I’VE BEEN WAITING since late last year for a stock market correction. No, I’m not sitting on a pile of cash and looking to time the market. Instead, I’m simply hoping to trim my tax bill. Last October, I sold the recently vested shares of my company stock and used the proceeds to buy Vanguard Total Stock Market ETF (symbol: VTI). This sell-high-buy-high exchange was meant for diversification, but I also hoped that the market would drop later. I could then harvest tax losses by temporarily replacing the Vanguard fund with a combination of Russell 1000 and Russell 2000 ETFs. Given the prospect of an interest rate hike to counter rising inflation, a market correction was a distinct possibility. The market seemed to move in my favor by November’s end. My Vanguard ETF dropped below my purchase price, but the extent of the unrealized loss wasn’t worth the effort of tax-loss harvesting. I waited for a bigger drop, but a market rally wiped out my unrealized loss. My hopes were renewed during the fourth weekend of January, as I glanced through Barron’s. My Vanguard ETF shares had dropped more than 6% the week before. Another 3% drop would be enough for some meaningful tax-loss harvesting. I planned to keep an eye on the market on Monday. I logged onto my brokerage account on the morning of the 24th and was pleased to see a further decline, but I didn’t pull the trigger. The rapid price swings made me nervous. What if the market rose substantially between selling my Vanguard Total Market shares and buying the replacement funds? Anything’s possible in a volatile market. I decided to wait another week, hoping the market would settle down. Instead, the market pulled off a weekly gain and I missed the boat. For now, I’m keeping my fingers crossed, hoping the next boat will come along soon.

IT’S IRONIC THAT WE often shortchange retirement savings during the first half of our working lives, because that’s when we can buy future retirement dollars at a huge discount—thanks to investment compounding. How can we hammer home this point? My proposal: We should adopt a simple mental math rule that allows us to weigh today’s spending against future retirement dollars. That brings me to my ”6 to 2 times 200” rule. The rule covers five age groups: early 20s, late 20s, early 30s, late 30s and early 40s. The first part of the rule—the “6 to 2” part—gives the compounding factor for each age group. For instance, the compounding factor is six times if you’re in your early 20s, five times if you’re in your late 20s, and so on. As you grow older and enter the next age group, the compounding factor drops by one. What does all this mean? Each $1 spent by folks in their early 20s means at least $6 less in retirement spending. Similarly, $1 spent in your early 40s means at least $2 less in retirement. Admittedly, the rule is only an approximation. Still, with any luck, it’ll help us to pause before spending. For instance, it will make a 27-year-old realize that switching to that shiny new $1,000 iPhone could cost as much as $5,000 in retirement spending. Is it worth effectively spending $5,000 on a new phone? Our 27-year-old may still decide to switch to the new iPhone. After all, we all make bad spending decisions and we usually get away with it, provided the bad decisions aren’t too frequent or too costly. Instead, the real damage often comes from recurring expenses—the monthly magazine that no one reads, the extra property taxes for the bigger-than-needed house and countless similar items. This is where the second part of the rule—the “times 200” part—comes into the picture. Suppose our 27-year-old is looking at an unlimited data plan that costs $25 a month extra. To figure out how much this means in lost retirement spending, we would multiply the $25 by five, which is the age factor, and then by 200, because it’s a recurring monthly expense. Result: Opting for the data plan means giving up perhaps $25,000 of retirement spending. To put it another way: $1 of recurring monthly expenses over your working life dents your ultimate nest egg by $1,200 if you’re in your early 20s, $1,000 if you’re in your late 20s, $800 if you’re in your early 30s, and so on. Is the “6 to 2 times 200” rule accurate? Some argue that the cost of a daily latte for a 22-year-old amounts to $1 million. My rule puts it at a relatively modest $120,000, assuming each latte costs $3.33. Why the big difference? I’m using an inflation-adjusted "real” investment return of 5%, so the numbers aren’t distorted by inflation. That means that, if the rule says $10 spent every month is costing you $10,000 in retirement, those two numbers have similar purchasing power. But however you do the calculation, the lesson is clear: A recurring expense is far costlier than it appears. Curious about where the numbers come from? They assume you work until around age 60. The compounding factor—the “6 to 2” part—comes from eyeballing the future value of a dollar invested for various time periods. The lump sum conversion of the monthly recurring payments—the “times 200” part of the rule—is the aggregate present value of the payment streams involved. As you might gather, I’m not swearing that the “6 to 2 times 200” rule gives the exact right answer. But precision isn’t the point. Instead, the goal is simplicity, so the rule is easy both to remember and apply. The idea: Get ourselves to pause before we spend—and ponder how much an item is truly costing us. A software engineer by profession, Sanjib Saha is transitioning to early retirement. His previous articles were Mind the Trap, A Rich Life and Cost of Living. Self-taught in investment and financial planning, Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Earlier this year, he passed the Series 65 licensing exam as a non-industry candidate.  [xyz-ihs snippet="Donate"]

