HOW WOULD YOU LIKE to earn a guaranteed 6.7% or more on your money without taking any risk? Although it sounds too good to be true, that’s exactly the opportunity that will be offered on Nov. 1. The investment? Series I savings bonds. I bonds are 30-year bonds issued by the U.S. Treasury, which are available to anyone who opens a free TreasuryDirect account. These bonds are the quintessential risk-free asset. Backed by the full faith and credit of the U.S. government, they have minimal credit risk. They also offer inflation protection, as their yields are indexed to inflation. The yield on I bonds is the sum of two components: a fixed rate and an inflation rate. The fixed rate is set at the time of purchase, and remains fixed for the life of the bond. It’s currently 0%, so you can effectively ignore it. The inflation rate component of the yield adjusts twice a year—the first business days of May and November. The semi-annual inflation rate for I bonds being currently sold is 1.77%. This determines the interest earned over the next six months. Double it and you get the bond’s annual percentage rate (APR), which would be 3.54%. While 3.54% isn’t bad, the new rate in November is all but guaranteed to be much higher. My guess is that I bonds issued then will carry yields of at least 6.7% and possibly as high as 7.8%. Let me explain. The inflation rate is based on the Consumer Price Index for All Urban Consumers, which I’ll simply call CPI. The November rate will be based upon the percentage change of CPI from March to September of this year. We already know March’s CPI number, which was 264.877. September’s CPI won’t be released until Oct. 13, but the August number was 273.567. Assuming there’s no change in CPI in September—not very likely given recent trends—the six-month percentage change would be 3.28%. That corresponds to an APR of 6.56%. The effective annual rate you would earn is 6.67%, since I bonds compound semiannually. More than likely, September’s CPI level will be higher than August’s. How much? The average monthly increase in CPI has been 0.55% year-to-date. Extrapolating that rate of increase, September’s CPI would be 275.072, corresponding to a semiannual inflation rate of 3.85%. The corresponding effective annual rate for I bonds would be 7.85%. That’s not too shabby, particularly considering this return is risk-free. [xyz-ihs snippet="Mobile-Subscribe"] Of course, the rate would only apply for six months. In May 2022, the rate would be adjusted once again. If the Fed’s transitory thesis is correct, and inflation slows next year, the interest rate on I bonds would fall. On the other hand, if inflation persists or accelerates, I bond yields would remain high and vastly outperform money market funds and savings accounts. Another bonus: Unlike TIPS, or Treasury Inflation-Protected Securities, I bonds are protected against capital losses. Akin to a savings account, the principal value of an I bond can only increase. In the unlikely scenario that inflation is negative, the inflation rate on I bonds can never go below zero. I bonds must be held for a minimum of one year after purchase. If you redeem an I bond before it’s five years old, you’ll lose the last three months of interest. Assuming a 6.67% interest rate, selling early would reduce your return for the final 12 months to 5%. How many I bonds can you purchase? There's an annual limit of $10,000 per individual. That means a married couple with two children could buy up to $40,000 in total. If that family had a trust, another $10,000 could be purchased in the name of the trust, for a cumulative $50,000 in I bonds per year. Keep in mind, if you buy an I bond for a child through a custodial account, that constitutes an irrevocable gift. I bonds also enjoy favorable tax treatment. Interest is subject to federal income taxes, but is free from state and local taxes. You can also defer reporting the interest on your federal tax return until you cash in your bonds or the bonds mature. If you hold an I bond to maturity, that’s 30 years of tax-deferred growth. Speaking of taxes, you can purchase up to an additional $5,000 in paper I bonds per year using your federal tax refund. If you’re considering I bonds, I would suggest waiting until Nov. 1, when the interest rate will reset to a much higher level. Just don’t expect most advisors to recommend them. I bonds are only available—commission-free—through TreasuryDirect.gov or when you file your tax return. As such, your advisor stands to gain little by having you invest in these wonderful bonds. John Lim is a physician and author of "How to Raise Your Child's Financial IQ," which is available as both a free PDF and a Kindle edition. Follow John on Twitter @JohnTLim and check out his earlier articles. [xyz-ihs snippet="Donate"]

