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Excessive optimism is the curse of the young—and undue pessimism is the affliction of the old.

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The Nerf Gun Incident: Sunk Costs, Suppressing Fire and the Glassblower

"Chrissy’s brother, and her nephew, are only a few years apart in age. They practically grew up as brothers, they reciprocate by buying goofy presents for each other at the family Christmas gift exchanges. Several years ago, one of them purchased a pair of nerf guns. A gunfight erupted inside the  house, it was fun until someone literally nearly had an eye poked out.  I know the point of the post wasn’t about nerf guns, but I couldn’t resist telling the story. The only other thing I have to add is that Chrissy sure likes Suzie’s style, and would love to see a photo of the carnage caused by the battle. "
- Dan Smith
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The Rent is Too Damn High!

"R Quinn, I understand how your son must feel not keeping all he charges as I felt similarly when I used to work for ExxonMobil. There was commuter costs (gas, insurance, tires, a new transmission, etc.), taxes (fed, state, SS, Medicare, etc.), health and dental, clothing (suits, shoes, dry cleaning, etc.). One reason I think some customers have no idea about what makes up the prices is that contractors make zero effort informing them. Most of the quotes I have received over the years are verbal, with a few being a price listed in a text or on a nearly blank pdf. If contractors can't be bothered to include a sentence or two describing the job, why should I be bothered to try an understand how much it will cost them? Regarding the equation, I think it would behoove all involved to realize that there are three sides to it: pay the rent, DIY, don't do anything."
- mflack
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GLP1 Access for Only a $50 Copay?

"Great news, Dave. We have been paying cash for Wegovy. Thanks."
- Dan Smith
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Writing a Book in Retirement: The Good, the Hard, and the Surprisingly Meaningful

"I was a freelance travel writer for about the last 20 years of my career and eventually co-authored a book with an acquaintance who had a lot of publishing experience. Through his contacts, we received a contract from a university press and were paid an advance for our royalties, which we earned through our book sales plus more. The university’s publishing staff was large and we benefitted from their editor, cover artist, promotional team, and so on. It all took a couple of years, but it was a kick for our book to be in the Library of Congress and we won an award. After the pandemic came and went, I decided I was ready to retire."
- Chris G
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Starting Up – Part 2

"I've been really lucky going back into an employee role. The business owner had a headache, a relatively small part of the business that was giving him disproportionately large problems. So he has given me almost full autonomy, happy to leave me be as long as his problems go away! The more difficult aspect was actually finding a job. At 52, in a rural area, with an eclectic mix of roles on my resume, I didn't appear to be a very attractive employee proposition. It was pretty humbling to feel like I almost had to start from scratch, and it certainly makes me appreciate my current role."
- greg_j_tomamichel
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Help for divorcing daughter

"The lawyer seems VERY PROBLEMATIC. A good lawyer acts as an advocate for his/her client. Your daughter needs better representation."
- Marilyn Lavin
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Money and Me by Jonathan Clements

"Thank you. I just pre-ordered the book, which I know will be exceptional. I will now order copies for each of my adult children. I read, religiously, Jonathan's columns in the WSJ for years and followed him from there. He has helped, and is missed, by so many."
- Randy Eakin
Read more »

Dickie and his magic beans

"On the other hand, there are significant differences (taste, texture, appearance, etc.) between various apple varieties, and the same holds true for most fruits and vegetables. Why should coffee beans be any different? (Hint, there are significant differences - soil conditions, bean variety, etc.) Certain brands sole-source different blends with beans from growers with specific locations, soil, climate, coffee bean variety, etc. It's worth spending some time investigating what there is to offer. Did you know there are several hundred different types of bananas?"
- mllange
Read more »

Direct Indexing Anyone?

"This 2023 article by Allan Roth summarizes direct indexing’s pro and cons better than most. His conclusion?

"Direct indexing is generally not as good as buying broad ultra-low-cost index funds. That said, it could be beneficial in certain circumstances: 

·      You want to donate to charity in a few years so you can harvest the tax loss and then donate the appreciated securities to the charity, thereby never paying taxes on the appreciation. 

·      You currently have large taxable long-term gains at the 23.8% marginal federal tax rate (20% +3.8% investment income tax) but soon will be in a lower rate. 

·      You are in a high tax bracket but have a very short life expectancy and the kids will soon inherit the money with a step-up basis."


