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Trump Accounts – An Update

"So, we don't know if the Trump accounts will be able to be converted to a Roth at/after age 18? My prior understanding was that they would be convertible. That's a huge selling point, so hopefully that gets clarified soon."
- Ben Rodriguez
Read more »

What is the best way to donate to charity in 2026?

"I've started to use direct gifts of securities to my alma maters, and will continue to do so. I've taken to gifting blocks of shares that have the lowest basis while getting the market value as my deduction. This helps bring incremental efficiency to my portfolio and doesn't require me to build any new "structure" for giving. Simple and effective. But the ratcheting down of the value of deductions for charitable contributions based on income can add a new calculation chore."
- Martin McCue
Read more »

Volatility is your Best Friend

"Volatility is one way active market players can make money with a degree of confidence. Some good companies that are volatile still have fairly recognizable peaks and troughs. And people who track these companies can do really well over time if they buy during known troughs, and sell during peaks, as long as they don't get too greedy. While markets shocks can interfere, slow and steady in stable markets can pay off when one takes profits in smaller bites."
- Martin McCue
Read more »

Forget the 4% rule.

"My RMD, combined with Social Security and a small pension, is more than I need to live on, and the monthly SEP distributions to me seem better than any annuity I can imagine. I am unlikely to ever withdraw more than my RMD (or less). And despite the surplus I have each month, I don't have much interest in increasing my consumption spending at all (though I've noticed I am gifting a bit more.) The RMD process did, however, help me to sort out what I should be doing with my investment choices and to simplify."
- Martin McCue
Read more »

Allan Roth’s 2/13/26 article references Jonathan Clements

"Now that you made me think about it, you’re right, Dick. I have acquired some stuff: Several pieces of wall art from my local cooperative gallery where I actually know the artists, including one who focuses on paintings of the Poconos and the pioneers of the Conservation movement, and another who creates amazing scenes from paper cutouts. I also bought a small rug when I went to Morocco and harmonizing pillow covers from New Mexico. While I wouldn’t call myself a collector, these things really give me pleasure, as they remind me of people I know or places I’ve been, as well as for their intrinsic beauty."
- Linda Grady
Read more »

Loose Change

"I always found the multiple European currencies very exotic. It was a bit disappointing when they amalgamated into the Euro, but I suppose it makes things simpler when traveling between countries."
- Mark Crothers
Read more »

How did you avoid being in the 39%?

"Makes sense to me, but Americans only want someone else or “government🤑” to fund their retirement. We can’t even raise the payroll tax to keep our Social Security system solvent. There is a great disconnect between the taxes we pay and what they provide to us. "
- R Quinn
Read more »

Home Tax Tips

IF YOU OWN a home or are planning to buy one, there are a few things you need to know from the tax standpoint that could save you money: 1. Mortgage Interest If you have a mortgage, you can typically deduct the interest you pay on the loan up to $750,000 ($1,000,000 if taken before December 16, 2017) but only if you itemize your deductions (schedule A) You can also deduct points you paid if you itemize. Many people miss deducting points on their tax returns when they purchase a house, but you have to meet some criteria like:
  1. The points relate to a mortgage to buy, build or improve your principal residence
  2. Points were reasonable amount charged in that area
  3. You provide funds (at or before closing) at least equal to the points charged
  4. The points clearly show on the settlement statement
In general, points to get a new mortgage or to refinance an existing mortgage are deducted ratably over the term of the loan.  Note that the deductible points not included on Form 1098 (the mortgage interest form) should be entered on Schedule A (Form 1040), Itemized Deductions, line 8c “Points not reported to you on Form 1098.” 2. Property taxes Property taxes can be deducted on your tax return if you itemize deductions. The total amount of taxes (including state and local income taxes) is capped at $40,400 for 2026. This cap is temporary and will increase by 1% annually through 2029 before reverting to $10,000 in 2030. If you make between $500k to $600k of modified adjusted gross income, the $40.4k deduction is reduced by 30% for each dollar you make. At $600k MAGI, the deduction drops to $10k, potentially raising marginal tax rates to 45.5% (!) for singles due to “SALT torpedo” if you are in the $500-600k range. If you are at that range, it’s recommended to mitigate this by lowering AGI/MAGI by maximizing pre-tax 401(k)/403(b), HSA, FSA contributions, timing RSU sales, tax loss harvesting, or deferring income/accelerating expenses for business owners. 3. Improvements Improvements are significant enhancements made to your home that increase its value. Many people overpay on taxes when they ultimately sell their house because they don’t keep track of these improvements. Here are some examples provided by the IRS: > Putting an addition on your home > Replacing an entire roof > Paving your driveway > Installing central air conditioning > Rewiring your home > Building a new deck > Kitchen upgrades > Lawn sprinkler system > New siding > Built in appliances > Fireplace Now, these costs aren’t deducted, but they are added to your home’s cost basis. This could lead to lower capital gains taxes when you sell your property (more on this later). Repairs, on the other hand, don’t impact your basis and don’t affect your taxes (e.g. repairing a broken fixture, patching cracks, etc) You will need to document every improvement, as this can help you save money on taxes. Keep your receipts and invoices (upload them to Google Drive) and record the dates and descriptions of the work done. Taxes when selling your house When you sell your house, here’s the formula: Selling price  > Selling expenses (like realtor fees) > Adjusted cost basis (how much you purchased it for + all these capital improvements I talked about above + any closing costs you paid when you acquired the home (legal fees, recording, survey, stamp taxed, title insurance) = Gain/Loss You will need to pay capital gains tax if there is a gain, but, luckily there is a gain exclusion (Section 121 exclusion) that can also help you save on taxes: 4. Gain exclusion If you sell your primary residence, you may be able to exclude up to $250,000 ($500,000 for married) of the gain from taxes if you meet some conditions. > Ownership (must have owned the home for at least 24 months within the 5 years prior to sale. For married couples only one spouse needs to meet this requirement) > Residence (you must have used the home as your main residence for at least 24 non-consecutive months during the 5 years before the sale. For married couples both spouses must meet requirements. > Look-back (you must not have claimed the exclusion on another home within the 2 years before this sale) Now, many people don’t know this but there is actually a partial exemption.  1. Work related move (i.e. you started a new job at least 50 miles farther from home) 2. Health related move (you moved to obtain, provide, or facilitate care for yourself or a family member) 3. Unforeseeable events (casualty, divorce, death, financial difficulty) 4. Special circumstances So, instead of claiming the full exclusion, you can exclude a prorated portion of the $250,000/$500,000 limit based on how long you owned and lived in the home. By the way, you can rent out a home for 2 years and still qualify for the exemption, as long as you lived there for the required period before selling (many people do this). 5. Tax example selling a home You bought a home for $200,000 (including all other costs) in 2018. You built a new deck, new roof and siding totaling $50,000. You now sold your home for $500,000. You are single. Selling costs are $20,000 (agent fees, etc) Sale price: $500,000 -$20,000 of selling costs (200,000 + 50,000) = -$250,000 (adjusted basis) Total Gain = 230,000 Exclusion = $250,000. Total taxes paid = $0. But what if you didn’t keep track of all your renovation costs like new siding or a deck? You would’ve had to pay taxes on $20,000 of capital gains!  Overall, knowing how these things work can literally save you thousands in taxes. Do you have any tips with homeownership? Share some in the comments!   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.
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Sector Fund by Stealth

