Tag Archives: Personal Finance

In An Uncertain World

By Larry Luxenberg  

We fool ourselves if we ever think that we can foresee the future but some times are murkier than others and now certainly fits that bill.

My test for this is to think back on the last week, the last month, the last five years and consider all of the major things that have happened and how unlikely it is that anyone could have predicted many of the major developments.

People do not like to think that they have limited visibility into the future. It’s especially important when we have our investment hats on that we realize the limits of our knowledge and act accordingly.

An investor must be an optimist or else they would not invest. They must believe that the future is brighter than the present, that there will be inventions and progress that will generate returns to those who make their capital available to promising ventures.

But just as surely an investor must realize that bad things happen to good people and investors should control what they can control and weigh risks carefully before deploying capital.

Applying my test and going back five years to late February, 2020, we were on the verge of the biggest global health crisis in a century. For the first time a huge chunk of the modern economies was deliberately being shut down. We were in the final year of the first Trump Administration. Russia had not yet invaded Ukraine, artificial intelligence was a term, not a “thing,” and cryptocurrency had not yet reach trillion-dollar status.

That spring of 2020 was a time of great fear. People were hunkered down to avoid the deadly disease and the stock market declined the furthest in a short time – by nearly half in less than a month – of my nearly half century career on Wall Street. The collapse of economic activity was the greatest in a short time since the Great Depression of the 1930s. In one week alone, more than 10 million people lost their jobs; a week unlike any in American history.

Over the next several years more than one million people died at least in part because of Covid 19. We will never know the exact total and defining a Covid death is remarkably difficult but we can be confident that it was a lot. Despite this towering loss, the economy and the stock market bounced back much, much faster than most serious observers thought possible.

On March 23, 2020, the Federal Reserve announced that it was coming to the rescue and that marked the bottom of the bear market. The stock market sprang to life before the epidemic had barely begun to exact its grisly toll.

A friend asked me for my prediction of when the economy would start rebounding and I predicted by Memorial Day. In retrospect, ludicrously wrong. And yet not too long afterwards the economy began to respond.

One of the biggest surprises for me, while I was still in hiding in a secure location, was that most people decided this was a great time to buy a new house and the housing market had one of its greatest surges in history.

Another, perhaps even bigger surprise, was that policymakers got their economic responses quite close to an optimal mix. Shutting down a massive economy and then trying to bring it back to life was largely unheard of and no one really knew how to respond. The Federal Reserve was as aggressive as it ever gets and Congress and the Administration shoveled large piles of money at the problem.

Despite the great unknowns, these leaders came unusually close to the proper response. Looking back, it’s clear that they went a bit overboard and triggered a several year surge in inflation. But the risk of falling short was far greater and a shortfall in stimulus could have resulted in a severe recession or depression that could have lasted decades.

Widening our scope to take in the last two decades, it’s clear that people are still traumatized by the mortgage and financial crisis of 2007-2009 as well as the Covid economy and its aftermath. The response around the world to the aftershocks could lead to a third trauma. We have no idea what this third trauma could be but trying to regain your footing after some big stumbles can be quite difficult.

Policymakers are grasping at solutions to what appear to be difficult to define problems. Nearly every major country and alliance has taken major initiatives — perhaps gambles – and no one can be certain that they are even attacking the right problems. The global upheaval seems at least on a par with the scale of change we normally see after the end of a major war or some similar big event.

Most Americans believe the country is on the wrong track. It’s impossible for them to believe that the U.S. has emerged from these two decades of turmoil in better economic shape than just about any other major country. By most measures, the U.S. economy is in as good a shape as it’s been for a half century.

The inflation surge has reversed and while prices remain elevated, new price changes are muted. Unemployment has ticked up and may be in a danger zone that portends a recession but employment is still close to the best it’s been in a half century. Wages have been going up for seven or eight years, particularly among low earners.

While the labor market is not as strong as it was a year ago, jobs are still plentiful although not every opening fits a candidate. Housing is a problem for new buyers as prices remain high along with mortgages and house are difficult to afford for new buyers. Those who have owned houses, by contrast, are in good shape.

Why then so much fear and discontent? We have been going through massive changes for the last few decades and that scale of change is unsettling and scary. As our society turns inward, these fears could become self-fulfilling.

