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Why I use a Donor-Advised Fund

"I have used qualified charitable deductions instead of DAFs. Both are very beneficial for tax savings. I am not as familiar with DAFs but David describe them well."
- Jerry Pinkard
Read more »

Do some seniors make life more difficult for themselves?

"I appreciate Dick's concern, but many people are set in their ways and unwilling to change, even though it is a better approach. I rarely offer unsolicited advice, but when I do, it usually falls on deaf ears."
- Jerry Pinkard
Read more »

I’d like to take all the credit, but ……

"If I had been born in Somalia (average life expectancy 59.6 years, average daily income $3.09 - source gapminder.com) then no matter how hard I worked, there is no way I would have the life I have today. With a global view, it really doesn't make sense that with hard work anyone can rise above whatever limitations they are born with. In many parts of the world, the hurdles are just enormous. I feel like a key to gratitude is looking beyond the local or national, and considering the lives of people all around the world."
- greg_j_tomamichel
Read more »

Trump Account

TRUMP ACCOUNT WAS created as part of the OBBBA signed on July 4, 2025. I've been getting a lot of messages about it, because there is a lot of conflicting information. The IRS has also posted some instructions for the account. My goal with this post is to walk through the rules and give my take on when (if ever), this account makes sense. Timing & Creation First and foremost, no contributions are allowed in this savings account for children until 12 months after the law’s enactment, meaning you can’t use it or invest in one until July 5, 2026. However, you can start signing up for it. There are 2 main ways: 1. File Form 4547  You can file Form 4547 with your tax return to open an account for your beneficiary. This is the safest and easiest way to make the election to open the account. This is also where you can get a $1,000 pilot program credit if your child qualifies (more on this in a bit) 2. File Form 4547 via TrumpAccounts.Gov You may use the .gov website to file Form 4547 electronically: Personally, if you plan to open one, I recommend filing Form 4547 with your tax return, which I believe is a more secure way to submit the election. General A Trump Account is treated like a traditional IRA under Section 408(a) (not Roth), with some modifications. It is created for the exclusive benefit of an individual who:
  1. Has not attained age 18 before end of the year.
  2. Has a Social Security number.
  3. Has an election made by the IRS, or by a parent/guardian (the Form 4547)
Contributions There are 2 types of contributions: exempt and non-exempt (regular) 1. Non exempt contributions Up to $5,000/year can be contributed by parents, grandparents, or even relatives, until the child turns 18, starting in July 2026. Importantly, there will be NO tax deduction for contributing to this account. 2. Exempt contributions:
  • Employer contributions: up to $2,500/year, excluded from income of the employee of the child
You may have heard about employers pledging to put some amounts in their employees accounts. Companies like Nvidia, Citi, BoA, IBM, Chase, Visa and many others pledged to contribute to these accounts for their employees' children. This is great because it's "free" money for them.
  • Pilot program
Parents/guardians elect for an "eligible child" (U.S. citizen born Jan. 1, 2025, through Dec. 31, 2028) to receive $1,000 as a seed contribution. This is an election you can file as part of the Form 4547. Note that even though your child may not qualify for the $1,000, you can still open the account using Form 4547.
  • Qualified general contributions
Governments or nonprofits can also contribute for certain minors based on some qualifications (e.g. county deposits $1,000 for all minors living in that county). You may have seen a charitable commitment from the Dells of $6.25B. As part of the commitment, the first 25 million American children age 10 and under living in ZIP codes with median incomes below $150,000 will receive an additional $250 contributed to the account.  Exempt contributions aren’t part of the “basis” which becomes important for withdrawals. Investments Funds must be invested in eligible index mutual funds or ETFs that:
  • Track a broad U.S. equity index
  • Don’t use leverage
  • Have an expense ratio <0.10%
I like this requirement because it keeps investing simple and minimizes fees. Distributions No withdrawals are allowed before age 18 (except for rollovers or excess contributions).  After 18, the account functions like a traditional IRA. This means that when you withdraw the money, the growth is taxed as ordinary income when withdrawn. After the growth period (that is, starting January 1st of the calendar year in which the child turns 18), most of the rules that apply to traditional IRAs will generally apply to the Trump account. For example, this means that distributions from the Trump account could be subject to the section 72(t) 10% additional tax on early distributions, unless an exception applies (like higher qualified education expenses or $10k for first home downpayment) Example Say you, as a parent, contributed $5,000 to this account. You did not receive any tax deduction for this contributions. Your child also received $1,000 from the pilot program, since your child was born between 2025-2028. At 18, the account grew to $22,000.
  • Basis = $5,000
  • Earnings = $17,000
Withdrawals at 18 are pro rata. If you take $10,000 to pay for college, ~$2,272 would be from the basis (non-taxable) and ~$7,727 would be taxable earnings. You would pay taxes on $7,727 based on the marginal tax rate. A 10% penalty will not apply, since an exception applies (see a full list of exceptions here) Benefits I believe the main usefulness of this account is the Roth IRA play. Of course, get the $1,000 pilot contribution or any other "free" benefits. But making direct contributions to the account may not be the best choice, especially if you are limited on funds. For ongoing contributions, a 529 plan will likely come out ahead for most families. This is because the withdrawals are tax free for education, you can often claim a state tax deduction, and OBBBA expanded qualified expenses on 529 plans to include expenses like SAT/AP exams costs and postsecondary credentials. You can also convert up to $35,000 to a Roth IRA from a 529 plan. However, wealthier parents may find contributing to the account and making a Roth conversion a strategic choice. What do you think of this account?   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.
Read more »

A Very Sensible Conclusion

"My aim in the my personal portfolio is to be more conservative than the S&P 500, since I am already wealthy and don't need gains. A defensive portfolio like mine minimizes losses when the market goes down. You can look for growth in your 20s and 30s, but when you get to your 70s and 80s capital preservation is more important."
- Ormode
Read more »

Taxes on foreign stocks

"I’m just glad you quoted that part with the $20,000 figure. Now I know I don’t have to go back and see if I did mine right, nor do I have to worry about next year, or the next 😂"
- Michael1
Read more »

