Archives for May 2025

Almost Every Financial Planning Decision Requires Judgment

We can use the latest and greatest financial planning software.

We can have encyclopedic knowledge of all of the relevant tax and Social Security rules.

We can know all the details of exactly how all the available financial products work.

We can have access to detailed historical data of 100+ years of investment returns.

We can have a thorough understanding of all the pros and cons of each option.

But in the end, even with all of the above, almost every major personal finance decision will still be a judgment call.

I often see people on personal finance forums who seem to be operating on the assumption that they can follow a path of math -> research -> math -> research -> certainty. If they haven’t yet arrived at certainty, well then they probably just need to do a little bit more math (or research!). Perhaps a new piece of software will get them there.

I don’t mean to disparage math, research, or financial planning software. After all, I’m a CPA who spends much of my time looking at Excel, the Internal Revenue Code, and financial planning software. These things are helpful!

But there’s always uncertainty. We don’t know how long you’ll live. We don’t know what investment returns you’ll get over any particular period. We don’t know the details of future tax legislation or when such legislation will be passed. We don’t know exactly when you’ll have to replace your car, replace your roof, pay for a surgery, or stop working because you just can’t handle it while you’re going through chemotherapy.

Life has uncertainty. Lots of it.

The point of financial planning isn’t to remove the uncertainty. That’s not possible. The point of financial planning is to help us recognize and accept the uncertainty and make informed decisions in light of that uncertainty.

I’ve often written that there’s no perfect portfolio, but there are countless “perfectly fine” portfolios. A similar concept applies to most financial planning decisions.

For instance, if you’re recently retired, there’s a given level of spending that’s pretty clearly too high, and another level of spending that’s pretty clearly lower than is necessary from any risk-reduction standpoint. But there’s still usually going to be a big range of spending levels in between that could be reasonable. And what level to select will ultimately be a judgement call depending on various things such as how you feel about leaving a large bequest and how you feel about cutting spending significantly a few years into the future if that becomes necessary.

The same thing is typically true for things like Roth conversion planning. We can often say something like “Conversions through the 32% or higher brackets wouldn’t be a good idea. But it could be reasonable to stop at the top of the 22% bracket or top of the 24% bracket.”

There’s always going to be uncertainty, and so there are usually going to be multiple approaches to any given question that are reasonable.

At some point, we just have to decide.

May 26, 2025

Investing Blog Roundup: The Best of Jonathan Clements

I did not mention it last week, because I wanted first to focus on the new initiative itself, but there is also a new book, the proceeds of which will support the Jonathan Clements Getting Going on Savings Initiative.

The book is a hand-picked collection of Jonathan’s own favorite columns from his time at the Wall Street Journal, edited (and in some cases updated, such as when tax topics are addressed) by Christine Benz, Bill Bernstein, Allan Roth, and Jason Zweig:

The Best of Jonathan Clements: Timeless Advice for a Financial Life Well Lived

I quite enjoyed the book myself, and I hope you do as well.

To everybody who has donated to support the new program: thank you. I, and the rest of the group, sincerely appreciate it.

I also want to address a few of the most common questions that have come in, with respect to the new program. (And then next week we’ll be back to our more typical discussion topics.)

Can we see the educational materials?

The educational materials are still in the works.

What we can say so far is that a primary goal is for them to be very succinct. Basically just, “what information does this person need to get started right now.” So the focus will be on a) what a Roth IRA is, how it works, etc, and b) what a target-date fund is, and why that’s often a good choice for retirement saving.

The final result will ultimately be made available on the Bogle Center website.

Why limit the program to one specific city (Boston)?

We did not limit the program to Boston because we personally prefer that location over any others. Of the six of us from the Bogle Center working on the program, none of us even live there. We partnered with the city of Boston, because their Summer Youth Employment Program is such a good match for Jonathan’s initial idea (key points being that they can identify participants who are from low-income backgrounds, yet who have have earned income themselves, such that they can contribute to a Roth IRA), and because they have volunteered to take on the “on the ground” role without any additional funding.

