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Financial wisdom is the realization that our first reaction often needs to be second-guessed.

What I Value

A WAR IS RAGING. On one side of this conflict is the individual and, on the other, society and culture. To the victor goes your attention and your money.
I submit you’ll win through intentionality—and you’ll lose if you let society determine what’s of greatest value to you. I was on the losing side for many years.
As an undergraduate, I thought I wanted to be a lawyer. Why? Not because I had a deep passion for the law.

Read more »

Bracketology

EVERY YEAR, the NCAA basketball season concludes with the March Madness playoffs. Many Americans engage in bracketology—trying to figure out which teams will get knocked out in each round and which will advance. Warren Buffett even offers an annual bracket-picking challenge, where Berkshire employees can win $1 million a year for life.
This year, however, Americans with substantial retirement accounts might also want to try another form of bracketology: studying the 2017 tax law—and asking whether it offers a unique opportunity to convert hefty amounts of traditional IRA money to a Roth IRA.

Read more »

Head Games

AS I DRIVE around town these days, I notice a lot of cars with temporary license plates—an indication they were recently purchased. What’s the reason? When I turn on the TV, I see a commercial for a local car dealership that’s offering to accept your tax refund as the down payment on a new car. Now it starts to make sense.
The dealership knows consumers are about to receive an influx of cash. It wants to make it as painless as possible to buy a new car.

Read more »

Get a Life

IN MY ROLE as a financial planner, I hear a lot of stories. By far the most appalling and upsetting relate to life insurance. All too often, insurance salespeople leave clients with policies that are simultaneously overpriced, inadequate and inappropriate.
Are you evaluating a policy? Here’s a quick summary of the most important considerations:
What type of coverage should I have? Life insurance comes in two primary flavors: term and permanent. Term insurance,

Read more »

Newsletter No. 45

AS THE SAYING goes, “If you don’t stand for something, you’ll fall for anything.” So what do HumbleDollar’s readers stand for? What are the key principles that should govern how we manage our money? In recent weeks, I’ve been drawing up a manifesto for the site.
It’s a work in progress. I’ve included a dozen of the principles in our latest newsletter—and, in the months ahead, you’ll find further additions appearing every few days on the homepage.

Read more »

How to Blow It

THERE’S AN abundance of advice on how to plan for retirement. Oh, it’s good advice. But it’s also a bit complicated, often requires discipline and always necessitates actually doing something.
And let’s face it: Who needs advice? Who wants to actually do something? Here are 20 ways to ignore the experts—and wreck your chances of a financially comfortable retirement:
1. Keep thinking retirement is so far in the future that there’s no need to act now.

Read more »

Money Guide

Investment Math

TO SUCCEED AS an investor, you don’t need to turn yourself into a “quant”—Wall Street lingo for a quantitative investor. But it is helpful to have a grasp of basic investment math, so you appreciate how time can magnify the virtues of saving regularly and investing in the stock market, but also how it can magnify the damage done by high investment costs and an overly aggressive investment strategy. This might sound daunting. The ideas involved, however, are quite simple. Often, you don’t even need to do the calculations yourself, because there are plenty of online calculators that’ll do the work for you. Instead, what’s important is having a rough understanding of how the math plays out. Everyday investors often struggle with three key notions. First, when presented with a series of investment returns, their inclination is to add them together. But simply adding the numbers fails to take into account the amazing way that money compounds, with each year’s gain building on earlier returns. Second, folks fail to grasp that losses hurt more than gains. If you lose 20% this year, you would need a 25% gain to get back to even. Think of $1 that loses 20% of its value, so it’s now worth 80 cents. To get back to $1, the necessary monetary gain might be 20 cents—but the percentage gain, to get from 80 cents to $1, is 25%. Third, when percentages get into triple digits, investors often struggle to understand what the numbers represent. Suppose your money grows 100%. That would double your wealth. What if the gain was 200%? That would triple your money. Previous: Main Menu
Read more »

Numbers

IF YOU EARN $20,000, 55% of Americans would consider you poor, according to YouGov.com. But at $30,000, only 32% say you’re poor, while 50% would deem you neither rich nor poor. Meanwhile, a majority (56%) consider you rich once you earn $100,000.

