As many of you have surely heard, financial columnist Jonathan Clements died last week as a result of the cancer he was battling for the last year.

On a personal level, I did not know Jonathan well. I only had the pleasure of meeting him in person once, at a White Coat Investor Conference several years ago in Park City, Utah.

But, like many of you I’m sure, I felt like I knew Jonathan well through his writing.

In college, as a business major, we were encouraged to read the Wall Street Journal regularly. As a student in general, I diligently did as I was told. But I soon realized that, to put it bluntly, the Journal was mostly a flood of useless information. What was I supposed to do with the knowledge that some company was planning to open a new facility somewhere — or that a major executive had been hired somewhere?

Jonathan’s writing was an exception. Here was somebody selecting a relevant personal finance topic, sharing how he navigated it in his own life, discussing valuable research on the topic, and then closing with a bit of humor that poked fun at the financial industry (or in many cases, at himself or at financial journalism in general). It was useful. It was fun to read.

And not so many years later as I stumbled into a career of personal finance writing myself, I came to have an even deeper appreciation for Jonathan’s writing. It was clear, with as little jargon as possible. It was a lesson in brevity. And it was directly relevant. This was the good stuff.

If you appreciated Jonathan’s work as I did, you may appreciate the articles below, especially the one that he himself wrote for this occasion.

And if you’d like to do something in his honor, Jonathan himself already told us what he’d like, when he came up with the idea that has become the Jonathan Clements Getting Going on Savings Initiative. Please consider making a donation. And thank you, to all of you who already have.

• Farewell Friends from Jonathan Clements
• In Memoriam from Jason Zweig
• Jonathan Clements, Longtime WSJ Columnist, Dies at 62 from Jason Zweig (WSJ)
• Five Pearls of Wisdom From a Legend of Financial Writing from Ron Lieber (NYT)
• Tributes to Jonathan Clements from Adam Grossman

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.

One question that I am often asked is under what circumstances a person can give investment advice, without needing to be a registered investment adviser (RIA). I want to be clear that what follows is only a high level summary of that topic. If this is more than just a curiosity for you, I would encourage you to consult with an attorney with relevant expertise.

Where to Find the Rules

The actual relevant legislation consists primarily of:

• The Investment Advisers Act of 1940, and
• Some statute in your state which is probably very closely based on (but not absolutely 100% identical to) the Uniform Securities Act.

And then there are of course various other relevant sources such as regulations, court cases, etc.

What’s an Investment Adviser (“ABCs Test”)

The Investment Advisers Act of 1940 defines an investment adviser as: “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.”

The Uniform Securities Act includes a definition that is nearly identical to the above.

People often use the mnemonic device “ABCs” to remember this test. That is, an investment adviser is somebody who is 1) in the business of 2) giving advice 3) about securities 4) for compensation. (Advice, Business, Compensation, Securities.)

And the idea is that you have to meet all of those requirements before you’d need to register as an investment adviser.

So, for example, if you’re a nurse and your daughter comes to you asking how she should invest in the 401(k) at her new job, you are perfectly allowed to give her advice. And there’s no need for a “this is not investment advice” disclaimer. It is advice about securities, but you’re not receiving any compensation, nor does your daughter have any reason to think that you’re “in the business” of providing investment advice for compensation. You don’t meet the ABCs test and thus don’t have to register as an investment adviser.

One important point here is that the SEC and state regulators tend to interpret the above tests as broadly as possible (i.e., to include as many people under the definition as possible). So, for example, any economic benefit received in exchange for the advice would be probably considered “compensation.”

Exclusions

The 1940 Act and Uniform Securities Act also provide exclusions. That is, there are certain people who do meet the above requirements (i.e., they satisfy the ABCs test) but who are nonetheless explicitly excluded from the definition of investment adviser — and thus don’t have to register as investment advisers.

Some of those exclusions include:

• Any lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his/her profession.
• Any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation for the investment advice.
• The publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation.
• A bank or savings institution.
• Any person whose advice, analyses, or reports relate to no securities other than securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States.

This is why, for example, somebody can write a blog that discusses all sorts of investment topics, without having to register as an investment adviser. It’s also why somebody can teach a personal finance class — and provide investment advice in that class — without having to register as an investment adviser.

