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Our life’s great financial task: Use our human capital to amass a pile of financial capital, so one day we can live without a paycheck.

Say Yes

“I DON’T GET IT.” That’s what my friend said when I told him I would consider marrying my significant other.
“Why do you feel you need to get married?” he continued. “You’re both in your 60s. You’re not going to have any children. There’s no reason you should get married. If you did, you would make the relationship more complicated. You both probably would want a prenuptial agreement protecting your assets. That, in itself,

Read more »

Saint Jack

WITHOUT A DOUBT, John C. Bogle is the greatest man I’ve had the privilege of knowing. Tomorrow, the newspapers will run obituaries detailing his many accomplishments—how he launched Vanguard Group, started the first index mutual and was, right up until the end, a fierce advocate for the everyday investor.
I first met Jack in 1987, when I was a callow 24-year-old reporter at Forbes magazine. I last saw him in October, at the Bogleheads’

Read more »

The Gift of Life

GLOBAL LIFE expectancy for almost every nation will rise during the next two decades, with Spain overtaking Japan as the country with the longest life expectancy. Meanwhile, on the list of 195 countries, the U.S. will fall 20 places, from 43rd to 64th. The average U.S. lifespan as of birth is still projected to increase slightly, from 78.7 years to 79.8, but at a slower rate than the rest of the world.
That isn’t great news for the U.S.—but it isn’t necessarily bad news for you,

Read more »

Half Wrong

I WAS SINGLE-track mountain biking with two friends. We had stopped for a rest—which was when I discovered how completely wrong I’d been with most of my financial decisions.
We had all recently retired from the same company and were debating when to claim Social Security. One buddy stated that he planned to start at age 70, so he would receive the maximum monthly payment possible. He defended his position by arguing that he was in good health,

Read more »

Apple Dunking

IN 2005, the comedian Stephen Colbert popularized the word “truthiness.” This term, if you aren’t familiar with it, refers to something which seems like it should be true, but isn’t actually supported by evidence. Are stock market pundits guilty of truthiness? To answer the question, let’s look at a recent event.
First, some background: In the life of an investment analyst, there’s a rare but dreaded phenomenon known as a “profit warning.” This occurs when a company can tell,

Read more »

Money Guide

Jonathan's Story: Homes

SINCE 1992, I HAVE owned three homes. I bought a house in New Jersey in 1992 for $165,000 and sold it two decades later for $409,000. I next owned an apartment in Manhattan, bought in 2011 for $570,000 and sold in 2014 for $800,000. I used the proceeds to buy my current home, an apartment just north of New York City, for $730,000. All this makes homeownership sound like a money-making endeavor—and it has been, but perhaps not in the way readers imagine. For instance, in the time I owned the New Jersey home, I paid $106,000 in mortgage interest (and it would have been much more, but I paid off the mortgage early) and $120,000 in property taxes, plus I spent $183,000 on home improvements. I also had homeowner’s insurance, which might have averaged $500 a year. On top of all that, it cost me $9,000 in closing costs to buy the place and $32,000 in realtor commissions and other costs to sell. To be sure, my mortgage interest and property taxes were tax-deductible. But even with that tax deduction, my total costs over the two decades were far greater than the profit I supposedly made when I sold my New Jersey home. A bad deal? Not at all. For two decades, the house provided my family with a place to live. A quick back-of-the-envelope calculation suggests that this 20 years of imputed rent might have amounted to $400,000. Next: Buying a Home Previous: Imputed Rent
Read more »

Numbers

AMERICANS’ TOP financial goal for 2019 is paying down debt (30%), followed by managing their spending better (13%), saving more for retirement (12%) and saving more for emergencies (10%), according to a Bankrate survey.

Newsletter

Beyond Cheap

WHEN I STARTED writing my column for The Wall Street Journal in 1994, active money managers dominated the investment scene and index funds were struggling to get noticed. A quarter century later, most money remains actively managed, rather than indexed. The triumph of indexing is not yet complete.
Still, everybody knows which way the wind is blowing. Over the decade through 2017, index funds focused on U.S. stocks—both the mutual-fund and the exchange-traded varieties—attracted $1.6 trillion in new money,

Read More »