Newsletter

Got to Believe

AS I’VE BUILT out HumbleDollar.com over the past few years, I’ve come to view the site not merely as a place where folks can learn about financial issues, but as a community that thinks about money in a unique way.
This shows up repeatedly in articles from guest contributors, with their focus on topics like spending thoughtfully, helping family, behavioral finance, indexing and achieving financial freedom. It’s a community where folks are trying to be rational about money,

Read More »

Archive

Trek to Retirement

IN LATE MARCH, I set out into the backcountry of central Oregon with eight other women, all on snowshoes or cross-country skis. We traversed more than 22 miles in the heart of the Oregon Cascades, breaking trail and staying in huts. The terrain was steep, the visibility was poor, the snow was deep and there was a stiff wind. What does this have to do with investing? The trek was reminiscent in three ways: Feeling inferior. I was among incredibly fit and experienced outdoors women. This was my first trip of this kind. The others were triathletes, competitive cyclists and expert mountaineers. If we were a sports team, I’d have been keeping the bench warm. I suspect I saw myself as more amateur than my companions did. I can’t tell you how many competent, educated and bright women I meet who are reluctant to acknowledge all that they’ve done for their financial future or voice the insightful questions they have. They downplay their knowledge because they aren’t “experts.” One of the best things about investing is that it doesn’t require expertise to begin. In fact, the quote of “80% of success is showing up” couldn’t be truer. Just getting started, by putting your money to work in the market, can be one of the best decisions you make. From there, you can always improve and adjust your portfolio, as you learn and grow along the way. Constraints work. Our Oregon Cascades adventure was a last-minute trip, so I didn’t have time to do a ton of research or prep beforehand. This worked in my favor. I could only concentrate on what gear to pack, food to bring and the correct mapping software to download. I couldn’t overthink it. The same approach can be helpful with investing. You can easily get sucked into the latest articles on bitcoin, the “next Amazon,” why you ought to buy gold and how to invest in today’s economy. But in all likelihood, you’ll fare far better if you stick with the essentials—a handful of mutual funds that give you broad diversification at low cost. Start small. A few hours into the trek, we lost some gear and our physical map. The visibility was poor and it was snowing hard. An hour of backtracking failed to locate our lost items. Our 25-pound backpacks became heavier and our pace slower. We became concerned we wouldn’t make it to the first hut in eight hours, let alone by dark. The experience gave new meaning to putting one foot—or snowshoe—in front of another. Our success depended on this simple approach. Retirement can seem like an incredibly daunting and distant goal. There may be a house that needs work, daycare and education costs that seem to go nowhere but up, and aging parents to comfort and care for. There will be days when getting out of bed and dressing yourself seem like an accomplishment. And they are. Every action you take, every decision you make, toward your long-term goals are a step in the right direction, no matter what your pace. Remember, you’re human. Taking action builds momentum. Before you know it, your regular savings toward retirement will compound and grow. Your eight-hour trek will seem like six hours. Conditions will improve and the wind will be at your back—and all that was made possible by taking those initial steps. Anika Hedstrom’s previous blogs include Simple but Not EasyBetting on Me and Along Came Sheila. Anika is a financial planner with Vista Capital Partners in Portland, Oregon. The views expressed here are her own and not those of her employer. Follow Anika on Twitter @AnikaHedstrom.
Read more »

Manifesto

NO. 25: BEFORE we invest, we should ask why we’re investing. Stocks are a great choice if we’re long-term investors—and a terrible investment if we’ll need to spend our money in the next five years.

Truths

NO. 33: MOST INVESTORS trail the market averages. That’s true whether a market is considered efficient or inefficient. Before investment costs, we collectively earn the results of the market averages. After costs, we must earn less. In fact, investors—as a group—will trail the market by a sum equal to their investment costs.

Act

SET UP A HOME equity line of credit. These have lost some of their allure under the 2017 tax law, because you can only deduct the interest if it’s used to buy, build or substantially improve your home. Still, a HELOC is one of the cheaper ways to borrow, and it could come in handy if you have a financial emergency or as an alternative to education and car loans.

Think

LONGEVITY RISK. Spending down a retirement portfolio is tricky: You don’t know how long you will live—and hence there’s a risk you’ll run out of money before you run out of breath. To fend off that risk, limit annual portfolio withdrawals to 4% or 5%, delay Social Security to get a larger check and consider an immediate annuity that pays lifetime income.

About Jonathan

Jonathan Clements

HumbleDollar is edited by Jonathan Clements, former personal finance columnist for The Wall Street Journal.