I'VE RECENTLY MADE the most significant change to my own portfolio in thirty five years. For the first time I've moved away from pure market-cap investing, tilting meaningfully toward Europe and Southeast Asia and bringing my US technology concentration down to around fifteen percent. I'm retired. I don't need to chase the outperformance that concentration might deliver, and I don't need the potential volatility that comes with it. This is a personal position rather than any kind of recommendation; it's nothing more than a risk management decision made at a point in life where I simply don't need the risk. What prompted it was a growing discomfort with something I suspect many everyday investors haven't fully reckoned with: the S&P 500 is no longer quite the animal it once was. A broad market index fund casts a wide net across the economy, and the S&P 500, which tracks the 500 largest US businesses by market value, has long been held up as the sensible default: low cost, well diversified, a bet on the whole rather than any one part of it. A sector fund works differently; it makes a deliberate, concentrated bet on a specific industry. If you believe technology is going to outperform the market as a whole, it gives you the ability to concentrate your capital into exactly the sector your research or gut instinct suspects is going to be the place to be and let it run. The theory behind each is straightforward enough. A broad market fund captures a larger slice of the investment universe and is generally considered the lower-risk path. A sector fund comes with a well-understood trade-off: higher potential returns in good times, sharper drawdowns when sentiment turns. Investors who consciously choose a technology sector fund know what they're signing up for. The risk profile is understood, accepted, and priced into the decision. The problem is that the line between these two things has become a bit fuzzy, and most everyday investors haven't noticed. A handful of technology and technology-related companies (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet) have grown so dominant in their market valuations that they now represent a disproportionate share of the entire index. During the last year, the top ten holdings have accounted for roughly a third of the total weight of all 500 companies. The mechanism behind this is simply how the index works. The S&P 500 is market-cap weighted, meaning the bigger the company, the bigger its slice of the pie. As technology companies scaled their dominance through the 2010s and into the 2020s, their weight within the index ballooned accordingly. The index didn't change its rules; the market just rewarded one particular group of companies so heavily that they came to dominate the scoreboard. This means the investor who bought the S&P 500 believing they were spreading risk broadly across the American economy (energy, healthcare, financials, industrials, consumer staples) owns something that looks quite different to the story they were sold. You buy five hundred companies and a third of your money lands in ten stocks, most of them operating in the same broad technological ecosystem. That is a concentration risk, whether it is labelled as one or not. It's a sector fund “light”, acquired by stealth through the natural mechanics of market-cap weighting. The issue is that millions of everyday investors are carrying a version of that same risk without necessarily knowing it. Although I've used the S&P 500 as an example here, it isn't alone. Most broad-based indexes including developed world trackers will exhibit the same characteristics to varying degrees, because the same companies sit near the top of those indexes too. The MSCI World, often marketed as the global diversifier, allocates somewhere in the region of seventy percent to US equities, and within that, the familiar names reappear. You can cross borders on paper without ever really leaving the room. None of this is an argument against the S&P 500. The concentration reflects real, earned dominance; these companies grew to the top of the index because they genuinely deserved to. And whether my reallocation turns out to be the right call is genuinely unknowable. The concentrated index could continue to outperform for another decade and I'll have left returns on the table, a real possibility I've made my peace with. The point isn't that I've found the correct answer. The point is that I had the information to make a considered choice, weighed it against my own circumstances, and acted accordingly. That's all any investor can do. The uncomfortable truth is that a great many people haven't been given the chance to do the same. They're holding a product that has quietly changed its character, and nobody has thought to mention it. Better information doesn't guarantee better decisions, but it at least puts the decision where it belongs: with the person whose money it is. ___ Mark Crothers is a retired small business owner from the UK with a keen interest in personal finance and simple living. Married to his high school sweetheart, with daughters and grandchildren, he knows the importance of building a secure financial future. With an aversion to social media, he prefers to spend his time on his main passions: reading, scratch cooking, racket sports, and hiking.
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The Case for Kids

I RECENTLY HIT THE “pay now” button on what I believe will be the last of 20 years of college tuition bills. That’s right, we have five kids. All went to college. None took out student loans. Was it worth it—not just paying the tuition bills, but the decision to have children in the first place? It’s a pressing question. A birth dearth is hitting the U.S. and other countries around the world, as many adults opt to go childless. Today, roughly half of all countries have fertility rates that are so low that the population is either stagnant or shrinking. That brings me to today’s topic: the case for children. It’s a complex subject. I don’t want to suggest I know how others ought to decide. Everybody’s situation is unique and shouldn’t be judged by anyone else—and certainly not by me. Still, I think those of us with good stories about raising kids should share our experiences. We can balance out today’s narrative that children are more trouble than they’re worth. I remember the subtle pressure in the 1980s and ‘90s from others, as our family kept growing. Folks expressed concerns about having so many children. I suppose that, if you treasure a quiet and peaceful life above all else, having kids may not be a good idea. Children are messy and bring chaos. I remember answering the door, only to come face to face with our upset neighbor. He was a prominent doctor in the community and complained about my kids shooting at the deer in the backyard from our second story bedroom windows. “Thank you, Dr. Smith, for letting me know. I’ll take care of it.”  Ugh. But probably the greatest reason the U.S. no longer has a fertility rate necessary to maintain a stable population is related to financial concerns. The U.S. Department of Agriculture estimates the cost of raising a child through age 17 is more than $230,000. That number sounds ridiculously high to me. Still, whatever the right number is, the cost is daunting when you’re just getting started. [xyz-ihs snippet="Mobile-Subscribe"] I went back and looked at our financial records and found that, when our first child was born, we had a paltry net worth of $12,000. On top of that, my salary was modest. Why did my wife and I believe we could support a family? I’m a conservative banker and my tribe doesn’t believe “faith” is a business plan. So why did we do it? There were five reasons—some of which were clear to us at the time and some of which only became clear later. First, rather than just complain about our culture, we thought our best opportunity to change the world was by having children. Today, by God’s grace, we have two entrepreneurs, one banker, one IT guy and a social worker. In addition, thanks to marriage, we now have two health care workers and an oil man in the family. The world is better as a result of their service to others. We now know we changed the world for the better. I’m a finance guy, so I can’t help but estimate the financial return on investment. All five kids have good jobs. What if I assume they average $100,000 a year in earnings over a 40-year career? What kind of impact could that have? Assuming they give away 10% of their income, as we taught them, they’ll have contributed $2 million to charities over their careers. Social Security and Medicare contributions at current rates would be $3 million. State, local and federal taxes come in at an estimated $4 million. I’d call that a decent return on investment. Second, having children matures us. If I’d never advanced in my career, we would have struggled to raise five children. But the financial challenge of having kids meant I approached my career with a new fervor. As we awaited the birth of our first son, I studied hard for the CPA exam. Next was an MBA program, which I completed while working. That led to some nice raises and promotions. Third, by necessity, having children squeezed a lot of ugly selfishness out of me. I’m a selfish person by nature. But selfless service to family prepared me for selfless service at work and to charitable organizations. Fourth, researchers say children don’t necessarily make people happier at first. But ultimately, the satisfaction of a purposeful life devoted to family trumps any temporary happiness we give up. Finally, as we age, it can become harder to find true purpose, joy and passion. But having three grandchildren sure helps. Joe Kesler is the author of Smart Money with Purpose and the founder of a website with the same name, which is where a version of this article first appeared. He spent 40 years in community banking, assisting small businesses and consumers. Joe served as chief executive of banks in Illinois and Montana. He currently lives with his wife in Missoula, Montana, spending his time writing on personal finance, serving on two bank boards and hiking in the Rocky Mountains. Check out Joe's previous articles. [xyz-ihs snippet="Donate"]
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New to building a CD or Bond Ladder?

