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Dickie and his magic beans

R Quinn | May 6, 2026

"Look after the pennies and the pounds of coffee will look after themselves? Sorry!"

- Grant Clifford

Jonathan’s Advice for 2026 Graduates

Jonathan Clements | May 7, 2026

"Concise and valuable. The important stuff in a nutshell. The first one sort of includes "spend less and save more", but I'd make that explicit. And I might add "understand the time value of money and the power of compounding" at the end, but let's not be picky."

- Martin McCue

Sundry Memories of Mom

D.J. | May 7, 2026

"What a neat story, Martin. The behaviors they model for us—and that we model for our children—don’t go unnoticed. Apparently not even at 2 AM."

- D.J.

The never ending payday

R Quinn | May 9, 2026

"Our approach is similar. We keep several months of cash in one account from which most bills are paid automatically. When that gets on the low side, we shift funds from a taxable brokerage account to top it up. "

- Michael1

Pricing the Impossible

ArticleAdam M. Grossman | May 9, 2026

AN UNUSUAL STORY hit the news this week. GameStop, the struggling video game retailer, announced a bid to buy eBay. The offer was unexpected, but what surprised investors more was the economics of the proposed deal. eBay is many times larger than GameStop, making it difficult to understand how GameStop would be able to finance the acquisition. GameStop has offered $56 billion for eBay, comprised of cash and stock. For the cash portion, according to its May 3 press release, GameStop would use the $9 billion it has in the bank and borrow the remainder from TD Bank, which has committed up to $20 billion to the deal. But that, in a sense, is the easy part. The stock portion is what left investors with many more questions. That’s because GameStop’s total market value is in the neighborhood of just $11 billion, so it isn’t clear how it would be able to hand over $28 billion of shares. Its share price would somehow have to multiply for this to work. In an interview Monday on CNBC, GameStop’s chairman, Ryan Cohen, offered little clarity. When the reporter asked Cohen to explain his financing plan, the details were sparse. More than once, Cohen just repeated: “It’s half cash, half stock.” When the reporter challenged him to say more, Cohen stared back stone-faced. “I don’t understand your question…it’s half cash, half stock.” This went on for several minutes without much more clarity. Cohen’s parrying was amusing, and it’s an open question where this all ends up. In the meantime, this story is instructive for investors because it helps illustrate some of the stock market’s inner workings. For starters, it can help us understand the market’s seemingly split personality. At first glance, this story seems to highlight the more casino-like side of the stock market. After all, GameStop was the original “meme” stock, rising 30-fold in January 2021 when a YouTube personality promoted it to his followers. GameStop is now using its cult status as currency to support a deal that, according to conventional analysis, doesn’t add up. That said, it isn’t entirely irrational. Putting aside the financing, there is precedent for an online-only business merging with a traditional retailer. Amazon purchased Whole Foods, a grocer, in order to gain a retail footprint, and GameStop envisions something similar, where eBay customers could drop off goods at a physical location rather than hauling them to the post office. To be sure, eBay isn’t Amazon, and GameStop isn’t Whole Foods, but there is some logic to Cohen’s argument. How can we assess investors’ opinion of this deal? A pillar of Cohen’s pitch to investors is that he can make eBay much more profitable, such that it will essentially pay for itself. In an interview on Wednesday, he argued that under new management, eBay could operate much more efficiently. “There's 11,500 employees,” he said. “It doesn't make sense. I could run that business from my house. It doesn't need 11,500 employees.” The implication: Right now, it might not look like the math works for this deal, but if GameStop proceeds with the acquisition, its shares deserve to rise very considerably. Even if GameStop has to issue many new shares, in other words, each share would become much more valuable because of the addition of a newly more profitable eBay. Those additional profits, in Cohen’s view, would offset the dilution caused by the issuance of new shares. That’s the argument GameStop is making. What does Wall Street think? It turns out this question has a straightforward answer. GameStop has offered $125 per share of eBay. If investors were confident in this deal, then eBay’s shares would now be trading right around $125. That’s according to the principle of arbitrage, which says that there shouldn’t be a way to purchase a dollar for any less than a dollar. In other words, if eBay shareholders really stand to receive $125 a share, then it would be illogical for the shares to trade much below $125. But today, eBay shares are trading far below that, falling to as low as $105 on Wednesday. That tells us that investors have little confidence in the deal, most likely because of the difficult-to-explain financing. As Benjamin Graham famously wrote, in the short run, the stock market is a voting machine—a popularity contest—but in the long run, it’s a weighing machine. It’s rational. And though corners of the market often devolve into irrational and speculative excesses, that’s not always the case. More often than not, in my view, the market is better behaved than it’s commonly perceived to be, and I think that’s what we’re seeing here. eBay’s share price today tells us that investors are keeping their feet on the ground. In 1901, J.P. Morgan coordinated the acquisition of Carnegie Steel in a deal that, in its time, was the most audacious ever undertaken. Through massive leverage, it created the first company in the United States worth more than $1 billion. At the time, it was astounding. This tells us that unusual and unlikely things can happen. On the other hand, in 2001, the highly-leveraged merger of AOL and Time Warner was a disaster almost from the start. Which way will the GameStop-eBay deal go? Right now, it’s anyone’s guess. And as with most things involving great amounts of financial engineering, my recommendation is to steer clear. But this case is instructive because it illustrates many of the principles that drive the market from day to day. 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.