Endowment Lessons

LAST YEAR, an unusual story made the news: The University of Chicago was reportedly looking to sell an entity known as the Center for Research in Security Prices (CRSP). The story came and went quietly, but it’s worth pausing to understand it. CRSP’s origins date back to the 1960s. Its initial goal was to build a database of historical stock prices. This is harder than it might seem. Before trading was computerized, stock prices were maintained on paper. And when stocks split or companies merged, that added to the complexity. Despite this seemingly dull mandate, CRSP has played an important role in the development of modern finance over the years. Most notably, the efficient market hypothesis and the capital asset pricing model were both made possible by CRSP data. And today, many of the world’s largest index funds, including Vanguard’s Total Stock Market Fund, are built on CRSP indexes. For these reasons, CRSP has long been one of the University of Chicago’s crown jewels. So it was a surprise when officials announced it would be putting it on the market—especially since the asking price, at about $400 million, was modest relative to the university’s $11 billion endowment. Why would Chicago feel compelled to sell? According to an account in the Financial Times, UChicago’s finances have been in tough shape in recent years. Despite a strong market, its endowment has lagged while its indebtedness has climbed. The story carries useful lessons for individual investors, so it’s worth studying where the university went off track. Spending The 1996 book The Millionaire Next Door examined the financial habits of millionaires. A key finding was that the path to millionaire status didn’t require a high-paying job. Regardless of income level, the key to financial success wasn’t complicated: Income simply needed to exceed expenses by a reasonable enough margin. It was almost that simple. Ironically, the economics department at the University of Chicago is renowned. Milton Friedman, Eugene Fama and Richard Thaler are among its Nobel Prize recipients. Nonetheless, it fell prey to one of the most well known pitfalls in personal finance: overspending—and specifically, overspending in an effort to keep up with the Joneses. What exactly happened? Several years ago, in an effort to compete with peers, Chicago began investing heavily in new academic programs and buildings. Chief financial officer Ivan Samstein explained that the uptick in spending was intended to “drive the university’s eminence.” But the spending wasn’t accompanied by increases in revenue. As a result, the annual operating deficit rose 10-fold between 2021 and 2024. Total outstanding debt now stands at more than $6 billion. Clifford Ando, a professor at UChicago, noted that, “the borrowing generated buildings,” but that the university failed to think a step ahead. “With the buildings come operational expenses that the university has not figured out how to fund.” The lesson for individual investors is almost self-evident: No matter what level of resources one might have in the bank, the importance of planning should never be ignored. Saving At least since Biblical times, it’s been understood that economies go through cycles. This is another way in which the Chicago story is instructive. Investment markets have been strong for most of the past 15 years. But instead of taking the opportunity to stockpile resources for the future, administrators decided to ramp up spending and add debt. This seems like a mistake that should have been easy to avoid, but it is also understandable. When markets are rising, we know the right thing to do is to bolster our savings. But that’s often easier said than done, because of what’s known as recency bias—the expectation that current trends will continue into the future. Recency bias makes rebalancing, and risk-management in general, feel less necessary when the market seems like it’s only going up. But that's when, in my view, we should be most diligent about managing risk. Thus, with the market near all-time highs, this is a good time to review your portfolio’s asset allocation. Investing A final reason for the university’s tight finances: Like many of its peers, UChicago invested across a mix of public and private funds. But that strategy ended up working against them, in two ways. First, performance has lagged. Over the 10-year period through the end of 2024, the university’s endowment gained 6.7% per year. In contrast, Vanguard’s Balanced Index Fund (ticker: VBIAX) returned 8.2% per year over the same period. As a result, all things being equal, the university’s endowment would be nearly 15% larger today if it had put all its money in this one simple index fund rather than in the complicated mix of funds it chose. A further problem for Chicago’s endowment was the nature of its holdings. It had allocated more than 60% of its investments to private equity, real estate and other illiquid assets. That’s made it harder for the university to access funds to cover ongoing deficits. This is likely the primary reason it felt compelled to sell CRSP despite having $11 billion in the bank. This carries another important lesson: Private equity is making a push to work its way into everyday investors’ 401(k)s, but it’s not just Chicago’s unfortunate experience that should give us pause. According to a recent write-up in The Wall Street Journal, even Ivy League schools, which had traditionally done well with private funds, “are having second thoughts.” If even these large institutions, with dedicated investment offices, are stepping back from private equity, the message for individual investors seems clear.   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 »

Don’t give up on your Part D costs

"Here is an update with an example of our fouled up system. After all I explained, today 2/21 in the mail we received a notice that our Rx appeal was denied. I was annoyed and prepared to send off a complaint, even contact the insurance commission. Then Connie opened another envelope. That letter said the denial had been reversed and the drug was approved for a year. The first letter was dated 2/13 and the second 2/18. But of course, arriving on the same day. Our system is like “The Who’s on First” comedy act."
- R Quinn
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Joining the Club, Maybe?

"I wasn't aware of different types of statins. If I'm honest, I haven't really looked into the whole thing too deeply, I'm hoping the CAC scan comes back clear…I'm ignoring a possible reality until it knocks on the door."
- Mark Crothers
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How Far Back Would a 40% Drop Take Us?

"FYI: Let’s say you are sitting on 50K that you need to invest. My research says it is slightly better to put it all in at once rather than dollar cost average (DCA). But DCA from your paycheck is a different story."
- William Housley
Read more »

Why I use a Donor-Advised Fund

"I have used qualified charitable deductions instead of DAFs. Both are very beneficial for tax savings. I am not as familiar with DAFs but David describe them well."
- Jerry Pinkard
Read more »

Do some seniors make life more difficult for themselves?