Despite these concerns, the U.S. stock market has been unusually strong for several years, showering riches on investors. This quiet bull market has been led by large, high profile technology stocks and has produced one of the best periods for wealth creation in history. These gains are not as widely distributed as some other sources of income, but through IRA retirement accounts and 401ks, stock market gains do reach many Americans.

In 2024, the U.S. stock market completed two years of back-to-back gains of more than 20 percent, one of only five such times in the last century and the first since the late 90s. In 2024 alone, the stock market reached 55 new highs and added $12 trillion to its total market capitalization, ending at $62 trillion.

It has been a highly unusual period because so much of that stock market value is held by a handful of stocks, mostly the high-profile technology stocks: Apple, Microsoft, Nvidia, Amazon, Google, Meta and Tesla. The top 10 stocks in the S&P 500 make up more than one-third of the value of the index, almost double the percentage of eight years ago.

This has resulted in these stocks being very highly valued and vulnerable to any short-term setbacks. In the last two weeks, the Nasdaq composite index, reflecting largely these stocks, has corrected by more than ten percent. At the same time, gauges of investor fear have surged and consumer sentiment has deteriorated. We have also witnessed a small rotation of stock market leadership to non-technology stocks.

We should not, however, rush to judgement that any of these trends will continue. Stock market and economic trends are only clear in retrospect because lots of little moves and false starts are common. For generations stock market analysts have tried to find predictable patterns to guide their investing and these efforts have generally failed. To deal with the huge amount of information humans see every day, people try to categorize and find patterns as much as possible even in the face of random data.

A good example of the difficulty of determining trends is that several years after a recession ends, a committee of the National Bureau of Economic Research, with many of the top economists in the country, looks at all the data and argues about when the recession began and ended.

Modern stock market analysts, armed with the fastest computers and artificial intelligence, constantly probe for profitable patterns. The rewards for finding clues to market movements are immense but success is so far beyond our most advanced capabilities.

So, sad as it is, the best course that practitioners and academic financial theorists have found is simply to ride out these market waves, accept the amount of risk appropriate for each investor and recognize that the future will unfold in new and exciting ways.

March 10, 2025

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A Stock Market in Free Fall

By Larry Luxenberg  

On April 3 and 4, the U.S. stock market declined by close to 10 percent. According to former Secretary of the Treasury Larry Summers, this is the fourth largest two-day decline since World War II. As I write on Sunday night, stock market futures suggest the market could decline an additional 4 percent at the opening tomorrow morning.

All four such declines have occurred during my 42-year career as a professional investor. The prior three times were: the stock market crash of 1987; the financial crisis of 2007-9; and the early stages of the Covid-19 pandemic in March, 2020. In these three earlier cases, the stock market recovered at least partially in a relatively short time.

While each instance is different and stock market investing never comes with a guarantee, most of the time it pays to be patient and not try to out guess the millions of investors around the world. Each time the market declines so fast, it is bound to be scary; it seems like this particular instance is different. While in previous times, the market recovered, this time, we think, it’s down for the count.

The proximate cause of this latest decline was the announcement on Wednesday, April 2, after the stock market close, that the U.S. was about to impose the highest tariffs in generations. While the market knew that tariffs were coming, most investors did not expect the tariffs to be nearly this high.

These tariffs are so high that the whole system of international trade, largely in place since World War II, will be abruptly and decisively disrupted with big effects on every economy around the world. To make matters worse, this was the latest development in a hyper active second Trump Administration, little more than two months old, that has made so many major changes so fast that it is impossible to keep up.

Since taking office Jan. 20, the administration has dramatically overhauled the Federal government, radically changed international aid, redefined ally and foe, and is setting in motion one of the biggest tax cuts in history. Add in the largest tariff change in almost a century and it’s a lot for investors and foreign governments to digest.

Through mid-February, the stock market was at record levels after two strong years and one could make a case that a pause was in order. The market, by some measures, was not healthy because so much of the gains were concentrated in seven large technology companies led by Apple, Microsoft and Nvidia. With valuations stretched, it didn’t take as much to get markets to tumble. And investors were already concerned by the blizzard of changes.

