Jonathan Clements's Blog, page 79

The Simple Life

WHEN I STARTED learning about investing, I stumbled upon a book at my library that immediately grabbed my attention: The Lazy Person’s Guide to Investing by Paul B. Farrell. A portfolio championed by the book consisted of just two mutual funds—one stock index fund and one bond index fund, with 50% of your portfolio invested in each.

With only two choices to make, decision-making becomes far more straightforward. Farrell's suggested 50-50 split simplifies the process even further. The strategy underscores the beauty of simplicity—a lesson I took to heart. Why complicate matters with additional funds if just two could suffice?

Diversification is a popular investment strategy. But how many funds do you truly need? Do you need exposure to private equity, gold, real estate? The options seem endless. But perhaps less is more.

For some investors, constantly tweaking their portfolio is comforting. The activity gives them peace of mind. For them, tweaking and touching and buying and selling is a wonderful way to live. Doing something feels better than doing nothing.

Yet a landmark paper, based on Schwab trading data, suggests the more people trade, the lower their investment returns. Often, the stocks they sell perform better than the new ones they buy. That’s why Vanguard Group founder Jack Bogle used to advise investors, “Don’t just do something—stand there.”

All this strongly suggests that investors could benefit by doing less. Frequent trading may reflect overconfidence in our investment expertise. It reminds me of the scene in The Wizard of Oz when Judy Garland and crew drew back the curtain to reveal the Wizard. He’s just an ordinary man, busily pulling on different levers to make impressive sound effects.

My “simplicity is best” approach applies to more than just my investments. My wife and I approach retirement differently. She fills her days with myriad activities. I prefer a more relaxed pace, limiting myself to one significant task a day. This deliberate shift away from my former frantic work schedule gives me a chance to breathe.

Life, I've come to believe, is only as complicated as you make it. My placid life might seem dull to some. But if, like me, you’ve deferred life’s simple joys until retirement, now is the time to embrace them fully.

Time, after all, is our most finite resource. Each day presents an opportunity to savor life's simple pleasures—provided we allow ourselves to do so.

Keeping My Balance

WHEN I WAS LOOKING for a good, long-term investment approach, I didn't just read Farrell's book. I also came across the classic asset allocation of 60% stocks and 40% bonds. I discovered it when I began investing through my employer’s 401(k). The plan used Vanguard Group as the investment provider, and Vanguard Wellington Fund (symbol: VWELX) was one of the options.

It seemed simple: A single fund that delivers a sensible portfolio. I’ve owned that fund ever since. Wellington is a little more aggressive than many other balanced funds, typically keeping around two-thirds of its portfolio in stocks.

I’m not a brilliant investor. I’m a saver. I have no problem holding off on spending and leaving the money in the bank. But I also know there’s a need to grow that money using investments that involve higher risk but also a higher potential reward. Stocks, and to a lesser extent bonds, offer just that.

Using a 60-40 mix allows me to pursue that higher reward without losing sleep. It’s a standard allocation favored by many financial advisors. It might not be the allocation promising the highest return, but it’s not the worst. I know using 60-40 is okay, and okay is good enough for me.

I use 60-40 for all my investment accounts. It’s easy to see if I have too much in stocks or too much in bonds at any one time. If the 60-40 numbers are off, I adjust. It doesn’t take a lot of time or intelligence. Simple.

To me 60-40 is like cruise control on a car. You set it at a certain speed and your car is almost guaranteed to travel at that speed. When I invest in a 60-40 balanced fund, I know the portfolio is consistently functioning at a set allocation. I then let the markets make me money. Simple.

Dry Powder

WE ALL NEED MONEY. To earn it, we have to do something. For most of us, that means getting a job and going to work. The norm is to keep working—and earning—until we’re no longer wanted by employers or we’re unable to work.

Some people inherit money. There’s nothing magical about that. We were just lucky. We had the right relatives. They had money and, now that they’re gone, we have it.

No matter how acquired, what we do with money is how we can get into trouble. Some love to spend it. The stuff we buy makes us happy, at least for a little while. Psychologist Abraham Maslow is famous for his hierarchy of needs. The first order of business is making sure we have the basics—food, clothing and shelter. How people satisfy these basic needs can be wildly different, however.

For a hardy few, sleeping in a tent, wearing sandals and eating what they can forage in the wilderness is enough. At the other extreme, their house must be the biggest on the block, or at least larger than their friends and relatives.

For the elites, wearing the latest Paris fashion and eating meals created by the finest chefs are absolute musts to demonstrate their taste and wealth. Meeting so-called needs in this way can get wildly expensive, even for people who start rich.

After our basic needs are met, we need love and belonging. What we own is less important than what we experience. Many display photos of all the places they’ve been, like the Eiffel Tower or the Great Wall of China. Others cherish the events they’ve witnessed, like seeing Hamilton on Broadway or the Rolling Stones in concert. They gain self-esteem—and warm memories—by spending money this way.

We also get a surge of pleasure from peak experiences shared with others. We may possess home movies of Christmas mornings long ago, showing family tearing open presents under the tree. We gain a sense of love and belonging from these remembered mornings.

A few feel best when they give their money away. Their charitable behavior gives them a feeling of satisfaction. Their money is making a difference in the world and, by extension, so are they. The more money people have, the more that can be given to others in need. Wealthy industrialist Andrew Carnegie wrote, “No man becomes rich unless he enriches others.”

While charity is laudable and spending can bring happiness, I’ve always felt I needed to hang onto money to gain a sense of security. I can weather any emergency that arises and still survive. I think of this money as my dry powder.