"I appreciate Dick's concern, but many people are set in their ways and unwilling to change, even though it is a better approach. I rarely offer unsolicited advice, but when I do, it usually falls on deaf ears."
- Jerry Pinkard
Read more »

I’d like to take all the credit, but ……

"If I had been born in Somalia (average life expectancy 59.6 years, average daily income $3.09 - source gapminder.com) then no matter how hard I worked, there is no way I would have the life I have today. With a global view, it really doesn't make sense that with hard work anyone can rise above whatever limitations they are born with. In many parts of the world, the hurdles are just enormous. I feel like a key to gratitude is looking beyond the local or national, and considering the lives of people all around the world."
- greg_j_tomamichel
Read more »

Trump Account

TRUMP ACCOUNT WAS created as part of the OBBBA signed on July 4, 2025. I've been getting a lot of messages about it, because there is a lot of conflicting information. The IRS has also posted some instructions for the account. My goal with this post is to walk through the rules and give my take on when (if ever), this account makes sense. Timing & Creation First and foremost, no contributions are allowed in this savings account for children until 12 months after the law’s enactment, meaning you can’t use it or invest in one until July 5, 2026. However, you can start signing up for it. There are 2 main ways: 1. File Form 4547  You can file Form 4547 with your tax return to open an account for your beneficiary. This is the safest and easiest way to make the election to open the account. This is also where you can get a $1,000 pilot program credit if your child qualifies (more on this in a bit) 2. File Form 4547 via TrumpAccounts.Gov You may use the .gov website to file Form 4547 electronically: Personally, if you plan to open one, I recommend filing Form 4547 with your tax return, which I believe is a more secure way to submit the election. General A Trump Account is treated like a traditional IRA under Section 408(a) (not Roth), with some modifications. It is created for the exclusive benefit of an individual who:
  1. Has not attained age 18 before end of the year.
  2. Has a Social Security number.
  3. Has an election made by the IRS, or by a parent/guardian (the Form 4547)
Contributions There are 2 types of contributions: exempt and non-exempt (regular) 1. Non exempt contributions Up to $5,000/year can be contributed by parents, grandparents, or even relatives, until the child turns 18, starting in July 2026. Importantly, there will be NO tax deduction for contributing to this account. 2. Exempt contributions:
  • Employer contributions: up to $2,500/year, excluded from income of the employee of the child
You may have heard about employers pledging to put some amounts in their employees accounts. Companies like Nvidia, Citi, BoA, IBM, Chase, Visa and many others pledged to contribute to these accounts for their employees' children. This is great because it's "free" money for them.
  • Pilot program
Parents/guardians elect for an "eligible child" (U.S. citizen born Jan. 1, 2025, through Dec. 31, 2028) to receive $1,000 as a seed contribution. This is an election you can file as part of the Form 4547. Note that even though your child may not qualify for the $1,000, you can still open the account using Form 4547.
  • Qualified general contributions
Governments or nonprofits can also contribute for certain minors based on some qualifications (e.g. county deposits $1,000 for all minors living in that county). You may have seen a charitable commitment from the Dells of $6.25B. As part of the commitment, the first 25 million American children age 10 and under living in ZIP codes with median incomes below $150,000 will receive an additional $250 contributed to the account.  Exempt contributions aren’t part of the “basis” which becomes important for withdrawals. Investments Funds must be invested in eligible index mutual funds or ETFs that:
  • Track a broad U.S. equity index
  • Don’t use leverage
  • Have an expense ratio <0.10%
I like this requirement because it keeps investing simple and minimizes fees. Distributions No withdrawals are allowed before age 18 (except for rollovers or excess contributions).  After 18, the account functions like a traditional IRA. This means that when you withdraw the money, the growth is taxed as ordinary income when withdrawn. After the growth period (that is, starting January 1st of the calendar year in which the child turns 18), most of the rules that apply to traditional IRAs will generally apply to the Trump account. For example, this means that distributions from the Trump account could be subject to the section 72(t) 10% additional tax on early distributions, unless an exception applies (like higher qualified education expenses or $10k for first home downpayment) Example Say you, as a parent, contributed $5,000 to this account. You did not receive any tax deduction for this contributions. Your child also received $1,000 from the pilot program, since your child was born between 2025-2028. At 18, the account grew to $22,000.
  • Basis = $5,000
  • Earnings = $17,000
Withdrawals at 18 are pro rata. If you take $10,000 to pay for college, ~$2,272 would be from the basis (non-taxable) and ~$7,727 would be taxable earnings. You would pay taxes on $7,727 based on the marginal tax rate. A 10% penalty will not apply, since an exception applies (see a full list of exceptions here) Benefits I believe the main usefulness of this account is the Roth IRA play. Of course, get the $1,000 pilot contribution or any other "free" benefits. But making direct contributions to the account may not be the best choice, especially if you are limited on funds. For ongoing contributions, a 529 plan will likely come out ahead for most families. This is because the withdrawals are tax free for education, you can often claim a state tax deduction, and OBBBA expanded qualified expenses on 529 plans to include expenses like SAT/AP exams costs and postsecondary credentials. You can also convert up to $35,000 to a Roth IRA from a 529 plan. However, wealthier parents may find contributing to the account and making a Roth conversion a strategic choice. What do you think of this account?   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.
Read more »

A Very Sensible Conclusion

"My aim in the my personal portfolio is to be more conservative than the S&P 500, since I am already wealthy and don't need gains. A defensive portfolio like mine minimizes losses when the market goes down. You can look for growth in your 20s and 30s, but when you get to your 70s and 80s capital preservation is more important."
- Ormode
Read more »

Taxes on foreign stocks

"I’m just glad you quoted that part with the $20,000 figure. Now I know I don’t have to go back and see if I did mine right, nor do I have to worry about next year, or the next 😂"
- Michael1
Read more »

