Home - HumbleDollar

Inflation Hedge

ArticleAdam M. Grossman | Aug 29, 2026

THE OPEN KITCHEN restaurant has been a fixture in Charlotte, North Carolina for 75 years. The restaurant has an old-time feel, with memorabilia, including menus from years gone by, lining its walls. Those old menus provided David Enna, a financial journalist, with a laboratory for examining the effects of inflation. What did Enna find? The oldest menu on display is from 1963. To state the obvious, today’s prices make those from the 1960s look quaint. Back then, spaghetti and meatballs cost just $1.10. Today, it’s $15.50. But, as Enna points out, that was more than 60 years ago, so increases are to be expected. Over the past 60 years, the Consumer Price Index (CPI) has averaged 3.8% per year. That isn’t unreasonable, especially since that average includes the 1970s, when inflation sometimes topped 10%. What’s of more concern, though, is what consumers have experienced more recently. Since 2020, prices across the economy have risen 29%. And though those increases have slowed, the Fed is still struggling to ratchet inflation back to its preferred 2% level. This has given investors renewed interest in strategies to defend against inflation. At first glance, this doesn’t seem like it should be such a difficult problem. The U.S. Treasury offers an investment specifically designed for this purpose: Treasury Inflation-Protected Securities (TIPS). These are bonds that are guaranteed by the federal government to increase in value with inflation. And though I hesitate to use the words “bond” and “exciting” in the same sentence, today many investors are finding the return on TIPS compelling. The 30-year TIPS is now paying close to 3% on top of inflation. If inflation averages 2.5%, for example, over the next 30 years, this bond will end up returning a total of 5.5% per year, and with minimal risk. That sounds good in theory, but do these bonds make sense for your portfolio? It’s worth taking a closer look. The first thing to note is that this seemingly attractive 3% yield only applies to 30-year TIPS. Yields on shorter-term bonds are lower. So unless your investment horizon happens to be exactly 30 years, these bonds may be of limited practical value. Putting aside the yield question, though, a more fundamental challenge with individual TIPS—and individual bonds in general—is that they’re a cumbersome way to build a portfolio. Even if you didn’t mind the process of buying bonds one by one, which can be tedious, there’s the fact that it’s hard for most people to be able to forecast their cash flow needs each year into the future. That’s a problem because choosing maturity dates is the foundation on which bond portfolios are built. Ideally, if you can align the maturity dates of the bonds in your portfolio with your future cash needs, then you can hold bonds to maturity, which is when the issuer would promise to pay you back in full. But that redemption value is guaranteed only at maturity. Buy a 20-year bond and sell it after just 10 years, and there are no guarantees. A bondholder could easily lose money selling an individual bond before maturity. Given these challenges, would a TIPS fund be a better choice? To be sure, bond funds are much simpler to purchase and to manage, but they typically offer even less protection from losses than individual bonds. Most recently, shareholders in TIPS funds were disappointed by how they performed in 2022, when inflation spiked to 9%. Investors expected that to be the year when TIPS rewarded investors, but instead, diversified TIPS funds such as the Vanguard Inflation-Protected Securities Fund (ticker: VAIPX) lost nearly 12%. Why did funds like this fare so poorly when inflation was running so high? The problem is that, at the end of the day, TIPS are still bonds. And though they receive a bump in value when inflation rises, a countervailing force is that they lose value when interest rates rise. In 2022, the Federal Reserve raised interest rates aggressively to fight inflation. The negative impact from those rate increases far outweighed the benefit TIPS received from inflation being higher. That puts investors in a difficult position. If TIPS provide inflation protection in theory, but both individual TIPS and TIPS funds carry limitations, what other options are there? The good news is that not all TIPS funds are the same. Some hold only short-term bonds, and they have historically held up much better than more broadly diversified TIPS funds because short-term bonds are more resilient when interest rates rise. Over the past five years, a fund like Vanguard’s Short-Term Inflation-Protected Securities ETF (ticker: VTIP) has outperformed a comparable fund (ticker: VGSH) holding standard short-term Treasury bonds every year, as well as this year to-date. It’s important to note, though, that this is relative performance. In 2022, when the entire bond market was under pressure, even short-term TIPS funds like VTIP did still lose money. They just lost less than funds holding conventional bonds. The bottom line: We should never become too wedded to any one strategy. No investment can promise reliable and complete protection against inflation in every market scenario. That said, I do still recommend TIPS and would specifically recommend a short-term fund like VTIP. But I also suggest taking a diversified approach to inflation protection. Here are other steps to consider. If you’re in your 60s and considering when to claim Social Security, that decision offers a powerful lever. Because Social Security benefits increase with inflation and also increase with each year you delay claiming, it’s maybe the most effective way to build additional inflation protection into your plan. What else can you do? Fortunately, you may already own one of the most effective—and underappreciated—inflation-fighting instruments: stocks. While rising prices in recent years have been frustrating for consumers, the result has been that companies have been able to maintain their profit margins. That, in turn, has helped to support their stock prices through this period of inflation. To be sure, some companies have more of an ability to raise prices than others, but overall, stocks are, in my view, a good way to keep pace with inflation. The one thing I wouldn’t do is to buy gold. Despite its reputation, various studies have confirmed that gold really isn’t a reliable inflation hedge. In a paper titled “The Golden Dilemma,” researchers wrote: “Over practical investment horizons, gold is an unreliable inflation hedge,” though they acknowledge that it may be more reliable over longer timeframes—“if the investment horizon is measured in centuries.” 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.

