I MOVED FROM LONDON to New York City in 1986, when I was age 23. That’s when my financial education truly began.
I’d previously studied economics for three years and spent a year writing about the international financial markets for Euromoney magazine. Still, I knew almost nothing about investing, insurance, homeownership and other topics crucial to managing a household’s finances.
Part One of Six
I’ve learned a ton since, and the focus of that education keeps changing, providing endless fodder for articles during my long career as a financial writer. The fact is, the way we think about money today is totally different from four decades ago, and that’s a huge plus. How so? We’re now focused less on determining the “optimal” financial products and strategies—and more on how money can be used to improve the lives of everyday individuals.
Investing. As with almost everybody else, investing was where my financial journey began. I worked at Forbes magazine from late 1986 to early 1990, focusing principally on mutual funds.
The standard article was the fund manager profile. It was fairly formulaic: Interview a guy (yes, it was almost always a man) with a decent track record, cook up some theme for the article, describe his investment strategy, and then offer three or four stock picks that illustrated his approach.
I felt like I wouldn’t be a real journalist until I worked for a daily newspaper. That opportunity came in January 1990, when The Wall Street Journal hired me to write about mutual funds. But by then, it was starting to dawn on me that few star fund managers remained stars, and it was impossible to figure out ahead of time who they’d be. Thus began my passion for index funds.
As I relentlessly advocated for broadly diversified, low-cost index funds, I briefly imagined that I knew pretty much everything I needed to know about managing money. But in truth, I’d barely scratched the surface.
Personal finance. With the investing problem “solved” with index funds, I went looking for other subjects to tackle in my weekly Journal column, which first appeared in 1994. In the years that followed, I found myself writing about personal-finance topics such as taxes, Social Security, college funding, insurance and estate planning.
Unlike investing, where folks were unlikely to do better than a simple portfolio of low-cost index funds, there was ample room for improvement in these other areas of money management. Indeed, a modest effort could greatly bolster a family’s financial position, and yet these topics were largely ignored by financial advisors and Wall Street investment houses.
Behavior. Even as I dabbled in subjects other than investing, I developed an interest in behavioral finance and evolutionary psychology. Why did investors resist indexing, despite its obvious advantages? Why did they misjudge their appetite for risk? Why do folks spend so much today and save too little for retirement?
The broad parameters of what constitutes smart financial behavior are pretty much agreed upon, even if experts might quibble about the details. Problem is, knowing the right course of action isn’t enough. It’s like losing weight or improving our fitness. The big issue isn’t figuring out what to do. Rather, it’s getting ourselves to do what we know is right. That can require a huge effort—because we need to overcome our hardwired instincts.
Meaning. Money isn’t simply the vehicle we use to put a roof over our head and food on the table. Instead, our relationship with money is far more complicated. We use it to try to make ourselves happier, to recreate our most treasured memories from childhood, and to tell the world who we are and what we value. In other words, we take money and we infuse it with meaning.
Around 2005 or so, I became fascinated by happiness research, and whether money can indeed boost our satisfaction with our lot in life. The answer is “yes,” but the research also highlighted money’s limitations. For instance, the boost to happiness from a new car or a pay raise can be remarkably brief, while the impact on happiness of a seven-figure portfolio pales in significance compared to folks’ predisposition to be happy—whether they have a high or low happiness set point.
Self-knowledge. Behavioral finance helps us understand why we behave the way we do, while happiness research offers ideas for how to get more satisfaction out of our dollars. But which insights resonate the most? The answer will be different for each of us.
That brings me to what, I suspect, will be an increasing focus of the financial world: offering folks insights into who they are, so they can be better managers of their own money. How can we figure out what our true risk tolerance is? What mix of the five personality types do we possess, and how does that affect our financial decision making? What from our past continues to play a role in the financial choices we make today? These, I think, are fascinating questions—and I suspect folks will be much better able to answer them in the years ahead.
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 when we open those monthly money statements, we feel like Giants at the top of a beanstalk… Looking down at the straw thatched roofs below…filled with folks who just don’t appreciate how good the economy has been?
Jonathan,
Thank you for the quick response.
“As I’ve argued before, I’m not inclined to lighten up on stocks when the market appears overheated, because there’s no limit to share prices might climb.”