THE FEDERAL RESERVE has a daunting responsibility. Among its jobs is “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” This is commonly referred to as its dual mandate of maximum employment and price stability. Yet those two aims are often at odds. That’s because of the inverse relationship between unemployment and inflation, embodied by the Phillips Curve. Attempts to maximize employment—or minimize unemployment—often stoke the flames of inflation. The primary tool the Fed has to achieve its aims is the ability to set interest rates, specifically short-term rates. It’s a powerful tool because interest rates determine the cost of money. When interest rates are low, people and companies borrow more, leading to credit creation—and credit is the lifeblood of the economy. In recent years, the Fed has expanded its monetary toolkit. Since the Global Financial Crisis of 2008, it has directly intervened in the bond market by buying longer-maturity Treasurys and mortgage-backed bonds. These interventions, known as quantitative easing or QE, drive the yields of longer-maturity bonds lower. In addition to controlling a broad swath of interest rates, the Federal Reserve has greatly expanded the money supply through these bond purchases. Since 2007, real gross domestic product has increased by 27%, while the aggregate money supply—as measured by M2, which includes cash, checking accounts and other highly liquid assets—has jumped 300%. The monetary might wielded by today’s Federal Reserve is truly unprecedented. Astonishingly, this power rests in the hands of just 12 individuals—the seven members of the Fed’s board of governors plus five Federal Reserve Bank presidents—who comprise the voting membership of Federal Open Market Committee (FOMC). Despite its devilishly difficult task, FOMC members have a striking tendency to vote as a bloc. Dissension among committee members is usually rare. Indeed, since 1996, only two dissenting votes have been cast by Fed governors—the last one in 2005. Federal Reserve Bank presidents are a more rambunctious lot, having cast dissenting votes in a little over a third of FOMC meetings since 1996. Still, 63% of FOMC decisions have been unanimous since 1996. Are the weighty matters before the Fed and its staff of 400 PhD economists just open-and-shut cases to these intellectual giants? Or is there more to the story? Christopher Leonard’s new book, The Lords of Easy Money: How the Federal Reserve Broke the American Economy, sheds some light on this question. One of the central characters of the book, Thomas Hoenig, was the president of the Federal Reserve Bank of Kansas City from 1991 to 2011. While serving on the FOMC, he cast dissenting votes at all eight meetings in 2010, the only committee member to dissent that year. Hoenig was under tremendous pressure to conform with the rest of the FOMC, then headed by Fed Chair Ben Bernanke. In 2010, quantitative easing had only recently been unleashed. The great worry was that any dissenting vote would weaken the case for QE by undermining the Fed’s authority. Bernanke and others felt it was imperative to present a united front. What was on Hoenig’s mind when he cast the lone dissenting vote against a second round of QE in late 2010? Hoenig worried that the Fed was embarking down a road from which there was no turning back. QE, he believed, was a Pandora’s box that would be impossible to close. Furthermore, he feared that the easy money unleashed by QE would lead to risky lending and asset bubbles. [xyz-ihs snippet="Mobile-Subscribe"] Hoenig wasn’t alone in his concerns. Regional Fed Bank presidents Jeffrey Lacker, Charles Plosser and Richard Fisher had doubts, too. As Lacker put it, “Please count me in the nervous camp.” Plosser’s assessment was more blunt: “I do not support another round of asset purchases [QE] at this time…. Again, given these very small anticipated benefits, we should be even more focused on the downside risks of this program.” Unfortunately, Lacker, Plosser and Fisher were nonvoting members of the FOMC in 2010. I’m not arguing that the Fed was right or wrong to pursue quantitative easing. Rather, the apparent lack of psychological safety at the world’s most important financial institution is my concern. What exactly is psychological safety? Amy Edmondson, a professor at Harvard Business School and an expert on psychological safety, defines it as a climate where people are comfortable expressing themselves without fear of reprisal or humiliation. In short, people feel safe speaking their mind. In her wonderful book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation, and Growth, Edmondson draws on decades of research to show that psychological safety is imperative for learning and managing risk. She points to the Wells Fargo account fraud scandal and Volkswagen’s “dieselgate” as prime examples. In both cases, an absence of psychological safety had disastrous consequences. These two corporate crises were enabled by an environment of fear—fear of not meeting impossible targets and fear of speaking the truth to leadership. Hubris is antithetical to psychological safety, and it seemed the Fed suffered from a major case of hubris. An exchange between Fisher and Bernanke in 2012 is telling. Fisher described how Texas Instruments was taking advantage of easy money by reconfiguring its balance sheet, issuing more debt instead of investing or hiring—one of the many unintended consequences of QE. Bernanke replied, “President Fisher… I do want to urge you not to overweight the macroeconomic opinions of private-sector people who are not trained in economics.” I don’t know the state of psychological safety inside today’s Fed. But I do know that the Fed faces an economy that is as complex and uncertain as ever. Every voice inside the marble-white Eccles Building deserves to be heard and considered. Debate should not be stymied but rather encouraged. This includes garnering the views of “private-sector people who are not trained in economics.” John Lim is a physician and author of "How to Raise Your Child's Financial IQ," which is available as both a free PDF and a Kindle edition. Follow John on Twitter @JohnTLim and check out his earlier articles. [xyz-ihs snippet="Donate"]

