Jonathan Clements's Blog, page 88

Still Learning

WHEN I LOOK BACK at my career, I see that the key to my long tenure with one employer was my desire to learn new skills and help expand the business. That mindset, I believe, helped me survive multiple rounds of layoffs.

I’m hoping that same mindset will help with retirement.

Many retirees say, “I just want to relax. Get rid of the alarm clock. No more classes or schedules for me.” While that feels good for a while, I’m not sure such an attitude will sustain their happiness for long.

The fact is, retirement brings with it a sense of lost identity. Many retirees miss the workplace’s routine, their colleagues and even the office politics. Meanwhile, research suggests lifelong learning offers psychological benefits for seniors.

During my stay at a 55-plus community in Atlanta, I saw a 90-something-year-old gentleman carrying a bag full of books every few weeks to his room. One day, I asked him what he was up to. He said, “I go to the public library and take books from there. Every two weeks, I try to read at least two books. That keeps my mind sharp.” I could see he was on a mission.

I also learned something important from our 18-month-old grandson. Several weeks after getting a book about cars, trucks and various animals, he wanted me to show him new books and new toys, not the old ones. It’s fascinating to see how curiosity and desire to learn drives a child’s development.

Humans are wired to learn, adapt and grow. That is essential for our survival and progress. The same could be said for retirement. Focusing on curiosity and learning can make for a happier retirement.

There are many retirees who seem to thrive on learning new things and taking up new hobbies. You likely know them. They’re the ones who show up regularly for any interesting activity or volunteer work. Many may have physical limitations or financial problems, but they’re out there doing their best and having fun.

When I visit aquariums or museums, I always see retirees volunteering. I talked to one of them. “I used to be a school principal,” she told me. “Losing my identity after retirement was hard. I had to reinvent myself. Volunteering was my ticket to learn new skills and be active.”

Opportunities for lifelong learning have never been greater. Think of all the free online courses from top universities, the books available online and the slew of YouTube channels. You can pursue hobbies such as painting, gardening, photography, golf, hiking, fishing, book clubs, carpentry, volunteering and music, all of which provide opportunities for self-expression and learning. Check out this list of hobbies that are especially popular with seniors.

We can also broaden our perspective by traveling, attending cultural events and exploring different cuisines. Intergenerational learning through mentoring programs is another opportunity.

I’m trying my hand at gardening, writing and music. I’m also mentoring students at a nearby university. All these activities are new to me. They’re challenging and rewarding at the same time. Importantly, they provide a routine that fills my day and keeps me active.

It helps to remember Henry Ford’s famous quote: “Anyone who stops learning is old, whether at 20 or 80. Anyone who keeps learning stays young.”

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Here to Stay

DURING MY INSURANCE career, I worked for a company that focused solely on certain types of businesses, or what’s known as niche underwriting. One niche was called senior living, and it insured continuing care retirement communities, or CCRCs.

These communities typically consist of apartments where retirees live alongside an adjoining nursing home. One benefit: When residents need nursing home care, it’s right next door. If they’re married, the healthy spouse can just walk to the nursing home to visit his or her beloved. This is an expensive lifestyle, however. You typically pay a steep admission fee and high monthly rents for the guarantee of nursing care whenever it’s needed.

What if you can’t afford a CCRC? During my research into the industry, I studied the life stages that retirees frequently follow, and saw that many folks took one of two paths.

Some active retirees move from where they raised their family to warmer locations, like Florida or Arizona. Once there, they often live in a community designed for people age 55 and older. Think of it as summer camp for retirees.

I found these folks tend to live in these communities until the first major illness occurs. At that point, they often move back to where they came from, so they can be closer to family. This is what my in-laws did. They lived in Sun City, South Carolina, for 20 years until my mother-in-law got sick. Then they moved back to be near one of their daughters on Long Island, New York.

A second popular option for retirees is to stay where they raised their family and live in that same house until they die. This is aging in place, and it’s what my mother did. She and my father bought their house in 1946 and she stayed there until she passed away in 2007. My mother often considered moving to be closer to a friend, but then that friend would fall ill and die.

What about my wife and me? It seems we’ll also be aging in place.

I grew up on Long Island. My mother was raised in West Virginia. Every summer, we’d take the long drive to her family’s summer cabin in the northern part of the state. No friends. No TV. No indoor plumbing. I trekked across the yard to an outhouse. We pumped water from a well by hand. Those West Virginia vacations were pure misery.

One thing I remember from those trips was driving down the New Jersey Turnpike and seeing the smelly, dirty oil refineries of Elizabeth, New Jersey, and feeling sorry for the poor people who had to live in this filthy state. “Thank God I don’t live there,” I thought.

Then, in 1987, I moved to New Jersey for a job relocation. I’ve been planning my escape ever since. After retiring, I wanted to move to Florida, with its warmth and no state income taxes. But this plan was mine and not my wife’s.