“When stocks soar, I sell shares to get back to my target percentage—but I would be loath to underweight stocks.”
I appreciate these statements, but they do have a ‘qualitativeness’ to them. Do you have more quantitative guidance on indicators when to begin the adjustment from 95-100% equity back to 70-80%?
Also, sorry for the exclamation mark in my previous comment…what was I thinking ;).
No, I don’t have strict guidelines — sorry. Market recoveries can differ greatly. Consider the difference between the market recovery that started in 2009 and that which followed the 2020 pandemic crash. I didn’t feel any great urgency to rebalance after 2009 because the plunge had been so steep and investor psychology had been so damaged. By contrast, we quickly returned to exuberance in 2020.
Makes perfect sense. I was curious if you had any personal rules of thumb that you could offer, thus, the inquiry. Thanks for responding.
Jonathan,
Another great article! Your written words and conversational eloquence makes it so easy to absorb your messages.
You have mention in previous articles and during the MiB podcast referenced in this thread that you invest more (over re-balance) during times of large market dips – dot.com, GFC, pandemic – resulting in, for example, a 95% equity weighting during the lows of the GFC. Consequently I assume, as the market bounces back, your portfolio would provide even greater gains in equity exposure. Can you discuss your strategy, timing and thought process to take your portfolio back to a more comfortable allocation level? Thanks, Andy
Check out this article:
https://humbledollar.com/2022/10/my-investment-sin/
This recent piece also helps explain how I think about market declines:
https://humbledollar.com/2024/12/sharing-lessons/
Good question. I’ve wondered about this as well, since presumably after the subsequent bounce back, it’s even more “overrebalanced.”
Somewhere around 1980, before I hit the age of 30, I sent away for promotional info from Vanguard. This began my exposure to John Bogle’s investing philosophy, and I began to invest. Some years later I ran across your WSJ writings, and thought “this Jonathan Clements guy is also pretty smart”. I have been one of your very lucky readers ever since. I spent my career in a non-financial field, and I credit Jack Bogle / Jonathan Clements with explaining the truth about personal finance in a way I understood, and keeping me on track to my current state of financial independence. I cannot thank you enough, Jonathan. Well done!!! God bless you.
And you did one “heck of a job” and your timely articles are sorely missed.
God bless you.
This is the kind of column that I wish was a conversation instead. There are so many jumping off points where I’d want to ask follow-up questions and dig more deeply into a topic with you. But one must respect limits – otherwise, you’d probably still be writing this one.
For example, I also became enamored with happiness research for a while, although I’m basically very happy. (A doctor once told me I’d even be happy in the Army as a grunt.) Anyway, I thought it would be fun to bounce that around with you. There’s a lot of economic theory in happiness research, but I agree that one’s basic orientation usually trumps everything else. Thanks for a nice column.
A truly great piece, I would say one of your best. Informative, interesting, insightful and to the point. It would be hard to believe anyone who started the piece didn’t read it to completion.
I used to read Jonathan’s “Getting Going” column in the Wall Street Journal all the time. I especially liked his two highly humorous columns called “Excuses, Excuses: How We Save Face” and “More Great Moments in Steet-Speak”. I know the titles because I cut them out close to 40 years ago and later added them to my computers as pdf forms. I give them to folks every so often as well. They are so incredibly true and incredibly funny because they are so true. Every so often I read them and chuckle to myself no matter how many times I’ve read them before. True yesterday, true today and will be true tomorrow. That is great writing.
My real regret in investing is that I wished I had followed Jonathan’s advice on indexing instead of chasing a highly forgetable pile of actively managed funds and then held them through thick and thin. I would be a much richer man today.
Any chance there is a hyperlink to these articles Jonathan?
https://www.southcoasttoday.com/story/business/2001/04/15/excuses-excuses-how-losers-save/50338880007/#
You can probably find the articles by Googling the article name, plus Wall Street Journal, plus my name. But you may need a WSJ subscription to read the piece.
Jonathan, I’d like put a gun to peoples head and force them to read your books and articles.