Slow on the Draw

ArticleEdmund Marsh | May 9, 2026

RETIREMENT IS LIFE’S most expensive purchase. During our working years, we deprive our present selves of immediate pleasure by refusing to spend money for nicer cars, a bigger house or a vacation to boast about. Instead, we squirrel away those saved dollars with an eye toward keeping the future us fed, clothed and living indoors. At age 64, after decades of choosing to save and invest a large chunk of each paycheck, rather than spend it, I’ve bought a choice: Fully retire to fully embrace life after work, or carry on in a career that still adds purpose to my life. I’ve chosen to stay, but I’ve whittled down my work hours too far to handle all of my family’s spending needs. Thus, I’m faced with reaching into savings for the first time. More about that later. But first, where is our money, and why? Taking advantage. The bulk of our retirement savings is invested in tax-advantaged accounts. Until we reached our mid-30s, neither my wife nor I had invested a dime in the stock market. Since that time, however, we’ve stuffed dollars from every paycheck into our workplace savings accounts. Initially, these contributions went into traditional accounts, but we switched to the Roth option when it became available. We also topped-off Roth IRAs every year, and stashed a smaller amount in a taxable brokerage account. A little less than half of our total investments reside in future-tax-free Roth accounts. Most of the balance is tax-deferred, traditional money, which is subject to ordinary income tax rates the year it’s withdrawn. The distinction between how these two types of accounts are taxed influences where we position assets between those accounts. Accordingly, we’ve looked at two scenarios that may raise our future tax rates: One begins in a little more than a decade, when required minimum distributions (RMDs) from my traditional retirement accounts begin at age 75, followed by my wife’s RMDs a few years later, plus my Social Security, begun at age 70. The other is triggered when the first of us dies and the surviving spouse moves into the single filer tax bracket. Because we still owe ordinary income tax on the savings in our traditional accounts, we’re making Roth conversions and taking the tax hit now, at a known rate. We’re also seeking to curb the growth of our traditional accounts by keeping all our bonds there. By contrast, our Roth accounts, on which we should never owe future tax, are invested 100% in the stocks we expect to grow over time. Picking winners. In the beginning, my wife and I entertained thoughts of alternatives to stocks, such as real estate. Soon, however, we decided that maximizing market participation was our wisest wealth-building tactic. As our knowledge of finance grew, we further refined our focus by choosing broad-based, low-cost index funds over other options, for good reason: They out-perform actively-managed funds. I don’t doubt the intelligence of active fund managers. On the contrary, I suspect they carry bigger brains than me, and know they command more resources to sniff-out future winning stocks. But they swim in a tank with fish just as big, and it's tough to get a fin up on the competition. The result: Each year, index funds finish strokes ahead of their active cousins. For the same reason, we’ve shied away from individual stocks. Have we lost out? I’d argue we profited. Simple diversity. Moving into retirement, my ideal portfolio is heavily influenced by decades of working closely with older patients in my physical therapy practice. I’ve followed a number of folks as they age from their vibrant, active 60s through the years of physical deterioration. Along the way, I’ve observed the cognitive decline that affects most of us as we age. I don’t count on escaping a similar fate. Hence, rather than covering every corner of the stock market with a complicated collection of index funds, my wife and I have been shifting toward a two- or three-fund portfolio, to achieve the same result. We aim to hold shares in virtually every public company across the globe, housed in two funds, plus one bond fund. Our