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Even the worst investors can get ahead financially—provided they spend less than they earn.

Ripoff Royalty

WHEN I WORKED FOR a personal finance magazine in the mid-1990s, I wrote a story about conmen who met their marks in internet chat rooms devoted to stock investing. One of the slickest tricksters went by the name of Josef von Habsburg. He told people he was descended from Austrian royalty.
In researching the story, I called the police in von Habsburg’s hometown of Birmingham, Michigan, a suburb of Detroit. The local police knew him as Josef Meyers and said he was about as royal as you or me.

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Failure Is an Option

I RECENTLY LISTENED to author JL Collins on the Bogleheads Live podcast. Collins mentioned several times that stock declines never last. He isn’t alone in this assertion. You can read any number of books or articles that talk about the need to remain invested during stock market downturns because the market always recovers.
Perhaps it’s my training as an engineer. We’re taught to think about failure rates and probabilities of failure—which brings me to an uncomfortable notion: Just because the U.S.

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Recent Writing

Looks Can Deceive

WHEN I TURNED AGE 24, a friend and I took a road trip from San Francisco to Vancouver. It was 1975. I was excited—it would be my first visit to Canada.
I didn’t know what to expect when we got to the Canadian border. All I knew was we didn’t need passports. The border officer gave us a suspicious look. After being on the road for a spell, we didn’t look our best. I was unshaven and wearing my usual T-shirt and jeans.

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Going the Distance

ON THE CORNER OF MY desk, there are two binders. One contains my financial plan and the other my longevity lifestyle plan. One is no good without the other. How can I know if I’ve saved enough money if I don’t have a clear idea of what I want to do in retirement and how much that lifestyle will cost me?
The financial services industry’s focus has been on financial planning, with the objective of helping people accumulate as much money as possible.

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Getting to the Number

WHAT WILL RETIREMENT cost? One solution to this riddle is to save as much as we can and hope it’ll cover our expected expenses. Finding the right answer—the exact amount of savings required—can involve hours of calculation, and even then there’s a fair amount of uncertainty.

At my financial planning firm, we help clients with this calculation. Our starting point: We believe the foundation of most retirement plans should be Social Security. Many Americans choose to take Social Security earlier than their full retirement age (FRA).

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Buy It Later

I ADVISED LAST OCTOBER that loading up on holiday gifts ahead of the main shopping season probably made sense, given problems with the supply chain. Foreign manufacturers were struggling to produce enough goods, plus many items were stuck in ships anchored off the ports of Los Angeles and Long Beach, California. Parents across the country, flush with cash, were frantic about getting their kids the latest hot toys.
What a difference a year makes.

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Home Call to Action

Spend the Time

A FAVORITE QUOTE in the world of personal finance comes from Ernest Hemingway’s 1926 novel The Sun Also Rises.
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually, then suddenly.”
Money troubles are a common theme throughout literature. Charles Dickens probably summed it up best. In David Copperfield, a fellow named Micawber laments: “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds,

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Back to Fundamentals

WHAT DO ALL BEAR markets have in common? By definition, stock prices must fall at least 20%. But often, that’s pretty much where the similarity ends.
For instance, ponder the differences between 2020’s one-month, 34% plunge in the S&P 500 and this year’s grinding nine-month descent, which saw the S&P 500 yesterday close 25% below its early January high.
The 2020 slump had folks fretting about the economic shutdown and possible deflation, while this year’s big worry is surging inflation amid a 53-year low in unemployment.

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September’s Hits

BELOW ARE THE 10 most popular articles and blog posts published last month by HumbleDollar. What I like about the list: The 10 pieces were penned by nine different writers.

Combine tumbling financial markets and high inflation, and you get sequence-of-return risk—a huge danger for new retirees. What to do? Rick Connor suggests five strategies.
Want to make sure your investment dollars are there when you need to spend them? Ponder how your investments match up with your goals—and what their duration is.

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A Sporting Chance

WANNA BET TOM BRADY has the real golden arm? I’ll take the other side of that wager. At the Borgata Casino in Atlantic City in 2009, Patricia Demauro’s golden arm rolled the dice 154 times over four hours and 18 minutes without losing.
Yup, football is back and sports gambling is on a roll. Several states have legalized it, and many others are proceeding in that direction.
My 35-year-old son Ryan, a math jock and sports fanatic,

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Get Educated

Truths

NO. 138: THE MOST coveted financial knowledge is, alas, unknowable. We’d all like to know which way stock and bond markets are headed next, which individual stocks will beat the market and which mutual fund managers will shine. But nobody can know such things—which is why we should avoid big investment bets based on such “knowledge.”

