Jonathan Clements's Blog

OUR FIRST GRANDCHILD recently arrived, which naturally has us thinking about the smartest ways to build a strong financial foundation for her future. In 2019, I wrote Take a Break , which outlined saving strategies on behalf of children. Since then, the landscape has changed with the introduction of Trump accounts and Roth-conversion pathways for 529 accounts. 

Families have four tax-advantaged savings approaches on behalf of young children plus the Roth IRA option once the child has earned income – 529 education savings account, a Uniform Gift to Minor (UGM) custodial account, a Coverdell account, and the new Trump account. Each option offers a different mix of tax benefits, contribution requirements and withdrawal rules.



529 Accounts

Pros

Tax-free growth when used for qualified education expenses
High gift-tax contribution limits: $19K per contributor per year (indexed)
New ability to convert up to $35K into a Roth IRA for the beneficiary

Cons

Relatively complex with penalties and taxes on non-qualified withdrawals
Limited, state-approved investment options
Risk of underutilization if the child does not pursue qualifying education

Caveats

Technology and AI could significantly reduce education’s cost structure in the future
Roth conversions are capped at $35K lifetime
The 529 must be open 15 years, and contributions must age 5 years before conversion
Conversions require the beneficiary to have earned income (i.e. they could Roth anyway)
Annual Roth contribution limits still apply (e.g., $7.5K in 2026), so completing the full $35K conversion would take five years



UGM Custodial Accounts

Pros

Brokerage account where up to $2.7K of unearned income can be tax-free each year
High gift-tax contribution limits: $19K per contributor per year (indexed)
Broad investment flexibility — stocks, bonds, funds, etc.
Few restrictions on how funds may be used for the child’s benefit
Potential for low taxes on capital gains, but subject to marginal “kiddie tax” at parent’s rates until tax-independency or age 24 

Cons

Higher income or capital gains could trigger the kiddie tax at the parents’ marginal rate
Assets count as the child’s for financial-aid purposes

Caveats

Custodians have some ability to spend down the account for legitimate child expenses if the child is a wild-child in the later teen years



Coverdell Accounts

Pros

Tax-free growth for qualified education expenses
More flexible investment choices than most 529 plans

Cons

Low contribution limit: $2K per year plus income limits restrict who can contribute
Essentially irrelevant today given the expanded options within 529 plans



Trump Accounts

Pros

$1K government seed deposit for children born 2025–2028
Contribution limit of $5K per year in 2026, indexed to inflation
Parent employers may contribute up to $2.5K per year (also indexed)
Tax-deferred growth with Roth-conversion opportunities beginning at age 18
No earned-income requirement for Roth conversions 
Roth conversions are ideal in low-income years starting after age 18 once the child has transitioned to tax-independency of parents or at age 24 when “kiddie taxation” ends. Early tax independence could even be a combined Roth plus student financial-aid strategy
Potential to convert large account values over several years at relatively low tax rates (potentially marginal 10-12% tax-rates, but averaging less due to the standard deduction).

Cons

Investment options limited to low-cost indexed stock funds (not necessarily a drawback)
Penalty-free withdrawals must wait until age 59½, but the accounts could be advantageous even including penalties
Limited custodian control and intervention possibilities if the teen is a wild-child

Caveats

If Roth conversions are not undertaken during the child’s low-income years, a UGMA invested to capture long-term capital gains tax-rates may outperform a Trump Account taxed at ordinary income tax-rates
Watch this space as future adjustments or eligibility changes are possible

 

In effect, the 529 is a two-decade college savings program having some complexity and withdrawal limitations; the UGM is a reasonably flexible, 18-30-year college or house downpayment savings program; and the Trump account is a somewhat inflexible, sixty-year retirement accelerator. 