When I raised the topic, she informed me she didn’t want to move. This came as a shock, but maybe it shouldn’t have. Our lives together have always revolved around New York and New Jersey.

Staying put has been a blessing and a curse. The blessing is our house is paid for. It’s big enough but not too big, so we can stay here and age in place. The curse, at least to me, is that the house is in New Jersey.

Maybe I should look on the bright side of living in the Garden State. I saw my in-laws move to a location that required them to evacuate at least once a year because of hurricane warnings. Unsettled weather seems to be everywhere. Florida is hurricane-prone. Arizona is drought-prone. Hawaii has volcanoes and wildfires. California has “shake, bake and slide”—earthquakes, wildfires and mudslides.

With these sorts of Old Testament threats so prevalent, if we were to move, where would we go? Many old friends have chosen to shelter in place with people their own age, moving to 55-plus communities. We can’t join them. You must be at least 55 to live in these communities. My son lives with us, and he’s under 55.

Is there an ideal location where we can live out our final years in peace and harmony? I don’t think so. My wife would like to be closer to her sister and nieces on Long Island. The taxes on Long Island and New Jersey are about the same, and so is the weather, so I see no advantage to moving there.

It looks like my retirement location is going to be my working years’ location, except without the job. Aging in place is our default. It looks like we’re here to stay.

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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A Foolish Option

WHEN WAS THE LAST time you got scammed? Mine was about a year ago, when I threw more than chump change into a red-hot newfangled exchange-traded fund called the JPMorgan Equity Premium Income ETF (symbol: JEPI).

Now, JEPI could be the name of someone’s pet poodle, but it’s actually one of the more misunderstood high-income products in the burgeoning world of actively managed exchange-traded funds (ETFs). Just how red hot is the fund? Around for only four years, the fund has amassed more than $34 billion in assets and become the country’s most popular actively managed ETF.

It’s benefiting from a revival of enthusiasm for the option-income fund, a strategy with an underwhelming investment history but a surge of industry propaganda. On the surface, the JPMorgan Equity Premium Income ETF looks sweet. It offers a yield that has at times exceeded 12%, with a downside of less than two-thirds that of the broad stock market. Meanwhile, it still has some room for capital appreciation.

The fund’s advisors look for stocks of high-quality, fundamentally sound companies, most of which are members of the S&P 500. The portfolio is diversified across about 130 stocks, and is tilted away from the tumultuous and likely overvalued technology sector.

See how I got hooked? I even got victimized by the 0.35% expense ratio, which I saw as a bargain for an actively managed fund.

Just what is this contraption called an option-income fund? Its portfolio consists mostly of dividend-paying stocks. The fund’s managers sell instruments that, like options, are designed to slightly limit losses during a market decline. While you get some insurance, I’ve discovered that I pay dearly for it, in the form of a cap on the fund’s gains during up years. That restriction on how high your gains can go isn’t the only snafu here, but it’s the most important reason I should have stayed away.

The fund’s advocates like to point to its stunning performance when the market took a drubbing in 2022. The ETF lost only 3.5%, compared to the 18% decline in the S&P 500. What boosters gloss over is the fund’s subsequent lackluster showing. In 2023, it earned 9.9%, including dividends, while the broad market charged ahead by 26%.

Things are no better in 2024. Its return is 8.2% through July, compared to the S&P 500’s return of 15.8%. Let’s put it in plain dollars and cents: Since its inception in May 2020, a $10,000 investment in the vaunted ETF grew to about $16,300 as of this June, quite a bit short of the $19,600 returned by Morningstar’s comparable broad market index.

Yes, the protection it offers in a falling market could come in handy. But let’s get the truth out folks—stocks are in a bullish mode roughly two-thirds of the time.

The fund’s fat dividend is no bargain, either. First, the fund’s dividend yield has dropped from 12% to 6.4% as of July 31. Second, dividend is a misnomer anyway. This ETF’s distribution is actually a combination of dividends from its stock investments, plus income thrown off by the option-like vehicles known as equity-linked notes.

The dividend component of this combined distribution is actually quite small. How could it be otherwise when four of the fund’s top 10 holdings are technology behemoths that pay small dividends or none at all?

The lion’s share of the payout comes from those equity-linked notes, which—unlike dividends—are very much affected by the jumpiness of the market. People who trade options crave action. They’re driven to them when stocks are the frothiest.

That’s why the fund’s distribution topped 12% when market volatility was high. The yield has gradually subsided to 6% as the market has become less lively.

The ETF’s monthly payouts to shareholders are a nice feature, but hardly anyone I know likes a variable distribution. Retirees using dividends to pay for essential living expenses prefer their income stream to be steady.

The fund’s deficiencies go beyond its lagging returns and uneven payouts. Income from the fund’s dividends and option-like notes are treated as ordinary income. The fund’s dividends are not considered qualified. After taxes, that 6.4% dividend becomes worth something like 4.6% for me. That’s close to the rate I can obtain practically risk-free from a money market fund.