I will note that, as somebody who is a practicing CPA, the exception for accountants is somewhat challenging to apply in real life.

Firstly, what specifically is meant by “the practice of my profession”? That is, what services are considered included in my profession as an accountant, so that we can then try to figure out what would be “incidental” to that profession? At least here in Missouri, public accounting is defined as “services involving the use of accounting or auditing skills, or one or more management advisory or consulting services, or the preparation of tax returns or the furnishing of advice on tax matters.” So basically, accounting includes tax preparation, tax advice, management advisory or consulting services, and “services involving the use of accounting skills” — a pretty circular definition.

And what would be “solely incidental” to that practice? That wording is clearly intended to be vague (i.e., determined on a case-by-case basis, depending on the facts and circumstances). So it’s no surprise that different accountants will draw the line in different places, as far as what degree of investment-related advice they feel comfortable giving.

So, in short, if you meet the “ABCs test” (i.e., you’re in the business of giving advice about securities, in exchange for compensation) when that test is interpreted as broadly as possible (i.e., to include as many people as possible), and you do not fall under one of the explicit exclusions, you probably need to register as an investment adviser. But again, if you’re even remotely unsure about whether something you’re doing (or considering doing) would require you to register as an investment adviser, I’d encourage you to consult with an attorney.

A reader writes in, asking:

“We bought a home recently, when rates were high though not as high as they are now. Without having any idea of whether home prices and interest rates will decline or continue to rise, how does one determine whether it’s a worthwhile tradeoff to sell some or all of our bond funds to payoff, or pay down, our mortgage?”

Changes in the Home’s Value Don’t Matter (For This Decision)

Firstly, the decision of whether to prepay the mortgage has nothing to do with the price of the home.

Example: Bob borrowed $400,000 to purchase a $500,000 home (i.e., making a 20% down payment of $100,000). If the home goes up in value by $50,000, Bob’s balance sheet will now include a $550,000 home. And that’s true regardless of whether he prepaid his mortgage or not. Similarly, if the home declines in value by $50,000, it’s now a $450,000 home, regardless of whether he prepaid the mortgage.

If you bought a home, you now own that home. You will experience 100% of the home value fluctuations, even if you only have, for example, 20% equity in the home. Point being, the amount by which the home goes up or down in value is unaffected by the decisions you make about the mortgage. And in turn, the decisions you make about prepaying the mortgage should be unaffected by your expectations for how the home’s value will change over time.

Yield on Bonds vs. Mortgage Interest Rate

The comparison to make is the interest rate of the bonds you would be selling as compared to the interest rate of the mortgage. Specifically:

• For bond funds, we want to look at the SEC yield.
• For individual bonds, we’d look at the yield-to-maturity.
• If the bonds are in a taxable account (as opposed to a retirement account such as a 401(k) or IRA), we need to calculate their after-tax yield.
• Similarly, for the mortgage, we’re concerned with the after-tax interest rate (i.e., after accounting for any tax savings you get as a result of the itemized deduction for home mortgage interest).

As of this writing, Vanguard Total Bond Market ETF (BND) has an SEC yield of 4.82%. If you owned that ETF in a taxable account, we’d have to multiply by [1 minus your marginal tax rate] in order to find the after tax yield (e.g., 4.82% x 0.75 if you have a 25% marginal tax rate).

If your mortgage is from several years ago and has a 3% interest rate (which is likely less than 3% after accounting for the itemized deduction for mortgage interest), selling bonds that yield 4.82% in order to pay down a 3% mortgage doesn’t seem all that appealing, from a purely financial point of view. (Some people may still choose to do it, because eliminating the mortgage gives them psychological benefits.)

On the other hand, if your mortgage is newer, with a 6% or 7% interest rate, selling those 4.82% bonds does look pretty attractive.

A complicating factor is that interest rates change over time. If for some reason you are convinced that interest rates are about to fall or rise, that would have an impact on whether or not you should sell your bonds at this time. (Bond prices move in the opposite direction of interest rates. So if you are convinced that your bond values are about to rise or fall in the near future, that would be either a point in favor or against selling right now.)

Personally, I have not seen any evidence that interest rate movements are easier to predict than short-term stock market movements. So rather than making guesses, I prefer to make decisions based on today’s rates.

