FREE NEWSLETTER

Financial freedom isn’t the ability to buy anything we want. Rather, it’s knowing we already have what we need.

Latest PostsAll Discussions »

Stock Market Contest

"My guess is individual stocks will win but a broad fund will best most others. At least there may be one lesson there."
- Randy Dobkin
Read more »

Tax Efficiency

TAX EFFICIENT FUND placement is an often underrated topic. The goal of the tax efficient fund placement is to minimize taxes within your investments, and select the right account for those investments.

But how much does that actually matter?

Vanguard’s research finds that a thoughtful asset location strategy can add significantly more value than an equal location strategy. The value added typically ranges from 5 to 30 basis points of after-tax return, depending on circumstances (e.g., income, portfolio size).

Investors generally have access to different account types, including:

  • Tax-free accounts (Roth IRA, Roth 401(k))
  • Taxable brokerage accounts
  • Tax-deferred accounts (401(k), 403(b), Traditional IRA)

If you are an employee that may not have access to a retirement plan, you could perhaps consider a Solo 401(k) if you have "side hustle" business income.

Generally, if your investments are all in tax-deferred or tax-free accounts, fund placement will not make a huge difference for you. That is because these accounts already come with tax efficiency.

If that's your case, two things become important though:

1. Consideration between pre-tax, like Traditional 401(k) or after-tax account, like Roth 401(k). Put simply, this decision generally comes down to your marginal tax rate now versus marginal tax rate in the future (which isn't something easy to predict due to the ever-changing tax landscape).

2. Account allocation. It becomes equally important where exactly you are investing. Roth accounts grow tax-free and qualified withdrawals are tax-free. You likely don't want to hinder that growth by choosing conservative assets (like fixed income, Money Market Funds, and so on).

Tax-efficient fund placement becomes extremely important when you also have a taxable brokerage account, along with tax-advantaged accounts. Many funds pay dividends and distribute capital gains if placed in your taxable brokerage account. At the end of the year, you receive a 1099 with that income and must pay taxes on the dividends and certain distributions.

One thing to call out from history is that you generally shouldn't hold Target Date Retirement mutual funds (or any "proprietary" funds) in your brokerage account. This is because unexpected redemptions could cause a huge tax bill.

You may remember a Vanguard 2021 fiasco where Vanguard opened an institutional TDF to more investors (lowered the minimum investment from $100M to $5M), which caused smaller retirement plans to sell out of individual funds and move into the institutional fund. This triggered massive unexpected capital gains for anyone invested in the individual funds if held in a brokerage account.

All of those unnecessary taxes could've been avoided by:

  • Choosing investments that don’t distribute many dividends or capital gains
  • Choosing passively managed investments (low portfolio turnover)
  • Placing them in tax-advantaged accounts

Let me give you a simple example:

Let’s say you are in a 22% federal tax bracket and a 5% state tax bracket, and you have some money invested in a dividend fund like Schwab US Dividend Equity ETF (SCHD). SCHD dividends are generally qualified, which means that the dividends get preferential treatment at a 15% federal tax rate for this investor.

The dividend yield is 3.43%. Considering the tax rates, the tax drag is (15% + 5%) * 3.43% = 0.686%.

To put this in perspective, a $10,000 investment will yield ~$343 in annual dividends. The tax impact on that investment will be $60.86.

Of course, if that money was in a Roth IRA, you would pay $0 in taxes on dividend distributions. Alternatively, this is something you may need to decide whether a dividend-focused investing strategy is the right one for you. For example, a Total US Stock Market ETF could have almost 3x less tax drag, and potentially more growth.

As someone in their 20s (who is subject to the Net Investment Income Tax) my focus is 100% on a growth investment strategy, rather than income generation. For someone in their 60s, that strategy could be different (even though selling shares for capital gains is better from a tax timing point of view).

A few more important points:

REIT stocks/ETFs are the least tax-efficient asset class to hold in a brokerage account because their distributions aren’t qualified, so you pay more tax (even though it may qualify for a 199A deduction).

Stocks that don’t pay dividends are the most tax-efficient to hold within your taxable account (Adobe, Amazon, Netflix, and others). However, holding individual stocks may not be the best strategy from an investment and diversification standpoint.

A big benefit of a taxable account is that the money is always easily accessible (liquidity), and you can control your withdrawal timing. While there are strategies that allow you to withdraw from retirement accounts before age 59 (like Rule of 55, 72(t) SoSEPP, Roth conversions), a brokerage account is more flexible. Therefore, analyzing the contributions and investments that go into this account is crucial.

How do you maximize tax efficiency? Let us know in the comments!   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.  

Read more »

Financial regrets about parenthood?