Don’t make the same mistake I did. You’ve got two good options for this option-income fund. Own it in a nontaxable account or—better yet—pass it by.

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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Avoiding Bad Guys

MONEY MANAGERS Raj Rajaratnam and Joel Greenblatt share a number of similarities. They’re almost exactly the same age. Both received business degrees from the University of Pennsylvania, and both started well-known hedge funds. But the similarities end there.

During the 10 years that Greenblatt operated his fund, Gotham Capital, it delivered returns averaging 50% a year, versus 10% for the S&P 500. Thanks to his success, Greenblatt retired from full-time work in 1994 at age 37. Since then, he’s written popular investment books, taught business school classes and devoted a large portion of his wealth to philanthropy. Among other initiatives, he’s given millions to cancer research and built the Success Academy group of charter schools in Harlem.

Rajaratnam’s story turned out differently. In 2008, during the depths of the financial crisis when banks were struggling, Rajaratnam received a tip that Warren Buffett was about to make a life-saving investment in Goldman Sachs. Acting on this tip, Rajaratnam’s fund bought Goldman shares and booked a $900,000 profit when Buffett’s investment was announced just a day later. When the government caught wind of this transaction, Rajaratnam was convicted on insider trading charges and sentenced to 11 years in prison.

When we think about financial malfeasance, names that typically come to mind are Ponzi and Madoff. But unfortunately, they aren’t the only ones. Stories like Rajaratnam’s occur with regularity. The challenge for individual investors is that it’s extremely difficult—without the benefit of hindsight—to tell the difference between a Joel Greenblatt and a Raj Rajaratnam. On paper, they would have looked virtually the same: smart, well-educated and possessing what appeared to be winning investment formulas. So, how can you tell them apart? Below are five litmus tests.

1. Red flags. Back in the 1920s, when Charles Ponzi began soliciting investors, he promised a 50% return within 45 days or 100% within 90 days. Today, if someone came along promising those kinds of returns, you’d immediately recognize it as a scam.

Unfortunately, fraudsters have learned to make their pitches sound more credible. That’s a key reason Bernard Madoff was able to get away with his scheme for so long. Instead of making outlandish promises like Ponzi, the returns Madoff advertised were in the neighborhood of 10% each year—not too different from the market’s overall returns. That made his fraud harder to uncover. Still, there were red flags. Most notably, he refused to share the details of his investment strategy.

Sometimes, the warning signs take a different form. Ponzi scheme operator R. Allen Stanford, who was convicted in 2012, grew up in Texas and earned a finance degree from Baylor. But when he established Stanford International Bank to peddle his phony certificates of deposit, he operated out of various locations in the Caribbean. That should have raised questions.

That brings us to the first lesson for investors: If a prospective investment is too difficult to understand, or if there’s anything that strikes you as odd, you might want to move on. In some cases, you’ll be passing on an investment that works out well. But don’t worry about that. As Warren Buffett often says, there are no “called strikes” in investing. There’s no penalty for being patient and waiting for another opportunity—because there will always be another.

2. Personality. I recall meeting an investment manager who bragged about how many miles he ran each day “with no music.” It was an odd boast, but it helped paint the picture of someone who would run through walls. Wall Street seems to have more than its fair share of storytellers like this, brimming with self-confidence and speaking in absolutes. But this sort of thing can distract investors from making clear-eyed assessments of risk. That’s why it’s so important to stay focused on the numbers. If a fund manager seems to be using emotional appeal as part of the pitch, be wary.

3. Track record. Because this sort of self-confidence can be so convincing, I prefer investment offerings that aren’t personality-based. Instead, I look for simple strategies with long track records. But this can still be an uphill battle.

Why? Author Morgan Housel explains it this way: “The solution to 90% of financial problems is ‘save more money and be more patient.’” But people on Wall Street find that simple prescription boring, so they end up promoting investments that are more complex, including “derivatives, high-frequency trading, offshore tax shelters….” Wall Street’s powerful marketing machine then promotes these new investments.

The lesson for investors: If an investment fits in the “new and interesting” category, it may be worthwhile—but there’s no rush. Allow it time to prove itself before committing.

4. Public. On a related note, I almost always caution against private funds. It’s not that investors can’t do well. But the risk level is always going to be higher in a private fund, where there are fewer eyes on it.

5. Faith. A final litmus test is whether an investment requires an act of faith. Consider Enron. It started out as a conventional oil and gas business. But over time, it became something else. When it fell into bankruptcy, Enron was trading everything from water to paper to broadband services. And every time it expanded, its reputation seemed to grow, helping to inflate its stock price to more than 50 times earnings.