"We have three bond funds (all Vanguard ETFs) in our traditional IRA, all about 1/3 of our bonds: 1) BSV short term- for minimal volatility 2) VTIP short term tips- for above plus inflation protection 3) BND intermediate term for slightly higher returns"
- David Lancaster
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Tax Smart Retirement

A POPULAR JOKE about retirement is that it can be hard work. That’s because financial planning is like a jigsaw puzzle, and retirement often means rearranging the pieces. In the past, I’ve discussed two key pieces of that puzzle: how to determine a sustainable portfolio withdrawal rate and how to decide on an effective asset allocation. But there’s one more piece of the puzzle to contend with: taxes. Especially if you’re planning to retire on the earlier side, it’s important to have a tax plan. When it comes to tax planning for retirement, there’s one key principle I see as most important, and that’s the idea that in retirement, the goal is to minimize your total lifetime tax bill. That’s important because a fundamental shift occurs the day that retirement arrives: In contrast to our working years, when taxes are, to a large degree, out of our control, in retirement, taxes are much more within our control. By choosing which investments to sell and which accounts to withdraw from, retirees have the ability to dial their income—and thus their tax rate—up or down in any given year. The challenge, though, is that tax planning can be like the game Whac-A-Mole. Choose a low-tax strategy in one year, and that might cause taxes to run higher in a future year. That’s why—dull as the topic might seem—careful tax planning is important. To get started, I recommend this three-part formula: Step 1 The first step is to arrange your assets for tax-efficiency. This is often referred to as “asset location.” Here’s an example: Suppose you’ve decided on an asset allocation of 60% stocks and 40% bonds. That might be a sensible mix, but that doesn't mean every one of your accounts needs to be invested according to that same 60/40 mix. Instead, to help manage the growth of your pre-tax accounts, and thus the size of future required minimum distributions, pre-tax accounts should be invested as conservatively as possible. On the other hand, if you have Roth assets, you’d want those invested as aggressively as possible. Your taxable assets might carry an allocation that’s somewhere in between. If you can make this change without incurring a tax bill, it’s something I’d do even before you enter retirement. Step 2 How can you avoid the Whac-A-Mole problem referenced above? If you’re approaching retirement, a key goal is to target a specific tax bracket. Then structure things so your taxable income falls into that same bracket more or less every year. By smoothing out your income in this way from year to year, the goal is to avoid ever falling into a very high tax bracket. To determine what tax rate to target, I suggest this process: Look ahead to a year in your late-70s, when your income will include both Social Security and required minimum distributions from your pre-tax retirement accounts. Estimate what your income might be in that future year and see what marginal tax bracket that income would translate to. In doing this exercise, don’t forget other potential income sources. That might include part-time work, a pension, an annuity or a rental property. And if you have significant taxable investment accounts, be sure to include interest from bonds. Then, for simplicity, subtract the standard deduction to estimate your future taxable income. Suppose that totaled up to $175,000. Using this year’s tax brackets, that would put your income in either the 24% marginal bracket (for single taxpayers) or 22% (married filing jointly). You would then use this as your target tax bracket. Step 3 With your target tax bracket in hand, the next step would be to make an income plan for each year. The idea here is to identify which accounts you’ll withdraw from to meet your household spending needs while also adhering to your target tax bracket. This isn’t something you’d map out more than one year in advance. Instead, it’s an exercise you’d repeat at the beginning of each year, using that year’s numbers. What might this look like in practice? Suppose you’re age 65, retired and not yet collecting Social Security. In this case, your income—and thus your tax bracket—might be quite low. To get started, you’d want to withdraw enough from your tax-deferred accounts to meet your spending needs but without exceeding your target tax bracket. This would then bring you to a decision. If you’ve taken enough out of your tax-deferred accounts to meet your spending needs and still haven’t hit your target tax rate, then the next step would be to distribute an additional amount from your pre-tax accounts. But with this additional amount, you’d complete a Roth conversion, moving those dollars into a Roth IRA to grow tax-free from that point forward. How much should you convert? The answer here involves a little bit of judgment but is mostly straightforward: You’d convert just enough to bring your marginal tax bracket up into the target range. Some people prefer to go all the way to the top of their target bracket, while others prefer to back off a bit. The most important thing is just to get into the right neighborhood. What if, on the other hand, you’ve taken enough from your pre-tax accounts to reach your target tax rate, but that still isn’t enough to meet your spending needs? In that case, you wouldn’t take any more from your pre-tax accounts, and you wouldn’t complete any Roth conversions. Instead, you’d turn to your taxable accounts, where the applicable tax brackets will almost certainly be lower. Capital gains brackets currently top out at just 20%. Thus, for the remainder of your spending needs, the most tax-efficient source of funds will be your taxable account. What if you aren’t yet age 59½? Would that upend a plan like this? A common misconception is that withdrawals from pre-tax accounts entail a punitive 10% penalty. While that’s true, it isn’t always true, and there’s more than one way around it. One exception allows withdrawals from a workplace retirement plan like a 401(k) as long as you leave that employer at age 55 or later. In that case, as long as you don’t roll over the account to an IRA, you’d be free to take withdrawals without penalty. If you’re retiring before age 55, you’ll want to learn about Rule 72(t). This allows for withdrawals from pre-tax accounts at any age, as long as you agree to what the IRS refers to as substantially equal periodic payments (SEPP) from your pre-tax assets. The SEPP approach definitely carries restrictions, but if you’re pursuing early retirement, and the bulk of your assets are in pre-tax accounts, this might be just the right solution.   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.
Read more »

Trump Accounts – An Update

"So, we don't know if the Trump accounts will be able to be converted to a Roth at/after age 18? My prior understanding was that they would be convertible. That's a huge selling point, so hopefully that gets clarified soon."
- Ben Rodriguez
Read more »

What is the best way to donate to charity in 2026?

"I've started to use direct gifts of securities to my alma maters, and will continue to do so. I've taken to gifting blocks of shares that have the lowest basis while getting the market value as my deduction. This helps bring incremental efficiency to my portfolio and doesn't require me to build any new "structure" for giving. Simple and effective. But the ratcheting down of the value of deductions for charitable contributions based on income can add a new calculation chore."
- Martin McCue
Read more »

Volatility is your Best Friend

"Volatility is one way active market players can make money with a degree of confidence. Some good companies that are volatile still have fairly recognizable peaks and troughs. And people who track these companies can do really well over time if they buy during known troughs, and sell during peaks, as long as they don't get too greedy. While markets shocks can interfere, slow and steady in stable markets can pay off when one takes profits in smaller bites."
- Martin McCue
Read more »

Forget the 4% rule.

"My RMD, combined with Social Security and a small pension, is more than I need to live on, and the monthly SEP distributions to me seem better than any annuity I can imagine. I am unlikely to ever withdraw more than my RMD (or less). And despite the surplus I have each month, I don't have much interest in increasing my consumption spending at all (though I've noticed I am gifting a bit more.) The RMD process did, however, help me to sort out what I should be doing with my investment choices and to simplify."
- Martin McCue
Read more »

Allan Roth’s 2/13/26 article references Jonathan Clements

"Now that you made me think about it, you’re right, Dick. I have acquired some stuff: Several pieces of wall art from my local cooperative gallery where I actually know the artists, including one who focuses on paintings of the Poconos and the pioneers of the Conservation movement, and another who creates amazing scenes from paper cutouts. I also bought a small rug when I went to Morocco and harmonizing pillow covers from New Mexico. While I wouldn’t call myself a collector, these things really give me pleasure, as they remind me of people I know or places I’ve been, as well as for their intrinsic beauty."
- Linda Grady
Read more »

Loose Change

"I always found the multiple European currencies very exotic. It was a bit disappointing when they amalgamated into the Euro, but I suppose it makes things simpler when traveling between countries."
- Mark Crothers
Read more »

How did you avoid being in the 39%?