"Ben, Mike's decision not to have kids wasn't about money, it was about the sort of father he thought he would be. I know that it's commonplace to say that people aren't having kids because of cost of living pressures, but global fertility rates have been dropping for centuries. And all the data shows that fertility rates are actually lower in wealthier countries. The choice to have kids, or not, is a very personal one. And the global data shows that it really doesn't come down to "can we afford this"."
- greg_j_tomamichel
Read more »

Any concern?

"Complete disregard for all market situations. I sold everything on March 2nd. Almost every year I sell once when risk is too high. Usually I'm out for 1–3 weeks, but in 2022, I was out 10 months. My model is based on timing + slow trading + funds in leading categories that have excellent risk-adjusted performance. Of course, you can stay in indexes and do pretty well, but you also suffer all the market volatility. Your only solution to lower volatility is bonds. Sometimes you will be far behind:
  • The SP500 lags as it lost money from 01/2000 to 01/2010.
  • The US bond index has a terrible peformance for 3-5-10-15 years
Investors with pensions, especially pensions that cover all expenses, are not the norm. Most don't have them. History of my allocation 1995-2000 + 2000 until last year = very high % in the US 2000-2010 = value, small cap, international since 2025 = international"
- Fund Daddy
Read more »

The Home Ownership Gamble

"I cover the rent on a property for one of my daughters. The idea of buying a place has crossed my mind more than once, but her volatile and impulsive nature has always stopped me from doing so. For all I know, in six months, a year, maybe two, she could decide to up and move to another city or another country entirely — leaving me to sell after a short ownership period and exposing myself to real market risk. Keeping the property and becoming a landlord would hold zero appeal for me."
- Mark Crothers
Read more »

Perfection, enemy of good

"G'day Kristine - thanks for the feedback. Not necessarily my view, but there is a different way to view this lifestyle spending. If you "pay yourself first" by contributing to your savings accounts, retirement accounts, debt repayments etc. then feel free to have whatever lifestyle you want. I think the trouble is that many, many people pay themselves last, only saving after all their lifestyle spend. But I do agree about lifestyle creep in general. The number of large expensive cars on the road, houses larger and more expensive than required and eating out becoming the norm rather than a treat, all leave m thinking that people must leave themselves in a rather precarious financial position."
- greg_j_tomamichel
Read more »

Blood Money

"Jim Burrows! I think you missed this very salient NUA post. The author is a little cynical, but I've heard he sleeps like a baby."
- Michael Flack
Read more »

Why I use a Donor-Advised Fund

"Our after tax account is pretty equally divided between a total market index fund and a tax efficient fund. The performance of the two is very similar. But when doing our taxes this year, I noticed the index fund had major taxable gains; the taxable income on the tax efficient fund was zero. I’m also concerned about leaving my kids— who are high earning professionals— taxable IRAs. We do regular major Roth conversions each year."
- Marilyn Lavin
Read more »

