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Financial danger sign: All your stocks are penny stocks, but they weren’t when you bought them.

Cut It Out

IT ISN’T EASY sticking to a budget. I get it. Surprise expenses pop up all the time. How can you possibly be expected to live on a strict dollar amount each and every month?
The answer is, you don’t. But the key is to make sure you have enough financial breathing room, so you aren’t living paycheck to paycheck. That brings me to three common budget busters. These areas of your financial life, if ignored,

Read more »

Under the Influence

WE LIKE TO THINK we’re rational, especially when it comes to spending and investing. But in truth, all of us are susceptible to impulsive decision-making and unconscious persuasion. Result? We often end up wasting our hard-earned money.
According to traditional economics—which depicts humans as conscious, rational decision-makers—this shouldn’t happen. But this traditional view has been under attack since the late 1800s, when Thorstein Veblen explored conscious irrational decisions, such as buying items simply to impress others.

Read more »

Little Jack

I SUBSCRIBE to a number of financial magazines, as well as a daily newspaper. Lately, they’ve been piling up in my garage unread. I scan the front cover of the magazines and the headlines of the newspaper, but I’m not that interested. I don’t care about “Where to Invest Your Money in 2019” or “The Best Stocks for the Long Run.”
I guess it’s because I’m no longer in charge of my investment portfolio.

Read more »

Private Matters

IN SUMMER 2000, the Art Institute of Chicago fell under the spell of a young hedge fund manager named Conrad Seghers. The allure? Seghers claimed that his funds, called Integral, offered “the highest Sharpe ratios in the industry.” The Sharpe ratio is supposed to measure an investment’s risk relative to its returns and is popular in the world of hedge funds. Convinced by this pitch, the Art Institute committed more than $40 million of its endowment to Seghers’s funds.

Read more »

Newsletter No. 43

WHAT DOES OUR financial journey look like? Obviously, we hope to grow wealthier over time. But our journey also reflects our changing thinking about money—as well as changes in how we use those dollars to make our lives better. I sketch out that journey in HumbleDollar’s latest newsletter.
The newsletter also includes our usual list of the articles run by the site over the past two weeks. And don’t forget: HumbleDollar is about more than just blog posts.

Read more »

All Stocks

AFTER THE MARKET turbulence of recent months, the idea of a 100% stock portfolio would strike many folks as crazy. Yet, when I was in the workforce, that’s pretty much what I owned.
I never felt my all-stock portfolio was particularly risky. My wife and I had solid paychecks to rely on. We always maxed out our retirement plans, while also adding to other accounts, and then lived on whatever remained.
While the stock market’s volatility and the occasional downturns may have been disconcerting,

Read more »

Money Guide

Today's Spending

WHERE DOES ALL our money go and is our spending making us happy? This is what the statistics tell us:
  • On average, American families spend $19,884 a year on housing, according to the Bureau of Labor Statistics’ latest Consumer Expenditure Survey. That’s 33% of the average American household’s $60,060 in spending during 2017. Included in that figure are not just mortgage or rent, but also utilities, property taxes, furniture and appliances.
  • The BLS survey found that transportation eats up another $9,576 a year, or 16% of spending. This number takes into account vehicle purchases, gas, repairs and auto insurance, among other items. Add it up, and almost half our monthly spending is getting swallowed up by our cars and our homes.
  • While transportation is a major expense for most Americans, that changes as we grow older. Among households headed by someone age 75 and older, transportation spending wanes, but health care costs soar to almost 16% of spending. Add housing, and you account for 51% of spending by older Americans, says the BLS.
  • How much do we spend on fun, broadly defined? Figures for 2017 from the Commerce Department’s Bureau of Economic Analysis, or BEA, indicate that U.S. households spent an average $4,700 on eating out and $1,600 on concerts, gym memberships, amusement parks, sports events, museums and movie theaters. We spent another $800 on cable and satellite television, $700 on tobacco, $1,000 on gambling, $1,000 on beer, wine and spirits, another $800 on alcohol when eating out, $800 on hotels and motels, and $1,300 on foreign travel.
  • Hawaii, New York and California, along with Washington, DC, have the country's highest prices for goods and services, according to the BEA's measure of so-called regional price parities. The least expensive states are Mississippi, Alabama and Arkansas.
  • Over the past 50 years, there have been two key changes in the way America spends, reports a June 2011 study by the BEA. First, we’re devoting far less of our income to life’s basics. Clothing, footwear, food and beverages accounted for just 11% of spending in 2009, down from 27.4% in 1959. This excludes restaurant meals, which have held fairly constant at around 6% of total expenditures. Second, spending on health care, financial services and insurance has soared. For instance, health care rose from 5.9% of total spending in 1959 to an astonishing 19.7% in 2009. This includes hospital costs, doctor visits, prescription drugs and eyeglasses. Much of this cost wasn’t paid directly by consumers, but rather by private insurers, Medicare and Medicaid.
  • In 2016, 30% of Americans said they were very happy, unchanged from the 30% who described themselves that way in 1972, according to the General Social Survey. Over this 44-year stretch, inflation-adjusted per capita disposable income rose 119%. In other words, our standard of living more than doubled, but our reported level of happiness showed no improvement. Money, it seems, hasn’t bought happiness.
Next: Fixed vs. Discretionary Previous: Spending Blogs: Happily MisbehavingZeroing In and Happiness: 10 Questions to Ask
Read more »

