, for the virtuous, a community recycling site is within a 10-minute drive. I still sort my trash, storing recyclables in the shed. I visit the recycling bins every couple of weeks on my way to other places, dog in tow. He enjoys the car ride over, the smells of the recycling and the hustle-bustle of fellow recyclers.

The RV park’s onsite property manager oversees compliance with its lengthy rulebook. Rules can be annoying, even worrisome at times, especially after decades of living free and wild in my home city. Was my dear old family dog barking at passersby while I was at the grocery store? Not allowed here.

On the other hand, rules can help keep properties clean and orderly, and neighbors behaving neighborly, despite close quarters and turnover. This orderliness is something I value.

There are cheaper places to park an RV: small campgrounds or on public lands. In Quartzsite, Arizona, a million snowbirds descend every year. They winter in RV parks, the Bureau of Land Management’s long-term visitor area, or the Bureau’s free dispersed camping. I prefer the security of a structured community.

The $1 million spent for a one-bedroom apartment in government-produced housing in California would buy 20 one-bedroom units like mine. It’s frustrating to see government efforts to increase housing result in so few new homes.

My rent is $500 a month, which even funds a community center where seasonal residents lead clubs and activities most days of the week. Most folks are capable of paying $500 a month. But not enough parks like mine exist. In cities like Los Angeles, unauthorized RV parking is a major concern, since there’s nowhere to park at a price people can afford.

I’m trying to resolve the housing question with my young adults. Our hometown doesn’t present so much as a studio apartment with easy access to mass transit that’s affordable to a young worker, even with a friend or two to share expenses. If it did, the one kid who didn’t move away might yet establish her own household, as she starts a career in the public school district.

Her sister seeks her first post-college job elsewhere and my third has left California for the Mountain West. With many working-age adults leaving the state, the consequences include schools with fewer students and a projected perennial structural deficit in the state budget, with costs to be picked up by the remaining taxpayers.

“Pay rent or buy a pizza?” my brother remembers thinking when he was young. Maybe we are victims of our technology, as financial wizards use computer algorithms to wring every cent possible from rental properties. Landlords can opt for market pricing every unit or, alternatively, repurpose longtime rentals as Airbnb properties.

Meanwhile, government rules regarding minimum housing standards have resulted in tearing down both old single-room-occupancy hotels and mid-century high-rise public housing. Gentrification in genteel city neighborhoods has taken older houses, which once might have been split into several cheap apartments, and replaced them with single-family homes.

Overall, millions of low-cost units have disappeared and not been replaced. This is the nature of the current housing crisis—a problem for the next generation of business and government leaders to tackle.

Catherine Horiuchi is retired from the University of San Francisco's School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Check out Catherine's earlier articles.

The post My Humble Abode appeared first on HumbleDollar.