choice for U.S. stocks is Vanguard Total Stock Market Index Fund (symbol: VTSAX). For foreign stocks, we like Vanguard Total International Stock Index Fund (VTIAX). Tending to just two stock funds cuts complexity, especially decisions like when to rebalance and how to go about it. Aside from the biases that affect most of us, there’s that issue of our aging brains, again. Why fret about realigning our investments when just keeping track of medical appointments has become a challenge? To further simplify our lives, at a bit more expense, we could let Vanguard Group, Inc. do all the work with their Vanguard Total World Stock Index Fund (VTWAX).. Picking our peril. Our nest egg is weighted a little heavily toward stocks, which means its sum will rise and fall with the market. That can be unnerving, but it’s the price we'll pay for the extra risk that gives us a shot at outpacing inflation. Without the long-term growth provided by stocks, our buying power might not keep pace with our expected long lives. That strategy is fine when the market is riding high, but where do we go for spending money when stocks are in a slump? Selling depressed stocks in a pinch to raise cash is hazardous to our wealth. For that reason, the balance of our savings is in mostly short-term government bonds and cash, enough of a cushion to cover several years of expenses until the market regains its footing. To be sure, that money is mostly idle, but it's ready when needed. When I finally clock my last-day-forever in the clinic, we might buy an income annuity to replace earned income with insured money to add to my wife’s modest Social Security check, which she expects to start collecting in a little over a year. This combination of regular monthly paychecks would provide a floor of income to keep the household going, and bolster our courage to boot, when the market hits the skids. Drawing it down. Meanwhile, we’ve yet to settle on a plan to siphon off savings to pay the bills not covered by my part-time income. At the moment, there’s little pressure to find the perfect formula. For starters, we’re not calculating the highest withdrawal rate our investments will bear to bankroll a spending spree. Also, part of our retirement preparation included holding steady to a frugal lifestyle and eliminating debt. Our low expenses give us breathing space to decide how to replenish our cash account. Why the dithering? It turns out nailing down a withdrawal plan is my toughest financial decision to date. But it’s not the math that has me stymied. Rather, it’s the emotion. Yes, I believe the research, and I’ve run analyses that assure me our money will probably outlive us. Still, thinking of pushing start makes me queasy, so we’re sliding into the task. Instead of a rate, we’ve chosen the dollar amount that sustains our current lifestyle over the coming year. It falls short of the figure we expect to reach once we’ve limbered up our spending legs, but one allows us to work up to a rate that doesn’t outpace my level of comfort. Ed is a semi-retired physical therapist who lives and works in a small community near Atlanta. When he's not spending time with his church, family or friends, you may find him tending his garden and wondering if he will ever fully retire. Check out Ed’s earlier articles.

Living On Autopilot

Mark Crothers | May 6, 2026

"Fund Daddy, thanks for sharing suggestions on streaming deals. I must be an anomaly because Netflix has never been a 'must' for me. In fact, I've never watched it, but the internet certainly is necessary for many things now required, if one can just avoid being scammed or getting a virus."

- Olin

New Face, old scam

Jim Wasserman | May 2, 2026

"Big phone scam early this morning on my iPhone. McAfee "alert" notifying me, "The security system has detected wiretapping on your Apple iPhone!" Yikes. then my iPhone settings page appears with an "Apple Platform Security" alert, prompting me to "run a test." I knew enough not to tap anything. Since I am really low on tech intelligence, I reached out to my bank, my IT guy, and stopped at the cellphone store for reassurance that all is well."

