AS THE STOCK MARKET repeatedly hit new highs in recent years, my net worth reached levels I hadn’t expected. But instead of feeling good about it, I was getting annoyed. Most of my retirement dollars had been invested over the past decade at high stock market valuations. I could use a good bear market so that, in my few remaining years in the workforce, I bought stocks cheap. I also worried that a prolonged downturn at the worst possible time might derail my early retirement plans. Indeed, the bull seemed unstoppable even a month ago. But the coronavirus has ended my wait. The bull market’s demise hasn’t just been a psychological relief. It’s also allowed me to get my financial house in better order. I’ve been busy executing trades I’d planned for whenever a market plunge might occur. What trades have I made? My investments needed a spring cleaning, so that’s where I started. Although I mostly invest in low-cost, broadly diversified index funds, a small portion of my taxable account was in a few narrower funds focused on technology, small-cap and value stocks. My original intent was to overweight some promising stock market asset classes, but I’ve come to realize they didn’t add much to my portfolio. Problem is, these holdings had climbed in value and I was reluctant to sell, because of the taxes it would trigger. The market plunge changed that, allowing me to sell without generating big tax bills. I also took tax losses in a few other funds focused on dividend-oriented stocks and international markets, where I wanted to keep my exposure. I used the proceeds to purchase similar—but not substantially identical—funds. This allowed me to maintain my market exposure, while sidestepping the wash-sale rule. With these trades out of the way, I turned my focus to my next task. Some background: I had set aside a small portion of my bond investments to switch to real estate investment trusts (REITs) at a future time, when the risk premium was more compelling. This move would increase my portfolio income in today’s low-yield world. I already had REIT investments through low-cost exchange-traded index funds. For a change, I was open to adding a time-tested, actively managed fund to the mix. My preference was a closed-end fund (CEF). Why? Compared to regular mutual funds, CEFs have unique characteristics, making them attractive to income seekers. CEF managers don’t have to worry about paying off redeeming shareholders, so they have the freedom to make illiquid, longer-term investments. By contrast, a regular mutual fund may have to liquidate investments at an unfavorable time to meet investor redemptions. This doesn’t mean CEF investors are stuck with their investments. CEF shares can be bought and sold on the stock market. This secondary market trading often causes the share price of a CEF to deviate from its net asset value, or NAV, which is the value of the fund’s holdings figured on a per-share basis. If investors buy a CEF at a discount to its NAV, that means their yield is higher than the yield on the CEF’s holdings. CEFs often use a limited amount of leverage to boost their return. This leverage increases a fund’s expenses, because of the interest cost involved. It also makes the fund riskier. But I’m comfortable with the leverage, because it’s frequently used with real estate investments. I researched funds such as Nuveen Real Estate Income (JRS), Cohen & Steers Quality Income Realty (RQI) and Cohen & Steers Total Return Realty (RFI). The fund I eventually settled on had survived the 2008 bear market and, over nearly two decades of existence, had often traded at a discount. But when should I pull the trigger? The recent market plunge created the opportunity I was looking for. First, REITs were selling at a low price, pulling down the fund’s NAV. Second, my chosen CEF’s typical discount already meant it was a bargain—but the panic selling increased the discount even further. That was the icing on the cake. Once that trade was completed, it was time to step back and review my overall asset allocation. Sharp market increases and deep plunges are both opportunities for one-off portfolio rebalancing. But I also realized that, although the market has dropped quickly, the magnitude of the decline isn’t that big a deal: At this point, we’ve simply given up the gains made in 2019. I moved some of my bond-market money to stocks, to bring my portfolio back into line with my target percentages, but I haven’t opted to overweight stocks—yet. A software engineer by profession, Sanjib Saha is transitioning to early retirement. His previous articles include Working the Plans, Got Gold and Risky Option. Self-taught in investments, Sanjib passed the Series 65 licensing exam as a non-industry candidate. He's passionate about raising financial literacy and enjoys helping others with their finances. [xyz-ihs snippet="Donate"]