"Makes sense to me, but Americans only want someone else or “government🤑” to fund their retirement. We can’t even raise the payroll tax to keep our Social Security system solvent. There is a great disconnect between the taxes we pay and what they provide to us. "
- R Quinn
Read more »

Home Tax Tips

IF YOU OWN a home or are planning to buy one, there are a few things you need to know from the tax standpoint that could save you money: 1. Mortgage Interest If you have a mortgage, you can typically deduct the interest you pay on the loan up to $750,000 ($1,000,000 if taken before December 16, 2017) but only if you itemize your deductions (schedule A) You can also deduct points you paid if you itemize. Many people miss deducting points on their tax returns when they purchase a house, but you have to meet some criteria like:
  1. The points relate to a mortgage to buy, build or improve your principal residence
  2. Points were reasonable amount charged in that area
  3. You provide funds (at or before closing) at least equal to the points charged
  4. The points clearly show on the settlement statement
In general, points to get a new mortgage or to refinance an existing mortgage are deducted ratably over the term of the loan.  Note that the deductible points not included on Form 1098 (the mortgage interest form) should be entered on Schedule A (Form 1040), Itemized Deductions, line 8c “Points not reported to you on Form 1098.” 2. Property taxes Property taxes can be deducted on your tax return if you itemize deductions. The total amount of taxes (including state and local income taxes) is capped at $40,400 for 2026. This cap is temporary and will increase by 1% annually through 2029 before reverting to $10,000 in 2030. If you make between $500k to $600k of modified adjusted gross income, the $40.4k deduction is reduced by 30% for each dollar you make. At $600k MAGI, the deduction drops to $10k, potentially raising marginal tax rates to 45.5% (!) for singles due to “SALT torpedo” if you are in the $500-600k range. If you are at that range, it’s recommended to mitigate this by lowering AGI/MAGI by maximizing pre-tax 401(k)/403(b), HSA, FSA contributions, timing RSU sales, tax loss harvesting, or deferring income/accelerating expenses for business owners. 3. Improvements Improvements are significant enhancements made to your home that increase its value. Many people overpay on taxes when they ultimately sell their house because they don’t keep track of these improvements. Here are some examples provided by the IRS: > Putting an addition on your home > Replacing an entire roof > Paving your driveway > Installing central air conditioning > Rewiring your home > Building a new deck > Kitchen upgrades > Lawn sprinkler system > New siding > Built in appliances > Fireplace Now, these costs aren’t deducted, but they are added to your home’s cost basis. This could lead to lower capital gains taxes when you sell your property (more on this later). Repairs, on the other hand, don’t impact your basis and don’t affect your taxes (e.g. repairing a broken fixture, patching cracks, etc) You will need to document every improvement, as this can help you save money on taxes. Keep your receipts and invoices (upload them to Google Drive) and record the dates and descriptions of the work done. Taxes when selling your house When you sell your house, here’s the formula: Selling price  > Selling expenses (like realtor fees) > Adjusted cost basis (how much you purchased it for + all these capital improvements I talked about above + any closing costs you paid when you acquired the home (legal fees, recording, survey, stamp taxed, title insurance) = Gain/Loss You will need to pay capital gains tax if there is a gain, but, luckily there is a gain exclusion (Section 121 exclusion) that can also help you save on taxes: 4. Gain exclusion If you sell your primary residence, you may be able to exclude up to $250,000 ($500,000 for married) of the gain from taxes if you meet some conditions. > Ownership (must have owned the home for at least 24 months within the 5 years prior to sale. For married couples only one spouse needs to meet this requirement) > Residence (you must have used the home as your main residence for at least 24 non-consecutive months during the 5 years before the sale. For married couples both spouses must meet requirements. > Look-back (you must not have claimed the exclusion on another home within the 2 years before this sale) Now, many people don’t know this but there is actually a partial exemption.  1. Work related move (i.e. you started a new job at least 50 miles farther from home) 2. Health related move (you moved to obtain, provide, or facilitate care for yourself or a family member) 3. Unforeseeable events (casualty, divorce, death, financial difficulty) 4. Special circumstances So, instead of claiming the full exclusion, you can exclude a prorated portion of the $250,000/$500,000 limit based on how long you owned and lived in the home. By the way, you can rent out a home for 2 years and still qualify for the exemption, as long as you lived there for the required period before selling (many people do this). 5. Tax example selling a home You bought a home for $200,000 (including all other costs) in 2018. You built a new deck, new roof and siding totaling $50,000. You now sold your home for $500,000. You are single. Selling costs are $20,000 (agent fees, etc) Sale price: $500,000 -$20,000 of selling costs (200,000 + 50,000) = -$250,000 (adjusted basis) Total Gain = 230,000 Exclusion = $250,000. Total taxes paid = $0. But what if you didn’t keep track of all your renovation costs like new siding or a deck? You would’ve had to pay taxes on $20,000 of capital gains!  Overall, knowing how these things work can literally save you thousands in taxes. Do you have any tips with homeownership? Share some in the comments!   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.
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Tax Smart Retirement

A POPULAR JOKE about retirement is that it can be hard work. That’s because financial planning is like a jigsaw puzzle, and retirement often means rearranging the pieces. In the past, I’ve discussed two key pieces of that puzzle: how to determine a sustainable portfolio withdrawal rate and how to decide on an effective asset allocation. But there’s one more piece of the puzzle to contend with: taxes. Especially if you’re planning to retire on the earlier side, it’s important to have a tax plan. When it comes to tax planning for retirement, there’s one key principle I see as most important, and that’s the idea that in retirement, the goal is to minimize your total lifetime tax bill. That’s important because a fundamental shift occurs the day that retirement arrives: In contrast to our working years, when taxes are, to a large degree, out of our control, in retirement, taxes are much more within our control. By choosing which investments to sell and which accounts to withdraw from, retirees have the ability to dial their income—and thus their tax rate—up or down in any given year. The challenge, though, is that tax planning can be like the game Whac-A-Mole. Choose a low-tax strategy in one year, and that might cause taxes to run higher in a future year. That’s why—dull as the topic might seem—careful tax planning is important. To get started, I recommend this three-part formula: Step 1 The first step is to arrange your assets for tax-efficiency. This is often referred to as “asset location.” Here’s an example: Suppose you’ve decided on an asset allocation of 60% stocks and 40% bonds. That might be a sensible mix, but that doesn't mean every one of your accounts needs to be invested according to that same 60/40 mix. Instead, to help manage the growth of your pre-tax accounts, and thus the size of future required minimum distributions, pre-tax accounts should be invested as conservatively as possible. On the other hand, if you have Roth assets, you’d want those invested as aggressively as possible. Your taxable assets might carry an allocation that’s somewhere in between. If you can make this change without incurring a tax bill, it’s something I’d do even before you enter retirement. Step 2 How can you avoid the Whac-A-Mole problem referenced above? If you’re approaching retirement, a key goal is to target a specific tax bracket. Then structure things so your taxable income falls into that same bracket more or less every year. By smoothing out your income in this way from year to year, the goal is to avoid ever falling into a very high tax bracket. To determine what tax rate to target, I suggest this process: Look ahead to a year in your late-70s, when your income will include both Social Security and required minimum distributions from your pre-tax retirement accounts. Estimate what your income might be in that future year and see what marginal tax bracket that income would translate to. In doing this exercise, don’t forget other potential income sources. That might include part-time work, a pension, an annuity or a rental property. And if you have significant taxable investment accounts, be sure to include interest from bonds. Then, for simplicity, subtract the standard deduction to estimate your future taxable income. Suppose that totaled up to $175,000. Using this year’s tax brackets, that would put your income in either the 24% marginal bracket (for single taxpayers) or 22% (married filing jointly). You would then use this as your target tax bracket. Step 3 With your target tax bracket in hand, the next step would be to make an income plan for each year. The idea here is to identify which accounts you’ll withdraw from to meet your household spending needs while also adhering to your target tax bracket. This isn’t something you’d map out more than one year in advance. Instead, it’s an exercise you’d repeat at the beginning of each year, using that year’s numbers. What might this look like in practice? Suppose you’re age 65, retired and not yet collecting Social Security. In this case, your income—and thus your tax bracket—might be quite low. To get started, you’d want to withdraw enough from your tax-deferred accounts to meet your spending needs but without exceeding your target tax bracket. This would then bring you to a decision. If you’ve taken enough out of your tax-deferred accounts to meet your spending needs and still haven’t hit your target tax rate, then the next step would be to distribute an additional amount from your pre-tax accounts. But with this additional amount, you’d complete a Roth conversion, moving those dollars into a Roth IRA to grow tax-free from that point forward. How much should you convert? The answer here involves a little bit of judgment but is mostly straightforward: You’d convert just enough to bring your marginal tax bracket up into the target range. Some people prefer to go all the way to the top of their target bracket, while others prefer to back off a bit. The most important thing is just to get into the right neighborhood. What if, on the other hand, you’ve taken enough from your pre-tax accounts to reach your target tax rate, but that still isn’t enough to meet your spending needs? In that case, you wouldn’t take any more from your pre-tax accounts, and you wouldn’t complete any Roth conversions. Instead, you’d turn to your taxable accounts, where the applicable tax brackets will almost certainly be lower. Capital gains brackets currently top out at just 20%. Thus, for the remainder of your spending needs, the most tax-efficient source of funds will be your taxable account. What if you aren’t yet age 59½? Would that upend a plan like this? A common misconception is that withdrawals from pre-tax accounts entail a punitive 10% penalty. While that’s true, it isn’t always true, and there’s more than one way around it. One exception allows withdrawals from a workplace retirement plan like a 401(k) as long as you leave that employer at age 55 or later. In that case, as long as you don’t roll over the account to an IRA, you’d be free to take withdrawals without penalty. If you’re retiring before age 55, you’ll want to learn about Rule 72(t). This allows for withdrawals from pre-tax accounts at any age, as long as you agree to what the IRS refers to as substantially equal periodic payments (SEPP) from your pre-tax assets. The SEPP approach definitely carries restrictions, but if you’re pursuing early retirement, and the bulk of your assets are in pre-tax accounts, this might be just the right solution.   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.
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Manifesto