WANT TO IMPROVE your investment results? The deadly sins below are not only among the most serious financial transgressions, but also they’re among the most common. I firmly believe that, if you eradicate these 12 sins from your financial life, you’ll have a better-performing portfolio. 1. Pride: Thinking you can beat the market by picking individual stocks, selecting actively managed funds or timing the market. Antidote: Humility. By humbly accepting “average” returns through low-cost index funds, you will—paradoxically—outperform the majority of investors. 2. Greed: Having an overly aggressive asset allocation. Antidote: Moderation. Follow the great Benjamin Graham’s advice and keep no more than 75% of your portfolio in stocks. Once you determine your asset allocation, doggedly maintain it through thick and thin by rebalancing periodically. 3. Lust: Being addicted to financial pornography. Financial pornography—think CNBC and Fox Business—may be entertaining, but it has no lasting value and is actually harmful to your financial health by promoting short-termism. Antidote: Turn off financial media and delete financial apps from your smartphone. 4. Envy: Chasing performance. This sin trips up more investors than any other. It ultimately leads to the cardinal sin of “buying high and selling low.” Antidote: Stop comparing your investment performance to that of others. Success is not measured by relative performance, but by whether you meet your own financial goals. 5. Gluttony: Failing to save. You may be a financial saint in every other respect, but—if you fail to save—it’s game over. You can’t invest what you haven’t saved. Antidote: Start saving something today. Slowly raise your savings rate over time. 6. Impatience: Lacking investing stamina has dire consequences. Patience in financial markets is measured in years, sometimes decades. The first decade of the 21st century was not kind to U.S. stock investors, who lost a cumulative 9%. If you had bailed on U.S. stocks in 2009, you would have missed out on the following decade’s glorious rebound, with annualized returns of over 16%. Antidote: Patience and a knowledge of financial history. While history doesn’t necessarily repeat, it does rhyme. What history has shown time and again is that markets mean revert—that is, sharp declines are typically followed by rebounds. 7. Sloth: Not contributing enough to get your employer’s full 401(k) match. This is like walking past $100 bills on the sidewalk and being too lazy to pick them up. Similarly, make the effort to rebalance. While doing less is generally beneficial when investing, failing to rebalance is the exception to the rule. Antidote: If you’re too lazy to rebalance, sign up for a low-cost target-date fund, which will rebalance for you. The antidote for not getting your 401(k) match? Just do it. 8. Fear: Having an overly cautious asset allocation. This investing sin is easy to overlook, because inflation is so insidious. Inflation reduces our money’s purchasing power by some 2% to 3% a year. Hiding out in cash investments guarantees you an inflation-adjusted loss of 1% to 2% annually. Antidote: Overcome your fear of stocks by understanding their historical returns. History suggests that, while there’s a 46% chance that the S&P 500 will be down on any given day and a 27% chance you’ll lose money in any given year, the odds of losing fall to 5% over 10-year stretches and 0% over 20-year holding periods. 9. Imprudence: Failing to diversify. This is a surefire road to the poorhouse. Consider the lesson of the Japanese stock market. The Nikkei 225—analogous to our S&P 500—reached an all-time high of 38,915 in December 1989, before ultimately declining 82% to close at 7,055 on March 10, 2009. Even today, the Nikkei 225 remains about 40% below the peak reached 30 years ago. This should give serious pause to those who advocate investing in a single national market. Antidote: Diversify, diversify, diversify—by owning both stocks and bonds, by owning thousands of securities through index funds, and by funding traditional retirement accounts, Roth accounts and regular taxable accounts. 10. Negligence: Mixing investing and insurance through variable annuities, equity-indexed annuities and cash-value life insurance. Ever read the entire prospectus for an annuity? I didn’t think so. Antidote: Keep your investments and insurance separate, with one notable exception: immediate fixed annuities. 11. Hyperactivity: Being an overly active investor. It may seem counterintuitive. But when it comes to investing, it pays to just sit on your hands most of the time. Aside from choosing an asset allocation and rebalancing periodically, further efforts are generally counterproductive. Antidote: Learn to do nothing, aside from rebalancing once a year or so. 12. Aimlessness: Failing to plan for retirement, including drawing up an investment policy statement. An investment policy statement—a set of ground rules for your portfolio—provides the guardrails against the numerous behavioral pitfalls that investors face. This is probably one of the most overlooked facets of investment planning. Antidote: Don’t delay another day. Have a retirement plan in place, including a written investment policy statement. Review these documents every year. John Lim is a physician and author of How to Raise Your Child's Financial IQ, which is available as both a free PDF and a Kindle edition. His previous articles include How Low? Too Low, Solomon on Money and Out on a Lim. Follow John on Twitter @JohnTLim. [xyz-ihs snippet="Donate"]

