Jonathan Clements's Blog, page 86

Avoiding Alzheimer’s

I NEVER PURCHASED long-term-care insurance, even though the personal finance magazine I wrote for in the 1990s often recommended it. To the magazine’s editors, it seemed like another logical step in retirement preparation. I had two reasons to decide against it, however.

First, it seemed a huge expense. We were advised to buy it around age 60, long before any presumed decline. I was younger than that and unprepared to pay hundreds a month for decades when I didn’t know if I’d ever use the coverage.

Second, I simply don’t want to end up in a nursing home. Why, I wondered, would I buy an insurance policy designed to pay my way there?

I realize, of course, that I’m playing with fire. That’s why I take so much interest in behaviors that may ward off Alzheimer’s disease, one of the greatest reasons that people find themselves in nursing homes.

Alzheimer’s can begin with simple memory loss and builds to the point where people can’t manage their lives. It affects nearly seven million Americans and its incidence is growing. If current trends continue, as many as 13 million Americans will suffer from the disease by 2050, according to the Alzheimer’s Association.

For many years I have roughly followed the Mediterranean diet, which is rich in olive oil, fresh fruits and vegetables. That diet is associated with a 23% lower incidence of dementia among Europeans who follow it closely.

I also exercise five or six days a week, as vigorous people have a lower incidence of Alzheimer’s, too. I like to run but, when it gets too hot, I swim at my gym. I also began lifting weights last year at the recommendation of a friend who’s in his 80s and doing well.

These efforts of mine take time and energy, and even if I follow them religiously there’s no guarantee I’d avoid the dementia. That’s why I was so interested to learn of new research that suggests that a drug already on the pharmacist’s shelf might lower the incidence of Alzheimer’s dramatically.

Researchers at the Cleveland Clinic sifted through the medical records of thousands of Medicare patients to see if men taking sildenafil—the active ingredient in the drug Viagra—lowered the incidence of Alzheimer’s disease. The surprising answer is yes, though the researchers caution that the findings need to be confirmed by randomized clinical trials.

Still, the preliminary findings seem remarkable. In one medical records database, men who had taken sildenafil had 30% lower incidences of Alzheimer’s disease than the general population. In a second database of patients, the reduction in the occurrence of Alzheimer’s was 54%. You can read the research paper here.

In my limited understanding, the drug appears to increase blood flow into the neural pathways of the brain. That, in turn, may clear out some of the metabolic waste that collects over time, reducing brain function as we age.

It’s too soon for doctors to prescribe Viagra to treat Alzheimer’s prophylactically (pun intended). Yet if the research findings are confirmed, this off-label application could become the biggest reason to prescribe it.

This has happened once before. Viagra was originally formulated to treat chest pain. Research trials showed it didn’t reduce the incidence of angina. But male test subjects did report a surprising side-effect: long-lasting erections. Here’s hoping the drug has a second unexpected use.

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False Comparisons

THE BEST WAY TO WIN a contest for the largest tomato is to paint a cantaloupe red and hope the judges don’t notice, or so says an old adage.

What does that have to do with managing money? Newspapers and magazines frequently interview mutual fund managers who have beaten their competitors, and perhaps the S&P 500 as well. Fund-management firms will even run ads touting the performance of these funds.

These interviews sometimes prompt me to do my own research. I frequently find that a manager did indeed beat the S&P 500, but that’s the wrong benchmark for the fund. If it’s a growth fund, I compare its performance to a growth index. For a value fund, I use a value index. The fund’s performance tends to suffer by comparison.

I called one of these fund companies to discuss the benchmark it used. It measured its fund against the S&P 500, and yet the fund’s manager had been buying growth stocks for the past 10 years. The fund’s representative said, “We’re just buying the best stocks. We don’t look at the index. We own Berkshire Hathaway. How can you call us a growth manager?”

I’m not sure how one company, even one built by a famous value investor, makes a big difference. I generally find that any manager who shows consistent annual returns above his or her benchmark is using the wrong index.

It’s easy to find the correct index for any fund. Morningstar’s site, where much information is available for free, will show a fund’s performance against its correct style benchmark, as well as its performance against its fund peers.

Given that the historical data show that most managers fail to beat their proper benchmark, what should an active-management firm do? Don’t compete against an index. Firms have devised products that make their relative performance less transparent.

Consider separately managed accounts (SMAs). With an SMA, you own individual stocks or bonds, and the manager buys and sells them, subject to your constraints. You might instruct the manager not to buy your employer’s stock, or to avoid gaming stocks, oil companies or other stocks you deem undesirable.