Roth ended with this: "Direct indexing is good. It’s just generally not as good as owning broad ETFs." 


Thanks to all who responded. Please update here if you use direct indexing and learn something worth sharing. 

"
- ostrichtacossaturn7593
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Benefits Young Adults Should Look at Before Taking a Job

"This benefit is a sleeper, but important. A young adult's greatest attribute is their human capital - which they can put to good use for decades. Therefore, its critical to protect that human capital. And the best way to do that is with long term disability coverage. So young adults need to make sure they have that coverage. Because if they get injured and can't work, that may be the end of their human capital - and the beginning of a very tough life."
- js
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First Job, Lasting Impact

"It just popped in my head so I calculated it. 🤑"
- R Quinn
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The Nerf Gun Incident: Sunk Costs, Suppressing Fire and the Glassblower

"Chrissy’s brother, and her nephew, are only a few years apart in age. They practically grew up as brothers, they reciprocate by buying goofy presents for each other at the family Christmas gift exchanges. Several years ago, one of them purchased a pair of nerf guns. A gunfight erupted inside the  house, it was fun until someone literally nearly had an eye poked out.  I know the point of the post wasn’t about nerf guns, but I couldn’t resist telling the story. The only other thing I have to add is that Chrissy sure likes Suzie’s style, and would love to see a photo of the carnage caused by the battle. "
- Dan Smith
Read more »

The Rent is Too Damn High!

"R Quinn, I understand how your son must feel not keeping all he charges as I felt similarly when I used to work for ExxonMobil. There was commuter costs (gas, insurance, tires, a new transmission, etc.), taxes (fed, state, SS, Medicare, etc.), health and dental, clothing (suits, shoes, dry cleaning, etc.). One reason I think some customers have no idea about what makes up the prices is that contractors make zero effort informing them. Most of the quotes I have received over the years are verbal, with a few being a price listed in a text or on a nearly blank pdf. If contractors can't be bothered to include a sentence or two describing the job, why should I be bothered to try an understand how much it will cost them? Regarding the equation, I think it would behoove all involved to realize that there are three sides to it: pay the rent, DIY, don't do anything."
- mflack
Read more »

GLP1 Access for Only a $50 Copay?

"Great news, Dave. We have been paying cash for Wegovy. Thanks."
- Dan Smith
Read more »

Writing a Book in Retirement: The Good, the Hard, and the Surprisingly Meaningful

"I was a freelance travel writer for about the last 20 years of my career and eventually co-authored a book with an acquaintance who had a lot of publishing experience. Through his contacts, we received a contract from a university press and were paid an advance for our royalties, which we earned through our book sales plus more. The university’s publishing staff was large and we benefitted from their editor, cover artist, promotional team, and so on. It all took a couple of years, but it was a kick for our book to be in the Library of Congress and we won an award. After the pandemic came and went, I decided I was ready to retire."
- Chris G
Read more »

Starting Up – Part 2

"I've been really lucky going back into an employee role. The business owner had a headache, a relatively small part of the business that was giving him disproportionately large problems. So he has given me almost full autonomy, happy to leave me be as long as his problems go away! The more difficult aspect was actually finding a job. At 52, in a rural area, with an eclectic mix of roles on my resume, I didn't appear to be a very attractive employee proposition. It was pretty humbling to feel like I almost had to start from scratch, and it certainly makes me appreciate my current role."
- greg_j_tomamichel
Read more »

Help for divorcing daughter

"The lawyer seems VERY PROBLEMATIC. A good lawyer acts as an advocate for his/her client. Your daughter needs better representation."
- Marilyn Lavin
Read more »

Money and Me by Jonathan Clements

"Thank you. I just pre-ordered the book, which I know will be exceptional. I will now order copies for each of my adult children. I read, religiously, Jonathan's columns in the WSJ for years and followed him from there. He has helped, and is missed, by so many."
- Randy Eakin
Read more »

Dickie and his magic beans

"On the other hand, there are significant differences (taste, texture, appearance, etc.) between various apple varieties, and the same holds true for most fruits and vegetables. Why should coffee beans be any different? (Hint, there are significant differences - soil conditions, bean variety, etc.) Certain brands sole-source different blends with beans from growers with specific locations, soil, climate, coffee bean variety, etc. It's worth spending some time investigating what there is to offer. Did you know there are several hundred different types of bananas?"
- mllange
Read more »

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Get Educated

Manifesto

NO. 58: IF WE HAVE a long time horizon, we should aim to be owners—by buying our cars, our home and a diversified stock portfolio. The latter will make us part owners of companies large and small.

