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Inflation Nation

IT SEEMS EVERYONE in the personal finance world is flipping out about inflation. Some are lamenting the cost to fill up their F-150—with the optional 7.2kw onboard generator for tailgate parties no doubt. Others are decrying the $6.39 it takes to buy two liters of ginger ale or the $198 million required for a Rembrandt.
Hey, I don’t like higher prices for bourbon, vermouth, bitters and maraschino cherries any more than the next guy shaking a Manhattan,

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Equitable? Hardly

EQUITABLE FINANCIAL Life Insurance Co. agreed last month to pay a $50 million fine for engaging in fraud. According to the Securities and Exchange Commission, since at least 2016, Equitable gave the false impression to 1.4 million investors that they were paying $0 in fees and expenses for their variable annuities. The majority of the investors were educators saving for retirement.
The SEC found that Equitable’s statements “listed only certain types of fees that investors infrequently incurred” and that “more often than not the statements had $0.00 listed for fees.” The commission concluded these were “misleading statements and omissions” of the true fees investors actually paid.

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Recent Writing

He Said She Said

MONEY MAY TALK—but couples have a harder time, often struggling to agree on financial matters.
I’ve been a clinical psychologist for almost 50 years. I’ve counseled many couples who are mired in financial conflict and seen the quality of their relationship corroded by their squabbles.
How can we avoid such damage and start to reverse it? Let me tell you about two couples. These couples are hypothetical—remember, there’s this thing called patient confidentiality.

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Couples Counseling

SARAH AND I GOT married earlier this summer. We’ve always been on similar pages when it comes to money. We both track our finances with gusto. She’s one of the few people I know whose budgeting spreadsheets are more intricate than mine.
We both try to spend reasonably and save consistently. We’d rather devote money to a vacation or an occasional late-night pizza than to fancy things or swanky surroundings. One indication: During the pandemic’s initial lockdown,

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A Night on the Town

AS I’VE GROWN OLDER, I have become more willing to open my wallet and splurge. But I still get a thrill from what feels like a bargain. One example: I’ve long been a fan of restaurant happy hours, when you can often get a glass of wine and some appetizers at a cut-rate price.
But I have a new favorite low-cost indulgence. Elaine and I will grab a bottle of vino out of the basement—screw top preferred,

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Child Labor

WHEN I WAS A KID growing up in the 1940s and ’50s, I didn’t get an allowance. In my family, we had to earn our spending money—and earn we did. My childhood included working at all kinds of jobs, some of which kids today wouldn’t even recognize. Shoveling coal and hauling ashes? Please.
My recollection of my childhood jobs goes like this:

At age eight or so, I operated a lemonade stand in front of our apartment building.

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Home Call to Action

In Praise of Active

I REALIZE THAT MOST HumbleDollar readers share a similar investment philosophy. They believe in market efficiency, keeping expenses low and holding down taxes, all of which leads them to genuflect at the altar of the all-mighty index fund.
Words and phrases such as Robinhood, bitcoin and active management don’t appear often on this site and, when they do, they’re mentioned with disdain. While this may be a good thing in the main,

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Rate Relief Ahead?

ONE OF MY FAVORITE indicators right now is the ICE BofAML MOVE Index. Sound like trading jargon? Think of it as comparable to the VIX, except—instead of measuring stock market volatility—it does the same for bonds. Today, it’s indicating improving confidence in what’s lately been a very turbulent bond market.
MOVE is high when there are big daily swings in bond market interest rates. That’s what we’ve seen in 2022 as traders grapple with fast-changing economic data.

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How to Tame Regret

THE ENGLISH POET Alfred Tennyson wrote that it is “better to have loved and lost than to have never loved at all.” When it comes to matters of the heart, maybe Tennyson was right. But when it comes to personal finance, I’m not sure that’s the case. If you’ve ever seen a gain slip through your fingers, you know the feeling of regret can be powerful.
Two conversations last week prompted me to take a closer look at this topic.