Numbers

A YEAR FROM NOW, do you expect to be better or worse off financially? A Gallup poll found that 69% expect to be better off, just two points shy of the all-time high of 71%, recorded in 1998.

Newsletter

Out of the Swamp

WE CAN MEASURE our financial progress by the size of our net worth. But that’s hardly the only gauge. Equally important, I’d argue, is the evolution in how we think about money—and how we use it to improve our lives.
What does this journey look like? I picture it as having five stages:
1. Head above water. This is when you emerge from the primordial financial swamp and begin to walk upright.

Read More »

Archive

Choosing Less

TOO MUCH CHOICE can be paralyzing. This is the reason many 401(k) plans have winnowed the list of funds they offer: Thanks to the smaller selection, participants are less likely to feel overwhelmed—and more likely to make an investment decision, rather than leaving their cash to languish in the plan’s money market fund. I think this is a good strategy for other areas of our finances. For instance, you may make smarter investment decisions if you limit your choice by, say, deciding that you’ll never purchase individual stocks. You might also decide that you’ll stick with mutual funds from a single major fund company—think Fidelity, T. Rowe Price or Vanguard—or, alternatively, that you’ll purchase only index funds. Similarly, you could narrow your room for maneuver by developing a written asset allocation, where you specify which market sectors you’ll invest in and what percentage of your portfolio you’ll allocate to each. You might earmark perhaps 30% for high-quality corporate bonds, 5% for real estate investment trusts, 5% for emerging stock markets and so on. That’ll still leave you with the decision of which investments to buy for each slot in your portfolio, but you’ll no longer be swimming in a pool of uncertainty that’s quite so large. You might even use this strategy in other areas of your life, with a view to reducing uncertainty, saving time and perhaps also improving your own behavior. For instance, you might opt to do all your online shopping at Amazon, limit yourself to salads at lunchtime and only allow yourself to eat out twice a week. I think such rules can be useful, but there is a downside. You may reduce uncertainty by narrowing your choice. But these self-enforced rules can also introduce a new element of uncertainty, because you could find yourself wrestling with whether to follow your own rules—or stray from the straight-and-narrow path you chose for yourself.
Read more »

Truths

NO. 111: WALL STREET tries never to send a bill, so we’re unaware of what we’re paying. Fund expenses and advisory fees are quietly subtracted throughout the year. Stock trading spreads and bond markups are built into security prices. Load fund commissions are swiped from our initial investment or deducted when we sell.

Act

FUND YOUR IRA—FOR 2019. This time of year, folks are exhorted to get their IRAs funded for 2018 before the mid-April tax-filing deadline. That’s a good idea. But if you want to get the most out of your IRA, you should also make your 2019 contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.

Think

HOME BIAS. We’re most comfortable owning familiar investments. That’s why we often invest heavily in shares of our employer, local companies and corporations whose products we use, as well as in rental properties. Meanwhile, we shy away from foreign stocks. While the result may be a portfolio we’re comfortable with, it’s often a badly diversified one.

About Jonathan

Jonathan Clements

HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.