Home Call to Action

What I Value

A WAR IS RAGING. On one side of this conflict is the individual and, on the other, society and culture. To the victor goes your attention and your money.
I submit you’ll win through intentionality—and you’ll lose if you let society determine what’s of greatest value to you. I was on the losing side for many years.
As an undergraduate, I thought I wanted to be a lawyer. Why? Not because I had a deep passion for the law.

Read more »

Bracketology

EVERY YEAR, the NCAA basketball season concludes with the March Madness playoffs. Many Americans engage in bracketology—trying to figure out which teams will get knocked out in each round and which will advance. Warren Buffett even offers an annual bracket-picking challenge, where Berkshire employees can win $1 million a year for life.
This year, however, Americans with substantial retirement accounts might also want to try another form of bracketology: studying the 2017 tax law—and asking whether it offers a unique opportunity to convert hefty amounts of traditional IRA money to a Roth IRA.

Read more »

Head Games

AS I DRIVE around town these days, I notice a lot of cars with temporary license plates—an indication they were recently purchased. What’s the reason? When I turn on the TV, I see a commercial for a local car dealership that’s offering to accept your tax refund as the down payment on a new car. Now it starts to make sense.
The dealership knows consumers are about to receive an influx of cash. It wants to make it as painless as possible to buy a new car.

Read more »

Get a Life

IN MY ROLE as a financial planner, I hear a lot of stories. By far the most appalling and upsetting relate to life insurance. All too often, insurance salespeople leave clients with policies that are simultaneously overpriced, inadequate and inappropriate.
Are you evaluating a policy? Here’s a quick summary of the most important considerations:
What type of coverage should I have? Life insurance comes in two primary flavors: term and permanent. Term insurance,

Read more »

Newsletter No. 45

AS THE SAYING goes, “If you don’t stand for something, you’ll fall for anything.” So what do HumbleDollar’s readers stand for? What are the key principles that should govern how we manage our money? In recent weeks, I’ve been drawing up a manifesto for the site.
It’s a work in progress. I’ve included a dozen of the principles in our latest newsletter—and, in the months ahead, you’ll find further additions appearing every few days on the homepage.

Read more »

How to Blow It

THERE’S AN abundance of advice on how to plan for retirement. Oh, it’s good advice. But it’s also a bit complicated, often requires discipline and always necessitates actually doing something.
And let’s face it: Who needs advice? Who wants to actually do something? Here are 20 ways to ignore the experts—and wreck your chances of a financially comfortable retirement:
1. Keep thinking retirement is so far in the future that there’s no need to act now.

Read more »

Numbers

IF YOU EARN $20,000, 55% of Americans would consider you poor, according to YouGov.com. But at $30,000, only 32% say you’re poor, while 50% would deem you neither rich nor poor. Meanwhile, a majority (56%) consider you rich once you earn $100,000.

Manifesto

NO. 25: BEFORE we invest, we should ask why we’re investing. Stocks are a great choice if we’re long-term investors—and a terrible investment if we’ll need to spend our money in the next five years.

Act

SET UP A HOME equity line of credit. These have lost some of their allure under the 2017 tax law, because you can only deduct the interest if it’s used to buy, build or substantially improve your home. Still, a HELOC is one of the cheaper ways to borrow, and it could come in handy if you have a financial emergency or as an alternative to education and car loans.

Truths

NO. 33: MOST INVESTORS trail the market averages. That’s true whether a market is considered efficient or inefficient. Before investment costs, we collectively earn the results of the market averages. After costs, we must earn less. In fact, investors—as a group—will trail the market by a sum equal to their investment costs.

Think

LONGEVITY RISK. Spending down a retirement portfolio is tricky: You don’t know how long you will live—and hence there’s a risk you’ll run out of money before you run out of breath. To fend off that risk, limit annual portfolio withdrawals to 4% or 5%, delay Social Security to get a larger check and consider an immediate annuity that pays lifetime income.

