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What’s the common attribute of everyday Americans who have amassed $1 million or more? They’re frugal—otherwise known as cheap.

Why the Long Face?

AS I READ ARTICLES and comments on HumbleDollar, I see concerns about taxes, Medicare, Social Security, health care costs, college, inflation, investing—and the anxiety caused by the complexity of it all. I also see very different views on what’s earned and deserved. In some ways, it’s about what we consider fair.

I suspect the HumbleDollar community is more aware and more involved in their overall financial life than the majority of Americans,

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There Always

DON’T BE TOO IMPRESSED with the magnificent chandelier hanging from the ceiling or the tastefully furnished lobby. A nursing home is a nursing home. It’s not the best answer, but sometimes it’s the only answer.

Mom grew very frail when she entered her 90s. She’d already been diagnosed with late onset Alzheimer’s. At age 91, she fell and broke her right hip and shoulder. At 93, she broke her left hip and, at 95,

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Recent Writing

Long and Short of It

BACK IN THE 1980s, Michael Milken earned notoriety as “the junk bond king.” With his swagger—and his toupee—Milken was an outsized personality in a normally staid industry. But that was four decades ago. It may have been the last time that bonds were truly interesting.
On most days, bonds are about as dull a topic in finance as you can find. But here’s the challenge for investors: While bonds might be boring, they’re important—and they can be tricky.

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Absolutely Fine

I’M DOING RELATIVELY well—and therein lies the problem. No, it isn’t the “doing well” part that’s the issue. Rather, the problem lies with that all-corrupting word “relatively.”
We’re constantly reminded of how we stack up against others. Early in life, that can be useful. If we aren’t cut out to be professional athletes, effective leaders, academic stars or market-beating investors—this last one would include almost all of us—it’s good to find that out, so we don’t spend countless years pursuing goals we’re unlikely to achieve.

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Care Money Can’t Buy

FULL OF PROMISES AND plans, we start retirement in our 60s. It surprises me when people reach age 65 and say, “I don’t feel old.” That’s because, at 65, we aren’t.
We’re still in our go-go years. We still have the time and energy to conquer the world, visit new places, experience new adventures. The 70s, by contrast, are the slow-go years. Maybe we need replacement parts, to slather on Bengay, to load up on Advil.

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Look Under the Hood

I’M NOT A MARKET addict. How can I be so sure? Because, on many occasions, I’ve been able to stop myself from trading excessively. Still, in July, the stars aligned to make me susceptible to another relapse.
A reluctant traveler at best, I was persuaded to accompany my wife Alberta to a 14-day writers’ conference in Upstate New York. I’m a confirmed introvert, so I groove on alone time. But 10 hours every day—while Alberta attended the conference—proved to be a challenge.

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Home Call to Action

Driven by Data

THE SUMMER AFTER MY sophomore year at Virginia Tech, I had an internship with Frito-Lay, working in its computer applications department at the company’s research headquarters in Irving, Texas. One of the programs I had to learn was VisiCalc, the first spreadsheet program for personal computers. This was my introduction to spreadsheets, and I’ve been hooked ever since.
Sometimes, I joke with my family that I live the data-driven life—not to be confused with Rick Warren’s purpose-driven life.

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Powerful Savings

I BOUGHT AN EXPENSIVE new water heater last year for my house in Maine. The old heater had a ring of rust at the bottom, and I was spurred to act by an $800 rebate offered by the state of Maine, which was contingent on buying a heat pump water heater. The new water heater draws its heat from the surrounding air, and is two-to-three times more efficient than my earlier model.
I filled out a rebate form at the appliance store counter.

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The Write Stuff

I’VE BEEN SAVING almost my entire adult life. Early on, three books put me on the path to financial success, helping me to reevaluate how I was living.
The first was The Automatic Millionaire by David Bach. This introduced me to the concept that small, automated savings could lead to big results, thanks to compounding over long periods. Albert Einstein reportedly said, “Compound interest is the eighth wonder of the world. He who understands it,

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My Best Experiences

WORD ON THE STREET is that, if you want to use money to make yourself happy, you should buy experiences rather than things.
In principle, I couldn’t agree more.
There is, however, one kind of experience that I see touted both in the media and on social media that I don’t think reflects money well spent: the expensive family vacation to a distant destination. This status-symbol experience, complete with selfies at ritzy hotels, is supposedly designed to create priceless memories.

