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How Big Is Your Umbrella, Follow-Up
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AUTHOR: Philip Stein on 5/1/2025
FIRST: Ben Rodriguez on 5/2 | RECENT: Philip Stein on 5/3
How Big is Your Umbrella?
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AUTHOR: Philip Stein on 4/11/2025
FIRST: Edmund Marsh on 4/11 | RECENT: baldscreen on 4/13
Meet Marcus
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AUTHOR: Philip Stein on 6/23/2024
FIRST: David Powell on 6/23/2024 | RECENT: Bottom Feeder on 6/29/2024
MANY FOLKS EQUATE a stock market downturn with losing money. I often hear comments like, “I lost money yesterday. The stock market went down.”
I believe this impression of loss is an illusion, one that can be detrimental to our financial health—because it blinds us to certain fundamental truths.
1. Illusion of lost money. You only lose money if you sell shares at a loss. If you don’t sell amid a downturn,
I RECENTLY FINISHED reading the second edition of William Bernstein’s The Four Pillars of Investing—twice. This new edition is a significant rewrite of the first edition that was published in 2002. Even if you’ve read the first edition, reading the second edition is worth your time.
Though I’ve read most of the books written by well-known investment luminaries familiar to HumbleDollar readers, there were still pearls of wisdom I gathered from this second edition.
COMMENTARY ABOUT America’s wealth inequality seems to be everywhere. According to Wikipedia, as of 2021’s fourth quarter, Federal Reserve data indicate that the top 1% of households hold 32.3% of the country’s wealth.
Meanwhile, Pew Research Center reports that the median wealth of the richest 20% of American families increased by an inflation-adjusted 45% between 1998 and 2007, while the median wealth of middle-income families rose just 16%.
And then there’s the Federal Reserve Bank of St.
DURING MY 30s, I worked for a defense contractor. The Berlin Wall fell in November 1989 and the Soviet Union imploded just over two years later. Many at work believed that the end of the Cold War would lead Congress to reduce defense spending. Sure enough, layoffs at my company commenced soon after.
I was fortunate to avoid being laid off. I do recall, though, overhearing one coworker in his 50s who, after receiving a pink slip,
NASSIM NICHOLAS TALEB has written a trilogy on the topic of chance: Fooled by Randomness, The Black Swan and Antifragile. I didn’t find these three books to be easy reading, plus Taleb has strong opinions, which may turn off some readers. Still, there’s a host of investment lessons to be culled from his works.
Taleb argues that randomness plays a powerful role in financial markets and,
IF I MADE A LIST of all the dumb things investors do, I likely committed them all. I chased performance, sold stocks in a bear market, invested in things I didn’t understand—you get the picture.
Yet, despite the numerous setbacks I suffered before I matured as an investor, I was able to retire comfortably. How was that possible? My conclusion: compound growth. Indeed, I believe compounding is a surer way to wealth than picking market-beating investments.
Comments
I recently finished re-reading William Bernstein’s Four Pillars of Investing. Your strategy is consistent with the advice Bernstein offers in his book. I’d say you’ve done well and should continue to do so.
Post: Your Portfolio, Your Business
Link to comment from October 4, 2025
Like all HumbleDollar readers, I’m heartbroken after learning of Jonathan’s passing. I feel like Socrates’ students must have felt after their master drank his fateful cup of hemlock. My teacher, my guiding light is gone. I shall not see another like him in my lifetime. Rest in peace, Jonathan.
Post: Farewell Friends
Link to comment from September 22, 2025
Bogdan, welcome to the HumbleDollar site! A few questions for you: How did you meet Jonathan? What were the circumstances by which Jonathan chose you as moderator of the site? What is your day job? Do you have an independent accounting practice, or are you employed by a large firm? In addition to CPA, do you have any plans to become a financial advisor?
Post: Quick Intro
Link to comment from September 21, 2025
Much of the discussion below centers around the FICA tax. But, as William Dorner mentions, isn’t another necessary reform raising the retirement age? With advances in healthcare helping people live longer, 70 may be the new 65. For decades, demographers have been telling us that Social Security will be in trouble when the Baby Boom generation retires. Indeed, that has come to pass. Yet, numerous congresses have been content to kick the can down the road. Like other HumbleDollar readers, I’m disheartened by the failure of Congress to tackle the hard problems the nation faces. The cynic in me sees too many representatives more interested in reelection and ideology than passing tough, but necessary, legislation and taking the heat.
Post: Does Social Security work?