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Mounting Costs

INFLATION CROPS UP in almost every conversation I have with friends and acquaintances. Everyone’s getting squeezed by higher prices. Folks complain not only about where prices are today, but also about how quickly they rose.
Prices today seem shocking compared to last year or the year before that. But how do they compare to prices from 10 years ago? To find out, I calculated the average annual inflation rate over trailing 10-year periods using the Consumer Price Index for All Urban Consumers (CPI-U).

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Get Educated

Truths

NO. 2: A DOLLAR not spent is worth more than a dollar earned. If you earn an additional $1, you’ll get dinged for payroll, federal and perhaps state income taxes, so you might wind up with 70 cents in your pocket. By contrast, if you cut $1 from your living costs, you’ll be $1 richer. The lesson: Focus less on earning more—and more on holding down costs.

Act

MAKE SURE SPENDING money is out of stocks. Calculate how much cash you’ll need from your portfolio over the next five years. That money should be out of stocks and invested in nothing more volatile than high-quality short-term bonds. You don’t want to be forced to sell shares at depressed prices—and that could happen if your time horizon is less than five years.

Think

OCCAM’S RAZOR. First proposed by Franciscan friar William of Ockham in the 14th century, Occam’s Razor holds that—if there are competing answers to a problem and all work equally well—the simplest solution is probably the best. Some have applied Occam’s Razor to finance and argued that folks should favor simpler financial products and less complicated portfolios.

Money Guide

Dividend Yields

MANY COMPANIES DON'T pay dividends, so looking at dividend yields won’t necessarily tell you whether one stock is better value than another. But it can be useful in gauging how expensive the overall market is. As of year-end 2021, the S&P 500 companies were yielding 1.2%, on par with the 1.2% at year-end 1999, but below the level of earlier decades. Yields stood at 3.5% at year-end 1969, 5.2% at year-end 1979, 3.2% at year-end 1989 and 2% at year-end 2009, and have averaged 2.8% over the past 50 years and 3.8% over the past 100 years. The market’s dividend yield has trended down partly because stocks have become more expensive over time and partly because companies have instead used their spare cash to buy back their own shares. Historically, total shares outstanding have grown almost every year, as employees exercise stock options and companies issue new shares to raise cash or finance acquisitions. But that’s changed in recent decades: Corporations have become big buyers of their own stock, and these share buybacks have roughly offset new issuance. Buybacks are seen as a more tax-efficient way of returning money to shareholders, because the money is used to cash out investors who want to depart without saddling remaining shareholders with taxable dividends. Buybacks may also reflect the current century’s slow-growth economy. With fewer chances for profitable expansion, some companies have decided instead to use spare cash to repurchase shares. Trouble is, companies appear to be terrible market timers. They aggressively bought back their own shares ahead of the 2007 stock market peak, but slashed their buying during the market slump that followed. Similarly, they repurchased shares aggressively during the 2009-20 bull market, but many companies quit buying their own stock amid 2020's market downturn, as they sought to conserve cash. It seems buybacks are driven less by companies’ belief that their shares are undervalued and more by a desire to offset the dilution caused by employees exercising stock options. The latter is more likely to happen during buoyant markets, as the options gain value along with rising share prices. Indeed, dividends appear to be a surer thing than buyback programs because companies are loath to cut their dividend. Knowing they have to pay a regular dividend can also be a healthy discipline for management, forcing them to be more careful in handling the company’s cash. Meanwhile, for investors, dividend-paying stocks can provide a fairly reliable and growing stream of income—one that's arguably superior to that generated by bonds and cash investments. Most bonds generate a fixed stream of interest, leaving investors vulnerable to inflation, while the income from cash investments can fluctuate wildly from year to year, along with changing short-term interest rates. By contrast, over the 50 years through year-end 2021, the dividends paid by the S&P 500 companies grew at an average 6.1% a year, comfortably ahead of the 3.9% annual inflation rate. Will dividends continue to be a source of growing income in this era of stock buybacks? It seems so. Here's one indication: Over the 15 years through 2021, dividends paid by the S&P 500 companies grew at a robust 6.1% a year, versus 2.2% for inflation. Next: Price-to-Book Value Previous: Earnings Yields Articles: Cash Back and Bought and Paid For
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Manifesto

NO. 14: WE SHOULD avoid impulse spending and investment decisions. Our instincts often lead us astray, but we can usually figure out the prudent choice—if we pause and ponder.