- dana little

Starting Up

Andrew Clements | May 7, 2026

"Excellent article, waiting for the REST of the story."

- William Dorner

The reality of Social Security and Medicare- My real life experience.

R Quinn | May 4, 2026

"Does your business reimburse you for Part B, D and Medigap premiums? My old company used to do provide supplemental coverage, but terminated it and gave us an amount annually to help buy Medigap on our own."

- R Quinn

Saving for Grandchildren

ArticleJohn Yeigh | May 2, 2026

OUR FIRST GRANDCHILD recently arrived, which naturally has us thinking about the smartest ways to build a strong financial foundation for her future. In 2019, I wrote Take a Break, which outlined saving strategies on behalf of children. Since then, the landscape has changed with the introduction of Trump accounts and Roth-conversion pathways for 529 accounts. Families have four tax-advantaged savings approaches on behalf of young children plus the Roth IRA option once the child has earned income – 529 education savings account, a Uniform Gift to Minor (UGM) custodial account, a Coverdell account, and the new Trump account. Each option offers a different mix of tax benefits, contribution requirements and withdrawal rules. 529 Accounts Pros

Tax-free growth when used for qualified education expenses
High gift-tax contribution limits: $19K per contributor per year (indexed)
New ability to convert up to $35K into a Roth IRA for the beneficiary

Cons

Relatively complex with penalties and taxes on non-qualified withdrawals
Limited, state-approved investment options
Risk of underutilization if the child does not pursue qualifying education

Caveats

Technology and AI could significantly reduce education’s cost structure in the future
Roth conversions are capped at $35K lifetime
The 529 must be open 15 years, and contributions must age 5 years before conversion
Conversions require the beneficiary to have earned income (i.e. they could Roth anyway)
Annual Roth contribution limits still apply (e.g., $7.5K in 2026), so completing the full $35K conversion would take five years

UGM Custodial Accounts Pros

Brokerage account where up to $2.7K of unearned income can be tax-free each year
High gift-tax contribution limits: $19K per contributor per year (indexed)
Broad investment flexibility — stocks, bonds, funds, etc.
Few restrictions on how funds may be used for the child’s benefit
Potential for low taxes on capital gains, but subject to marginal “kiddie tax” at parent’s rates until tax-independency or age 24

Cons

Higher income or capital gains could trigger the kiddie tax at the parents’ marginal rate
Assets count as the child’s for financial-aid purposes

Caveats

Custodians have some ability to spend down the account for legitimate child expenses if the child is a wild-child in the later teen years

Coverdell Accounts Pros

Tax-free growth for qualified education expenses
More flexible investment choices than most 529 plans

Cons

Low contribution limit: $2K per year plus income limits restrict who can contribute
Essentially irrelevant today given the expanded options within 529 plans

Trump Accounts Pros

$1K government seed deposit for children born 2025–2028
Contribution limit of $5K per year in 2026, indexed to inflation
Parent employers may contribute up to $2.5K per year (also indexed)
Tax-deferred growth with Roth-conversion opportunities beginning at age 18
No earned-income requirement for Roth conversions
Roth conversions are ideal in low-income years starting after age 18 once the child has transitioned to tax-independency of parents or at age 24 when “kiddie taxation” ends. Early tax independence could even be a combined Roth plus student financial-aid strategy
Potential to convert large account values over several years at relatively low tax rates (potentially marginal 10-12% tax-rates, but averaging less due to the standard deduction).

Cons

Investment options limited to low-cost indexed stock funds (not necessarily a drawback)
Penalty-free withdrawals must wait until age 59½, but the accounts could be advantageous even including penalties
Limited custodian control and intervention possibilities if the teen is a wild-child

Caveats

If Roth conversions are not undertaken during the child’s low-income years, a UGMA invested to capture long-term capital gains tax-rates may outperform a Trump Account taxed at ordinary income tax-rates
Watch this space as future adjustments or eligibility changes are possible

In effect, the 529 is a two-decade college savings program having some complexity and withdrawal limitations; the UGM is a reasonably flexible, 18-30-year college or house downpayment savings program; and the Trump account is a somewhat inflexible, sixty-year retirement accelerator. Resulting Playbook Here is our family’s intended playbook for tax-advantaged accounts in the grandchild's name:

Parents’ retirement account fundings remain their top priority - 401K’s at a minimum up to the match, HSAs with their triple tax advantages, and Roths as long as eligible within income limits.
A Trump account has already been initiated to secure the free $1K government seed contribution – grows to potentially $2.6K at age 18 after penalties and taxes.
Limited 529 funding has also been initiated to start the 15-year clock for potential later Roth conversions.
The family’s next priority is to fund the Trump account which starts at $5K later this year. Maximizing the Roth conversion opportunity will require ~$116K of contributions (at 3% inflation) over 18 years which we grandparents intend to help fund. I estimate the Roth converted Trump account could grow to ~$2 million of tax-free money at age 60 (6% growth) assuming early-age Roth conversions, and the Wall Street Journal projects as much as $3 million (link likely paywalled).
The subsequent priorities are to start UGM taxable account and 529 account contributions in parallel to perhaps initial levels of about $35K each. This may take our family some years depending upon available resources for contributions.

For the UGM account, a balance of $35K should capture a sizeable chunk of the annual $2.7K tax-free income limit by investing in high-yield income alternatives. For the 529 account, $35K aligns with the Roth conversion limit. On a personal note, we had extremely positive UGM outcomes with our children. We saved taxes for two decades, and each child used the ~$60K balance as down payments on their first house shortly after college. Due to the 529’s withdrawal rigidities and potential technology impacts, we are unlikely to fund the 529 to the max.

We will skip Coverdells as the alternatives offer ample savings opportunity in the child’s name ($200K+).
Depending upon spare resources available for gifting, we can always reassess future contributions.

That’s our plan, and we’re sticking to it…. until something changes. John Yeigh is an author, coach and youth sports advocate. His book “Win the Youth Sports Game” was published in 2021. John retired in 2017 from the oil industry, where he negotiated financial details for multi-billion-dollar international projects. Check out his earlier articles.

Long Term Care

Joe D'Alessandro | Jun 22, 2024

"LTC is a bad idea in most cases. It's expensive with loopholes you will find later. When I retired I dedicated an imaginary $500K of my total portfolio for it but invested it as normal. My portfolio more than doubled."

- Fund Daddy

Dickie and his magic beans

R Quinn | May 6, 2026

"Look after the pennies and the pounds of coffee will look after themselves? Sorry!"

- Grant Clifford

Jonathan’s Advice for 2026 Graduates

Jonathan Clements | May 7, 2026

- Martin McCue

Sundry Memories of Mom

D.J. | May 7, 2026

"What a neat story, Martin. The behaviors they model for us—and that we model for our children—don’t go unnoticed. Apparently not even at 2 AM."

- D.J.

The never ending payday

R Quinn | May 9, 2026

- Michael1

Pricing the Impossible

ArticleAdam M. Grossman | May 9, 2026

Slow on the Draw

ArticleEdmund Marsh | May 9, 2026

Living On Autopilot

Mark Crothers | May 6, 2026

- Olin

New Face, old scam

Jim Wasserman | May 2, 2026

- dana little

Starting Up

Andrew Clements | May 7, 2026

"Excellent article, waiting for the REST of the story."

- William Dorner

Manifesto

May 10, 2026

NO. 67: NERVOUS about stocks? We should take comfort from their fundamental value—as evidenced by the profits that companies generate, the dividends they pay and the assets they own.

Truths

May 10, 2026

NO. 46: INITIAL PUBLIC stock offerings are usually a mediocre investment. Yes, they often post huge attention-grabbing first-day gains. But returns in the years that follow typically trail the stock market averages. The lousy long-run return from investing in IPOs partly explains the poor historical performance generated by small-company growth stocks.

act

May 9, 2026

LOOK FOR INSURANCE gaps. Many folks agonize over whether their policies are too large or small. A bigger danger: not having coverage at all, because our life has changed but our insurance hasn’t kept up. Just had kids? It’s time for life insurance. Grown wealthy? Consider umbrella insurance. Working for yourself? You may need disability coverage.

humans

May 8, 2026

NO. 50: WE LIKE owning assets we can see and touch—but that doesn’t mean they’re good investments. Go back a few generations, and folks put great value on art, jewelry, fine furniture and land. But most tangible assets haven’t been good investments in recent decades. Homes are the exception, but they’re also a big, undiversified risk that come with high costs.