Other Tax Considerations

Another important factor is: what type of account is it that you would ultimately be drawing these assets from, in order to prepay the mortgage?

If you would be using assets from a taxable brokerage account, we want to account for the capital gains tax (if any) that you would have to pay as a result of selling the holdings in question.

If you would be using dollars from a traditional IRA, what tax rate (including 10% penalty, if applicable) would you be paying on the distribution? And how does that compare to the tax rate you expect to face in the future (i.e., whenever these dollars would come out of the account later, if you don’t take them out now)? The higher the current tax rate that you would pay is, relative to the future tax rate that you anticipate, the less desirable it is to tap this account for any reason, including prepaying a mortgage.

If you would be using Roth IRA dollars, would you be paying tax (or penalty) on any of the distribution?

Risk Considerations

One point that trips many people up is the idea that by selling bonds to prepay the mortgage, they’ll be increasing their financial risk (because the portfolio will now have a higher percentage allocated to stock). In most cases, that’s not true. In most cases, it will not be a significant change in risk.

When you buy the home, you increase your risk. In our example above (Bob uses $100,000 of cash and a $400,000 mortgage to buy a $500,000 home), he now has $500,000 additional dollars of exposure to real estate (risky). He has a new $400,000 liability (risky). And he has $100,000 less cash (also an increase in risk). He has increased his economic risk in three different ways.

But once he has bought the home, those things have already happened. He has already taken on all of that additional risk.

Selling bonds to prepay a mortgage doesn’t affect how much exposure you have to real estate volatility (see the beginning of this article). Nor does it affect how many dollars you have exposed to stock market volatility. What it does do is:

• Reduce your liabilities (thereby reducing your risk), and
• Reduce your safe assets (thereby increasing your risk).

Net change in risk: roughly zero.

People often latch on to the percentage change in the asset allocation. But that’s a distraction. In our example above, imagine that after buying the home, Bob’s portfolio is $1,000,000, of which 60% is stocks and 40% is bonds (i.e., $600,000 in stocks, $400,000 in bonds).

If Bob were to use all $400,000 of his bonds to pay off the mortgage, he’d go from a 60%-stock portfolio to a 100%-stock portfolio. If we just look at the percentage, that’s a huge increase in risk. But in reality, he still has exactly $600,000 exposed to stock market risk. He didn’t increase his allocation to stocks at all. We just have a smaller denominator in our fraction ($600,000 total portfolio rather than $1,000,000).

Selling bonds to pay down a mortgage does not typically change the household risk level by very much. It is, mostly, just a decision of interest rates (after accounting for the various tax considerations).

As many of you know, I’m currently serving as the Secretary for The John C. Bogle Center for Financial Literacy. A few months ago, there was a form I needed to file with the Texas Secretary of State on behalf of the Center.

The form in question requires a $5 filing fee. For just $5, I decided it was simpler to pay the fee myself, rather than bothering Ben Holland (Treasurer for the Center) to have the Center pay the fee. So I wrote a personal check, included it in the envelope with the form, and dropped the envelope in the blue USPS mailbox down the block.

Below is the check I wrote. (Please forgive the messy handwriting. I was not expecting to show this check to thousands of people. The address is an old address, but I rarely write personal checks anymore, so I had never bothered to have new checks made.)

And below is what the check looked like, when it was cashed/deposited. (If the images are not coming through in your email/browser, here’s the original check and here’s what it looked like after alteration.)

Apparently somebody intercepted the check, chemically “washed” it to remove the ink on specific portions of the check, and wrote in a new payee, amount, and (partial) memo.

In the months since this occurred, I’ve seen a handful of articles about the topic and heard from many people who have had a similar experience, as it’s apparently nothing short of a fraud epidemic at the moment.

Per the police detective who was in charge of the case, they’re getting ~30 of these reports per day. And that’s just in our patrol district (i.e., a few neighborhoods in St. Louis).

We did eventually get our money back. But, in total, resolving the situation took more than 3 months and required 14 phone calls (including I have no idea how much time spent on hold), 2 visits to local Bank of America branches, and 2 visits to the police station.

If I had not scanned the original check before mailing it, the process likely would have taken longer.