The manager invests around these constraints. On a positive note, SMAs may offer lower fees than a mutual fund and better control over taxes. You can ask them to minimize realized capital gains, for example.

But what happens when you try to measure an SMA’s performance? The managers will say that, given your constraints, they couldn’t sell a stock before it sold off, so they underperformed this quarter.

That said, if not owning more of your employer’s shares is worth some performance offset, maybe that underperformance is okay. Minimizing taxes is always good, too, because it’s after-tax performance that truly matters.

Many SMAs are managed with investment characteristics similar to one of the same firm’s mutual funds, so you can measure the SMA’s performance against that fund and its benchmark index. That way, you’ll know whether the manager underperformed, rather than blaming the SMA’s constraints for its underperformance.

It’s not just fund managers who are painting cantaloupes red. If you use financial advisors, they’ll want to demonstrate they’re adding value as well. One way is to construct a diversified portfolio with funds specializing in value and growth shares.

I was once presented with a visually beautiful investment proposal. Each of the 12 funds presented had bested its benchmark over the previous five years. The list included a pick in each sector of the U.S. stock market’s style box, plus international and fixed income.

I asked how the total portfolio performed against its target, which for me was 60% S&P 500 and 40% Bloomberg Aggregate Bond Index. “Oh, let us run that and come back to you,” was the answer. It turned out that the portfolio in total didn’t beat my target in either raw performance or risk-adjusted return.

The 12 parts looked good individually. While it was impressive that the value manager had beaten the value index and the high-yield bond manager had outpaced the high-yield bond index, what mattered most to me was whether they could collectively beat the 60-40 benchmark. The handsome printed proposal had tried to divert my attention to the parts and away from the whole portfolio.

Imagine going to a restaurant. The server explains that the salad ingredients are all from local farms, picked fresh that morning. What matters to me, however, is how the chef assembles my salad. Only when I put the fork in my mouth do I know if he bought a nice beefsteak tomato or a cantaloupe painted red.

Do you know the track record of the advisor who is choosing your funds? While my advisory firm insisted on at least a five-year track record for the fund managers it invested with, it had no such requirement for the advisors recommending funds to me. When I found that out, I chose to invest in index funds.

Whether you have an advisor choosing funds or you choose them yourself, you should always ask: What’s the right benchmark for judging performance? For mutual funds, I suggest looking at Morningstar. For other portfolios, look at performance of a simple stock-bond mix that matches your portfolio’s stock-bond mix.

Matt Halperin, CFA, is the founder of Act2 Financial , an app that helps seniors avoid financial fraud. For 30 years, he worked as a portfolio manager and risk manager at large U.S. money managers. Matt currently serves on the investment committee of two endowments.  He has a BA and MBA from the University of Chicago, and resides outside of Boston. Matt's previous articles were Taking the Keys and Where It Nets Out.

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Friends at Every Turn

MY RETIREMENT IN July 2020 came at a stressful time. I was recovering from knee replacement surgery and we were in the midst of the pandemic. Luckily, I had physical therapy goals to meet, and I’d already purchased a huge supply of reading material. TV, music and my laptop were also there to distract me. In addition, my wife had retired eight months before, so we had each other for company.

As the pandemic stretched on, we invited friends to visit. We met on our uncovered open-air porch. Summers in North Carolina can be hot and buggy affairs, but our porch features the afternoon shade of a big poplar tree, and we had several large fans. As summer progressed to fall and winter, we added a propane porch heater and a collection of electric blankets to the mix, so everyone could be as comfortable as possible.

All this was part of a conscious strategy. I make a big effort to stay connected with friends and family, and I don’t necessarily wait for someone to contact me. The fact is, social connections are crucial to a happy retirement. Loneliness has been described as an epidemic, and its health impact has been compared to smoking 15 cigarettes a day.

I’m often the organizer of get-togethers because I enjoy them, plus many of my friends are still working, so for me it’s not a huge effort to send out a couple of emails to organize a small gathering. In fact, I’ve learned that there are ample opportunities for a vibrant social life.

For instance, I often reserve Thursday nights to play pool with a collection of friends who I mostly met during my time as a Boy Scout leader. We spend a few hours talking about kids, grandkids, activities, vacations and current events, while playing pool and consuming bar food and drink.