Archive

Short and Sweet

AS I WAS PREPARING for HumbleDollar’s January 2017 launch, my web developer suggested I add a mission statement to the top of the homepage. That mission statement morphed into a daily insight, which then became a daily Tweet that also found its way onto my Facebook page. Like the family that moves from a three-bedroom house to a one-bedroom apartment, I embraced the challenge of shoehorning financial ideas into 140 characters or less. Twitter has since expanded the allowable character count to 280, but I try to stick to the old 140 limit. I keep a running list of my daily comments and have vague plans to turn them into a book. But for now, here are 41 of those comments—some published, some yet-to-be published—that I hope will inspire, amuse and guide you as we begin 2018:
  1. We get just one shot at making the journey from birth to retirement. Flirting with financial disaster is not advisable.
  2. If you waste money, you can make more. If you waste time, life gets old really fast.
  3. Picking superior investments is a crowded trade. Saving more is an easy win.
  4. What's the difference between an equity-indexed annuity and an index fund? One needs an army of salespeople. The other sells itself.
  5. Want to feel short? Hang out with people who are tall. Want to feel poor? Hang out with folks who are rich.
  6. If your kids can borrow it or your friends can admire it, it doesn’t count as an investment.
  7. Draw up a list of your greatest pleasures in life. Then ask yourself: Do you need great wealth to enjoy any of them?
  8. If your portfolio isn’t built around broad market index funds, you've got to ask yourself one question, “Do I feel lucky?" Well, do ya, punk?
  9. When you’re ill, you realize how great it is to feel healthy. Money's similar: When you’re broke, you realize how great it is to be solvent.
  10. If you think money managers are overpaid, imagine how much they’d charge if they actually beat the market.
  11. You want investments that you boast about when you sell—but you’re too nervous to discuss when you buy.
  12. A boat is not your financial friend, but a friend with a boat is.
  13. If you keep investing simple and make it understandable, you’ll lose half your audience, who assume success lies in their own befuddlement.
  14. Never confuse the appearance of affluence with affluence. One is the mortal enemy of the other.
  15. We are voracious acquirers of financial information, but mostly to buttress opinions we already hold.
  16. If your children want for nothing, they have too much.
  17. A quick way to lose half your wealth: Get divorced. The slower route: Marry someone with bad financial habits.
  18. If folks claim their home has been a great investment, ask to see their detailed financial records—and their degree in advanced mathematics.
  19. Whenever you open your wallet, you’re voting for one thing, but also voting against something else.
  20. Invest based on dinner seminars, glossy brochures and TV advertisements, and you foot the bill for your own fleecing.
  21. If you think today’s purchase will make you happy forever, you need to spend more time looking through your closets.
  22. Everybody’s a long-term investor when the market is going up.
  23. Is it time to have the talk with your kids? You know, the important one—about how much you'll help with college costs.
  24. Trying to beat the market is a game for the rich. Only they can afford the inevitable disappointing results.
  25. Want to be free of financial worries? That hinges on the size of your bank account—and the magnitude of your wants and anxieties.
  26. Cash value life insurance isn’t an investment, it’s a religion—and you’ll never meet a more prickly group of disciples.
  27. If you save $5 a day for 40 years by not buying coffee, you’ll miss out on an awful lot of caffeine.
  28. Overconfident investors trade too much, damaging their returns. But heartened by their brokers’ applause, they courageously carry on.
  29. Dollar-cost averaging is for wimps. You’d be amazed how many rich wimps there are.
  30. Forget this year’s stock market angst—and ponder the riches that will accrue to those who can ignore it.
  31. Another year passes and still there are no inductees to the market-timing hall of fame.
  32. It’s hard to know who is less truthful, teenage boys boasting of their sexual conquests—or middle-aged men touting their investment prowess.
  33. What would happen if everybody indexed? Seriously? Are we really worried about a global outbreak of financial prudence?
  34. Good news is bad news: When markets rally, our portfolios may grow fatter—but future returns will likely be lower.
  35. We might retire from the workforce, but we should never retire from the pursuit of a fulfilling life.
  36. Gold is like your crazy uncle at the wedding: He dances wildly—and he dances alone.
  37. Your kids will grow up to imitate your financial habits. Will you like what you see?
  38. If the answer necessitates making a short-term market prediction, you’re asking the wrong question.
  39. The results speak for themselves—and that’s a problem for active money managers.
  40. The big financial risk isn't dying early in retirement but, rather, living longer than we ever imagined.
  41. Our only earthly immortality will be the recollection of others. Make sure those memories are good.
A morbid aside: I’m able to schedule the new content for HumbleDollar’s homepage well in advance. This allows me to publish updates, even if I’m traveling or on vacation. One result: Should I go under the next bus, new insights will continue to appear at the top of the homepage—as well as on Twitter and Facebook—for months afterward. Thanks to the miracle of technology, it seems we’re now able to be productive, even in death.