How Deals Hurt Returns

THERE'S BEEN DRAMA recently in a normally quiet corner of the market. This story got its start back in 2015, when Warren Buffett helped to merge food makers Kraft and Heinz. At first, it looked like a smart idea. Through cost-cutting, the combined company was expected to save more than $1 billion in annual operating expenses. “This is my kind of transaction,” Buffett said at the time, “uniting two world-class organizations and delivering shareholder value. I’m excited by the opportunities for what this new combined organization will achieve.” The excitement was short-lived, and many observers were skeptical from the start, mainly because Buffett had teamed up with a private equity firm called 3G to make the purchase. 3G had a reputation for being overly zealous when it came to cost-cutting. Initially, Buffett defended 3G. They “could not be better partners,” he wrote in his 2015 annual letter. But within a few years, it became clear that the skeptics had been right. Sales at the combined company began falling, and in 2018, Buffett’s Berkshire Hathaway recorded a $15 billion write-down on the value of its Kraft Heinz holdings. The following year, Buffett publicly acknowledged that the merger had been a mistake and that Berkshire had overpaid for its stake. “The business does not earn more because you pay more for it,” he said. In the years since, Kraft Heinz has continued to struggle with declining sales. To address the problem, in January of this year, the company brought in a new CEO, Steve Cahillane, and tasked him with splitting the company back up again. By that point, though, Buffett had changed his mind again. His view was that it was now better to leave the combined company intact rather than going through the costly exercise of trying to break it back up. A breakup, he said, wouldn’t create value. “It doesn’t do a thing, you know, for what the ketchup tastes like.” Despite his influence, though, the break-up plan appeared to be moving forward, and Cahillane took the helm on January 1 with that mandate.  Within weeks, Cahillane came around to Buffett’s point of view. The company’s woes were more fundamental, he told the board, and breaking it up wouldn’t address those core issues. Where things go next is an open question.  This story is notable because of Warren Buffett’s involvement, but it turns out not to be so unusual. Studies over the years have found that corporate mergers and acquisitions, on average, do not create value. According to a study by KPMG of more than 3,000 acquisitions, 57% of deals were found to detract from shareholder value rather than increase it. Other research puts the failure rate in the neighborhood of 70%. Aswath Damodaran, a finance professor at NYU, sums it up this way: “More value is destroyed by acquisitions than by any other action that companies take.” Why do so many transactions detract from shareholder value? Economist Richard Thaler attributes it to what he calls the “winner’s curse.” This phenomenon was first identified in the petroleum industry, where competitive auctions are held for oil leases. Research found that the winners of these competitive auctions often ended up disappointed—not because they didn’t find any oil, but simply because they had overpaid. Thaler explains that auctions—especially when there are large numbers of bidders—can cause some participants to become emotional, to the point that they become undisciplined and end up bidding too much. The winners in these situations are thus “cursed” because they’re the ones who were willing to overpay the most and thus tend to be most disappointed. Thaler found that the winner’s curse dynamic appears across industries, and that is what explains the poor track record of corporate acquisitions. Competitive situations, whether it was in the Kraft-Heinz case, or in the one that recently played out in the competition for Paramount, can cause prices to go too high. That’s great for sellers but a key reason why acquirers often end up regretting their decisions and why a large number of corporate takeovers end up being reversed. So why, despite all this data, do corporate managers—including even Warren Buffett—pursue these transactions? There are three key reasons.  The first is that they’re an easy way for companies to combat stagnant growth—much easier than the hard work of developing new products. This helps explain the Kraft-Heinz tie-up. According to a write-up in 2015, when the merger was first announced, many of Kraft’s businesses had been stalled out, delivering zero or even negative growth. Another reason mergers and acquisitions are popular despite the odds: Corporate managers tend to overestimate the economic benefits—so-called synergies—that will result from a transaction. Consider companies like Kraft and Heinz. It was easy to make the argument that two companies in the same industry would be able to gain significant efficiencies by combining operations and realizing economies of scale. And since some number of transactions do succeed, even if it’s only a minority, it’s natural for corporate managers to believe that their transaction will be the one to beat the odds. In a 1986 paper, economist Richard Roll identified a related phenomenon, which he dubbed “the hubris hypothesis.” The logic is as follows: Corporate managers who find themselves in a position to be making acquisitions are, by definition, probably doing well. Their stock prices are up, and they likely have cash in the bank. Because their businesses are strong, they’re more likely to feel self-confident in their ability to succeed with a merger or an acquisition even when the data suggests the odds are against them. The lesson for individual investors? Companies will probably always pursue transactions like this that end up subtracting from shareholder value. But since there’s no way to predict when this will happen, I see this as yet another reason to choose broadly-diversified index funds, where any one company’s mistake generally won’t have too much of a negative impact. Also, to the extent that the company being acquired is also in the index, passive fund investors can enjoy the benefits that accrue to that company’s shareholders.   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.
Read more »

Simplify Everything

"I'm not sure what you mean by "recommended multi-character passwords that show up every once in a while when I go to some new site". Are you getting that recommendation from your browser's built in password manager? I have used the Chrome browser since it first became available in 2008. That is what I continue to use and like it a lot. But I would not say that Chrome is necessarily "the best" anymore. It is intimately tied into the Google ecosystem which is both good and bad. I also have used Firefox quite a bit and it is a very good browser and independent of the big vendors (Google, Microsoft and Apple). I do not use Apple products, so am not personally familiar with Safari but have heard it is good. I am aware of but have not used Opera that much so can't comment. I would probably recommend using the one you are most comfortable with as they all do web browsing well. If you like experimenting, there is nothing wrong with installing additional browsers and trying them out. But unless you have a particular need for more than one, it is probably best to stick with one as they each operate a little differently in terms of options and configurations."
- Doug C
Read more »

Lent, Chocolate, and the Art of Retirement

"What a lovely coincidence — my wife and I have just returned from a walk into the little village of Bushmills, near our vacation home, where we picked up scallions for the colcannon we're making tonight... although we call it champ."
- Mark Crothers
Read more »

Note to HD Writers and Contributors

"First Elaine, belated condolences. I had no doubt HD would change without Jon's steady hand at the helm, but apologies on behalf of those who may have directed vitriol either at you or the site, which seems simply nuts. I'm still here as a reader, as I was way back in the day when Jon was at the WSJ. Sure, maybe it's a bit different, but still one of the very best personal finance sites out there. Best."
- medhat
Read more »

Stock Market Contest

"My guess is individual stocks will win but a broad fund will best most others. At least there may be one lesson there."
- Randy Dobkin
Read more »

Tax Efficiency

TAX EFFICIENT FUND placement is an often underrated topic. The goal of the tax efficient fund placement is to minimize taxes within your investments, and select the right account for those investments.