From my first engineering job in 1978, there are two former coworkers who I still occasionally meet for lunch. Meanwhile, in my final job, there was a core group of great guys. One of them once sent a meeting message with the subject line “LWTF.” We met a few days later, away from the office, and discovered that meant “lunch with the fellas.” We’ve amended that to an evening gathering we call “beer with the fellas.” I also see a few friends from my high school and college days.

When my wife and I were dating, we sometimes attended her church and sometimes mine. I chose to join her church, and was fortunate that her friends also became my friends. Several of these guys and I regularly meet for lunch. With their spouses, we also often get together as couples. The larger group typically gathers for a long beach weekend in the spring.

Soon, my youngest son and his family will move to our area, so opportunities to see the grandkids should increase. My oldest son and his wife recently returned from England to take a new assignment in Washington, D.C., which means they’re fairly close, too. I’m lucky that my sister and her husband have relocated to the Research Triangle Park area, so we’re able to see them regularly.

Living near my alma mater, North Carolina State University, allows me to attend classes at the university’s craft center. It’s difficult to register for classes as a member of the general public because they’re mostly reserved for students, but I’ve taken four woodworking classes so far, and am looking for more. I plan to use my new skills to make keepsake boxes for Christmas for all the grandchildren.

My wife, a retired elementary school counselor, is the volunteer coordinator of a reading program at her former school. I participated this year. We recently had an end-of-year gathering of all tutors and students. The students received joke books to honor their improved reading skills.

I don’t play a musical instrument, but I can play my CD player. I love listening to music, both recorded and live. I continue to see bands at venues both near and far. I often meet or go with friends to these shows, but I don’t hesitate to go solo if no one’s available.

Most of the activities I’ve described come with a price. Woodworking classes, evenings out with friends, visits to family and concerts all have a cost. But it’s a price I happily pay: These activities and social connections, I believe, are crucial for my emotional and mental health, and they’ll pay even bigger dividends later in retirement.

Jeff Bond moved to Raleigh in 1971 to attend North Carolina State University and never left. He retired in 2020 after 43 years in various engineering roles. Jeff’s the proud father of two sons and, in 2013, expanded his family with a new wife and two stepdaughters. Today, he’s “Grandpa” three times over. In retirement, Jeff works on home projects, volunteers, reads, gardens, and rides his bike or goes to the gym almost every day. Check out his previous articles.

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Matters of Motivation

ON TELEVISION, I WATCH the Barrett-Jackson auctions of expensive cars. When two bidders want the same car, they drive up the price until one decides enough is enough and drops out.

Why is this car so important to the bidders? In many cases, it’s a well-known car that’s highly valued by car collectors, so it’s treated like an investment with lasting value. Other times, it could be a model that the bidders had admired as teenagers, and said to themselves, “Someday, I’m going to own that car.” Now that they’re financially well off, they have the funds to satisfy that childhood promise.

In other words, the price that a car commands at auction is determined by “what the market will bear.” If we’re in the midst of a financial boom and there’s excess cash floating around, a car might go for 20% more than a year earlier. A new buyer simply wants it, and he or she is feeling flush.

I understand how new items are priced: cost of materials + labor + profit = selling price. But what about a piece of art? The cost of materials could be $10 and a struggling artist might charge just $50 for the work. What happens after the artist dies and an art critic talks him up. Someone else might buy the piece for $500—or far, far more. Nothing has changed, except the opinion of the artwork.

A construction firm builds a house, incurs the cost of building materials and labor, and offers it for sale for $200,000. The buyer lives in that house for 20 years before deciding to sell. At the time of the sale, there’s a housing shortage, so several bidders compete. The house sells for $600,000. Every potential buyer has an idea of the home’s worth. There’s no logical price. Instead, the selling price is whatever the most motivated buyer will pay.

We all have our price thresholds. We’ll pay a higher price for the things we consider most important. If enough people share our desire to have that same thing, supply and demand come into play. The lower the supply, the higher the price.

If we’re swayed by the crowd and want what everyone else is buying, we’ll likely pay a high price. The Cabbage Patch Kids were appealing homely dolls, brilliantly marketed with birth certificates and adoption papers. In the mid-1980s, every little girl in America wanted a Cabbage Patch doll. That demand, coupled with supply problems, triggered a buying frenzy among parents.

Christmas is a time when many such “must haves” occur. For parents who didn’t want their daughter to be left out, while all her peers got a Cabbage Patch Kid, this was more than a doll. It was a token of their love—and a symbol of their family’s social status.