Taxing Matters

SHOULD YOU MAKE ANY CHANGES to your finances in response to the new tax law? Three steps come to mind:
  • Make extra-principal payments on your mortgage. With the standard deduction now so much higher, and the itemized deduction for state, local and property taxes capped at $10,000, all that mortgage interest is likely saving you little or nothing in taxes, as I explained in a recent blog.
  • Rethink your strategy for charitable giving. Bunching two or three years’ worth of charitable gifts into a single year may allow you to itemize and get some tax benefit from your generosity. If you’re charitably inclined and over age 70½, also consider qualified charitable distributions from your IRA.
  • Revisit your estate plan. The federal estate tax exclusion has climbed from $675,000 in 2001 to $11.2 million in 2018, plus that exclusion is now “portable,” meaning married couples can potentially bequeath $22.4 million tax-free. Got an estate plan that’s designed to avoid federal estate taxes? There’s a good chance it needs to be revised—or there could be unintended consequences.

December’s Greatest Hits

HERE ARE THE SEVEN most popular blogs from last month: Also check out the most popular blogs for the fourth quarter and for all of 2017, as well as a slew of site updates I made at the end of December, including revisions to reflect the new tax law.
Read more »

Truths

NO. 96: IF YOU HAVE children, you will retire later. The Department of Agriculture says it costs $234,000 to raise a middle-class kid through age 17, with college costs and financial help to adult children on top of that. That doesn’t mean you shouldn’t have kids. But there’s a financial tradeoff involved—and one result is you’ll likely retire later.

Act

ELIMINATE DUPLICATION. Many folks have multiple bank and brokerage accounts, multiple funds that invest in the same market sector and even multiple advisors. This can make sense if, say, the goal is to increase FDIC insurance. But often it reflects a naïve notion of diversification—that more accounts somehow mean greater safety. Our advice: Simplify—for your sake and the sake of your heirs.

Think

EFFICIENT FRONTIER. What mix of investments offers the highest expected return for a given level of risk—or the lowest risk for a target return? In theory, these optimal portfolios can be found on the so-called efficient frontier. Their key characteristic: broad diversification, thus reducing volatility by combining investments that don’t always move in sync.

About Jonathan

Jonathan Clements

HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.

Home Call to Action

Latest Blogs

Say Yes

“I DON’T GET IT.” That’s what my friend said when I told him I would consider marrying my significant other.
“Why do you feel you need to get married?” he continued. “You’re both in your 60s. You’re not going to have any children. There’s no reason you should get married. If you did, you would make the relationship more complicated. You both probably would want a prenuptial agreement protecting your assets. That, in itself,

Read more »

Saint Jack

WITHOUT A DOUBT, John C. Bogle is the greatest man I’ve had the privilege of knowing. Tomorrow, the newspapers will run obituaries detailing his many accomplishments—how he launched Vanguard Group, started the first index mutual and was, right up until the end, a fierce advocate for the everyday investor.
I first met Jack in 1987, when I was a callow 24-year-old reporter at Forbes magazine. I last saw him in October, at the Bogleheads’

Read more »

The Gift of Life

GLOBAL LIFE expectancy for almost every nation will rise during the next two decades, with Spain overtaking Japan as the country with the longest life expectancy. Meanwhile, on the list of 195 countries, the U.S. will fall 20 places, from 43rd to 64th. The average U.S. lifespan as of birth is still projected to increase slightly, from 78.7 years to 79.8, but at a slower rate than the rest of the world.
That isn’t great news for the U.S.—but it isn’t necessarily bad news for you,

Read more »

Half Wrong

I WAS SINGLE-track mountain biking with two friends. We had stopped for a rest—which was when I discovered how completely wrong I’d been with most of my financial decisions.
We had all recently retired from the same company and were debating when to claim Social Security. One buddy stated that he planned to start at age 70, so he would receive the maximum monthly payment possible. He defended his position by arguing that he was in good health,

Read more »

Apple Dunking

IN 2005, the comedian Stephen Colbert popularized the word “truthiness.” This term, if you aren’t familiar with it, refers to something which seems like it should be true, but isn’t actually supported by evidence. Are stock market pundits guilty of truthiness? To answer the question, let’s look at a recent event.
First, some background: In the life of an investment analyst, there’s a rare but dreaded phenomenon known as a “profit warning.” This occurs when a company can tell,

Read more »

Numbers

AMERICANS’ TOP financial goal for 2019 is paying down debt (30%), followed by managing their spending better (13%), saving more for retirement (12%) and saving more for emergencies (10%), according to a Bankrate survey.