But how much does that actually matter?

Vanguard’s research finds that a thoughtful asset location strategy can add significantly more value than an equal location strategy. The value added typically ranges from 5 to 30 basis points of after-tax return, depending on circumstances (e.g., income, portfolio size).

Investors generally have access to different account types, including:

  • Tax-free accounts (Roth IRA, Roth 401(k))
  • Taxable brokerage accounts
  • Tax-deferred accounts (401(k), 403(b), Traditional IRA)

If you are an employee that may not have access to a retirement plan, you could perhaps consider a Solo 401(k) if you have "side hustle" business income.

Generally, if your investments are all in tax-deferred or tax-free accounts, fund placement will not make a huge difference for you. That is because these accounts already come with tax efficiency.

If that's your case, two things become important though:

1. Consideration between pre-tax, like Traditional 401(k) or after-tax account, like Roth 401(k). Put simply, this decision generally comes down to your marginal tax rate now versus marginal tax rate in the future (which isn't something easy to predict due to the ever-changing tax landscape).

2. Account allocation. It becomes equally important where exactly you are investing. Roth accounts grow tax-free and qualified withdrawals are tax-free. You likely don't want to hinder that growth by choosing conservative assets (like fixed income, Money Market Funds, and so on).

Tax-efficient fund placement becomes extremely important when you also have a taxable brokerage account, along with tax-advantaged accounts. Many funds pay dividends and distribute capital gains if placed in your taxable brokerage account. At the end of the year, you receive a 1099 with that income and must pay taxes on the dividends and certain distributions.

One thing to call out from history is that you generally shouldn't hold Target Date Retirement mutual funds (or any "proprietary" funds) in your brokerage account. This is because unexpected redemptions could cause a huge tax bill.

You may remember a Vanguard 2021 fiasco where Vanguard opened an institutional TDF to more investors (lowered the minimum investment from $100M to $5M), which caused smaller retirement plans to sell out of individual funds and move into the institutional fund. This triggered massive unexpected capital gains for anyone invested in the individual funds if held in a brokerage account.

All of those unnecessary taxes could've been avoided by:

  • Choosing investments that don’t distribute many dividends or capital gains
  • Choosing passively managed investments (low portfolio turnover)
  • Placing them in tax-advantaged accounts

Let me give you a simple example:

Let’s say you are in a 22% federal tax bracket and a 5% state tax bracket, and you have some money invested in a dividend fund like Schwab US Dividend Equity ETF (SCHD). SCHD dividends are generally qualified, which means that the dividends get preferential treatment at a 15% federal tax rate for this investor.

The dividend yield is 3.43%. Considering the tax rates, the tax drag is (15% + 5%) * 3.43% = 0.686%.

To put this in perspective, a $10,000 investment will yield ~$343 in annual dividends. The tax impact on that investment will be $60.86.

Of course, if that money was in a Roth IRA, you would pay $0 in taxes on dividend distributions. Alternatively, this is something you may need to decide whether a dividend-focused investing strategy is the right one for you. For example, a Total US Stock Market ETF could have almost 3x less tax drag, and potentially more growth.

As someone in their 20s (who is subject to the Net Investment Income Tax) my focus is 100% on a growth investment strategy, rather than income generation. For someone in their 60s, that strategy could be different (even though selling shares for capital gains is better from a tax timing point of view).

A few more important points:

REIT stocks/ETFs are the least tax-efficient asset class to hold in a brokerage account because their distributions aren’t qualified, so you pay more tax (even though it may qualify for a 199A deduction).

Stocks that don’t pay dividends are the most tax-efficient to hold within your taxable account (Adobe, Amazon, Netflix, and others). However, holding individual stocks may not be the best strategy from an investment and diversification standpoint.

A big benefit of a taxable account is that the money is always easily accessible (liquidity), and you can control your withdrawal timing. While there are strategies that allow you to withdraw from retirement accounts before age 59 (like Rule of 55, 72(t) SoSEPP, Roth conversions), a brokerage account is more flexible. Therefore, analyzing the contributions and investments that go into this account is crucial.

How do you maximize tax efficiency? Let us know in the comments!   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.  

Read more »

Financial regrets about parenthood?

"Ben, Mike's decision not to have kids wasn't about money, it was about the sort of father he thought he would be. I know that it's commonplace to say that people aren't having kids because of cost of living pressures, but global fertility rates have been dropping for centuries. And all the data shows that fertility rates are actually lower in wealthier countries. The choice to have kids, or not, is a very personal one. And the global data shows that it really doesn't come down to "can we afford this"."
- greg_j_tomamichel
Read more »

Any concern?

