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WHAT’S THE MOST important idea in personal finance? It’s hard to single out just one, but over the years, I’ve found the following dozen ideas to be among the most useful.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Was owning a bond index a great idea over the last 5, 10, or 15 years?Definitely not.
BND’s annualized returns over those periods were only about -0.60%, 1.20%, and 1.76%, respectively.
When the Fed announced in early 2022 that it would raise rates rapidly to fight inflation, why didn’t you sell?If you knew rates were about to rise rapidly, why blindly hold a bond fund whose price is highly sensitive to rising rates?
Is long-term-care insurance (LTC) a good deal?
For most, it’s too expensive, and policies can come with numerous restrictions, exclusions, and loopholes.
As usual, the answer depends 🙂
Great post Adam. I may not agree fully with all of them but this is a great holistic perspective.
Adam, thank you for this insight. I put this article right up there with Jonathan’s in the WSJ about what defines happiness. Tell the guy below who’s complaining about you not responding to his comments to get lost.
Bitcoin’s price is based in the desire of people to own it, which is measurable or tangible in the same way the price of gold or silver, stocks, or cash itself are based in desire or perception. Water, food, and energy are a little different.
A thought-provoking list. Even if you don’t quite agree with all of them, they make you think. And where I might disagree, it is more a question of degree. One small question I still struggle over is how much cash to hold, knowing its value erodes over time. (The counter to that might be the risk of a giant financial accounts breakdown or hack (AI or otherwise) and records loss, that might make real cash valuable for a while – at least physical cash.).
Thank you, Adam.
This is a good reminder that we can’t predict the market, but we can control how much risk we take, what we pay in fees, and whether our investments fit our lives. As I get closer to retirement, that last point matters most to me. A simple plan I can understand and stick with is worth more than trying to make the perfect call.
Jeff
I just don’t like the fact that this guy publishes a weekly column but yet can’t be bothered to reply to comments–which seems antithetical to the whole HumbleDollar thing. It all may make a commenter that much more strident in his replies: While I agree that at some point self insurance may make sense for an older car (i.e. drop your collision and comprehensive), the idea of raising your deductible is laughable and makes me doubt all the other “lessons” lectured. My insurance company (USAA) is better than most and does not offer a homeowners or auto deductible greater than $1,000 (I’ve just checked . . . again). Also, when the Board of my condominium asked to increase the property deductible from $5,000 to $10,000 we were informed that the savings would be less than a penny on the dollar. Can I get insurance advice that is actionable instead of banal?
My experience:
Around 2014 or so, a coworker had a tree fall on house and damage the siding, at the time, it was around $4-5K in damage. His home insurance covered it. Then they dropped him. Then he had trouble finding another policy at non-inflated prices.
So, I took a “note-to-self”: Do not put in a claim unless you really cannot afford it, because, if, you do, I think you end up paying for it in the future year adjustments (because now you have been “marked” as “one of those people”: fairly or unfairly – that is how it works).
In 2020, home insurance prices were rocketing up, partly due to the financial effects of covid relief and who knows what else. My renewal was going to go up ~ 20% (with, at the time, a 1K deductible).
Based on what I had learned from others, I knew I would not put in a claim unless I really could not afford it. At that point in time, I was lucky enough to be able to absorb a much bigger loss than 1K, so I raised my deductble to 25K.
My premuim dropped 38% that year from what it would have been, and of course, I have reaped the benefits of the higher deductible/lower premium since.
So, not everyone can afford a “big” loss – it is all relative to what their situation is. But, I am clearly in the camp of “don’t buy lots of insurance for something you can pay for yourself.”
A quick comment on HumbleDollar authors. Jonathan lived, breathed and labored over HumbleDollar constantly, and he probably read every single comment ever made. He was unique, and it was his baby that he was caring for. It was also his livelihood. I don’t think Adam or others should (or can) be held to that standard. It is unrealistic. They are still making valuable contributions with what they write.
(And even Jonathan was wrong once in a while, I think… 🙂 )
Martin, I don’t ask that writers reply to every comment or even more importantly my comments. How about starting by replying to one comment per article and then seeing where it goes?