Money Guide

Manifesto

May 10, 2026

NO. 67: NERVOUS about stocks? We should take comfort from their fundamental value—as evidenced by the profits that companies generate, the dividends they pay and the assets they own.

Spotlight: Borrowing

A Perfect Score

Donnie Mattox | Jun 8, 2022

THE HIGHEST CREDIT score possible is 850, and I’ve hit that mark in eight of the past 12 months. In the other four months, I had a score of either 844 or 846 under the credit rating formula created by FICO, formerly called Fair Isaac Corp.
A FICO score between 800 and 850 is considered exceptional and gets you the best rates on loans. A score of 670 or more is considered “good,” but more doors and opportunities are available when your score hits 740,

Student Loan Repayments and Credit Score

Wayne Schober | Sep 28, 2024

My grandson is a senior in college. He has taken some student loans for which the financial resources exist (529 plan) to pay them in full upon graduation. My question is this:
From the perspective of building a strong credit history, should he pay the loans in full after the grace period, or should he make payments for a period of time, say a year or two, before paying them in full?
Note, that any money leftover in the 529 plan will be either transferred to a Roth IRA when feasible,

Playing Your Cards

George Diaz | Jun 15, 2017

YOU’VE PROBABLY already asked yourself this question: Is it better for my credit score to have just one credit card—or many?
There’s no magic number, because it isn’t really about how many credit cards you have. Rather, what matters is your financial situation and how you handle your cards. For example, if you are just beginning to build a credit history, it’s best to have a single card. Try to follow three rules:

Pay your bills on time—and avoid late payments at all costs.

Double Trouble

Jonathan Clements | Oct 14, 2017

PEOPLE OFTEN ACT foolishly and then desperately try to justify their financial sins. A case in point: Those who take on too much debt, can’t get it paid off by retirement—and end up servicing huge mortgages and other loans long after their paychecks have come to an end.
Cue the tap dancing. The indebted start waxing eloquent about the virtues of the mortgage-interest tax deduction and how it’s smart to pay the bank 4% while they invest the borrowed money at 10%.

When is it okay to go into debt?

Jonathan Clements | Apr 4, 2021

Digging Out

Lucretia Ryan | Jun 27, 2024

LIKE MANY AMERICANS, Sally found herself caught in a whirlwind of unexpected expenses and mounting credit card debt. It wasn’t lavish vacations or shopping sprees. Rather, it was veterinary bills for her aging dogs.
I conducted a credit-card debt-reduction workshop for Sally. Here’s a glimpse at her finances:

Her Mastercard balance was $12,970 at a hefty 17% interest rate.
Despite that, she had an exceptional credit score of 820.
She also had a $26,000 emergency fund.

Funny Money

John Lim | May 5, 2022

DO YOU SEE THINGS clearly when it comes to money? Here’s a test to find out. Which of the following scenarios would you prefer? A 5% raise, but the inflation rate is 10%. A 3% salary cut, but the inflation rate is 0%. If you chose the 5% pay raise, you’ve fallen victim to a “money illusion.” This term describes our tendency to view money in nominal terms instead of inflation-adjusted “real” terms. In the first scenario, you would have 5% more money to spend but you’d be able to buy 5% less in goods and services, thanks to the 10% inflation rate. In the second scenario, your nominal income would be down 3%—and that would also be your loss in purchasing power, because inflation was 0%. Consider another hypothetical. Say you paid $200,000 in cash for a house 30 years ago. You sell the home for $500,000. Let’s ignore sales commissions, taxes and other expenses. Would you be happy with this investment? On one hand, you would have made $300,000 on a nominal basis. But if you assume an annual inflation rate of 3%, your $200,000 home should be worth $485,452 after 30 years. On a real basis, you’d only come out $14,548 ahead on the sale. Had you invested the same $200,000 in the stock market, assuming a 7% annualized return, your investment would be worth $1.5 million after 30 years. The money illusion stems from our view of the dollar as a fixed unit of measurement, like the inch or the mile. In reality, the dollar is a store of value that fluctuates. The value of a dollar in 1982 has shrunken to just 35 cents today. Put differently, a dollar today could only buy a third of the goods and services that it could have bought…