Act

ELIMINATE DUPLICATION. Many folks have multiple bank and brokerage accounts, multiple funds that invest in the same market sector and even multiple advisors. This can make sense if, say, the goal is to increase FDIC insurance. But often it reflects a naïve notion of diversification—that more accounts somehow mean greater safety. Our advice: Simplify—for your sake and the sake of your heirs.

Truths

NO. 96: IF YOU HAVE children, you will retire later. The Department of Agriculture says it costs $234,000 to raise a middle-class kid through age 17, with college costs and financial help to adult children on top of that. That doesn’t mean you shouldn’t have kids. But there’s a financial tradeoff involved—and one result is you’ll likely retire later.

Think

EFFICIENT FRONTIER. What mix of investments offers the highest expected return for a given level of risk—or the lowest risk for a target return? In theory, these optimal portfolios can be found on the so-called efficient frontier. Their key characteristic: broad diversification, thus reducing volatility by combining investments that don’t always move in sync.

Home Call to Action

Free Newsletter

Beyond Cheap

WHEN I STARTED writing my column for The Wall Street Journal in 1994, active money managers dominated the investment scene and index funds were struggling to get noticed. A quarter century later, most money remains actively managed, rather than indexed. The triumph of indexing is not yet complete.
Still, everybody knows which way the wind is blowing. Over the decade through 2017, index funds focused on U.S. stocks—both the mutual-fund and the exchange-traded varieties—attracted $1.6 trillion in new money,

Read More »

Money Guide

Start Here

Jonathan's Story: Homes

SINCE 1992, I HAVE owned three homes. I bought a house in New Jersey in 1992 for $165,000 and sold it two decades later for $409,000. I next owned an apartment in Manhattan, bought in 2011 for $570,000 and sold in 2014 for $800,000. I used the proceeds to buy my current home, an apartment just north of New York City, for $730,000. All this makes homeownership sound like a money-making endeavor—and it has been, but perhaps not in the way readers imagine. For instance, in the time I owned the New Jersey home, I paid $106,000 in mortgage interest (and it would have been much more, but I paid off the mortgage early) and $120,000 in property taxes, plus I spent $183,000 on home improvements. I also had homeowner’s insurance, which might have averaged $500 a year. On top of all that, it cost me $9,000 in closing costs to buy the place and $32,000 in realtor commissions and other costs to sell. To be sure, my mortgage interest and property taxes were tax-deductible. But even with that tax deduction, my total costs over the two decades were far greater than the profit I supposedly made when I sold my New Jersey home. A bad deal? Not at all. For two decades, the house provided my family with a place to live. A quick back-of-the-envelope calculation suggests that this 20 years of imputed rent might have amounted to $400,000. Next: Buying a Home Previous: Imputed Rent
Read more »

