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WHEN HANNAH AND HENRY were children, I talked a lot about money. This was partly self-preservation: It would have been embarrassing if the kids of a personal-finance columnist grew up to be financial ne’er-do-wells.
Fortunately, they didn’t. Hannah and Henry are now in their 30s. Both have good financial habits, and today I typically don’t talk to them about money except when they have questions. Still, given my cancer diagnosis, perhaps a few final reminders are in order—13, to be precise:
1. Be an optimist. When you buy bonds, you rent out your money and get interest in return. But when you purchase stocks, you become an owner—and owning is the road to wealth. Sure, if the global economy collapses, you’ll end up broke. But so will everybody else, including those conservative folks who spent their life cowering in bonds and cash investments. Think of owning stocks as “heads I win, tails everybody loses.”
Moreover, over the long haul, losing strikes me as unlikely. Every morning, billions of people around the world wake up, trying to figure out how they can make their life better. Buying stocks is a way to profit from that energy and dynamism.
2. Don’t pay too much attention. By this, I mean don’t look at your portfolio too often, don’t listen to market pundits and don’t fiddle with your investment mix. If I’d done that from the get-go, I would have saved myself a lot of time—and you’d be inheriting a lot more money.
3. Own the world. Buy Vanguard Total World Stock Index Fund (symbols: VTWAX and VT), which owns every stock of any consequence, and then let your money ride. Which will shine, U.S. or foreign stocks, growth or value, large or small? With a total world fund, there’s no need to guess. As long as the global economy keeps growing, so will your portfolio.
4. Use your superpower. Are the talking heads prattling on about a possible market crash? That might be unnerving if you plan to spend all your savings in the next few years. Otherwise, ignore such nonsense. Instead, think and act like a truly long-term investor—something even most professional money managers fail to do, because they’re worried about their year-end bonus and about losing clients. The ability to play the long game is the everyday investor’s superpower, but one that’s used all too rarely, alas.
5. Buy more when stocks drop sharply. Whenever the stock market tumbles, folks offer reasons the decline will get even worse. They’ll point to high valuations, or geopolitical concerns, or a potentially vicious economic contraction. But we’ve seen this movie numerous times.
Over my investing career, whenever stocks have plunged, I’ve instinctively bought more, backed by my confidence that the world economy will keep growing and that my globally diversified stock portfolio will benefit from the eventual recovery. This has been one of the biggest contributors to my portfolio’s growth, along with indexing and a voracious savings habit.
6. Unburden yourself. There’s plenty of debate over whether it’s smart to pay off mortgages and other borrowed money faster than required, and yet I’ve never heard anyone say, “I wish I wasn’t debt-free.” Paying off debt earns you a guaranteed return equal to the loan’s interest rate—and that rate is typically higher than you could earn by buying bonds and cash investments.
7. Play soft defense. Insurers and their salespeople will happily sell you blanket coverage—but that’s an expensive proposition. What to do? Favor policies with high deductibles and long elimination periods. Ditch those that become superfluous, such as life and disability insurance after you’ve amassed enough for retirement. Also, for your emergency fund, aim for three months of living expenses, rather than the recommended six. You don’t want to leave too much of your wealth languishing in cash.
8. Have each other’s back. None of us wants to ask family members for money if we find ourselves out of work or facing unexpectedly large bills. But it’s good to know that last resort exists. Be each other’s safety net, making it clear you stand ready to help if things get rough.
9. Great happiness comes from the money you don’t spend. I’m not saying you shouldn’t treat yourself occasionally to dinners out, coveted possessions and special vacations. But if you want to buy long-term happiness, also strive for the sense of financial security that comes from a plump portfolio. It’s the one purchase you’ll never regret.
10. Travel lightly. We end up amassing countless possessions that quickly lose their allure. Do yourself a favor: Ruthlessly shed items you don’t need and don’t care about. I’ve dumped all manner of possessions over the past dozen years, and not once have I hankered to have any of them back.
11. Humans are hardwired to worry. Blame this on our loss aversion, which isn’t just about money. Everywhere we turn, we see the possibility that we’ll be on life’s losing end, and yet most of the time things turn out fine. My advice: Be aware of risk—but don’t go into full-worry mode unless it’s truly warranted.
For instance, I’ve read that 10% of folks have no problem afflicting harm on others, while the other 90% aim to do good. I have no idea whether these estimates are accurate, but they seem reasonable. You should, of course, be alert for the malicious 10%. But I’d encourage you to assume most folks—colleagues, neighbors, chance acquaintances—have good intentions.
