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Indexing is for those wise enough to realize that they aren’t wiser than the collective wisdom of all investors.

Shore Thing

AFTER A SHORT but rough tender ride, we’re now off the Zaandam and on the Rotterdam, where we are once again quarantined in our cabin, thankfully still with a balcony. We are through the Panama Canal and now near Cuba. Our three-and-a-half week “mystery” cruise is—we hope—drawing to a close.
On March 30, Colombia refused to allow a plane to land on one of its islands near us. The plane carried medical supplies for the Zaandam.

Read more »

March’s Hits

THERE WAS ONLY one thing that readers were interested in last month—and pretty much only one thing that we wrote about: the coronavirus and its impact on our finances. But which of HumbleDollar’s articles were most popular with readers? Here are the top seven:

When the financial markets give you lemons, make lemonade: James McGlynn spots four opportunities amid the decline in share prices and bond yields.
What’s driving stocks lower? It’s all about the disruption to supply and demand in the real economy,

Read more »

Work That Asset

WHEN ASKED, most people say their most valuable financial asset is their home. But what gave them the financial wherewithal to buy that house, as well as to purchase a car, buy food and pay for vacations? It was their career. Everything that has a financial component in our life starts with our earnings potential.
Take a young adult making $60,000 a year. Assuming a 2% annual raise, he or she would haul in nearly $3 million over a 35-year career.

Read more »

This Too Shall Pass

ONE OF MY FATHER’S favorite sayings was, “This too shall pass.” Recent events have made me dwell on its meaning—and wonder where the phrase came from.
It seems to have originated as a Persian adage. It was employed in a speech by Abraham Lincoln before he became the 16th president: “It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations.

Read more »

When You’re No. 2

WE ALL KNOW financial literacy is important. But it’s especially important if you’re a woman.
According to the Gates Foundation, “No matter where you are born, your life will be harder if you are born a girl.” Today is Equal Pay Day—the day when U.S. women finally earn enough to “catch up” with men’s earnings from the previous year. Women in the U.S. earn 82% of what men do for equivalent work and,

Read more »

School’s in Session

ALTHOUGH THE 2020 market plunge isn’t even six weeks old, there are already lessons we can learn from this financial crisis that can help us better manage our investment portfolio. Here are six takeaways from the current downturn, which has left the S&P 500 off 25% from its Feb. 19 high:
1. During a financial crisis, you often hear the phrase, “Stay the course.” It’s meant to encourage investors to stick with their financial plan during difficult times.

Read more »

Money Guide

Today's Markets

HERE ARE THE LATEST trends in the world of investing:
  • The S&P 500 slumped 20% in 2020's first quarter, after soaring 28.9% in 2019. These figures don't include dividends. Since the market bottomed on March 9, 2009, the shares in the S&P 500 have climbed 282%, though they remain just 69% above their March 24, 2000, peak—a tiny gain over a turbulent 20-year stretch.
  • While almost all stocks posted losses in 2020's first quarter, the pattern resembled that seen in recent years: U.S. growth stocks fared better value shares, while large-company shares held up better than smaller-cap stocks. Similarly, both developed foreign markets and emerging markets once again lagged behind U.S. shares.
  • Treasury bond prices rose and yields fell sharply in 2020, with the benchmark 10-year Treasury note yielding 0.66% on March 31, down from 1.92% three months earlier. In early March 2020, the 10-year yield hit a record low of 0.54%.
  • The Federal Reserve slashed short-term interest in 2020's first three months, as it sought to prop up the slumping economy. One consequence: One-year Treasury bills were yielding just 0.04% as of March 31.
  • Real assets had mixed performance during 2020's first three months. Oil prices plummeted to $20 a barrel, down from $61 at year-end 2019. Real estate investment trusts also tumbled, falling along with the rest of the stock market. But gold, which stood at $1,520 at year-end 2019, climbed to $1,591.
  • In December 2019, the Federal Reserve projected that the U.S. economy will expand 2% in 2020, with unemployment at 3.5% and core inflation running at 1.9%. Expect those numbers to be substantially revised.
  • As of 2016, 51.9% of U.S. families were invested in the stock market, up from 48.8% three years earlier, but below the 53.2% peak recorded in 2007, according to the Federal Reserve's Survey of Consumer Finances. The survey is conducted every three years.
  • There's been much handwringing over whether index funds are coming to dominate the U.S. stock market. But according to the Investment Company Institute, index mutual funds and exchange-traded index funds hold just 13% of U.S. stocks, versus 15% for actively managed funds and 71% for others, including individuals, hedge funds, pension funds and insurers.
Want to get a handle on stock and bond market valuations? Check out the chapter on financial markets. Next: Four Steps Previous: Investing Articles: Collective Wisdom and Investing: 10 Questions to Ask
Read more »