Investors hadn’t paused to think critically because it looked like Enron was inventing the future. But when one reporter looked through the financial statements, she found “strange transactions,” “erratic cash flows” and an unexplained level of debt. This information was all public, and other investors could have done the same research. They didn’t, I suspect, because they were distracted by the shiny vision of the future that Enron’s leaders had presented.

Peter Lynch, the legendary fund manager, offers this advice to investors: “Never invest in anything you can’t illustrate with a crayon.” It’s a simple but valuable lesson.

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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On the Clock

FIRST WAS THE VOICE of my father’s friend. Then a policeman came on the line. While riding his bicycle, my 75-year-old father had been struck and killed by a speeding driver.

That was 2009. There were no goodbyes. Instead, seared into my memory are the photograph I was shown at the hospital, so I could identify my father’s body, and the details in his final medical report, which I never should have read.

My death will be far different. I’ve been given the time to straighten out my financial affairs, savor some last experiences, spend time with friends and family, and set HumbleDollar on a course that I hope will ensure it continues to thrive.

Needless to say, my version of death seems preferable. Like everybody else, I have a finite lifespan, but mine involves far less uncertainty. My truncated time has brought into sharp focus what’s important and what isn’t. I refuse to spend my remaining time being angry about my cancer diagnosis, or feeling cheated, or wondering why I got the defective cancer-causing gene, or bouncing from one cancer center to another in search of a cure that doesn’t exist.

Instead, I’m determined to make the most of every day, doing what I love and trying mightily to fend off life’s nonsense. It’s an attitude I recommend to readers—one I’d encourage you to embrace now, rather than waiting for a dire medical prognosis. We should never forget that our most precious resource isn't money, but time.

I’m no fan of motivational speeches and feel-good pop psychology. Still, at this moment, I’m willing to embrace one piece of bumper-sticker wisdom: Happiness is a choice. It's highly likely that my days will draw to a close within the next few years—for those with my diagnosis, the median life expectancy is 16 months—and there isn’t a whole lot I can do about it, other than follow the treatment plan, eat healthily and continue to exercise. But I can strive to make the most of the days I’m granted.

So, what do I mean by “choosing happiness”? No, I’m not angling to have some laughs and a few drinks with buddies. Rather, I have a vision of the future that I want to see fulfilled. I want to die knowing I’ve built something—a sound future for my two kids, a good life for Elaine, and a solid path forward for HumbleDollar. If I can put the necessary pieces in place, I’ll be happy.

Crazy as it sounds, Elaine and I are even exploring remodeling the upstairs bathroom, with all the disruption that’ll be involved. It’s something we discussed before my diagnosis. I’d love to get the work done for Elaine's sake, plus the feeling of accomplishment would make me happy. Yes, despite the late hour, making progress still gives me a profound sense of satisfaction.

Even as I strive to make the most of the here and now, sadness occasionally creeps in. I find myself pondering the retirement years I won’t have with Elaine, or how my three-year-old grandson will have scant memory of me, or how I’ll be nothing but a photograph to his newborn younger brother. Such moments sometimes hit me in the early morning, when I’m alone in the basement, spinning away on the stationary bicycle, the tears mixing with the sweat.

Moments of irritation also occasionally creep in. Soon after I got my diagnosis, it seemed the insurance company was dragging its feet, taking far too long to approve my treatment plan. I was bothered by the delay. But mostly, I was bothered that this bothered me—that I was wasting time being angry at some lumbering, unresponsive insurance company. That meant a day that wasn’t as good as it could be.

Still, despite the brief moments of sadness and irritation, the days seem pretty good right now. I’m continuing to work hard to keep HumbleDollar chugging along and to prep the site for a future without me. I’m spending more time with Elaine and my kids. I’m feeling mostly fine and, indeed, my only major complaints are the disrupted sleep that accompanies the steroids I’m taking and the fatigue caused by the chemotherapy.

I'm hoping this happy state will last for at least another year, but there are no guarantees. What about when the end comes? It’s hard to know what it’ll be like—which part of my body will give way, how much discomfort and pain will be involved, and how clear my thinking will be at that juncture. Still, in my wishful thinking, I have a mental picture of how it’ll play out.

After decades of pushing myself far too hard, I like to think I’ll gracefully acknowledge that cancer has the upper hand. And that’s when I’ll cut myself some slack, I’ll give in to the morphine offered by the hospice nurse and I’ll drift off, finally getting the sleep my body hungers for. Reality, of course, will be far messier. But this is the story I tell to comfort myself.

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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My Favorite Fund

IF YOU WORKED AT Vanguard Group, you felt like a kid in a candy store when it came to picking investments. There were so many well-run, low-cost funds to try. Yet my favorite fund wasn’t offered as an investment option in the Vanguard 401(k) plan. Ironically, it’s the fund that made Vanguard’s reputation.

