Welcome to the 60th edition of the Bogleheads On Investing podcast. Today our special guest is Jonathan Clemens. I'm John Luskin and I normally host our Bogleheads live show for the folks of Twitter. I am taking over for the normal host Rick Ferry while he takes a summer sabbatical. Please allow me to introduce Jonathan Clemens.

He is the founder and editor of Humble Dollar. He's also the author of a fistful of personal finance books, including My Money Journey and How to Think About Money. Clemens spent almost 20 years at the Wall Street Journal, where he wrote about personal finance. Some announcements before we get started on today's episode with Jonathan Clemens.

This episode of the Bogleheads On Investing podcast, as with all episodes, is brought to you by the John C. Bogle Center for Financial Literacy, a nonprofit organization that is building a world of well-informed, capable, and empowered investors. Visit boglecenter.net where you'll find valuable information, including transcripts of podcast episodes.

And at boglecenter.net/donate, you can make a tax-deductible donation to support the mission of improving financial literacy. Another announcement, registration is currently open for the 2023 Bogleheads conference. This year's conference is on October 13th through the 15th in Rockville, Maryland. We'll have some phenomenal personal finance and investing rock stars who will be attending as speakers, including Charles Ellis, Paul Merriman, Clark Howard, Barry Ritholtz, Wade Fow, and more.

And of course, Boglehead's favorites, the normal host of this show, Rick Ferry, Christine Benz, Dr. Bill Bernstein, Mike Piper, Alan Roth, and much more. Go to boglecenter.net/2023conference to see the full lineup and to register. We have less than 100 spots remaining, so make sure to grab your spot at boglecenter.net/2023conference.

And finally, a disclaimer, the following is for informational and entertainment purposes only and should not be relied upon as investment or personal financial advice. And with that, let's get started on our interview with Jonathan Clements. Jonathan, welcome to the Bogleheads on Investing podcast. Thank you for being here. Hey, John.

It's great to be with you. Thanks for having me on. Let's start with your new book. Tell us about your new book. I have this new book out called My Money Journey. It's a collection of 30 essays written by various people who have in the past written for this website that I've run for the last six and a half years, humbledollar.com.

One of the specialties of the site is people talking about their own finances. A lot of the writers for the site are essentially people who are keenly interested in personal finance, but they wouldn't necessarily be considered financial experts. So what I say to them is, you may not be an expert on the financial world, but you are an expert on your own life.

So if you write about your own life and the financial experiences you have, you can do so with authority. So against that backdrop, when it was suggested that we do a book, I said, "Well, okay. Let's all write about our financial lives," and that's what the book is all about.

It's 30 people talking about how they've reached financial freedom or how they're endeavoring to reach financial freedom. I think it's a unique book in this regard. Most of the time, we don't talk honestly about money. People will tell you about their religious beliefs. They'll tell you about their political beliefs.

They'll even tell you about their sex lives, but they will not tell you how much they're worth or how much they earn. One of the things you'll find in My Money Journey is that people are brutally honest about their own finances. People do talk about how much they earn.

They do talk about how much they're worth, and I think it's refreshing for people. In a sense, it's also inspiring, but a lot of people struggle with their financial lives. They worry whether they're on track or not, and what you'll see from the book is that people make financial mistakes, and yet they can still achieve financial freedom.

Well, why don't you tell us a little bit about your money journey? So among the 30 essays, one of them is My Money Journey. It's about how I got to where I am today, which is 60 years old and semi-retired. And when I look back on my financial journey, it really seems to be a story in two parts.

The first two decades or so was one of being super frugal and very much in a routine, striving towards financial independence. And the period since has been one of a lot of turmoil in my life where I've tried my hand at a variety of things, in part because I could afford to do so, thanks to the financial freedom that came from my earlier frugality.

But it was that earlier frugality that built the financial base that I rest on today. So during those 20 years or so, it was a time when I was at the Wall Street Journal, writing my personal finance column, living out in the New Jersey suburbs, living in a house that was really far less expensive than I could afford.

And because that house was so much cheaper than I could really afford, it allowed me to save great gobs of money. And like so many other people who reach financial freedom, it wasn't about being a smart investor that got me there. It was about being a great saver. It was about being the sort of person we refer to as a fire person today, financial independence retire early, except it was before the fire and ocean even existed.

It was just being super frugal and saving great gobs of money every month. Frank Curzio: Anything else you'd like to share about your new book? Will Barron: One of the things that people who read the book will discover is not only is frugality a common theme, but the other thing that really jumps out is the influence of people's upbringing.