 

Resulting Playbook

Here is our family’s intended playbook for tax-advantaged accounts in the grandchild's name:

Parents’ retirement account fundings remain their top priority - 401K’s at a minimum up to the match, HSAs with their triple tax advantages, and Roths as long as eligible within income limits.
A Trump account has already been initiated to secure the free $1K government seed contribution – grows to potentially $2.6K at age 18 after penalties and taxes.
Limited 529 funding has also been initiated to start the 15-year clock for potential later Roth conversions. 
The family’s next priority is to fund the Trump account which starts at $5K later this year. Maximizing the Roth conversion opportunity will require ~$116K of contributions (at 3% inflation) over 18 years which we grandparents intend to help fund. I estimate the Roth converted Trump account could grow to ~$2 million of tax-free money at age 60 (6% growth) assuming early-age Roth conversions, and the Wall Street Journal projects as much as $3 million (link likely paywalled).
The subsequent priorities are to start UGM taxable account and 529 account contributions in parallel to perhaps initial levels of about $35K each. This may take our family some years depending upon available resources for contributions.

For the UGM account, a balance of $35K should capture a sizeable chunk of the annual $2.7K tax-free income limit by investing in high-yield income alternatives. For the 529 account, $35K aligns with the Roth conversion limit.

On a personal note, we had extremely positive UGM outcomes with our children. We saved taxes for two decades, and each child used the ~$60K balance as down payments on their first house shortly after college. Due to the 529’s withdrawal rigidities and potential technology impacts, we are unlikely to fund the 529 to the max. 

We will skip Coverdells as the alternatives offer ample savings opportunity in the child’s name ($200K+). 
Depending upon spare resources available for gifting, we can always reassess future contributions. 

That’s our plan, and we’re sticking to it…. until something changes. 

 

John Yeigh is an author, coach and youth sports advocate. His book “Win the Youth Sports Game” was published in 2021. John retired in 2017 from the oil industry, where he negotiated financial details for multi-billion-dollar international projects. Check out his earlier articles.

 

The post Saving for Grandchildren appeared first on HumbleDollar.

RECENTLY I TOOK a free ride on a driverless bus trialling its proposed route, part of my local administration's ten-year rollout plan for self-driving public transport and taxis. I see real potential in this technology, and I'm hoping the infrastructure and implementation stay on schedule. That hope is mostly selfish, I'll admit.

In fifteen years I'll be in my mid-seventies, and I'd love to ditch my car and rely on cheap, dependable robo-taxis instead. It would give me freedom precisely in that decade of life when driving starts to become genuinely problematic. I'm planning to change my car in 2027 for a modern hybrid, but in the back of my mind is the thought that it could be my last.

If the self-driving rollout hits its targets, I can see the case for never buying another. The advantages for someone in my demographic at that stage of life would be hard to argue with. Think about what car ownership actually costs. There's the purchase price, insurance, road tax, fuel, servicing, tyres, and the occasional bill that arrives like a punch to the stomach.

For most people, a car is the second most expensive thing they own after their home. In retirement, when income typically drops and budgets tighten, that ongoing drain becomes harder to justify. This is especially true when the car spends the vast majority of its time sitting on a driveway looking pretty.

A robo-taxi model, where you pay only for the journeys you actually take, could represent a dramatic shift in how much personal transport really costs. The numbers, I suspect, will be compelling — with current estimates from real world operations suggesting an 80% reduction in the cost of fares being achievable. Then there's the question of independence.

This is the one that matters most to me personally, and I'd imagine it resonates with anyone approaching or already in their later years. Giving up your car keys is one of those milestones that nobody really talks about, but everyone in that demographic understands. It represents a loss of spontaneity and self-sufficiency that can genuinely affect quality of life.

The difference with autonomous vehicles is that surrendering the wheel doesn't have to mean surrendering the freedom. A reliable, affordable self-driving taxi available on demand restores something that previous generations simply had to go without once driving became difficult. This could be a trip to the supermarket on a weekday morning or a late evening visit to family.

The safety dimension is also worth considering. Reaction times slow as we age. Night vision deteriorates. Concentration over long distances becomes harder.

Most older drivers are aware of this and manage it carefully, but there comes a point for everyone where the road becomes a source of anxiety rather than freedom. Autonomous vehicles remove that calculation entirely. You get in, state your destination, and arrive, without the cognitive load of navigating, anticipating other drivers, or worrying whether your responses are still sharp enough. That peace of mind shouldn't be underestimated.