To make things even worse, the U.S. economy by many measures was doing just fine. Unemployment was low, inflation had come down from too high levels and wages were increasing. Of course, problems always exist: housing was unaffordable for much of the population, gains were not evenly distributed and much of the country was in economic doldrums. Then too, having recently suffered through a once in a century global pandemic and earlier, a dramatic financial crisis, many people were worried and upset. It didn’t take much to induce full scale panic.

Where will this all lead and what to do about it? As one television guest said during the financial crisis, “If you think you understand what is happening, you’re not paying attention.” The future is always murky but sometimes it’s murkier than others and this is one of those times. No one can be confident that they know where the global economy and markets are heading.

But if we look to prior examples – and this is certainly not a guarantee – in modern times, markets have recovered, generally in a matter of months or a few years. The one exception is during the Great Depression of the 1930s. In that case, depending on how you counted, investors who remained solvent recovered in a half dozen to 15 years.

The Great Depression was compounded by serious policy mistakes and some new and untested institutions. Since that time, we’ve added institutions to regulate securities and banking and the Federal Reserve Board is much more experienced and sophisticated.  Certainly, similar mistakes could happen again but the odds are against it. In general, investors who think they can divine future events and outsmart markets frequently suffer serious financial harm. Those who have diversified portfolios and are patient often achieve better outcomes.

While we are not oblivious to the financial carnage, we still believe the likeliest and best course to recover is to be patient and leave the frenetic trading to others. Years ago, we read a book about the stock market crash of 1987. The book, A Zebra in Lion Country, by legendary small cap investor Ralph Wanger, talks about Wanger’s heroic trading during the week of the 1987 crash. At the end of the week, he looked back on all the trading and concluded that the many trades had accomplished nothing. And although it doesn’t feel satisfying, usually doing nothing is the best policy.

April 6, 2025

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Your 401K Choices Are Important

By Larry Luxenberg  

Many times over the years I’ve looked at outside 401k plans for clients and others who have requested this. Often, they know these choices are important but they may not have a clue about how to make the choices or who to turn to.

In bigger companies, human resources professional offer advice about how to sign up or withdraw money but may not know much about how to pick investments either. The decision point often is when an employee is new to a company, has to deal with lots of paperwork and is nervous about adjusting to so many new things. Picking a 401k investment portfolio is way down the priority list.

That’s too bad because the choices of how much to invest and where to put the money are important, especially if you are young and stay on the job for a long time. I’ve also seen people who have held many jobs and accumulated a string of retirement plans and have no way or interest in developing a coherent investment strategy.

Many plans now are electronic only and obtaining relevant information from these websites or digital brochures can be frustrating. As a consequence, many people settle for making what they believe are common sense choices. Many plans offer target date funds and what could be simpler than determining your retirement date and signing up for that fund? Or they pick something else that sounds good: what could be wrong about a “balanced” fund. Failing that, how about picking 4 or 5 choices. That way, at least some of them may be good.

People who are actually using these accounts to invest and save for retirement, have a genuine long-term outlook (many decades) and aren’t using these accounts as expensive piggy banks (borrowing the max whenever possible) could be denying themselves a powerful investment tool.

For someone who is in their 20s or 30s and may not touch their retirement accounts for 30 or 40 years, their most precious investment resource is time. And by making a choice that is not thoughtful or downright wrong, they squander this valuable resource.

The daily ups and downs of the stock market matter little if one is putting away money for the distant future. If one properly constructs a diversified portfolio and leaves it in place for decades, the returns can be powerful.

In investing, as in much of life, there are no guarantees, Instead, we have to rely on the odds and weigh the potential risks and probable returns. In some cases, making reasonable changes to the investment mix and using assumptions based on long-term historical returns, returns of double or more over the decades are possible.

Before making the choices, we have to look at someone’s complete financial life, their hopes and dreams, the stability of their career and their tolerance for risk. Doing all of these things with the help of an experienced professional can make a big difference in someone’s financial life. It’s worth spending a little time on the choices rather than rushing through the burdensome paperwork.

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It All Depends

By Larry Luxenberg  

Often when someone asks me a financial question, the answer is “it all depends.” It’s  not a cop out. The considerations frequently are more complicated than the questioner realizes and individual circumstances or unknowable future developments may determine the answer. Sometimes, the right answer is just a matter of personal preference.