The price of something is whatever the market will bear, which means the price is subjective. Deciding on our life’s priorities will help steer us toward the things with the greatest value for us. Otherwise, “A fool and his money are soon parted.”

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Rembrandt or Not?

I WAS INTRIGUED WHEN an old Dutch painting attributed to a “follower of Rembrandt” came up for auction near me in Maine late last month. It was a portrait of a young woman wearing an elaborately starched ruff collar, the type of clothing depicted in Golden Age paintings from the 1600s.

The country auction house estimated the painting would fetch $10,000 to $15,000. I couldn’t shake the thought—however fleeting—that this might be the real thing. As it turns out, I wasn’t alone.

Several Rembrandts were unjustly downgraded by art scholars in the 1980s, which has thrown a cloud of uncertainty over the identification of his work. The Allentown Art Museum in Pennsylvania, for example, was given a Rembrandt in 1960 by dime-store magnate Samuel Kress. Years later, a committee of art historians calling themselves the Rembrandt Research Project examined it. The committee concluded it was painted by a pupil who worked alongside Rembrandt in his Amsterdam studio.

In 2018, the museum sent the painting of a young woman to be conserved in New York. The brushwork was too fine to be by the pupil, the restorers concluded. In 2021, the museum proclaimed the painting to be a Rembrant once again.

The errant scholars tended to demote Rembrandts that lacked dramatic flair. Critics of their work, however, say they overlooked the everyday commissions, like the one in Allentown, that Rembrandt accepted to pay his bills.

To my untrained eye, the painting in Maine had a quiet, solemn glow—just like the one in Allentown. I’m a fan of Antiques Roadshow. To me, the painting had the potential to be one of those “oh my God” finds worth a fortune.

Would I gamble on it myself? Only if it were an absolute steal. The day before the sale, I logged on to the auction website. Online bids had already reached $6,500. That’s more than I’d be willing to risk as an armchair art historian.

Others didn’t fold so easily. One man from Florida was so taken by the painting that he showed up at the auction with $60,000 in cash, according to an antique dealer I know. Would his enthusiasm carry the day?

Not even close. When I logged back in after the sale, I saw the painting had sold for $1.41 million, including buyer’s commission, among the highest prices for any artwork auctioned in Maine.

The buyer’s identity is secret. The antiques dealer I talked to believed it went to an investment banker from the United Kingdom, while a television report indicated that the buyer lives in Europe. That’s where an Old Master painting like this one may fetch a premium.

There were at least two clues of the painting’s importance. First, it had a label stuck on its back showing it had been borrowed for an exhibit in 1970 by the Philadelphia Museum of Art. That label said that the painting was by Rembrandt, not a follower. That isn’t proof of its origin, but it shows that curators thought it was important more than 50 years ago.

The second clue was the painting’s previous owners. The auctioneer, Kaja Veilleux, found it in the attic of a house in Camden, Maine, owned by a descendant of the Curtis Publishing fortune. The family, which owned The Saturday Evening Post, were wealthy style setters in the early 20th century. They could afford the best of everything, and spent lavishly on art and trophy homes.  

The question remains: Is this painting by Rembrandt or one of his followers? It may take years of study to settle the issue. The market, however, has already offered its opinion.

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Giving Credit

ABOUT ONCE A WEEK, someone will say to me, “I don’t understand bonds.” Sometimes, they’ll state it in stronger terms: “I don’t like bonds.”

Fundamentally, bonds are just IOUs. If you buy a $1,000 Treasury bond, you’re simply lending the government $1,000. The Treasury will then pay you interest twice a year and return your $1,000 when the bond matures. That part is straightforward. What’s more of a mystery is why we should own bonds and what we should expect from them.

In a recent article, investment researcher Ben Carlson highlighted why this is such a mystery. Carlson argued that the way investors tend to think about bonds doesn’t match the data. Specifically, bonds have a reputation for moving inversely with stocks. When stocks go down, bonds tend to go up.

This is known as a negative correlation, and it’s the reason stocks and bonds tend to work so well together. In 10 out of the past 50 years, the stock market has lost value on an annual basis. In nine of those 10 years, bonds gained value. That’s been a tremendous benefit.

Investors sometimes refer to this as a “flight to safety.” When the stock market drops, investors turn to the security of bonds, and that pushes bond prices up. We saw this as recently as a month ago. As you may recall, in early August, the stock market dropped briefly, in response to a weak unemployment report and other factors.