Manifesto

NO. 47: IF WE NEED a financial advisor, we should hire one who’s legally required to act as a fiduciary—meaning he or she has to make recommendations that are in our best interest.

Truths

NO. 103: YOU CAN estimate stock market returns by adding the starting dividend yield to the expected percentage increase in earnings per share. But such estimates could prove badly wrong—depending on investor sentiment. When investors grow bullish, they put a higher value on corporate earnings, driving up the market’s price-earnings ratio.

Act

CONSIDER A TARGET-date fund. Financial advisors push the notion that every investor needs a customized portfolio—and, indeed, we all like the idea that we have an investment mix specially designed for us. Yet most of us, whether we’re investing on our own or through an advisor, would likely fare just as well with a target-date retirement fund.

Think

SOCIAL PROOF. We take our cues from others, assuming what’s popular is also good. That’s a smart strategy with movies, cars, restaurants and electronic gadgets. It’s often a terrible strategy with investments, because we find ourselves buying into stocks and market sectors that have already been bid up—and will likely have modest future returns.

Second Look

Retirement

Required Irritation

IT’S THAT TIME of the year. We seasoned citizens must take our required minimum distributions (RMDs) from our retirement accounts, like it or not, needed or not. Uncle Sam forces us to take these taxable withdrawals, so he can get his share.
It’s a fairly simple process to figure out how much needs to be withdrawn. Determine the total value of your qualified retirement accounts, such as your 401(k) and traditional IRA, as of the previous Dec.

Read more »

Family Finance

Parting Thoughts

“IT HAS LONG been important to us to help our children and 12 adult grandchildren learn some of the fundamentals of saving and investing,” wrote Henry “Bud” Hebeler in a Feb. 26 email to me. “I sent them each a booklet that I wrote, illuminating the key elements that I have talked about in the past. To test their comprehension, I sent the following message.”
Bud died in August, nine days after his 84th birthday.

Read more »

Investing

Your Risk-Free Rate

WHEN DECIDING whether it’s worth taking an investment risk, your starting point should be the so-called risk-free rate. That’s the return you can earn by taking little or no risk. Got your eye on an investment that might perform better? You need to decide whether the potential extra return, relative to the risk-free rate, is worth the added danger involved.
When experts talk about the risk-free rate, they usually point to some sort of Treasury security.

Read more »

Lists

Fistful of Trouble

CONFRONTED BY a complicated financial world, the temptation is to fall back on rules of thumb. But are these rules any good? Here are five of the most popular:
1. Save 10% every year. There are two knocks on this rule of thumb. First, the 10% of pretax income is the sum you’re meant to save for retirement—which means those who have other goals, like buying a house and paying for a child’s college education,

Read more »
Home Call to Action

Mindset

Self-Sabotage

OUR EGOS CAN torpedo our investment decisions. Here are four examples, plus some suggestions for how to avoid these pitfalls:
1. Confirmation bias. People often support their strong financial opinions by only seeking out confirming information. One of my financial-planning clients worried about inflation and its potential impact on his savings. He only read articles that stated inflation and interest rates would soon be going through the roof. But this economic prediction didn’t come to pass.