There are wider social benefits too. Older people who can no longer drive are disproportionately affected by isolation. Poor rural transport links, infrequent bus services, and the general assumption that everyone has access to a car all contribute to a situation where many retired people find their world gradually shrinking.

Autonomous vehicles, particularly if integrated intelligently with existing public transport, have the potential to reverse that. A robo-taxi that can be summoned by a smartphone, or even a simple voice command, could keep people connected to their communities, their families, and their routines far longer than is currently possible. There are, of course, reasons to be cautious.

Technology rollouts rarely go entirely to plan. The ten-year schedule my local administration is working to is ambitious, and a lot can change in funding priorities, in public appetite, and in the regulatory environment. The early trials are promising, but promising trials and full-scale dependable infrastructure are very different things.

It's worth keeping in mind, with a groan inducing pun: your mileage will vary — literally. Dense urban and suburban areas will almost certainly see reliable services first, and I'm fortunate that describes my situation. For those in more rural communities, the very people for whom isolation is already the sharpest problem, the wait could be considerably longer.

I'm hopeful, but I'm not banking on it entirely. Which is why the 2027 hybrid still makes sense. It's a practical hedge, a good, modern, efficient car that will serve me well through the transition years, whatever pace that transition takes. But the fact that I'm already thinking of it as potentially my last car feels significant.

A decade ago that thought wouldn't have crossed my mind. The technology has moved from science fiction to credible near-future fast enough to genuinely reshape how I'm thinking about retirement planning. If it delivers, the generation hitting their seventies in the late 2030s could be the first in history for whom ageing and mobility don't have to be in conflict.

That's not a small thing. That might turn out to be one of the most personally transformative shifts of the entire autonomous vehicle revolution. It is not about the flashy early adopters or the logistics industry efficiencies. Instead, it is the simple dignity of an older person getting where they need to go, independently, on their own terms.

I'm hopeful I'll be taking that ride and certain my children and grandchildren definitely will.



Mark Crothers is a retired small business owner from the UK with a keen interest in personal finance and simple living. Married to his high school sweetheart, with daughters and grandchildren, he knows the importance of building a secure financial future. With an aversion to social media, he prefers to spend his time on his main passions: reading, scratch cooking, racket sports, and hiking.

The post Ageing and the Open Road appeared first on HumbleDollar.

IN THE INVESTMENT world, May 1st is a notable day. It was on May 1, 1975 that the Securities and Exchange Commission deregulated the brokerage industry. For the 183 years prior to that, trading commissions on the New York Stock Exchange had been fixed at uniformly high rates. But when deregulation arrived, competition got going. That’s when discount brokers like Charles Schwab got rolling, and over time, May Day, as it’s now referred to, has delivered enormous savings to consumers.

More than 50 years later, though, Wall Street still operates in ways that are often at odds with consumer interests. As an individual investor, what are the obstacles to be aware of?

At the top of the list is Wall Street’s fixation with individual stocks. For almost 100 years, the data has been clear that stock-picking is counterproductive. Probably the first to uncover this was a fellow named Alfred Cowles. Cowles came from a wealthy family and wondered whether the investment advice his family had been receiving was worthwhile. He set about answering that question and in 1933, published a paper titled “Can Stock Market Forecasters Forecast?” Cowles’s conclusion: They can’t.

More recently, research by finance professors Brad Barber and Terrance Odean came to a similar conclusion. The title of their most well known paper is self-explanatory: “Trading Is Hazardous to Your Wealth.” 

Along the same lines, Standard & Poor’s regularly examines actively-managed mutual funds to see how many are able to outperform the overall market. The most recent finding: Over the past 10 years, fewer than 15% of funds benchmarked to the S&P 500 managed to beat the index.

Research by Jeff Ptak at Morningstar has found that the more active a fund is, the worse it performs. So-called tactical funds, which shift among different asset classes in response to economic forecasts have, in Ptak’s words, “incinerated” shareholder dollars.

