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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.

Scratching That Itch

AS A TEENAGER, I started to invest by buying a boring old target-date retirement fund. But from there, I became an avid watcher of CNBC while studying finance in college. Indeed, my first financial love was technical analysis. Even today, when markets turn volatile, I’m as susceptible as the next investor to turning on financial cable TV to check out the supposed carnage.
Still, as time has worn on, my perspective has grown longer term and away from day-to-day market movements.

Read more »

Cheat Sheets

WHEN MY YOUNGEST son graduated college, he had two solid job offers. One would have allowed him to live at home for free and the other was halfway across the country. Guess which one he picked?
In fairness, the job far from home was more interesting to him and provided a great start to his career. I remember him sitting down with his mother and me, and telling us he was planning to move to Texas.

Read more »

Stand Your Ground

IMAGINE the coronavirus caused the U.S. economy to shrink 4%. What sort of drop in share prices might this trigger?
As it happens, we already know the answer. Over the 18 months through mid-2009, U.S. inflation-adjusted GDP slipped 4%. Investors—panicked over what the future might bring—drove down the S&P 500 stocks by a jaw-dropping 57%.
In retrospect, this seems like a bit of an overreaction.
To be sure, late 2008 was a wild time.

Read more »

Good as Gold?

MY THREE FAVORITE words in response to questions about investing and trading: “I don’t know.”
Nothing underscores that sentiment more than bitcoin and other cryptocurrencies. I work on a trading floor, where it pays to have an opinion on just about every tradable asset. But I’m the oddball on the floor. I roll my eyes when I hear blanket market predictions and the latest hot stock tip. I’m even on a personal crusade to remove CNBC from the TVs at work.

Read more »

Don’t Tinker

“FOLLOWING the market’s recent banner year, should we just sell everything and get out?” I got that question recently, and it’s entirely understandable. Since hitting bottom in 2009, U.S. share prices are up fivefold, including the S&P 500’s 31.5% total return in 2019. 
Individual investors aren’t alone in asking this question. A few weeks back, at an industry conference, James Montier delivered a presentation in which he compared the U.S. stock market to “Wile E.

Read more »

Four Questions

AFTER YEARS of handwringing, you finally concede that it’s all but impossible to beat the market over the long haul, so you shift your portfolio into index funds. Next up: the truly tough decisions.
Almost every writer for—and reader of—HumbleDollar is a fan of indexing, and there’s no doubt that index funds are a wonderful financial tool. But how will you use that tool? Let the bickering begin.
The differences of opinion show up among the articles we run on HumbleDollar.

Read more »

Money Guide

Picking Active Funds

YOU'VE HEARD ALL the arguments in favor of indexing—but you still want to try your hand at picking actively managed funds. What should you look for as you seek market-beating funds for each slot in your target portfolio?
  • You want fund managers with great performance over five years and preferably longer. If a mutual fund has notched market-beating returns but the manager responsible has since moved on, the record is meaningless.
  • You want managers with strong records relative to an appropriate benchmark index. If we’ve had a period when small-company growth stocks have sparkled, small-company growth-stock managers will have good absolute performance. But how do these managers compare to an index of small-company growth stocks?
  • You want to see consistency. If a manager has a great five-year record but it’s built on one spectacular year, you may be looking at a fluke performance. Be warned: Even if you identify managers with strong, consistent performance relative to their competitors, there's no guarantee these managers will continue to shine. Instead, the goal here is more modest: You want to rule out managers who have proven themselves to be untalented.
  • You want annual expenses of less than 1%, and the lower, the better. An actively managed fund will charge more than an index fund. Still, if the expenses are too high, the manager will find it awfully tough to beat the market.
  • You should lean toward funds with lower portfolio turnover, preferably 40% or below. Like high expenses, high turnover means high costs—and it’ll be that much harder for the manager to beat the market. High turnover also usually means big annual taxable distributions.
  • You should favor smaller funds. If a fund’s dazzling record has attracted billions of new dollars from investors, the manager could struggle to invest the money involved and may be forced to buy less attractive investment ideas.
As you search for actively managed funds, be sure to spend some time on Morningstar.com, where you can find the data you need to analyze funds. Next: Why Funds Falter Previous Mutual Fund vs ETF
Read more »

Manifesto

NO. 45: PAYING down debt may not be our best investment, but it’s almost never a bad idea. It reduces our life’s financial risk—and earns us a rate of return equal to the debt’s interest rate.

Truths

NO. 8: DILIGENT savers need smaller nest eggs. Let’s say you save 10% of income. To retire in comfort, you might need Social Security, portfolio withdrawals and any pension income to replace 80% of your salary. But if you’ve been saving 25%, you’re used to spending far less—and might be comfortable with 65% of your preretirement income.

Act

UPGRADE YOUR credit cards. If you use one that doesn’t offer cash back or other rewards, swap it for one that does. Paying an annual fee? That might be worth it for the first year if it’s a travel rewards card that offers a large initial bonus. But if you can’t get a retention bonus or the fee waived for the second year, consider canceling and getting a new credit card.