"Complete disregard for all market situations. I sold everything on March 2nd. Almost every year I sell once when risk is too high. Usually I'm out for 1–3 weeks, but in 2022, I was out 10 months. My model is based on timing + slow trading + funds in leading categories that have excellent risk-adjusted performance. Of course, you can stay in indexes and do pretty well, but you also suffer all the market volatility. Your only solution to lower volatility is bonds. Sometimes you will be far behind:
  • The SP500 lags as it lost money from 01/2000 to 01/2010.
  • The US bond index has a terrible peformance for 3-5-10-15 years
Investors with pensions, especially pensions that cover all expenses, are not the norm. Most don't have them. History of my allocation 1995-2000 + 2000 until last year = very high % in the US 2000-2010 = value, small cap, international since 2025 = international"
- Fund Daddy
Read more »

The Home Ownership Gamble

"I cover the rent on a property for one of my daughters. The idea of buying a place has crossed my mind more than once, but her volatile and impulsive nature has always stopped me from doing so. For all I know, in six months, a year, maybe two, she could decide to up and move to another city or another country entirely — leaving me to sell after a short ownership period and exposing myself to real market risk. Keeping the property and becoming a landlord would hold zero appeal for me."
- Mark Crothers
Read more »

Perfection, enemy of good

"G'day Kristine - thanks for the feedback. Not necessarily my view, but there is a different way to view this lifestyle spending. If you "pay yourself first" by contributing to your savings accounts, retirement accounts, debt repayments etc. then feel free to have whatever lifestyle you want. I think the trouble is that many, many people pay themselves last, only saving after all their lifestyle spend. But I do agree about lifestyle creep in general. The number of large expensive cars on the road, houses larger and more expensive than required and eating out becoming the norm rather than a treat, all leave m thinking that people must leave themselves in a rather precarious financial position."
- greg_j_tomamichel
Read more »

Blood Money

"Jim Burrows! I think you missed this very salient NUA post. The author is a little cynical, but I've heard he sleeps like a baby."
- Michael Flack
Read more »

Why I use a Donor-Advised Fund

"Our after tax account is pretty equally divided between a total market index fund and a tax efficient fund. The performance of the two is very similar. But when doing our taxes this year, I noticed the index fund had major taxable gains; the taxable income on the tax efficient fund was zero. I’m also concerned about leaving my kids— who are high earning professionals— taxable IRAs. We do regular major Roth conversions each year."
- Marilyn Lavin
Read more »

How Deals Hurt Returns

THERE'S BEEN DRAMA recently in a normally quiet corner of the market. This story got its start back in 2015, when Warren Buffett helped to merge food makers Kraft and Heinz. At first, it looked like a smart idea. Through cost-cutting, the combined company was expected to save more than $1 billion in annual operating expenses. “This is my kind of transaction,” Buffett said at the time, “uniting two world-class organizations and delivering shareholder value. I’m excited by the opportunities for what this new combined organization will achieve.” The excitement was short-lived, and many observers were skeptical from the start, mainly because Buffett had teamed up with a private equity firm called 3G to make the purchase. 3G had a reputation for being overly zealous when it came to cost-cutting. Initially, Buffett defended 3G. They “could not be better partners,” he wrote in his 2015 annual letter. But within a few years, it became clear that the skeptics had been right. Sales at the combined company began falling, and in 2018, Buffett’s Berkshire Hathaway recorded a $15 billion write-down on the value of its Kraft Heinz holdings. The following year, Buffett publicly acknowledged that the merger had been a mistake and that Berkshire had overpaid for its stake. “The business does not earn more because you pay more for it,” he said. In the years since, Kraft Heinz has continued to struggle with declining sales. To address the problem, in January of this year, the company brought in a new CEO, Steve Cahillane, and tasked him with splitting the company back up again. By that point, though, Buffett had changed his mind again. His view was that it was now better to leave the combined company intact rather than going through the costly exercise of trying to break it back up. A breakup, he said, wouldn’t create value. “It doesn’t do a thing, you know, for what the ketchup tastes like.” Despite his influence, though, the break-up plan appeared to be moving forward, and Cahillane took the helm on January 1 with that mandate.  Within weeks, Cahillane came around to Buffett’s point of view. The company’s woes were more fundamental, he told the board, and breaking it up wouldn’t address those core issues. Where things go next is an open question.  This story is notable because of Warren Buffett’s involvement, but it turns out not to be so unusual. Studies over the years have found that corporate mergers and acquisitions, on average, do not create value. According to a study by KPMG of more than 3,000 acquisitions, 57% of deals were found to detract from shareholder value rather than increase it. Other research puts the failure rate in the neighborhood of 70%. Aswath Damodaran, a finance professor at NYU, sums it up this way: “More value is destroyed by acquisitions than by any other action that companies take.” Why do so many transactions detract from shareholder value? Economist Richard Thaler attributes it to what he calls the “winner’s curse.” This phenomenon was first identified in the petroleum industry, where competitive auctions are held for oil leases. Research found that the winners of these competitive auctions often ended up disappointed—not because they didn’t find any oil, but simply because they had overpaid. Thaler explains that auctions—especially when there are large numbers of bidders—can cause some participants to become emotional, to the point that they become undisciplined and end up bidding too much. The winners in these situations are thus “cursed” because they’re the ones who were willing to overpay the most and thus tend to be most disappointed. Thaler found that the winner’s curse dynamic appears across industries, and that is what explains the poor track record of corporate acquisitions. Competitive situations, whether it was in the Kraft-Heinz case, or in the one that recently played out in the competition for Paramount, can cause prices to go too high. That’s great for sellers but a key reason why acquirers often end up regretting their decisions and why a large number of corporate takeovers end up being reversed. So why, despite all this data, do corporate managers—including even Warren Buffett—pursue these transactions? There are three key reasons.  The first is that they’re an easy way for companies to combat stagnant growth—much easier than the hard work of developing new products. This helps explain the Kraft-Heinz tie-up. According to a write-up in 2015, when the merger was first announced, many of Kraft’s businesses had been stalled out, delivering zero or even negative growth. Another reason mergers and acquisitions are popular despite the odds: Corporate managers tend to overestimate the economic benefits—so-called synergies—that will result from a transaction. Consider companies like Kraft and Heinz. It was easy to make the argument that two companies in the same industry would be able to gain significant efficiencies by combining operations and realizing economies of scale. And since some number of transactions do succeed, even if it’s only a minority, it’s natural for corporate managers to believe that their transaction will be the one to beat the odds. In a 1986 paper, economist Richard Roll identified a related phenomenon, which he dubbed “the hubris hypothesis.” The logic is as follows: Corporate managers who find themselves in a position to be making acquisitions are, by definition, probably doing well. Their stock prices are up, and they likely have cash in the bank. Because their businesses are strong, they’re more likely to feel self-confident in their ability to succeed with a merger or an acquisition even when the data suggests the odds are against them. The lesson for individual investors? Companies will probably always pursue transactions like this that end up subtracting from shareholder value. But since there’s no way to predict when this will happen, I see this as yet another reason to choose broadly-diversified index funds, where any one company’s mistake generally won’t have too much of a negative impact. Also, to the extent that the company being acquired is also in the index, passive fund investors can enjoy the benefits that accrue to that company’s shareholders.   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.
Read more »