In the days of flintlock rifles during the Revolutionary War, you needed dry gunpowder to take your shot at the enemy. If your gunpowder was wet, your rifle simply wouldn’t fire. Maintaining a reserve of dry powder was essential to survival.

Yet, with any behavior, going to the extreme is unhealthy. You can wind up either a spendthrift or a hoarder. I’d prefer to split the difference. I need to buy things, of course, and I do give to charity. Yet, in my portfolio, I’ve always wanted plenty of dry powder for emergencies.

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

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Time to Check

LOOKING TO CONDUCT a review of your investments? Below is a five-point end-of-year housekeeping checklist.

Suitability. When it comes to the world of investments, the most common types of assets are stocks and bonds—but they aren’t the only ones. There are alternatives like real estate and commodities and, of course, there’s bitcoin, which has more than doubled this year. Which of these is right for you? Since everyone is different, the first litmus test is to assess the suitability of the types of assets you own.

What does this look like in practice? I’d focus on two points. First is liquidity. Traditional investments can be turned into cash overnight, while alternative investments are often less accessible. You’ll want to be sure each investment aligns with the timeframe in which you’ll need those funds.

The second factor is risk. While you can’t predict future returns, you can consult past volatility. Things like bitcoin have seen much more significant price swings than stocks, and stocks have seen much more significant price swings than bonds. For some, wild swings wouldn’t be a problem, but everyone is different. Here again, you’ll want to be sure your investments are aligned with your needs.

The key is to avoid what I call the brother-in-law problem. An investment that might be perfectly appropriate for someone else may not be a fit for you. When well-meaning friends or relatives offer investment tips, you may want to just nod politely.

Asset allocation. Assuming you have a suitable set of investments, the next step is to look at the mix. This is called asset allocation and, while there are many rules of thumb out there, I’m not sure that’s the right approach. Instead, I recommend asking yourself three questions:

How much risk do I need to take? Could you afford, in theory, to keep all your assets under your mattress or, to reach your financial goals, do you need some amount of the growth that the stock market offers?
How much risk can I afford to take? If the stock market dropped, how much would you need outside of stocks to carry you through a multi-year downturn?
How much risk can I tolerate? This is what I call the Mylanta problem. Even if you can afford a particular level of portfolio volatility, you might not be happy about it. Be sure not to overlook this last question.

Asset location. Next, review the type of account where you hold each of your investments. A common question, for example, is where bonds should be held. If they’re in a retirement account, that shields the interest they generate from taxes each year. But if bonds are in a taxable account, that makes them more readily available, especially if you’re younger than 59½, the age at which you can take penalty-free withdrawals from retirement accounts.

The bottom line: Each account type has its own tax treatment and, in some cases, access limitations. The key is to allocate your dollars across the set of accounts that best aligns with your withdrawal timeframe and tax picture.

Portfolio structure. In his book, The Missing Billionaires, Victor Haghani highlights an often-overlooked point. Sometimes investors have all the right investments, but they’re still exposed to too much risk because they simply own too much of an otherwise-reasonable investment.

How much is too much? In my view, a good threshold is 5%. If an individual stock is 5% of your portfolio and it drops by half, the overall impact would be a loss of just 2.5%. That might be unwelcome, but it would be tolerable. Even if it turns into the next Enron, the loss would be just 5%—still not catastrophic. If you have a stock that’s over that threshold, you might look for ways to systematically chip away at it. You could give some to charity or to family, or you could sell a bit each month to slowly rein it in.

Individual holdings. How do you know if something is a “good” investment? Below are five ways to evaluate a mutual fund or exchange-traded fund (ETF):

If you don’t own any individual stocks and only invest in funds, that’s generally better—but not always. That’s because funds, even seemingly high-quality index funds, can have concentrated holdings. Consider a fund like iShares’s Russell 1000 Growth ETF (symbol: IWF). This fund is diversified across 398 holdings, but just three stocks account for more than one-third of the total. The implication: It’s always worth checking under the hood.
Because markets are unpredictable, it’s difficult to know how any given investment will turn out. But according to research firm Morningstar, there’s one reliable predictor of mutual fund performance: cost. “The expense ratio is the most proven predictor of future fund returns,” Morningstar writes. “We've done this over many years and many fund types, and expense ratios consistently show predictive power.”
According to research by finance professors Brad Barber and Terrance Odean, frequent trading is generally counterproductive. This applies to both individual and professional investors. As Warren Buffett once put it, “We continue to make more money when snoring than when active.” If you own a mutual fund, how can you tell if the fund manager is engaged in active trading? This information is readily available in the form of the turnover ratio. As a point of reference, a diversified fund like Vanguard Group’s total stock market ETF (VTI) has a turnover rate of just 2.2%.
A few years back, I told the story of “Jane,” an investor in a fund with very high turnover. What Jane found out after holding this fund for a number of years was that mutual funds that trade more actively also tend to be more tax-inefficient. How can you assess the tax-efficiency of the funds you own? These figures show up in a few places. You could examine the fund company’s website or the 1099 forms generated by the fund, or you could check your tax return. Consult Schedule D of your federal return and look for a line that reads, “Capital gain distributions.” If there’s a significant number on that line, it’s worth investigating.
A while back, Vanguard announced that investors on its platform would no longer be able to purchase certain types of investments, including funds that employed leverage and those designed to deliver inverse returns. Why? Vanguard singled out these investments because they carry “additional risks and considerations not present in traditional products.” The message: While funds are generally preferable to individual stocks because they offer diversification, some funds—simply by virtue of their structure—carry extraordinary risk. When it comes to choosing funds, my rule of thumb is the more boring, the better.