Most Americans don’t save enough for retirement. But the more diligent ones read this in financial publications and overdo it. I’ve told some young people in their 20s and 30s that they’ve saved enough for retirement and need to direct their savings toward other goals such as buying a house, which involve different savings vehicles.

At the other end of the spectrum, some adults read that it’s best to defer collecting Social Security retirement benefits until age 70, when deferred credits stop (you can still improve your earnings record after that date if you keep working and have higher inflation adjusted earnings years to replace lower ones earlier in your career.). The advice to wait till age 70 is fine for many people although comparatively few follow it. However, this advice may overlook individual circumstances.

One glaring example is that many potential Social Security recipients are married or were married and this may affect retirement decisions. Married people have signed a contract that has economic implications and when it comes to Social Security, these considerations (such as spousal benefits and taxes) have to be analyzed as a unit even though this is to complicated to explain in a short magazine article. It’s easier to say, “wait till 70.”

Thinking about Social Security as an individual rather than a couple may cost people tens of thousands of dollars. That’s why this answer “depends” on individual circumstances.

Often people ask me how much money they need to retire as if there is a single magic number. Yet no one would think of asking me how much money they need to live their life before retirement. It’s a far different answer if the person is married with four children in a high cost urban area like San Francisco or New York or is single and living in rural North Dakota. Everyone’s retirement is different, too.

A final example concerns investment vehicles. People sometimes ask where are you investing now? The implication is that there is some all purpose investment vehicle that is “hot” and will work for everyone because it is going to appreciate substantially in a short time. However, there is no perfect investment.

Some investments are appropriate for certain circumstances and other investments are better suited for others. For example, a private investment vehicle might require you to lock up the investment for ten years or longer. The expectation is that this investment is risky but holds the possibility of extremely high returns if it works out well and if it doesn’t, the chance that it becomes totally worthless. This may be enticing to a well off investor as part of a diversified portfolio who can handle the risk but may not work for someone who has a small sum to invest and needs part of it for next month’s rent.

When I ask people if they are “average,” no one says, “yes, I’m average.” Everyone feels unique and wants treated that way. So why would they be satisfied with an answer that relies on a “rule of thumb” and treats them as average when each one is special and wonderful. That’s why “it all depends” is a real answer and not a cop out. You wouldn’t want it any other way, would you?

 

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Babe Ruth and Financial Planning

By Larry Luxenberg  

Babe Ruth was born into a poor family in Baltimore and died young as a wealthy man and the hero of the golden age of sports. Although he didn’t look like a heroic athletic and roamed well outside of fair territory, he broke ground in athletic and business achievement. He had good coaching and support in both arenas and knew which rules to break (most) and when to listen to his coaches and he had some of the best.

Ruth’s life is swathed in myths and we will never know the full story. But what facts we know and the many myths are instructive. Ruth was a great athlete and dramatically changed the game of baseball – then the national pastime – forever. And despite his great hunger and appetites, he achieved success on and off the field, making up in part for the deprivations of his youth.

At age 7 he was a wild youth and his parents shipped him to reform school at St. Mary’s Industrial School in Baltimore. He remained there till the end of his teenage years and the beginning of his life as a professional baseball player. Life at the school was regimented and austere; he only got meat once a week and had to learn a trade and work. He became a proficient shirt-maker and carpenter. At the school he also became a great baseball player under the tutelage of Brother Matthias.

At 19 he signed a contract with the Baltimore Orioles, then a minor league team. Soon they sent him off to the Boston Red Sox in 1914. It was not love at first sight and he spent part of that truncated season in the minor leagues, helping the Providence Grays win a minor league pennant.

Back in the majors the next season he began to establish himself as the best left-handed pitcher in the American League and a strong hitter. Short of cash, the Red Sox sold Ruth to the New York Yankees in 1920 after three World Series Championships. At that time, the Red Sox had won five of the 16 World Series and the Yankees had yet to win their first American League pennant. He went on to lead the Yankees to four World Series Championships and create an aura of success there.