Free Newsletter

Get Educated

Manifesto

NO. 6: OUR FINANCIAL life involves endless tradeoffs. We usually have a good idea of what our dollars are buying us. But to be good stewards of our wealth, we should also ponder what we’re giving up.

Truths

NO. 112: ALL-TIME highs in the stock market shouldn’t cause alarm. Investors often get unnerved when they see the Dow Jones Industrial Average or the S&P 500-stock index hit one new high after another. But because share prices trend upward over the long haul, all-time highs happen often—and don’t necessarily signal an imminent market downturn.

humans

NO. 56: FOLKS might talk about the economy or boast about their investment winners, but they’re often reluctant to reveal details of their financial life, even to close family. But such conversations can help educate our children about money, give our spouse a deeper understanding of the household finances and help us figure out how we can best assist our kids.

act

CREATE A WISH LIST. Want more happiness from your dollars? Write down the major purchases you’d like to make in the years ahead—perhaps a car, vacation or kitchen remodeling. Regularly revise the list, keeping only items you’re still enthused about. Result: You’ll make wiser spending decisions—and enjoy a long period of pleasurable anticipation.

Safety net

Manifesto

NO. 6: OUR FINANCIAL life involves endless tradeoffs. We usually have a good idea of what our dollars are buying us. But to be good stewards of our wealth, we should also ponder what we’re giving up.

Spotlight: Retirement

What wisdom can you share?

My wife and I are 58 and 66, respectively. She’ll be retiring soon, but expects to launch herself in a new job for at least several years. I expect to continue working until just after turning 70. I’m in my dream job as the president of my local community bank. We are in our forever home enjoying single floor living. We’re both healthy and travel for a short and long vacation annually. Our four  kids are launched in their careers and doing well;

Read more »

Decision Frameworks

IN THE SUMMER of 1966, author John McPhee spent two weeks lying on a picnic table in his backyard. Why?
McPhee was suffering from writer’s block. As he described it, “I had assembled enough material to fill a silo, and now I had no idea what to do with it.”
Investors find themselves in a similar situation today. There’s no shortage of financial information around us. But that doesn’t make it easier to know what to do with it. 

Read more »

A Nuanced View of FIRE

Well, mostly FI, but some RE. (FIRE standing for Financial Independence, Retire Early). Christine Benz from Morningstar recently attended a CampFI event in Spain, and wrote about her experience here.
She comments that “A lot of people have a caricatured perception of the FI community. They assume that everyone is trying to live on $10 a day in order to hang it up at age 35.” While she met some young people, she met older people as well.