Traditional or Roth

ArticleRichard Connor | Aug 29, 2026

THE CHOICE BETWEEN a traditional retirement account or a Roth is a frequent topic on HumbleDollar. The choice is generally framed as a choice between paying taxes up front (a Roth), or deferring taxes until withdrawal (traditional). I thought it would be interesting to evaluate a real-life example of how this choice might work out. In December of 2016 my wife and I had an opportunity to each open a Roth IRA. My wife took a partial sabbatical that year, and that, combined with maxing out our 401k accounts, gave us a chance to each open a $4,500 Roth IRA. The maximum allowable contribution that year was $6,500 for those 50 and over. Up until then we had assumed that our marginal tax bracket would likely be lower in retirement, and focused on contributing to our employer’s traditional 401k plans. Despite that, we decided to move forward with opening a Roth IRA. I thought it would give us some tax diversity, and the opportunity to do Roth conversions when, and if, it made sense in the future. In December of 2016 we opened Roth IRAs at Vanguard and invested the $4,500 in their S&P 500 Index Fund. Those initial funds have been invested for almost 10 years. Over that decade we have added some additional funds, and have done a few conversions. I recently did a quick analysis to see how my Roth experience would have compared to investing in a traditional IRA. In 2016, our marginal tax bracket was 28%. To contribute the $4,500 required $6,250 of pre-tax income. Due to some financial engineering over the last year, including selling our second home in late 2025, I expect our 2026 marginal tax bracket to stay within the 12% bracket. I’ve been looking at this closely because I’m considering doing a Roth conversion later this year. The table below shows the comparison between the Roth performance, and what a traditional IRA would have produced. The annual rate of return was determined using Nick Maggiulli’s S&P 500 Historical Return Calculator. Roth vs Traditional

The table shows that the Traditional IRA would have been the better choice, producing about $3,500 more in available funds, or about 22% more. This demonstrates that the primary driver in choosing between a Roth and a traditional qualified account is a consideration of the tax rates at the time of contribution and at the time of distribution. There have been a number of changes to the tax code in the last decade that have contributed to the result, but I certainly didn’t predict any of them. If you guess wrong, you pay the price in a higher tax bill. In the example above, the extra $1,750 invested in the traditional account produced an additional $6,143.31 in earnings. The lower tax rate at the distribution of the traditional IRA results in the $3,500 in extra funds. Even though the Roth IRA had tax free earnings growth, the initial larger tax rate overcame that advantage, when compared to the traditional IRA. Because of my pension and my wife’s social security benefit, 85% of her social security benefit is taxable income, so that is not a consideration in our tax calculation. I used Dinkytown’s 1040 Calculator to run a series of estimates of our 2026 tax return to assess if we want to execute a Roth Conversion this year. We are still 4 years from taking RMDs, and I will start my Social Security in a year when I turn 70. My current thinking is a conversion of about $40,000 will keep us in the 12% bracket. There would also be a small NJ state tax impact. My simple analysis reinforces what I’ve been taught. Roth contributions make the most sense when you think your current tax bracket is lower than when you expect to withdrawal the funds. There are secondary considerations, like no tax diversification, no RMDs, and uncertainty about future tax rates. If you intend to pass the funds to heirs, it might make sense to perform Roth conversions today at the 22% tax bracket if you intend to pass these accounts to heirs who may be in their peak earnings years. Not sure? I believe I recall several HumbleDollar contributors write something about splitting the difference? Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.