THE AGE-OLD DEBATE about not borrowing to buy depreciating assets came up again in a recent HumbleDollar article. Despite being a big proponent of debt-free living, I could relate to the story of borrowing to buy a car. In fact, I’m guilty of having gone deeply into debt in my younger days to feed my passion for music—and I don’t regret it. I grew up listening to Indian music of various genres, but it wasn’t until my college days that I came to really appreciate the sound quality and texture of music. Our dorm had a high-fidelity stereo, plus a decent collection of vinyl records and audio cassettes. I’d spend hours in the common room, listening to classic rock or favorite Bollywood film scores. My newfound love of music, alas, came to an end after I left college and moved back home to Kolkata. We had a portable radio and cassette player in our house, but it didn’t satisfy my craving for quality sound. My life felt so incomplete without a good audio system that I decided to buy one once my paychecks started coming in. I grabbed a coworker named Natesh, who shared my love for music, and we visited an upscale audio showroom near our office. Luckily, the store stocked a nearly identical sound system to the one in my dorm. It was a top-of-the-line modular audio system named Uranus 2 by Sonodyne, one of the most innovative stereo makers in India. I instantly fell in love with the set and wanted to take it home. There was just one small problem. I couldn’t afford it. In the late 1980s, premium audio products weren’t cheap in India. The model I wanted would cost almost a year of my take-home pay. That helped explain why the salesperson didn’t take us youngsters to be serious buyers when we browsed the audio store. Watching our reaction to the price tag, he politely suggested other, more affordable brands. I wasn’t interested. After all, what’s the point of grinding through years of schooling if I couldn’t afford a music player of my liking? The next day, I was sharing my disappointment with my other coworkers. Natesh pulled me aside for a quick chat. Apparently, he’d been saving for a couple of years but didn’t have any immediate spending goal. He wanted to lend me the money, interest-free, so I could buy the stereo. [xyz-ihs snippet="Mobile-Subscribe"] I was surprised by his unbelievable generosity, but his reasoning was simple. He’d be genuinely happy if his savings could make a difference to a close friend. In our early 20s, mutual trust and support between friends was a given. I gladly took him up on his offer. A day or two later, we proudly walked back into the showroom with crisp 100-rupee notes, which Natesh had withdrawn from his bank earlier that morning. We hurriedly purchased the stereo and loaded up the boxes in a cab. Natesh accompanied me home to help set it up. My small room soon filled with the sound of Pink Floyd, and my goosebumps came back. That music system remained my most prized possession till the day I left India for overseas work. I not only enjoyed waking up to the songs of the Beatles and Simon & Garfunkel, but I also felt joyful whenever my music buddies dropped by to listen to our favorite songs together. I started dubbing song collections on blank cassettes to give away as gifts. My parents, on the other hand, weren’t exactly thrilled with my purchase. The set was bulky and loud—clearly a misfit in our modest two-bedroom apartment in a middle-class neighborhood. My dad, who was only used to mono sound, suggested that I get rid of one of the speakers to declutter my room. My mom reminded me of the perils of extravagant and irresponsible spending. Extravagant? Without a doubt. Irresponsible? I’m not so sure. To be clear, behind all my excitement, I was feeling slightly guilty. I wondered if I’d been too selfish in buying something that no one else in my family seemed to enjoy. My parents took pride in living within their means. Borrowing money for lifestyle improvement was, in our family, seen as almost immoral. My purchase felt like I had committed financial infidelity. But was it really such a sin? I had no debt or serious financial obligations. As a 22-year-old living in his parents’ home, my only immediate financial goal was to save money for an inverter power generator to deal with the frequent electricity blackouts. Since Natesh, my godsend lender, said he didn’t need his money back anytime soon, I could save up to buy the generator in a few months, as I'd originally planned, and have the sound system as well. It came down to a choice between buying the stereo system now with borrowed money versus waiting for a couple of years and saving up the cash. Thanks to a steady income and the offer of an interest-free loan, I chose to borrow money to buy the sound system. A surprise awaited me later that year. Employees of our company were overdue for a pay increase, but it was stuck in bureaucratic red tape. After a long wait, the powers that be approved our pay hike with retroactive effect. I received a nice salary bump, plus a lump sum bonus to cover the arrears. I paid Natesh off much sooner than I’d expected. Life took us to different parts of the world and we lost touch, but I’m forever indebted for his unconditional generosity and friendship. Fast forward 33 years. I can now easily afford a premium home audio system, thanks to the declining price of electronics and my improved financial condition. But I don’t feel the same urge anymore. It isn’t because I lost my passion for music. Rather, it’s because my hearing has degraded over the years. Hi-fi music isn’t quite the same through hearing aids. I miss the joy of listening to crisp, quality music so much that I’m glad I indulged myself long ago—and violated the personal finance mantra about never going into debt to buy a depreciating asset. Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Check out his earlier articles. [xyz-ihs snippet="Donate"]