Voices

What are your favorite financial apps and websites?

"Am using Pralana Gold for retirement planning - very detailed Excel model and very flexible and I can follow the numbers better than in the web based apps (might be personal preference). For websites it's Bogleheads.org and Morningstar.com"
- peterfell66
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Are annuities ever worth buying—and, if so, which type?

"I recently learned about MYGAs - multi-year guaranteed annuities. Some are advocating these as a replacement for bond positions in a portfolio's asset allocation. They pay out a fixed rate - up to 3.2% or so - over a fixed period of time. So you can set up a ladder and keep rolling them over as they mature. There are no hidden costs or fees to buy them. Given the state of bond ETFs these days and their prospects for the next year at least, I am intrigued."
- tshort
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What’s the best way to teach children about money?

"One of our "go-to" strategies was to install "Quicken" on our kids laptops before they left for college and setup automated downloads of checking account expenditures from their bank. Mint (free online tool also owned by Quicken) offers comparable functionality. Playing good defense (i.e. tracking their consumption habits and budgeting) is just as important as playing offense (Saving and investing) in the early years of a young adult's journey into the workforce. Plus, and having them open Roth IRAs, with a parent match of their $50/month contributions - but match only comes at the END of the full year."
- Newsboy
Read more »

Second Look

Retirement

Without Distinction

IF WE WORK LIKE dogs for 40 years, we’ll get our reward, which is the chance to sit around and do nothing for 20 or 30 years. That’s the definition of a successful life, according to conventional financial wisdom. But it doesn’t sound like a whole lot of fun, does it?
My contention: It’s time to rethink the crazy distinction between work and retirement and, in the process, redefine what counts as a successful life.

Read more »

Family Finance

For Your Benefit

ONE OF MY SONS has to choose health insurance for the year ahead—and his employer provided a 95-page pamphlet. Let’s face it: If you need that amount of information to make a choice, something is wrong.
The pamphlet describes three medical options, plus dental options and vision coverage. Two options get you an employer health savings account contribution—or it is a health reimbursement account? There are three levels of deductibles and coinsurance and, of course,

Read more »

Investing

Not for You

MY GRANDFATHER was from Queens in New York City. He was a great guy and taught me a lot. He was also a native New Yorker, so he was street smart and tough.
One day, while we were walking together down 47th Street, near Times Square, I stopped to look at the jam-packed window of an electronics store. My grandfather waited patiently, but cautioned me, “Careful, they’ll take the eyes out of your head.”
It was a funny expression,

Read more »

Lists

Twelve Rules

JORDAN PETERSON, a Canadian clinical psychologist and professor at the University of Toronto, has thundered onto the cultural scene, thanks in large part to his book 12 Rules for Life: An Antidote to Chaos. I began reading with healthy skepticism, but quickly became a fan.
Not that the doctor and I agree on all points. But the book immediately confronted my intellectual laziness in a careful but unavoidable way.

Read more »
Home Call to Action

Mindset

Out of Bounds

ON DEC. 7, 2005, a curious thing happened in a Harvard classroom. Prof. Michael D. Smith stood in front of a group of computer science students to introduce a guest speaker: entrepreneur and former Harvard student Mark Zuckerberg. What was curious was that the room was nearly empty. The class met in a huge lecture hall, but there were barely a dozen people in the room.
How could that be? Why was there so little interest in Zuckerberg’s presentation?