Wait a Minute

John Lim | Jan 10, 2022

MINUTES FROM the latest Federal Open Market Committee (FOMC) meeting, which were released last Wednesday, roiled financial markets. Stocks fell sharply, with both the Nasdaq Composite and Russell 2000 falling more than 3% that day. On the week, the Nasdaq was down 4.5%, the S&P 500 down 1.9% and the Dow Jones Industrial Average 0.3% lower. What did investors read in the minutes that gave them such pause? For background, FOMC minutes are released three weeks after the meeting itself. They provide far greater color and nuance on the thought processes of Federal Reserve officials than does the official press release that garners all the media attention. By my count, the December FOMC press release contained 1,024 words, versus 9,457 words for the corresponding minutes. One word that appeared 28 times in the minutes—but which was completely absent from the press release—was “balance sheet.” The Fed’s balance sheet refers to its bond holdings—Treasurys and mortgage-backed securities—now totaling $8.7 trillion. This massive bond portfolio is the result of the Fed’s long-standing quantitative easing program, which has involved buying massive amounts of bonds. What interested me most from the latest minutes was the discussion surrounding “policy normalization.” This is Fed speak for returning to some semblance of normal monetary policy by raising the federal funds rate from zero—what the Fed refers to as “lift off”—and reducing the size of its balance sheet. In particular, there seems to be a growing consensus at the Fed that its bond holdings should be reduced sooner and at a faster pace. Many market watchers took this to mean that the initial rate hike may occur as early as March, three months sooner than had been expected. The growing narrative is that the Fed may have finally gotten serious about the risk posed by inflation. Aside from…

Out on a Lim

John Lim | Jun 4, 2019

THIS WILL SOUND like heresy to buy-and-hold investors. But I believe risks are building within the financial system—and we ignore these risks at our peril. If you’re a diehard buy-and-hold investor who, come hell or high water, plans to dollar-cost average into the stock market, feel free to skip this article. It is not for you. On the other hand, if you believe—as I do—that there are more and less advantageous times to invest one’s capital, please read on. Like death and taxes, economic and market cycles are indisputable facts of life. It has been a long time since the U.S. has had a recession. The last one—the Great Recession—ended in June 2009. That means the current economic expansion is now a decade old. If we get through June without a recession, this will be the longest economic expansion on record. There is no law that limits the length of an economic expansion to one decade. By the looks of it, this economic expansion is headed for the record books. But here’s my concern: Many risks and warning signs are seemingly being ignored by investors, perhaps due to the unprecedented length of the current economic cycle and bull market. Here are nine huge risks—which, I believe, investors are blithely ignoring: 1. The yield curve is inverted. Based on the difference between 10-year and three-month Treasury yields, the yield curve inverted in March of this year and again in May. As I’ve discussed previously, this has been a reliable harbinger of recessions. In fact, I suspect the yield curve would have inverted earlier and, indeed, is currently more inverted than it appears, due to the Fed’s quantitative tightening (QT) program, which began in October 2017. As the Fed has attempted to shrink its balance sheet, QT has the effect of increasing…

