Asking Myself

Jonathan Clements

WHAT’S THE BETTER choice? This is the perennial question for all of us, as we ponder how best to use our time, how to invest our savings and how to get the most out of the dollars we spend.

Want to lead a more thoughtful financial life? As I try to make better choices, here are five questions I find particularly useful.

1. Why would I stray from the global stock market’s weights? As I’ve mentioned a few times, my biggest holding is Vanguard Total World Stock Index Fund (symbols: VT and VTWAX), and my intention is to allocate even more of my portfolio to the fund in the years ahead. The fund owns every publicly traded company of any significance from around the world, offering—I believe—the ultimate in stock market diversification.

Why would I invest my stock market money in anything else? If I’m going to stray from a fund that offers the ultimate in diversification and does so at rock-bottom costs, the purchase would have to be pretty darn compelling. Like everybody else who pays attention to the financial world, I constantly hear about intriguing investments and I muse about whether they’d be good additions to my portfolio. But those musings don’t lead anywhere: It’s been years since I last bought a new investment.

2. If I were starting from scratch, would I hold my current portfolio? This is clearly related to the previous question. These days, not only do I find scant reason to buy any stock-market investment other than Vanguard Total World Stock, but also I’m sorely tempted to simplify my portfolio by unloading the other stock funds I own, such as those that target international small-cap stocks or U.S. large-cap value stocks.

These smaller positions have been a drag on my portfolio’s performance for more than a decade. But because their performance has been poor, I assume they’ll eventually have their day in the sun, and I can’t bring myself to sell until those happy days return. Am I being disciplined—or foolishly obdurate, imagining I know something that’s unknowable? I suspect the answer is “all of the above.”

3. How much should I have in bonds and cash? When many folks design their portfolio, they often begin by asking how much stock exposure they can tolerate or they simply adopt some prescribed asset allocation, such as the classic mix of 60% stocks and 40% bonds. But I favor starting with a different question: What’s the minimum sum—for practical and behavioral reasons—that we should each keep in bonds and cash investments?

To that end, retirees might calculate the amount that they’ll need to spend from their portfolio over the next five years, while those still in the workforce might decide how much cash they need set aside for emergencies and for, say, upcoming college bills, house down payments and remodeling projects. We might look at the resulting sum—which, in all likelihood, is all we rationally need to keep in bonds and cash—and then ask ourselves whether we should add a little more, so we can sleep better at night.

What about our other money? It could all potentially be invested in stocks. More than likely, if folks go through the above exercise, they’ll discover they could allocate more of their portfolio to stocks than they currently hold and far more than conventional wisdom suggests. For instance, when I run the numbers, I end up with a target allocation to bonds and cash of just 20%, equal to five years of 4% portfolio withdrawals. In fact, I currently have less than 20% in bonds and cash because I don’t envisage fully retiring anytime soon.

4. Will my kids want the possessions I buy today? The answer is, probably not. As they’ve grown older and pickier, Hannah and Henry have shown less enthusiasm for the “treasures” I offer. That means that, if I buy anything of lasting value, I’m buying it solely for my pleasure. Result? For a purchase to make sense, I need to be happy with the amortized cost over my lifetime, which is becoming shorter by the day. Needless to say, not many items make the cut.

That brings up a related question: What can I get rid of? Early in our adult life, we don’t just acquire many possessions we later regret. Often, we also acquire investments and financial accounts that soon clutter our financial life and become a nagging irritation. I’ve unloaded a surprising number of financial accounts and possessions over the past dozen years, but I feel I still have further to go. One positive sign: So far, I haven’t had any regrets about any of the stuff I’ve shed.

5. Am I using my time wisely? This is perhaps the question I ask myself most often. To be sure, it isn’t strictly a financial question, and yet how we use our time is inextricably linked to money, whether we’re looking to spend it or acquire more.

There are obvious time wasters, like following the stock market’s daily action, or brooding over some perceived slight, or standing in line at the Department of Motor Vehicles. These are all things I try to minimize.

But there are also bigger questions: In allocating my time, am I striking the right balance between helping others and pursuing my own interests? Am I putting too much emphasis on activities that make me money and not enough on things that I simply enjoy? If tomorrow I got a grim prognosis from my doctor, would I change how I use my time?

No, we shouldn’t be constantly fretting over the five questions above. But I do think there’s great value in quizzing ourselves about such things—because a little self-examination undoubtedly trumps a costly, unconsidered blunder.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles.

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