Act

GENERATE TAXABLE income if this will be a low-income year. You might sell winning stocks in your taxable account, cash in savings bonds or convert part of your traditional IRA to a Roth. Result: You could end up paying federal taxes at just 10% or 12%, and perhaps 0% on your capital gains—a bargain if you foresee getting taxed at higher rates down the road.

Think

SUNK COST FALLACY. Suppose you’re paying hefty premiums for cash-value life insurance. The money is gone—it’s a “sunk cost”—and yet you might carry on, hoping one day the policy will pay off, even if you believe the dollars could be better invested elsewhere. Such irrational persistence can also occur if we’ve sunk significant time and effort into a project at work.

Money Guide

Fast or Slow?

MANY OF US GRADUALLY buy into the financial markets over the course of our career. Arguably, that’s ideal, both from an investment and an emotional perspective: We purchase stocks and bonds at all kinds of prices—some high, some low—and the fact that we have future dollars to invest means any market decline has a huge silver lining. But every so often, we’ll have a larger sum that we want to invest in the stock market. It might be a year-end bonus, an inheritance, or perhaps the proceeds from selling a home or exercising employee stock options. Alternatively, we might have second thoughts about our current investment strategy and decide we should invest more aggressively, but we’re agonizing over how quickly to make the switch into stocks. The conundrum: Should we invest the money all at once or spoon it into the stock market over, say, 12 or 24 months? Financial experts often argue that the optimal strategy is to invest the money right away, because—on average—that’ll generate the highest return. After all, the stock market tends to rise over time, so getting money invested earlier will usually result in greater wealth. Problem is, we won’t get an average return—and investing a large amount right before a big stock market decline could prove financially devastating. What to do? We might ask ourselves two questions. The first question: How significant is the sum involved compared to our current wealth—and compared to the money we’ll save in the years ahead? Investing $20,000 in the stock market all at once might seem like a huge risk. But the risk isn’t so huge if we already have a $200,000 portfolio or if we expect to save another $200,000 during our remaining time in the workforce. The second question: Where are we in the stock market cycle? If the concern is investing a large chunk of money right before a big market decline, that risk is smaller if stocks are already well below their all-time highs. We might still choose to invest the money gradually. But instead of investing it over 12 or 24 months, we might put the money to work over three or six months. Next: Roth or Traditional? Previous: What Stock-Bond Mix? Go to: Two-Minute Checkup
Read more »

Manifesto

NO. 51: RENTAL real estate can be a great investment. But it’s also a big, leveraged, undiversified bet and a lot of hassle. A diversified stock portfolio is less work—and arguably less risky.

Voices

Which investments will perform worst over the next 10 years?

"I would be very cautious about investing in any company that profited from the current pandemic. Many of these companies will see their market shrink over time."
- Arpe Gio
Read more »

What do you need to be financially independent?

"A rule of thumb I subscribe to is that the very basic necessities of life (food, clothing, shelter) should be 100% covered by various streams of monthly guaranteed income (social security, pension and/or annuity income). Aspiring to cover our basic cost of monthly living with guaranteed income allows us to take a more long term approach to our other invested assets and a greater percentage of those dollars being allocated to stocks, since short term market volatility isn't directly impacting our near-term lifestyle."
- Newsboy
Read more »

What do you do that’s financially foolish?

"
  • Vacations. My wife is always right when she suggests another one.
  • Eating out.
  • I don't budget. I hate budgeting; makes me feel restricted rather than in control. I do make forecasts though, and they tend to be very accurate.
  • I don't have a spending limit for books. If I want a book, I buy it.
  • Move our car loans into the Heloc. The old cash flow was very thin for several years there, and this eased the pressure a lot. Then rolled the heloc into our new mortage. At least the rate is super low. And we intend to recharacterize the mortgage when we get some lump sums in the future.
  • I tip well. I try to tip 25% or more consistently. The annual cost is a few hundred dollars, and it makes a much bigger difference to them than it does to me.
"
- Roboticus Aquarius
Read more »