This data is fairly well known. The problem, though, is that trading activity generates revenue for the brokerage industry, so it has an interest in keeping investors engaged with the market. That’s why brokerage analysts are on TV every day, offering their forecasts for individual stocks, for the overall market and for the broader economy. To be sure, this makes for interesting television. The problem, though, is that it’s been shown to carry almost no value. According to research by Joachim Klement, the accuracy of Wall Street prognosticators is approximately zero.

Why are they so poor at forecasting? For starters, there’s the simple fact that no one has a crystal ball. No one can know what a company—or its competitors—will do a month or a year from now, and how that will translate into stock price gains or losses.

Sociologist Ezra Zuckerman Sivan uncovered a more subtle explanation. In research published after the technology selloff in 2000, Sivan found that Wall Street analysts are constrained by two obstacles. The first is that they’re dependent on access to companies’ management teams to help in their research. For that reason, it’s in their interest to maintain positive relationships with the companies that they follow.

Investment banks that take a positive view on a company may also be rewarded with profitable mergers or acquisitions work when the need arises. Those factors bias stock recommendations overwhelmingly in the direction of “buy” ratings.

Another reason analysts tend to avoid negative comments about the companies they cover: Sivan found that there is a community effect that tends to form among the analysts assigned to a given company, and thus an incentive develops to not “rock the boat” in saying anything too critical. People generally want to get along, and that results in a sort of self-censorship.

This research is well understood, and yet Wall Street continues to generate forecasts day after day, year after year. Why? There are two explanations, I believe. The first is that it’s entertaining. I’ll be the first to acknowledge that index funds aren’t terribly interesting to talk about. It’s far more interesting to talk about smartphones or AI and the companies behind them. That makes Wall Street analysts invaluable to the media, who need to fill airtime. 

And as long as they’re granted that airtime, forecasters are of great value to the brokerage industry. Since trading activity is profitable for Wall Street, it’s in brokers’ interest to generate continued interest in stocks. That brings in commission dollars for brokers. And even though commissions have shrunk in recent years, brokers benefit in other ways from active trading, including the “bid-ask spread” on each trade. That’s the difference between what buyers pay and what sellers receive, and though these spreads are tiny, they add up for the brokers who collect them.

For good reason, then, Wall Street continues to promote stock-picking. At the same time, the investment industry is always busy developing new funds. In the first half of last year, for example, fund companies rolled out more than 640 new funds. Among them: funds that hold single stocks with varying degrees of leverage and other seemingly unnecessary new formulations. The result: There are now many more funds than there are stocks trading on U.S. exchanges. 

Many of these new funds follow ever more esoteric strategies. They’re often opaque. And almost invariably, they carry higher fees. In a 2011 study titled “The Dark Side of Financial Innovation,” finance professor Brian Henderson and a colleague looked at one popular category of fund known as a structured product. Their conclusion: These funds were overpriced to the point that their expected return was actually a bit below zero. How were they able to market such an inferior product? Henderson’s hypothesis was that the fund companies designed them to be intentionally as complex as possible in order to exploit individual investors.

The bottom line: To a great degree, Wall Street is upside down. But as an individual investor, you don’t have to be. My rule of thumb: In building a portfolio, investors should do more or less the opposite of what Wall Street recommends. That, I believe, is a reliable formula for success.

 

Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.

The post Wall Street Trap appeared first on HumbleDollar.

I do the grocery shopping. I just returned from such an adventure. It’s one way I get exercise as a walk up and down the aisles, intentionally - .75 miles today.

Shopping is not easy. First, you need to locate things, which, eventually after shopping in the same store, you figure out. It would help though if the aisle signs actually reflected what was on those shelves. 

Then there are prices, different prices. There is the regular price, the sale price, the member price, the coupon price and nowadays the digital coupon price. I look for sales, but I’m not cutting paper coupons - when I have, I usually forget they are in my pocket. Give me digital everyday, you can’t forget them, they just expire. They and my member ID are in my phone app. I have a shopping list app as well- I prefer paperless. 