While we’d all love the idea of expanding beyond just one geographical location, the reality is that doing so would require a large inflow of funding — more, frankly, than we’re likely to see. A major part of the goal here — the reason it’s being done as a randomized controlled trial — is to really be able to see if a program like this is effective. And if it is, hopefully other (larger) entities could potentially implement such a thing on a larger scale.

Couldn’t you reach more people by doing just the educational piece, without the grants to recipients?

As Jonathan envisioned the program, it’s the grants themselves that are the core idea. Will providing an initial contribution be a meaningful motivator to get these young people to save/invest more? His initial idea is that it would be. That’s the intervention that is being tested. As you can read in J-PAL’s write-up, both the control group and the treatment group receive the educational materials and the opportunity to sit down with somebody to help them open a Roth IRA. The treatment group receives the financial contribution. The goal of the study is to determine whether that direct funding is meaningfully more impactful than just the educational side.

The Jonathan Clements Getting Going on Savings Initiative

As many of you know, in 2024, financial columnist Jonathan Clements was diagnosed with terminal cancer. At the time, a friend reached out to him to ask about naming a journalism award in his name. Jonathan declined. “The world has enough journalism awards already,” Jonathan said.

Instead, Jonathan proposed a different idea. If people wanted to do something in his name, what about a program that directly helps young people get started saving and investing? What about a program that opens Roth IRA accounts for young people from lower-income backgrounds, and provides an initial contribution to help the person get going and remove the inertia that keeps many people from beginning to save as early as they should?

A group of us from the Bogle Center (Bill Bernstein, Christine Benz, Karen Damato, and myself) together with Allan Roth and Jason Zweig have been working hard on Jonathan’s idea since last July.

Our little team of volunteers quickly recognized that we don’t have the capacity to actually run a program like this. We’d need to find a pool of grant recipients who are age 18+ (otherwise the Roth IRAs would have to be custodial accounts, which complicates things), who are ideally from low-income backgrounds, and who have earned income (so that they’re eligible to contribute to a Roth IRA). How would we find those people? How would we choose among them? And how would we handle the job of helping each of those people set up an account, fund the account, and so on? Clearly, we needed help.

So we set out to look for partner organizations that could handle the implementation side of things. But it was also critical to us that any organization we partner with must not be one that comes with big conflicts of interest (no banks or insurance companies, for example).

Another wrinkle: if you help a young person open a Roth IRA and give them some money to fund it, and then you stop there, what’s the likelihood that they’ll actually make a smart investment decision? Surely there needs to be some educational component as well. But if you look at most existing programs that teach young people about investing, there’s reason to be skeptical. For instance, the most famous such program — The Stock Market Game, funded by a bunch of banks and brokerage firms — basically teaches students to day-trade stocks. Not great. (Again, as a group, we’re very sensitive to conflicts of interest.)

In addition, it was important to Jonathan that the educational materials be succinct, so that grants to program participants should feel like a windfall, to help get the person excited about participating, rather than just feeling like appropriate compensation for sitting through many hours of dry educational lectures.

So, with those goals and challenges in mind, here’s what we came up with.

We ended up partnering with two organizations: J-PAL North America (a research center based at MIT) and the city of Boston’s Office of Youth Employment and Opportunity.

Teaming with J-PAL will allow for the program to be set up as a randomized controlled trial, so that we can actually learn how effective a program like this is.

The Boston Office of Youth Employment and Opportunity performs the “on the ground” role: identifying potential participants, helping them open and fund the accounts, etc.

The new initiative is known as the Jonathan Clements Getting Going on Savings Initiative (named after Jonathan’s long-running WSJ column Getting Going), and it will work as follows:

Program participants will be young adults aged 18-24 who participate in the City of Boston’s Summer Youth Employment Program. (The SYEP program targets underserved communities and places qualifying youth in jobs with a local government agency, community organization, or business for a few weeks over the summer.)
Program participants will receive assistance opening a Roth IRA, and they’ll receive a $1,000 grant to fund the account.
And participants will be provided with Bogle Center-crafted educational materials explaining what a Roth IRA is, how it works, why it’s a good choice for long-term savings (and why they should continue to make contributions over time) as well as information explaining and recommending a prudent investment option (in this case, specifically, a Vanguard Target Retirement fund).