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Get Educated

Truths

NO. 100: THE BIGGEST “death tax” paid by your family will probably be the income taxes still owed on your retirement accounts. One possibility: Pay the tax to convert part of your traditional IRA to a tax-free Roth IRA, and then bequeath that account—an especially smart move if your heirs are likely to be in a higher income-tax bracket than you.

Act

LOOK FOR TAX savings—by reviewing your recent tax returns. Two danger signs: lots of interest income and realized capital gains, especially short-term capital gains. What to do? Avoid trading so much or, if necessary, confine it to a retirement account. Also use a retirement account to hold your taxable bonds and other tax-inefficient investments.

Think

SHILLER P/E. Named after economist Robert Shiller, the Shiller price-earnings ratio—also known as the cyclically adjusted P/E ratio or CAPE—compares current stock prices to average inflation-adjusted earnings for the past 10 years. That smooths out cyclical fluctuations in corporate profits—a problem that can distort conventional P/E multiples.

Money Guide

Market Portfolio

AS INVESTORS DESIGN their portfolio, many will use a 100% U.S. stock portfolio as their starting point and then decide how they'll deviate. What's the advantage of this approach? You begin with stocks, which are a portfolio’s engine of growth: They’re the asset class that will give you the best shot at outpacing the twin threats of inflation and taxes over the long haul. Stocks, of course, also come with the risk of terrible short-term results. This is the reason that investors will add other investments. You can lower a portfolio’s overall volatility by taking some of your U.S. stock market money and shifting it into foreign stocks. But the biggest risk reduction comes from adding conservative investments, notably bonds. That brings us to an alternative—and perhaps more rational—approach: Instead of starting with a 100% U.S. stock portfolio and deciding what to add, you might begin with the so-called global market portfolio and then figure out what to subtract. What's the global market portfolio? It's the portfolio that includes the entire investable universe, with all investments weighted by their market value. In effect, the global market portfolio reflects what all other investors collectively own, so arguably it's the ultimate in diversification—and hence the logical starting point as you design a portfolio. The global market portfolio consists of four key sectors, all roughly equal in size: U.S. stocks, U.S. bonds, foreign stocks and foreign bonds. If you focus heavily on just one of these four sectors, you are making a huge market bet on a quarter of the global financial markets—a bet that could backfire. An example: Japanese stocks today remain below their year-end 1989 value. That has meant disastrous results for Japanese investors who wagered solely on their own country’s stock market and it highlights the dangers of what experts in behavioral finance call "home bias." Could we see equally grim results for U.S. stocks? It seems improbable. But the terrible performance of the Japanese market since 1989 would also have seemed wildly improbable in the late 1980s, when the Japanese economy was the envy of the world. To avoid disastrous results like those suffered by Japan, you should probably hold a globally diversified stock portfolio, while also owning at least some bonds. Next: Diversifying Stocks Previous: Step 3: Diversify Article: No Right Way
Read more »

Manifesto

NO. 20: FRUGALITY isn’t just the key to financial success. It’s also no great sacrifice, because spending often brings only fleeting happiness—and sometimes even pangs of regret.

Voices

Is there a downside to the current popularity of indexing?

"Perhaps not a downside, but something to be aware of -- an index fund is, by its nature, a "buy high-sell low" portfolio, given that it's cap-weighted, so stocks whose market cap is falling must be sold, and those that are rising must be bought, to maintain parity with the index it tracks."
- John Wood
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Does money buy happiness?

"If you come from comfortable money, it bestows notions of entitlement, if you come from nothing, it may buy the comfort & relief rather than happiness, that's the continuum."
- timtioga@aol.com
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When were you happiest—and what role did money play?