The Intentional Spendthrift

Mark Crothers | Aug 21, 2026

"A few years back, we visited the Greek island of Crete in July. We took a local bus (no air conditioning) to the Minoan ruins at Knossos, and it was so intensely hot walking around the site that people were passing out from heat exhaustion. With that in mind, I fully endorse your plan to visit Greece earlier in the summer."

- Mark Crothers

Americans and their credit cards

R Quinn | Aug 24, 2026

"David, did you check the source data for the AI’s figures? My first thought is that it's mixing up nominal and real wage increases. A 28.2% real growth figure already has inflation subtracted out. That means wages actually outpaced inflation by 28.2% over those four decades, rather than lagging behind it."

- Mark Crothers

How Did You Find Paid Work After Retiring from Your Primary Career?

Jeffrey Chan | Jul 31, 2026

"Good for you."

- Patrick Brennan

Bad Maths, Good Fire.

Mark Crothers | Aug 28, 2026

"Dunn, working on that felled tree I mentioned was really satisfying. Though I have to say, splitting the rounds with an axe is one hell of an upper body workout!"

- Mark Crothers

The Wrong-Sided Man

Dennis Friedman | May 8, 2025

"I too walk early in the morning and now I carry a small can of pepper spray. It might be a vicious dog, wrong-way man as you describe, or a wayward hobo looking for an easy roll."

- art winslow

This would be a great posting on a web site with the name “HaughtyDollar.”

R Quinn | Aug 28, 2026

"t"

- Mick

You Heel!

Michael Flack | Aug 24, 2026

"Counterpoint- I purchased a brand new pair of Bostonian oxfords, maroon in color for about $20, about 25 years ago. I liked them so much I bought a black pair, but they were only reduced to $35. The black ones were go to shoes for my work environment for a couple decades. I spent ~$150 combined to replace the leather soles and rubber heels multiple times. I wondered if it was a prudent decision to keep spending so much more than the original cost. Then I shopped for equal quality and comfort in new shoes, and I found they were around $250 and could not be re-soled due to the rubber soles. I therefore succeeded in exercising my frugal muscle and got the maximum value out of a relatively paltry investment. And I supported small local businesses, making a modest living for their family. I call that a win-win. I've trashed the black shoes as I felt they were no longer worth repairing, or needed for work. I'll be wearing the maroon ones (original heel/sole) later this year in my son's wedding."

- John Verlautz

A Place At The Table

Andrew Clements | Aug 26, 2026

"Thank you, William. I’m glad you enjoyed it. The Philippines has taught me quite a bit, and often it’s the small, everyday experiences that have left the biggest impression on me."

- Andrew Clements

Blood Money

Michael Flack | Mar 28, 2026

"I agree with you about KO but XOM is involved in climate deception since it knew about global warming risks 60 years ago and ranks as one of the top global greenhouse gas polluters."

- Nick Politakis

Feeling TIPSy?