Ruth was already the best home run hitter in baseball and 1920 ended the “dead ball” era. The livelier ball and some other changes opened up the game and with Ruth in the daily lineup, he led the charge,

In 1923 the Yankees opened up Yankee Stadium, “the House that Ruth built.” He was the biggest draw in the major leagues at home and on the road. He soon broke records for player salary as well as for batting and pitching. Prior to Ruth, Ty Cobb’s salary of $25,000 was the highest in baseball history. This at a time when $10 or $20 a week was respectable if not great pay. At his peak, in 1930, Ruth earned $80,000 a year, more than President Hoover. Asked about that, Ruth said, he’d had a better year than Hoover and that was demonstrably true. For 14 straight years, Ruth was the highest paid player in baseball with no one close, another record that has never been equaled or approached.

While Ruth made a lot of money, in the early years of his career, he kept little or none of it. He was generous and lived high and partied wherever he went. He bought cars as fast as he wrecked them and the beer in his hotel rooms was always cold and plentiful. His appetite for food and many vices was brobdingnagian. In addition to major league baseball, he made money barnstorming with Lou Gehrig around the country, appearing on the Vaudeville circuit, in the movies and making endorsements.

In 1927 his fortunes changed dramatically for the better. That year the Yankees fielded one of the great all-time teams with Ruth in the middle of a lineup termed “Murderer’s Row.” He also became the first baseball player to earn as much or more off the field as on it in the regular season. That year he also turned most of his financial affairs over to Cristy Walsh, the first real baseball agent. Walsh was a promoter, public relations man, business manager, investment manager and all-around trusted adviser. It isn’t clear, how Walsh first established the relationship. But the story I like best happened when Ruth was living in the Ansonia, a famous apartment building on Broadway in the Upper West side of Manhattan. Walsh described hearing that a local deli was going to be delivering a shipment of beer to Ruth’s apartment and Walsh bribed the deliveryman to let him bring up the beer. Once there, Walsh got Ruth to agree to let him represent him.

No one now knows the true story of the beginnings of the relationship but we do know that Walsh had a talent for ingratiating himself with successful people and in turn did well by them. Over the next few years Walsh expanded his relationship with Ruth until he took over most of his business affairs and kept that up until 1938, three years after Ruth had retired from baseball.

In 1927 Ruth had run out of money as a result of high living, record fines and suspensions and an inability to keep money in his pocket. Walsh loaned Ruth money and in turn had Ruth turn over much of his incoming funds to Walsh. That year Walsh set up a trust for Ruth at the Bank of Manhattan and had Ruth put all of his non-baseball earnings into the trust. By the early 1930s, the trust grew to over $200,000.

Despite the stock market euphoria, the bank invested the trust conservatively with seventy percent in bonds and thirty percent in dividend paying stocks. Even at the peak of the stock market in 1929, bond interest rates and stock dividend yields were attractive by today’s standards. Government bonds yielded close to 3 percent as did Blue Chip stocks while corporate bonds yielded 5 percent. During the worst years of the Depression, while economic activity plunged and unemployment soared, Ruth’s trust continued to have positive returns.

Eventually the bank returned almost half a million dollars in principal and earnings to Ruth. Left in his own hands, the money surely would have vanished with hardly a trace. At that time and for decades later, ball players usually ended their careers with little or no money left and having to enter new careers to support themselves.

Ruth was able to enter retirement having played in the first two All Start games and as a charter member of the new Baseball Hall of Fame with no concerns about money. Ruth could spend his time golfing and fishing with no money worries although he continued to earn money from endorsements and appearances for the rest of his life. He died at age 53 of cancer, having been one of the pioneers of chemotherapy and as a result having a short remission of his cancer.

In an age of heroic sports heroes and supportive sports writers, Ruth’s star shined the brightest. And through his fortuitous relationship with the pioneering agent Cristy Walsh, Ruth was also successful for himself and in breaking barriers for other players. Ruth often lived to excess and not all of his life was admirable but despite his humble roots he starred on the grandest stages and brightened the lives of many people around the world.

Much of the information for this story comes from The Big Fella by Jane Leavy, the Wikipedia article on Ruth and other stories available on the Internet about Ruth and books and stories on the financial conditions before and after the stock market crash of 1929.