Read more »

Economic Trends

LAST WEEK THE government released its monthly employment figures for February. The results weren’t great. Payrolls declined, and unemployment ticked up. These numbers square with other downbeat data, including a recent uptick in bankruptcy filings.
Another worry: Oil prices have been rising, a result of the conflict in the Middle East. That’s a concern because it could lead to a reacceleration of inflation. It could also dampen consumer spending because higher gas prices act like a tax on consumers,

Read more »

401(k) participants want annuities – some form of guarantee – RDQ

I have expressed my opinion on the need for and desirability of a steady income stream in retirement, as guaranteed as possible. Next Friday my pension will be deposited in our bank account. On the second and forth Wednesday each month our Social Security will be deposited. All that has happened each month for the last seventeen years.
I don’t worry about withdrawal strategies, withdrawal percentages, guard rails, tip ladders or any similar strategy. The IRC tells me what I must withdraw from my IRA. 

Read more »

Today’s the Day!–Well, Sort Of (by Dana/DrLefty)

I’ve had April 1 on my calendar since last July. Today is the day I can apply for a July 1 retirement date from my university. It also happens to be the date I can apply for Medicare because of my 65th birthday on Aug. 1.
I knew how to sign up for Medicare and what to do because we just did so for my husband, who turns 65 in May. Last week, I reviewed the materials from the retirement webinars I attended at the university so that I’d be 

Read more »

Spotlight: Cutler

Persistence of Memory

In May of 1974, I took a trip to Israel, Greece and London with my parents and one of my sisters. I was in sixth grade at the time. Prior to our departure, I gave my parents a hard time about making me go on a trip during the school year. I was unhappy about missing two weeks of school and having to make up all that homework. I’d collected my assignments for the upcoming two weeks from all my teachers with the exception of my social studies teacher, Mr. Reiss. At the end of my last day of school before the trip, I stood in line to see him at his desk. As his conference with the student in front of me dragged on and on, I got concerned that I would miss my bus. I eventually left just in time to catch the bus for the 45-minute ride home. When I returned to school two weeks later, some kids on the bus told me that Mr. Reiss had gone ballistic when he realized I hadn’t picked up my assignments. He angrily told the class he was going to make me copy the entire textbook by hand. When I did meet with him, my consequences were only slightly less severe. He told me that I had to memorize the textbook glossary, which consisted of 104 items. I would then stand up before the class and the students could ask me to define any word they selected from the glossary. My grade would be the percentage I got correct. It was clear to me that his goal was to embarrass me in front of my classmates. As you might imagine, public humiliation was a huge fear for that somewhat timid middle-school boy. Armed with a high level of motivation and…
Read more »

Nothing Odd

VOGUE RAN AN ARTICLE a decade ago about Marissa Mayer, then Yahoo’s CEO. The opening quote from Mayer grabbed my attention: “I really like even numbers, and I like heavily divisible numbers. Twelve is my lucky number—I just love how divisible it is. I don’t like odd numbers, and I really don’t like primes. When I turned 37, I put on a strong face, but I was not looking forward to 37.” Mayer’s statement resonated with me. I’ve been afflicted with a similar lifelong obsession with numbers. When I was very young, my dad wrote math problems on yellow lined paper for me to solve. My sister Lynn taught me elementary geometry when I was in third grade. I had a fascination with baseball statistics and memorized all kinds of numbers from my baseball cards. As I got older, I became fixated on grade point averages and Scholastic Aptitude Test scores. I’ve never been diagnosed with obsessive-compulsive disorder (OCD). I have no particular fear of germs, and I don’t engage in handwashing rituals or similar activities. Still, there are components of my personality that seem to place me on the OCD spectrum. If I see a cat video I like, I can watch it dozens of times and still find it funny. I have certain silly phrases and movie quotes that I never seem to tire of repeating. (I can picture members of my family nodding their heads as I write this.) And, yes, sometimes I get preoccupied with numbers. Like Mayer, I prefer even numbers, though odd numbers that end with five are acceptable. Also like Mayer, I think 12 is a great number and I’m not fond of prime numbers. I was a bit annoyed with myself that, in 2023, I had 23 HumbleDollar articles published and 23,…
Read more »

