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If folks claim their home has been a great investment, ask to see their detailed financial records—and their degree in advanced mathematics.

Four Simple Tips

FORCED TO SHELTER in place, I’ve used the time at home to organize my finances. I’d already read Marie Kondo’s Tidying Up. But I needed her new book, Joy at Work, to motivate me to organize my digital life. Sometimes, it helps to have a step-by-step guide to prod you to deal with such drudgery. Here are four tips I used to get myself organized:
1. Consolidate fixed costs.

Read more »

May’s Hits

AS STOCKS RALLIED last month, readers remained intensely interested in the financial markets—or so it seems from the articles they were reading. Here are May’s seven most popular blog posts:

The formula for investment success is very simple: Buy stocks. Diversify broadly. Wait patiently.
“Since the fall of 2018, the stock market has dropped 20%, gained 30%, dropped 35% and then gained 30% again,” notes Adam Grossman. Result? Ample opportunity for investor regret.
Sitting in cash but wanting to buy stocks?

Read more »

Divvying Up Dollars

IF YOU HAVE a surplus in your household budget, what’s the best use for it? Does it make more sense to pay down debt or to invest those extra funds? With interest rates at such low levels, this is a question I’ve been hearing with increasing frequency.
Suppose your mortgage rate is 3.5%. If you pay down that debt, it’s like earning 3.5%. By contrast, if you invested in the stock market, your annual return would be uncertain.

Read more »

The Road Back

WHEN I WAS a teenager and bathroom walls were the equivalent of today’s Twitter, you’d often read that “100,000 lemmings can’t be wrong.”
It turns out that the bathroom scribblers were misinformed and that lemmings aren’t, in fact, given to mass suicide. Still, the scribblers’ confidence in the wisdom of crowds was spot on. If 100,000 lemmings did indeed commit mass suicide, there would likely be a good reason.
Which brings us to today’s stock market.

Read more »

Averting My Gaze

“TAKE FIVE” is jazz great Dave Brubeck’s most popular and enduring number—but it’s also a darn good piece of decision-making advice.
A few weeks ago, my son was struggling with exams and papers ahead of his graduation from the University of Pennsylvania. Though he would go on to graduate magna cum laude, he was in a dark place. I said, “Imagine a time two weeks from now when you’re back home and can relax,

Read more »

Freedom Formula

EARLY RETIREMENT isn’t a common goal among my friends. When I talk about my semi-retirement, many assume I either made a quick buck in the stock market or benefitted from some sort of financial windfall. I counter this misconception by narrating the magic formula: Financial freedom is frugality, multiplied by simplicity, compounded by patience.
My response often seems mysterious until I explain the two basic math concepts behind it. We learn them in school,

Read more »

Money Guide

Junk Bonds

HIGH-YIELD JUNK bonds can offer impressive interest payments. The question is, how big a price will you pay in defaults? Junk bonds receive a rating of Ba1 or lower from Moody's Investors Service, or BB+ or lower from Fitch Ratings and Standard & Poor's. That means these bonds are considered below "investment grade"—and there's a serious risk you won’t get your money back. Historically, some 5% of junk bonds have defaulted each year, though defaults in recent years have been running at more like 2% or 3%. To compensate for the risk of defaults, junk bonds have, on average, yielded some six percentage points more than comparable Treasury bonds. But the spread over Treasurys has fluctuated widely. In June 2007, it was at an all-time low of 2.4 percentage points. Less than a year and a half later, in November 2008, the spread widened to almost 20 percentage points amid the panic selling of the financial crisis. As of late March 2020, the spread stood at 9.2 percentage points, up from 3.6 points at year-end 2019. Junk bonds tend to trade more like stocks than bonds and, indeed, this year's tumbling stock market has been accompanied by falling junk-bond prices, as investors worried that a shaky economy would cause a spike in bond defaults. While there are some exchange-traded index funds that focus on junk bonds, most junk-bond funds are actively managed mutual funds. As you pick among them, pay attention not only to fund costs, but also to the credit quality of the portfolio. You can get the necessary information at Morningstar.com. A fund that focuses on lower-quality junk bonds will often sport a higher yield. But that higher yield may prove to be scant compensation if there’s a flurry of defaults. Our Humble Opinion: Junk bonds seem like an unhappy compromise between stocks and bonds. How so? The time to buy junk is during economic downturns, when concerns about defaults drive up yields. Problem is, that’s also the time when you want to buy stocks—and stocks are likely to deliver better returns as markets rebound in anticipation of an economic recovery. Next: Floating Rate Loans Previous: Preferred Stock Article: Garbage In
Read more »