In total, the stock market dropped 6% in three days. And in those three days, bonds rose, gaining almost 1.5%. It was a perfect example of portfolio diversification. For many investors, this is reason enough to own bonds. In fact, I often describe bonds as being like insurance. They’re there to carry investors through periods when the stock market is down.

But Carlson, the researcher, argues that we aren’t giving bonds enough credit. Seeing bonds only as insurance ignores their performance the rest of the time. The fact is, bonds have delivered generally steady and positive returns through most market environments—not just during periods when the stock market has been down.

Bonds, in fact, have delivered positive performance in 44 of the past 50 years. While those returns have been lower than the returns on stocks, they’re not immaterial. On average, between 1974 and 2023, bonds returned 6.3% a year. Bonds, in other words, aren’t just insurance.

You might wonder how this is possible. If bonds are inversely correlated with stocks—rising when stocks fall—then doesn’t that mean that bonds should fall when stocks rise? This is where bonds’ reputation is a bit misleading. What the data show is that stocks and bonds are only sometimes negatively correlated. More often, the correlation hovers around zero, meaning there’s no strict pattern to how stocks and bonds trade relative to each other.

Recent data illustrates this. According to J.P. Morgan, over the 10 years through June 30, the correlation between stocks and bonds has been slightly positive, at 0.32. But over the 10 years ending June 30, 2021, the correlation was slightly negative, at -0.21. In other words, bonds and stocks generally exhibit no consistent correlation—except in times of crisis. That’s when the correlation does fairly reliably turn negative. During the early part of the pandemic in 2020, for example, short-term bonds rose when the stock market fell. This dynamic makes bonds an excellent tool for diversification.

Another lesson from the data: It’s important to be aware of the risk posed by recency bias—that is, the tendency to extrapolate from recent experience. Over the past few years, many investors have soured on bonds, but it’s important to recognize that this has been an unusual period. Why? When the Fed dropped interest rates in 2020 in response to COVID, yields on bonds and cash both dropped in tandem. For a time, both were near 0%.

That made bonds and cash seem interchangeable—and equally unappealing. Then, when the Fed began raising interest rates in 2022, yields on many savings accounts quickly rose to the 4% to 5% range. Meanwhile, bonds lost value, with the most popular bond index down more than 10% in 2022.

Result? For the past few years, cash has looked like a better bet than bonds. But this has been an unusual period, and there’s no reason to expect it to continue. In most years, bonds have delivered considerably higher returns than bank savings accounts. Indeed, with the Federal Reserve now signaling that it’s ready to begin lowering rates, this is a good time to review your holdings.

If you’ve been stockpiling cash, benefiting from today’s high rates, you might consider moving some of that over to the bond side. Not only will that position you to capture the bond market’s generally higher returns relative to cash, but it’ll also position you to benefit from the price appreciation that typically lifts bonds when interest rates fall.

Even though the Fed hasn’t formally lowered rates, market rates are already starting to adjust. Since 2022, short-term interest rates have been higher than long-term rates—a situation known as an inverted yield curve—but just this past week that reversed. This is a sign that we may be entering a more normal period, where bonds will deliver better returns than cash.

As you review your bond holdings, what else should you consider? In the discussion so far, I’ve been referring to the bond market in general terms. But some bonds are much more highly correlated with stocks—and thus offer less of a diversification benefit—than others. Corporate bonds, and especially high-yield corporate bonds, tend to exhibit strong positive correlation with the stock market, making them less useful as a diversifier than Treasury and municipal bonds.

Another way in which bonds differ from one another is in their maturities. Intermediate-term bonds will tend to lose more in value than short-term bonds when interest rates rise and to gain more in value when rates fall. Today, with rates starting to fall, intermediate-term bonds have more to gain. But to guard against future interest rate changes—which could go in either direction—I’d hold a mix of both short- and intermediate-term bonds. What about long term bonds? In my view, they carry far too much risk and typically shouldn’t be part of a portfolio.

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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No Regrets

MY FIRST REACTION ON hearing my cancer diagnosis: I’m okay with this. My reaction a few hours later: I’m being self-centered.

My time is short, though how short remains an open question. Still, my truncated life expectancy makes something of a mockery of my pre-diagnosis comments about how we should view retirement not as the finish line, but rather as the beginning of a journey that might last two or three decades and perhaps account for almost half of our adult life.