They Made the Lists

THERE’S AN OLD SAYING: Good things come in threes. That’s certainly been true for one aspect of my life. I’ve lived in just three locations—and all of them have been featured in national “best places” lists. My early years were in Moorestown, New Jersey, a quiet town with a population of some 20,000. It’s an affluent suburb of Philadelphia that defies stereotypes about New Jersey. In 2005, Money magazine identified Moorestown as the best place to live in the country. This was well after I’d moved away. Still, the town was certainly a pleasant place to grow up during the 1960s and '70s. Moorestown has a strong school system, which I experienced first-hand. It also has a relatively low crime rate, a charming downtown and beautiful public spaces. It’s a little over an hour’s drive from the Jersey Shore. One downside: The town is so popular that homes have been richly priced for decades. After I graduated from Moorestown High School, I made my way to Blacksburg, Virginia, to attend Virginia Tech. Blacksburg regularly makes lists of desirable places to live. For instance, Forbes included the town in its 2016 list of the top 25 places to retire. In 2018, Blacksburg was named the 63rd best place to live in the country, according to Livability.com. I was only in Blacksburg for four years, back in the 1980s. It was an idyllic place to attend college. With the town located in the Blue Ridge Mountain range, it was easy to get away, even without a car. Within 10 minutes of leaving campus on a bicycle, you could feel like you were completely away from civilization. The college itself has a mix of academic sophistication and friendly country charm. In a survey a few years back, Virginia Tech’s student quality of life…
Read more »

July’s Hits-Forum Edition

I always like seeing Jonathan’s monthly top hits list for articles, which is based on page views. I thought I’d compile something similar for the Forum to recognize posts that had the highest engagement last month. My engagement metric uses a proprietary formula based on a combination of likes and comments. Quinn Relents/Dick Quinn Feeling Lucky/Jonathan Clements Humble Bragging/Jonathan Clements Nobody Wants to Pay Healthcare Bills/Dick Quinn Vanguard vs Fidelity/Steve Abramowitz New Car Envy/Rick Connor CCRC is not an Assisted Living Facility/Kathy Wilhelm They’re Sunk/Jonathan Clements Would You Leave a Note?/Rick Connor Monday Rant/Dick Quinn How about the three most liked posts? Feeling Lucky, Humble Bragging and Nobody Wants to Pay Healthcare Bills.
Read more »

Factory Floor Education

I talked about my first paying job, at the local public library, in Learned From Less. I discussed experiences from my second job in Not Long Remembered. My third job, as a temporary factory worker, also made a big impression on me. During the second part of the summer after my college freshman year, I signed up with a temporary employment agency. They would call me most weekday mornings to offer work assignments at pay slightly above minimum wage. There was no penalty for turning down a job. Many of my assignments were at an industrial flooring factory in the town next to mine. It’s still in business, so let’s give it a fictitious name: Rockstrong. Most of my assignments were on the 3 to 11:30 p.m. backshift. On my first day there, I got a clue that it was going to be a bit different from my other jobs. A tall, muscular worker in his late 20s named Stan came up to me and asked how old I was, where I lived, and other standard questions. Then, in the same friendly tone, he asked, “Do you smoke pot?” I answered in the negative and the conversation was over. A little while later, he came over to me and said that it was okay if I didn’t toke. I was still cool, he assured me. My job responsibilities varied depending on the needs for the shift. Some nights I worked on the assembly line. I would package several cans of epoxy, a bag of sand, and a mixing paddle into a box. I would then push the box through a taping machine. The nights went fast when I worked that position. Early on, though, I was warned by a worker named Tom not to work so hard. “You temps come…
Read more »

Rules to Spend by

I USED TO GET PARADE magazine with the Sunday newspaper. On Sept. 28, 1997, it published an article by Andrew Tobias entitled, “Want to Amass a Fortune? No Problem!” I tore out the article and filed it away with others I’ve kept, because I thought Tobias made some points that would be worth periodically revisiting. Early in the article, Tobias—who’s perhaps best known as the author of The Only Investment Guide You’ll Ever Need—addresses the question in the title. How can you amass a fortune? Here’s his answer: “Make a budget, scrimp and save, pay off your credit cards, quit smoking, fully fund your retirement plan. Make weekly or monthly contributions to a savings account and then, when you’ve accumulated a bit more, to a low-expense, no load mutual fund. And start early—tomorrow if you possibly can. There’s not much more to it than that. Well, a little maybe.” That seems pretty basic and maybe not particularly profound, especially for readers of HumbleDollar. Tobias, however, goes on to make three other points I’ve found helpful. Please remember that the article was published more than a quarter-century ago, so some of his examples are a bit dated. A luxury once sampled becomes a necessity. Tobias elaborates: “You say you don’t particularly mind not having a remote-control clicker for your TV? I can state with some assurance, in that case, that you’ve never had one. Touch tone dialing? Caller ID? Microwave ovens? It’s a cinch, obviously, to be happy without these things before they’ve been invented and quite possible to be happy without them even after they’ve been invented… but so awfully hard to be happy without them once you’ve gotten used to them.” He goes on: “Pace yourself! Live a little beneath your means. Don’t go into hock buying some whiz-bang…
Read more »