I TUTOR MY 10-year-old niece once a week in math and science. After the study sessions, we often talk about other things—mostly kid stuff. Recently, her treasured piggybank got a nice boost on her birthday and we discussed what she might do with the money. That’s when my niece asked, “How much money will I need when I grow up?” I guess she was trying to figure out if she did indeed have to study hard and get a job—or whether her current savings would be enough. I laughed and told her that she would definitely need to work, just like the rest of us, because she’d need much more money than her piggybank held. Still, in retrospect, I think her seemingly innocent question can be a good starting point for introducing teenagers and young adults to the topics of money and careers. As children grow, they generally develop a sense for why money is important—but there’s no easy way for them to gauge how much they need. A ballpark estimate can give them perspective and help them to double-check whether a career path will meet their financial needs. It can also force them to learn more about basics of smart money decisions. When I started my career, I knew I needed to work hard, earn a decent wage, avoid overspending and save regularly. But beyond those abstract notions, there was no concrete, holistic target in my mind. A rough roadmap—even one with a large margin of error—would’ve helped me to plan and organize my financial life better. It isn’t too hard to come up with a ballpark estimate. Let’s ignore inflation and instead think about everything in today’s dollars. Let’s also assume a hypothetical couple who start a household at age 30, work for 30 years, raise two kids, retire at 60 and then live another 30 years. Their cumulative lifetime expenses might include the following major items: Cost of a house. These days, newly constructed homes cost somewhat more than $300,000. Existing homes tend to be less expensive. Cost of eight cars. Let’s assume both partners have a car, and that each car costs $25,000 and lasts 15 years, for a lifetime total of $200,000. Annual household expenses for 60 years. The typical household spends around $60,000 a year. Keep in mind that a third of this goes toward housing, plus an additional chunk toward car purchases, so we might reduce this figure to $40,000, or $2.4 million over 60 years. Cost of two college educations, which we might estimate at $100,000 per kid. If you favor private colleges, you might increase this to $200,000 or more. Lifetime health care and long-term-care costs. Let’s put that at $300,000. Once the lifetime lump sum is determined, it’s easy to calculate the required average household annual income: You just divide the lump sum by the number of working years. This annual income represents income after federal and state income taxes, plus payroll taxes during the couple’s working years. You might increase the after-tax sum by 25% to arrive at the required pretax annual household income. Using the above methodology and the national median household numbers cited above, the lifetime lump sum comes to about $4.25 million in today’s dollar. Over a 30-year working life, that amounts to roughly $70,000 per year per spouse or partner. What are the lessons from this exercise that you might discuss with your kids? A lot of money is needed over a household’s lifetime. Even the median U.S. standard of living demands a sizable household income. Everyday expenses—that $40,000 a year—are the biggest driver of lifetime spending. It’s important to avoid overspending and keep recurring expenses in check. At least a bachelor’s degree is almost essential to affording the lifetime expenses we’re discussing. Even with a bachelor’s, much depends on career choice. A software engineer by profession, Sanjib Saha is transitioning to early retirement. Self-taught in investment and financial planning, he's passionate about raising financial literacy and enjoys helping others with their finances. Earlier this year, he passed the Series 65 licensing exam as a non-industry candidate.  [xyz-ihs snippet="Donate"]

LIKE MANY IMMIGRANTS living in the U.S., I regularly return to my hometown to visit family and friends. My trips to Kolkata are usually short and jam-packed, seeing not just contemporaries, but also the older generation, including aunts and uncles, my parents’ friends and my friends’ parents. My two recent visits—one last fall and the other this spring—were no exception, but I had mixed feelings this time. Most of the older generation are now in their 70s and early 80s, and two of them had passed away since my last pre-pandemic visit. I was happy to be able to catch up with the rest. But I was also saddened and surprised to find that, since my last visit, a few didn’t seem to be doing well emotionally, as if they’re struggling to find meaning in life. On the surface, health problems and mobility issues are to blame, but that alone doesn’t explain such a change within a few short years. With most of their family members or adult children living elsewhere, these folks have no one to lean on for day-to-day support. They resist getting professional in-home senior care services or moving to retirement communities. This mental block is cultural and emotional, not financial. Meanwhile, the rest of my older acquaintances seem to be having a great time in their golden years. They, too, face health and mobility issues, but these don’t appear to affect their positive outlook on life. The best example is my maternal aunt—my mother’s younger sister—whom I call Mashi. Despite dealing with several family tragedies within the past year, including losing her husband of 50 years after a long period of ill-health, Mashi remains upbeat and full of energy. If you were to guess her age based on appearance and activities, you’d probably be off by at least 10 years. What’s