Read more »

Shore Thing

AFTER A SHORT but rough tender ride, we’re now off the Zaandam and on the Rotterdam, where we are once again quarantined in our cabin, thankfully still with a balcony. We are through the Panama Canal and now near Cuba. Our three-and-a-half week “mystery” cruise is—we hope—drawing to a close.
On March 30, Colombia refused to allow a plane to land on one of its islands near us. The plane carried medical supplies for the Zaandam.

Read more »

March’s Hits

THERE WAS ONLY one thing that readers were interested in last month—and pretty much only one thing that we wrote about: the coronavirus and its impact on our finances. But which of HumbleDollar’s articles were most popular with readers? Here are the top seven:

When the financial markets give you lemons, make lemonade: James McGlynn spots four opportunities amid the decline in share prices and bond yields.
What’s driving stocks lower? It’s all about the disruption to supply and demand in the real economy,

Read more »

Work That Asset

WHEN ASKED, most people say their most valuable financial asset is their home. But what gave them the financial wherewithal to buy that house, as well as to purchase a car, buy food and pay for vacations? It was their career. Everything that has a financial component in our life starts with our earnings potential.
Take a young adult making $60,000 a year. Assuming a 2% annual raise, he or she would haul in nearly $3 million over a 35-year career.

Read more »

This Too Shall Pass

ONE OF MY FATHER’S favorite sayings was, “This too shall pass.” Recent events have made me dwell on its meaning—and wonder where the phrase came from.
It seems to have originated as a Persian adage. It was employed in a speech by Abraham Lincoln before he became the 16th president: “It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations.

Read more »

When You’re No. 2

WE ALL KNOW financial literacy is important. But it’s especially important if you’re a woman.
According to the Gates Foundation, “No matter where you are born, your life will be harder if you are born a girl.” Today is Equal Pay Day—the day when U.S. women finally earn enough to “catch up” with men’s earnings from the previous year. Women in the U.S. earn 82% of what men do for equivalent work and,

Read more »

School’s in Session

ALTHOUGH THE 2020 market plunge isn’t even six weeks old, there are already lessons we can learn from this financial crisis that can help us better manage our investment portfolio. Here are six takeaways from the current downturn, which has left the S&P 500 off 25% from its Feb. 19 high:
1. During a financial crisis, you often hear the phrase, “Stay the course.” It’s meant to encourage investors to stick with their financial plan during difficult times.

Read more »

Free Newsletter

Home Call to Action

Manifesto

NO. 47: IF WE NEED a financial advisor, we should hire one who’s legally required to act as a fiduciary—meaning he or she has to make recommendations that are in our best interest.

Act

CONSIDER A TARGET-date fund. Financial advisors push the notion that every investor needs a customized portfolio—and, indeed, we all like the idea that we have an investment mix specially designed for us. Yet most of us, whether we’re investing on our own or through an advisor, would likely fare just as well with a target-date retirement fund.

Truths

NO. 103: YOU CAN estimate stock market returns by adding the starting dividend yield to the expected percentage increase in earnings per share. But such estimates could prove badly wrong—depending on investor sentiment. When investors grow bullish, they put a higher value on corporate earnings, driving up the market’s price-earnings ratio.

Think

SOCIAL PROOF. We take our cues from others, assuming what’s popular is also good. That’s a smart strategy with movies, cars, restaurants and electronic gadgets. It’s often a terrible strategy with investments, because we find ourselves buying into stocks and market sectors that have already been bid up—and will likely have modest future returns.

