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Paid With Pain

John Lim

John is a physician and author of "How to Raise Your Child's Financial IQ." He missed his true calling, which was to be either an economist or a financial writer. His hobbies include running and classical music.

    Paid With Pain

    John Lim  |  Apr 5, 2023

    INVESTING IS PRETTY simple. If you don’t need to touch your money for 10 years or so, a good chunk of it can be invested in a globally diversified basket of stocks, preferably using very low-cost index funds. The likelihood that your stock holdings will have lost money after a decade is quite low, and exceedingly low if your holding period is 15 years or longer. Moreover, your investment is likely to outperform all other asset classes,

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    Think Again

    John Lim  |  Jun 3, 2022

    “WHO DOESN’T KNOW that already?” That’s the question we should ask when making an investment decision.
    Take Tesla. It builds wonderful cars. It’s an innovative company led by a visionary CEO. Its sales are growing by leaps and bounds. Question: Who doesn’t know that already?
    If the attributes of a company are widely known, more than likely its stock price reflects that. The question for investors isn’t whether Tesla is a great company. Rather,

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    Buy High Sell Never

    John Lim  |  May 28, 2022

    IN BEN CARLSON’S wonderful book, A Wealth of Common Sense, there’s a vignette about Bob, the world’s worst market timer.
    Bob is a diligent saver. But unfortunately, he’s cursed with horrible market-timing skills, plowing money into the stock market just before every major decline. For you market history buffs, Bob buys into an S&P 500 index fund on the following dates: December 1972, August 1987, December 1999 and October 2007. The subsequent plunges from these highs were 48%,

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    Hard to Follow

    John Lim  |  May 21, 2022

    “BUY LOW, SELL HIGH.” This is probably the most famous investment adage. It sounds so simple and commonsensical—a sure path to success. Like so many investing truisms, however, following it is easier said than done.
    For one thing, how do we really know when we’re buying low? When it comes to a pair of jeans or a laptop computer, we have a good sense of value. When they go on sale, we snap them up without hesitation.

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    How to Bear It

    John Lim  |  May 14, 2022

    INVESTING MAY BE simple, but it’s far from easy. Our mettle is tested during market extremes, whether it’s bubbles or bear markets. Today, both U.S. and international stocks are close to bear market territory. Amazingly, even major bond market segments are sporting double-digit losses, with Vanguard Total Bond Market ETF (symbol: BND) down almost 10% in 2022.
    What makes years like this one so difficult is our deep aversion to losses. Successful investing is about balancing risk and reward.

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    Lords of Easy Money

    John Lim  |  May 6, 2022

    THE FEDERAL RESERVE has a daunting responsibility. Among its jobs is “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” This is commonly referred to as its dual mandate of maximum employment and price stability.
    Yet those two aims are often at odds. That’s because of the inverse relationship between unemployment and inflation, embodied by the Phillips Curve. Attempts to maximize employment—or minimize unemployment—often stoke the flames of inflation.

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    Funny Money

    John Lim  |  May 5, 2022

    DO YOU SEE THINGS clearly when it comes to money? Here’s a test to find out. Which of the following scenarios would you prefer?

    A 5% raise, but the inflation rate is 10%.
    A 3% salary cut, but the inflation rate is 0%.

    If you chose the 5% pay raise, you’ve fallen victim to a “money illusion.” This term describes our tendency to view money in nominal terms instead of inflation-adjusted “real” terms.
    In the first scenario,

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    More Isn’t the Answer

    John Lim  |  Apr 29, 2022

    “ENOUGH” IS a powerful notion. Unfortunately, it’s largely absent from financial conversations.
    The concept is rooted in deep self-awareness. It asks the question, how much do I really need to be happy? I believe we should ask this more often because, if we don’t, culture will fill in the blank—and the default answer will be “more.”
    Enough has two dimensions. The first dimension is about spending. Too often, we succumb to the hedonic treadmill—the endless pursuit of the next thrilling purchase,

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    How to Use I Bonds

    John Lim  |  Apr 19, 2022

    WITH THE RELEASE of March’s Consumer Price Index, we now know that a risk-free investment yielding 9.6% will be available as of May 2. I’m speaking, of course, about Series I savings bonds from the U.S. Treasury, which have lately been all the rage. To take advantage, all you need to do is open an account at TreasuryDirect.gov. Last year, it took me all of 10 minutes to open my account.
    I first wrote about I bonds back in October 2021.

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    Ditching Bonds

    John Lim  |  Apr 8, 2022

    THE RECENT CARNAGE in bonds has been unusually fierce. The Bloomberg Aggregate Bond Index is down more than 7% year-to-date. Unfortunately, this may be the tip of a very large iceberg. I believe we may be standing on the precipice of a multi-decade bear market for bonds.
    The reason for my concern can be summed up in one word: inflation. It’s the great enemy of bond investors—and yet, despite an inflation rate that’s at four-decade highs,

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    Matters of Maturity

    John Lim  |  Mar 29, 2022

    KNOWING WHAT RETURN you can reasonably expect from stocks, bonds and other asset classes is valuable because it can help you make more educated asset allocation choices. It also helps you decide how much you need to be saving. If expected returns are low, you’ll need to save more.
    Such estimates don’t require extraordinary clairvoyance. In fact, when it comes to bonds, estimating returns is quite straightforward. The expected return from a bond is very close to something called the bond’s yield to maturity,

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    The Greatest Virtue

    John Lim  |  Mar 19, 2022

    JASON ZWEIG of The Wall Street Journal recently proclaimed the importance of courage when investing. Courage is indeed an essential quality, especially when mustering the resolve to buy stocks when there’s “blood in the streets,” as is the case quite literally today.
    Yet I would argue that the greatest investment virtue—and the one that’s currently most lacking—is patience.
    According to Morningstar’s Michael Laske, the average turnover ratio for U.S. stock funds is 63%.

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    Paying for Aging

    John Lim  |  Mar 10, 2022

    HERE’S A SOBERING statistic: It’s estimated that 50% to 60% of 65-year-olds will require long-term care at some point in their lives. This is defined as assistance with activities of daily living—things like taking a bath, dressing oneself, and maintaining bowel and bladder continence. How’s that for something to look forward to?
    Such care isn’t cheap. By some estimates, the average 65-year-old can expect to incur $138,000 in long-term-care (LTC) expenses, with half of that cost borne by families.

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    A Creation Story

    John Lim  |  Mar 2, 2022

    ACCORDING TO GMO investment strategist Jeremy Grantham, we’re in the midst of a rare “superbubble,” which he defines as a three-sigma event. Three sigma is a statistical term in probability, referring to an event which should occur less than 0.3% of the time or about once every 333 years.
    Calling a bubble, let alone a superbubble, can be hazardous both to one’s reputation and one’s wallet. Even if Grantham’s call is correct, using that information to make money—or avoid losses—is easier said than done.

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    Buffett Is Human, Too

    John Lim  |  Feb 5, 2022

    IMAGINE PUTTING your teenager behind a steering wheel to take a driving test without any prior preparation. The result is predictable—she would fail and you’d be lucky if she didn’t crash. Would you reprimand her for this result? Of course not.
    So why is it that so many of us are merciless—both to ourselves and even our loved ones—when it comes to our investing blunders? You know what I’m talking about: putting money into a meme stock that subsequently cratered;

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