To that end, don’t read too much into texts and emails, especially those from colleagues. Most people aren’t artful in their use of language, so their intent may be muddied, and things will likely be even worse if you try to read between the lines. Instead, until people prove themselves untrustworthy, give them the benefit of the doubt. That attitude will make the world seem like a more pleasant place, and you’ll spend far less time fretting unnecessarily.
12. Aim for a sense of accomplishment. Want to feel content? Strive to achieve one or two key goals each day, and you’ll likely reach evening feeling tired but fulfilled.
13. Pay it forward. Make sure your children grow up with sound financial values. Push them to get good educations. Help Martin, Teddy and any future children to launch their financial life. Guide their money choices. Don’t just talk the talk—also model good financial behavior.
Granny and Grandpa did that for me, and I’ve endeavored to do that for you. We aren’t a wealthy family. But we can strive to lift up each generation that follows, so our family remains financially resilient—and doesn’t suffer the suffocating money stress that afflicts so many.
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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Maybe of interest: Jonathan Clements & the parable of the bathroom reno
This article is just brimming with wisdom. I just emailed a copy of it to myself 10 years in the future to share with my now 2-year-old son. Hoping I’ll still be around to discuss it with him. Thank you, Jonathan!
I am always impressed that you take the time for your readers still. Thank you for your precious time.
Jonathan,
Another home run article, this one with bases loaded.
Can I get clarification #3?
Is it own both Total US stock market + VT? If that is the case, since VT is 2/3 the US does not that dilute the internal portion?
Thank you again, your truly a gifted person whose shares so well there gifts.
I prefer Vanguard Total World for its simplicity, plus folks may find it easier to own emotionally, because they don’t find themselves constantly fretting over the performance of total U.S. vs. total international. Meanwhile, I don’t consider the international diluted, given that everything is market cap weighted.
Thank you for taking the time to reply.
Great list Jonathan.
On item #3, for those who like to optimize, in a taxable account they hold separate US and international stock index funds so they can take credit for foreign tax paid by the latter.
On item #10, I’m sure we have far less stuff than our peers, especially after we “ruthlessly shed” two years ago when we started our nomadic life, but even what we still have is proving to be too much mentally. We’re even considering interrupting our lives with a trip back to the storage unit that we haven’t seen in two years and taking the time to downsize it even further.
Your column brought tears to my eyes. Especially the last bit. I lost my parents at 17 and didn’t have anyone giving me financial advice. Getting an education and being a consistent saver have helped me achieve financial security. My father studied under street lamps in India because they were so poor but he knew the importance of an education and frugal habits. Those are lessons I share with my kids. You are sharing your wisdom with your kids, which is wonderful but it’s also a kindness for those of us who couldn’t benefit from the wisdom of our parents (for a variety of reasons). Thank you. Know that you have touched my life by offering the gift of your financial wisdom.
What advice financially should you give your recently married daughter with 50% of marriages ending in divorce. Should all liquid non IRA assets be commingled as I believe?
In many, if not most states, all assets are split upon divorce, whether commingled or not. That is why some get pre-nuptial agreements.
A lot depends on how much money we’re talking about. The advice for someone who is 28, and just starting to save, would be far different from that for someone who is 48.
Jonathan, re: your #6, are you a fan of selling bonds to pay off a mortgage, if the mortgage interest rate is higher than the expected return of the bonds? If so, is it worthwhile to do so even if it means one’s stock/bond ratio gets completely out of whack due to the selling of the bonds? (I suppose one could always rebalance right afterward and reset the asset allocation.)
A mortgage is a negative bond, so selling bonds to pay off the mortgage arguably doesn’t change your net bond position, though it clearly does affect liquidity. Would I sell higher-yielding bonds to pay off a low-rate mortgage? Probably not.
Excellent advice for all. I sent this post to my adult children.
So did I. I wonder if they’ll read it.
Thanks again Jonathan. But ouch, cowering? I recall a wise financial sage writing many years ago, why continue to play when you’ve won the game? But I get it inflation and all the other terrible what ifs. Thank you once again for many years ago getting me going and for some time now winning the game. Also as you’ve written the challenge for some time now has been how to bequeath. I’ll buy you a beer on the other side. Bryan
Excellent advice. For grown-ups, too. Thanks.
All excellent. The last is one of my driving motives—giving the next generation that “lift,” a step up to the next rung,
I admire your tenacity to continue sharing your perspectives even while battling your health issues. Keep it up as your posts become a massive treasure trove for generations to come.