Home Call to Action

Free Newsletter

Got to Believe

AS I’VE BUILT out HumbleDollar.com over the past few years, I’ve come to view the site not merely as a place where folks can learn about financial issues, but as a community that thinks about money in a unique way.
This shows up repeatedly in articles from guest contributors, with their focus on topics like spending thoughtfully, helping family, behavioral finance, indexing and achieving financial freedom. It’s a community where folks are trying to be rational about money,

Read More »

Money Guide

Start Here

Investment Math

TO SUCCEED AS an investor, you don’t need to turn yourself into a “quant”—Wall Street lingo for a quantitative investor. But it is helpful to have a grasp of basic investment math, so you appreciate how time can magnify the virtues of saving regularly and investing in the stock market, but also how it can magnify the damage done by high investment costs and an overly aggressive investment strategy. This might sound daunting. The ideas involved, however, are quite simple. Often, you don’t even need to do the calculations yourself, because there are plenty of online calculators that’ll do the work for you. Instead, what’s important is having a rough understanding of how the math plays out. Everyday investors often struggle with three key notions. First, when presented with a series of investment returns, their inclination is to add them together. But simply adding the numbers fails to take into account the amazing way that money compounds, with each year’s gain building on earlier returns. Second, folks fail to grasp that losses hurt more than gains. If you lose 20% this year, you would need a 25% gain to get back to even. Think of $1 that loses 20% of its value, so it’s now worth 80 cents. To get back to $1, the necessary monetary gain might be 20 cents—but the percentage gain, to get from 80 cents to $1, is 25%. Third, when percentages get into triple digits, investors often struggle to understand what the numbers represent. Suppose your money grows 100%. That would double your wealth. What if the gain was 200%? That would triple your money. Previous: Main Menu
Read more »

Archive

Trek to Retirement

IN LATE MARCH, I set out into the backcountry of central Oregon with eight other women, all on snowshoes or cross-country skis. We traversed more than 22 miles in the heart of the Oregon Cascades, breaking trail and staying in huts. The terrain was steep, the visibility was poor, the snow was deep and there was a stiff wind. What does this have to do with investing? The trek was reminiscent in three ways: Feeling inferior. I was among incredibly fit and experienced outdoors women. This was my first trip of this kind. The others were triathletes, competitive cyclists and expert mountaineers. If we were a sports team, I’d have been keeping the bench warm. I suspect I saw myself as more amateur than my companions did. I can’t tell you how many competent, educated and bright women I meet who are reluctant to acknowledge all that they’ve done for their financial future or voice the insightful questions they have. They downplay their knowledge because they aren’t “experts.” One of the best things about investing is that it doesn’t require expertise to begin. In fact, the quote of “80% of success is showing up” couldn’t be truer. Just getting started, by putting your money to work in the market, can be one of the best decisions you make. From there, you can always improve and adjust your portfolio, as you learn and grow along the way. Constraints work. Our Oregon Cascades adventure was a last-minute trip, so I didn’t have time to do a ton of research or prep beforehand. This worked in my favor. I could only concentrate on what gear to pack, food to bring and the correct mapping software to download. I couldn’t overthink it. The same approach can be helpful with investing. You can easily get sucked into the latest articles on bitcoin, the “next Amazon,” why you ought to buy gold and how to invest in today’s economy. But in all likelihood, you’ll fare far better if you stick with the essentials—a handful of mutual funds that give you broad diversification at low cost. Start small. A few hours into the trek, we lost some gear and our physical map. The visibility was poor and it was snowing hard. An hour of backtracking failed to locate our lost items. Our 25-pound backpacks became heavier and our pace slower. We became concerned we wouldn’t make it to the first hut in eight hours, let alone by dark. The experience gave new meaning to putting one foot—or snowshoe—in front of another. Our success depended on this simple approach. Retirement can seem like an incredibly daunting and distant goal. There may be a house that needs work, daycare and education costs that seem to go nowhere but up, and aging parents to comfort and care for. There will be days when getting out of bed and dressing yourself seem like an accomplishment. And they are. Every action you take, every decision you make, toward your long-term goals are a step in the right direction, no matter what your pace. Remember, you’re human. Taking action builds momentum. Before you know it, your regular savings toward retirement will compound and grow. Your eight-hour trek will seem like six hours. Conditions will improve and the wind will be at your back—and all that was made possible by taking those initial steps. Anika Hedstrom’s previous blogs include Simple but Not EasyBetting on Me and Along Came Sheila. Anika is a financial planner with Vista Capital Partners in Portland, Oregon. The views expressed here are her own and not those of her employer. Follow Anika on Twitter @AnikaHedstrom.
Read more »
Jonathan Clements

About Jonathan

HumbleDollar is edited by Jonathan Clements, former personal finance columnist for The Wall Street Journal.