ArticleSanjib Saha | Aug 22, 2026

NOT TOO LONG ago, Treasury Inflation Protected Security (TIPS) was a relatively obscure investment for safe long-term fixed-income investments. For the first twenty years of the new century, consumer prices were mostly stable or rising at a too-slow-to-notice rate. Why bother with anything related to inflation? Sadly, persistently low inflation made us complacent on the biggest long-term risk of bond investments -- the insidious unexpected inflation that robs us of the purchasing power of our “safe” investments. Yes, let’s not forget that the biggest risk of bond or bond-like investments is unexpected inflation. Any bond or CD with a maturity beyond a few years must either offer a sufficiently high interest rate to compensate for sudden bouts of inflation, or have its principal adjusted for the inflation actually realized. The former is nearly impossible to find without sacrificing safety. The latter is what TIPS is for. To be clear, the market and investors always expect some level of inflation. Therefore, a bond’s effective interest rate - measured by its YTM (Yield to Maturity) - must be high enough to not only compensate for “expected” inflation and the uncertainties around it but also provide a meaningful increase in the purchasing power of the original principal. A concrete example might help. Consider a 10-year US Treasury nominal bond with a face value of $1,000, selling at $1,000 and paying 5% annual interest. The interest rate reflects the expectations about inflation and other factors over the next 10 years. The rate would be lower if market expected lower inflation, and higher if market expected the opposite. The omnipresence of inflation means we’re likely to lose some purchasing power when we get our $1,000 in 10 years. It won’t buy what $1,000 buys today. By how much? That’s the thousand dollars question (pun intended). There isn’t a readily available number that explains why that 10-year Treasury Bond yields 5% instead of 3% or 7%. Investors essentially take a leap of faith that annual inflation stays low enough over the 10-year period for the interim interests to compensate for the purchasing power loss, plus some changes. Most of us are perfectly comfortable assuming that inflation won’t be as high as 5% for 10 years. But are we fooling ourselves? I suggest using an inflation calculator to see for ourselves. Spoiler alert: Late 1960s through early 1980s can be an eye-opening period. How’d we feel if the next 10 years turn out to be something similar? Think about how you might feel when you safekeep your money in a so-called secure investment, give up higher returns available from risky investments, and then encounter an inflationary regime. Your minimum expectation was that your purchasing power would remain intact and perhaps improve a little by the time your bond matures. Instead, unforeseen inflation erodes your purchasing power and compromises the financial goal the fund was supposed to cover. Your “safe” investment fails you completely. You realize that it wasn’t safe at all. If unexpected inflation is so devastating, why are we so lax about it? I can think of two reasons. First, our minds haven’t adapted to the reality that, unlike to a “real” asset like a bag of rice or a gallon of gasoline, money in its current form is inherently self-eroding. It slowly loses its worth over time. A hundred dollars sitting around will still be a hundred dollars next year, but it won’t buy the same amount. We don’t intuitively perceive the continuous loss of purchasing power. Even when we do internalize it with some effort, we get used to the “pace” of the loss. In other words, we view inflation as steady and unexpected inflation as highly unlikely. Alas, all it takes is a single prolonged inflationary period to change that perception. By then, however, the damage to existing fixed income investments may already be done. Frankly, I’d be very wary of keeping my long-term “safe” money -- fund that I need to preserve beyond a three-year horizon - in any form that isn’t protected against unexpected inflation. For bond investments, the most meaningful option would be TIPS. Why? Because, in addition to being secured by the full faith and credit of the US Government just like any other Treasury securities, TIPS provides three important assurances upfront. First, it provides protection against unexpected inflation, which is a realized inflation that differs from what we expected when purchasing it. If the actual inflation averages 12% instead of the expected 2%, the principal is automatically adjusted to reflect the actual inflation. No guesswork or unexpected risk involved. Second, it provides a “real interest rate” upfront that tells us how much the purchasing power of the investment will increase over time, regardless of what the actual inflation turns out to be. Buying a 10-year TIPS with real 2% annual interest means the investment’s purchasing power will grow 2% per year over the holding period, before considering taxes and other factors. The third aspect is more nuanced. It involves the possibility of inflation being lower than expected, or even negative inflation (aka deflation). Let me elaborate. If a regular nominal 10-year Treasury Bond offers 5% annual yield and an equivalent TIPS offers a real annual interest rate of 2.75%, the market-implied inflation, the breakeven inflation rate, is roughly 2.25% (5% minus 2.75%). Actual inflation, of course, will be known only after 10 years when the bond matures. Suppose the actual inflation turns out to be only 1.25%. The nominal Bond investor would end up with more purchasing power than the TIPS investor because the TIPS principle would be adjusted by only the actual 1.25% inflation rate. The primary objective of the TIPS investor would still have been met: preserving and improving purchasing power by about 2.75% annually. But there would be a “missed opportunity”. The nominal Treasury investor would end up with even greater purchasing power. Does it mean that a TIPS investor can face an unlimited opportunity cost if inflation turns out to be negative? What happens if the actual inflation is, hypothetically speaking, negative 5%, in a severely deflationary period? Does the TIPS investor get back proportionately reduced principal at maturity? Thanks to the third assurance of TIPS, the answer is NO. TIPS guarantees that the principal returned at maturity will never fall below the original face value. During periods of deflation, the inflation-adjusted principal can fall below its face value and the interim interest payments will decline accordingly. But at maturity, the principal is floored at the original principal amount. Therefore, the breakeven inflation rate, the difference between the yield of a nominal Treasury bond and the real yield of an equivalent TIPS, represents the maximum annual yield advantage that the nominal bond can have over TIPS in an unexpectedly low inflation regime. To summarize, a TIPS investor gets unlimited protection against unexpectedly high inflation, while accepting a limited opportunity cost should the actual inflation be low or even negative. The magnitude of that trade-off is reflected in the breakeven inflation rate at the time of the TIPS purchase. An aside: given the destructive impact of deflation on economy and society, policy makers are generally more concerned about preventing prolonged deflation than about preventing modest inflation. Therefore, prolonged deflation is usually considered less likely. Still, we cannot ignore deflation risk altogether and should be prepared for the possibility that TIPS can underperform a nominal bond if inflation runs low. Therefore, the decision to favor TIPS over an equivalent nominal Bond hinges in part on the current breakeven inflation rate. If it’s low enough, favoring TIPS can be an easy decision. Getting unlimited protection against unexpectedly high inflation is worth accepting the relatively small opportunity cost if inflation comes below the breakeven rate. There is, however, a cautionary note about buying TIPS bonds in the secondary market, especially older issues. Consider a 30-year TIPS bond issued 20 years ago and a 10-year TIPS issued within last 6 months. Both might appear to be valid choices if they mature within a few months of each other and offer similar yields. But beneath the surface, one may be more favorable than the other. The older TIPS will likely have a much higher inflation-adjusted principal because it accumulated 20 years of inflation adjustments. But the protection against unexpected deflation applies only to the bond’s original face value, which is typically $1,000. In a prolonged deflationary period, the older bond has much more room for its inflation-adjusted principal to decline before reaching the $1,000 floor. The newer issue, whose adjusted principal is much closer to the $1,000 face value, has less exposure to this risk. Therefore, all else being equal, I’d favor a TIPS with a low inflation-adjusted factor when buying in the secondary market. All things considered, my vote goes to TIPS for long-term “safe” investments, provided the break-even inflation is reasonably low. For secondary market purchases, however, a high inflation-adjustment factor would give me pause. Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and cofounder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib’s earlier articles.