NO. 53: STRIVING toward our goals is usually more satisfying than achieving them. Yes, we should think hard about our goals—but we should also ask whether we’ll enjoy the journey.

think

FOCUSING ILLUSION. Those with high incomes or significant wealth are more likely to say they’re happy. But this could be a focusing illusion. When asked about their happiness, the well-to-do ponder their good fortune—and that prompts them to say they’re happy. But are they? Research also suggests high-income earners suffer more stress and anger during the day.

Truths

NO. 18: WATCH OUT for crowds. Popularity is typically a good sign when picking a movie, cellphone or restaurant. But it’s bad when selecting investments. If an investment is highly popular, the eager buying likely means it's overpriced. Why do we favor popular investments? They’re comfortable to own because we get validation from those around us.

humans

NO. 70: FOCUS on the negative and we’ll feel miserable, while focusing on the positive can boost our mood. Suffering through a long workout? Imagine how good breakfast will taste afterwards. Upset because stocks are struggling? Focus on how well the rest of your portfolio is holding up, or on how your nest egg is worth so much more than it was five years ago.

Basics

Manifesto

NO. 53: STRIVING toward our goals is usually more satisfying than achieving them. Yes, we should think hard about our goals—but we should also ask whether we’ll enjoy the journey.

Spotlight: Abuse

Identity Crisis

MAY 18, 2020, STARTED as an ordinary Monday. I was busy with office work. An email from our human resources department hit my inbox. It said something about fraudulent unemployment benefits. I couldn’t pay attention right away, so I saved it to read later.
That evening, I found five letters from our state’s unemployment claims department in the mail. I’d never heard of such a department, but it reminded me about the email I got earlier.

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Nothing to Chance

MY WIFE AND I TAKE some over-the-top precautions to protect our financial accounts. Why? After 40 years of working, our life’s savings boil down to digits stored on computers. No one anymore holds stock and bond certificates, stuffs money in mattresses or buries gold in the backyard. The integrity of those digits is all important.
Here are our 11 strategies—which go way beyond the normal account and password protection recommendations:

We only deal with major institutions.

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Copycat Crime

I WAS SITTING AT MY computer one lunchtime when an email popped up from one of my credit card companies, saying I’d just purchased nearly $12,000 of jewelry at a store in Toronto. Within minutes, I was on the phone to the card company.
I was quickly referred to the fraud unit. I told my story. The company credited my account, cancelled the card and mailed me replacements. Weeks later, I had to complete a form,

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When Brokers Fail

A RECENT ARTICLE by HumbleDollar’s fearless editor got me thinking about the potential risk of having most or all of my investments with a single brokerage firm or fund company. What happens if the company collapses? I was surprised at how little I knew about these matters after investing for nearly 30 years.
The Securities Investor Protection Act of 1970 was passed by Congress in response to some turbulence in the markets that caused a number of brokerage firms to fail.

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Almost Had Me

SEVERAL MONTHS AGO, I received a phone call that left me shaken and bewildered. The voice on the other end claimed to be from the Social Security Administration. The caller informed me that my Social Security number had been compromised in a significant security breach. My heart raced as I contemplated the potential consequences, even as the urgency in the caller’s voice gave me little time to think.
The caller asked for my personal information,

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The Victim Might Be You

Who Is the Victim of a Ponzi Scheme?

Age: Often 50 or older, particularly retirees looking for stable income or to preserve capital.
Education: Many victims are college-educated—some with advanced degrees.
Financial Status: Typically middle to upper-middle class, with meaningful retirement savings or liquid assets.
Investment Experience: Usually have some experience, but not deep technical knowledge—confident, but not always skeptical.

Sounds like a typical HumbleDollar reader, doesn’t it?
Each year, 20 to 40 Ponzi schemes are uncovered in the U.S.,