But even digital has challenges. Sometimes the product sign shows a digital coupon price, but I can’t find the coupon. Last week I complained and was told I needed store WiFi to download. I had store WiFi, but still no coupon appeared so they added it manually. I was then shown a kiosk that would scan my member number off my phone and load all digital coupons - it didn’t. More frustration.

Some of those sales are tricky. Today Connie insisted I take a coupon for chicken as it was a big discount. When I checked out, the coupon was rejected, I had chicken breasts and a valid coupon, what’s wrong?  I called the clerk over. “This darn thing won’t work.” He tried and still no luck. Upon closer examination he noticed the coupon was only on chicken at a certain price per pound.  The package I had picked had a different price per pound so no discount-I paid full price, but didn’t tell Connie. Kinda makes you wonder how old that on sale chicken may have been. 

A big sale on bottled water may mean you need to buy three cases. Last time soup was on sale I grabbed several cans only to learn at checkout the sale only applied to certain kinds of soup, not the ones I liked. I guess they had a surplus of cream of potatoe. It was in the fine print though - if you can read it. Why is the 36 pack of paper towels on sale, but not the 24 pack? 

Size matters in other ways. Do you look at the per unit cost on store shelf labels? The larger size is not always the better deal, but how often do we do the math? 

There is one store I occasionally use that allows you to scan each item as you take it from the shelf, place it in a bag in your cart and then scan your phone at checkout and your done. You entire order is processed. 

There is one flaw though. I seem to have a guilty look. One in four or five times my auto checkout is audited. That means, the clerk standing in the self checkout area must match each item in my bags with what is on my phone. Yup, as frustrating as a shopping cart in the center of a handicap parking space 😱

It seems these days you need a combination of financial, mathematical, technological and orientation skills to do the weekly grocery shopping. 

That combination is often lacking for many of us and not just senior citizens. Sometimes that is evidenced by the discussions overheard at checkout. Did you ever notice the shoppers who feign ignorance at picking up the wrong soup, only one case of water or the wrong size towels? 

Many things can be frustrating at checkout, but on top of my list is the person who waits until the entire order is processed and bagged before they start looking for their credit card or cash to pay. That full price chicken could spoil while waiting. 

Enjoy your next trip to the store😱

The post Shopping around – you versus the grocery store appeared first on HumbleDollar.

During a recent trip to the Philippines, I found myself watching the people who keep everything moving. From construction workers under the heat of the midday sun, laborers doing jobs that most would quietly avoid, jeepney drivers bringing people from A to B while barely making a profit. After that visit, I sat down and wrote a poem about their struggles. This is my attempt to turn that reflection into something more.

What I saw stayed with me.

It’s easy to admire visible success: Careers with titles, businesses that flourish, financial
milestones we are taught to pursue. But there’s another kind of work all around us. Quieter, harder, and often invisible. It’s the work that keeps things running but rarely gets the recognition it deserves.

I’ve met people, many of them immigrants, who leave behind everything familiar: Their country, their family, their sense of certainty. They arrive in a place that doesn’t quite feel like home, carrying little more than determination and the hope of opportunity.
They take on jobs others won’t do. Not because they want to, but because they must.
The work is often grueling. Long hours under a sweltering sun. Labor that wears down the body. Jobs overlooked or dismissed by those who benefit from them. The pay can be modest, sometimes barely enough. But behind that effort is something powerful: Responsibility. A family depending on them. A promise they refuse to break.

What struck me most isn’t just the physical hardship—it’s the quiet resilience.

Imagine living in conditions many of us would reject outright. Being far from home, often alone. And still showing up every day. Still sending money back. Still believing the sacrifice means something. And yet, despite all that, these workers are sometimes met with indifference, or worse, judgment.

That’s the part I struggle with.

Because when you strip everything else away, accent, background, skin color—you’re left with something simple: Another human being trying to build a better life. Not so different from the rest of us.

If anything, their willingness to do difficult work for the sake of others is something to respect.

It also raises a broader question: What does it mean to have “enough”?