Inflation Hedge

ArticleAdam M. Grossman | Aug 29, 2026

Traditional or Roth

ArticleRichard Connor | Aug 29, 2026

The Intentional Spendthrift

Mark Crothers | Aug 21, 2026

- Mark Crothers

Americans and their credit cards

R Quinn | Aug 24, 2026

- Mark Crothers

How Did You Find Paid Work After Retiring from Your Primary Career?

Jeffrey Chan | Jul 31, 2026

"Good for you."

- Patrick Brennan

Bad Maths, Good Fire.

Mark Crothers | Aug 28, 2026

"Dunn, working on that felled tree I mentioned was really satisfying. Though I have to say, splitting the rounds with an axe is one hell of an upper body workout!"

- Mark Crothers

The Wrong-Sided Man

Dennis Friedman | May 8, 2025

"I too walk early in the morning and now I carry a small can of pepper spray. It might be a vicious dog, wrong-way man as you describe, or a wayward hobo looking for an easy roll."

- art winslow

This would be a great posting on a web site with the name “HaughtyDollar.”

R Quinn | Aug 28, 2026

"t"

- Mick

You Heel!

Michael Flack | Aug 24, 2026

- John Verlautz

Manifesto

Aug 30, 2026

NO. 24: OUR ONLY earthly immortality will be the memories of others. We should make sure those memories are good—by spending our wealth on special times with friends and family.

Truths

Aug 30, 2026

NO. 86: CARRYING a mortgage into retirement can cost a heap of taxes. To cover the monthly payment, you might sell winning investments in your taxable account or tap retirement accounts, thus boosting your taxable income. That, in turn, could trigger higher Medicare premiums and taxes on your Social Security benefit. Result: You suffer a double tax hit.

act

Aug 29, 2026

HIRE OTHERS TO do chores you dislike. For each of us, time—not money—is the ultimate limited resource. Research has found that those who use their money to buy time—by, say, hiring others to clean or do yardwork for them—report greater happiness. Why? These folks feel less time stressed, while also freeing up extra hours for activities they love.