Read more »

Free Newsletter

Get Educated

Manifesto

NO. 14: WE SHOULD avoid impulse spending and investment decisions. Our instincts often lead us astray, but we can usually figure out the prudent choice—if we pause and ponder.

Act

MAKE SURE SPENDING money is out of stocks. Calculate how much cash you’ll need from your portfolio over the next five years. That money should be out of stocks and invested in nothing more volatile than high-quality short-term bonds. You don’t want to be forced to sell shares at depressed prices—and that could happen if your time horizon is less than five years.

Truths

NO. 2: A DOLLAR not spent is worth more than a dollar earned. If you earn an additional $1, you’ll get dinged for payroll, federal and perhaps state income taxes, so you might wind up with 70 cents in your pocket. By contrast, if you cut $1 from your living costs, you’ll be $1 richer. The lesson: Focus less on earning more—and more on holding down costs.

Think

OCCAM’S RAZOR. First proposed by Franciscan friar William of Ockham in the 14th century, Occam’s Razor holds that—if there are competing answers to a problem and all work equally well—the simplest solution is probably the best. Some have applied Occam’s Razor to finance and argued that folks should favor simpler financial products and less complicated portfolios.

Money Guide

Start Here

Dividend Yields

MANY COMPANIES DON'T pay dividends, so looking at dividend yields won’t necessarily tell you whether one stock is better value than another. But it can be useful in gauging how expensive the overall market is. As of year-end 2021, the S&P 500 companies were yielding 1.2%, on par with the 1.2% at year-end 1999, but below the level of earlier decades. Yields stood at 3.5% at year-end 1969, 5.2% at year-end 1979, 3.2% at year-end 1989 and 2% at year-end 2009, and have averaged 2.8% over the past 50 years and 3.8% over the past 100 years. The market’s dividend yield has trended down partly because stocks have become more expensive over time and partly because companies have instead used their spare cash to buy back their own shares. Historically, total shares outstanding have grown almost every year, as employees exercise stock options and companies issue new shares to raise cash or finance acquisitions. But that’s changed in recent decades: Corporations have become big buyers of their own stock, and these share buybacks have roughly offset new issuance. Buybacks are seen as a more tax-efficient way of returning money to shareholders, because the money is used to cash out investors who want to depart without saddling remaining shareholders with taxable dividends. Buybacks may also reflect the current century’s slow-growth economy. With fewer chances for profitable expansion, some companies have decided instead to use spare cash to repurchase shares. Trouble is, companies appear to be terrible market timers. They aggressively bought back their own shares ahead of the 2007 stock market peak, but slashed their buying during the market slump that followed. Similarly, they repurchased shares aggressively during the 2009-20 bull market, but many companies quit buying their own stock amid 2020's market downturn, as they sought to conserve cash. It seems buybacks are driven less by companies’ belief that their shares are undervalued and more by a desire to offset the dilution caused by employees exercising stock options. The latter is more likely to happen during buoyant markets, as the options gain value along with rising share prices. Indeed, dividends appear to be a surer thing than buyback programs because companies are loath to cut their dividend. Knowing they have to pay a regular dividend can also be a healthy discipline for management, forcing them to be more careful in handling the company’s cash. Meanwhile, for investors, dividend-paying stocks can provide a fairly reliable and growing stream of income—one that's arguably superior to that generated by bonds and cash investments. Most bonds generate a fixed stream of interest, leaving investors vulnerable to inflation, while the income from cash investments can fluctuate wildly from year to year, along with changing short-term interest rates. By contrast, over the 50 years through year-end 2021, the dividends paid by the S&P 500 companies grew at an average 6.1% a year, comfortably ahead of the 3.9% annual inflation rate. Will dividends continue to be a source of growing income in this era of stock buybacks? It seems so. Here's one indication: Over the 15 years through 2021, dividends paid by the S&P 500 companies grew at a robust 6.1% a year, versus 2.2% for inflation. Next: Price-to-Book Value Previous: Earnings Yields Articles: Cash Back and Bought and Paid For
Read more »

Voices

When should parents stop supporting their adult children?