I RECENTLY LISTENED to a podcast featuring Richard Thaler, the Nobel prize-winning economist. To say I’m a huge fan of his work is an understatement. Thaler has that rare ability to communicate a complex topic—behavioral economics—to a lay audience in a way that’s both accessible and enjoyable. His book Misbehaving offers a fascinating historical account of behavioral economics, a field he played a major role in developing. But it was a casual comment that Thaler made toward the end of the interview that really caught my attention. Podcast host Meb Faber asked him for some best practices for teaching personal finance to high school students. Thaler suggested replacing subjects like trigonometry—with near zero practical value—with more useful ones, such as teaching students how to use a spreadsheet. Use a spreadsheet. It suddenly dawned on me just how heavily I’ve relied on spreadsheets throughout my life, particularly when it comes to personal finance. So many financial questions are ripe for analysis through the use of spreadsheets. The following is a list of nine problems for which I’ve depended on them. Some of the resulting spreadsheets were relatively simple, while others devilishly complex. Creating a budget. Seeing how different savings rates would lead to differing levels of wealth accumulation. Estimating my cumulative savings by refinancing or prepaying a mortgage. (This was before online mortgage calculators became ubiquitous.) Determining whether and how much to contribute to my employer’s cash balance plan—a type of defined benefit pension plan. This was a truly complex problem given the myriad factors involved. Helping to choose between health insurance plans, including some that were compatible with health savings accounts and others that weren’t. Setting buying thresholds in 2020’s bear market based on a “worst-case scenario” analysis, as detailed in an article early last year. Analyzing and rebalancing my investment portfolio. Creating a savings rate calculator for a talk I gave on financial independence. The primary input was “years to financial independence”—there were, of course, other inputs as well—and the output was the “required savings rate.” Calculating the yield to maturity on bonds. Looking for help creating a spreadsheet? Microsoft offers a slew of Excel templates that are available for download. Many of my HumbleDollar articles—and the financial analyses that underlay them—would never have seen the light of day if it weren’t for spreadsheets. Of the 24 articles and blog posts that I’ve written so far, a full quarter of them relied on spreadsheets in some manner. In particular, this article, this one and this one were essentially spreadsheets disguised as prose. These articles also happen to be among my favorites. How often have I used trigonometry in my finances? Meet the null set.

SOCIAL SECURITY benefits are fairly modest—the average retiree receives $1,555 per month or $18,660 a year—but they’re a vital source of retirement income for countless retirees. Today’s burning question: How can we shore up the program’s finances? It’s estimated that Social Security provides some 30% of the income for the elderly and that nearly nine out of 10 people age 65 and older receive benefits. Social Security is even more important for women, 42% of whom rely on it for half or more of their income. Unfortunately, the Old-Age and Survivors Insurance (OASI) Trust Fund, from which Social Security benefits are paid, faces imminent shortfalls. The fund’s reserves are projected to be depleted by 2033, at which time continuing tax revenue will be sufficient to pay just 76% of promised benefits. There are no easy solutions. Both higher payroll taxes and lower benefits may be necessary. But how about some out-of-the-box thinking? Meet my suggested solution: the Save for Tomorrow program. The program would cost the federal government very little in the short run but save it vast sums in the long run. It involves the creation of a novel, completely optional retirement account. Here’s the basic framework: Parents, grandparents or legal guardians could opt to open and fund a Save for Tomorrow account for their children or grandchildren. The account would be triple tax-advantaged—contributions would be tax-deductible, funds in the account would grow tax-deferred and future withdrawals would be tax-free. Contributions would be subject to a lifetime limit for each child—say, five times the annual IRA contribution limit. For a child born today, that would mean contributions would be limited to $30,000, equal to five times today’s regular $6,000 IRA limit. Contributions could begin at birth. The contribution window would close once the