Manifesto

NO. 37: WANT to boost your happiness and that of others? Volunteer, give to charity and make gifts to loved ones. We’re often happier when we spend on others rather than on ourselves.

Truths

NO. 63: YOUR MIX of stocks and conservative investments drives your portfolio’s results. You can’t get stock returns from a money-market fund—and, fingers crossed, you won’t get money-fund returns from your stocks. Want to boost your long-run performance? Don’t try to pick winning investments. Instead, simply allocate more to stocks.

Act

BUY A USED CAR. While leasing or buying a new car may be alluring, purchasing a used one is usually the better financial choice. By buying a three-year-old car, you’ll sidestep the steep depreciation that new vehicles suffer, but the car should still have plenty of good miles ahead of it—and you should have ample choice, thanks to all the cars coming off lease.

Think

MOTIVATION. Early in our adult life, we tend to be extrinsically motivated, meaning we hanker after promotions, pay raises, accolades and the material markers of success, like the big house and the luxury car. But as we grow older, we often become more intrinsically motivated, preferring to focus on things we personally feel are important.

Second Look

Retirement

Tax Rate Debate

I’M PONDERING whether to make my biggest transaction in four years—and it might be the trickiest financial decision I’ve ever made. My quandary: Should I take advantage of today’s low tax rates to convert a big chunk of my traditional IRA to a Roth?
This financial navel-gazing was sparked by an article by John Yeigh, one of HumbleDollar’s contributors. As John pointed out, you can now have a much higher annual income and still avoid the top federal tax brackets,

Read more »

Family Finance

Turning the Page

I’M NOT THE TYPE of person who makes New Year’s resolutions. This year, however, I foresee some major changes in my life—and that’ll require some financial adjustments.
Now that my elderly parents have passed away, Rachel and I can live like a normal couple in our own home. As I mentioned in an earlier article, we will be moving into my parents’ house.
During the last several years taking care of my mother, I was constantly traveling from one house to another and living out of a suitcase.

Read more »

Investing

Foreign Affairs

I HAVE NEVER BEEN to Japan and can’t claim any special knowledge of the country—and yet lately it’s been much on my mind. Japan is today’s poster child not only for wretched long-run stock market performance, but also for what happens to economic growth when the workforce contracts. Still, Japan’s troubles make me an even bigger advocate of investing abroad. Below, I explain why.
Never Going Back
In late 2008 and early 2009,

Read more »

Lists

Twelve Principles

WHEN WALL STREET builds a better mousetrap, investors are generally the mouse. Want to avoid getting caught by the Street’s costly, fad-driven selling machine? Here are a dozen principles that have served me well as I’ve helped folks manage their money:

Accept that markets are generally efficient. This means that, at any given moment, individual securities are priced correctly and incurring additional costs in hopes of finding a mispricing is wasteful—though apparent mispricings will often seem obvious in retrospect.

Read more »
Home Call to Action

Mindset

Time Out

IN WINTER 2012, I experienced what every traveler dreads: a lost bag. Stranded without so much as a toothbrush, I had to replace everything—and fast. At first, this seemed like a pain. But in the end, I came to see it as a blessing. Why? Replacing everything—from head to toe, including the toothbrush—became an unexpected opportunity for a fresh start.
To be sure, all I’m talking about here are clothes and toiletries. Still, the experience made me realize that,

Read more »

Four Simple Tips

FORCED TO SHELTER in place, I’ve used the time at home to organize my finances. I’d already read Marie Kondo’s Tidying Up. But I needed her new book, Joy at Work, to motivate me to organize my digital life. Sometimes, it helps to have a step-by-step guide to prod you to deal with such drudgery. Here are four tips I used to get myself organized:
1. Consolidate fixed costs.