A final thought: It’s that time of year when market prognosticators begin publishing their forecasts for the new year. That means it’s also a good time to be reminded of Buffett’s observation: “The only value of stock forecasters is to make fortune-tellers look good.”

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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Sharing Lessons

THE STOCK MARKET HAS been one of my life’s enduring interests. No, it’s not because I try to pick market-beating investments. I gave up on that nonsense more than three decades ago.

Rather, I’m fascinated by the way we humans engage with this maddening market that promises both riches and peril, and which seems both ruthlessly efficient and utterly nuts. What have I learned from a lifetime of following the stock market? The sad truth is, I find there’s precious little that I can say with any confidence.

Indeed, I remain convinced that the best strategy is to sit patiently with a globally diversified portfolio of index funds—an approach that requires no crystal ball and very little trading. That said, on top of this know-nothing approach, I’ve layered four key ideas about the stock market.

1. Failing to forecast. When I started investing in 1987, grumpy old men would regularly warn that the market was overvalued and that stock investors would soon receive the punishment they so richly deserved. These market “wisemen” would point out that shares were richly valued based on yardsticks like price-to-book value, dividend yield and price-to-earnings multiples.

And yet, as the years rolled by, stocks kept getting more and more expensive, and those who listened to the grumpy old men were the ones who got punished. It eventually dawned on me that investors couldn't divine the market’s future by studying valuation measures, and today I pay them scant attention.

2. Holding steady. Every day, the market tells us what our stocks and funds can be sold for. But for the sake of our own sanity, we need a sense of our holdings’ value that’s separate from the market’s latest declaration.

No, we won’t be able to figure out what our investments are truly worth. Nobody can. But what we can do is constantly remind ourselves that the fundamental value of our stocks and funds fluctuates far less than their market price—a point made by finance professor Robert Shiller more than four decades ago.

To be sure, if we needed to sell, we’d have to accept the current price. But absent that, we should focus on what we own—companies with valuable assets that generate healthy profits and often pay reliable dividends—and we should hold that notion close, especially when pundits, panicked investors and plunging prices try to bully us into believing otherwise.

3. Freaking out. When valuing a stock, analysts often start by estimating the profits that a company will generate in the years ahead, or the cash it’ll return to shareholders through dividends and stock buybacks. These analysts will then apply a discount rate to the figures for later years because $1 of profits or dividends five or 10 years from now isn’t as valuable as $1 today. They’ll then add up this stream of discounted future earnings or future cash payments to shareholders, and that gives them a company’s intrinsic value.

So, what happens to a company’s intrinsic value if it gets hit with a big economic slowdown or a serious business problem that wipes out all profits for, say, the next three years, thus nixing the company’s ability to pay dividends and buy back shares? Remember, we’re talking here about a financial debacle—no corporate profits for three years—and yet, depending on the assumptions used, the company’s intrinsic value might drop less than 10%.

Meanwhile, in a typical bear market, share prices nosedive an average 35%. In other words, when the news turns bleak and investors freak out, share prices tend to fall far more than the decline in intrinsic value would justify. In fact, judging by the size of the typical bear market decline, it seems investors are effectively assuming that the bad news might last for perhaps a dozen years.

Can’t imagine the world’s companies failing to generate any earnings for a dozen years? When the broad market plunges, maybe what we’re seeing is an overreaction—and what we’re getting is a great buying opportunity.

4. Making hay. Where does that leave us? It’s hard to figure out whether stocks are objectively cheap or not, but it seems that share prices tend to overshoot both on the way up and on the way down.

As I’ve argued before, I’m not inclined to lighten up on stocks when the market appears overheated, because there’s no limit to how high share prices might climb. But it’s a different story during declines: Shares can’t lose more than 100% of their value—and, unless the world suffers economic Armageddon, they won’t.

That’s why I invest more in the broad market whenever there’s a steep drop. No, I don’t try to figure out whether stocks are objectively cheap, because I’ve learned market yardsticks can’t tell us where the market is headed next.

Instead, I simply take my cues from the magnitude of the market’s decline, and the bigger it is, the more enthusiastic I am about buying. That might sound naïve. But after decades of investing, buying aggressively during a bear market—coupled with leaning heavily toward stocks and favoring index funds—are the only ways I know to get an edge.

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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Easier for Rachel

PEOPLE WHO KNOW ME say I’m sentimental, and they’re right. I like visiting places like my elementary school, the house where I grew up and my first home away from home. They bring back fond memories.

As I’ve grown older, I’ve become more nostalgic, and it isn’t just me. I heard that the ashes of my childhood friend Brian were spread over our grade school grounds. He must have had a touch of nostalgia, too.

I’m not yearning to turn back the clock. I’ve always thought my life has gotten better as I’ve got older. But nowadays, I don’t expect too much from life. If I can just wake up tomorrow feeling okay, that’s good enough for me.

Lately, I’ve been on a mission to keep my body moving, because life might pass you by if you don’t. I believe that’s one of the keys to staying fit and vibrant.

When we travel, we do most of the heavy-lifting ourselves. We walk, drive and ride a train, bus or boat to our destination, rather than relying on a tour company or a car service. I like to think it helps keep us in good shape mentally and physically. Another plus to our do-it-ourselves traveling is that it costs less and we can take more trips on our $45,000 annual budget.