Truths

NO. 51: ANNUAL FUND expenses are the biggest driver of differences in fund performance. A stock-fund manager may get lucky and post big gains, despite a hefty expense ratio. But that’s rare with bond and money-market funds: Investors should favor the lowest-cost funds, because they invariably dominate each category’s list of top five-year performers.

think

RISK TOLERANCE. Objectively, we may be able to take a lot of investment risk because we have a secure job and a long time horizon. But before we invest heavily in stocks, we should consider our personal tolerance for risk. This isn’t easy because it changes with the market: We grow braver as stock prices climb—and fearful when the market falls.

humans

NO. 13: WE'RE GIVEN to inertia. Even if our financial situation is bad, we fear any change will make it even worse—and we’ll end up racked with regret. Such fear can leave us holding bum investments we should have ditched years ago. Still, inertia isn’t all bad. It takes effort to sign up for the 401(k). But once we have, we tend to stick with it, thanks to inertia.

Two-minute checkup

Manifesto

NO. 58: IF WE HAVE a long time horizon, we should aim to be owners—by buying our cars, our home and a diversified stock portfolio. The latter will make us part owners of companies large and small.

Spotlight: Family

Lesson One From Taking Care of a 102 yo in Her Last Year of Life- Be Grateful

Note: This was a late comment to an earlier post that some may have missed. It’s still too early to post other lessons as there are more family gatherings to host.
Here is my take on being grateful: My mother in law is in the hospital now for the last time. When I was riding my stationary bike to relieve some stress the other day (That’s when my mind wanders and I do my best critical thinking/reflecting) I had an epiphany. 

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How was your Mother’s Day?

This holiday can be a stressful one for many families.  Who plans it? Who hosts it? Do you go out for a meal or cook or cater in?  Who is invited?  Who can actually come (geographically and other commitments)?  How does everyone get along?
After an exhausting but great Mother’s Day at our Jersey shore home on a beautiful day here my wife and I collapsed as I reflected on how lucky we are compared to many families including many of our friends.

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Playing Ball

MY SON IS A FRESHMAN in high school, and I’m beginning to be more purposeful about his baseball aspirations. But after dropping $85 on a one-hour pitching lesson, I was wondering, was my money well spent?
My search for an answer began with the Netflix series Receiver. I tuned in to see football player George Kittle, a former University of Iowa Hawkeye and bigtime professional wrestling fan. Kittle was kind enough to send autographed memorabilia for a softball fundraiser we had a few years ago.

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Easier for Rachel

PEOPLE WHO KNOW ME say I’m sentimental, and they’re right. I like visiting places like my elementary school, the house where I grew up and my first home away from home. They bring back fond memories.
As I’ve grown older, I’ve become more nostalgic, and it isn’t just me. I heard that the ashes of my childhood friend Brian were spread over our grade school grounds. He must have had a touch of nostalgia,

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Pass the mashed potatoes by Quinn

In a previous article I wrote about food waste in America even as 7 million Americans are reported as food insecure. 
I occasionally feel food insecure, but not in the real sense. My experience comes from fugal relatives and friends. Have you ever had dinner with family or friends and been afraid to take a reasonable portion of the food? I can’t imagine what some hosts are thinking. 
I was at a holiday dinner and when the turkey being passed around got to me only a wing was left.

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Savoring the Moments

BASIC ECONOMICS teaches us that scarce commodities are more precious. This holds true for metals, rocks, food—and time. Which brings me to today’s topic: Time spent with my daughter and only child has reached the rare and precious stage.
In summer 2023, scarcity was far from my mind. My daughter and I traveled to visit Grandmama—my mother—five hours’ drive south of our home. The visit itself was short and mundane, with just the usual catching up with my mother and tending to her business.