Truths

Aug 28, 2026

NO. 97: IT’S HARD to say “no” to our adult children if they get into financial trouble—which is why we should try to raise money-savvy kids. But how? Set a good example. Talk regularly about your own finances. Tell your kids about your lean early adult years. Involve them in family financial decisions. Encourage them to save up for larger purchases.

Money Guide

Manifesto

Aug 30, 2026

NO. 24: OUR ONLY earthly immortality will be the memories of others. We should make sure those memories are good—by spending our wealth on special times with friends and family.

Spotlight: Borrowing

Does it ever make sense to carry a credit card balance?

Jonathan Clements | Apr 4, 2021

Debtor’s Dozen

Jonathan Clements | May 18, 2019

THE GREAT RECESSION highlighted the frightening amount of debt—especially mortgage debt—that had been taken on by many American families.
A decade later, the picture is far brighter, with one exception: student loans. Since 2008’s third quarter, education debt has ballooned 144%, according to data just released by the Federal Reserve Bank of New York. But the total of all other debt—mortgages, car loans and credit card balances—is up less than 1% over the same period.

Helping Ourselves

John Yeigh | Mar 24, 2022

WE NEEDED MONEY to close on a new home. The mortgage process progressed smoothly—until the underwriters suddenly rejected the property right before closing. To get together the money needed to close, my wife and I had to resort to loan sharks—ourselves.
We borrowed from our IRAs. The rules allow tax-free distributions for either a 60-day rollover to a new IRA or reinvestment back into the same IRA. When we called Vanguard Group to execute our “rollovers,” the phone reps were well-versed on this short-term,

Pay It Down

Jonathan Clements | Aug 17, 2019

DECIDING WHETHER to buy bonds or pay down the mortgage used to be a tricky decision. Not anymore: Paying extra on your home loan will almost always be the right choice.
This takes some explaining—because it involves wrapping your head around the standard vs. itemized deduction, investment taxes, and a mortgage’s shifting mix of principal and interest.
First, let’s dispense with the obvious objection: Yes, if you’re inclined to buy stocks rather than pay down the mortgage,

Double Trouble

Jonathan Clements | Oct 14, 2017

PEOPLE OFTEN ACT foolishly and then desperately try to justify their financial sins. A case in point: Those who take on too much debt, can’t get it paid off by retirement—and end up servicing huge mortgages and other loans long after their paychecks have come to an end.
Cue the tap dancing. The indebted start waxing eloquent about the virtues of the mortgage-interest tax deduction and how it’s smart to pay the bank 4% while they invest the borrowed money at 10%.

Know the Score

Crystal Flores | Sep 28, 2023

IF YOU’RE IN THE market for a home and a mortgage, this is a tough time, with shrinking inventory, lofty home prices and interest rates that feel overwhelming. I know all about this—because I’m a mortgage broker.
For many, today’s housing and mortgage market mean putting their homebuying dreams on hold. What if you go ahead, despite 30-year fixed-rate mortgages above 7%? I advocate controlling what you can. One of the variables that you can influence—and which can help save a tremendous amount of money—is your credit score.

What $1,000 Can Buy

Kyle McIntosh | Jun 11, 2021

FROM AN EARLY AGE, my son showed an interest in business and investing. As a toddler, he’d watch CNBC with me. When my wife and I discussed legal and accounting issues, he’d have his “listening ears” on. (Yes, our dinner table conversations are pretty exciting.) By the time he was eight years old, he was giving me investing input. He thought Microsoft overpaid when it bought Minecraft maker Mojang for $2.5 billion in 2018. He’s always been bullish on Nike, given his affinity for Kevin Durant and Kyrie Irving sneakers. When he was age 11, we opened a Uniform Gifts to Minors Act account with $1,000, so he could put his investing ideas to work. He put $500 in two individual stocks and invested the other $500 in an S&P 500 index fund. While the account has grown nicely over the past three years, much more value has come from the lessons he’s learned, including these four: 1. A $100 stock isn’t necessarily better than a $10 stock. When we first looked at stocks, my son assumed that a stock with a higher share price was better than a lower-priced stock. I taught him instead to look at share prices based on various valuations measures and then make comparisons across companies. To keep our analysis simple, we focused on two measures: price-earnings ratios and dividend yields. In addition to quantitative analysis, he put his personal viewpoint to work. Of the $500 earmarked for individual stocks, he invested half in Nike based on his views of the brand’s growth potential, and he invested the other half in ExxonMobil based on its dividend yield. You guessed it: He’s a value investor at heart. [xyz-ihs snippet="Mobile-Subscribe"] 2. The power of compounding. Upon placing our trades, my son had an a-ha moment when he…