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Spotlight: Flack

The Frugal Flaneur

MY WIFE BELIEVES travel is an adventure filled with new food, new adventures and new friends. Others believe it’s a never-ending series of negotiations, surcharges, taxes and exchange rates, and these need to be painstakingly managed to minimize cost and the deep-seated shame associated with overpaying. I guess I lean a little more in one direction, as evidenced by my recent travel adventure: a road trip to the East Coast followed by a flight to Chile. Because of my travel savvy, Booking.com has bestowed upon me the honorific “Genius Level 3,” which means I can get up to a 20% discount on the trips I book. It could be that I am indeed a travel genius—though it may also have something to do with using the site to book 15 stays within the past two years. Either way, the site also generously offered me a $25 voucher for lodgings, as long as those lodgings were booked almost immediately. Well, the joke was on those Booking.com folks, as Springfield, Illinois, happened to lie between me and the East Coast, and I always wanted to walk in the footsteps of the third greatest president. Next stop was Cincinnati, to celebrate a loyal reader’s birthday. An Airbnb was engaged, except that—through extensive planning—the Air portion, along with its requisite fees and surcharges, was avoided. Basically, my wife became good friends with the bnb-keeper during a prior stay—such good friends that we now just pay her directly. During the entire road trip, gas was procured via the GasBuddy app on my cell phone, which enables me to find the cheapest gas. This is done to reward low-cost gas stations, thus driving down gas prices for everyone. It also prevents the shame of overpaying for gas, while allowing for the mocking of others who go to more costly stations located just off the prior exit. If my car needs to be run on vapors with fingers crossed, air-conditioning off and windows up for the last few miles, so be it. The City of Brotherly Love was called upon, with the primary purpose of meeting my editor to discuss possible upcoming projects, including My Money Journey the Movie. The secondary purpose was to partake of that most economic aspect of the Philadelphia culinary experience: no, not the cheesesteak, but the Citywide Special—a shot of Jim Beam and a can of Pabst Blue Ribbon, all for $4. [caption id="attachment_1539414" align="alignright" width="350"] The author's wife catches up on her reading at their pod hotel.[/caption] A pod hotel room in New York City was then booked for the slightly less-than-exorbitant $281 a night. It’s not the ubiquitous and eponymous box you see in the driveway of people who refuse to pay movers $5,000 for moving their remaining personal belongings after conducting a cursory garage sale—though it’s only slightly larger. I thought the missus would balk, but she was sold by both the great Midtown location and the fact that she’d be getting the bottom bunk. Now, what to do with the car? Parking at JFK airport for the month or so that we’d be gone would be ruinous to my wallet and my conscience. My wife reached out to a girlfriend who said we could leave the car with her on the Lower West Side. She would street park it, move it as required to comply with alternate side of the street parking, and keep the battery charged by using it to commute to the Hamptons on weekends. One of the benefits of owning a 10-year-old compact car is that your wife doesn’t really worry about it. Her friend, though, had some vague apprehensions, though not necessarily about driving a 10-year-old car. I believe it was more about being seen in the Hamptons driving a Hyundai Elantra. I thought she could just mention that her Beemer was in the shop and this “piece of crap” was a loaner. In the end, I decided it would be best for all concerned if it was parked in another friend’s suburban driveway. We flew on LATAM Airlines to Santiago de Chile for a reasonable $360 one way. While technically it isn’t the de jure national airline of Chile, LATAM is the de facto national airline of Easter Island and therefore charged accordingly for that leg of our journey. After booking our six-hour flight to the home of nearly 1,000 extant moai, I realized that using LATAM’s Spanish language website could have saved me considerable pesos. I will not share how much due to the deep shame I am still feeling. [xyz-ihs snippet="Mobile-Subscribe"] Our lodgings at the Hotel Ismael in Santiago graciously offered an airport pickup for $50. In a few places—Morocco and Zimbabwe immediately come to mind—this offer should be accepted with thanks. In most places, though, it should be politely declined. A website called Rome2Rio.com estimated a taxi should run no more than $21, which was confirmed by inputting the Santiago airport and Hotel Ismael into the Uber app well beforehand. Was all this research really required? Well, for me it was, as Robert De Niro’s secret agent character stated in the movie Ronin, "I never walk into a place I don't know how to walk out of.” I went with Uber and there’s no better way to start off a Santiago sojourn than by saving $32. I could have saved even more by taking two buses from the airport to the hotel, but after six days in a pod and 10 hours in an airplane, I didn’t want to push my luck. Easter Island lodgings were booked via the missus via Airbnb via a local named Makohe Akuna, who appeared in a movie called 180 Degrees South and which we watched for research purposes. [caption id="attachment_1539413" align="aligncenter" width="1024"] Fifteen moai and two Flacks[/caption] Initially, I thought she was charging us $25 a night more for using the English language Airbnb website. And following the Easter Island flight debacle, I didn’t think further shame could be stood. But after an hour of “discussion” with the missus, we realized that our host was charging an extra $25 per night for hosting an extra person. If this had been a U.S. Airbnb, I would have just booked it for one and taken my chances. I usually figure it’s better to beg for forgiveness than ask for permission. But since it’s the second most isolated island in the world, I decided not to. Oh, yeah, and why was she charging an extra $25? I don’t know because the missus forbade me from asking. As I type this, I’m enjoying a Pisco Sour in Santiago, while planning the next stop on our grand tour of South America. I’ve always wanted to visit Bogota, though Buenos Aries might be another option, with its good steak and better wine. Also, it doesn’t hurt that the Argentine peso is in the crapper. Meanwhile, you might be wondering about the headline. When I tried to use it on an earlier article, HumbleDollar’s editor nixed it, saying you should never use words that most readers won’t understand. But I finally wore him down. So, what is a flaneur? Here’s Wikipedia’s take. Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles. [xyz-ihs snippet="Donate"]
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My Best Investments

SOMETIMES OUR BEST investments can be a great guide to what not to do—even better than our worst investments. Consider three of my best: 1. Master limited partnerships. In 1999, I read an article by Paul Sturm in the much-missed SmartMoney magazine. It was a comprehensive review of a security I hadn’t previously heard about, namely master limited partnerships (MLPs). The two decades since have made the unique commonplace. Still, for those who remain blissfully ignorant, an MLP combines the tax benefits of a private partnership—gains and losses are passed through to investors, with no taxes owed by the company itself—with the liquidity of a publicly traded company. Because of the peculiar tax structure of MLPs, investors are able to defer taxes on the distributions they receive, sometimes almost indefinitely. MLPs are mostly limited to oil and gas pipeline companies, another result of the vagaries of the tax code. To me, they were the perfect security: tax-deferred, cash flow rich, inflation-protected and high-yielding. We’re talking about companies like Suburban Propane Partners, NuStar Energy, Kinder Morgan and TEPPCO Partners. I remember feeling like Miller Huggins reviewing the lineup card for the 1927 Yankees: all heavy hitters and reliable. Would you say “no” to investing in Earle Combs, Mark Koenig, Babe Ruth and Lou Gehrig, and tax-deferred to boot? I bought my fill and was rewarded quite nicely, though the K-1s were a pain in the ass. But who am I to complain? For some 10 golden years, I felt like a youthful Warren Buffett, consistently outperforming the S&P 500 with less volatility. But alas poor Yorick, no security or investor is perfect. I’ve come to realize that every publicly traded company will borrow to the limit of its cash flow, and investors’ quest for yield is both insatiable and uncompromising. I won’t bore you with the details of the subsequent deleveraging and retail investor flight. But since the Great Recession, my lineup has reliably underperformed the S&P 500. Company restructurings have stuck me with hefty tax bills, reduced distributions and suffering share prices. As Job said, “The Lord gave, and the Lord hath taken away,” and maybe a little more. 2. Monarch Cement Company. In 2015, I started following a contributor on the mother-of-all investing websites Seeking Alpha, whose column was titled “Sifting the World.” This name had nothing to do with my memories as a child sifting flour for my mother’s lemon cake and everything to do with a quote from Charlie Munger. I found Sifting’s investment philosophy to be refreshing, because it was the antithesis of the usual Seeking Alpha analysis such as “Boeing Tanker Fuels Cash” or “Pfizer: Buy It for a Safe 4% Plus Dividend Yield.” Instead, it tended to be event-driven—with a not-so-distant event serving to unlock the value of the recommended security. In this specific case, Monarch Cement Company (MCEM) had initiated a 1-for-600 reverse stock split, in which each owner of record that owned fewer than 600 shares would receive $30 a share. As the stock was currently trading at some $28.50 and the event was three months away, I was looking at a potential 20%-plus annualized return. I bought 100 shares and waited patiently for my ship to come in. [xyz-ihs snippet="Mobile-Subscribe"] Well, it never did, as the thesis for this investment turned on the meaning of “owner of record.” In this case, it meant investors who hold shares directly in their name, as opposed to the “beneficial owner,” who holds shares indirectly, through a bank or broker-dealer, sometimes said to be holding shares in “street name.” As I held my shares in street name, my shares were never redeemed for $30 and continued to be worth around $28 to $29. I was a little embarrassed. But I was also angry and wanted my $30 payday. I placed a $30 sell limit order, which expired unfilled. I promptly forgot about the stock and moved on to my next investment “score.” And I’m thankful I did, as I am still the beneficial owner of 100 shares of Monarch, which are now worth over $100 a share and therefore I get to pat myself on the back thinking about the even higher annualized return that I’ve since achieved. 3. Genzyme. In 2010, my wife hired a personal trainer. She had religiously worked out for years but wanted to take it to the next level. As part of the new training regimen, her trainer had her run up and down stairs at the gym. This struck me as a little odd. I wondered why the trainer had my wife, who wasn’t a spring chicken, running up and down stairs at a gym filled with millions of dollars’ worth of fitness equipment. Then again, I thought, “What did I know about physical training, he’s the professional.” Well, my concerns were valid, as a few days later my wife came home with a very sore right knee, which in time became quite painful and eventually required surgery for a torn meniscus. The surgery went well, but the knee continued to be painful. She tried physical therapy. When that didn’t get the job done, she turned to having a shot of Synvisc injected into her knee. Synvisc is a drug containing hyaluronan, which is a natural joint lubricant and cushion. It is synthesized from the cockscomb of a rooster—the feathers on his crown. I was a little skeptical. Chicken feathers? The thing is, though, it worked. Almost as important, it was covered by insurance. In fact, it worked so well that my wife wanted to invest in the company that made it, Genzyme. Now, back then, I was a proponent of fundamental analysis, but my wife was quite excited, and I didn’t want to ruin the moment by mentioning terms like price-earnings multiple, quick ratio or drug pipeline, so I said “yes” and a few days later she purchased some shares for $54. A few months later, I’m reading The Wall Street Journal and almost fall off my chair when I notice a certain article mentioning that Sanofi (SNY) was buying Genzyme for $74 a share and we were looking at a 37% annualized return. Apparently, my wife was onto something with her orthopedic analysis and, more important, we would be rolling in it. When I returned home from work, I excitedly told my wife the “word” and then started planning how to spend our newfound riches—vacation, new car and such—only to be informed that we owned just 32 shares. Reviewing my best investments has confirmed what I already knew: Trying to beat the market is a fool’s errand, with outperformance more likely due to luck than skill. The humble investor needs to invest in low-cost mutual funds and have patience. That said, I’ve started putting a little money aside, as my wife is complaining about a sore shoulder. Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles. [xyz-ihs snippet="Donate"]
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Check Mate