Endowment Lessons

LAST YEAR, an unusual story made the news: The University of Chicago was reportedly looking to sell an entity known as the Center for Research in Security Prices (CRSP). The story came and went quietly, but it’s worth pausing to understand it. CRSP’s origins date back to the 1960s. Its initial goal was to build a database of historical stock prices. This is harder than it might seem. Before trading was computerized, stock prices were maintained on paper. And when stocks split or companies merged, that added to the complexity. Despite this seemingly dull mandate, CRSP has played an important role in the development of modern finance over the years. Most notably, the efficient market hypothesis and the capital asset pricing model were both made possible by CRSP data. And today, many of the world’s largest index funds, including Vanguard’s Total Stock Market Fund, are built on CRSP indexes. For these reasons, CRSP has long been one of the University of Chicago’s crown jewels. So it was a surprise when officials announced it would be putting it on the market—especially since the asking price, at about $400 million, was modest relative to the university’s $11 billion endowment. Why would Chicago feel compelled to sell? According to an account in the Financial Times, UChicago’s finances have been in tough shape in recent years. Despite a strong market, its endowment has lagged while its indebtedness has climbed. The story carries useful lessons for individual investors, so it’s worth studying where the university went off track. Spending The 1996 book The Millionaire Next Door examined the financial habits of millionaires. A key finding was that the path to millionaire status didn’t require a high-paying job. Regardless of income level, the key to financial success wasn’t complicated: Income simply needed to exceed expenses by a reasonable enough margin. It was almost that simple. Ironically, the economics department at the University of Chicago is renowned. Milton Friedman, Eugene Fama and Richard Thaler are among its Nobel Prize recipients. Nonetheless, it fell prey to one of the most well known pitfalls in personal finance: overspending—and specifically, overspending in an effort to keep up with the Joneses. What exactly happened? Several years ago, in an effort to compete with peers, Chicago began investing heavily in new academic programs and buildings. Chief financial officer Ivan Samstein explained that the uptick in spending was intended to “drive the university’s eminence.” But the spending wasn’t accompanied by increases in revenue. As a result, the annual operating deficit rose 10-fold between 2021 and 2024. Total outstanding debt now stands at more than $6 billion. Clifford Ando, a professor at UChicago, noted that, “the borrowing generated buildings,” but that the university failed to think a step ahead. “With the buildings come operational expenses that the university has not figured out how to fund.” The lesson for individual investors is almost self-evident: No matter what level of resources one might have in the bank, the importance of planning should never be ignored. Saving At least since Biblical times, it’s been understood that economies go through cycles. This is another way in which the Chicago story is instructive. Investment markets have been strong for most of the past 15 years. But instead of taking the opportunity to stockpile resources for the future, administrators decided to ramp up spending and add debt. This seems like a mistake that should have been easy to avoid, but it is also understandable. When markets are rising, we know the right thing to do is to bolster our savings. But that’s often easier said than done, because of what’s known as recency bias—the expectation that current trends will continue into the future. Recency bias makes rebalancing, and risk-management in general, feel less necessary when the market seems like it’s only going up. But that's when, in my view, we should be most diligent about managing risk. Thus, with the market near all-time highs, this is a good time to review your portfolio’s asset allocation. Investing A final reason for the university’s tight finances: Like many of its peers, UChicago invested across a mix of public and private funds. But that strategy ended up working against them, in two ways. First, performance has lagged. Over the 10-year period through the end of 2024, the university’s endowment gained 6.7% per year. In contrast, Vanguard’s Balanced Index Fund (ticker: VBIAX) returned 8.2% per year over the same period. As a result, all things being equal, the university’s endowment would be nearly 15% larger today if it had put all its money in this one simple index fund rather than in the complicated mix of funds it chose. A further problem for Chicago’s endowment was the nature of its holdings. It had allocated more than 60% of its investments to private equity, real estate and other illiquid assets. That’s made it harder for the university to access funds to cover ongoing deficits. This is likely the primary reason it felt compelled to sell CRSP despite having $11 billion in the bank. This carries another important lesson: Private equity is making a push to work its way into everyday investors’ 401(k)s, but it’s not just Chicago’s unfortunate experience that should give us pause. According to a recent write-up in The Wall Street Journal, even Ivy League schools, which had traditionally done well with private funds, “are having second thoughts.” If even these large institutions, with dedicated investment offices, are stepping back from private equity, the message for individual investors seems clear.   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 »

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Get Educated

Manifesto

NO. 72: WALL STREET loves to depict everyday investors as clueless. Don’t believe it: Proof is hard to find, while reams of data show most professional money managers are market laggards.

act

FUND YOUR IRA. This time of year, folks are exhorted to get their IRAs funded for the prior year before the mid-April tax-filing deadline. That’s a good idea. But if you want the most out of your IRA, you should also make this year's contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.

Truths

NO. 95: WEALTH ISN’T driven solely—or even largely—by investment returns. Unemployment, divorce, ill-health, the cost of raising children and caring for parents, and—most important—our savings habits will likely have a far greater impact on our wealth. The good news: While some of these factors can’t be controlled, some are firmly within our grasp.

humans

NO. 55: WE HATE commuting. We like to feel in control—difficult to do when dealing with traffic and public transport. Studies have found commuting ranks as one of the worst parts of our day. Research has also found it wrecks relationships. Want to boost happiness? Consider moving closer to work—preferably walking distance—even if that means a smaller home.

My Money Journey

Manifesto

NO. 72: WALL STREET loves to depict everyday investors as clueless. Don’t believe it: Proof is hard to find, while reams of data show most professional money managers are market laggards.

Spotlight: Markets

Matters of Maturity

KNOWING WHAT RETURN you can reasonably expect from stocks, bonds and other asset classes is valuable because it can help you make more educated asset allocation choices. It also helps you decide how much you need to be saving. If expected returns are low, you’ll need to save more.
Such estimates don’t require extraordinary clairvoyance. In fact, when it comes to bonds, estimating returns is quite straightforward. The expected return from a bond is very close to something called the bond’s yield to maturity,

Read more »

Peter Principles

IN THE INVESTMENT world, there’s a lot of nonsense and a lot of hot air. But a few people are like the Shakespeare of personal finance: There’s wisdom in virtually every word. Warren Buffett is probably the dean of this group. But another leading light is Peter Lynch, who in the 1970s and ’80s stewarded Fidelity Investments’ Magellan Fund with enormous success.
Lynch is largely retired today, but his plainspoken advice is as valuable as ever.

Read more »

Think of the Children

I FEAR I’M GROWING wealthy at my children’s expense. My investing life began in the late 1980s. Yes, there have been stock market bumps since then, notably the 2000-02 and 2007-09 market crashes, and even a minor hiccup over the past week. But if you look at the broad trend, it’s been three decades of rising stock market valuations.
From year-end 1987 to year-end 2017, the S&P 500’s price-earnings multiple climbed from 13.8 to 24.6,

Read more »

The Upside of Down

MANY INVESTORS endured their first stock market crash this year. But what if you’ve never before invested in stocks? How do you know what your risk tolerance is—and how do you keep yourself calm?
There are no easy answers. Questionnaires aren’t a great way to find out our risk tolerance. They ask us about hypotheticals when we’re calm, but we act and think differently when the storm hits. Instead, the only sure way to find out our risk tolerance is to weather a storm or two.

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Winners and Sinners

LAST WEEK SAW additional gains for value stocks, while shares of once highflying growth companies continued to struggle. Meanwhile, foreign markets again rallied. Vanguard FTSE All-World ex-U.S. ETF (symbol: VEU) rose more than 1% last week, even as Vanguard Total Stock Market ETF (VTI) slipped 0.5%.
Let’s further unpack these trends.
The Nasdaq Composite has endured its worst start to a year since 2009. At the same time, blue chip stocks and some of last year’s losers are suddenly in favor.