Value Machine

Kyle McIntosh | Oct 8, 2021

SEPTEMBER WAS A BIG anniversary month for us. In addition to celebrating our 19th wedding anniversary, we celebrated our third Pelo-versary. In the words of my mother-in-law, we are Peloton addicts. Ask us about our favorite instructors at your own risk. The general perception of Peloton—for which the entry price is now $1,495—is that it’s priced too high for most people. While I don’t believe that Peloton is “democratizing fitness,” as its CEO suggests, I do see solid value in Peloton bikes for households that’ll use them consistently. As early adopters of Peloton, we paid $2,200 for our bike, shoes and delivery. We also pay $39 per month to be “connected fitness users,” which allows us to take live and on-demand classes. Our membership covers all four members of our household, though my wife and I are the main users. In addition to bike classes, we have access to strength, yoga, stretching and bootcamp classes. How can a $2,200 bike with a $39 monthly fee be a good value? First, if we spread the $2,200 over the past 36 months and add the monthly fee, the monthly cost is $100. That average compares favorably to what we’d pay for two high-quality gym memberships here in California. Further, if we assume the bike will last two more years, the average monthly cost becomes $76 and the comparison favors Peloton even more. And, of course, the value equation is even better for those buying at today’s lower price point. Another way I look at value is based on cost per workout. Since 2018, between my wife and me, we’ve completed almost 3,000 classes. As we usually complete two or three classes during each workout session, we’ve done about 1,200 workouts—which usually last between 45 and 60 minutes—in the past three years. This…

What’s the Price?

Kyle McIntosh | Sep 29, 2021

DRIVE TO HOSPITAL. Cut the umbilical cord. Figure out names. Open a 529. While the primary focus upon our two babies’ births was bonding, I had another item to check off: I opened a 529 college savings account for each one within a month of their births. It’s paid off handsomely. Through automatic monthly contributions—plus stellar market performance over the past decade—they’ve amassed sizable balances for higher education. One child now is in high school, the other is a middle-schooler. Based on what we’ve already accumulated, I’m considering pausing future contributions to their 529s. Why? At this point, I see two likely scenarios: We’ll either overfund our 529s—or we’ll wind up with a serious shortfall. I know that sounds confusing, but it all depends on which colleges they attend. To decide whether to continue contributing, I’ve been researching what their colleges might cost. And the answers I’ve found are confounding. Unlike most other areas of financial planning, college presents parents like us with a staggering range of possible costs. For example, the average cost for four years of public college is now about $105,000 for in-state students. The comparable cost for a private college is $220,000, according to EducationData.org. These figures include room and board. If either child decides to attend a local community college for the first two years—a viable option in our area—the four-year cost could drop to around $65,000. I consider myself to be well-versed in financial planning and higher education. After all, I’m a college professor. Still, the incredible disparity in average college costs leaves me surprised. Just to make it more difficult, these figures I’m quoting are averages. Many schools’ published prices are much, much higher. The full cost for football rivals Notre Dame and the University of Southern California (USC) in 2021-22 are $58,843 and…