Of course, you can move without having to travel. I like walking the neighborhood, working in our yard and occasionally going on a hike with my wife.

I learned a lot about growing old from taking care of my mother. When I was her caregiver, I worried that I’d die before her. I thought her life would be too difficult and painful without my help. She told me many times, “I don’t know what I’d do without you.”

Now, I’m beginning to realize how painful it would be for me if I outlived Rachel and how my life would be turned upside down. It’s much easier to land on your feet when you're young. But at age 73, it would be extremely hard for me to adjust to life without her.

The reverse, of course, is also true. That’s why I’m following my neighbor Paul’s lead in trying to ensure Rachel’s life isn’t unnecessarily hard without me around. I usually pass Paul’s house on my daily walk. One day, I noticed he was tenting his house for termites. About a month later, he was replacing the roof and then the garage door. Later, painters were giving his house a fresh coat of paint. The walkway leading to his front door was redone. Even the number on his home shone nice and bright again.

Paul must have spent a small fortune fixing up the house. I thought it was a little odd of him, having all this work done in such a short period of time. Then I stopped seeing Paul on my walks.

I found out later Paul has cancer. He’s now in a hospice home. It then dawned on me that he was getting the necessary repairs to his house done, so his wife wouldn’t have to deal with them. He was trying to make life easier for her after he was gone.

A few weeks ago, I needed a plumber to unclog a kitchen drain. While he was here, I had him replace our 17-year-old water heater, even though it wasn’t acting up. I was following Paul’s lead.

Next on my list are replacing our home’s front windows, for which we’ll have to get approval from our two homeowners’ associations. A new patio and brick wall are also on the horizon. If we were younger, all this work would have been put off to a much later date. But like Paul, I too want to make sure that life will be easier for my wife.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Follow Dennis on X @DMFrie and check out his earlier articles.

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My Ozempic Nightmare

EARLIER THIS YEAR, I came up with what I thought was a brilliant idea. I’d signed up for the August 2025 Ironman Ottawa to celebrate my 70th birthday and thought, “Why not jump on the Ozempic bandwagon for six months to drop some significant excess weight before the heavy training starts?”

I’ve struggled with my weight for years. My doctor calls me an emotional eater. I thought, if I dropped the weight and committed to keeping it off, an added bonus would be getting off the statin and blood pressure medicine I’m on.

I visited my doctor, and was put on Ozempic in April.

Welcome back, depression. The weight started dropping off, but in May I began experiencing feelings of depression. My wife and others noticed a significant change in my mood and behavior. I began withdrawing into myself, not talking or laughing much, just wanting to be alone.

I’d experienced depression when I retired and knew the signs well—a loss of interest in activities I used to enjoy; feeling tired and moody all the time; forgetfulness; feelings of hopelessness, helplessness and worthlessness; lack of concentration; not able to make decisions. I had no desire to do anything. I gave up writing articles and working on my new book.

I didn’t understand what was happening to me, and I couldn’t put my finger on what triggered my depression. Could it be the skin cancer I was dealing with? Was it because a number of my friends were sick, dying or dead?

Things were bad, but they were about to get a lot worse. Panic attacks kicked in. Thoughts of impending doom raced through my head.

I imagined something bad was going to happen to the house. I had this fear that my basement would flood, and would run down and check for leaks at least a few times each day. I even had my father-in-law come over to look at some cracks I’d found in the basement floor, which I was sure were going to cause a leak.

He couldn’t understand why I was freaking out about such things. He told me that I shouldn’t worry. Any problem, he said, could be fixed as long as you had money. But his words didn’t lower my anxiety. I kept checking the basement.

I was on constant high alert, trying to spot signs of trouble. I started to hear random noises, especially at night. Sometimes, the noise was in my head. Other times, it was from the air conditioner, refrigerator, washer, dryer or a car outside. I had to immediately investigate the source of the noise to ensure it wasn’t another potential problem.

All this wore me down mentally and physically. I started to sweat heavily at night. The bed would be soaked when I woke up in the morning.

I was sure my car needed to be repaired. I thought it made a strange noise when I put it in reverse. But when I took the car in to be serviced, the shop told me the noise was normal for my type of car and it was nothing to be concerned about. I think the employees felt sorry for me, and I wasn’t charged for the visit.

I felt hopeless and incapable of solving even the simplest of problems. I couldn’t see things getting any better and I didn’t want to be a burden to my wife.

I decided the best course of action was to kill myself. Once I made that decision, the suicidal thoughts came fast and furious. They consumed me for most of the day.

I even Googled the best ways to commit suicide, and settled on hanging myself from the pergola in the backyard. I went so far as to check out various kinds of rope at Home Depot to ensure I picked one that wouldn’t break.

But then I thought that committing suicide in our backyard would hurt our home’s value. I assumed my wife would sell it after my demise, and I didn’t want to do anything that would negatively impact her financially. Weird how the mind works.

I didn’t tell anyone about my suicidal thoughts, not even my wife. I didn’t want to worry folks.

Why didn’t I end up killing myself? I think what saved me was my love for my wife. I thought that my suicide would destroy her and I didn’t want to ruin her life.

She was convinced that Ozempic was the culprit, and forced me to see my doctor and tell him what was going on.

I called the doctor’s office to book an appointment, but was told that the next available opening was a few weeks away. I tried to convey the urgency by telling office employees about my high anxiety and how I thought it was linked to Ozempic. But they weren’t budging and told me to go to the hospital emergency room if my anxiety got out of hand. I think they didn’t believe Ozempic was causing my distress and that the issue was my own mental health. I didn’t tell them about my suicidal thoughts. I was too embarrassed.