WHEN I WAS IN THE Navy, the checklist was a way of life. Everything from a radiation leak to starting an air compressor required one. In emergency situations like flooding, you were expected to take memorized “immediate actions,” and then use a checklist to ensure all the actions were accomplished. For more routine procedures, you would follow the checklist line by line—deviations were not allowed. While this wasn’t conducive to a creative working environment, it was a safe and efficient one. It’s important to note that these checklists were not followed blindly. Everyone involved needed to completely understand the theory behind each step. If a step didn’t make sense in the current situation, work was stopped until the issue could be resolved. Ever since the Navy acquired the USS Holland in 1900, this process has allowed the experience, training and knowledge of every submariner to be reflected in every checklist—and therefore to be accessible to even the most junior personnel. My worth as an officer was judged in large part by how well I understood the checklists and how well I used them. When I joined Exxon Mobil, I quickly found out that my experience using checklists was not particularly valued. For many years, I worked in an operations role, coordinating the transportation of petroleum products throughout the world. I developed numerous checklists to help track vessels, create schedules and provide training to new personnel. When mistakes were made and we learned from the experience, I would revise my checklists. They were also useful when I went on vacation, as I could easily get my replacement up to speed on every vessel, shipment and schedule by reviewing the appropriate checklist. I also annotated each checklist to help track unusual requirements and to provide a hard copy of all the great things I did. This came in handy during annual performance reviews. I tried to get colleagues and managers to embrace the checklist philosophy, but I completely failed. As soon as they saw one, I could see the glaze appear in their eyes or—worse—the smirk appear on their faces. [xyz-ihs snippet="Mobile-Subscribe"] Generally, when I returned from vacation, the checklists I had reviewed with my relief were on my desk exactly where I left them, unchanged and unread. Now retired, I think about what I might have done better to get buy-in. This all came back to me recently while reading the book The Checklist Manifesto: How to Get Things Right by Atul Gawande. The author is a surgeon who created basic checklists used worldwide that drastically reduced surgical complications and deaths. He did extensive research on checklists from the aviation, construction and even finance industry. One of the more compelling stories in the book details how a checklist played a critical role in Captain Chesley “Sully” Sullenberger’s successful ditching of Flight 1549 in the Hudson River in 2009. Dr. Gawande also reveals the difficulties he had getting surgeons to understand the benefits of checklists—and then to actually use them. That made me feel much better about my failure at Exxon Mobil. I have used a checklist in the past when doing my taxes. It ensured that I reviewed certain items that directly affected my specific tax situation—like that darn foreign tax credit. It also allowed me a place to make notes for the following year. After I filed my taxes, I would update the checklist with what I learned and anything I needed to review the next year. Over the past few years, I stopped using my tax checklist. I have no idea why. This year, I resolved to get my old tax checklist out of mothballs, update it well before tax time and put it back into use. I’ve also created a list of other potential checklists: prepping the house prior to long-term travel, annual auto maintenance, annual home maintenance, annual financial review and annual health care. Still not convinced of the value of checklists? Don’t take my word for it. As Charlie Munger, the longtime vice chairman of Berkshire Hathaway, notes, “No wise pilot, no matter how great his talent and experience, fails to use a checklist.” Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles. [xyz-ihs snippet="Donate"]
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Good Enough Tech

MY BROTHER-IN-LAW just told me about a technology issue that he’s been struggling with. He was trying to get an old scanner to connect with his Mac. The solution required him to upload some outdated software. When he finished explaining how he resolved the issue, I was happy he could scan again. I was even happier that I had a $250 personal computer. Nothing irks me more than paying a premium—the Mac premium, in his case—and winding up with connectivity issues. This reminded me of an article from 2014 titled, “In Praise of Crap Technology.” The author extolled the virtues of his Coby mp3 player. It was an ancient piece of technology, even then. But it allowed him to listen to music while exercising at a very reasonable price. Now, when I say crap technology, I’m referring to older technology that still gets the job done. Not crappy technology that never got the job done, like Google Glass. I like crap technology for several reasons. The first is economics. Until a few years ago, I’d never owned a laptop. I was issued a series of expensive laptops at work. They were high-end because they needed to run company software, like SAP and enormous spreadsheets. After I retired, I wanted a laptop for myself. My computer needs were small. A little Microsoft Office, some blogging and a lot of internet surfing. Buying a $1,200 Mac just didn't make sense. Besides, I’m a PC guy. I did a little research and settled on a bare-bones HP for $250. It has worked out just fine. [xyz-ihs snippet="Mobile-Subscribe"] If asked, most people will say that they just want to pay a fair price for a product or service. I believe this is an out-and-out lie. Most Americans want to pay less for more. Getting a good deal is the American dream. In 2019, I needed to buy a car. I didn’t relish the idea of spending $50,000, even if it came with air-conditioned seats, a smart key, teen-driver technology and a 360-degree camera. After a little research, I decided to buy a 2013 Hyundai Elantra for $9,300. It came with enough technology to ensure my safety and convenience: anti-lock brakes, electronic stability control, and iPod, aux and USB inputs. It also came with a manual transmission. That last bit of outdated technology has many advantages. It made the car that much cheaper to buy. It’s better on gas milage. And it provided built-in theft prevention. Nobody knows how to drive one. Another advantage of crap technology is security. In 2013, I received a promotion that came with a BlackBerry. When it was handed to me, I thought, “What the hell is that thing?” But I quickly learned to love it because I had zero concerns about anyone stealing it. Why would they? It also seemed metaphysically impossible to lose. You only lose costly things, like an iPhone 12 or a Montblanc pen. All this meant that I’d never have to explain to my boss how I lost the company cellphone. Finally, crap technology can provide peace of mind. My wife just purchased a $170 coffeemaker. In my view, paying more than $30 for a glorified water heater is incomprehensible. What’s worse is this technological wonder is so complex. It requires two different filters, one for fewer than four cups and another for four or more. Its spout is sometimes open and sometimes closed. And the carafe has an interior lip that’s hard to clean. Trust me when I say that paying a premium for inferior technology doesn’t improve my morning coffee. You technophiles can keep your $999 iPhone 13 or your $2,500 Sennheiser AMBEO 3D Soundbar. I’ll invest the difference in a low-cost index fund. Or even better, if the alternative is $6,000 HiFiMan SUSVARA Headphones, I’ll take two first-class tickets to Berlin. Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles. [xyz-ihs snippet="Donate"]
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Contain Yourself