Risk Returns

John Lim | Mar 4, 2020

WE HAVE MUCH TO learn about the coronavirus, but we already know a great deal about financial risk—and, indeed, recent weeks have offered a brutal refresher course. What insights can we draw from investors’ reaction to this awful epidemic? Here are eight timeless lessons: 1. The greatest risks are those we never see coming. Some risks are predictable, such as stock market volatility. Others are less probable but widely known, like the possibility of a recession. But the most dangerous risks are those that catch us totally off guard. This is what led to Harry Houdini’s demise. Reclining on a couch, he was unprepared for a sudden barrage of gut punches. It wasn’t just the punches that led to his burst appendix, but rather those blows coupled with the fact that he was blindsided. Similarly, the risks that have the greatest impact on financial markets are those no one expected, so we’re unprepared for them, both financially and psychologically. Think about Pearl Harbor, 9/11 and the current coronavirus epidemic. 2. Uncertainty amplifies risk. While everyone is now aware of the coronavirus, its impact—both on human lives and on the global economy—is still a huge question mark. When a risk is quantifiable, it can be properly discounted by markets. But what do we do when there’s so much uncertainty? A rational approach might be to assign probabilities to various outcomes, and then weigh the economic impact of each. Needless to say, this is an onerous task. Instead, the human brain defaults to what Nobel prize winner Daniel Kahneman calls “system 1” thinking. We make an instinctual judgment, which is usually satisfactory for simple problems, but which can lead us astray if the problem is more complex. In fact, faced with an uncertain but threatening situation, we often assume the worst. This approach…

Ignore the Score

John Lim | Oct 7, 2021

I NEED TO CONFESS: I’m obsessed with the financial markets. Most weekdays, I check up on U.S. stocks, emerging markets, the EAFE (Europe, Australasia and Far East) index, the 10-year Treasury yield, gold and even the U.S. dollar index, or DXY, as it’s known. Then, at the end of most days, I view my updated portfolio online. I don’t know why I do this. Deep down, I know it’s irrational. At university, I was an electrical engineering major, studying signal processing. This subfield of electrical engineering focuses on the analysis of signals in things like sounds and images. One thing I learned was that all signals contain both information and noise. Electrical engineers work hard to design filters that eliminate noise while preserving the information in a signal. What does this have to do with my financial obsession? Day-to-day fluctuations in markets clearly represent noise. Whether the stock market closes up or down on a given day is mostly a coin toss. There’s little to be gleaned from following the financial markets’ daily gyrations. From my study of behavioral finance, I also know that humans have an asymmetric emotional reaction to gains and losses. Losses leave us sadder and more fearful than gains produce joy and optimism. The net effect of being a close market observer? Undue pain and stress. Still, I’ve always prided myself on taking market volatility in stride. I have a natural proclivity to go against the herd. When the stock market crashed, I would be in there buying. When it soared, I would raise cash. It made sense, then, to stay on top of markets—or so I told myself. What I’ve come to realize is that my obsession is not just unhealthy, but a symptom of a larger malady. The essence of my addiction is a…

Crash Course

John Lim | Feb 5, 2020

THE JAPANESE JUST “celebrated” the 30th anniversary of their stock market’s peak. The Nikkei 225 hit an all-time high of 38,916 in December 1989. Today, it stands at 23,320, or 40% below 1989's level. “But the Japanese stock market in the 1980s was the mother of all bubbles,” you might respond. Perhaps. But what about the Nasdaq bubble of the late '90s? True, the Nasdaq Composite Index has finally returned to its 2000 peak. But it took 15 years. By contrast, it’s been 30 years since Japanese stocks last recorded a new high—close to an investing lifetime. Imagine the pain of a Japanese couple who started investing in 1989 and have yet to make any money after three decades. The Japanese experience may be anomalous. But I believe it can teach us five valuable investing lessons. 1. Geographical diversification is imperative. I disagree with the late Jack Bogle, who didn’t believe that U.S. investors needed to diversify globally: “I don't quite understand where this thing is that you must have a global portfolio. Maybe it's right. Of course, maybe anything is right, but I think the argument favors the domestic U.S. portfolio.” Bogle goes on to mention how the U.S. has so many advantages in terms of entrepreneurial spirit, sound institutions and solid governance. The problem is, many people were also singing Japan’s praises in the 1980s. Markets reflect that sort of information. If U.S. companies are felt to be dominant and have intrinsic advantages, that’s already priced into their stocks. I’m not saying that the U.S. is like Japan. But I also don’t know that what happened to Japanese stocks could never happen here in the U.S. Those who believe otherwise need a dose of humility. 2. Bonds still play a role in portfolios. The great Benjamin Graham warned against…

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