In my own life, I’ve spent time thinking about financial independence, making smart decisions, and building security. Those things matter. But there’s a humility that comes from recognizing that not everyone starts from the same place, and not everyone has the same options.  For some, “enough” isn’t about optimizing a portfolio or deciding when to claim Social Security. It’s about getting through the week, sending money home, and keeping a promise to family.

That perspective has a way of resetting your own.

We live in a world that’s more connected than ever, yet it often feels divided along the simplest lines. But if you look closely, the threads that tie us together are stronger than the things that separate us.

Work. Family. Hope. Responsibility.

Those aren’t bound by borders.

And maybe that’s the point.

If we can begin to see each other not by where we come from, but by what we’re striving for, something shifts. There’s less judgment, more understanding. Less distance, more connection.We may live in different places, speak in different ways, and walk different paths but in the end, we’re all working toward something that matters.

A better life for ourselves and for the people we care about.

For we are One World, after all, and have more in common than we sometimes care to admit.

The post One World, One Kind of Work appeared first on HumbleDollar.

The IRS still has not processed my mother’s 2024 amended tax return, which they received May 2, 2025.  In a few days, they will have had her return a full year.

My mother submitted her 2024 Form 1040 prior to April 15, 2025.  It said she owed money, so she paid it.  We subsequently found some additional information.  She filed an amended return April 30, 2025.  According to that return, she is due a refund of $2,161.  We told the IRS to apply it to her 2025 tax bill.

This week my mother received a letter from the IRS saying she owed $451, plus $3 in interest and penalties, for 2025.

This morning I called the IRS.  I was on hold for an hour but then got a friendly and helpful representative.  She did some checking.  She said the IRS received my mother’s 2024 amended return on May 2, 2025, but they have not yet processed it.  She said most amended returns are processed within four months.  She did not say why my mother’s return had not been processed.  My brother, Kenyon Sayler, told me that according to an article in Forbes, the number of IRS employees reviewing returns is down 27%.

The IRS representative said she was entering copious notes into the computer, documenting our conversation.  She then told me that she was going to transfer me to “account maintenance” and they would be able to help me further.

I was on hold another 45 minutes and suddenly my call was disconnected.  They hung up on me?

Just to be on the safe side, I wrote a letter on behalf of my mother explaining everything.  My mother signed it and we sent it.

My mother is 98 years old.  She worries a lot.  I told her the IRS probably would not throw a 98-year-old in jail.  To make her feel better, I pointed out the upsides of going to prison – no more having to pay for her apartment in a retirement community, no more medical bills, lots of people to interact with.  She told me emphatically she did not want to go to prison.  If the IRS does haul her off to jail, I will definitely post an update on Humble Dollar.

The post How Far Behind is the IRS? appeared first on HumbleDollar.

In January 1948, welcomed by family wearing sunglasses, my dad and grandma arrived at the Santa Fe train station in Pasadena, California.

Several months earlier, just days before my dad graduated high school, his father died unexpectedly following surgery. Grandpa was hurt moving a large beam at their home, an old farmhouse fixer-upper on the outskirts of Pittsburgh, Pennsylvania.

The family moved to that home during the Great Depression when finances forced them out of their home in the city.

The property was remote, sprawling—it had a pond, woods, a gas well, and outbuildings where chickens were raised—and would’ve been hard to maintain without grandpa’s handiwork. That reality must have made the ambitious move west seem less daunting.

In March of 1948, after weeks of visiting and staying with relatives around Los Angeles, my dad and grandma moved into a small trailer at a mobile home lot in Santa Monica.

Dad served in the Navy Reserve, attended community college, and held a series of jobs that included a stint selling “funny fotos” to tourists on Muscle Beach just south of the Santa Monica Pier. He also served in the Army and later landed a long career in aerospace.

Financially astute, grandma made the most of the gig work of her era: babysitting. Those earnings helped her buy a duplex in Westwood and then a single-family home with a white picket fence a few miles away. The latter property, purchased with my dad in 1959 for about $18,500, became the home where I grew up.