I decided to take myself off the drug. But it takes a long time to get the chemical out of your system.

Trying to make it through each day, I forced myself to exercise, taking long walks and swimming three times a week. Exercising seemed to ease the pressure and temporarily lowered my anxiety, but it would come back, especially in the evening.

I would have a couple of drinks to reduce my anxiety and help me fall asleep. I know self-medicating is the wrong way to go, but I didn’t know what else to do.

I think that, if I had discovered that my basement was flooded or if something else had broken down, I wouldn’t be here writing this article. Things were really bad. But luckily, I didn’t give in to those suicidal thoughts. Still, it was close.

When I finally visited my doctor, he was skeptical that Ozempic was the cause. He had lots of patients on the drug and that was never a side-effect. He did the prudent thing and started checking all the physical things that could be causing the problem. He ran blood tests and checked my thyroid. He had my lungs X-rayed, searching for signs of cancer that might explain the night sweats. Nothing was found.

After a few weeks of detoxing my body, I started to feel better and people noticed the change. With each passing day, I was becoming more like happy old Mike. I’m still suffering from occasional feelings of anxiety and brain fog, but depression has left the building.

Ozempic and Wegovy are the same drug. The only difference is the dosage taken. If you check the Wegovy website, it lists “depression or thoughts of suicide” as a possible side-effect.

When I visit the Ozempic website, I can’t see that side-effect listed. Why not?

Mike Drak is a 38-year veteran of the financial services industry. He’s the co-author of Longevity Lifestyle by Design, Retirement Heaven or Hell  and  Victory Lap Retirement . Mike works with his wife, an investment advisor, to help clients design a fulfilling retirement. For more on Mike, head to BoomingEncore.com . Check out his earlier articles.

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Pricing Catastrophe

ONE DAY, AS I WAS walking through the mathematics building at the community college I attended, I saw a poster that screamed, “Math Majors?”

That got my attention. The poster introduced me to a career possibility: becoming an actuary. My job path was set. Or so I thought.

The actuarial career path consists of passing either five or 10 standardized tests. Complete five, and you become an associate. Complete 10, and you’re a fellow. Unfortunately, I flunked the first test I took.

Still, I didn’t give up on insurance as a career. Five years after graduating, I began as an underwriter trainee. I continued in the insurance field for 42 years, until I neared my 70th birthday.

I want to share some things I learned that could help you to be adequately insured. This may sound pretty straightforward. But insurance coverage is often a guessing game—both for insurers and customers.

Actuaries decide what premium to charge and how much money should be kept in reserve to pay the claims that’ll occur over the life of an insurance policy. Life insurance actuaries are very good at this. You rarely hear of life insurance companies declaring bankruptcy. Life insurance losses are predictable—unless something unforeseen like AIDS or COVID-19 comes along, and suddenly younger people are dying in large numbers.

The same certainty isn’t always found with other sorts of coverage, and sometimes insurers get the pricing badly wrong. For instance, the insurance industry didn’t know how to properly price long-term-care coverage. Pricing was based on the historical length of stays in nursing homes. But people were beginning to live longer and nursing-home stays lengthened—sometimes dramatically. In desperation, insurers began canceling losing policies or raising premiums drastically.

Meanwhile, in property-and-casualty insurance, actuaries aren’t used consistently. Instead, pricing is often a guessing game undertaken by the underwriters, who try to size up how likely customers are to file claims.

It can also be difficult to figure out how much coverge a customer should buy. Take homeowners’ insurance. I wish I could assure you that your insurance agent, broker or salesperson knows exactly how much coverage you need, but I can’t. They also guess.

That’s because the insurance company can’t take the time to decide exactly what your house or its furnishings are worth. To do such a painstaking survey would be too costly given the slim profit margins on most homeowners’ policies.

Many policyholders discover they’re underinsured only after a loss. To prevent this from happening, make a full inventory of what you own, and then get a professional appraiser to evaluate what it would cost to rebuild your house and replace your belongings.

These appraisals can be costly and won’t be paid for by your insurance company. Nor is it guaranteed that the insurance company will accept the appraised value that you present to them. But at least you’ll have a better idea of how much coverage you should buy.

You might discover that your insurance company doesn’t value your belongings as highly as you do. That’s because of an insurance principle called “like kind and quality.” Let’s say you have imported Italian marble that’s damaged by a tornado. Unless you presented the insurance company with an appraisal of this marble at the time your policy was first written, you’ll likely get covered for the cost of replacement marble from Vermont. It will look and perform similarly to Italian marble, but cost a lot less.

Many people intentionally underinsure to save money. When they file a claim, they may learn that’s a costly mistake. To understand why, let’s say it would cost $100,000 to rebuild your house if a fire destroys it. Yes, I know that’s a low figure today, but I’ve chosen it for simplicity’s sake.

You might think, “What’s the chance the house will burn to the ground? I think the average loss will only be $20,000, so I’ll insure for $20,000.”

Now, let’s assume you did have a $20,000 loss down the road. You won’t get $20,000 from your insurance policy. Instead, you’ll get far, far less. Why?

First, there’s your deductible, which you’re required to pay out of pocket. Let’s say that knocks $1,000 from the $20,000.

Second, there’s the coinsurance clause, which looks at the ratio of what you insured the house for versus what you should have insured it for. In this case, you’d insured a $100,000 house for $20,000—a 20% coverage ratio.