the secret to the higher life satisfaction of these older folks? I’m not sure about the others, but for Mashi, I can think of six factors: 1. Keeping busy with a purpose. I’ve never seen Mashi sitting idle and wondering what to do with her spare time. Words like sedentary and lazy don’t exist in her dictionary. Even at this age, she still feels responsible for the smooth running and upkeep of her household, which includes her younger son and his family, who live with her. Mashi’s younger son—my cousin—is a doctor, his wife also has a career, and they have a four-year-old son who started kindergarten last year. Both my cousin and his wife assist with the household’s upkeep as best they can, and there’s also domestic help for certain chores. Still, Mashi is deeply involved with the remaining day-to-day work. It’s almost as if the household would cease to function if she were away for even a short time. 2. Nurturing relationships. Mashi makes a big effort to stay connected with all of her family and close friends—the quality I admire most about her. Her daily routine includes spending a few hours with her grandson, chitchatting with neighbors, talking to her older son’s family—they live abroad—and catching up with my mother over the phone. She’s also regularly in touch with her late husband’s extended family and friends. She rarely misses social gatherings, be it a puja celebration with in-laws, birthdays or special events of friends and acquaintances. [xyz-ihs snippet="Mobile-Subscribe"]  3. Healthy eating. Mashi has resisted today’s lifestyle of junk food and frequent dining out. To be sure, she’s curious about food and doesn’t mind other cuisines for a change. But her staple meals involve homemade food with fresh vegetables, legumes and grains, plenty of fish and occasionally eggs or meat. She loves to make traditional Bengali dishes with seasonal vegetables. Whenever I visit her, I enjoy tasting what she’s making that day. 4. Regular physical exercise. No, Mashi doesn’t go to a health club, swimming pool or any fitness center. Instead, she gets her physical exercise simply by choosing to walk whenever she needs to go anywhere within a one-mile radius. She finds one excuse or another every day to get out of the house for a brisk walk. Often, the trip involves getting fresh vegetables and groceries from the neighborhood bazaars, picking up monthly provisions from convenience stores, buying a gift for an upcoming family event, or paying a visit to her in-laws who live close by. Even the pandemic lockdown didn’t change her walking habit. 5. Personal time. Despite a busy daily life, Mashi sets aside time to relax. Her favorite hobby is gardening. Living in a congested city, she doesn’t have the luxury of a backyard garden. Instead, she uses her home’s two terraces to grow a variety of plants in pots of various sizes. The small terrace on the second floor doesn’t get much sunlight, and the one on the fourth floor has no shade. She regularly moves pots between the terraces, prunes and weeds them, and treats the soil with tea leaves. According to her, looking after her plants is the most relaxing part of her day. 6. Financial security. Mashi doesn’t come across as wealthy, but she’s financially comfortable, thanks to a lifetime pension, retirement savings left by my late uncle and a decent-sized house. Both her sons are capable of offering financial support, but I doubt she’d ever need or ask for help. She can afford to spend beyond her regular expenses without worrying about outliving her money. Mashi is in her 70s, but—given that she’s hardly changed since her early 60s—I have a feeling that she’ll be the same in her 80s, too. Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Check out his earlier articles. [xyz-ihs snippet="Donate"]

DURING MY SCHOOL days growing up in India, my exposure to English literature was confined to textbooks that reprinted essays and short stories, or portions thereof. One of them was a humorous piece by Stephen Leacock from his book Winnowed Wisdom. The excerpt was titled “Old Proverbs Made New” and it seemed funny even to a middle-schooler with a limited grasp of the English language. It argued, with examples, that proverbs get outdated and need to be rewritten. It recently dawned on me that Leacock’s contention also applies to personal finance. Here are eight popular sayings, along with my tweaks: 1. Hard work never hurt anyone. Yes, it does. In fact, successful investing requires so little effort that laziness is almost a virtue. Working too hard at investing can do more harm than good to our long-term performance. For instance, we might try hard to time the market, only to find that it doesn’t really work. We might expend too much effort finding the next highflying stock, only to watch our hard-earned money slip away. We might burn midnight oil overdiversifying our investments, only to end up with an unruly, complicated mess. On the other hand, a simple portfolio, consisting of a few low-cost diversified funds, needs nothing more than occasional rebalancing. Hard work can hurt investment results. 