And we had to close our checking account, open a new one, and switch over everything that automatically charged to the old account.

In short, even if you get your money back, I assure you that it’s an experience you’d like to avoid, if possible.

As far as how to avoid being on the receiving end of check fraud, the most important and easiest thing you can do is just to avoid mailing checks. Pay electronically whenever you can. (I know that’s my own preference regardless of this mess.)

If you do have to mail a check, if possible have it sent via your bank (i.e., using a “bill pay” feature) rather than writing it by hand.

If that’s not possible, write the check in sharpie, as apparently that ink is the hardest to remove.

And if you do have to mail a check, do not put it in your mailbox or a blue mailbox on the corner, as those locations have a higher likelihood of being physically intercepted. Instead, drop it off directly at the post office. (Though I have heard from people who have been victims of check washing fraud despite mailing the check at the post office, which suggests there’s some degree of an “inside job” going on here. So again, best to not mail checks at all, if possible.)

I’m often asked what I think about socially responsible mutual funds (or socially responsible investing in general).

To explain, let me introduce you to Jim.

• Jim is an accountant. He has never had a super high income, but he has been consistently employed since finishing college 30-something years ago.
• Jim has saved diligently throughout his career, and his index-fund portfolio is now sufficiently large that he expects to be able to retire within the next few years, despite having no pension.
• In other words, Jim has accumulated a significant sum of money.
• Every so often, Jim experiences some misgivings about having that much money. He recently read that his seven-figure net worth means he has more wealth than 99% of other people in the world.
• Jim also has some misgivings about several of the companies that are owned by his index funds.
• Jim’s annual budget does include a non-trivial amount of charitable giving each year, but the reality is that in order to meet his goals, he has to keep most of his money.
• Jim wants to feel better about having a lot of money. That is, he wants to continue to have a lot of money. But he doesn’t want to feel bad about it.

Jim has a need.

There are a lot of Jims.

What does the financial services industry do when it sees a lot of people with a given need/desire? It creates a product.

Socially responsible mutual funds are that product. Socially responsible mutual funds exist to let you feel better about having money (i.e., not giving it away). The fund industry usually doesn’t want you to give your money away. If you do, they don’t get to collect a percentage (in most cases).

This isn’t to say that socially responsible funds are a bad thing. From a “doing good in the world” standpoint, a socially responsible fund might have a beneficial effect in that it might exercise its voting rights more frequently — or more frequently in line with your views — than typical index funds.

Conversely, if the fund’s way of being socially responsible is simply to exclude certain stocks/industries from the fund, it is giving up its power to vote to change the behaviors of those companies/industries. That is, as a shareholder, a fund has influence. If it chooses not to own those companies, it gives up any potential influence it might have. You may see where I’m going with this. As a socially responsible investor, I would like a fund that owns all firms (i.e., an index fund) and which votes to make the changes I want to see. I do not want a fund that goes out of its way to give up its influence over the companies I would most like to influence.

Unfortunately, whether or not socially responsible funds actually have a positive societal effect is not generally super important from the perspective of the fund company (or, in most cases, from the perspective of an advisor recommending the fund). As long as you feel better about owning this fund as opposed to another one, mission-accomplished.

It is normal to have some misgivings about having far more wealth than almost everybody else in the world.

And it is clear that the most effective way to alleviate those misgivings is to give away more money — either directly to people who need it more than we do, or to charitable organizations that fight against the thing(s) we find unethical.

But, unfortunately, there’s a limit to how much we can give while still reaching our goals. With our current retirement system (in which few people have pensions and Social Security doesn’t cover everything), if you want to retire someday with a middle class level of spending or higher, you must accumulate a pile of money — and keep it for yourself.

It is also normal to have misgivings about owning shares of companies that do things you find unethical.

Yet owning those shares and using your vote as a shareholder is precisely how you can attempt to influence those companies. Unfortunately, as mutual fund investors, it is the fund managers that must vote on our behalf, and we have limited information as to how fund managers vote their shares. And the “socially responsible” funds (i.e., the funds with a stated mission of working for positive change) go out of their way to give up their right to vote on such issues, because doing so allows people to feel better about owning the funds (i.e., it makes them more marketable).