Read more »

May’s Hits

AS STOCKS RALLIED last month, readers remained intensely interested in the financial markets—or so it seems from the articles they were reading. Here are May’s seven most popular blog posts:

The formula for investment success is very simple: Buy stocks. Diversify broadly. Wait patiently.
“Since the fall of 2018, the stock market has dropped 20%, gained 30%, dropped 35% and then gained 30% again,” notes Adam Grossman. Result? Ample opportunity for investor regret.
Sitting in cash but wanting to buy stocks?

Read more »

Divvying Up Dollars

IF YOU HAVE a surplus in your household budget, what’s the best use for it? Does it make more sense to pay down debt or to invest those extra funds? With interest rates at such low levels, this is a question I’ve been hearing with increasing frequency.
Suppose your mortgage rate is 3.5%. If you pay down that debt, it’s like earning 3.5%. By contrast, if you invested in the stock market, your annual return would be uncertain.

Read more »

The Road Back

WHEN I WAS a teenager and bathroom walls were the equivalent of today’s Twitter, you’d often read that “100,000 lemmings can’t be wrong.”
It turns out that the bathroom scribblers were misinformed and that lemmings aren’t, in fact, given to mass suicide. Still, the scribblers’ confidence in the wisdom of crowds was spot on. If 100,000 lemmings did indeed commit mass suicide, there would likely be a good reason.
Which brings us to today’s stock market.

Read more »

Averting My Gaze

“TAKE FIVE” is jazz great Dave Brubeck’s most popular and enduring number—but it’s also a darn good piece of decision-making advice.
A few weeks ago, my son was struggling with exams and papers ahead of his graduation from the University of Pennsylvania. Though he would go on to graduate magna cum laude, he was in a dark place. I said, “Imagine a time two weeks from now when you’re back home and can relax,

Read more »

Freedom Formula

EARLY RETIREMENT isn’t a common goal among my friends. When I talk about my semi-retirement, many assume I either made a quick buck in the stock market or benefitted from some sort of financial windfall. I counter this misconception by narrating the magic formula: Financial freedom is frugality, multiplied by simplicity, compounded by patience.
My response often seems mysterious until I explain the two basic math concepts behind it. We learn them in school,

Read more »

Free Newsletter

Home Call to Action

Manifesto

NO. 37: WANT to boost your happiness and that of others? Volunteer, give to charity and make gifts to loved ones. We’re often happier when we spend on others rather than on ourselves.

Act

BUY A USED CAR. While leasing or buying a new car may be alluring, purchasing a used one is usually the better financial choice. By buying a three-year-old car, you’ll sidestep the steep depreciation that new vehicles suffer, but the car should still have plenty of good miles ahead of it—and you should have ample choice, thanks to all the cars coming off lease.

Truths

NO. 63: YOUR MIX of stocks and conservative investments drives your portfolio’s results. You can’t get stock returns from a money-market fund—and, fingers crossed, you won’t get money-fund returns from your stocks. Want to boost your long-run performance? Don’t try to pick winning investments. Instead, simply allocate more to stocks.

Think

MOTIVATION. Early in our adult life, we tend to be extrinsically motivated, meaning we hanker after promotions, pay raises, accolades and the material markers of success, like the big house and the luxury car. But as we grow older, we often become more intrinsically motivated, preferring to focus on things we personally feel are important.