I’m grateful for the trail grandma and dad blazed as well as for the anecdotes I’ve heard over the years and the lessons their experiences imparted. Among my takeaways:

1. Embrace change and persevere. In life, we may have to start over repeatedly as we weather storm after storm. Grandma and dad’s story spanned an adoption, the Great Depression, deaths, multiple moves, and other challenges. Our response to adversity can touch future generations via stories shared, habits inherited, and the financial legacies we leave.

2. Move, if it makes sense. Neither moving to a dilapidated chicken farm from Pittsburgh’s Shadyside neighborhood nor leaving their region of birth was easy. But sometimes the places we fondly call home no longer align with our needs. Finances, health, and other family circumstances can all change. A fresh start in a place with new opportunities or a lower cost of living can be worthwhile.

3. Stepping stones keep your toes dry. Moving from a small trailer to a duplex to a single-family home shows progress. It also reminds us that we don’t always attain everything we want right away, even after we’ve arrived at a new stage in life. Achieving financial goals can take hard work, frugality, savings, and a healthy respect for risk management.

The Golden State worked out well for grandma and dad. And even though I never got to skate on the farmhouse pond back in Pittsburgh, I never had to shovel snow, either.

The post California, Here They Came appeared first on HumbleDollar.

On April 28, 1989, my wife Suzie and I said "I do." As we walked out of the church, the S&P 500 was sitting at a modest 309 points. Unfortunately, nobody thought to gift us a pre-funded index fund that day. What we actually received was three toasters, a bread maker, and enough crystal glassware to open a small shop.

But here's a question worth asking as our anniversaries have stacked up: what if someone had slipped a $10,000 index fund certificate into one of those cards? What would that imaginary gift be worth today? And what would it have felt like to hold it through everything that followed?

By our 5th anniversary in 1994, that hypothetical $10,000, with dividends reinvested, would have grown to around $16,500. A solid 65% total return in five years. Had this been real money, we would almost certainly have concluded we were financial prodigies. We would have been wrong, but the feeling would have been delightful.

By our 10th anniversary in 1999, the imaginary portfolio had ballooned to $56,759. The internet was going to change everything, including, apparently, the rules of mathematics. In the New Economy, who needed a thought experiment when the market was doing the thinking for you?

Between 1999 and our 20th anniversary in 2009, our imaginary investor would have lived through the Dot-com crash, 9/11, and the Great Financial Crisis. Three separate occasions on which selling everything and converting to cash, or in darker moments, tinned goods, would have felt not just reasonable but obvious.

By April 2009, that notional $56,759 would have shrunk to $44,370. A decade of patience, and you'd have less than you started with. In real, inflation-adjusted terms, the purchasing power loss was considerably worse.

The Lost Decade wasn't a brief wobble. For ten years, the imaginary investor would have had nothing to show for their commitment except a smaller number and a stern lesson in humility. The correct move was to do nothing, which is both the simplest and most psychologically brutal investment strategy ever devised.

Stay the course through all of that, and the brokerage statement on our 30th anniversary in 2019 would have shown a single number worth pausing over: $181,439.

From the 2009 low, that's a fourfold return in a decade. The Dot-com crash and the financial crisis would have been reduced, in portfolio terms, to a detour rather than a destination. The imaginary investor who did nothing, who didn't panic, didn't rebalance into cash, didn't wait for a better entry point, would be sitting on nearly $182,000 from a $10,000 starting stake.

The maddening truth of long-term index investing is that the "doing nothing" part is not the boring bit. It is the strategy.

Today, as we approach our 37th anniversary, the S&P 500 sits at around 7,165, up from 309 on our wedding day. That original imaginary $10,000 certificate, had it existed and had it been left entirely alone, would now be worth approximately $492,000.

To put that in real terms: since 1989, inflation has risen by roughly 160%, meaning you'd need around $26,000 today just to match the purchasing power of that original $10,000. Our hypothetical investor hasn't merely kept pace with the cost of living. They've grown their stake nearly 19-fold in real terms.