Missing Takeoff

Kyle McIntosh | Aug 10, 2021

LIKE MOST READERS of this site, I’m committed to index fund investing. Still, even though I know I’d have little chance of beating the market as a stock-picker, I’m periodically tempted to buy individual stocks. When a former mentor who’s a brilliant strategist joined Moderna in May 2020, I strongly considered buying shares. Given where the economy was at the time, I passed on buying the company’s shares (symbol: MRNA) and stuck to my standard S&P 500-index fund investing. In hindsight, this was a mistake. As a daily viewer of CNBC, it’s been hard to ignore the performance of Moderna over the past 16 months. It has increased more than 300% in 2021 and yesterday it was up more than 17%. As I watched CNBC yesterday, I said to myself, “It’s a bummer I didn’t buy shares last year, but at least I’m getting some upside now that Moderna is in the S&P 500.” I spent a little time analyzing this attempt at rationalization—and the results weren’t consoling. Moderna was trading at $321 per share on July 21, the day it joined the S&P 500. On that date, it made up 0.26% of the index. If you had $10,000 invested in an S&P 500 fund, you indirectly owned $26 worth of Moderna stock—about one-twelfth of a share—when it joined the index. Since joining the S&P 500 index, Moderna stock has climbed some 50% to more than $484 per share at yesterday’s close. Assuming the same $10,000 investment, you have made about $13 on Moderna over the past few weeks. You read that right: Despite Moderna’s substantial price appreciation, the money you made would barely buy avocado toast. My conclusions? First, you won’t get rich quickly through index fund investing. While you’re well-diversified against the risk of any one stock cratering,…

College Savings Forum

Kyle Mcintosh | Jun 25, 2024

Over the last 17 years, I have been saving a modest amount each month in a 529 plan. I have been doing the same for my daughter for the past 14 years. Given the market performance and our steady contributions over time, these modest monthly contributions have grown to be a sizable amount. While I am thrilled that we should have most of our college cost covered, I've often wondered if the 529 plan was the best bet in saving for college. I have done much thinking on this topic, and I'm sure many others have as well. I am creating this forum to share some analysis/thinking on this subject and to hear what others have to say.

Voting Our Dollars

Kyle McIntosh | Sep 20, 2021

THE BUREAU OF LABOR Statistics reported last week that consumer prices in August were up 5.3% from a year earlier. This means that, on average, we’re paying $105 for a basket of goods and services that cost us $100 a year ago. Investors and analysts are worried that higher inflation may be here to stay. My contention: Inflation will prove to be temporary and the Federal Reserve won’t have to increase interest rates to slow consumer prices. In making this assessment, I’m focused on American consumerism and the fact that we’re bargain hunters at heart. We’ve accepted upticks in highly valued and necessary items over the past year. But as deal seekers, I can’t see us accepting steep price hikes over the long haul. Let’s start with fast food. From June to August, fast food prices increased at an annualized rate of 9.7%, as restaurants passed along the higher cost of labor and ingredients to their customers. While my family loves its Chipotle, we’ll certainly dial back our visits if burrito bowl prices continue to spike. Another alternative is we’d keep up the same number of visits but buy smaller quantities—something we should already be doing for health purposes. If others make similar changes to their behavior, fast food restaurants will see that pushing up prices will ultimately lead to sales declines, and that should prompt them to slow price increases. Another recent driver of inflation has been the cost of automobiles. August’s vehicle prices were 32% above those seen a year earlier. For folks who really need a car, I can see the rationale in paying up. But the rest of us will be inclined to delay making car purchases until competitive pricing returns. Dealers have conditioned us to expect attractive offers. Once supply chains are back on track,…

Inflation Hedge

Traditional or Roth

The Intentional Spendthrift

Americans and their credit cards

How Did You Find Paid Work After Retiring from Your Primary Career?

Bad Maths, Good Fire.

The Wrong-Sided Man

This would be a great posting on a web site with the name “HaughtyDollar.”

You Heel!

A Place At The Table

Blood Money

Feeling TIPSy?

Inflation Hedge

Traditional or Roth

The Intentional Spendthrift

Americans and their credit cards

How Did You Find Paid Work After Retiring from Your Primary Career?

Bad Maths, Good Fire.

The Wrong-Sided Man

This would be a great posting on a web site with the name “HaughtyDollar.”

You Heel!

Free Newsletter

Get Educated

Manifesto

Truths

act

Truths

Money Guide

Manifesto

Spotlight: Borrowing

Does it ever make sense to carry a credit card balance?

Debtor’s Dozen

Helping Ourselves

Pay It Down

Double Trouble

Know the Score

Spotlight: Mcintosh

What $1,000 Can Buy

Value Machine

What’s the Price?

Missing Takeoff

College Savings Forum

Voting Our Dollars