Great article Jonathan. My personal financial knowledge trajectory generally mirrors yours. Risk tolerance and management is an area I find intersting. Prolific retirement researcher Wade Pfau and colleagues have developed an assessment tool to help retirees figure out what style of retirement income plans they would prefer. It’s called the Retirement Income Style Assessment, or RISA. Christine Benz wrote a nice summary last spring. Loyal readers of HD know there are different ways to generate retirement income, each with their own defenders. I think the value of something like the RISA is found in going through the process, and thinking, and discussing with a spouse if applicable, about what a retiree would be comfortable executing.
Meaningful article, Jonathan. Your creativity is what has brought you success in life. I’ve discovered many fascinating worlds without money and learned that if money becomes a primary focus in life, then money is all that we get.
All things considered, the value of money lies in the creative and spiritual uses to which we can use it and not in how many possessions we can buy.
r quinn : When bilionaires pay less in tax than the average man.. something is very wrong with the tax code.
Super wealthy don’t get paid in W2 income like most workers.. they get pain in stock and future stock.. and NEVER pay tax on it. They just get low interest loans on the hundreds of millions in stock they own and pay the low interest instead of regular tax rates. THAT is why there is proposals to tax accumulated wealth.. only with those more than 400 million.
I think what you re referring to is the ability of the wealthy to cheaply borrow money to finance their lifestyles using their asset holdings as collateral. Since the law does not consider borrowed money as income, there is no income tax to pay.
When it comes time to repay the loans, the wealthy can sell some of their stock holdings to raise the necessary cash, and enjoy paying tax at the lower capital gains rate. This is why they can pay taxes at a lower rate than working people. While we don’t regard this as “ethically pure,” it is completely legal.
Those of us occupying lower rungs of the economic ladder can do something a bit similar: We can use long-term capital gains and dividend distributions from our stock funds as part of our income stream. This money is also taxed at the more favorable capital gains rate.
While the tax code can favor the wealthy in this regard, it can also offer a perk to us retired folk.
“We’re now focused less on determining the “optimal” financial products and strategies—and more on how money can be used to improve the lives of everyday individuals”
I’ve enjoyed reading about this since the early 1990s, first in WSJ and now in Humble Dollar, and thought about the ways we define money and money defines us. Largely we’ve assumed a stable system and individual behavior and responsibility overlaid on this stable world.
But what happens when gov’t changes money and the entire system? What happens when consumer protections are removed? When you can’t get a person on the phone when you have a problem with a financial product? When the gov’t stops insuring financial products? When trillions of dollars of debt threaten the value of money itself. When the gov’t is serious about shutting down or defaulting?
The problem with risk tolerance is that until you actually live through a big stock market downturn and recovery, you cannot actually understand how you might emotionally react when it happens. I mean, people can try to imagine how seeing their equity assets drop by 50% over 5 calendar quarters would affect their fears about the future. They cannot know in advance if they really have the courage to stand their ground and stay invested. As was demonstrated between the end of 2007 and early March of 2009, many people gave into fear and sold their equity investments. Perhaps this is biological, a part of the flight/fight reaction programed into us.
Exactly this. The brokerage surveys of risk tolerance are usually one question and do little to probe for a true level of tolerance because it can be so hard to imagine watching assets plunge. For us and friends the dotcom losses in 2000 were staggering. I do know a couple of people whose paper gains from exercised stock options plunged, leaving them with terrible IRS problems for years, and neither has ever financially recovered.
I have noticed that many people are slow to react to harsh markets such as the one you mention. I had several tax clients who dumped their investments during the first half of 2009. I wonder if that is a common behavior.
As I wrote in another comment in this article, who is to say a stock crash is the only potential problem?
This week I was the victim of an attempted identity theft attack. (Not sure if it’s over, but at least fended it off for now.) A phone call ends up in a maze of hold times to different people, none with any authority to do anything. It’s a joke when you hear an ad on the radio to set up ACH transfers instead of using a credit card because it is safer.
The gov’t teases us with shutdowns and defaults as it cuts taxes resulting in trillions of dollars of debt. Does anyone else remember the 12%+ rates of the late ’70s? My point is, the stock market (or junk bonds or mortgage backed securities) aren’t the only part of the financial system that could crash. I think Taleb’s point of juxtaposing his NYC trader friend’s investments in US Treasuries with his family member’s lost investment in Lebanese bonds is precisely my point. I’m heavily invested in Teasuries because it is the most secure things we have, but is it really so secure?