Second Look

Retirement

Healthy and Wealthy

I STILL KEEP IN touch with three high school buddies. One of them, Brent, isn’t doing well. He has high blood pressure, poor eyesight caused by glaucoma and creaky knees that make it hard to get around, and he’s recovering from heart surgery.
My other friend, Robert, is a diabetic with poor vision, suffers from neuropathy pain in the foot, needs a cane to walk and is on medication for various ailments.
Burt, my third pal,

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Family Finance

So Rewarding

A FRIEND RECENTLY asked me the interest rate on my credit card. I admitted I had no idea. I pay off the balance in full every month and therefore don’t know, or care about, the interest rate.
I’m a minority in this regard. Only 35% of us pay off our credit card balance each month. We’re dismissed as “deadbeats” by profit-hungry credit card companies, perhaps with some justification: We reap the benefits of credit card rewards programs designed to lure the other 65% of the population into using their cards on a regular basis—and then foolishly carrying a balance.

Read more »

Investing

Options in Disguise

DO YOU INVEST in options? Think twice before saying that you’d rather go to Vegas. My bold claim: Options investing has a lot in common with investing in stocks and corporate bonds.
Intrigued? Let’s recap a European style call option. It’s a discretionary contract that allows someone to buy an underlying asset at a set strike price at a future date. Let’s say the buyer of the call, Bob, has an option on a stock with a strike price of $100.

Read more »

Lists

Listen Up

WHEN I STUDIED FOR the Chartered Financial Analyst (CFA) exams, I snagged extra prep time by listening to textbooks while commuting. As boring as that sounds, it helped me absorb the dry curriculum—and it made listening to financial information part of my daily routine.
While I no longer commute—or even own a car—I continue to plug in my earphones to catch up on the latest investment insights, often during my afternoon walks. Here are my eight favorite podcasts:

The Long View.

Read more »
Home Call to Action

Mindset

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.

Read more »

Free Newsletter

Get Educated

Manifesto

NO. 51: RENTAL real estate can be a great investment. But it’s also a big, leveraged, undiversified bet and a lot of hassle. A diversified stock portfolio is less work—and arguably less risky.

Act

GENERATE TAXABLE income if this will be a low-income year. You might sell winning stocks in your taxable account, cash in savings bonds or convert part of your traditional IRA to a Roth. Result: You could end up paying federal taxes at just 10% or 12%, and perhaps 0% on your capital gains—a bargain if you foresee getting taxed at higher rates down the road.

Truths

NO. 138: THE MOST coveted financial knowledge is, alas, unknowable. We’d all like to know which way stock and bond markets are headed next, which individual stocks will beat the market and which mutual fund managers will shine. But nobody can know such things—which is why we should avoid big investment bets based on such “knowledge.”

Think

SUNK COST FALLACY. Suppose you’re paying hefty premiums for cash-value life insurance. The money is gone—it’s a “sunk cost”—and yet you might carry on, hoping one day the policy will pay off, even if you believe the dollars could be better invested elsewhere. Such irrational persistence can also occur if we’ve sunk significant time and effort into a project at work.

Money Guide

Start Here

Fast or Slow?

MANY OF US GRADUALLY buy into the financial markets over the course of our career. Arguably, that’s ideal, both from an investment and an emotional perspective: We purchase stocks and bonds at all kinds of prices—some high, some low—and the fact that we have future dollars to invest means any market decline has a huge silver lining. But every so often, we’ll have a larger sum that we want to invest in the stock market. It might be a year-end bonus, an inheritance, or perhaps the proceeds from selling a home or exercising employee stock options. Alternatively, we might have second thoughts about our current investment strategy and decide we should invest more aggressively, but we’re agonizing over how quickly to make the switch into stocks. The conundrum: Should we invest the money all at once or spoon it into the stock market over, say, 12 or 24 months? Financial experts often argue that the optimal strategy is to invest the money right away, because—on average—that’ll generate the highest return. After all, the stock market tends to rise over time, so getting money invested earlier will usually result in greater wealth. Problem is, we won’t get an average return—and investing a large amount right before a big stock market decline could prove financially devastating. What to do? We might ask ourselves two questions. The first question: How significant is the sum involved compared to our current wealth—and compared to the money we’ll save in the years ahead? Investing $20,000 in the stock market all at once might seem like a huge risk. But the risk isn’t so huge if we already have a $200,000 portfolio or if we expect to save another $200,000 during our remaining time in the workforce. The second question: Where are we in the stock market cycle? If the concern is investing a large chunk of money right before a big market decline, that risk is smaller if stocks are already well below their all-time highs. We might still choose to invest the money gradually. But instead of investing it over 12 or 24 months, we might put the money to work over three or six months. Next: Roth or Traditional? Previous: What Stock-Bond Mix? Go to: Two-Minute Checkup
Read more »

Voices

How much of a stock portfolio should be invested abroad?