Archive

Short and Sweet

AS I WAS PREPARING for HumbleDollar’s January 2017 launch, my web developer suggested I add a mission statement to the top of the homepage. That mission statement morphed into a daily insight, which then became a daily Tweet that also found its way onto my Facebook page. Like the family that moves from a three-bedroom house to a one-bedroom apartment, I embraced the challenge of shoehorning financial ideas into 140 characters or less. Twitter has since expanded the allowable character count to 280, but I try to stick to the old 140 limit. I keep a running list of my daily comments and have vague plans to turn them into a book. But for now, here are 41 of those comments—some published, some yet-to-be published—that I hope will inspire, amuse and guide you as we begin 2018:
  1. We get just one shot at making the journey from birth to retirement. Flirting with financial disaster is not advisable.
  2. If you waste money, you can make more. If you waste time, life gets old really fast.
  3. Picking superior investments is a crowded trade. Saving more is an easy win.
  4. What's the difference between an equity-indexed annuity and an index fund? One needs an army of salespeople. The other sells itself.
  5. Want to feel short? Hang out with people who are tall. Want to feel poor? Hang out with folks who are rich.
  6. If your kids can borrow it or your friends can admire it, it doesn’t count as an investment.
  7. Draw up a list of your greatest pleasures in life. Then ask yourself: Do you need great wealth to enjoy any of them?
  8. If your portfolio isn’t built around broad market index funds, you've got to ask yourself one question, “Do I feel lucky?" Well, do ya, punk?
  9. When you’re ill, you realize how great it is to feel healthy. Money's similar: When you’re broke, you realize how great it is to be solvent.
  10. If you think money managers are overpaid, imagine how much they’d charge if they actually beat the market.
  11. You want investments that you boast about when you sell—but you’re too nervous to discuss when you buy.
  12. A boat is not your financial friend, but a friend with a boat is.
  13. If you keep investing simple and make it understandable, you’ll lose half your audience, who assume success lies in their own befuddlement.
  14. Never confuse the appearance of affluence with affluence. One is the mortal enemy of the other.
  15. We are voracious acquirers of financial information, but mostly to buttress opinions we already hold.
  16. If your children want for nothing, they have too much.
  17. A quick way to lose half your wealth: Get divorced. The slower route: Marry someone with bad financial habits.
  18. If folks claim their home has been a great investment, ask to see their detailed financial records—and their degree in advanced mathematics.
  19. Whenever you open your wallet, you’re voting for one thing, but also voting against something else.
  20. Invest based on dinner seminars, glossy brochures and TV advertisements, and you foot the bill for your own fleecing.
  21. If you think today’s purchase will make you happy forever, you need to spend more time looking through your closets.
  22. Everybody’s a long-term investor when the market is going up.
  23. Is it time to have the talk with your kids? You know, the important one—about how much you'll help with college costs.
  24. Trying to beat the market is a game for the rich. Only they can afford the inevitable disappointing results.
  25. Want to be free of financial worries? That hinges on the size of your bank account—and the magnitude of your wants and anxieties.
  26. Cash value life insurance isn’t an investment, it’s a religion—and you’ll never meet a more prickly group of disciples.
  27. If you save $5 a day for 40 years by not buying coffee, you’ll miss out on an awful lot of caffeine.
  28. Overconfident investors trade too much, damaging their returns. But heartened by their brokers’ applause, they courageously carry on.
  29. Dollar-cost averaging is for wimps. You’d be amazed how many rich wimps there are.
  30. Forget this year’s stock market angst—and ponder the riches that will accrue to those who can ignore it.
  31. Another year passes and still there are no inductees to the market-timing hall of fame.
  32. It’s hard to know who is less truthful, teenage boys boasting of their sexual conquests—or middle-aged men touting their investment prowess.
  33. What would happen if everybody indexed? Seriously? Are we really worried about a global outbreak of financial prudence?
  34. Good news is bad news: When markets rally, our portfolios may grow fatter—but future returns will likely be lower.
  35. We might retire from the workforce, but we should never retire from the pursuit of a fulfilling life.
  36. Gold is like your crazy uncle at the wedding: He dances wildly—and he dances alone.
  37. Your kids will grow up to imitate your financial habits. Will you like what you see?
  38. If the answer necessitates making a short-term market prediction, you’re asking the wrong question.
  39. The results speak for themselves—and that’s a problem for active money managers.
  40. The big financial risk isn't dying early in retirement but, rather, living longer than we ever imagined.
  41. Our only earthly immortality will be the recollection of others. Make sure those memories are good.
A morbid aside: I’m able to schedule the new content for HumbleDollar’s homepage well in advance. This allows me to publish updates, even if I’m traveling or on vacation. One result: Should I go under the next bus, new insights will continue to appear at the top of the homepage—as well as on Twitter and Facebook—for months afterward. Thanks to the miracle of technology, it seems we’re now able to be productive, even in death.

Taxing Matters

SHOULD YOU MAKE ANY CHANGES to your finances in response to the new tax law? Three steps come to mind:
  • Make extra-principal payments on your mortgage. With the standard deduction now so much higher, and the itemized deduction for state, local and property taxes capped at $10,000, all that mortgage interest is likely saving you little or nothing in taxes, as I explained in a recent blog.
  • Rethink your strategy for charitable giving. Bunching two or three years’ worth of charitable gifts into a single year may allow you to itemize and get some tax benefit from your generosity. If you’re charitably inclined and over age 70½, also consider qualified charitable distributions from your IRA.
  • Revisit your estate plan. The federal estate tax exclusion has climbed from $675,000 in 2001 to $11.2 million in 2018, plus that exclusion is now “portable,” meaning married couples can potentially bequeath $22.4 million tax-free. Got an estate plan that’s designed to avoid federal estate taxes? There’s a good chance it needs to be revised—or there could be unintended consequences.

December’s Greatest Hits

HERE ARE THE SEVEN most popular blogs from last month: Also check out the most popular blogs for the fourth quarter and for all of 2017, as well as a slew of site updates I made at the end of December, including revisions to reflect the new tax law.
Read more »
Jonathan Clements

About Jonathan

HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.