Jonathan Clements

OTHERS MIGHT BE hoping to add to their wealth by picking the next hot stock. But here at HumbleDollar, we’re much more concerned about subtraction.
The goal: Keep more of whatever the financial markets deliver by minimizing investment costs and avoiding unnecessarily large tax bills. This is a reason to favor index funds. But even if we index, we need to be alert to another threat—that posed by the person in the mirror.

ON SEPT. 11, 2001, I spent an hour and a half standing on a crowded subway train two blocks from the World Trade Center. During that time, both towers collapsed. No smoke came shooting down the subway tunnel. The earth didn’t noticeably shake. There were no deafening noises. Instead, we were just another subway car packed with disgruntled passengers, muttering about the perils of public transport.
It was only when the train backed up to Penn Station in midtown Manhattan that we learned what had happened that day.

U.S. AND FOREIGN STOCKS are highly correlated, with monthly returns that move in the same direction almost all the time. Because of this, some have argued that there’s scant reason to diversify internationally.
But there’s a small problem with this argument: Just because investments move in the same direction doesn’t mean they generate the same return. For proof, consider the past 20 calendar years.
Over that stretch, there were only three years when U.S.

WHEN WE CHOOSE TO do one thing with our time and money, we’re also choosing not to do countless other things. The purchases made and the possibilities forgone sometimes turn into lasting regrets.
That is, to a degree, unavoidable. We often misjudge not only what we want today, but also the wants of our future self. Still, I firmly believe we can all do better—if we avoid impulsive decisions and instead spend time thinking through life’s key tradeoffs.

WE SAVE TOO LITTLE, spend too much and what we buy often disappoints. Is there an antidote for this financially self-destructive behavior? One intriguing possibility: visualization.
If you’re like me, the word itself makes you a little queasy. It conjures up images of both self-absorbed, navel-gazing yuppies (not something I aspire to be) and Olympic athletes getting in the zone (not something I’ll ever be). Still, I think there’s value in spending serious time pondering our financial goals.

FORGET BUYING A HOME or paying for college. In terms of complexity and cost, nothing comes close to retirement—a topic that encompasses saving, investing, taxes, Social Security, health care expenses and countless other financial issues.
Fortunately, there’s a growing body of research to guide us, and some of the best studies come from Boston College’s Center for Retirement Research (CRR). Here are just some of the insights I’ve lately garnered from CRR studies:
Valuing annuities.

IT’S RISKY TO LAY down hard-and-fast rules for money management because, for every rule, there will almost inevitably be exceptions.
Still, as they say, “nothing ventured, nothing gained.” Below you’ll find 18 rules. Want to quibble? Hey, that’s why HumbleDollar allows readers to comment on articles.
1. Minimize cash. With short-term interest rates so low, keeping money in savings accounts and money market funds seems especially grim right now. But the truth is,

SERIES I SAVINGS bonds have lately garnered a lot of investor interest because—if you buy during the current six-month purchase period—your initial annualized interest rate will be 3.54%. You’ll only earn that for the first six months. Thereafter, your yield will match the inflation rate. For bonds purchased between May and October, there’s no additional interest paid, over and above the inflation rate.
Still, the higher inflation climbs, the more interest your I bonds will earn.

WE JUST LAUNCHED our newest feature: A blog that’ll be updated two or three times a day with new posts that typically run some 300 words. These posts will, I hope, complement the site’s longer articles, which we’ll continue to publish, though perhaps less frequently.
Why introduce a blog? It’ll allow HumbleDollar to be more timely. It’ll be a way to tackle topics that don’t require full-length articles. And it’ll be another opportunity to highlight the financial philosophy that drives much of what we write—and what makes HumbleDollar different from most other financial sites:

We think harping on the stock market’s daily action is foolish and that the forecasts of Wall Street’s chattering class aren’t just worthless,

IF YOU THINK BITCOIN or any other cryptocurrency will one day be used as readily as dollars and cents, give some thought to this year’s volatility. Suppose you were using your bitcoin stash to pay your $2,000 monthly mortgage payment. Between April and today, the effective cost of your mortgage would have doubled—because bitcoin’s value has been pretty much cut in half.
Now, if you were paid in bitcoin and your mortgage payment was fixed at some value specified in bitcoin,

IF YOU WANT TO SEE your fellow citizens at their least appealing, look no further than online discussion forums. All too often, they’re a repugnant cesspool of anger, bullying and boastfulness. The comments posted on HumbleDollar are typically fairly civil, though even they occasionally veer toward the unnecessary nastiness that’s rampant everywhere else.
But here’s what these virulent commenters miss: Their postings reveal far more about themselves than about the subject they’re opining upon.

THERE’S NOTHING THAT deters financial planning like a scarily large price tag.
We should ask ourselves all kinds of tough financial questions. But many of the toughest never get asked—because we know answering them will involve agonizing choices, difficult conversations and unthinkable amounts of dollars. Consider these four:
1. How would you cope if you were out of work for six months? As I’ve noted in earlier articles, the big financial emergency isn’t replacing the roof or the air-conditioning system,

WHAT WORRIES ME? It isn’t the stock market, but rather stock market investors.
Despite all the hand-wringing, this doesn’t strike me as an especially dangerous time to own stocks. Corporate earnings are rapidly recovering from last year’s economic shutdown—not exactly a scenario where you’d expect a big stock market decline. Meanwhile, bonds and cash investments are offering scant competition for investors’ dollars, which is another reason to be bullish on stocks.
But even if the overall market appears no riskier than usual,

EMERGENCY MONEY IS dead money—and it’s rarely looked more dead.
Just as we shouldn’t carry more insurance coverage than we really need, we shouldn’t hold more emergency cash than necessary. Why not? Excessive money spent on insurance and kept in our emergency reserve will likely come with a hefty opportunity cost. Indeed, thanks to the double whammy of inflation and taxes, our cash reserve will slowly depreciate, and that’s especially true given today’s rock-bottom interest rates.

IT MIGHT SEEM LIKE an obscure academic question: Do stocks truly follow a random walk or can we count on them reverting to the mean? Depending on which side we favor in this debate, it can make a huge difference to how we invest—and to our confidence as investors.
Like me, many HumbleDollar readers have most or all their investment dollars in index funds. A key reason we invest this way: It’s impossible to predict which stocks will shine because they follow a random walk.