WHEN I TOLD MY WIFE a few years ago that I wanted to retire by age 50, she was supportive from the get-go. The memories of her dad passing away soon after his 52nd birthday played a role in her snap approval. But it took us a while to sort through the full financial implications. I figured that our lifestyle, including our foreign travels and occasional splurges, would be the same even if my paychecks stopped prematurely. On the flip side, we wouldn’t be able to upsize to a bigger house—a dream my wife had cherished for some time. Still, she insisted that I move forward with my early retirement plans. All we needed in a new home was a little bit more space and privacy than our current house offers. But we live in a high-cost area where home prices are roughly four times the national average. At the time, local houses that met our criteria were approaching $1 million. The upsizing cost—the price difference, real-estate commissions, moving expenses and, most important, the increased tax and upkeep costs—seemed out of reach. Ironically, thanks to this year’s red-hot housing market, we apparently now live in a $1 million home. Neighborhood houses, some identical to ours, routinely sell at lightning speed for seven figures. The recent mania revived our unfulfilled wish. Could we afford to move to a bigger place? I realized that, since my initial decision to take early retirement, things had worked out better than I anticipated. How so? Instead of quitting my job at age 50, I switched to a part-time role that gave me needed personal time but still kept a paycheck coming in, even if it is somewhat smaller. On top of that, my previously earned stock grants continued to vest every quarter. Fingers crossed, our dream of a bigger house may soon come true.

YEARS AGO, I SPENT a few days in Bangkok touring the city. A highlight of my short stopover was the temple of Wat Traimit, which houses a five-and-a-half metric ton Golden Buddha, made of approximately $250 million of gold. Cast more than 700 years ago, the statue symbolized the prosperity and cultural heritage of Sukhothai, the first Thai kingdom. Sometime in the 18th century, the statue was completely plastered over to conceal its value from Burmese invaders. The significance of the statue was forgotten for some 200 years, until the plaster accidentally chipped off to reveal the gold underneath. The miraculous 1955 discovery made headlines and the statue was restored to its former glory. I was mesmerized by its brilliance and beauty. Our longing for gold is as old as recorded history. It was significant thousands of years ago, as evidenced by Egyptian archeology. Ancient Greeks, Incans, Aztecs and many other civilizations used gold. It was viewed as a status symbol to separate the elite from the ordinary. Holding gold was synonymous with holding power. Why such a deep-rooted fascination? There’s no simple answer. The color and luster of the metal create a unique aesthetic appeal. Gold is scarce, yet durable and resilient, hence it’s historical role as a way to store wealth and transfer it to future generations. Even today, in many countries, gold is widely used in social ceremonies and religious offerings. Strong consumer demand persists. For centuries, gold also played a vital role in monetary systems. The gold standard, a system that promised a fixed gold-based exchange rate for circulating paper currency, was widely used by many countries until World War I. In 1944, gold’s importance was reestablished by the Bretton Woods agreement. This new system pegged all other currencies to the U.S. dollar and allowed them to be converted to physical gold at $35 per ounce. But the new system soon faltered. The international currency-to-gold convertibility was finally abolished almost half-a-century ago by President Nixon. Nixon’s decision triggered two shifts in the global monetary system. First, the smooth functioning of fiat—or paper—money around the financial world became solely dependent on the responsible, collaborative action of central banks. Second, the price of gold went haywire. It spiked almost 20-fold in less than 10 years, only to lose 60% over the following two decades. The rollercoaster ride continued in the current century. Gold climbed from less than $275 per ounce in 2000 to more than $1,900 in 2011. From there, it dropped below $1,075 in 2016 and then crept up again, closing yesterday at $1,570. Widely differing views on its value have made gold a highly speculative asset. Meanwhile, many central banks maintain substantial gold reserves. The U.S. leads with over 8,000 metric tons, more than 4% of all gold ever mined. But should people like you and me follow suit and invest in gold? I struggled with this question during my retirement planning—and found no clear answer. Many experts, including Warren Buffett, shun gold. It’s a nonproductive asset. It neither generates a dividend nor produces anything of value. The 200-year return is terrible. The only way you can make money, after paying the 28% capital gains tax, is by selling to someone who is willing to pay a higher price. Gold’s ability to hedge against short-term inflation is questionable. The list of drawbacks goes on and on. On the flip side, there are countless pundits who favor gold. The World Gold Council, an organization