Vanguard opened its S&P 500 index fund (symbol: VFIAX) in 1976. This first commercially offered index fund was designed to earn the U.S. stock market’s average return by owning every stock in the S&P 500 in proportion to its market value. The fund slowly rose to dominance as its returns dependably exceeded the majority of actively run funds, decade after decade.

For me, the fund was a sentimental favorite. I began investing in Vanguard’s S&P 500 index fund through my IRA when I was an associate editor at Kiplinger’s Personal Finance magazine. I appreciated its low cost and persistently good returns. It was also my favorite recommendation to readers.

In the course of my reporting, I interviewed many fund managers. While they were often bright and personable, I noticed that even those managers with the most compelling stories tended to lag behind the S&P 500, often badly. I began to appreciate the genius of the index fund. Though I couldn’t guess where the greatest returns from the market would emerge next, I’d profit from the wave anyway if I just held onto the index.

Yet the 500 fund’s success wasn’t enough for Vanguard’s founder, Jack Bogle. In his memoir, Bogle reported walking into the office of the fund’s manager, Gus Sauter, in 1992 and saying, “Gus, let’s stop messing around and let’s do a total stock market fund.” Bogle wanted an index fund based on the broadest possible measure of the U.S. stock market, then the Wilshire 5000.

This became Vanguard’s total stock market fund (VTSAX), which today owns more than 3,600 stocks in its portfolio. It’s this fund—and not the 500 fund—that’s offered in Vanguard’s 401(k) plan. The fund includes the small and mid-cap stocks that the S&P 500 fund excludes.

The total stock market is arguably the better fund because it’s more broadly diversified. About 20% of the fund’s portfolio is invested in small-cap stocks, whose returns were long reputed to beat large-cap stocks over time.

It just hasn’t worked out that way lately. As of July 31, the S&P 500 fund has a 13.11% average annual return over the past 10 years, compared to 12.52% for the total stock market fund. The 500 fund has beaten the total market fund’s returns over one, three and five years as well.

Why, contrary to expectations, is the S&P 500 fund outperforming the total market fund? I can think of five reasons:

1. Higher dividends. The S&P 500 has more invested in big dividend payers. The S&P 500 fund yielded 1.25% as of July 31, just a whisker more than the total stock market fund’s 1.24%. It’s a slight edge, yet it seems persistent.

Dividends deserve great respect because they represent dollars returned to investors. By contrast, stock price appreciation is only realized at redemption and is never as certain.  

2. Active selection. The 500 fund is unmanaged, buying the stocks in the S&P 500 index. The index’s lineup is supervised, however, by a committee at S&P Dow Jones Indices that does make periodic changes. The committee’s mandate is to select the leading companies in leading industries whose shares are traded on U.S. stock exchanges.

The committee gave the hook to sports apparel firm Under Armour in 2022 after its share price had fallen by more than half. To take its place, it added beverage maker Keurig Dr Pepper whose single-brew coffee service began showing up everywhere I went.

This regular housecleaning tends to show faltering firms the door, while welcoming rising stars to the large-cap club. The index minders are, in effect, selling losers and holding onto their winners, a well-regarded investment strategy. The total stock index fund has no similar oversight.

3. Speculation. When a company is added to the 500 club, its shares experience an overnight price jump. That’s because all S&P 500 funds must buy shares to add to their portfolio.

Vanguard’s longtime index chief, Gus Sauter, bought futures in the handful of stocks most likely to be added ahead of the committee’s announcements. As a group, these stocks tended to represent profitable companies whose market cap had just reached the bottom rung of the 500.

Through this and other profitable maneuvers, Sauter managed to earn enough to run the fund at a minuscule annual cost, currently 0.04% of assets, or four cents a year for every $100 invested. Sauter is so highly regarded at Vanguard that they’ve named a road on the company’s Malvern, Pennsylvania, campus after him.

4. Large-cap dominance. Large-cap stock returns have been beating small-cap stock returns for years, just the reverse of what was observed in the 1970s and 1980s. There appear to be some inherent advantages to large size.

For example, large-cap companies often use their strong balance sheets to buy back billions of dollars’ worth of their stock. As the share float shrinks, earnings per share will rise as long as profits stay constant. That helps support the stock price, as well as the CEO’s compensation, which is so often set to reflect shareholder performance.

Lately, the largest tech companies have achieved global dominance and expanded into booming new fields, such as cloud storage and artificial intelligence. Information technology firms have lately come to represent nearly a third of the S&P 500 index’s total value.

5. Luck. The worrier in me can’t ignore the possibility that the S&P 500’s outperformance is due to random chance or, worse yet, a bubble in the tech sector. If that’s the case, the 500 fund’s returns may revert when tech corrects, as it has before, often painfully.

I hope I haven’t jinxed my favorite fund by writing this article. I will continue to own it through my IRAs, although my larger holding is the better diversified total stock index fund, which I continue to own through the Vanguard 401(k). I guess I’m covered whichever one comes out ahead.