That means you’d only get 20% of the $20,000 loss covered—and that’s after the deductible. In this example, insurance would cover only $3,800 of the $20,000 loss. You’d have to pay $16,200 toward the repairs yourself. Painful, I know, but it pays to understand how insurance works.

Insurance is not a racket. But it is a for-profit industry. Insurers are only required to pay based on the terms and conditions of your insurance policy. Knowing what is—and isn’t—covered can save you heartache and money, regardless of what kind of insurance you buy. Be sure to read your policy.

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

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Trading Arguments

IMAGINE TAKING DOLLAR bills and inserting them into a shredder. This is how you might think about a concept that economists call “deadweight loss.” As its name suggests, a deadweight loss occurs when there’s an irrevocable loss of economic output.

Deadweight losses can occur under a variety of circumstances. Among them: when tariffs are imposed. It’s for that reason that the incoming administration’s tariff plan has raised concerns. But how worried should we be? It’s worth looking at different viewpoints on this question.

The chief concern with tariffs is that they’ll result in higher prices for American consumers. Especially right now, after the recent spike in inflation, further price increases would be unwelcome. But tariffs can have even broader implications. At a macro level, when prices are higher, people buy less, causing the economy to slow. When the economy slows, corporate profits fall and that, in turn, can lead to lower stock prices. Not surprisingly, many investors aren’t excited at the prospect of new or higher tariffs.

Economists are nearly unanimous in viewing tariffs negatively. In a 2015 article, economist Gregory Mankiw, who once led the president’s Council of Economic Advisers, noted that the benefits of free trade have been understood since Adam Smith’s The Wealth of Nations, published in 1776. “Economists,” Mankiw wrote, “are famous for disagreeing with one another” on nearly every other topic, but not on this one.

A further worry is that tariffs could have unforeseen consequences. The most obvious risk: Other countries could retaliate, imposing their own tariffs on American goods. An article published by the Cato Institute painted this unpleasant picture: “Tariffs often lead to cascading protectionism and create a fertile ground for corruption. The 2018–2019 tariffs on China led to a complex process of exclusion requests, lobbying, and retaliatory tariffs, demonstrating the multifaceted harms of protectionist measures.”

To appreciate the potential fallout of a trade war, consider the so-called chicken tax. This is a 25% tariff that applies to imports of light trucks. Why is it called the chicken tax if it applies to trucks? The history is instructive.

The chicken tax was imposed by Lyndon Johnson back in 1964. He was upset at what he saw as unfair treatment of the American poultry industry, so he imposed an import tariff on poultry coming from Europe. To put further pressure on European policymakers, Johnson imposed an import duty on trucks as well. The chicken battle blew over before too long, but the tariff on trucks has remained for the past 60 years. The lesson: Once a trade war gets started, it’s hard to know where it might lead. That’s a key reason new tariffs have many people on edge.

At the same time, the chicken tax illustrates another reality about tariffs: They’re nothing new. They’ve always existed and, to one degree or another, they’ve been supported by both Democratic and Republican administrations over the years.

Alan Blinder, for example, is an economist whose views fall to the left of center. He was appointed to the Federal Reserve’s board of governors by Bill Clinton and is no fan of Donald Trump. But in a recent opinion piece, he indicated that higher tariffs may not be such a problem.

Blinder’s reasoning was as follows: Imports account for just 14% of gross domestic product. If tariffs average between 10% and 20%, the overall impact on consumer prices would be modest—between 1.4% and 2.8%. And as Blinder notes, it would likely be just a “one-shot price increase.” New tariffs wouldn’t lead to higher inflation every year.

For its part, the incoming administration has argued that tariffs wouldn’t be inflationary at all. In a recent interview, Scott Bessent, the incoming Treasury secretary, made this argument: “Tariffs can’t be inflationary because if the price of one thing goes up, unless you give people more money, then they have less money to spend on the other thing, so there is no inflation.”

Some tariff supporters go a step further, arguing American consumers will even benefit from tariffs. Why? If domestic manufacturers suddenly have a price advantage relative to foreign competitors, it stands to reason that they’ll gain market share and, in turn, they’ll hire more workers at higher wages.

Take the chicken tax. If you’ve wondered why American manufacturers thoroughly dominate the market for pickup trucks, the chicken tax is the reason. From the perspective of American auto makers—including all the workers in the automotive supply chain—this tariff is a good thing.

In the end, however, all the countervailing views on this topic highlight a reality for investors: When it comes to economics, it’s difficult to know precisely how things will turn out. Textbooks describe various economic relationships that are generally accepted, but the results aren’t guaranteed. Even Alan Blinder, who wrote one of the most widely used textbooks in economics, isn’t sure how these prospective tariffs will play out. Based on his math, the impact might be modest, but this analysis was based solely on the numbers. Others fear a broader, and more unpredictable, geopolitical impact.

If we antagonize China, for example, no one can predict how its autocratic regime might respond. Just as Lyndon Johnson targeted trucks coming in from Europe, Beijing could retaliate in any number of ways. Suppose Xi’s government suspended iPhone shipments for a month or even a year. Or worse yet, if it decided to step up its military threats against Taiwan. That could draw the U.S. into a far more difficult situation.

The bottom line: There’s a greater level of economic uncertainty today. But for investors, negative events are always a possibility, even if the risks are below the surface. That’s why, in my view, we should be prepared at all times, even when there aren’t specific risks in the news. What does this mean in practice? Holding a portfolio that’s diversified across stocks and bonds—and diversified within stocks and bonds—is, I believe, the best defense.