Home Call to Action

Cut It Out

IT ISN’T EASY sticking to a budget. I get it. Surprise expenses pop up all the time. How can you possibly be expected to live on a strict dollar amount each and every month?
The answer is, you don’t. But the key is to make sure you have enough financial breathing room, so you aren’t living paycheck to paycheck. That brings me to three common budget busters. These areas of your financial life, if ignored,

Read more »

Under the Influence

WE LIKE TO THINK we’re rational, especially when it comes to spending and investing. But in truth, all of us are susceptible to impulsive decision-making and unconscious persuasion. Result? We often end up wasting our hard-earned money.
According to traditional economics—which depicts humans as conscious, rational decision-makers—this shouldn’t happen. But this traditional view has been under attack since the late 1800s, when Thorstein Veblen explored conscious irrational decisions, such as buying items simply to impress others.

Read more »

Little Jack

I SUBSCRIBE to a number of financial magazines, as well as a daily newspaper. Lately, they’ve been piling up in my garage unread. I scan the front cover of the magazines and the headlines of the newspaper, but I’m not that interested. I don’t care about “Where to Invest Your Money in 2019” or “The Best Stocks for the Long Run.”
I guess it’s because I’m no longer in charge of my investment portfolio.

Read more »

Private Matters

IN SUMMER 2000, the Art Institute of Chicago fell under the spell of a young hedge fund manager named Conrad Seghers. The allure? Seghers claimed that his funds, called Integral, offered “the highest Sharpe ratios in the industry.” The Sharpe ratio is supposed to measure an investment’s risk relative to its returns and is popular in the world of hedge funds. Convinced by this pitch, the Art Institute committed more than $40 million of its endowment to Seghers’s funds.

Read more »

Newsletter No. 43

WHAT DOES OUR financial journey look like? Obviously, we hope to grow wealthier over time. But our journey also reflects our changing thinking about money—as well as changes in how we use those dollars to make our lives better. I sketch out that journey in HumbleDollar’s latest newsletter.
The newsletter also includes our usual list of the articles run by the site over the past two weeks. And don’t forget: HumbleDollar is about more than just blog posts.

Read more »

All Stocks

AFTER THE MARKET turbulence of recent months, the idea of a 100% stock portfolio would strike many folks as crazy. Yet, when I was in the workforce, that’s pretty much what I owned.
I never felt my all-stock portfolio was particularly risky. My wife and I had solid paychecks to rely on. We always maxed out our retirement plans, while also adding to other accounts, and then lived on whatever remained.
While the stock market’s volatility and the occasional downturns may have been disconcerting,

Read more »

Numbers

A YEAR FROM NOW, do you expect to be better or worse off financially? A Gallup poll found that 69% expect to be better off, just two points shy of the all-time high of 71%, recorded in 1998.

Act

FUND YOUR IRA—FOR 2019. This time of year, folks are exhorted to get their IRAs funded for 2018 before the mid-April tax-filing deadline. That’s a good idea. But if you want to get the most out of your IRA, you should also make your 2019 contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.

Truths

NO. 111: WALL STREET tries never to send a bill, so we’re unaware of what we’re paying. Fund expenses and advisory fees are quietly subtracted throughout the year. Stock trading spreads and bond markups are built into security prices. Load fund commissions are swiped from our initial investment or deducted when we sell.

Think

HOME BIAS. We’re most comfortable owning familiar investments. That’s why we often invest heavily in shares of our employer, local companies and corporations whose products we use, as well as in rental properties. Meanwhile, we shy away from foreign stocks. While the result may be a portfolio we’re comfortable with, it’s often a badly diversified one.

Home Call to Action

Free Newsletter

Out of the Swamp

WE CAN MEASURE our financial progress by the size of our net worth. But that’s hardly the only gauge. Equally important, I’d argue, is the evolution in how we think about money—and how we use it to improve our lives.
What does this journey look like? I picture it as having five stages:
1. Head above water. This is when you emerge from the primordial financial swamp and begin to walk upright.