Despite that, I feel no anger, sadness or fear about what lies ahead. While I’m going to do all that I can to extend my life, until all reasonable measures are exhausted, I’m not devastated by the thought that my life will be cut short. Why not? As I look back—yes, I suddenly find myself in the “summing up” phase—I feel great gratitude for the life I’ve been able to lead.

The fact is, I’ve had wonderful opportunities and experiences, and I consider myself very fortunate. Below are nine reasons I feel grateful. One thing that struck me about my list: While money is a factor in Nos. 1, 5 and especially 6, it's of little or no importance to the other six items.

1. For most of my career, I’ve done work I thoroughly enjoy. Even today, I happily get up far too early, make a cup of coffee, and immediately start writing and editing. The only exception to this happy story was my six years at Citigroup, when—toward the end—I felt I was wasting my time and making scant difference in the world.

2. I’ve known enough bad times to have perspective. Everybody has rough periods, and it might seem like those times have no silver lining. But I’d argue bad times teach us who we are and nudge us toward a more nuanced view of the world. No, I have no desire to spend another nine years at English boarding school, or cope again with the aftermath of my father’s death, or have two wives leave me. But those experiences helped make me who I am, and I like to think they’ve knocked off some of the rough edges and pushed me to appreciate life more.

3. I have a close-knit family. I have two children and, so far, two grandkids. I also have an 85-year-old mother and three siblings, and—all these decades later—we all remain surprisingly close. I hear about so many fractured families, where old wounds fester and folks refuse to talk to one another. Somehow, we’ve avoided that fate.

4. I got the chance to push myself to my physical limits. As a schoolboy, I was scornful of athletic endeavors and made scant effort. That changed in my 30s, when I became intrigued by the idea of running a marathon. I ended up running four marathons and five half-marathons, including a half-marathon around the deck of a boat floating off the coast of Antarctica. I also ran a slew of local 5k, five-mile and 10-mile road races, finishing first on a dozen occasions. My dodgy right Achilles means I can no longer run, but I can still recall the pleasure of emptying myself during the final miles of a race.

5. I’ve had the opportunity to see much of the world. Not long before I turned age 10, my father was posted to Bangladesh for four years, giving us the chance to see much of the region. I’ve traveled often to Europe, and my children’s studies have meant I’ve spent time in Senegal, Egypt and Turkey. Sure, there are places I’d still like to see—and, at this point, probably won’t—but I don’t feel shortchanged.

6. While I worried a lot about money in my 20s and 30s, I haven’t worried much since. As I’ve come to appreciate, that’s rare: For far too many folks, money casts a dark shadow over every day, and escaping those worries can seem like an impossible task.

7. On a handful of occasions, I’ve felt like I had the world’s attention. A few times, I’ve appeared on major television shows, triggering phone calls and emails from folks I hadn’t heard from in years. When I was at The Wall Street Journal, I wrote some articles that prompted 500-plus complimentary emails. Such moments were rare enough to seem special—and sufficiently infrequent that my ego didn’t remain inflated for long.

8. I’m getting to spend my final days with someone I love deeply and who loves me. In the middle of the night, when dark thoughts derail my sleep, it’s wonderful to rest my hand on Elaine’s arm and draw comfort from her stillness.

9. I've been afforded the time to contemplate my own death. There will be no sudden demise or slow slide into dementia. How would you change your life if you knew you had just a year or two to live? I’m getting the chance to answer that question, and I consider it a great privilege.

Still, all of this is a tad selfish. I may not be racked with regret and sadness over my early departure from this life—but arguably I’m the lucky one. As I’ve come to realize, it isn’t me who is suffering, but rather those who will be left behind, and especially Elaine, who will need to build a life without me.

I have the chance to make my peace with my fate, while Elaine and other family members must grapple with all the uncertainty that’ll follow. I’m trying to make the most of each day I have left, even as they’re grieving—and my refusal to join in the grieving creates a void that makes it more difficult for them.

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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Our Balancing Act

WE MAKE CONSTANT tradeoffs as we allocate our time and money across our life’s many competing demands. What if we feel like all is not right in our world? We may be confronting the seven choices below—and favoring one option at the expense of the other, leaving us with what feels like an unbalanced life.

1. Between doing what we should and doing what we want. Here, I’m thinking about taking care of ourselves physically. We need to strike a balance between rest and exercise, between time asleep and time awake, and between eating what we want and eating what we should. I’m no expert on such things—but I sure know the feeling when I haven’t had enough sleep, or I’ve been eating the wrong things, or I’ve either been too active physically or too sedentary.