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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Pick Your Peril

MANAGING MONEY IS about managing risk. But which risks? We all have a different collection of financial worries, and that drives the investments we buy and the insurance we purchase.

Problem is, every choice we make comes with a tradeoff. If we seek to fend off one risk, we often open ourselves up to other dangers. Consider five such tradeoffs:

1. Dying young vs. living long. When should we claim Social Security? Should we use part of our retirement nest egg to purchase an immediate annuity that pays lifetime income? If we’re eligible for a pension, should we opt for a lump sum or regular monthly payments?

These three questions all deserve careful analysis. But often, we answer based on worry: Are we most fearful of dying young, or is our big concern that we’ll outlive our money?

2. Enjoying today vs. prepping for the future. HumbleDollar readers tend to be masters of delayed gratification. That’s how many of us managed to amass enough—and often far more than enough—for retirement.

Once retired, we then strive to make the transition from diligent savers to happy spenders, and so we should. After all, that’s why we saved all that money. But from perusing comments on HumbleDollar, I’ve noticed that some take this a step further: They aim to really ramp up spending in their 60s because they figure that, later in retirement, they’ll spend far less and they won’t enjoy their money nearly as much—assuming they even live that long.

As I’ve mentioned before, I’m not sure this excessive spending is wise, in part because folks could face hefty long-term-care costs down the road. What’s driving the “spend heavily in our 60s” mentality? We might view it as a variation on point No. 1. Is our big fear dying young, without fully enjoying our money, or is it being prepared for the future, when that money might come in handy?

3. Getting rich vs. avoiding poverty. We all have both desires, but in varying degrees. One way to straddle these two is with the classic balanced portfolio, with its mix of 60% stocks and 40% bonds. Those who care more about avoiding poverty will likely opt for more bonds, while those whose greatest concern is getting rich might tilt more heavily toward stocks.

For some folks, these dueling impulses can translate into an odd use of their discretionary dollars. Think of the unsophisticated investors who keep almost everything in savings bonds and FDIC-insured bank accounts, but also spend money on penny stocks, lottery tickets, meme stocks and an occasional visit to the casino. The cash investments help them feel safe, while the longshot bets allow them to dream of riches.

Wall Street, and especially insurance companies, cook up products that aim to appeal to these twin impulses with a single investment. That’s how we end up with things like equity-indexed annuities, where investors can capture part of the stock market’s upside while being protected against losses. It’s a bad product, but a great marketing gimmick.

4. Simplicity vs. diversification. It’s possible to build a globally diversified portfolio of stocks and bonds with just two or three mutual funds or exchange-traded funds, thus combining simplicity with the safety offered by broad diversification. But what if we’re talking about a different sort of simplicity—limiting ourselves to just one or two financial firms, so we keep our finances simple for our own sake and that of our heirs?

I’ve never worried about diversifying across financial firms. I have almost all my money at Vanguard Group, and I use just one bank. But is this wise? For instance, in an era when financial firms are constantly under cyberattack, could thieves drain a financial firm of billions of client dollars, bringing the firm to its knees and leaving customers penniless? I have no clue whether this is a real risk or not, but I know it’s a major worry for others.

Countless times, I’ve also heard folks say they’d never buy an immediate annuity because of the risk that the insurance company involved might fail. Over the years, some small insurers have indeed gone bust. But what about major life insurers like New York Life, Northwestern Mutual and Mass Mutual? I find it hard to imagine one of these firms could fail—but others clearly can.

The concern over betting too much on one institution even extends to the federal government. Today, there are plenty of folks who fear Social Security benefits will be cut, especially once the Social Security trust fund runs dry in a decade or so. Again, this isn’t a fear of mine, but it’s a concern of many, and it’s one reason they claim benefits at age 62, the earliest possible age.

5. Insuring this vs. protecting that. By my count, there are eight major types of insurance: health, life, disability, long-term care, auto, home, renter’s and umbrella liability. Buy blanket coverage, and we might find we have precious few dollars left over for retirement savings and other goals.

To a degree, logic and necessity will guide our choices. Parents with young families should likely have ample life insurance, car owners are typically required to have an auto policy, mortgage lenders insist borrowers have homeowner’s insurance, and arguably everybody should have health coverage.

Still, that leaves a fair amount of leeway—and worry will likely dictate the choices we make. Those who worry about their health will often favor policies with low copays, low out-of-pocket maximums and fewer restrictions on the medical providers they use. Meanwhile, those who are risk takers might favor coverage with high deductibles, while skipping some policies they deem unnecessary.

We all have an image of ourselves, and about how conservative or aggressive we are. But action speaks louder than words. Take a look at your mix of investments and your collection of insurance policies. What does your financial life say about your worries?

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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At the End

AFTER WATCHING MY wife bake a loaf of wheat bread, I thought I’d try making my mother’s cornbread. Luckily, I kept her recipe, along with those for some of her other delicious dishes.

My mother’s recipes can bring back cherished memories—like the time I visited my parents when they still had their dog. Brandy would always greet me when I walked in the front door. She’d jump up and down knowing I would give her a treat. Not this time. I found her in the kitchen, sitting in front of the oven, waiting patiently for my mother to take out the cornbread. Brandy loved it as much as I did.

My mother never attended college, but she was sharp as a tack and had good common sense. I’d still seek her advice when she was in her 90s.

I remember when a contractor gave me a quote for some work I wanted done on my condo. She advised me not to accept the first offer. “The initial quote is going to be high because they’re expecting you to make a counteroffer,” she warned me.