Money Guide

Start Here

Today's Markets

HERE ARE THE LATEST trends in the world of investing:
  • The S&P 500 slumped 20% in 2020's first quarter, after soaring 28.9% in 2019. These figures don't include dividends. Since the market bottomed on March 9, 2009, the shares in the S&P 500 have climbed 282%, though they remain just 69% above their March 24, 2000, peak—a tiny gain over a turbulent 20-year stretch.
  • While almost all stocks posted losses in 2020's first quarter, the pattern resembled that seen in recent years: U.S. growth stocks fared better value shares, while large-company shares held up better than smaller-cap stocks. Similarly, both developed foreign markets and emerging markets once again lagged behind U.S. shares.
  • Treasury bond prices rose and yields fell sharply in 2020, with the benchmark 10-year Treasury note yielding 0.66% on March 31, down from 1.92% three months earlier. In early March 2020, the 10-year yield hit a record low of 0.54%.
  • The Federal Reserve slashed short-term interest in 2020's first three months, as it sought to prop up the slumping economy. One consequence: One-year Treasury bills were yielding just 0.04% as of March 31.
  • Real assets had mixed performance during 2020's first three months. Oil prices plummeted to $20 a barrel, down from $61 at year-end 2019. Real estate investment trusts also tumbled, falling along with the rest of the stock market. But gold, which stood at $1,520 at year-end 2019, climbed to $1,591.
  • In December 2019, the Federal Reserve projected that the U.S. economy will expand 2% in 2020, with unemployment at 3.5% and core inflation running at 1.9%. Expect those numbers to be substantially revised.
  • As of 2016, 51.9% of U.S. families were invested in the stock market, up from 48.8% three years earlier, but below the 53.2% peak recorded in 2007, according to the Federal Reserve's Survey of Consumer Finances. The survey is conducted every three years.
  • There's been much handwringing over whether index funds are coming to dominate the U.S. stock market. But according to the Investment Company Institute, index mutual funds and exchange-traded index funds hold just 13% of U.S. stocks, versus 15% for actively managed funds and 71% for others, including individuals, hedge funds, pension funds and insurers.
Want to get a handle on stock and bond market valuations? Check out the chapter on financial markets. Next: Four Steps Previous: Investing Articles: Collective Wisdom and Investing: 10 Questions to Ask
Read more »

Second Look

Retirement

Required Irritation

IT’S THAT TIME of the year. We seasoned citizens must take our required minimum distributions (RMDs) from our retirement accounts, like it or not, needed or not. Uncle Sam forces us to take these taxable withdrawals, so he can get his share.
It’s a fairly simple process to figure out how much needs to be withdrawn. Determine the total value of your qualified retirement accounts, such as your 401(k) and traditional IRA, as of the previous Dec.

Read more »

Family Finance

Parting Thoughts

“IT HAS LONG been important to us to help our children and 12 adult grandchildren learn some of the fundamentals of saving and investing,” wrote Henry “Bud” Hebeler in a Feb. 26 email to me. “I sent them each a booklet that I wrote, illuminating the key elements that I have talked about in the past. To test their comprehension, I sent the following message.”
Bud died in August, nine days after his 84th birthday.

Read more »

Investing

Your Risk-Free Rate

WHEN DECIDING whether it’s worth taking an investment risk, your starting point should be the so-called risk-free rate. That’s the return you can earn by taking little or no risk. Got your eye on an investment that might perform better? You need to decide whether the potential extra return, relative to the risk-free rate, is worth the added danger involved.
When experts talk about the risk-free rate, they usually point to some sort of Treasury security.

Read more »

Lists

Fistful of Trouble

CONFRONTED BY a complicated financial world, the temptation is to fall back on rules of thumb. But are these rules any good? Here are five of the most popular:
1. Save 10% every year. There are two knocks on this rule of thumb. First, the 10% of pretax income is the sum you’re meant to save for retirement—which means those who have other goals, like buying a house and paying for a child’s college education,

Read more »

Mindset

Self-Sabotage

OUR EGOS CAN torpedo our investment decisions. Here are four examples, plus some suggestions for how to avoid these pitfalls:
1. Confirmation bias. People often support their strong financial opinions by only seeking out confirming information. One of my financial-planning clients worried about inflation and its potential impact on his savings. He only read articles that stated inflation and interest rates would soon be going through the roof. But this economic prediction didn’t come to pass.

Read more »