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Were we better off?

In 1975 the Social Security COLA was 8%, in 1979 9.9%, 1980 14.3% and 1981 11.2% reflecting soaring inflation. I project 2025 will be 2.3% or less if inflation keeps falling. 
During the oil embargo in 1974 gasoline jumped 35% a gallon in one year to $0.53 a gallon equivalent $3.36 in 2024 – if you could get gas then. As of July 8 the average US price a gallon was $3.608 with significant variations by state and individual station –

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Spotlight: Kesler

Ignoring the Rules

ONE HALLOWEEN, SOME of my teenage buddies and I were having a great time throwing water balloons at trick-or-treaters. It was a lot of fun—until we got caught. After getting hauled down to the police station for a lecture, and then receiving another one when I got home, I’ve been pretty much on the straight and narrow ever since, including when it comes to money. Over the years, I’ve discovered various tried-and-true rules of investing and those have been the keys to my success. In my personal Investor Hall of Fame, I’d include Warren Buffett for his lessons on patience and the value of letting compounding work to your benefit. I’d also include Burton Malkiel for the classic he authored, A Random Walk Down Wall Street. It taught me that the markets were so efficient that I’d be better off buying index funds than individual stocks. And, of course, there would be a place for Vanguard Group founder John Bogle, who made it possible to follow Malkiel’s advice by creating the low-cost index fund. These wise sages, along with others, provided me with the rules needed to succeed. But despite my reverence for time-tested wisdom, I give myself a little wiggle room. Most of us can’t always invest like robots. Sometimes, we want to do something with our money that doesn’t follow the established rules for investment success. A popular compromise: Set up a “fun money” account. I allow myself to play with 5% or 10% of my portfolio. Here are four examples of how I’ve had fun by not following the rules. 1. I’m a little embarrassed to admit that I have a position in bitcoin. Crazy? Yes, I know. Buffett calls it “rat poison squared.” But even Buffett gets some things wrong. It isn’t unusual in the history of innovation to see resistance to new ideas. For instance, if you’re drinking coffee as you read this, it’s a privilege that was once prohibited. In 1675, King Charles II banned the sale of coffee in England because coffeehouses were deemed to have “produced very evil and dangerous effects.” In other words, people sat around drinking coffee and critiquing the king. In fact, from refrigeration to margarine to recorded music, innovation has a history of being resisted. Perhaps it’s predictable that a challenge to our understanding of money would also meet with cat calls. We don’t yet know whether cryptocurrencies will have stamina and change how we think about money. But for this banker, it’s an invigorating debate—one that challenges me to set aside my preconceived notions about what constitutes money. I enjoy having some “skin in the game,” if only to focus my attention as the debate rages. And—who knows—maybe bitcoin will go to $1 million. 2. Some purists will think I’ve sinned because I own some individual stocks. Over the long term, the odds of an individual investor beating the market by picking stocks are very low. Even so, I think some good can come from investing in individual stocks. It’s important to think of stocks not as blips on a computer screen, but as ownership of a company, and investing in individual stocks can help with that. I bought my kids Nike and Apple stock when they were little. I wanted to teach them that they owned a company that made things they used. Infecting my kids early on with pride in stock ownership made investors out of them as adults. [xyz-ihs snippet="Mobile-Subscribe"] I also love owning Berkshire Hathaway. One of its holdings is BNSF, a railroad that runs through Montana. When I see a BNSF train pulling a long line of railcars, I smile, knowing it's making me money. And I always remember I own Dairy Queen when I have ice cream. It adds to the enjoyment. 3. Owning whole life insurance is harshly criticized by many, including some popular radio personalities. The argument against whole life is simple. It’s too expensive. We should buy cheap term insurance and invest the rest. But hear me out. I’ll use one of my policies as an example. It’s a $25,000 face value policy I bought in 1985. I’ve paid $312.50 a year into it ever since. The cash value is now $30,500 and the death benefit is $54,887. I estimate the internal rate of return on the policy has been around 5.4%. Last year, the return was 5.03%. It’s from a AAA-rated mutual insurance company and the cash value only goes up. Where else could I get a risk-free, tax-free yield of 5.03% today? I have a number of these policies yielding more than 5%. If I didn’t have them, I would be keeping emergency money in a savings account earning almost nothing. They allow me to earn a decent return and to invest more aggressively elsewhere. I’m not advocating anyone should buy whole life. But I’d argue these policies aren’t as bad a deal as some advisors suggest. 4. Perhaps the biggest financial rule I broke was taking on more than $1 million of future expenses without a clear plan to cover the cost. I’m talking about the decision my wife and I made to start a family. According to the U.S. Department of Agriculture, the cost to raise a child through age 17 is $233,610. We had five, so that adds up to $1,168,050. I was 29 when we had the first one. Our net worth was $20,000. We didn’t look at the cost but proceeded on the assumption that if we lived frugally, worked hard and invested well, we would make it work. Many—and probably most—families make the decision to have kids without a solid plan for how to cover the cost. That may seem financially irresponsible. But it’s a choice that most parents never regret. 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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Life as a Loan Shark