You want these writers, who basically work for free in addition to their own jobs, to take even more time out after crafting their pieces to respond to people and “see where it goes”? Interesting.
If you want to be entertained by writer responses, I suggest you read Dick Quinn’s pieces. He’s pretty prolific.
Joey!!!! Adam Grossman is money manager, I mean the founder of a fixed-fee wealth management firm. If you think he writes these articles purely to enrich Humble Dollar readers, you may want to take a tighter hold of your wallet.
Also, I don’t want to be entertained, I want to be informed. Though thanks for the tip about Quinn. He’s quite informing and even more importantly, he replies to my comments.
I would “humbly” state that Adam does inform us weekly. Whether you agree or not is up to you to decide. You can make points in the comments that you may wish to debate, or have further discussion on, and other posters will almost always share their thoughts. I for one am grateful that Adam posts his weekly Saturday essays which I almost always find to be informative and educational in a way the rest of the website is not.
Bill C, When I started reading your comment (btw: thanks for the reply), I, of course, mentally started to prepare a very pointed and insightful rebuttal. That is until you criticized the balance of HumbleDollar, at which point I just wanted to shake your hand.
So much wisdom. Thank you, Adam!
Adam, thank you. I am curious what people think (and maybe you can consider devoting a future column(s) to writing more) about 4. and 5. A discussion of the comfort of holding more cash than most investing wisdom would suggest as we get older might be useful. Cash might return less and inflation will eat it, but a little less overall return might be worth the comfort of ready cash. Also, I am curious what people are doing about term life insurance as they retire. Even if the financial house is in order and the reasons from forty years ago when we signed up for term no longer apply, ceasing the coverage is a big decision. Annual premiums are sky high as we age, but the payout date is also closer. So each year, I think about letting it lapse, but decide that one year of premium has an outsized payoff.
Finally, I recommend a terrific podcast, The Library of Mistakes, which recently covered Bessembinder’s work, and particularly the idea that many people are not understanding how to use the results of his work.
Clay,
For what it’s worth…
I am nearing retirement very very soon. As planned 10-15 years ago, my term life insurance policies are expiring within the next few months to six months of my expected retirement year. I checked prices and considered reasons to continue, and I’ve come to the conclusion that I am going to let my term insurance expire. No need for an additional lottery ticket, my heirs will be just fine with inheritance. No salary to cover anymore and see no need to ensure expected Social Security in the future. Hope that helps.
There are so many uncontrollable events affecting stocks and bonds I can’t see how the predictability of the markets is any better than pulling the handle on your favorite slot machine, or pushing the PLAY button these days…but we keep trying.
On #12, I say “Bond ladder, 3 month intervals, 8 steps”! And if possible do auto-roll. It’s worked for us for 10 years. It’s in Roth IRAs and we enjoy very little stress. I’ll check on things a couple times a month. There’s enough income from 2 SS checks and a pension that the Roths grow untouched. Trad-IRA-RMD’s pay the property tax and school tax (NY State _Ugh_, but that’s where the Grands are!!) though we are getting to the point where Roth Conversions and QCD’s are more and more meaningful every year. Would be really nice if Congress/IRS would expand the 12% tax bracket, ‘just a wee bit’ –please.
The two most important lessons I think of are a behavioral one and a simple mathematical one (which you hint at when you say to avoid fees).
1. Just do it. Put some money aside.
2. Compounding.
Excellent article Adam, please keep contributing. I notice you indicated a 2 year bond. How about explaining Treasuries and how do you buy, hold, and sell them. Where do you buy them?
Thanks again for your interesting articles.
You buy them directly from the US Treasury at treasurydirect.gov
Easier to buy from Fidelity, Schwab or Vanguard.
This is an excellent list of ideas to keep in mind.
Excellent Adam. Every word of wisdom in your article from points 1 to 12 gave me a feeling as if it was written by our beloved Jonathan Clements. Thank you. I’m going to share this article with two young adults in my family.
Thanks, Adam. Now if each one of these could be the beginning of a lecture to every high school student, we’d have a lot more financially savvy adults. I would mention compounding and investing early, too.
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