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Bobby Bonilla Day, Anna Scheiber and the Miracle of Compound Interest

By Larry Luxenberg  

Every July 1, the New York Mets mail out a check for $1.2 million to former outfielder Bobby Bonilla This will continue until 2035 even though he last played baseball in 2001.

Anna Scheiber died in 1995 at age 101 and left a fortune in excess of $22 million even though she never earned a salary of more than $4,000 and had a pension of $3,100 a year.

Both stories dramatize the miracle of compound interest.With both we are talking about piles of money beyond the reckoning or aspirations of most people. But they do provide lessons that are applicable to all of us. Spend wisely, save for the future, invest globally and be patient.

One example I’ve often given is that for the price of a car, a parent can provide for a child’s retirement.

Here’s how that works. For the last 95 years, for as far back as we have good statistics, the broad U.S. stock market has returned about 10 percent a year. There’s no guarantee with stocks. No guarantee whatsoever that that will continue. But for almost the last century, that is what has happened to a broad investment in U.S. stocks.

At that level — 10 percent a year — stocks double every seven years and quadruple every 14 years. Play that out for fifty years. If you fund a child’s Roth IRA account at age 20 with $5,000, assuming they have that much earned income, and they don’t touch the money till retirement, the money won’t be taxed again under current tax law. If you invest that money in stocks for fifty years and you achieve those same returns — admittedly a big if — you will have accumulated $587,000.

If you do that four times, the total would be in excess of $2.3 million. There would be inflation to reduce the value of that sum and the child would have to sit by and do nothing — not touch this massive nest egg and not panic at all during the intervening market crashes. Patience is key because most of the accumulation is in the final years. But if they can surmount all these challenges and past is prologue, that child would be a happy person in retirement.

None of this is easy but some semblance of it is attainable. Whether you accumulate vast riches or merely add a bit to a more modest bundle, let compound interest work for you.

Bobby Bonilla was a great baseball player. Early in his career, for three years in the early 1990s, he was the highest paid player in the league. He was a star on one World Series championship, for the Florida Marlins.

But other, higher paid players, didn’t manage to postpone the payoff and guarantee their financial security for most of their adult life.It’s hard to be patient but a great slugger has to wait for the right pitch and that’s what Bobby Bonilla did.

The annual checks to Bonilla were not a massive stroke of idiocy by the Mets. Instead, it was a careful calculation by both sides of the value of compound interest and the benefits to each.

Financial writers have calculated that the string of payments assumed an eight percent return on the money that the Mets owed Bonilla. They were supposed to pay him $5.9 million in 2001. If that sum were invested at 8 percent interest and the string of payments were deferred for ten years, this series of checks is what you’d get.

A return of eight percent was good for both sides. Bonilla didn’t have to worry about bad investments or being tempted to spend his money too soon. The Mets didn’t have to pay out the money right away and had the potential to get higher returns on the money or use it in the meantime for other purposes.

Anna Scheiber is a different story entirely. She never made much money but she never spent foolishly either. She lived simply, saved her money and invested it. The heroic part was how much of her income she saved and invested and resisted temptation for so long. The investments were good but not out of the normal. Financial writers have calculated that she earned a rate of return a little better that the broad U.S. stock market but not much better. If she earned exactly the same as the market, the story would be basically the same.

We don’t know most of Anna’s story directly and we can’t calculate the returns exactly. We don’t know when she began saving and investing and she may have had some minor sources of income such as gifts or inheritance that we aren’t aware of. But contemporaneous interviews with her longtime lawyer and stock broker give the broad outlines of her story.

Anna worked as an IRS auditor and never got promoted to a high level despite good reviews of her work. She began saving and investing before she retired and a tax return while she was working showed enough dividends to suggest that her savings in 1936 could have been $21,000.

She retired in 1944, apparently never working again and lived till 1995. Her investment strategy was to buy Blue Chip stocks and hold for the long term. She studied the stock market and was patient and apparently avoided the key mistakes that most investors make, letting their fears psyche them out of large returns.

Both stories converged in 2008. Anna donated her large legacy to Yeshiva University for scholarships for women.Yeshiva University and the New York Mets both turned for investment expertise to Bernie Madoff, the convicted swindler. Eventually both recovered much but not all of the money.