THE SPEAKER WAS passionate. “You bankers need to understand our culture is not like your culture. In our community, we don’t expect bills to be paid on time. If you’re really interested in serving our community, you need to adjust your expectations and not be asking us to change our culture in order to qualify for your loans.” Wow, did I get an education some years ago, when my bank attempted to reach out to the town’s minority community. We were prepared to discuss credit scores and the importance of a good track record of paying bills on time. Instead, we walked away thinking we may have done more damage than good. Clearly, the community’s view of our industry didn’t match our own view. In our defense, our intention to serve every segment of our community, including low income areas, was honorable. But we ran into a wide cultural divide we were ill-equipped to handle. But as a young community bank chief executive, I was idealistic and not easily discouraged. I was intent on finding a way to serve everyone. We had purchased a wealth management company to cater to our well-heeled customers. The bank itself was well-positioned to serve most of the financial needs of the middle class. But I wanted a way to reach the unbanked. That desire, however noble, set me up for an embarrassing failure. Freedom Loans—not its real name—sat in the middle of our Midwestern town. The most remarkable feature was a big ugly green sign in front of the tiny store. The sign would come alive at night and blink its bright neon lights spelling out the word, “LOANS…LOANS…LOANS.” It wasn’t subtle marketing—and hardly the image a preeminent bank in town would want to project. The owner of Freedom Loans—let’s call him Tex—wanted to sell the business. “Perfect,” I thought. We’ll buy Tex’s company and this will be our way to learn how to serve the unbanked in our community, plus I hoped to teach Freedom's customers how to improve their credit standing and to encourage them to favor the lower-cost loans available from my community bank. And, boy, did I learn a lot. Here are the highlights: 1. The poor don’t pay on time and don’t care about late fees. One of my first conversations with Tex was on his need to bring down his “past due” ratios. My bank kept past dues below 1%, while Tex was around 20%. He just looked at me and shook his head, saying, “You don’t understand what we do at all, do you? We love past due loans. That’s how we build up our late fee income. And nobody ever complains.” As I found out, he was right. 2. The poor don’t care what interest rate they pay. Tex charged an average 28% interest on loans. Tex taught me the poor don’t care about the rate. Only the payment schedule mattered to them. 3. The poor will pay almost anything to maintain one reliable line of credit. Tex gave me an education into the mind of the unbanked. They don’t care about interest rates. They don’t care about late fees. They don’t care about any other debts they were running past due. But they did care about keeping Tex happy, because he was their emergency fund. Tex would always advance them a new loan when needed if they would continue to pay him something from time to time. You could say Tex was a friendly loan shark. 4. It’s hard to find ethical lenders who share Tex’s view of customers. After the sale of the business, Tex only wanted to stay on for a short transition period. We hired a young man to train under Tex, with the intention of making him the new president when Tex retired. This trainee, however, never bought into Tex’s exploitation philosophy. He quit and went to work for a church, where he found more compatible values. 5. The poor suffer from fear and shame. Freedom Loans had a hidden parking lot in the back, which allowed customers to enter without being seen. Tex explained to me that this private rear entrance was a key to business success. The poor will almost never enter a traditional bank lobby, because they don’t feel they belong there. But they also want to hide their poverty from others, which would be revealed if they were seen entering a high-interest loan shop. The Freedom Loans experiment fairly quickly ended in failure. Our bank’s values were incompatible with the idea of charging exorbitant interest and fees, especially to the poorest among us. Freedom Loans never made any money. The lack of profitability was probably because no one in my company could buy into the Freedom Loans philosophy. But the failure motivated me to look elsewhere for ideas on how to help the poor. Over time, I’ve found some answers that work much better than my poorly conceived idea to buy Freedom Loans. Warren Buffett’s partner, Charlie Munger, has a saying: “Invert, always invert.” In other words, turn a problem upside down and look at it backwards. Here are two ideas that appear to be effective in raising the poor out of their mindset of poverty. Investment clubs. Over time, I became friends with a number of pastors in the minority community. They had formed an investment club that regularly met to pool members’ money and make investment decisions. These wise pastors knew that one path out of poverty was to teach their members to think more like owners and less like debtors. I think the club was successful because the effort came from within the minority community. Peer micro lending and savings groups. Similar to investment clubs, savings groups have proven successful in developing countries. These savings groups encourage capital formation, without the bureaucracy of bankers like me getting involved. Members can take loans from these savings groups, if approved by their peers, for purposes such as business expansion, home improvements, medical care or other needs—and without paying exorbitant interest rates. There’s a reason for the biblical prohibition against moneylenders charging interest to the very poor, who are least able to pay it. As far as I know, Freedom Loans didn’t help anyone in my town escape poverty. It most likely kept them poor. My confession in this article may not have the same impact as the 13 books St. Augustine wrote discussing his confessions. Still, this was an important lesson for this banker to learn. Not every market segment is a profitable niche, nor is it ethical to try to make a profit to the detriment of the poorest among us. But that doesn’t mean there are no alternative ways to bring human flourishing to those who struggle the most. 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. [xyz-ihs snippet="Donate"]
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Lending a Hand

IF I'M HONEST WITH myself, I’ve been financially comfortable for so long that I’ve lost the ability to truly relate to those living paycheck to paycheck. But over a lifetime of working with people and their money, I’ve learned to be aware of signs that someone may be on the brink of breakdown—and could use some help. I was only 22 years old when I had my first shocking experience with the power of money to cause a life to self-destruct. I was working as one of the federal government’s national bank examiners. A teller’s cash drawer was missing money and she was sent home. Around lunchtime, the bank president realized his truck was also missing. The teller had stolen his truck, and then driven for several hours before stopping and attempting to end her life. Fortunately, she wasn’t successful. But the experience made a big impression on me. Money is a double-edged sword with the power both to help fulfill our aspirations and to destroy. How can we help those who are struggling? Try these three steps. 1. Strive to be a “financial first responder.” That’s the label I give to those willing to help others in financial difficulty. We know that depression can occur in those suffering from too much consumer debt. If not addressed, serious consequences often result. In such situations, there are time-tested methods to give people hope. It doesn’t take an MBA to help those who have too much credit card debt. Just like we learn first aid to assist with a medical need when a doctor isn’t around, anyone can learn some basics to help financially stressed people who can’t afford professional help. I’ve trained others with materials from organizations like Crown Financial Ministries. The goal is to lay out a series of small, manageable steps that can be used to gain financial peace of mind. The first step might be to find a way to save $500. It’s something almost everybody can accomplish, and it gives them the confidence to move on to the next step of reducing debt. Crown’s money map is a brilliant formulation of baby steps to give those in deep debt hope that there’s a way out. 2. Redefine failure as a virtue. One of the reasons our economy has been a success is our acceptance of failure. For much of human history, debtors who couldn’t pay their loans went to prison. But in America, we made bankruptcy relatively easy so folks could discharge their debts and start over. You might think, as a banker, I’d prefer the harsh debtors’ prison method. But there’s real value to society, as well as to the individual, in making bankruptcy less severe. If bankrupt entrepreneurs are excessively punished for failure, they may give up on high-risk but potentially high-return opportunities. Think Henry Ford, who had two companies go bankrupt before he succeeded. Or Walt Disney, who was fired by an editor because he had no imagination. Or Mark Cuban, who failed as a waiter, carpenter and cook before finding success. [xyz-ihs snippet="Mobile-Subscribe"] High-tech firms like Amazon believe if they aren’t trying and failing with new ideas, they aren’t maximizing long-term value for shareholders. The list of failed Amazon ventures is remarkable. Amazon Fire smartphone lost $170 million before being shuttered. Kozmo.com was a $60 million dollar write-off. There are many more. Amazon founder Jeff Bezos has a high view of failure’s value: “I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins." We need to remind ourselves and others that there shouldn’t be shame in failure, but there might be regret in being too fearful to try new initiatives. 3. Remember the limits of money and the value of life. I became a bank chief executive in my mid-30s. I was driven to achieve great numbers. When something or someone got in the way of that objective, I could lose perspective. Fortunately, I worked with a bank attorney named George who had flown multiple missions over Germany during the Second World War. He had the perspective to distinguish between what was really important and what was a temporary problem. One day, my bank discovered a customer had sold “encumbered” assets without first paying off the bank loan that was secured by those assets. Even worse, he lied to the bank, saying he still had the collateral. George and I met with the customer and his lawyer. As the start of the meeting, the customer began talking. He was completely broken. In tears, he shamefully admitted his deception. He was looking at financial ruin and possible criminal charges. But I was mad and less than sympathetic. Fortunately, George took over the meeting. Rather than beat the guy up, George sensed the man was suicidal. George comforted him with assurances that he could get through this situation. I remember George telling him, “You know, in a few years, no one will even remember this happened. We have to get through this, but you will have a life once it’s over.” I’ve heard a lot of sermons where a preacher taught the Christian virtue of loving those who have wronged us. But that day, George taught me that lesson more effectively than any preacher could. With George’s encouragement, the customer got through his problems and went on to lead a productive life. In the years that followed, I had to deal with many problems created by bad money decisions by my employees and customers. But I never forgot that lesson I learned from George. Thanks to him, I found I was able to show a little more humanity in dealing with financial problems. 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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True Wealth