child reaches age 10. Between ages 65 and 70—and no sooner—the beneficiary could claim her benefits. At that point, the funds in the account would be annuitized, with inflation adjustments, just as Social Security payments are. The beneficiary would then receive the higher of the annuitized income stream from her Save for Tomorrow account or the standard Social Security benefit. If the Social Security benefit is higher, the funds in the Save for Tomorrow account would be turned over to the OASI Trust Fund. Save for Tomorrow accounts would be overseen by salaried professionals and would reside inside the highly regarded federal Thrift Savings Plan. Given the super long time horizon—anywhere from 55 to 70 years—the funds would be aggressively invested, with nearly 100% in stocks. Upon a beneficiary’s death, any unused funds in the Save for Tomorrow account would be turned over to the OASI Trust Fund. Let’s run some numbers to see how this new program might work. I’ll assume the Save for Tomorrow account earns a 7% real return over its lifetime. For simplicity’s sake, I’ll also assume the account is funded by a lump sum contribution at birth. Finally, I’ll use the 4% rule to annuitize the account balance at ages 65 and 70. You can see the results in the accompanying table. Some observations: Contributing $6,000 at birth (scenario No. 1) generates an annual payout of $19,505 at age 65. This is higher than the average Social Security benefit of $18,660 that I referenced earlier. By waiting until age 70, the payout increases to $27,357 a year. For comparison purposes, the maximum Social Security benefits are listed in the table. Obviously, many retirees will receive far less than these numbers. Contributing $12,000 at birth leads to annual payouts of $39,011 and $54,715 at ages 65 and 70, respectively. Both of these top the current maximum Social Security benefits. The annual payouts are in real, inflation-adjusted dollars since I’m using a 7% real return for the calculations. Remember that the Save for Tomorrow payouts are tax-free, meaning they’re significantly more generous than those from Social Security, which are potentially taxed. The upshot: Even if the two benefits were equal in dollar terms, the Save for Tomorrow benefit would win out once taxes are factored in. The contributions are entirely funded by the private sector and are completely voluntary. While the new accounts would cost taxpayers very little—there would be a small loss in tax revenue due to the tax-advantaged nature of the accounts—the Save for Tomorrow program would save the Social Security program a bundle over the long run. How so? If someone died at age 64 with $1 million in his Save for Tomorrow account, that money would go to the OASI Trust Fund. In addition, anyone receiving the higher Save for Tomorrow payout isn’t drawing a cent from Social Security. If the Social Security benefit is higher than the Save for Tomorrow benefit, the latter dollars are returned to the OASI Trust Fund. Finally, any money left over upon the death of a beneficiary goes into the OASI Trust Fund. [xyz-ihs snippet="Mobile-Subscribe"] The biggest criticism of the Save for Tomorrow program would be that it primarily benefits the rich and their progeny. While this may be true, I could envision significant numbers of middle-class grandparents funding these accounts for their grandchildren. More important, the Save for Tomorrow program is a win-win for everyone. While beneficiaries would certainly benefit from the generosity and foresight of their parents and grandparents, so would everyone else. Every dollar contributed to the program would mean more money for the OASI Trust Fund, which would shore up the Social Security program. As I see it, the Save for Tomorrow program draws on many strengths, both financial and behavioral: The program maximizes compounding’s enormous power. Allowing money to compound uninterrupted for up to seven decades can achieve wonderful things. At a 7% real growth rate, $1 turns into $114 in 70 years. In the extreme case, $30,000 contributed at birth could swell to $3.4 million by age 70, providing $137,000 of annual income for life—or millions of dollars for the OASI Trust Fund should the beneficiary not receive the benefits for whatever reason. While it may seem unfair that a parent or grandparent could ease their progeny’s retirement in such a manner, consider that much of that money might eventually benefit society, should sizable funds remain when the beneficiary dies. The long time horizon enables taking much greater risk and achieving commensurately greater returns. A 100% stock portfolio is exceedingly risky over short and even intermediate time frames, but over six to seven decades, not so much. A globally diversified 100% stock portfolio may actually be less risky than cash or bonds over such time horizons, once inflation is taken into account. The program would reduce behavioral risk. The tectonic shift from company-sponsored pensions to individual 401(k) accounts failed to factor in the human element. We are humans, not “econs,” as Nobel Prize winner Richard Thaler says. Many of us simply don’t possess the knowledge, self-control or temperament to successfully save and invest for retirement—not to mention the even thornier task of drawing down assets in retirement. One of the great benefits of the Save for Tomorrow program would be that both tasks would be professionally managed, removing this burden from individuals ill-equipped to perform them. Will members of Congress read HumbleDollar and act on my suggestions? Probably not. I’m a realist. But perhaps farsighted families could find a way to build the notion of extreme compounding into their generational planning. John Lim is a physician and author of "How to Raise Your Child's Financial IQ," which is available as both a free PDF and a Kindle edition. Follow John on Twitter @JohnTLim and check out his earlier articles. [xyz-ihs snippet="Donate"]