Link to comment from August 30, 2025
I have a rule for when it’s time for a new pair of shoes: I step in a puddle and my sock gets wet. Also, I’ve found that you can find nice T-shirts at the Goodwill Store for $2 or $3 each.
Post: Frugality, Minimalism, and Aligning Values
Link to comment from August 30, 2025
In my neighborhood, it’s easy to identify the households with too much accumulated stuff. They’re the ones who always park on the driveway or in the street because their car won’t fit in the garage.
Post: Frugality, Minimalism, and Aligning Values
Link to comment from August 30, 2025
Steve, upon reading your post, I wondered if the students taking your stock fund investing module would first need to satisfy any prerequisites. In particular, I would hope they would have a good basic understanding of both inflation and compound growth before considering stock fund investing. I suspect few young people have ever considered how inflation affects a currency’s “purchasing power.” The table on page 38 of the latest edition of Burton Malkiel’s A Random Walk Down Wall Street is a good illustration of the decline of purchasing power of the dollar over the period from 1962 to 2021. If you are to increase your wealth, this table illustrates how, over the long term, you must earn investment returns that exceed the inflation rate, otherwise your purchasing power along with your wealth will either languish or decline. Over time, what can you invest in that will give you the best chance to earn inflation-beating returns? Well, stocks of course. Hence, a natural lead-in to stock fund investing. While inflation is an obstacle to growing wealthier, compound growth is a wind at our backs. A graph of the exponential growth of an investment should impress upon the students that investing is slow cooking and is an activity that spans decades. It should also stress the importance of investing continuously over the course of one’s working life and not doing anything to disrupt compounding. Hopefully, this would also help the students understand the difference between investment (requiring patience) and speculation (desire for quick profits). Thinking back to the time when I was 18, I can’t recall knowing anything about inflation or compounding (other than, perhaps, compound interest in a savings account.) If I had taken a stock fund investing course at that time, I suspect that I would have thought of stock investing as a way to “get rich” rather than a way to build financial security.
Post: A Teenager’s Walk Through the Stock Fund Wilderness
Link to comment from August 2, 2025
In the July 1 issue of The Wall Street Journal, Spencer Jakab penned an article titled “Investors Are Right to Love Dividends.” He concedes that a dividend payment doesn’t put the investor ahead since the stock price declines by the same amount. But he emphasizes that the companies that pay dividends have value and quality characteristics that are associated with long-term investment success. These companies have value because they have profits which are the source of dividend payments. They have quality because such companies must be more judicious about spending the cash that is not shared so dividend payouts can be maintained. Data from the past 50 years compiled by Ned Davis Research shows that the annualized return of S&P 500 dividend payers exceeded that of non-payers and would have provided 10 times as much wealth before taxes. S&P 500 dividend payers also beat an equal-weighted S&P 500 basket of stocks. While there may be nothing special about dividends per se, the companies that pay them often are special.
Post: Dividend Days
Link to comment from July 5, 2025
Which value fund did you use for comparison? Was it a large-cap value fund? Was it actively managed? The years 2000 - 2010 are known as the “lost decade” for the S&P 500, which lost an average of about 9% each year. But other asset classes like small-cap value and REITs did fairly well. What you have demonstrated is that during your chosen time period, your value fund outperformed the S&P 500. But choose a different time period and the result would likely differ. I believe Jonathan’s arguments are still valid.
Post: If I Didn’t Index
Link to comment from June 14, 2025
The Achilles Heel of cryptocurrency is its dependence on a functioning internet. Fires, floods, hurricanes, etc. can knock out power grids and communications networks. During such times, people will not be able to use cryptocurrency to purchase what they need. The same can be said of credit/debit cards and mobile payments. The failure of the Texas power grid in February 2021 is a good example of cashless payments rendered useless when the ability to transact is most needed. It’s not likely cryptocurrency would have helped Texans who were stuck for days in freezing temperatures without power. Blockchain databases and crypto wallets are, no doubt, prime targets for hackers looking for ransom payments. During wartime, our communications networks will be a prime targets for our enemies. A cashless society is likely a vulnerable society dependent on power grids and communication networks that are not as robust as we believe or wish them to be. I believe there will always be a need for a fiat currency (aka cash) which enables us to transact during extreme circumstances. If people hope to use cryptocurrency to conduct their financial affairs, that’s fine with me. But I personally would oppose any attempt to eliminate cash from our society.
Post: Up Because It’s Up
Link to comment from June 1, 2025