I remember my first mortgage in 1984, 13.5%
To whom it may concern, Jonathan just gave a great interview on Barry Ritholz’s podcast, “Masters In Business”, dated yesterday, 17 Jan. I listened to it on a long, boring drive on I-10 yesterday and it was fantastic. No need to go into the content here, just tune in and find out for yourself.
I just listened to the podcast, and OMG!
Oops, I can’t imagine what Jonathan thinks of all of my comments in which I used an !
I’m also most likely in his writing dog house for my prolific use of ()
Thank you Patrick for the reference to the podcast. A classic Clements on life that I enjoyed listening to.
Thanks Patrick
Thanks, Patrick. Here’s a link to the podcast:
https://ritholtz.com/2025/01/mib-jonathan-clements/
Re: happiness? A key turning point for me was fully embracing the notion that while I might envy the nest eggs of others, it doesn’t really matter because I have enough. I am h-h-h-happy (it still doesn’t trip off the tongue).
My face is my face, my body is my body, my bank account is my bank account. And it is enough. (Having said that, I AM willing to change knees).
Getting rid of envy is a great thing. I’m not sure when, but at some point I began to think that other people’s money is other people’s money, their success is their success and this sort of thing is not a zero sum game. Many sacrificed for their money/success in ways I probably wouldn’t have so…God bless them. When my father passed he decided to give one of my sisters her share of the his modest estate despite the fact that she had disowned him, and the rest of me and my siblings, for over 35 years before he passed. My thinking at the time was it’s not my money, it’s my Dad’s money and he can do with it as he sees fit. More importantly, it showed me the kind of heart he had.
So many hurt feelings in my family when people have seemingly inexplicably been left out of wills when others of the same degree received something. So good to hear another side and that you are proud of your dad, not resentful of him or your sister.
Linda, one of my other sisters, the trustee of my father’s revocable living trust, had received a $2,000 death benefit from a life insurance policy my father had the rest of us knew nothing about. She’s so nice she decided to divide it up equally amongst all her siblings, amounting to $400 apiece. She and her husband were filbert (hazelnut farmers) for years and so she gave me a choice: would you like $50 chocolate covered filberts every year at Christmas, for 8 years, or $400 cash. I took the cash. She was flabbergasted. “Why don’t you want the filberts, they’re so good.” 🙂
Thank you for this article. Such broad scope, a road map to the thinking behind the large body of work you’ve produced. And a great example, an encouragement to reflect on the evolution of our thinking over our lifetimes. A very useful endeavor.
Who would have thought that money- lots of it – would become a political issue. All we seem to hear about is billionaires, fair share and tax cheats.
What amazes me is the idea that anyone should pay taxes on assets accumulated, but not realized.
Imagine telling average Americans the equity in their home or growth in their 401k is taxable before it’s touched.
Money does strange things to people, especially other people’s money.
I don’t know how Jonathan’s article inspired the concepts you describe. The fact is if we use our imaginations, we can think of an unlimited number of ways in which we can use money to add comfort and pleasure To our lives. in the end, Money is what we make it.
I, too, can’t imagine what I wrote that prompted Dick’s comment. Perhaps his comment was intended as a response to another post.
I agree with you. But, in a similar vein, some do have to pay taxes on money they “don’t have” that isn’t “real money” in the sense they can spend it. When student loans are written off they get a 1099-C (except disabled vets whose disability was documented at the VA whether or not it was service related). Because stopping capitalization of interest is only very recent, many of those people have had (or will have) written off far more than they originally borrowed and many have paid back far more than they originally borrowed as well but still owe a small fortune.
Personal example: Got cancer in grad school where I went back to school later in life (since gotten two more cancer and those were in the same year while working). Student health insurance had no out of pocket limit (this was pre ACA, and I didn’t qualify for medicaid because I was a student – I continued school while being treated). Borrowed a total of 92K mostly for medical expenses and some school expenses over four years, it’s been 18 years since the loan went into repayment (loan is a 25 year one because it is a grad school one, I didn’t make enough to pay it back in 10 or pay more than I owed each month on the income dependent 25 year terms) have paid back 102K (and that includes some periods with forbearances). Still owe nearly 99K. Was declared permanently disabled 11/2023. With the 3 year monitoring period for discharge of student loans for me ending after the pause on getting a 1099-C ends I will be getting a 1099-C. I will owe about $31K in federal and state taxes (unless I move to avoid state taxes as most states don’t tax this). That is more than I get a year in SS.