MY PORTFOLIO GAINED some 4% in 2021. While I certainly didn’t expect to match the S&P 500’s impressive 28.6% performance, I was surprised at how low my return actually was. This surprise is a lesson unto itself: We often overestimate our own performance. There’s a number of reasons for my portfolio’s middling returns. First, I began 2021 with my stock allocation at around 40%. Bonds, cash, and gold and gold mining companies rounded out the rest of my portfolio. These other asset classes had poor returns last year, including -1.9% for bonds to -4.2% for gold. On top of that, I have an unusually low allocation to U.S. stocks, which had a banner year in 2021. My stock allocation tilts strongly international, with an outsized allocation to emerging markets stocks. Emerging markets woefully underperformed last year, as this chart illustrates. In fact, had it not been for the two individual stocks I own, my portfolio’s performance would have been even worse. Wells Fargo (symbol: WFC) and TotalEnergies (TTE) had a great 2021. Still, there are five reasons I don’t fret about underperforming the S&P 500 in 2021 and why you shouldn’t, either: 1. The S&P 500 is not my benchmark (not even close). Unless you’re 100% invested in U.S. large-cap stocks, the S&P 500 is, at best, an arbitrary benchmark and, at worst, irrelevant. If you feel compelled to measure your relative performance—certainly not an imperative, as I discuss below—what's a more relevant benchmark? I used my end-of-year asset allocation to create a blended benchmark, using exchange-traded funds to measure asset class performance for 2021. The results are summarized below: The 2021 return of this portfolio was 6.1%, two percentage points higher than my 4% gain. As my asset allocation varied over the course of 2021—with progressively more in stocks—the benchmark I created is imperfect. Nonetheless, it’s a reasonable starting point. The verdict: My portfolio clearly underperformed its benchmark in 2021. 2. Last year enabled me to invest more at lower prices. I added significantly to my stock allocation in 2021, particularly emerging markets. As those stocks fell in price, I happily bought more. This is the one corner of the global stock market that’s truly cheap, with a cyclically adjusted price-earnings (CAPE) ratio that’s less than half that of the U.S. But as 2021 clearly demonstrates, a low CAPE ratio shouldn’t be the basis for a market-timing strategy, at least in the short term. Which brings me to my next point…. 3. The short run makes headlines, but it's the long run that matters. In this frenetic age of instantaneous market quotes, it’s easy to forget that one-year performance still constitutes the short run. If you’re a decade or more from retirement, as I am, annual returns are largely meaningless. What really matters is your compounded returns over multiple decades. While I have no idea what’s in store for markets in 2022 or 2023, I’m confident that my portfolio will perform well over the long run, by which I mean a decade or longer. Paradoxically, investment returns over the long run are far easier to predict, yet nearly everyone is obsessed with the short run. A decade from now, you’ll more than likely be reading articles like this one. 4. Investing is neither a competition nor a beauty contest. We live in a hypercompetitive, comparison-obsessed age. This mentality is further inflamed by social media. But personal finance and investing are not competitive sports. My financial goals are different from yours, and yours are different from your neighbor's. A friend of mine has just 10% of his portfolio in stocks. In financial parlance, he has a very high degree of loss aversion—he really dislikes losing money. But that’s the right asset allocation for him. As I’ve aged, my risk tolerance has also fallen. The idea of holding a 100% stock portfolio—which I did for many years—would today make my stomach churn. Having about two-thirds of my money in stocks feels about right. As a result, when it comes to investment returns, I’ll never “knock it out of the park.” On the other hand, I’m confident that my portfolio will enable me to reach my financial goals without losing sleep. 5. The calendar year is an arbitrary point of reference. Market returns are lumpy. Case in point: If you measure my portfolio’s return from Jan. 14, 2021 to Jan. 14, 2022, it comes in around 8.5%. Yes, the first 10 trading days of 2022 have been very good for my portfolio. I don’t give much credence to short-term performance, let alone to two weeks of outsized gains. My point is that markets are unpredictable in the short run—and that investors pay far too much attention to annual returns.