Thirty-seven years of marriage and thirty-seven years of compounding seem to have quite a lot in common. Both reward patience over panic. Both look, in the early years, like they might not be working. And both, if you're lucky enough to stay the course, have a way of becoming the best decision you ever made

The post For Richer, For Poorer: 37 Years of Compounding appeared first on HumbleDollar.

I posed this question to an AI program (because I don’t know how to use a spreadsheet).

“If my income is $3,000 per month, I save 10%, I expect to earn 8% per year on invested money and my income will increase by 2.5% per year (basically inflation). How much will I have in 40 years?”

Here’s the answer.

You’d have about $1.29 million after 40 years, assuming you invest the savings monthly, earn 8% per year compounded monthly, and your income — and therefore your 10% savings amount — rises 2.5% each year. Assuming all tax deferred.

About $914,000 of the final $1.29 million is growth from returns on your investments

If you save only 5% of income instead of 10%, you’d have about $645,600 after 40 years

About $457,000 of the final $645,600 is growth from returns on your investments.

Compounding is pretty powerful stuff. Imagine if this was all in a Roth account. Saving a portion pre-tax will help with take-home pay. 

Add a few extra dollars along the way; tax refund, a bonus, a gift, whatever and things look better. 

In my opinion, for most people this is very doable and once in place will continue virtually unnoticed. Lifestyle with a bit of discipline will be based on net income. Add Social Security to this nest egg and retirement should be comfortable. 

We could play with the numbers all we like, but the approach is sound for most people even recognizing life’s blips along the way. 

The post Is saving really that hard? Nope, not for the great majority of Americans.  appeared first on HumbleDollar.

Last weekend, my wife and I returned to our former southeastern PA home town.  The occasion was a series of events with family and good friends, many former colleagues of mine.  On Friday night we had a happy reunion with a group that made up a wine making team, beginning in 2012, and continuing until Covid shut us down.  Most of the team is now retired, and much of the talk was about retirement, pensions, Medicare, grandkids, travel, and how much fun it was to get together again.

The next day we drove from southern NJ to attend a life celebration for Chris - a good friend, colleague, and wine team member.  He passed away at in January from a glioblastoma at 63.  Many of the attendees were former colleagues, most now retired. Again, the occasion was marked with lots of discussions of grandkids, travel, old work war stories, and retirement.

After the celebration, we drove to Maryland’s eastern shore to spend a few days with my wife’s nursing school roommate. Her family has had a second home on the Sassafras river for more than 60 years. She lost her husband a few years back. Since then she has used me as a sounding board for her retirement plan. She’s a great friend and I’m happy to help in any way.

What triggered the idea for this article was an offhand comment about one of the most important events in the history of personal finance, an event that likely impacted most of the friends and family I saw this past weekend. We were discussing family weddings with my brother-in-law and sister in law. They had celebrated their 50th anniversary earlier this year. My sister-in-law-recalled that her cousin was not able to attend their wedding because he had a critical event at work that prevented him from being there.  And that event is the theme of this article.

My brother-in-law and sister in law were married on January 10, 1976. The critical event that prevented her cousin from attending the wedding was the initial registration of the First Index Investment Trust. This was the very first index mutual fund available to individual investors.  In 1981 it was renamed the Vanguard 500 Index Fund. Her cousin had been recruited away from Fidelity by Jack Bogle to help create the IT infrastructure for the index fund.  Fifty years later, he is still a project manager for Vanguard.

The fund was officially launched to investors on August 31, 1976. A corresponding ETF, VOO, became available on September 9, 2010.  Depending on your data source, VOO is the largest ETF in the world.

It occurred to me that the majority of the family, friends, and former colleagues I saw this past weekend benefited greatly from the creation of the Vanguard 500 Index Fund, and index funds in general. I worked for decades a few miles from the Vanguard headquarters in Malvern, PA. Some of the earliest financial conversations I recall with colleagues were about the 500 Index fund.

This summer we will celebrate America’s Semiquincentennial birthday. But I’ve also put a reminder on my calendar for August 31, 2026, to celebrate the 50th anniversary of the creation of something that has helped to provide so many of us a secure financial future.

The post Happy 50th! appeared first on HumbleDollar.