2. Proof of the pudding is in the eating. Intuitively, this sounds right, doesn’t it? The final result should be the only way to judge something’s quality. This is true for cases where there’s little room for uncertainty. It doesn’t, however, apply to financial and investment decisions. Why not? Because luck and randomness contribute to the outcome. It’s difficult to separate luck from skill. In her bestselling book Thinking in Bets, Annie Duke explains that the measure of a great decision isn’t whether the eventual outcome is great. Instead, it’s about the process and thinking behind the decision. A great decision increases the odds of a great outcome but doesn’t guarantee it. The proof of the pudding is in the making. 3. Slow and steady wins the race. I’ve always loved this lesson from Aesop’s fable. I try to practice it whenever I can. The slow-and-steady mantra works equally well in investments and financial success. Why, then, am I complaining? My objection is to the part about “winning the race.” Our financial life is not a competition. There’s nothing to win and nobody else to beat. It’s about getting there and enjoying the journey along the way. Slow and steady enjoys the race. 4. Curiosity killed the cat. I couldn’t disagree more. Whether we manage our own investments, or let our friendly financial advisor do it for us, or blindly assume a family member is making prudent money decisions on our behalf, curiosity can be our best defense against nasty surprises. [xyz-ihs snippet="Mobile-Subscribe"] How? Curiosity raises awareness, busts assumptions and reveals blind spots. Unless we’re curious, we may never know for sure if the family member is making good financial choices. We may overlook the hidden fees or risks associated with the investment and insurance products we bought. We may not question whether the advisor’s compensation model is the best one for us. Curiosity saves the cat’s wallet. 5. A penny saved is a penny earned. Lowering our living costs by a penny may indeed be the same as earning a penny more, assuming we ignore the pesky issue of income taxes. But what if we actually save that penny, so we can spend it at some point in the future?  That penny saved is the same as earning the future value of that penny, not its face value. Invest it wisely and we could end up with more than a penny. A penny saved beats a penny earned. 6. A bird in the hand is worth two in the bush. Not in finance and investments. We’re often better served by letting the bird in hand go and patiently awaiting a superior reward in the future. Take Social Security. The most popular age for claiming Social Security is 62. While some need to claim early because they have no other financial choice, most people are better off waiting until age 70. In reality, alas, very few people wait. They give up higher lifetime guaranteed inflation-adjusted income to grab whatever is available now. The “bird in hand” mentality proves unwise. Similarly, I’ve seen folks hesitate to contribute to a workplace retirement account, simply because they have to wait a long time before they can withdraw the money without penalty. They’d much rather pay taxes now and get their hands on the cash. A bird in the hand leaves many in the bush. 7. There’s no free lunch. Evidently, whoever coined this popular adage overlooked personal finance. No, I’m not talking about the dubious free meal investment seminars that regulators caution us against. I’m talking about genuinely free lunches. Looking to reduce your investment portfolio’s risk? Try combining investments that are loosely or negatively correlated with one another. The overall risk of a diversified portfolio will be less than the weighted average risk of its individual constituents. The reduced volatility is your free lunch. Can’t afford to make 401(k) contributions? At least put in enough to get the employer’s match. Even if you withdraw after vesting and pay a 10% penalty, you’ll still retain the remainder of your employer’s contribution—another free lunch. Trying to build a small emergency fund from a meager paycheck? If you’re eligible, stash dollars in a Roth IRA. You can take back the money at any time, while leaving open the option of tax-free growth. In investing, there is such a thing as a free lunch. 8. A little knowledge is a dangerous thing. Expertise and specialized training may be necessary in many situations, but not always. With a little knowledge and initiative, we can do many things ourselves. Not convinced? Consider our physical health. Elementary knowledge—eating balanced meals, avoiding junk food, staying physically active and so on—goes a long way toward a healthy lifestyle. We don’t need to be doctors or nutritionists to lead a healthy life. The ingredients of emotional well-being are also simple: Show gratitude and care, count blessings, nurture friendships and so on. A degree in psychology is missing from this list. Likewise, we don’t need a PhD in finance to be successful with money. Things like living within our means, keeping costs low and investing for the long term are the necessary and sufficient ingredients. A little knowledge can be a powerful thing. Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Check out his earlier articles. [xyz-ihs snippet="Donate"]