Think

VALUE AVERAGING. This variation on dollar-cost averaging involves adjusting the sum you invest each month, depending on market performance. You start by setting a target growth rate for your stock portfolio. If stocks slide and you don’t achieve your target in any given month, you increase the sum you save—a contrarian approach that could bolster long-run results.

Second Look

Retirement

Righting Wrongs

SOCIAL SECURITY remains a great mystery to many Americans and is widely misunderstood. For instance, when Social Security’s trustees release their annual report, we get vastly different interpretations. One group will read the report and conclude there’s a “surplus” and plenty of money to improve benefits. Meanwhile, another concludes that the program is in fiscal trouble and fixing it is vital.
Headlines frequently state the program is going bankrupt. It isn’t. Today’s level of benefits may not be sustainable,

Read more »

Family Finance

Paper Chase

IF YOU’RE GOING to form one new financial habit this year, make it good recordkeeping. A system that’s easy to follow will improve your financial life both today and for years to come. With all of the annual investment statements and tax documents you’re about to get, this is a great time to start.
Whenever I go to my mailbox, I’m on the receiving end of countless advertisements, credit card offers, insurance notices and more.

Read more »

Investing

Don’t Bank on It

I’VE LATELY BEEN getting a lot of questions about a pair of lookalike investments: U.S. Treasury bonds, which are currently yielding around 1.8% to 2.6%, and online bank savings accounts, which offer similar yields. In other words, you could earn just as much interest in a simple savings account as you could if you tied up your money for a period of months, or even years, in a government bond.
The question I keep hearing: “Why in the world would anyone choose government bonds?

Read more »

Lists

Got to Believe

I CAN ALREADY hear the groans. “Oh brother, here we go again with another of those religious wackos. I’m glad I don’t have to worry about all of that faith-based nonsense. My finances have nothing to do with faith.”
Really?
How about the guy spending his last dollar on a lottery ticket at the corner market? Or the victims of Bernie Madoff? Or the 65-year-old Enron employee fully invested in company stock in summer 2001?

Read more »
Home Call to Action

Mindset

First Responders

MY DOCTOR TOLD ME that my white blood cell count has been trending lower for the past five years. He was concerned there was something going on with my immune system and wanted me to see an oncologist.
The oncologist performed a number of tests and couldn’t find anything that would have caused my condition. He wasn’t concerned about my ability to fight off infections because my absolute neutrophil count was in an acceptable range.

Read more »

Scratching That Itch

AS A TEENAGER, I started to invest by buying a boring old target-date retirement fund. But from there, I became an avid watcher of CNBC while studying finance in college. Indeed, my first financial love was technical analysis. Even today, when markets turn volatile, I’m as susceptible as the next investor to turning on financial cable TV to check out the supposed carnage.
Still, as time has worn on, my perspective has grown longer term and away from day-to-day market movements.

Read more »

Cheat Sheets

WHEN MY YOUNGEST son graduated college, he had two solid job offers. One would have allowed him to live at home for free and the other was halfway across the country. Guess which one he picked?
In fairness, the job far from home was more interesting to him and provided a great start to his career. I remember him sitting down with his mother and me, and telling us he was planning to move to Texas.

Read more »

Stand Your Ground

IMAGINE the coronavirus caused the U.S. economy to shrink 4%. What sort of drop in share prices might this trigger?
As it happens, we already know the answer. Over the 18 months through mid-2009, U.S. inflation-adjusted GDP slipped 4%. Investors—panicked over what the future might bring—drove down the S&P 500 stocks by a jaw-dropping 57%.
In retrospect, this seems like a bit of an overreaction.
To be sure, late 2008 was a wild time.

Read more »

Good as Gold?

MY THREE FAVORITE words in response to questions about investing and trading: “I don’t know.”
Nothing underscores that sentiment more than bitcoin and other cryptocurrencies. I work on a trading floor, where it pays to have an opinion on just about every tradable asset. But I’m the oddball on the floor. I roll my eyes when I hear blanket market predictions and the latest hot stock tip. I’m even on a personal crusade to remove CNBC from the TVs at work.

Read more »

Don’t Tinker

“FOLLOWING the market’s recent banner year, should we just sell everything and get out?” I got that question recently, and it’s entirely understandable. Since hitting bottom in 2009, U.S. share prices are up fivefold, including the S&P 500’s 31.5% total return in 2019. 
Individual investors aren’t alone in asking this question. A few weeks back, at an industry conference, James Montier delivered a presentation in which he compared the U.S. stock market to “Wile E.

Read more »

Four Questions

AFTER YEARS of handwringing, you finally concede that it’s all but impossible to beat the market over the long haul, so you shift your portfolio into index funds. Next up: the truly tough decisions.
Almost every writer for—and reader of—HumbleDollar is a fan of indexing, and there’s no doubt that index funds are a wonderful financial tool. But how will you use that tool? Let the bickering begin.
The differences of opinion show up among the articles we run on HumbleDollar.