Greg Spears is HumbleDollar's deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

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Go-Go or Slow-Go?

THESE DAYS, IT SEEMS every other article on retirement talks about a neat division between the go-go, slow-go and no-go years, with retirees moving seamlessly from one to the next.

I don't remember seeing anything about these stages back in the late 1990s when I was contemplating early retirement. Instead, when I quit full-time work in 2000 at age 53, I just wanted to travel before I got too decrepit.

I did travel—extensively—right up until 2017, when my rheumatoid arthritis came out of remission. Lying on the couch before I started on an effective medication, I was profoundly thankful for those years of travel. Between arthritis and COVID-19, I went directly from go-go to no-go. Since I was immuno-compromised, I spent the COVID years home alone with lots of library books and my computers.

Now my arthritis has gone into remission, and I’ve successfully arranged my move to a continuing care retirement community (CCRC). Between exercise, classes, committee meetings and time with new friends, I’m staying busy. So, for now, it’s no more no-go. But should I shift fully back to go-go? I'm healthy, my finances are in good shape and the world is still out there. What happened to the travel bug?

By the time I was forced to stop traveling, I had the whole process well organized. But times have changed. Flying was always a pain, even in business class, but now it sounds like it's even worse.

To make long flights worthwhile, I’d spend months at my destinations. At age 77, I don't think I'm up for a three-month trip, much less six. On the other hand, public transport has significantly improved, with more high-speed trains and the return of night trains with better sleeping accommodation.

I’d always enjoyed staying in bed and breakfasts (old-style B&Bs, not Airbnbs), pensions and small local hotels. But along with friendly fellow travelers, such places came with lots of stairs. My knees have been troublesome, quite aside from the arthritis, and I suspect I now need hotels with elevators.

Another concern: I heard that instead of cash or even credit cards, some countries have moved to apps for payments. I prefer to keep my finances separate from my phone.

And where would I go? By 2017, I’d been round the world four times and visited more than 70 countries. Some places I haven’t gone, like Iran, remain on my no-go list for reasons that haven't changed. I don’t want to return to countries like China, Russia and Ukraine for obvious reasons.

I’ve also been reading about crowds at popular destinations. I've already seen places, which I loved on my first visit, change by the time I returned. When I arrived by bus in 2002, Luang Prabang, in Laos, was a magical, misty town lost in the jungle. When I flew back 10 years later, it still offered beautifully decorated temples and gently fading French colonial architecture, but it was well and truly on the tourist circuit.

The first time I visited Dubrovnik, in 2004, I walked the city walls alone. The last time, in 2011, I had to queue up to get into the old town. Even sadder, a friend visiting Portugal, one of my favorite countries, described encountering huge crowds even in what used to be shoulder season, the period beween peak season and offseason.

I did almost all my travel solo, arranging transport and accommodation myself. I might take an occasional tour when public transport looked iffy, or to break up a long trip, but I preferred setting my own pace. I was even less interested in cruises, although I did enjoy a Hurtigruten trip up the Norwegian coast, and a bare-bones voyage on a cargo boat along the Chilean coast.

Perhaps now is the time to give more thought to tours. I'm not sure I'm in good enough shape for the Rick Steves or Intrepid tours that I used to take. But there is an interesting rail tour of Japan with a new-to-me outfit called Vacations By Rail. Or I could start with a second train trip across the U.S., taking a different route this time. And there are two long rail journeys in Australia I didn't get to yet.

Do I take advantage of my unexpected return to good health and revert to the go-go years? Or settle into the slow-go life at my CCRC?

Kathy Wilhelm, who comments on HumbleDollar as mytimetotravel, is a former software engineer. She took early retirement so she could travel extensively. Some of Kathy's trips are chronicled on her blog. Born and educated in England, she has lived in North Carolina since 1975. Check out Kathy's previous articles.

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All Hat No Cattle

IT'S ONLY BEEN relatively recently that mankind has come to rely on banks, brokerage firms and investment companies to build wealth.

Tangible property—land, gold bars, houses, livestock and so on—was the standard of wealth just a couple of centuries ago. The Bible frequently cites cattle to signify someone’s wealth. If folks had “cattle on a thousand hills,” they were a billionaire in that era. Wealth was something that you could physically lay your hands on.

By contrast, today, we can look up accounts on our computer and, in a flash, determine our net worth. It’s funny when you think about it: Figures on a computer screen can make our spirits soar and plunge.

Meanwhile, physical assets can still represent wealth, of course. But some folks take this to an extreme—to their detriment. Let me explain.

I’m an accountant by nature and training. Numbers on paper or a computer screen mean real wealth to me. It gives me a feeling of security knowing that my wealth is safely locked in a bank vault or somewhere similar that a thief can’t reach. Yes, scams and fraud exist. But I figure my intangible wealth is mostly safe as long as I act prudently and carefully watch over it.