2. Between spending and saving. For most Americans, the problem is too much spending and not enough saving. What if you’re the exception—which many HumbleDollar readers seem to be—and find it hard to crack open your wallet?

I’m not inclined to chastise folks for spending too little, unless their lack of spending is leading to unnecessary misery. But I would encourage folks to think about how they’d ultimately like to use their money, whether it’s to pay for big financial goals, help family and friends, or support their favorite charities.

3. Between seeking returns and avoiding risk. This can also be framed as upside potential vs. downside protection or as getting rich vs. avoiding poverty. We all want both, but we also all favor different spots on the spectrum that stretches from super conservative to wildly aggressive. This reflects both our emotional risk tolerance and our objective capacity to take risk.

4. Between work and leisure. There’s much talk about work-life balance. For many harried workers, what’s needed may be more leisure.

But what about retirees? For those who find their days of endless relaxation less satisfying than they imagined, what may be needed is more work. No, it doesn’t need to be the paying kind, though I’m all in favor of earning a few bucks. Instead, the work could be projects around the house or volunteering in the community.

5. Between purpose and fun. There are two types of happiness: hedonic and eudaimonic. Hedonic happiness is a fun dinner out with friends. Eudaimonic happiness is the sense of satisfaction we get from devoting ourselves to our favorite hobby.

Eudaimonic happiness may seem somehow more worthy than hedonic happiness, but I don’t think we should make that sort of judgment. Instead, I think we should strive to strike a balance between the two.

6. Between friends and family. As with a lot of folks, family is a priority for me. I regularly call my mother and sister. I try to see my daughter, son-in-law and two grandsons regularly. Vacations often revolve around family members.

But I’ve heard folks say that we spend time with family out of a sense of obligation, but we see friends because we enjoy it. I’m not sure I agree—or maybe I don’t feel that’s true for my family—but I think it’s a notion worth pondering.

7. Between time alone and time with others. What’s the right balance between these two? We’d all offer different answers, depending on our personality. But whether we’re extroverts or introverts, I suspect we’ve all felt lonely at times—and we’ve all felt the need for time alone after being among a scrum of others.

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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Looking Real Good

I HAVE LONG HELD a grudge against Los Angeles, and not just because they stole the Dodgers from Brooklyn when I was a kid. It’s a city where too much value is placed on how you look, a metric where I don’t score particularly high. By contrast, New York City—my old stomping ground—is principled more on what you know, and on that score I feel I deserve at least a gentleman’s C.

That said, there was one visit to Los Angeles that made me a little fonder of the city. The caper began innocently enough, when my wife Alberta arranged a trip for us to see her widowed mother.

Opportunity. The year was 1983, when the conventional 30-year mortgage rate was 13.2%. Builders were laboring under the weight of bridge loans as high as 16%. With few buyers able to afford or even qualify for a mortgage, many of these corporations were strapped for cash and often fending off bankruptcy.               

One such company was Daon Corporation, which had speculated that the 9.9% annual real-estate appreciation of the 1970s would continue to roll in California. Instead, the company was facing the high interest rates that brought on the 1981-82 recession. By 1983, those high rates had only just begun to subside.

Like many of its fellow developers, Daon was forced to unload inventory to avoid financial disaster. Fortunately for Alberta and me, her mother subscribed to the Los Angeles Times. I spotted a prominent advertisement from Daon offering to sell apartments in a large residential building.

The terms were a hefty 25% down, but with a big hook. The company offered an unimaginable seller-financed fixed teaser loan of 0% over five years, putting the time value of money squarely on the side of the buyer.

Research. A telephone call and some quick number-scribbling helped sort out the pros and cons. A child of Los Angeles, Alberta knew the location well. Not primo, but a confident B+. Daon would assume most closing costs. Four residences remained to be sold, three two-bedroom apartments and one one-bedroom. All were rented with leases. The clincher was an impending conversion from a weak legal structure to condominium status, a move sure to bump up value.

But what about price? A little figuring turned up what should have already been obvious: The only way for Daon to overcome the absence of mortgage interest was to ratchet up the selling price above fair market value. A perusal of recent sales in the complex, however, revealed no such premium—but no discount, either. For the purchaser of these apartments, the financial edge would be in “buying the mortgage” more than the property itself.

Planning. The catch was that the buyer had to purchase all four units, which at the time was out of my league. I eyed the small unit, which sold for $50,000. We had $12,500 stashed away for this kind of opportunity. But how would we manage the high monthly payments needed to pay off the $37,500 loan in just 60 months, which was what the seller required?  