Read More »

Money Guide

Start Here

Today's Spending

WHERE DOES ALL our money go and is our spending making us happy? This is what the statistics tell us:
  • On average, American families spend $19,884 a year on housing, according to the Bureau of Labor Statistics’ latest Consumer Expenditure Survey. That’s 33% of the average American household’s $60,060 in spending during 2017. Included in that figure are not just mortgage or rent, but also utilities, property taxes, furniture and appliances.
  • The BLS survey found that transportation eats up another $9,576 a year, or 16% of spending. This number takes into account vehicle purchases, gas, repairs and auto insurance, among other items. Add it up, and almost half our monthly spending is getting swallowed up by our cars and our homes.
  • While transportation is a major expense for most Americans, that changes as we grow older. Among households headed by someone age 75 and older, transportation spending wanes, but health care costs soar to almost 16% of spending. Add housing, and you account for 51% of spending by older Americans, says the BLS.
  • How much do we spend on fun, broadly defined? Figures for 2017 from the Commerce Department’s Bureau of Economic Analysis, or BEA, indicate that U.S. households spent an average $4,700 on eating out and $1,600 on concerts, gym memberships, amusement parks, sports events, museums and movie theaters. We spent another $800 on cable and satellite television, $700 on tobacco, $1,000 on gambling, $1,000 on beer, wine and spirits, another $800 on alcohol when eating out, $800 on hotels and motels, and $1,300 on foreign travel.
  • Hawaii, New York and California, along with Washington, DC, have the country's highest prices for goods and services, according to the BEA's measure of so-called regional price parities. The least expensive states are Mississippi, Alabama and Arkansas.
  • Over the past 50 years, there have been two key changes in the way America spends, reports a June 2011 study by the BEA. First, we’re devoting far less of our income to life’s basics. Clothing, footwear, food and beverages accounted for just 11% of spending in 2009, down from 27.4% in 1959. This excludes restaurant meals, which have held fairly constant at around 6% of total expenditures. Second, spending on health care, financial services and insurance has soared. For instance, health care rose from 5.9% of total spending in 1959 to an astonishing 19.7% in 2009. This includes hospital costs, doctor visits, prescription drugs and eyeglasses. Much of this cost wasn’t paid directly by consumers, but rather by private insurers, Medicare and Medicaid.
  • In 2016, 30% of Americans said they were very happy, unchanged from the 30% who described themselves that way in 1972, according to the General Social Survey. Over this 44-year stretch, inflation-adjusted per capita disposable income rose 119%. In other words, our standard of living more than doubled, but our reported level of happiness showed no improvement. Money, it seems, hasn’t bought happiness.
Next: Fixed vs. Discretionary Previous: Spending Blogs: Happily MisbehavingZeroing In and Happiness: 10 Questions to Ask
Read more »

Archive

Choosing Less

TOO MUCH CHOICE can be paralyzing. This is the reason many 401(k) plans have winnowed the list of funds they offer: Thanks to the smaller selection, participants are less likely to feel overwhelmed—and more likely to make an investment decision, rather than leaving their cash to languish in the plan’s money market fund. I think this is a good strategy for other areas of our finances. For instance, you may make smarter investment decisions if you limit your choice by, say, deciding that you’ll never purchase individual stocks. You might also decide that you’ll stick with mutual funds from a single major fund company—think Fidelity, T. Rowe Price or Vanguard—or, alternatively, that you’ll purchase only index funds. Similarly, you could narrow your room for maneuver by developing a written asset allocation, where you specify which market sectors you’ll invest in and what percentage of your portfolio you’ll allocate to each. You might earmark perhaps 30% for high-quality corporate bonds, 5% for real estate investment trusts, 5% for emerging stock markets and so on. That’ll still leave you with the decision of which investments to buy for each slot in your portfolio, but you’ll no longer be swimming in a pool of uncertainty that’s quite so large. You might even use this strategy in other areas of your life, with a view to reducing uncertainty, saving time and perhaps also improving your own behavior. For instance, you might opt to do all your online shopping at Amazon, limit yourself to salads at lunchtime and only allow yourself to eat out twice a week. I think such rules can be useful, but there is a downside. You may reduce uncertainty by narrowing your choice. But these self-enforced rules can also introduce a new element of uncertainty, because you could find yourself wrestling with whether to follow your own rules—or stray from the straight-and-narrow path you chose for yourself.
Read more »
Jonathan Clements

About Jonathan

HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.