MY SPRING CLEANING this year was less eventful than last year's, except I found my fanny pack. I bought it in the early 1990s but misplaced it some years ago. It was so handy for air travel, especially international trips, that I ignored all fashion worries. I forgot what I paid for the fanny pack, but it was certainly one of my best buys. Frankly, only a few such purchases stand out. Here’s my list of half-a-dozen similar items. Spoiler alert: The correlation between price and satisfaction seems rather weak. 1. Best car. I’ve owned a dozen cars over the past 30 years, from a compact coupe to a luxury SUV. I have little interest in cars, but I developed a special attachment to one. It’s a 2003 Honda Odyssey that my daughter still drives. I bought it years ago from a close friend who was moving abroad, and it’s proven to be reliable, comfortable and low maintenance. We drove it to almost all the major national parks in the west, including a few in Canada. Even now, it comes in handy for hauling stuff and occasional airport rides. I recently replaced the transmission, so it should be with us for some years to come. 2. Best financial asset. To jumpstart my wealth building in mid-30s, I had to tighten my belt. The apartment rent was an easy target. With a realtor’s help and my own research, I found a two-bedroom townhouse for sale. It was neither in the most sought-after neighborhood nor aesthetically pleasing, but it was good enough for a recently divorced engineer with a hectic work schedule. Despite my modest expectations, the quality of life in the townhome was surprisingly pleasant. Amenities like libraries and convenience stores were all within walking distance. My parents were delighted to come over in summer and spend a few months with me. The house was large enough to host occasional get-togethers with close friends. Above all, the financial benefits of this purchase were crystal clear. My monthly housing payments were only slightly more than my old rent, but my net spending dropped, because the homeowner’s association dues included cable and most utilities. On top of that, part of each mortgage payment increased my home equity, especially with my accelerated principal payments. I sold the townhome after four years and invested the proceeds in stocks. That seemingly unattractive house was arguably the smartest investment I ever made. 3. Best furniture. With my minimalist mindset, I never paid much attention to home furnishings, but my wife did. She bought what she thought would make the house look good. In my humble opinion, which I managed to keep to myself, most were unnecessary. But there was one notable exception. We needed a new sofa. I wanted something basic and comfy, but my wife fancied a trendy living room set. She dragged me to a furniture warehouse, where we browsed for a few hours. I spotted a lay-flat electric reclining sofa that also met my wife’s décor standards. It was pricier than I’d hoped. My wife hurriedly sealed the deal before I changed my mind. [xyz-ihs snippet="Mobile-Subscribe"] The bulky set arrived a few days later and, since then, has completely transformed our TV watching experience. Viewing movies at home became more enjoyable than premium theater seating. My wife had long wanted a TV in the bedroom, which I’d resisted for good reasons. With a sofa that turned into a cozy bed at the press of a button, she doesn’t bring it up anymore. 4. Best appliance. My daughter and I shared a common feeling toward our canister vacuum cleaner. We both hated it. It was clunky and heavy. Attaching the accessories, pulling it around the house and plugging the cord into different wall sockets made cleaning even more of chore. But my wife refused to replace it, pointing out that it worked well. Our prayers, however, were answered: The cleaner stopped working. I was never so happy to see something break—and I promptly rushed to Costco to get a cordless cleaner. Now, vacuuming the home couldn’t be simpler. 5. Best musical instrument. As a self-taught amateur musician, I love to learn new musical instruments on my own. I usually start with used instruments and get better ones later if I keep at it. Our garage is stuffed with guitars, keyboards, percussion instruments and more. While a few were pricey, my favorite is a basic portable keyboard bought almost 20 years ago. It’s the only instrument with a permanent place inside the house. Both my daughter and I play it regularly. With a built-in speaker and prearranged music, it’s perfect for impromptu performances in casual settings. I’ve used the keyboard in live concerts, alongside my other fancier synthesizers, and I still use it for home recording projects. 6. Best travel accessory. My Swiss Army knife, which I’ve mentioned before, was a nostalgic buy, but its versatility paid off later. With its handy attachments—scissors, nail clipper, pliers, Phillips screwdriver, to name a few—it was indispensable during our vacations, especially camping trips. Sadly, I made the mistake of putting it in my carry-on and had to leave it at airport security. I still haven’t found a worthy replacement. While I’ve been happy with most of our purchases over the years, only a few rank as exceptional. What turned these few from good to great? It seems they all have three things in common, much like the low-cost diversified funds in my investment portfolio. First, each item served its intended purpose, but didn’t come with bells and whistles for which we had no use. Second, we used them extensively. Finally, each item was low maintenance and involved low overhead. Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Check out his earlier articles. [xyz-ihs snippet="Donate"]