"I think college was the happiest time for a few reasons. I didn't have a lot of money and wasn't taking vacations (I worked during the summer) but since I went to a large public U everyone around me seemed to be in the same boat. And I think that is significant; seeing others much better off can make people unhappy so I'm glad I didn't go to a more prestigious private college where wealth disparities would have been obvious. Second, I went to school in a smaller town so the people around me (in what can best be called a student slum) were college students. We were all single and away from home so open to making new friends in a way that people in their working years living in a less compact community and raising their own families are not. Third, the future seemed to stretch endlessly ahead. College was a time when so many paths forward seemed open, life felt like it was beckoning. Fourth, I had a feeling of accomplishment that was fed every few weeks. I worked hard to do well, but midterms and finals provided objective proof that I was succeeding. Out in the "real world" where work projects are either forever ongoing or years-long and you only get feedback in annual reviews it can be harder to know how you're really doing."
- MarkT29
Read more »

Second Look

Retirement

The Tipping Point

STARTING TO SAVE is a discouraging business. Even if you invest in stocks—and even if stocks post gains—progress initially can seem agonizingly slow.
Consider a simple example. Let’s say you earn $100,000 a year. Not exactly an everyday salary, I admit, but it makes the numbers easier to grasp. You save 12% of your income, equal to $12,000 each year. That money is invested at the start of the year and earns 6% annually,

Read more »

Family Finance

Castles in the Air

AMONG THE 16 MILLION who served during the Second World War, many returned home, started families and pursued what would become an integral part of the American dream: homeownership. It’s during this time that the term “starter home” was coined.
My grandfather was one of those proud vets. He and my grandmother bought a place in South Dakota, where they started our family.
In 1950, the average new single-family home was 983 square feet.

Read more »

Investing

No Simple Stories

I’VE OFTEN COMPARED the stock market to a Rorschach test. Depending on your perspective, what’s happening can look very different. But even in a market full of Rorschach tests, one company’s stock stands out: Tesla. Some people see it as a world-class company that’s changing the world. Others see it as a company led by an erratic genius that one day will inevitably fade—like MySpace or Polaroid.
Recently, a blogger named Alex Voigt wrote that Tesla’s head start in electric vehicles “will soon make Toyota look like what it is—a loser.” He then added for emphasis: “Dead man walking.”
Is Voigt right or wrong?

Read more »

Lists

11 Remodeling Tips

WE JUST STARTED remodeling our house. I knew it would be an expensive project. Indeed, my next-door neighbor warned me about the difficulty of controlling costs.
He said they netted $250,000 from the sale of their old house. Their plan was to remodel their current home and use the remaining proceeds to pay off the mortgage on their vacation property. But unfortunately, they blew through their remodeling budget and didn’t have enough left over to pay off the other mortgage.

Read more »
Home Call to Action

Mindset

Sharing the Wealth

SHOULD THOSE OF US who are better off financially feel guilty? When I read about income inequality, folks living paycheck to paycheck and the like, I occasionally feel a twinge of guilt. But it quickly passes.
This lack of guilt doesn’t imply a lack of empathy on my part or that of others who have been financially successful. Indeed, wealth is frequently used to help others. Society has benefited greatly not just from the jobs created by the Rockefellers,

Read more »

Free Newsletter

Get Educated

Manifesto

NO. 20: FRUGALITY isn’t just the key to financial success. It’s also no great sacrifice, because spending often brings only fleeting happiness—and sometimes even pangs of regret.

Act

LOOK FOR TAX savings—by reviewing your recent tax returns. Two danger signs: lots of interest income and realized capital gains, especially short-term capital gains. What to do? Avoid trading so much or, if necessary, confine it to a retirement account. Also use a retirement account to hold your taxable bonds and other tax-inefficient investments.

Truths

NO. 100: THE BIGGEST “death tax” paid by your family will probably be the income taxes still owed on your retirement accounts. One possibility: Pay the tax to convert part of your traditional IRA to a tax-free Roth IRA, and then bequeath that account—an especially smart move if your heirs are likely to be in a higher income-tax bracket than you.

Think

SHILLER P/E. Named after economist Robert Shiller, the Shiller price-earnings ratio—also known as the cyclically adjusted P/E ratio or CAPE—compares current stock prices to average inflation-adjusted earnings for the past 10 years. That smooths out cyclical fluctuations in corporate profits—a problem that can distort conventional P/E multiples.