Read more »

Free Newsletter

Home Call to Action

Manifesto

NO. 45: PAYING down debt may not be our best investment, but it’s almost never a bad idea. It reduces our life’s financial risk—and earns us a rate of return equal to the debt’s interest rate.

Act

UPGRADE YOUR credit cards. If you use one that doesn’t offer cash back or other rewards, swap it for one that does. Paying an annual fee? That might be worth it for the first year if it’s a travel rewards card that offers a large initial bonus. But if you can’t get a retention bonus or the fee waived for the second year, consider canceling and getting a new credit card.

Truths

NO. 8: DILIGENT savers need smaller nest eggs. Let’s say you save 10% of income. To retire in comfort, you might need Social Security, portfolio withdrawals and any pension income to replace 80% of your salary. But if you’ve been saving 25%, you’re used to spending far less—and might be comfortable with 65% of your preretirement income.

Think

VALUE AVERAGING. This variation on dollar-cost averaging involves adjusting the sum you invest each month, depending on market performance. You start by setting a target growth rate for your stock portfolio. If stocks slide and you don’t achieve your target in any given month, you increase the sum you save—a contrarian approach that could bolster long-run results.

Money Guide

Start Here

Picking Active Funds

YOU'VE HEARD ALL the arguments in favor of indexing—but you still want to try your hand at picking actively managed funds. What should you look for as you seek market-beating funds for each slot in your target portfolio?
  • You want fund managers with great performance over five years and preferably longer. If a mutual fund has notched market-beating returns but the manager responsible has since moved on, the record is meaningless.
  • You want managers with strong records relative to an appropriate benchmark index. If we’ve had a period when small-company growth stocks have sparkled, small-company growth-stock managers will have good absolute performance. But how do these managers compare to an index of small-company growth stocks?
  • You want to see consistency. If a manager has a great five-year record but it’s built on one spectacular year, you may be looking at a fluke performance. Be warned: Even if you identify managers with strong, consistent performance relative to their competitors, there's no guarantee these managers will continue to shine. Instead, the goal here is more modest: You want to rule out managers who have proven themselves to be untalented.
  • You want annual expenses of less than 1%, and the lower, the better. An actively managed fund will charge more than an index fund. Still, if the expenses are too high, the manager will find it awfully tough to beat the market.
  • You should lean toward funds with lower portfolio turnover, preferably 40% or below. Like high expenses, high turnover means high costs—and it’ll be that much harder for the manager to beat the market. High turnover also usually means big annual taxable distributions.
  • You should favor smaller funds. If a fund’s dazzling record has attracted billions of new dollars from investors, the manager could struggle to invest the money involved and may be forced to buy less attractive investment ideas.
As you search for actively managed funds, be sure to spend some time on Morningstar.com, where you can find the data you need to analyze funds. Next: Why Funds Falter Previous Mutual Fund vs ETF
Read more »

Second Look

Retirement

Righting Wrongs

SOCIAL SECURITY remains a great mystery to many Americans and is widely misunderstood. For instance, when Social Security’s trustees release their annual report, we get vastly different interpretations. One group will read the report and conclude there’s a “surplus” and plenty of money to improve benefits. Meanwhile, another concludes that the program is in fiscal trouble and fixing it is vital.
Headlines frequently state the program is going bankrupt. It isn’t. Today’s level of benefits may not be sustainable,

Read more »

Family Finance

Paper Chase

IF YOU’RE GOING to form one new financial habit this year, make it good recordkeeping. A system that’s easy to follow will improve your financial life both today and for years to come. With all of the annual investment statements and tax documents you’re about to get, this is a great time to start.
Whenever I go to my mailbox, I’m on the receiving end of countless advertisements, credit card offers, insurance notices and more.

Read more »

Investing

Don’t Bank on It

I’VE LATELY BEEN getting a lot of questions about a pair of lookalike investments: U.S. Treasury bonds, which are currently yielding around 1.8% to 2.6%, and online bank savings accounts, which offer similar yields. In other words, you could earn just as much interest in a simple savings account as you could if you tied up your money for a period of months, or even years, in a government bond.
The question I keep hearing: “Why in the world would anyone choose government bonds?

Read more »

Lists

Got to Believe

I CAN ALREADY hear the groans. “Oh brother, here we go again with another of those religious wackos. I’m glad I don’t have to worry about all of that faith-based nonsense. My finances have nothing to do with faith.”
Really?
How about the guy spending his last dollar on a lottery ticket at the corner market? Or the victims of Bernie Madoff? Or the 65-year-old Enron employee fully invested in company stock in summer 2001?

Read more »

Mindset

First Responders

MY DOCTOR TOLD ME that my white blood cell count has been trending lower for the past five years. He was concerned there was something going on with my immune system and wanted me to see an oncologist.
The oncologist performed a number of tests and couldn’t find anything that would have caused my condition. He wasn’t concerned about my ability to fight off infections because my absolute neutrophil count was in an acceptable range.

Read more »