of 26 goldmining companies from across the globe, presents counterarguments to stimulate demand for gold, promoting it as a strategic investment. Gold’s low correlation with other major asset classes makes it an appealing portfolio diversifier. It’s also a safe haven, preserving financial value over very long periods, and it’s seen as a hedge against unforeseen crises and “black swan” events. For long-term investors, gold is pitched as insurance, rather than as a profit-making investment. Gold is part of a few well-known model portfolios, especially those designed to weather bad times. The so-called permanent portfolio stashes up to a quarter of total assets in gold. An all-weather portfolio might allocate 7.5%. Both of these portfolios held up well in recent recessions. Torn between these opposing views, I opted for the middle ground. I decided to buy some and be done with the dilemma. But because of its steep price by historical standards, I limited my gold allocation to 5%—and I hope my portfolio’s performance will never need its help. A software engineer by profession, Sanjib Saha is transitioning to early retirement. His previous articles include Risky Option, Thanks for Nothing and Blessing in Disguise. Self-taught in investments, Sanjib passed the Series 65 licensing exam as a non-industry candidate. He's passionate about raising financial literacy and enjoys helping others with their finances. [xyz-ihs snippet="Donate"]

I’VE BEEN WORKING from home for nearly two months. Many friends and coworkers are tired of the lockdown. I seem to be an oddball: I feel happier and less stressed. I’m not oblivious to the reality of today’s pandemic. As I write this, my uncle abroad is facing a hard time getting urgent medical care. Millions of others across the globe are also suffering. Against such a gloomy backdrop, I feel almost guilty in seeing a positive side to the lockdown. Examples? For me, the biggest benefit has been the time and energy saved by not commuting. I also like being able to weave small personal chores in between office work. I can plan my hours better and get more done in a day. I’ve also been better able to manage my health. My weight resembles the growth chart of an inflation-protected Treasury bond fund. Occasional short-term fluctuations in either direction are common, but things creep slowly upward over time. Stuck at home, I figured I could devote extra time to better eating and fitness habits. Though I try to eat a balanced diet, with lots of vegetables, fruits and fish, I wasn’t consistent in my good eating habits. Now that there’s more time to prepare healthier and tastier meals, I have no excuses. I’ve been cooking every other day. Meanwhile, there’s no morning rush to get ready to leave for work. When the weather gods smile, I start my day with a walk. There’s an abundance of blooming trees and songbirds in our area. My cousin, who lives next door, joins me in the evening, when I take a second walk to help me unwind. The good eating and the exercise seem to be working. I feel healthier and more energetic. I’ll miss that sense of wellbeing when things get back to normal. Time at home has also given me more time for my portfolio. Early in the market decline, I did some spring cleaning, including buying a leveraged, closed-end real estate investment trust (REIT) fund. Anticipating the market might fall further, I also placed a low-ball limit order to buy its non-leveraged sibling. I didn’t expect the order to get filled quickly, but it was. It turned out that equity REITs had a terrible week, collectively dropping more than 40% from their recent peak. On top of that, this particular closed-end fund saw a widening of its discount from net asset value, which is the value of the fund’s portfolio on a per-share basis. I got lucky that both happened simultaneously, pushing the market price below my limit price. When the dust settled, I realized that a thorny and longstanding issue with my portfolio was gone. My income from dividends and fund distributions was low—a result of the prolonged period of low interest rates and high stock valuations. The recent purchases took care of that anemic income. Fingers crossed, the new estimated portfolio income will cover much of my ongoing discretionary expenses. To be sure, income from stock investments is never guaranteed. In difficult times, dividends may be reduced, suspended or stopped permanently. My most prized gain in this lockdown period has been reconnecting with college buddies. The 10 of us lived in the same wing of a student hostel. Since then, we’ve each ended up in a different part of the globe. But we recently managed to regroup over the internet. The global stay-at-home mandate made it possible to find time for all of us to chat together. In addition, I found more time for my passion for financial education. I volunteer with a nonprofit organization devoted to investor education. Its local chapter collaborated with the city library to host a series of free online educational talks during April, which is financial literacy month. I was tasked with giving two webinars about planning and financial independence. That means this time at home gave me the chance to do something I’d never done before: give a presentation to the general public. A software engineer by profession, Sanjib Saha is transitioning to early retirement. His previous articles include Ready or Not, Spring Cleaning and Working the Plans. Self-taught in investments, Sanjib passed the Series 65 licensing exam as a non-industry candidate. He's passionate about raising financial literacy and enjoys helping others with their finances. [xyz-ihs snippet="Donate"]