Money Guide

Begin Here

Market Portfolio

AS INVESTORS DESIGN their portfolio, many will use a 100% U.S. stock portfolio as their starting point and then decide how they'll deviate. What's the advantage of this approach? You begin with stocks, which are a portfolio’s engine of growth: They’re the asset class that will give you the best shot at outpacing the twin threats of inflation and taxes over the long haul. Stocks, of course, also come with the risk of terrible short-term results. This is the reason that investors will add other investments. You can lower a portfolio’s overall volatility by taking some of your U.S. stock market money and shifting it into foreign stocks. But the biggest risk reduction comes from adding conservative investments, notably bonds. That brings us to an alternative—and perhaps more rational—approach: Instead of starting with a 100% U.S. stock portfolio and deciding what to add, you might begin with the so-called global market portfolio and then figure out what to subtract. What's the global market portfolio? It's the portfolio that includes the entire investable universe, with all investments weighted by their market value. In effect, the global market portfolio reflects what all other investors collectively own, so arguably it's the ultimate in diversification—and hence the logical starting point as you design a portfolio. The global market portfolio consists of four key sectors, all roughly equal in size: U.S. stocks, U.S. bonds, foreign stocks and foreign bonds. If you focus heavily on just one of these four sectors, you are making a huge market bet on a quarter of the global financial markets—a bet that could backfire. An example: Japanese stocks today remain below their year-end 1989 value. That has meant disastrous results for Japanese investors who wagered solely on their own country’s stock market and it highlights the dangers of what experts in behavioral finance call "home bias." Could we see equally grim results for U.S. stocks? It seems improbable. But the terrible performance of the Japanese market since 1989 would also have seemed wildly improbable in the late 1980s, when the Japanese economy was the envy of the world. To avoid disastrous results like those suffered by Japan, you should probably hold a globally diversified stock portfolio, while also owning at least some bonds. Next: Diversifying Stocks Previous: Step 3: Diversify Article: No Right Way
Read more »

Voices

If you couldn’t buy index funds, how would you invest?

"I would be investing in the old school Listed Investment Companies such as AFIC, Brickworks etc "
- Captain FI
Read more »

What money advice do you recall hearing from your parents?

"Pay yourself first. Mom was a big fan of Louis Rukeyser, Richard Band, and Bob Brinker. She then morphed into a Boglehead before there were Bogleheads..."
- Rob Thompson
Read more »

Second Look

Retirement

The Tipping Point

STARTING TO SAVE is a discouraging business. Even if you invest in stocks—and even if stocks post gains—progress initially can seem agonizingly slow.
Consider a simple example. Let’s say you earn $100,000 a year. Not exactly an everyday salary, I admit, but it makes the numbers easier to grasp. You save 12% of your income, equal to $12,000 each year. That money is invested at the start of the year and earns 6% annually,

Read more »

Family Finance

Castles in the Air

AMONG THE 16 MILLION who served during the Second World War, many returned home, started families and pursued what would become an integral part of the American dream: homeownership. It’s during this time that the term “starter home” was coined.
My grandfather was one of those proud vets. He and my grandmother bought a place in South Dakota, where they started our family.
In 1950, the average new single-family home was 983 square feet.

Read more »

Investing

No Simple Stories

I’VE OFTEN COMPARED the stock market to a Rorschach test. Depending on your perspective, what’s happening can look very different. But even in a market full of Rorschach tests, one company’s stock stands out: Tesla. Some people see it as a world-class company that’s changing the world. Others see it as a company led by an erratic genius that one day will inevitably fade—like MySpace or Polaroid.
Recently, a blogger named Alex Voigt wrote that Tesla’s head start in electric vehicles “will soon make Toyota look like what it is—a loser.” He then added for emphasis: “Dead man walking.”
Is Voigt right or wrong?

Read more »
Home Call to Action

Lists

11 Remodeling Tips

WE JUST STARTED remodeling our house. I knew it would be an expensive project. Indeed, my next-door neighbor warned me about the difficulty of controlling costs.
He said they netted $250,000 from the sale of their old house. Their plan was to remodel their current home and use the remaining proceeds to pay off the mortgage on their vacation property. But unfortunately, they blew through their remodeling budget and didn’t have enough left over to pay off the other mortgage.

Read more »

Mindset

Sharing the Wealth

SHOULD THOSE OF US who are better off financially feel guilty? When I read about income inequality, folks living paycheck to paycheck and the like, I occasionally feel a twinge of guilt. But it quickly passes.
This lack of guilt doesn’t imply a lack of empathy on my part or that of others who have been financially successful. Indeed, wealth is frequently used to help others. Society has benefited greatly not just from the jobs created by the Rockefellers,

Read more »