What about physical assets? They just don’t mean that much to me. My wife and I didn’t go for the lavish home when we built our house 32 years ago. Sure, houses can go up in value, but to us it’s just a functional living space. We didn’t build the house because we thought it would be a good investment.

Yes, the house has value, but its worth just doesn’t feel as real to me as money on a computer screen. Owning our home does spare us the cost of renting. Yet we still have to pay property taxes, homeowner’s insurance and for the occasional major repair. All of these drain money from our net worth.

I know many others feel differently. They get no happiness from figures on a computer screen. They need to own something physical to get a feeling of contentment.

It could be a thousand different things: TVs, cars, shoes, Harleys, vacation houses. Nothing wrong with that—unless the things they buy don’t go up in value. Then, they can end up owning a lot of junk.

My wife has worked as a bank teller at three different institutions over the decades. She told me once that I’d be surprised at the number of folks driving up to her window in expensive cars who are overdrawn on their checking account.

Driving a fancy car makes them appear wealthy. The car is there for everybody to see. If folks act rich but don’t have money, there’ll be trouble when they want to retire. I’ve seen situations like that in my life, and I’m sure you have, too.

Here’s a good example: One couple started out much more successfully than us. They got great, high-paying jobs right out of college. They made twice what my wife and I made in our best years, and that was just at the very beginning of their careers.

Yet money seems to flow through their fingers like sand. Their yard is littered with old cars, motorcycles, ATVs, trailers and some things whose purpose has me stumped. None of this stuff is new, but when they bought it, they said it was “a great deal.”

To me, most of it looks like junk.

Every time they had two nickels that they could rub together, they ran out and bought something else. They got antsy when they had any cash in the bank. It demanded to be spent.

Sometimes, they’ll travel across several states to buy a “bargain” car. These bargains sometimes had hidden problems and blew up in their face. Occasionally, they made money selling some of their bargains. But most just took up space around the house. Their garage is so full their cars don’t fit.

I couldn’t figure it out. Why not just go to work, draw big checks, pay off the house early and max out their retirement accounts? It doesn’t require any special skill or ability. You just need the discipline to do it year after year.

Why does this couple engage in such time-consuming futility? Then it hit me. These good folks couldn’t look at a spreadsheet and see real wealth. Instead, they had to put their hands on something physical to feel their wealth—even if it was an old junk car.

As they advance to middle age, I fear their time for saving and preparing for retirement is slipping away. I also fear that they’ll hit some financial bumps in the road—a job loss or health issues—that will rock their world, and they won’t be prepared financially.

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

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What’s Your Talent?

IN THE BIBLE, YOU'LL find the parable of the talents. Talents were a form of money. The story goes that, before a master left on a trip, he entrusted money to three servants. Two of the three doubled his money, and are praised for the intelligent way they handled the master’s money. The third worker simply buried the money, so it wouldn’t lose value. The master criticizes the third worker for being lazy, and takes the money away from him.

We all have talents—meaning not money, as the term is used in the Bible, but actual God-given talents. Like the servant who buries his master’s money, I believe many people have talents that aren’t fully used. It may be because their family doesn't consider their talent to be important for the family business. It could be there’s an immediate need for income that prevents them from developing the talents they were born with.

Having an unused talent strikes me as a huge waste. Think of the income you might earn if you pursue a career where your talent is considered essential. Yes, you may have to put in long hours. But since the work comes naturally to you, the long hours shouldn’t be too much of a burden.

Marcus Buckingham and Donald Clifton, in their book Now, Discover Your Strengths, encourage readers to identify their talents, and then apply training to that talent so it becomes their strength. How much training are we talking about?

In his book Outliers, Malcolm Gladwell says we need to apply 10,000 hours of work to become proficient at what we do. Gladwell cites Bill Gates, who applied those 10,000 hours to working in his school’s computer lab, developing talents that later became the foundation for Microsoft. What if Gates didn’t have a talent for computer programming? He surely wouldn’t have been successful.

I know someone who graduated with a bachelor’s degree in philosophy. His mother questioned the value of his education, and convinced him he needed to get a master’s degree. Being smart, he was accepted to Brooklyn Law School and went on to pass the New York bar exam. But while he had the intellectual capacity to pass the exam, legal work wasn’t his passion or his natural talent. He didn’t have the drive to find a job—and he ended up selling vinyl siding.

Have you heard about the mental state known as “flow,” where you become totally absorbed in an activity and lose all sense of time? We experience flow when we do something that’s challenging and we’re passionate about, but for which we also have the talent. What if we don’t have the necessary talent? It’s unlikely we’ll enter a state of flow.

Indeed, we might want to hire help for those activities where we aren’t talented, so we can concentrate on those things we’re good at. For instance, if you’re a business owner with a talent for sales, you might hire an accountant to handle your books.

Some folks have obvious talents: athletics, singing, dancing like Fred Astaire. For the rest of us, our talents are often hidden, and we need to dig deep to discover them. My talent is perseverance.