Today is Bobby Bonilla Day. It is a great time to remember not only his baseball talent but his patience and financial acumen and to celebrate the discipline and sagacity that secured the fortunes of both Bobby Bonilla and Anna Scheiber and apply those lessons to our every day lives — spend wisely, invest globally and be patient.

 

 

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The Era of Magical Thinking

By Larry Luxenberg  

In recent years we have been conditioned to believe that anything is possible. Indeed, miracles have happened. The Internet, cell phones, social media, networked computers, online shopping have changed the world beyond recognition. These advances have changed so much and become so ubiquitous that we take them for granted. But perhaps because of these big changes, we expect miracles everywhere.

Cheaper, faster, easier is the rallying cry of technology and much of the time it delivers. But not always. Usually we have to compromise on some of these things. Easier for example. These days, it seems, everything beyond a pencil comes with a thick user manual and the use is not self-evident.

I’ve been particularly struck by television advertising. Many service businesses advertise better, cheaper, easier and more personalized. Usually, some of these claims, but not all, may be true.

One real estate company advertises that if you answer a few simple questions, it can give you a personalized quote on your house and arrange a transaction. Now, they may be able to do something if you answer a few simple questions, but they certainly can’t give you a personalized recommendation based on a handful of answers.

A brokerage firm boasts that they can make investing easy. And, indeed, they have. But they have hoodwinked a generation of naïve investors, convincing them that ease of use equates to success. If your goal is to easily do transactions, that’s fine. But if your goal is to save and invest and build wealth, ease of transactions is irrelevant at best and likely counter-productive. Flushing money down the toilet is easy too but unlikely to be a recipe for amassing wealth.

Google is one of these miracles. A majority of people around the world can no longer get through a single day without Google. It has unlocked more information for more people than perhaps any development in history. And, yet, even Google is no guarantee that our questions will lead to good answers. If the question is simple, we will get the information we need in seconds. But for more complex questions, we often do not get satisfactory answers. More importantly, often times, we do not know the right questions to ask and Google cannot supply answers if we don’t know the questions.

For the right questions, I turn to experts. When I go to a good doctor or lawyer, often I find that the question I arrived with was not the important one, the one that I should have been asking. An expert can frame the important questions, and with that help, often, we can supply the right answer. I have become sophisticated about medicine the hard way and yet I’ve been struck by how many times I haven’t had a clue about the most important ways of treating my conditions. Perhaps the years of study and work in the field — expertise-– do matter.

In my field of personal finance and investing, I find that rarely do people address the important or critical questions or bring perspective to their situation. Oftentimes they’ll ask how to do something when the more important questions are why or what, when and where, which need to precede how.

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Watching Paint Dry

By Larry Luxenberg  

Good investing should be even less interesting than watching paint dry. Paint dries in a matter of minutes or hours, perhaps a day or two at the most. While it’s happening, there is no perceptible change. After it’s done, if you touch the surface, you realize the paint is dry. None of that process is the least bit interesting and while it’s happening there is no sense of change. But at least it’s quick and in the end, it’s satisfying if whatever you’ve painted looks better or is more protected than when you started.

Good investing is similar except it’s much, much slower. While it’s happening, you also don’t get much sense of satisfaction that you are making progress. It also can be upsetting in the meantime with wild fluctuations in the stock market or other markets.

Many investors are seduced by the idea of a quick hit, a get rich overnight scheme or the excitement of rapid trading and immediate results. Occasionally that works just like someone always wins the lottery. But similar to the lottery, the odds of quick success as an investor are low and most participants go away disappointed.

While good, long-term investing is unexciting and unsatisfying along the way, the odds are good and the results can bring you ultimate pleasure.

On average for the last 100 years, large U.S. stocks like those in the Dow Jones Industrial Average, have returned 10 percent a year. There’s no guarantee that will continue but the principle of what follows is the same, even if the returns are lower.

Some years there are big losses in stocks and some years the gains are small. But over time that 10 percent has held for nearly a century. While 10 percent a year or .83 percent a month may not sound like much, over time it yields very exciting numbers. At 10 percent a year, stocks double every seven years and quadruple in 14 years. That means one dollar turns into four over 14 years.