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Spotlight: Saha

Changing My Mindset

WHETHER MONEY BUYS happiness is a matter of debate, but a recent incident reinforced my conviction that financial security does indeed help. The incident would’ve caused me considerable distress a few years ago, when I was earning more but was still dependent on my fulltime job’s paycheck. My newfound financial security, however, transformed the situation into a truly memorable experience. My wife, Bonny, and I both enjoy attending Indian music and dance performances. We make it a point to see the live shows put on by local groups and, if the ticket prices are reasonable, also those featuring artists visiting from India. This year, Bonny was keen to see a dance-drama performance by a touring group from India. Although the show was scheduled for July, Bonny wasted no time securing two tickets when reservations opened in March. I got the sense that the tickets came with a hefty price tag. As the date drew nearer, Bonny’s excitement built. On the day of the event, she repeatedly urged me to hurry up and get ready, with the half-joking threat to leave me behind if I delayed any further. Both of us got dressed up and were about to head out when Bonny received a text message. It was from a friend who’d purchased tickets in the same row as us. She was curious if we changed our seats because she couldn’t spot us in the theater. Bonny responded with a touch of impatience, assuring her that we’d be there shortly. Her friend called within minutes to say the show had just finished. Bonny was perplexed, while I hastily jumped to the conclusion that she must have misremembered the showtime. Bonny, however, was adamant that she had purchased tickets for a 7 p.m. performance, and the screenshots of the tickets saved on…
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Simply Works

I THANK MURTHY, a friend at college, for teaching me guitar. Instead of theories, he taught me five easy chords. I could soon play a few songs and that fueled my motivation to learn more. The same strategy can help beginner investors. Novices often find the stock market intimidating and mysterious. Result? Inaction and opportunity cost. Solution? Simple steps. A former coworker comes to my mind. He was uninterested in stocks, including the company shares he received as part of his pay. He sold the shares immediately—often the smart thing to do—but he didn’t know what to do with the cash. For people like him, a simple solution is a fund like Vanguard Total World Stock ETF (symbol: VT). No need to research individual stocks. All my friend had to do was sell his company shares as he received them and then buy this fund. Over time, his interest in investing grew, and he’s no longer ignorant about the stock market. Another example: A friend’s daughter needed help with investing. She learned fast and decided to invest equal amounts in four commission-free index funds. She adopted a shortcut for rebalancing. Whenever she had money to invest, she’d buy the fund with the lowest balance. Was this the best strategy? Maybe not. But it works for her. My last example: A recent acquaintance had a large sum sitting in her bank account for years. She was too afraid to invest and too embarrassed to ask. After we chatted a few times, she realized that—while she was avoiding risk—she was also avoiding return. She decided to start investing in small installments, but invest less if stock prices were high. To keep things simple, she transfers just enough from her bank each month so her investment account reaches a fixed dollar target. If…
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Ready or Not

THE PAST FEW WEEKS have brought back memories of the 2008 financial crisis. Back then, stocks were at bargain prices, but I had little money to invest. Today, my financial house is much stronger—and I want to be ready to buy if stocks get dirt cheap. I’ve already made some portfolio adjustments. But from here, my plan is to keep an eye on stock market valuations. A large percentage drop by the market averages might—by itself—create the false impression that stocks are cheap, so instead I prefer to watch valuation measures such as the market’s price-earnings multiple, price-to-book value and dividend yield. What are these metrics saying? Despite a 27% drop from its peak, the S&P 500 isn’t exactly cheap. For instance, the cyclically adjusted P/E ratio, or CAPE, is still above its historical average by a large margin. Most other valuation measures paint a similar picture. At these levels, the odds of superior market returns are still low. I’ve decided to wait to overweight stocks, at least until valuations are closer to normal. I’d put a normal valuation for the S&P 500 at around 1800—a 47% drop from the Feb. 19 all-time high. That size drop has happened just five times, including two occasions since 2000. That’s when I’ll start shifting my asset allocation to overweight stocks. Until then, I’m fine with dollar-cost averaging my ongoing savings into my current asset allocation. Meanwhile, I’d consider stocks dirt cheap if valuations fall 25% below their historical averages. That would require a whopping 60% drop from the peak, taking the S&P 500 well below 1400. A drop of that magnitude, which would motivate me to bet big, hasn’t happened since the Great Depression. Even at the depth of the 2007-09 bear market, the fall was smaller. Think I’m daydreaming? Perhaps. The stock market…
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Working the Plans