MANY YEARS AGO, I read an article that posited that U.S. income inequality is due, in part, to the unwillingness of unemployed and underemployed Americans to move to a new state or city to take a better job. It mentioned three reasons for this reluctance. First, folks didn’t want to sell their home, which may have decreased in value due to the recession that caused the bad job market in the first place. Second, the other spouse might have a job that, even if it didn’t pay well, still provided some income. Third, people didn’t want to lose their connections to family, friends, schools and church. While the above three reasons are the main ones, I think many people also don’t want to move for two other reasons: the anxiety and cost of moving. As an adult, I’ve moved numerous times. The initial two moves occurred while I was in the Navy. I knew going in that I’d be moving often, so that may have softened the impact. Probably more important, the Navy provided a free, white-glove moving service, plus my possessions were few and of little value. Things were different in 2017, when my wife and I decided to sell our home, put our stuff in storage and travel the world. I knew that packing up would be stressful and costly. I therefore used a technique I’d learned as a nuclear submarine officer: I delegated the responsibility to my wife. I told her that she had “extraordinary and plenipotentiary power to negotiate and execute this move.” I based this authorization on a scene from The West Wing and felt it was quite witty. I guess my wife’s not a fan, as she immediately recognized it for the screw job that it was. Still, with the boldness of President Bartlet, she called a few full-service moving companies and just as quickly received egregious quotes for moving what was essentially a very nice Noguchi knockoff coffee table and a slew of boxes filled with pure gold, otherwise known as our personal possessions. To spare me a fit of apoplexy, she didn’t share the quotes, but instead looked at other options. The best was PODS, short for Portable on Demand Storage. PODS is the company that owns the eponymous and ubiquitous containers that sit on streets, driveways and the back of flatbed trucks throughout the U.S., Canada and Australia. A flatbed truck with a hydraulic lift system lands an empty storage container uncomfortably close to your residence. You then pack it with your stuff and, a few days later, it’s hauled away. [xyz-ihs snippet="Mobile-Subscribe"] In our case, a 12-foot by eight-foot by eight-foot PODS container was landed inches away from our townhome. Delivery and pickup were free. Over the next three days, we packed it with all our worldly goods, locked it with our own sturdy podlock, and then it was hauled away to be stored in a nearby secure climate-controlled storage facility. The hardest part—and, by that, I mean blood, sweat and tears hard—was packing our stuff in the container. Two years earlier, my wife had made friends with the subcontractor who had collected the empty boxes after our prior move. She had chatted with him over a couple of the most economical Bud Lights she ever bought. She subsequently subcontracted with him for $500 in cash to help us pack up our gold and stash it in our PODS container. We also paid him in items that we couldn’t fit in the container, which included a very nice Costco-pedic mattress. Without Stanley’s assistance, I’m not sure the PODS option would have worked out so well. During the ensuing four years, whenever I saw the monthly storage charge of $194.84, which surprisingly never increased, I always wondered how our stuff was doing, if it really was in a secure climate-controlled storage facility and, more important, if it was undamaged. Well, four years later, we finally stopped traveling and, for $2.46 per mile, had our PODS container shipped to our new home, with an additional $139 required to have the container placed on the street in front of our new home. We emptied it ourselves and the container was removed three days later. After unpacking all the boxes, we were thankful that the only damage was one cracked wine glass. We were also confused as to why we’d put so much crap into storage in the first place. PODS isn’t necessarily the option for everyone, as the emotional and physical cost may not be offset by the financial savings. My wife and I were both in good shape and retired at the time, so body aches and time were not an issue. Now that we’re a few years older and slightly wiser, it might not be an option next time. Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles. [xyz-ihs snippet="Donate"]
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Getting Out the Vote

JERRY SEINFELD tells a story about visiting the post office and noticing a wanted poster on the wall. He looks at the poster and checks the guy standing behind him. “If it’s not him,” he says, “I feel I’ve done my part.” I own some individual stocks, so it’s that time of the year when I vote my proxies. I do the best I can at trying to understand the issues. Sometimes, I wonder whether I’ve really accomplished anything. Just like Jerry, though, when it’s all over, I feel “I’ve done my part.” When I was younger and busier, I would stack the proxies and their associated annual reports on my desk and methodically go through them, trying to give each its due and then casting my vote accordingly. Now that I’m retired and have more free time, I can’t be bothered. I use the following shortcuts to allow me to vote as efficiently—meaning as quickly—as possible: I vote for all proposals that would require an independent chairman. If I owned 100% of a company and employed a CEO, I would immediately fire him if he asked to be chair of the board. Why should a publicly owned company be any different? Having an independent chair just makes common sense from a governance perspective. How can management manage themselves? Additionally, if a CEO has such little self-confidence as to demand to also be the chair, an investor needs to wonder about his or her leadership ability. I vote against so-called classified boards, which have directors serving different term lengths. When I was employed, my performance was reviewed annually. Why should a company’s directors be any different? I don’t vote for executive pay packages that include options. Since I own shares of a company’s stock, why would I want to incentivize executives with options? After using these three heuristics, I then spend time only on proxies that pique my interest. This is what has piqued me so far this year: 1. D.H. Horton appointed Benjamin S. Carson to the board in April 2021 and he is now running for a permanent seat. Politics aside, what sense does it make to have a medical doctor, however talented, on the board of a company that builds houses? Also, anyone who touts oleander extract as a cure for COVID based on the word of the My Pillow Guy should not be on the board of any company. This was an easy vote against Dr. Carson, though I would love to know WTF is going on. 2. Myra K. Young of Elkgrove, California, proposed that Agilent give 10% of shareholders the power to call a special shareholder meeting. Despite Agilent pleading that 10% was too low a threshold, I voted for Ms. Young’s proposal, thinking, “What the hell?” 3. An unknown shareholder of the Boeing Corp. proposed that Boeing create a report listing all its charitable contributions greater than $999. The board’s two-page response against the proposal seemed like overkill. It never mentioned anything detrimental that would come of the proposal. [xyz-ihs snippet="Mobile-Subscribe"] I felt that the time it took to generate the response could have been used to generate the requested list, so I voted for the proposal. I also voted against any director who was on the board in the runup to the whole 737 MAX debacle. 4. The Jay Stanley Weisfeld Trust of Rochester, Vermont, proposed that IBM prepare “a public report assessing the potential risks to the company associated with its use of concealment clauses in the context of harassment, discrimination and other unlawful acts.” In the time the IBM board took to recommend a vote against the proposal—saying that “IBM does not prevent employees from discussing the terms and conditions of their employment”—it could have published the report, unless, of course, it does unethically use concealment clauses. Companies may legitimately use concealment clauses in employment agreements to protect corporate information, such as intellectual capital and trade secrets. But many companies use concealment clauses to limit their workers’ right to speak openly about harassment, discrimination and other unlawful acts. I must admit, before reading this specific proposal, I didn’t know what a concealment clause was or why it was used. It appears this was all stirred up by Apple’s recent unsuccessful attempt to exclude a similar proposal from its annual shareholder meeting, which in the end was voted down. After reading this IBM proposal, I felt the whole thing kind of stinks, so I voted for the proposal. 5. The DI Foundation proposed that, by the end of 2022, Enbridge—the oil and gas (O&G) pipeline company—"strengthen its net zero commitment such that the commitment is consistent with a science-based, net zero target.” Now, as a former O&G man myself, I may not be the most impartial net-zero observer. But asking the largest pipeline in North America to work to “develop, communicate, and implement a decarbonisation strategy” seems a little much. What’s next, asking Philip Morris to work towards a net-zero cigarette target? It’s only about halfway through the proxy season and it’s all starting to get a little old. I’m thinking I should either come up with a shorter heuristic—or sell some of my stocks. Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles. [xyz-ihs snippet="Donate"]
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