The idea here is that the program would be reaching people at exactly the right time: at an age when they’re still young (18-24) but not too young to actually use the information. That is, by virtue of the fact that the participants are in the Boston Summer Youth Employment Program, we know that they have earned income (which is necessary to qualify to contribute to a Roth and which tells us that they have some cash flow of their own that might be used to contribute further).

And by getting the Roth IRA open and funded, we remove one major hurdle: inertia.

Get the account open. Get it started with an initial contribution that isn’t massive but should still feel meaningful and motivational to somebody at that age. And provide the participant with educational materials at (ideally) just the right time in their lives. That’s the idea, in a nutshell.

Can we promise that this idea will work?

We cannot. But we’d be honored and deeply appreciative if you’d help us find out.

If you’re interested in donating to the cause, you can do so via the Bogle Center’s donation page.

You can also find more information about the Jonathan Clements Getting Going on Savings Initiative on the Bogle Center website.

You can find more details about the study design on the Poverty Action Lab website.

May 12, 2025

The Value of a Second Opinion

Imagine that, for a few months now, you’ve had a set of new health symptoms that seem to be related. So you go to see a doctor about it. The doctor tells you that he thinks it’s probably [some particular condition], but he notes that this isn’t the sort of thing that can be diagnosed with 100% confidence. This isn’t like a broken wrist, where we can just look at an x-ray and say, “Yep, that’s broken.”

Given the doctor’s uncertainty, you decide that you want a second opinion. So you go see another doctor. And she tells you pretty much the same thing as the first doctor. And that’s valuable! Even though she didn’t add any new information, and even though she was also not 100% confident, the fact that two different specialists agreed should give you more confidence.

Now imagine that there was an easy way for you to get not only a second, third, or fourth opinion, but thousands of opinions. Imagine that you could have thousands of specialists review your symptoms, your test results, and your medical history — and then all of those physicians’ feedback would be collected and tabulated. And you learn that most doctors do indeed agree with what the first two doctors said.

That doesn’t necessarily mean they’re all correct. (After all, they themselves noted that there’s some inherent uncertainty here.) Maybe the correct diagnosis is one of the less-common possibilities that some of the other doctors mentioned. Or maybe it’s a diagnosis that only one or two physicians mentioned.

But you have to pick a treatment plan. And given that you aren’t an expert in this field yourself (or frankly, even if you are an expert), selecting a plan that’s based on the feedback of the majority of the experts is very likely to be your best bet.

And that, by the way, is how the stock market works.

The price of a stock at any given time reflects the consensus opinion of a huge number of professional experts on the topic. This is not to say that every investor agrees that the current price is the correct price. But the current price is the weighted-average consensus, when we weight everybody’s opinion by the number of shares of the stock that they trade. (Point being, the professional investors who move the most money, such as mutual fund managers, hedge fund managers, pension fund managers, endowment managers, etc. are the people who are primarily responsible for setting the prices based on their trading.)

When you buy individual stocks, or when you jump in and out of the market based on stocks collectively looking overvalued or undervalued, you’re deciding that you know more than the collective consensus of a huge number of experts. It’s like a sick patient receiving feedback from thousands of physician specialists and then promptly ignoring that feedback, because he’s convinced he knows better than all those doctors do. Sure, it might happen to work out. But it’s not a great bet. And it’s definitely not the sort of thing that you’d want to implement as a general policy.

May 5, 2025

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Almost Every Financial Planning Decision Requires Judgment

Investing Blog Roundup: The Best of Jonathan Clements

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The Jonathan Clements Getting Going on Savings Initiative

The Value of a Second Opinion

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