I’VE DEVELOPED a series of what I call “Geico talks,” named after the ubiquitous insurance company commercials. They’re 15-minute talks that, I joke, are aimed at boosting financial knowledge by 15% or more. The talks are for friends and acquaintances who work at the same company as me or at companies with similar employee benefits. These firms typically have great retirement plans and many employees own company stock. I figured the topics I’d researched for my own finances would help these folks. I also suspected that some friends were making the same mistakes I’d made. With that in mind, I came up with three Geico talks: 1. After-tax 401(k) contributions. Only a minority of 401(k) plans allow so-called mega-backdoor Roth conversions, but it’s worth checking to see whether your plan does. What’s involved? It starts with making after-tax contributions to your employer’s 401(k). These contributions are over and above the usual tax-deductible or Roth 401(k) contribution limit, which in 2020 is $19,500 for those under age 50. The after-tax contributions can sometimes be immediately converted to the company’s Roth 401(k), where the money grows tax-free thereafter. Alternatively, the after-tax dollars can be transferred to a Roth IRA, either while you’re still employed or when you leave the company. If the money ends up in a Roth IRA, either immediately or when you leave your employer, it also escapes the rules for required minimum distributions that apply starting at age 72. My employer’s 401(k) plan allows both after-tax contributions and the ability to convert that money over to the Roth 401(k) option. Ditto for the employers of some friends. Be warned: If you convert to a Roth and the after-tax dollars have enjoyed some investment gains, the conversion will trigger a tax bill, though it’ll typically be modest. 2. Company stock. Many…
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Subject to Revision

DURING MY SCHOOL days growing up in India, my exposure to English literature was confined to textbooks that reprinted essays and short stories, or portions thereof. One of them was a humorous piece by Stephen Leacock from his book Winnowed Wisdom. The excerpt was titled “Old Proverbs Made New” and it seemed funny even to a middle-schooler with a limited grasp of the English language. It argued, with examples, that proverbs get outdated and need to be rewritten. It recently dawned on me that Leacock’s contention also applies to personal finance. Here are eight popular sayings, along with my tweaks: 1. Hard work never hurt anyone. Yes, it does. In fact, successful investing requires so little effort that laziness is almost a virtue. Working too hard at investing can do more harm than good to our long-term performance. For instance, we might try hard to time the market, only to find that it doesn’t really work. We might expend too much effort finding the next highflying stock, only to watch our hard-earned money slip away. We might burn midnight oil overdiversifying our investments, only to end up with an unruly, complicated mess. On the other hand, a simple portfolio, consisting of a few low-cost diversified funds, needs nothing more than occasional rebalancing. Hard work can hurt investment results. 2. Proof of the pudding is in the eating. Intuitively, this sounds right, doesn’t it? The final result should be the only way to judge something’s quality. This is true for cases where there’s little room for uncertainty. It doesn’t, however, apply to financial and investment decisions. Why not? Because luck and randomness contribute to the outcome. It’s difficult to separate luck from skill. In her bestselling book Thinking in Bets, Annie Duke explains that the measure of a great decision isn’t…
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Options in Disguise

DO YOU INVEST IN options? Think twice before saying that you’d rather go to Vegas. My bold claim: Options investing has a lot in common with investing in stocks and corporate bonds. Intrigued? Let’s recap a European style call option. It’s a discretionary contract that allows someone to buy an underlying asset at a set strike price at a future date. Let’s say the buyer of the call, Bob, has an option on a stock with a strike price of $100. Bob will only exercise the contract if it’s profitable. If the stock price rises to $150 by the time the option expires, Bob can acquire the shares for $100 and immediately sell them for a $50 profit. On the other hand, if the stock price drops to $80, Bob has no obligation to exercise the option. His call option will simply expire worthless. Bob’s only chance at profit comes if the underlying asset clears the strike price. That brings us to the option seller, Shelly. She owns the underlying stock and is participating in a covered call, meaning she’s selling a call option on an asset she already owns. In return, Shelly receives a call premium from Bob. Selling covered calls is a popular strategy for generating extra income. In exchange for the income she receives from selling the covered call, Shelly risks having to sell the stock at the strike price. If the shares rise to $150, Shelly must still sell for $100. The covered call limits her payoff. If the asset doesn’t exceed the strike price, Shelly keeps her shares and pockets the income. What if the stock falls? Shelly still has her option premium, but that may be more than offset by the share price decline. Now, let’s consider the positions of stock and bond investors…
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