A recent example: My son and I were out on our daily roadside trash collection. My son found a location where lots of trash and recyclables had accumulated. Others would have looked at the situation and said, “Someone should pick that up.” I looked at it and said, “We have a lot of work to do.” We proceeded to collect all the litter until none was left.

My talent is not going to cure cancer, stop world hunger or bring about world peace. What it will do is make our town a little cleaner.

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Ignore the Rule

MARKET OBSERVERS have been predicting a recession for the past two years. Why? They’ve pointed to what’s known as an inverted yield curve, when short-term interest rates are higher than long-term rates. Historically, this has been a bad omen for the economy. The yield curve has been inverted since 2022—and yet, despite that, the economy has remained strong and stock markets have continued to hit new highs.

That all changed on Aug. 2, when a little-known indicator known as the Sahm rule began flashing red. In general terms, this rule says that when the unemployment rate begins to increase at a particular rate, a recession is likely. Among economic indicators, the Sahm rule is relatively new, but back-testing has shown it to be remarkably accurate. Since 1959, it would have generated just two false positives.

That’s why it caused alarm when the government released employment figures for July. The unemployment rate rose unexpectedly, exceeding the Sahm rule’s threshold. The result was an immediate selloff in stock markets around the world. In the U.S., share prices dropped 1.8% on Friday, Aug. 2, and another 3% the following Monday. International markets fared worse. In Japan, the Nikkei index dropped more than 12% on Monday, Aug. 5, its worst single-day loss since 1987.

But despite the Sahm rule’s nearly unblemished track record, its creator, Claudia Sahm, was quick to step in with a cautionary word. “We are not in a recession now—contrary to the historical signal from the Sahm rule.... A recession is not inevitable.”

What can we conclude from this? For starters, economists tell us that—alarming as they are—we should actually worry less about sudden market crashes than about conditions that deteriorate slowly. That’s because sudden crashes tend to be overreactions. One bad data point, such as the latest jobs report, is just that—a single data point. No one should draw a conclusion from such limited information. By contrast, when the market drops steadily over time, that’s usually in response to a series of consistently negative data points. That’s when we should really worry.

Another reason sudden drops shouldn’t scare us: the presence of computer-driven trading. While it’s hard to quantify, some large portion of daily trading is driven by algorithms that seek out trends and then place short-term trades to profit from them. The result is that small market moves can turn into big ones, but only for technical reasons. The magnitude of market drops, in other words, isn’t entirely a representation of investors’ opinion of current events—which itself may not be completely rational.

Sometimes, there’s a domino effect behind a market decline that can be even more difficult to see. Careful observers, in fact, have pointed out that the decline began on Thursday, Aug. 1, the day before the unemployment numbers were released. The proximate cause: The Bank of Japan unexpectedly lifted interest rates. That caused the Japanese yen to appreciate and that, in turn, stressed investors who had borrowed money in yen because it would now be more expensive to service those loans.

Some feel that this set the stage for the drop on Friday. But if it did, it was only because of investors’ mindset. Japan’s rate move had nothing to do with the unemployment report in the U.S. the following day. But because they occurred nearly in unison, it gave the misleading appearance that the jobs report was more serious than it actually was.

Intuition tells us that the best move in situations like this is to sit tight, to remain invested and to avoid getting swept up in other investors’ fears. But it isn’t just intuition. The data are clear on this point. Looking at market downturns over the past 30 years, an investor would have been better off, on average, with a simple buy-and-hold strategy rather than selling investments in an effort to avoid further losses.

Last week provides a perfect case in point. Over the course of the week, the S&P 500 recouped more than half of its earlier losses.

Another reason to avoid overreacting to individual data points: The data often contain noise. Writing in late July, Claudia Sahm noted how some of these distortions were affecting her indicator. “The Sahm rule is likely overstating the labor market's weakening due to unusual shifts in labor supply caused by the pandemic and immigration,” she wrote, adding that it’s important for investors “to look under the hood” at what’s behind the data.

Creators of other well-known metrics have similarly cautioned investors. For example, William Sharpe, father of the Sharpe ratio, has talked about how easy it would be to manipulate his ratio into generating virtually any answer.

There’s an old New Yorker cartoon that shows a man watching the evening news. The reporter delivers this market summary: “On Wall Street today, news of lower interest rates sent the stock market up, but the expectation that these rates would be inflationary sent the market down, until the realization that lower rates might stimulate the sluggish economy pushed the market up, before it ultimately went down on fears that an overheated economy would lead to a reimposition of higher rates.”

This is amusing but not far from reality. Are we heading into a recession? It’s certainly possible. But just as the economy has defied economic indicators for the past two years, it might continue to do so. That’s why investors’ best bet, in my view, is to develop an investment plan that can carry them through any market environment without the use of a crystal ball.

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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