Because I understand statistics I realize my problems won’t be solved by putting a match to my money buying lottery tickets. For reasons I won’t go into here insolvency on taxes won’t work if I want to have anything beyond SS in retirement (and SS will be lower because of 11 years of employment consequences). So outside of someone willing to be very generous with no strings attached I will be screwed paying taxes on money I didn’t get “paid” when my student loans were discharged.
Good thing house value (which I don’t have) and money in retirement, etc. isn’t taxed until you actually receive money from it so you can actually cover the taxes. The only thing that will save me from that tax bomb is if I die of the 3rd cancer before that tax is due. Fortunately (for every reason but the tax one) that isn’t likely as I am currently on “watch and wait” (this is a blood cancer) and it is a more indolent cancer even though it is incurable – although I am beyond the median split for living with this so who knows what will happen.
Thanks for your eye opening and very personal story. To add insult to injury, here in Ohio we have many cities that levy income tax, including on 1099Cs, some as high as 2.5%.
“Problem is, knowing the right course of action isn’t enough. It’s like losing weight or improving our fitness. The big issue isn’t figuring out what to do. Rather, it’s getting ourselves to do what we know is right.”
I have finance and fitness topics covered. Weight though? I can’t seem to solve what they’re saying is the set weight problem.
That was the one line from the article I didn’t resonate with. I started getting serious about fitness and weight loss in 2020. I lost 60 pounds by early 2023 and got well into my healthy weight range. I’ve gained a bit back since, but I’m working on it and am still doing well.
I’ve realized that I really didn’t know “how to lose weight” before I started that process in 2020. I’d made various halfhearted attempts before, of course, but I really didn’t know what I was doing. For example, I believed that if you worked out religiously, you would obviously lose weight. I often blamed my lack of success on being too busy to get into a regular fitness routine and would usually hit the gym with great enthusiasm when I was on vacation and had more free time. Turns out that exercise, while great for one’s mental and physical health, isn’t the secret weapon for weight loss—as they say, “weight loss begins in the kitchen,” and “you can’t outrun your fork.”
Weight loss is supposedly a “simple” formula of “eat less and move more.” Here are the things I actually had to learn:
I’ve said that I’ve “earned a BA in weight loss” over the last few years, and in hindsight, I believe that the reason I couldn’t lose weight, or if I did, couldn’t keep it off, was because I really hadn’t learned anything about how to lose weight. There are some valuable principles/skills, but there’s also a lot of misinformation out there. And I didn’t even mention the newly relevant question of whether one should use GLP-1 drugs for weight loss.
Great summary and personal story about diet and exercise. I teach exercise science courses like wellness and a variety of nutrition courses at the university. You mentioned some good info and you are correct that lack of knowledge and misinformation is prevalent. Like the fianancial industry, the diet and fitness industry has made eating healthy and being active confusing to a large degree on purpose. One major problem I see is that people tend to choose a diet or exercise based on popularity or what is easiest and not on what is supported by research (ie, peer reviewed scientific studies).
Jonathan, another excellent article reminding us how complex our relationship with money and financial literacy is. I love how you include links to some of your many previous articles on related subjects. In the “who they are” link I was floored by your question written in 2023…
9. If you had five years to live, what would you change about your life?
That would indeed be a relevant question to ask ourselves (or our spouses) at anytime in our life. I may be thinking about that one over this long holiday weekend.
Thanks again for another thought provoking article.
To your last point, I would like to see better assessments for risk tolerance—most I’ve seen are basically one question rate yourself on a scale—and good advice on how to manage disparities between partners whose tolerances diverge. Also, how to handle either willful ignorance or disengagement by one partner (or family members if considering estate planning).
“Also, how to handle either willful ignorance or disengagement by one partner”.
I hear ya!
My X resembled that remark. But her disengagement was probably a symptom of her battle with depression. Nothing I attempted worked.