"Depends on how “support” is used. Support in terms of crisis or emergency has no ending point IMO."
- R Quinn
Read more »

Is bitcoin an investment or a speculation?

"Bitcoin was originally promoted as an alternative to money, but it is inferior to established currencies as a store of value and a medium of exchange. (It is highly volatile in price, isn’t widely accepted for payments, and is far more expensive to transact in than ordinary currency.) Now people say, well, if it isn’t good as money, at least you can use it as an investment. As an investment, however, it looks sort of like a Ponzi scheme - people who cash out are paid with the money from newcomers who invest in response to price increases (with no revenues or earnings to fund the payouts). But unlike a Ponzi scheme, there is a fundamental driver of demand for Bitcoin - it is supposed to be usable by criminals and state actors to make payments that cannot be traced by law enforcement. This feature of Bitcoin makes it genuinely valuable to criminals and underpins demand. It might be sufficient to turn Bitcoin into an investment asset, if governments continue to allow Bitcoin and similar products to perform their function of facilitating illegal commerce, This week’s news that the FBI was able to recover most of the Bitcoin from the Colonial Pipeline ransomeware attack should give pause to those who rely on Bitcoin to make untraceable payments. In today’s world, where banks and other financial institutions are under heavy and growing government pressure to fight money laundering, it is hard to believe that Bitcoin and similar schemes that faciltate untraceable payments will be allowed to continue unrestricted. So, I would have to say that Bitcoin is a speculation, and not an investment."
- Nahtanoj
Read more »

Is it possible to have too much money?

"No. It is only possible to give or spend too little."
- Moesha
Read more »
Home Call to Action

Second Look

Retirement

Without Distinction

IF WE WORK LIKE dogs for 40 years, we’ll get our reward, which is the chance to sit around and do nothing for 20 or 30 years. That’s the definition of a successful life, according to conventional financial wisdom. But it doesn’t sound like a whole lot of fun, does it?
My contention: It’s time to rethink the crazy distinction between work and retirement and, in the process, redefine what counts as a successful life.

Read more »

Family Finance

For Your Benefit

ONE OF MY SONS has to choose health insurance for the year ahead—and his employer provided a 95-page pamphlet. Let’s face it: If you need that amount of information to make a choice, something is wrong.
The pamphlet describes three medical options, plus dental options and vision coverage. Two options get you an employer health savings account contribution—or it is a health reimbursement account? There are three levels of deductibles and coinsurance and, of course,

Read more »

Investing

Not for You

MY GRANDFATHER was from Queens in New York City. He was a great guy and taught me a lot. He was also a native New Yorker, so he was street smart and tough.
One day, while we were walking together down 47th Street, near Times Square, I stopped to look at the jam-packed window of an electronics store. My grandfather waited patiently, but cautioned me, “Careful, they’ll take the eyes out of your head.”
It was a funny expression,

Read more »

Lists

Twelve Rules

JORDAN PETERSON, a Canadian clinical psychologist and professor at the University of Toronto, has thundered onto the cultural scene, thanks in large part to his book 12 Rules for Life: An Antidote to Chaos. I began reading with healthy skepticism, but quickly became a fan.
Not that the doctor and I agree on all points. But the book immediately confronted my intellectual laziness in a careful but unavoidable way.

Read more »

Mindset

Out of Bounds

ON DEC. 7, 2005, a curious thing happened in a Harvard classroom. Prof. Michael D. Smith stood in front of a group of computer science students to introduce a guest speaker: entrepreneur and former Harvard student Mark Zuckerberg. What was curious was that the room was nearly empty. The class met in a huge lecture hall, but there were barely a dozen people in the room.
How could that be? Why was there so little interest in Zuckerberg’s presentation?

Read more »