Very few people have the fortitude for an "all stock" portfolio. We think we do (especially after a long bull run), but the vast majority of us do not. The challenge is not just being able to handle the stress when your investments decline by 30+%. The bigger challenge is that the decline usually is happening in conjunction with some other scary / terrible news. Your stocks are down 30% and you were laid off and unemployment has tripled in the past few months. Your stocks are down 30% and so many people are dying in NY that they are parking refrigerated trucks behind the hospitals to hold all the bodies. Your stocks are down 30% and terrorists just attacked a US base abroad and killed several hundred who serve in our military. Etc.
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 believe that the overwhelming majority of people can't do what you suggest (e.g., read and understand a prospectus, understand who is managing a fund and the implications if that manager leaves, etc.). Most people know that they can't do it and won't even try. Another subset of people think that they can do it, but they are overestimating their abilities. Assuming that I am correct about this, I think it is far more important for people to seek out simple investments that circumvent the issue (e.g., broad market index funds = no concerns about the manager and easy to understand) and perhaps work with a fiduciary financial advisor periodically. A good financial advisor can help people to understand how their investments should reflect their needs / circumstances (e.g., your iBonds vs. TIPS scenario). Ideally, you should only have to meet with the financial advisor when your circumstances change.
Many years ago (senior year of high school) when I worked as a waiter at a busy restaurant, I would wake up in the middle of the night in a panic that I had tables still waiting for their food!
The $12,000 you mentioned for 1980 must have included everything (room, board, books, etc.). According to historic tuition data I found online (https://t.ly/BwvPE) tuition (and fees) cost $8,895 in 1983 (the closest year that I could find). Northwestern tuition rose to $63,468 in 2023. If their tuition increased in proportion to overall inflation, it should only be $27,248. In my opinion, this is the bigger problem.
Such a great article and great, thoughtful comments too!
One additional observation: just as it can take time and multiple attempts to find the optimal medication(s) and dose(s), it can take time and multiple attempts to find the optimal therapeutic approach. This can be frustrating and expensive. It can be difficult to assess when it is time to transition to a new approach. One friend explained to me that they consider their different therapies like tools in a toolbox. Some situations require a hammer and others require a screw driver, etc.
There is something that doesn't add up (to me) based on two statements in the article. 1. "Only one child qualified for non-merit aid—a $300 Pell grant." 2. "The best we could do was get each of them through high school and then they were on their own. We were not going into debt for them." With five children. I assume that for many years there were multiple children attending college at the same time. If the ONLY need-based aid that any child qualified for was a $300 Pell grant, doesn't that imply a very high income? I am struggling to jibe the lack of need-based aid with the idea that any help beyond high school would require going into debt.
Once you get past the initial 12 month holding period, I think I-bonds are perhaps the very best option for holding emergency funds. Your emergency funds are 100% protected against 4 types of risk: default, inflation, deflation, and liquidity. You also get tangible tax benefits. It is not too hard to build up a large emergency fund over the course of a few years (especially if you have a spouse and one or more trusts).
Ahh...that was your mistake - speaking German instead of "Austrian." The correct Austrian greeting is "grüß Gott" (groyce gott). Joking aside, I had the exact same experience at my hotel in Vienna. Such a great city to visit.
Card data does get copied and stolen at places where you hand over your card (e.g., restaurant), but why would someone at a restaurant have access to two of Jim's credit cards? That ranges from unlikely to impossible. Also the gas pump skimmer will not get the security code printed on the back of your card. Both scenarios can lead to fraud, but neither one can explain what happened to Jim
Comments
Very few people have the fortitude for an "all stock" portfolio. We think we do (especially after a long bull run), but the vast majority of us do not. The challenge is not just being able to handle the stress when your investments decline by 30+%. The bigger challenge is that the decline usually is happening in conjunction with some other scary / terrible news. Your stocks are down 30% and you were laid off and unemployment has tripled in the past few months. Your stocks are down 30% and so many people are dying in NY that they are parking refrigerated trucks behind the hospitals to hold all the bodies. Your stocks are down 30% and terrorists just attacked a US base abroad and killed several hundred who serve in our military. Etc.
Post: Getting Going
Link to comment from February 1, 2025
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.
Post: Advice for the Kids
Link to comment from November 9, 2024
I believe that the overwhelming majority of people can't do what you suggest (e.g., read and understand a prospectus, understand who is managing a fund and the implications if that manager leaves, etc.). Most people know that they can't do it and won't even try. Another subset of people think that they can do it, but they are overestimating their abilities. Assuming that I am correct about this, I think it is far more important for people to seek out simple investments that circumvent the issue (e.g., broad market index funds = no concerns about the manager and easy to understand) and perhaps work with a fiduciary financial advisor periodically. A good financial advisor can help people to understand how their investments should reflect their needs / circumstances (e.g., your iBonds vs. TIPS scenario). Ideally, you should only have to meet with the financial advisor when your circumstances change.
Post: Ask the Question
Link to comment from April 25, 2024
Many years ago (senior year of high school) when I worked as a waiter at a busy restaurant, I would wake up in the middle of the night in a panic that I had tables still waiting for their food!
Post: Retirement Dreams
Link to comment from February 21, 2024
The $12,000 you mentioned for 1980 must have included everything (room, board, books, etc.). According to historic tuition data I found online (https://t.ly/BwvPE) tuition (and fees) cost $8,895 in 1983 (the closest year that I could find). Northwestern tuition rose to $63,468 in 2023. If their tuition increased in proportion to overall inflation, it should only be $27,248. In my opinion, this is the bigger problem.
Post: An Educated Choice
Link to comment from August 2, 2023
Such a great article and great, thoughtful comments too! One additional observation: just as it can take time and multiple attempts to find the optimal medication(s) and dose(s), it can take time and multiple attempts to find the optimal therapeutic approach. This can be frustrating and expensive. It can be difficult to assess when it is time to transition to a new approach. One friend explained to me that they consider their different therapies like tools in a toolbox. Some situations require a hammer and others require a screw driver, etc.
Post: Money Talks
Link to comment from July 12, 2023
There is something that doesn't add up (to me) based on two statements in the article. 1. "Only one child qualified for non-merit aid—a $300 Pell grant." 2. "The best we could do was get each of them through high school and then they were on their own. We were not going into debt for them." With five children. I assume that for many years there were multiple children attending college at the same time. If the ONLY need-based aid that any child qualified for was a $300 Pell grant, doesn't that imply a very high income? I am struggling to jibe the lack of need-based aid with the idea that any help beyond high school would require going into debt.
Post: Making Their Own Way
Link to comment from June 21, 2023
Once you get past the initial 12 month holding period, I think I-bonds are perhaps the very best option for holding emergency funds. Your emergency funds are 100% protected against 4 types of risk: default, inflation, deflation, and liquidity. You also get tangible tax benefits. It is not too hard to build up a large emergency fund over the course of a few years (especially if you have a spouse and one or more trusts).
Post: I Buy, I Sell
Link to comment from May 20, 2023
Ahh...that was your mistake - speaking German instead of "Austrian." The correct Austrian greeting is "grüß Gott" (groyce gott). Joking aside, I had the exact same experience at my hotel in Vienna. Such a great city to visit.
Post: Worldly Wisdom
Link to comment from March 18, 2023
Card data does get copied and stolen at places where you hand over your card (e.g., restaurant), but why would someone at a restaurant have access to two of Jim's credit cards? That ranges from unlikely to impossible. Also the gas pump skimmer will not get the security code printed on the back of your card. Both scenarios can lead to fraud, but neither one can explain what happened to Jim
Post: Aftermath of a Scam
Link to comment from March 11, 2023