YOU NO DOUBT remember Peter Lynch, the celebrated manager of Fidelity Magellan Fund. He quit Magellan’s helm when he was just 46 years old. His comment at the time: “You remind yourself that nobody on his deathbed ever said, ‘I wish I'd spent more time at the office’.” Nothing brings more clarity to money’s limitations than consideration of our mortality. A few weeks ago, I thought about this truth as I lay awake all night, waiting to hear from my son. He and his wife had checked into a hospital to give birth to their first child. The plan was that we would receive regular text updates, regardless of the time. But the hours passed and no updates arrived. My wife and I had an ominous feeling that something was wrong. As we agonized and prayed, we struggled to contain our fears, imagining all the things that could be going wrong. Why hadn’t our son kept us updated? Were mother and baby okay? Finally, a call came at 3:30 a.m. Our fears were not unfounded. It was a traumatic birth—the baby initially had trouble breathing. But I’m happy to report that, thanks to incredibly talented medical personnel, our new grandson and daughter-in-law are doing fine. For me, the difficult birth has triggered a time of introspection. Has my life been too focused on the accumulation of things that won’t last—or have I have been building true wealth? The word “wealth” comes from an old English word. Its meaning is closely related to happiness and to the wholeness that comes from a well-balanced life. As we each examine our life, what traits should we look for if our goal is true wealth, rather than just lots of money in the bank? Here are eight things I view as valid metrics for measuring true wealth: Family and friends. According to research, a robust support network is almost always a leading indicator of happiness. That network is even more important amid today’s COVID-19 isolation. Community. The richness that comes from connecting with others through churches, civic groups and other forms of community engagement are at the core of civility. It’s what made my years as a community banker so rewarding. Education and experience. If we suddenly took all the money in the world and gave everyone an equal share, there would be inequality again by the next day—because of our differing abilities to adapt and respond to the situations we find ourselves in. That, in turn, partly reflects the wealth we’ve accumulated in the form of education and experience. Contentment. Growing up, I was surrounded by many lower middle-class families—and yet I rarely saw the envy and angst that destroy happiness. Instead, I saw that in the workplace, with its constant jousting over salaries and bonuses. Health. If we lose our health, we can’t work, play or travel as much as we might desire. To compound that aggravation, we must budget more for medical expenses. Good health is a key part of true wealth, and it’s worth investing in through a healthy diet and regular exercise. Spiritual peace. My daughter taught me a little about this when I visited her in South Africa. She was spending a gap year helping at an orphanage. Coming from an affluent American family, she assumed the people she’d be working with would be poor and unhappy. But as she explained to me, they were poor but happy. She saw the connection between their deep spiritual faith and their joy in life. A generous spirit. It’s a wonderful feeling to give generously to others. Studies show that many people derive great happiness from giving to those less fortunate. As a banker, I met many wealthy people who couldn’t enjoy this sign of true wealth—because they had for too long failed to give. Virtue. When we acquire our wealth by stepping on others or cheating, there’s ultimately a loss of joy in our riches. The Book of Proverbs says it well: “Ill-gotten treasures have no lasting value.” I looked at a lot of tax returns as a banker, trying to qualify customers for loans. When they didn’t qualify, many would admit that they didn’t report all their income and instead were often paid under the table. John Wooden, the great basketball coach for the University of California at Los Angeles, said it well: “The true test of a man’s character is what he does when no one is watching.” I’m not against success and riches. But we should all ask ourselves, “How am I using my riches to bring true wealth into my life and the lives of others?” It is, I believe, a crucial question—and it took a family crisis to jolt me into giving it the serious thought it deserves. 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. Joe's previous article was Life as a Loan Shark. [xyz-ihs snippet="Donate"]
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The Good Steward