Money Guide

Start Here

Junk Bonds

HIGH-YIELD JUNK bonds can offer impressive interest payments. The question is, how big a price will you pay in defaults? Junk bonds receive a rating of Ba1 or lower from Moody's Investors Service, or BB+ or lower from Fitch Ratings and Standard & Poor's. That means these bonds are considered below "investment grade"—and there's a serious risk you won’t get your money back. Historically, some 5% of junk bonds have defaulted each year, though defaults in recent years have been running at more like 2% or 3%. To compensate for the risk of defaults, junk bonds have, on average, yielded some six percentage points more than comparable Treasury bonds. But the spread over Treasurys has fluctuated widely. In June 2007, it was at an all-time low of 2.4 percentage points. Less than a year and a half later, in November 2008, the spread widened to almost 20 percentage points amid the panic selling of the financial crisis. As of late March 2020, the spread stood at 9.2 percentage points, up from 3.6 points at year-end 2019. Junk bonds tend to trade more like stocks than bonds and, indeed, this year's tumbling stock market has been accompanied by falling junk-bond prices, as investors worried that a shaky economy would cause a spike in bond defaults. While there are some exchange-traded index funds that focus on junk bonds, most junk-bond funds are actively managed mutual funds. As you pick among them, pay attention not only to fund costs, but also to the credit quality of the portfolio. You can get the necessary information at Morningstar.com. A fund that focuses on lower-quality junk bonds will often sport a higher yield. But that higher yield may prove to be scant compensation if there’s a flurry of defaults. Our Humble Opinion: Junk bonds seem like an unhappy compromise between stocks and bonds. How so? The time to buy junk is during economic downturns, when concerns about defaults drive up yields. Problem is, that’s also the time when you want to buy stocks—and stocks are likely to deliver better returns as markets rebound in anticipation of an economic recovery. Next: Floating Rate Loans Previous: Preferred Stock Article: Garbage In
Read more »

Second Look

Retirement

Tax Rate Debate

I’M PONDERING whether to make my biggest transaction in four years—and it might be the trickiest financial decision I’ve ever made. My quandary: Should I take advantage of today’s low tax rates to convert a big chunk of my traditional IRA to a Roth?
This financial navel-gazing was sparked by an article by John Yeigh, one of HumbleDollar’s contributors. As John pointed out, you can now have a much higher annual income and still avoid the top federal tax brackets,

Read more »

Family Finance

Turning the Page

I’M NOT THE TYPE of person who makes New Year’s resolutions. This year, however, I foresee some major changes in my life—and that’ll require some financial adjustments.
Now that my elderly parents have passed away, Rachel and I can live like a normal couple in our own home. As I mentioned in an earlier article, we will be moving into my parents’ house.
During the last several years taking care of my mother, I was constantly traveling from one house to another and living out of a suitcase.

Read more »

Investing

Foreign Affairs

I HAVE NEVER BEEN to Japan and can’t claim any special knowledge of the country—and yet lately it’s been much on my mind. Japan is today’s poster child not only for wretched long-run stock market performance, but also for what happens to economic growth when the workforce contracts. Still, Japan’s troubles make me an even bigger advocate of investing abroad. Below, I explain why.
Never Going Back
In late 2008 and early 2009,

Read more »

Lists

Twelve Principles

WHEN WALL STREET builds a better mousetrap, investors are generally the mouse. Want to avoid getting caught by the Street’s costly, fad-driven selling machine? Here are a dozen principles that have served me well as I’ve helped folks manage their money:

Accept that markets are generally efficient. This means that, at any given moment, individual securities are priced correctly and incurring additional costs in hopes of finding a mispricing is wasteful—though apparent mispricings will often seem obvious in retrospect.

Read more »

Mindset

Time Out

IN WINTER 2012, I experienced what every traveler dreads: a lost bag. Stranded without so much as a toothbrush, I had to replace everything—and fast. At first, this seemed like a pain. But in the end, I came to see it as a blessing. Why? Replacing everything—from head to toe, including the toothbrush—became an unexpected opportunity for a fresh start.
To be sure, all I’m talking about here are clothes and toiletries. Still, the experience made me realize that,

Read more »