We devised a plan. Each of us had two income streams. Alberta had a faculty position at the university and a fledgling private practice. My salary had two components, one for my teaching and the other for my clinical work at the medical school. We would hunker down, using our income from patient care to make the monthly payments.

Then came some soul-searching. Was I being too conservative? Anticipating a return to real estate’s go-go days but lacking cash in the recession, many investors opted to put down little or no money to maximize leverage. The game was to flip the property after just a year for a capital gain before the mortgage burden became insurmountable.

Yet, here I was, considering a deal that required us to plunk down a wad of cash that would severely limit our leverage and reduce it to zero after five years. On the other hand, I felt it was too early in my retirement voyage to risk shooting for the stars.

Family ties. What about the other three apartments? Enter my brother Richard. Right from the get-go, he wanted all three. He’d done a lot of real estate, large and small, and had a thriving law practice in Fort Lauderdale. More important, we had collaborated on several deals and had no trust issues.

Rich would send me the money for the down payment and incidental expenses for the three two-bedroom residences, and also hook me up with an attorney in Los Angeles to oversee the transactions. His office would handle all the paperwork. I’d arrange for the inspections, hire the property manager and be on the lookout for ominous developments.

That’s how my Los Angeles gambit played out. The conversion to condos took place as planned and management proved easy. The only excitement was provided by a mold scare, but the tenant who might have encountered respiratory sensitivity agreed not to file a claim in return for two months’ free rent. Real estate values declined for some time and I was glad we hadn’t gone with a high leverage program. Unable or unwilling to sell in that market, many “nothing down” speculators were derailed by their payment obligations.

Alberta and I sold the one-bedroom condo in 2007 for $252,000. This sounds spectacular until you consider that over 24 years the compounded annual rate of appreciation on the $50,000 purchase price was an okay 7%. Of course, the property also threw off 5% net income annually, plus we enjoyed the tax advantages of private real estate ownership. Even so, I suspect many readers would prefer the hassle-free ride of owning the broad stock market instead.

Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve's earlier articles.

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My Path to Peace

FORMER NEW YORK CITY Mayor Ed Koch used to frequently ask the city’s residents, “How am I doing?”

When I was younger, I’d ask myself that same question. I was always trying to keep up with others, whether it was socially, academically, athletically or financially. My big fear was that I wasn’t going to make it. I could never let down my guard, relax and take it easy. I was always having to compensate for whatever I was deficient in. It became my norm.

Then I retired, and everything changed. I felt like I’d crossed the finish line. I felt like I was done with making adjustments.

I took an inventory of my life—everything I’d done and everything I now had. I was surprised. All the things I worried about achieving, having or overcoming, I’d managed to accomplish.

A feeling of peace came over me—not a religious peace, but the satisfaction you get when you achieve or accomplish something important. I could relax and stop to smell the proverbial roses, something I’d never before let myself do.

I’d been too busy trying to keep up, trying to overcome deficiencies and obstacles, with the belief that—if I didn’t—I’d fail. And it would be my fault, because I wasn’t trying hard enough.

One of my hobbies, if you want to call it that, is learning about finance. I’ve always sought out articles or books to learn all that I can. What should I be doing, or not doing, to reach financial independence?

During my reading, I often saw references to people trying to determine how they were doing relative to others. Do they have more or less than their neighbors, classmates or co-workers? I found that silly.

The main question I have at this stage in my life is, “Do I have enough?” To me, “enough” means enough money to pay my immediate bills. I know that sounds rather small-minded. But that’s the beauty of my life at this stage. I don’t have to work, and yet I have enough to put food on the table and keep a roof over my head.

During my last job, people would regularly approach me in the coffee room and ask, “How are you doing?”

My reply: “I’m still breathing. Count your blessings. Blessing No. 1: I’m still breathing.”

The response would be an “amen” from the more religious types, or a smile or “you’re right” from others.

My blessing is, I can look back over my life, and feel I’ve made it and I now have enough. I’m still breathing. I’m not in a hospital bed. I have money in the bank. I have free time to do whatever I want.

To me, these are the most important things, the reward for a life where I focused so much time on finances. That focus means today I can pay my bills without doing any paid work.

Will I always have enough? I have no idea. If I stay out of nursing homes and don’t come down with any critical diseases, I probably will. But who knows? To me, the important thing is to take the time now to enjoy life—because we never know how much time we have.

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