I GOT STUCK IN a conversation at a dinner party recently with a name dropper. It was painful. Wanting to impress me, I suppose, I learned that, “Yes, Janet Yellen and I are good friends. I’ll be traveling to D.C. soon and I’m looking forward to connecting.” But it didn’t end there. I also heard about this person’s exotic travels and homes around the world. And the fabulous career that supported this lavish lifestyle. And the incredibly insightful views this person had on politics and other issues. If I’d had the chance, I could have offered that I once met Janet Yellen at the buffet table during a lunch break at a Federal Reserve conference. I said “hello” to her and she said “hello” back. Janet and I are close, too. I recount this experience not because I think narcissists can’t grow wealthy. They can and do. Still, I think we should look to the old-fashioned virtues of humility and stewardship to guide our thinking about money. King Solomon’s Proverbs tells us, “The outcome of humility and of the fear of the Lord is wealth, honor, and life.” How does this ancient wisdom speak to us in the 21st century? Consider four ways. First, humility in investing leads us to avoid big investment bets. If the market professionals can’t beat the averages, humble investors will lean toward spreading their money broadly, owning a globally diversified mix of stocks and bonds. Second, humble investors won’t assume high future investment returns, instead compensating by saving as much as they reasonably can. [xyz-ihs snippet="Mobile-Subscribe"] Third, humble investors won’t assume that a long life is guaranteed. To protect those who depend on us, we make sure they’ll be okay if something happens to us. This includes not only life and disability insurance, but also a well-designed estate plan. A fourth lesson comes from the book The Millionaire Next Door: We can’t necessarily spot those around us who have grown wealthy. Why not? Unlike my dinner party friend, the humble wealthy don’t need to impress anyone with a show of wealth. They typically don’t want recognition for donations. That same humility may lead them to drive older cars and wear less expensive clothes, which leads to increased savings. A virtuous cycle exists in the lifestyle of the humble. But, in my opinion, humility alone isn’t enough to have a successful relationship with money. After writing a book on money a few years ago, I did a number of radio interviews. In one interview on a Christian radio station, I was asked how I could encourage Christians to save money when Jesus taught that we shouldn’t lay up treasures on earth but instead store them in heaven. It’s a great question—and I think there’s only one answer for those of us in the Christian tradition. We don’t actually own anything in this life. Rather, we are stewards of what we’ve been given and must manage our wealth accordingly. That has three implications for how we handle our money—implications that I think are useful to everybody, no matter what their religious beliefs. First, as a steward, we need to consider the most effective way we can use our wealth to help others. The radio interviewer may have thought the best way to do that is to give all but essential money to churches and nonprofits. The evidence, however, suggests otherwise. The World Bank estimates that more than a billion people have been lifted out of extreme poverty in the last 25 years. A realistic goal set by some: Erase almost all abject poverty in the world by 2030. This incredible progress in eliminating poverty is partly the result of charitable efforts, but it’s also because more people have access to capital, thanks to free markets. To be clear, it’s good to give money to charitable ventures. But in the stewardship model of managing wealth, investing in businesses that employ people—and which provide life-enhancing goods and services—is also a virtuous choice. Since businesses are lifting more people out of poverty that any other efforts, it makes sense to have our money invested there. Second, a humble person may not be inclined to negotiate a hard bargain for goods and services for him or herself. A good steward, however, will negotiate furiously to get the best deal. Sometimes, I talk to Christians who think it’s virtuous to avoid aggressively pursuing their career. I advise them to change their thinking. Diligent stewards will see maximizing their salary for their God-given abilities as a part of good stewardship, and then they’ll use the resulting wealth to improve the world around them. Third, the good steward sees all of life as an opportunity to be wise with the resources he or she has been given. Children are to be educated for future productivity. Money is to be grown in investments that serve others. Time is to be used productively, balancing opportunities to work with the need for rest. Supporting the nonprofit sector—both financially and by volunteering—remains an important part of good stewardship. What happens when humility and stewardship are not central to managing our wealth? Instead of seeing money as a tool to support a purposeful life, it becomes the thing that we imagine gives our life meaning. But that likely won’t satisfy us for long. 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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About Tomorrow

I’M NOT MUCH OF a bartender. But when my wife and I hosted an art show in Missoula for a friend, I got the chance to serve wine while meeting a whole new group of people. Bankers—my usual social circle—tend to be strait-laced analytical types, so it was entertaining to spend an evening meeting creative folks from our thriving arts community. One young couple, who sported an array of tattoos and piercings, had a story that caught my attention. I’ll call them Louise and Leonardo. They had recently moved to Missoula from Asheville, North Carolina, another cool mountain town with a lot of similarities to Missoula. Not too far into the conversation, it became apparent that they’d moved to Montana on a whim, didn’t have jobs, had little money and held to a philosophy that emphasized living in the moment. The concept of deferred gratification wasn’t part of their thinking. They believed that they had many years ahead of them when they could work, but right now they wanted to pursue their passion for travel and new experiences. Do you have a Leonardo or Louise in your life? I don’t want to minimize the challenges of discussing bourgeois values with 20-somethings infatuated with the pursuit of their passion at all costs. Are there ways to pass along financial advice without crushing their dreams of a life full of meaning and purpose? Here are my four suggestions: Introduce them to their future self. Snapchat, for instance, has a photo filter called Time Machine that lets you watch yourself age, becoming a much older and grayer you. Some money psychologists see great value in this. The theory: If we can visualize our older selves, it will help motivate us to defer spending and instead save for the person we’ll become. [xyz-ihs snippet="Mobile-Subscribe"] Face-aging apps can help open up a discussion with the Leonardos and Louises of the world—and do so in a fun way. When we’re young, it’s easy to find just about everything interesting and think that’s your life’s passion. But in truth, it can take years to discover what you’re truly passionate about. At that juncture, you’ll want to be in a financial position to do what you love. Perhaps using an aging app can help spark a discussion about purpose later in life and the wisdom of doing a little financial preparation today. Show the power of compounding. For instance, you might demonstrate how saving regularly for a dozen or 15 years can help folks reach an inflection point, where their annual investment gains equal what they’re saving each year. The dream of never worrying again about money can be motivating to those who would prefer to focus their life on other matters. Introduce the concept of ownership. Buy your Leonardo and Louise a few shares of a company whose products they use and understand. I did this with my granddaughter. She’s a big fan of Disney, so I bought her a share of Walt Disney Co. You might even get the stock certificate framed—and be sure to reinvest the dividends, so they see how that helps drive investment growth. Lead by example. The goal isn’t to be rich for the sake of having lots of money. Instead, show how saving money allows you to live generously and to lead the life you want. There’s no more powerful example to the younger generation than an authentic life that has meaning and purpose. 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. Joe's previous articles include Prepare for Pain, Doing Good and True Wealth. [xyz-ihs snippet="Donate"]
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