I’d suggest a corollary that aligns with many of the points in the essay, humility. When the market crashed in 2008 as I was getting within striking distance of retirement age my portfolio went down a lot not just in percentage but in absolute dollar terms. I realized I didn’t have any better ideas of what to do or special ability to predict markets so I just left things alone. I did stop looking at the portfolio for a while though 😉
Those are 13 wonderful reminders. Thank you for sharing your wisdoms, Jonathan.
Play Soft Defense – I disagree with your prescription to only hold 3 months of living expenses in your emergency fund. The size of an emergency fund must reflect the circumstances of the individual / family. I know plenty of people that have been out of work for longer than 3 months. You can always park the emergency fund in I Bonds to ensure they will maintain their value over time.
I think that humility is the basis for everything Jonathan posts on “Humble Dollar.” Jonathan’s humility and honesty is a true treasure!
Great example of the saying, ‘with age comes clarity.’
This should be printed out on a long, vertical banner and hung in college classrooms (I guess with a QR code at the bottom so the students could download it 😊).
Another great, true,and important HD article that I’ve already forwarded to my kids to share with my grandkids
10. Travel lightly. We end up amassing countless possessions that quickly lose their allure.
We did this inadvertently. We wanted a small home and having one doesn’t give us much space to accumulate (although we have a lot packed in). We also avoided renting a storage locker.
Imagine your house burned to the ground. How much of your “stuff” would you actually replace?
This is a problem for us. My grandmother was a professional artist. I only have some of her art on our walls and in the attic, but it does take up space. My mother is an excellent artist. Her house is full of art and she and I both expect I’ll be inheriting it within a decade. And I was extremely prolific in art school and still make art. I’ve been culling, but disposing of this is extremely difficult. People say they love the art, but not enough to hang gifts of it on their walls! Just about everything else I own could be replaced or I could live without, but the art can’t be replaced. Perhaps I should have followed in my dad’s footsteps and been a musician instead of making art objects.
Great question! The stuff you could replace is probably the stuff you care about least.
Good advice, as always, Jonathan. On #1 I agree with the focus on stocks. But isn’t there a place for bonds in one’s portfolio?
Yes, there’s a place for bonds — but they shouldn’t be the majority holding unless your time horizon is less than, say, seven years or you’re absolutely terrified of stock market declines.
Great list as always. I particularly resonate this time with #10. We downsized five years ago from a four-bedroom home with a garage and storage shed in the backyard to a three-bedroom condo with a storage closet down the hall. We got rid of tons of stuff. Our motto was no storage unit and only what would fit easily into the new condo. We had our adult daughters come and decide which of their things they wanted to take. No regrets whatsoever.
It was interesting to move after 20+ years in one place and realize that with digitizing and streaming, the books, CDs, DVDs, and even photos and paperwork we’d amassed were all optional items now. So, for example, I’d look at my books and ask “Will I ever read that again?” And if yes, then “Can I get it on my Kindle if I need it?”
Similarly, I’ve moved offices several times at work, and each time I do, I get rid of more books, either knowing that I’ll never teach that class again or the information has become dated. When I retire next year and empty my campus office, I think I’ll bring home one copy each of my own books that I wrote, but otherwise—nah.
Great article Jonathan. I agree with Marjorie that #8 is very important. I’m lucky enough to have a close family, and married into one just as close. I’ve seen families torn apart, and it can cause emotional and financial havoc.
All good points Jonathan. I think that I did a good job teaching my girls about money; but did I? I wonder how many parents are under the illusion of being good financial role models for their kiddies, when in fact they are quite the opposite.
Jonathan, such great advice for your kids. I can especially relate to No. 8.
My brother and I have a great relationship. Being the older sister I always looked out for him. We always thought of each other when we heard the song, “You’ve Got a Friend” sung by James Taylor. The words just seemed to encompass all life’s problems. When you have a great relationship with someone and help each other unconditionally you can overcome just about anything.
Your children are so fortunate to have a wise and caring father.
Sensible advice as usual.
“Most people aren’t artful in their use of language”.
Can’t say that about you Jonathan. I can’t fathom how deep your well of ideas is, and how you can keep producing such great writings.
Just a God given talent I guess!
Jonathan, what a fabulous column to start off my weekend. Thank you especially for point #3. One of my children is getting ready to open a Roth IRA at Vanguard, and I will share your thoughts on the Vanguard fund you recommend.
Overall I want to let you know that you often aim columns like this at the younger generation, but your columns along this vein over the years have encouraged me at every stage of my life to stay on track and to be aware of how easy it is to get derailed by the external and internal forces you highlight here in these 13 reminders.