Over fifty years, that same dollar turns to $117.39. This doesn’t take into account inflation, taxes and fees for investors, but any way you slice it, that is a powerful and big return. And it doesn’t require heroic trading, skill or luck. To achieve big returns, it does require history repeating, a little bit of knowledge and, most of all, monumental patience.

Most of what we do in life does not come with a guarantee. Intuitively, we act on probabilities. There’s no guarantee we’ll wake up in the morning, but the odds are good. With investing, if we have a diversified portfolio, keep our costs low, resist the temptation to do much trading or think that we are smart, the odds of success are good. If we crave more excitement or believe that we know more than other investors, the odds plummet.

Investors have to choose. They can have an interesting and exciting experience and likely failure or they can have a dull financial existence with a high probability of success. It’s unlikely you can have both.

For me, the more boring, the better. I’m looking for results, not excitement. I’ll pull my chair over and take a snooze while the paint is drying.

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Easy Peasy

By Larry Luxenberg  

Many people think there is nothing difficult about personal finance. Listen to a few gurus on TV and maybe scan a magazine or two.

That may have once been the case (I would argue not) but it’s certainly not the case after the passage of the Secure Act last December, which was followed quickly by the CARES Act and the possible Heroes Act.

Couple that with other changes to RMDs, add in QCDs, QLACs, IRMAA (Income Related Monthly Adjustment Amounts), partial Roth Conversions, pension options, tax loss harvesting, asset allocation, tax aware investing, market timing and the Social Security formula (the simple part — 35 years of monthly inflation adjusted earnings).

If you’ve got all that, knock yourself out and do your own planning and hope you don’t run out of money in retirement (See Monte Carlo simulations).

If you can’t sort your way through that alphabet soup and want help with ETFs, ETNs, open end mutual funds, closed end mutual funds, ADRs and plenty more, how about turning to a CFP (Certified Financial Planner), CFA (Chartered Financial Analyst) or CSA (Certified Senior Advisor) or better yet someone with all three.

We don’t know all the answers, but we do know a lot of the right questions and a lot of the places to start looking for answers.

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Less is More Sometimes

By Larry Luxenberg  

As a result of the pandemic and economic downturn, there are now two kinds of Americans: those who are spending less because they have less money and those who are spending less because they don’t have anywhere to spend their money.

For an economy that is two-thirds driven by consumer spending, that doesn’t bode well for a quick recovery and overall statistics. But despite the crude economic measures we employ, the true purposes of an economy are to satisfy people’s needs and wants. If we possessed better statistics, those measures might paint a different picture.

For the first group, suffering will be epic — high joblessness lasted 6 to 8 years after the Great Recession and food insecurity remained high even longer —  and the bleak statistics will adequately measure their distress.

But for the other 75 to 90 percent of Americans, the picture could be quite different. Economists assume that every dollar spent is for something a consumer wanted and if they can’t have it or have to substitute something else, their satisfaction is diminished. That, of course, is a good shorthand and adequate in normal times.

What we are living through is anything but normal and normal statistics don’t capture our current experience. As half or more of the population lives through an enforced idleness, satisfaction has to come through different means. A leisurely trip to the mall is out. A free zoom call with distant friends and relatives is in. People are reaching out more and spending less on leisure pursuits, apparel, fixing up homes and myriad other things.

Many people remind us that “if you have your health, you have everything.” For the million or more people who have contracted the virus and for the 80,000 or so who have died, their health is compromised or they have succumbed. Stress has soared and with it crabbiness, abuse, substance overuse and mental illness.

For others, who retain their health, many have regained an appreciation for the simple pleasures of life that do not carry dollar signs. For large segments of the population, such as the vulnerable elderly, their first impulse after a murky loosening or even an all clear signal will not be to shop until they drop. Their first, second and third impulse may be caution and to keep the purse strings tightly clamped.

The result could be continued high unemployment, the failure of many already shaky businesses, and continued weakness in measured Gross Domestic Product and other key traditional economic measures.

But what of true happiness? That’s a harder thing to measure. Many people hanker for a simpler time. Now that it has been delivered to their doorstop, they may find that they don’t like that imaginary simpler time. But others may find that spending and happiness are not the same and while traditional measurements of economic activity continue to look dreadful, they are fulfilled and much happier than the economists believe that they should be.

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