When I was her caregiver, I would tell my friends that I sometimes thought she was watching over me, instead of me watching over her.

The tough part about being a caregiver for a senior is you’re responsible for someone who’s at a stage in life that's inherently difficult. The days leading up to my mother’s death caught me flat-footed. I wish I’d been better prepared.

My parents never had a letter of last instruction. But my dad told me about their investments, so I knew about their finances. I also knew they had a cemetery plot big enough for both of them. They bought it in 1995 for $10,245. But they asked me to try to sell it because they decided they wanted to be cremated.

Pacific View Memorial Park wouldn’t buy it back, though an employee told me the plot was now worth about $30,000. Unfortunately, it was early 2009 and the economy was in bad shape. There wasn't a market for burial plots. We decided to keep it and put my parents’ ashes there.

During my father’s long battle with lymphoma cancer, one of our biggest concerns was making sure the cost of his care didn’t deplete my parents’ savings to the point where it would jeopardize my mother’s financial security. As a result, we never used a caregiving service.

When my father started hospice care in 2012, my sister, brother-in-law and I took turns helping my mother care for him. We kept his bed in the living room where he’d be close to us. My brother-in-law or I would sleep on the couch, so there was always someone with him.

Hospice provided everything we needed, including a bed and morphine for pain. They also sent someone periodically to bathe and shave my dad, and even brush his teeth. A nurse would occasionally show up to check his vital signs and make sure we had everything we needed to keep him as comfortable as possible.

This around-the-clock care lasted for three months. Since my father was a veteran of World War II, the federal government provided a marker for his grave. We cremated his body and placed it in their cemetery plot.

In October 2019, my 96-year-old mother had a serious heart attack. The doctor told me there wasn’t much that could be done for her. I was advised to prepare her for hospice care. My sister and I decided it would be best if my mother didn’t know her life was coming to an end. She had seen what my father went through and it weighed heavily on her. We knew she was afraid that she might suffer like my father did.

I made arrangements for a caregiving service. At the time, the hourly rate was $27 an hour. My mother's savings consisted of $325,000 in highly liquid assets.

The hospital discharged her and sent my mom to a rehabilitation facility that I’d picked out. I waited for her to arrive by ambulance. I couldn’t believe how talkative and energetic she was when she arrived. She talked about going home tomorrow, and moved her legs back and forth in bed. She wasn’t the same person in the hospital, where she’d been quiet and listless.

It was too good to be true. My mother only lived nine more hours. She died peacefully in her sleep. I’ve been told when people are nearing death, they sometimes get this last burst of energy before they pass away. That’s what my mother must have experienced.

When I received the bad news about my mother’s death, it was 1:30 a.m. The head nurse told me I had only a few hours to remove her body. It was the state law.

I wasn’t prepared for this. I hadn’t made the necessary arrangements. I guess I was in denial. I called Pacific View, where my parents had their burial plot. Luckily, they had someone on call 24 hours a day.

I drove to the rehab facility, so I could be there before they took her away. There was a sheet draped over her. I rubbed her hair that was sticking out. Then the nurse helped me take off her wedding ring, which I gave to my sister.

After my father’s death, I wished I had asked my mother this question: Do you want to know when your time is coming to an end? I often thought I should have told my mother that the end was near. Maybe she had a last-minute request or would have confided in me about something that was on her mind. I sometimes think I denied her the opportunity to end her life on her own terms.

My sister said, “We were just trying to protect her.”

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Follow Dennis on X @DMFrie and check out his earlier articles.

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No Hot Dogs

WHEN I WAS 24 YEARS old, I took a weekend trip to Reno, Nevada. My hostess for the visit wanted to go to a casino. I had no interest in gambling. But not wanting to be impolite, I agreed to go with her.

I was making $16,000 a year back then. I decided I could afford to lose $20. I got two rolls of quarters and sat down at a slot machine. As I was getting close to losing the last of my coins, the machine lit up and a siren on top of it began blaring. I soon discovered I was the lucky winner of $1,400.

Getting an unexpected windfall equivalent to roughly one month’s salary was quite a thrill. I spent three weeks thinking of the various ways I could spend my fortune. I don’t remember all of the items I ended up purchasing, but each was the result of many hours of contemplation.

Thirty years later, I ended up with another unexpected windfall. In 2022, I sold my home for $125,000 over the asking price. The net result was a windfall roughly 100 times the size of my first.

This time it took me two years to decide how to spend my fortune. Every idea my husband and I had for the money was contemplated—and rejected—multiple times. We considered leasing a small retail building and starting a dog training business. We thought about purchasing a small plot of land somewhere so we could escape the Phoenix summer heat. We came close to purchasing a used motorhome so we could haul our dogs around in climate-controlled comfort.

Ultimately, we settled upon a solution that combined a bit of all of our previous ideas. In May 2024, we purchased a cargo van and had it converted into a custom dog transport vehicle.

Our four dogs now ride safely in individual crates in the rear of the van. A rooftop air-conditioning unit and ventilation fan mean they’ll always stay comfortable in the heat. There’s plenty of room to store all of our dog training equipment inside the van. Road trips are simple affairs now. When the heat at home gets to be too much for us, we load the dogs up and head out. Within a three-hour drive, we can be up in the mountains, where the temperatures are typically 20 to 30 degrees cooler.

It wasn’t easy to spend my second windfall. I’ve always been a saver. My natural inclination was to hold onto the money and save it for a rainy day. But rainy days are few and far between in Phoenix.

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