"I don’t think it’s necessary for any to be invested abroad. US companies get a lot of international exposure."
- Boomerst3
Read more »

Traditional Medicare or Medicare Advantage?

"I have a Medicare Advantage plan that lets me go to any doctor. I pay a modest MA premium on top of the regular Medicare premium that is deducted from Social Security. I saw a host of different MA and Supplement plans, so anyone who is thinking about this should really dig into each plan's coverage and costs - they are not all the same. (Because of the low MA premiums, I never really considered traditional Medicare alone. At the same time, I ignored the MA plans that promise to "give back" or cover meals and the like. (Dyno-Mite!)) I am in very good health, but have had some unusual procedures since I've retired - lots of Mohs surgeries and some prostate stuff, all at no cost beyond the smallish co-pays I have for every doctor visit. I passed on Supplements initially because the Supplement premiums were quite high and I couldn't see where the benefit could ever offset the cost for me. I am happy with my MA plan (which is offered by a Johns Hopkins-related unit.) However, the comments here about Supplements and Medi-Gap will keep me attentive to my other options each year. Thanks for everyone's inputs."
- Martin McCue
Read more »

Is rental real estate a good investment?

"I bought 5 rental houses in the down turn in 2010 for $0.30 on the dollar, all in great shape.. All of them were defaults that the banks had to get off their books. 3 of the 5 I bought within my IRA through Equity Trust in Ohio, and I'm in Georgia. Those 3 rentals were owned by my IRA and the IRA received the monthly rental income tax free. The IRS foes allow rental property to be held within an IRA as long as there's an arms length between the rental and the IRA owner.. This worked well through Equity Trust, they were great to work with for the ten years I owned them. Was definitely worth doing at that time in the market swing..BTW each house only needed fresh paint and new carpet and I had no problem renting them..."
- Mark Schwartz
Read more »

Second Look

Retirement

Healthy and Wealthy

I STILL KEEP IN touch with three high school buddies. One of them, Brent, isn’t doing well. He has high blood pressure, poor eyesight caused by glaucoma and creaky knees that make it hard to get around, and he’s recovering from heart surgery.
My other friend, Robert, is a diabetic with poor vision, suffers from neuropathy pain in the foot, needs a cane to walk and is on medication for various ailments.
Burt, my third pal,

Read more »

Family Finance

So Rewarding

A FRIEND RECENTLY asked me the interest rate on my credit card. I admitted I had no idea. I pay off the balance in full every month and therefore don’t know, or care about, the interest rate.
I’m a minority in this regard. Only 35% of us pay off our credit card balance each month. We’re dismissed as “deadbeats” by profit-hungry credit card companies, perhaps with some justification: We reap the benefits of credit card rewards programs designed to lure the other 65% of the population into using their cards on a regular basis—and then foolishly carrying a balance.

Read more »

Investing

Options in Disguise

DO YOU INVEST in options? Think twice before saying that you’d rather go to Vegas. My bold claim: Options investing has a lot in common with investing in stocks and corporate bonds.
Intrigued? Let’s recap a European style call option. It’s a discretionary contract that allows someone to buy an underlying asset at a set strike price at a future date. Let’s say the buyer of the call, Bob, has an option on a stock with a strike price of $100.

Read more »
Home Call to Action

Lists

Listen Up

WHEN I STUDIED FOR the Chartered Financial Analyst (CFA) exams, I snagged extra prep time by listening to textbooks while commuting. As boring as that sounds, it helped me absorb the dry curriculum—and it made listening to financial information part of my daily routine.
While I no longer commute—or even own a car—I continue to plug in my earphones to catch up on the latest investment insights, often during my afternoon walks. Here are my eight favorite podcasts:

The Long View.

Read more »

Mindset

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.

Read more »