So many people talk about the influence of their upbringing on their financial habits. If you're a parent, this is truly scary. When you as a mother or father talk to your kids about almost anything, it's like you're holding a megaphone to their ear. They hear everything at 10 times the volume they hear anything else that they hear during their lives.

And so some of the people in the book talk about how they struggle to overcome the money messages that they got from their parents. Others talk about how those money messages really set them on the right course. But either way, whether you're reacting to what your parents said or you're following what your parents said, the parental influence is really enormous.

And you see that in so many of the essays in the book. Certainly as a relatively new parent, that gives me pause, but my wife and I think we've got relatively frugal disposition, so it's probably a good thing for future of our daughter. Say this to you, John, yes, being frugal and teaching your kids to delay gratification is a great thing, but you can overdo it.

One of the stories that I've been telling lately is about my two kids. I have a 34-year-old and a 30-year-old. And my 30-year-old just got his PhD, seven years living on a stipend of $30,000 a year. He spent much of those seven years living abroad, doing a lot of traveling and so on.

So over the seven years, he got, roughly speaking, $210,000 in the stipends. And he managed to save something in the six figures. When Henry told me this, it's like, "Whoa, maybe I emphasized the frugality a little too much." Maybe he would have enjoyed the seven years somewhat more if he'd been a little bit more carefree with the stipends that he got every year.

Yeah, it's certainly possible that on the same side of the coin going forward right now, he'll have a lot more freedom and flexibility to do what he wants, right? Similar to your own journey. That's true, but still, I would say in terms of my own financial journey, when I look back at that initial 20-year period where I was living out in the Jersey suburbs in a house that was smaller than I could afford, in which I didn't really like that much when I held the purse strings very, very tightly.

In retrospect, I probably would have enjoyed those years more if I had been a little freer in my spending. Now, in my defense, we don't know until the end of the financial journey how it's going to turn out. In retrospect, my financial journey has turned out very well, but when you're starting out, you don't know whether you're going to get hit with frequent bouts of unemployment.

You don't know whether you're going to have problems with medical costs. You don't know what sort of family turmoil you're going to face and so on. I had some of that, but not to a huge degree. And so as a consequence, I ended up saving far more than I needed to for retirement.

But for others, even if they're diligent from the get-go, if they get hit with financial setbacks in one way, it's kind of another, maybe despite their frugality, they'll only just make it to retirement with the sort of money that they want. I can't help but think of a quote by Morgan Household, "Save for no reason." And I think it's fine to save for no reason.

When I think about what it takes to have a happy financial life, I think there are three pillars and one of the key pillars of a happy financial life is not having to worry about money. If you are diligent about saving and you know that if bad things happen in your life, you won't be wracked with financial anxiety, that is a huge source of happiness.

I say to people this all the time, money may not buy happiness, but not having money can buy you unhappiness. So money takes away that anxiety and that's huge. Until you've lived with too little money, you don't realize how great it is to have a bank account that's relatively full.

Jonathan, anything else you'd like to share about your new book? One of the things that comes through in the book as well, and this is maybe not a huge surprise, but one of the things that comes through in the book is that even if people try all kinds of different investment strategies early on, almost all of them ended up as indexes in the end.

So many people early on made financial mistakes, they dabbled in individual stocks, they dabbled in options, they thought they knew which way the market was headed and gauged in a little market timing, but eventually they settled down, become financial adults and started indexing. And that coupled with the frugality and the great savings habits is what allowed them to reach financial freedom.

It's so hard as investors to stay on track amid all the noise, all the temptations based on this market pundit's prediction or this person's screaming about this great individual stock or this hot, aptly managed fund, all these distractions that can lead you to derail your financial life. But if you can ignore that, if you can do the right thing, which is save diligently, put it into a diversified portfolio of index funds and keep it up for 20 or 30 years, good things will happen.

I think about how Rick Ferry describes the investor's journey, which is born into darkness and then you find index funds. It's true. There is much more to managing a financial life than saving an index fund, but certainly on the portfolio side of things, those are two key components. I mean, obviously there's much more that you need to worry about, insurance, estate planning, find the right home, thinking about when to claim social security and so on.

But on the investing side, between good savings habits and index funds, those two together are magic. Let's jump to some questions from the Bogleheads community. This question from Lifsoft from the Bogleheads forums writes, "One thing I've often wondered about is why people like Mr. Clements himself are still working and not off backpacking somewhere." Yeah.

I looked through the questions on the Bogleheads forum and that one jumped out at me. I would say, when it comes to retirement, there are two different things that you have to say, "I have enough of." One is the obvious question, which is, "I have enough money," but the other question you have to answer yourself is, "Have I done enough?

Have I done enough with my career? Have I done enough for the world? Have I had enough accomplishments?" And I think for a lot of people, even if they decide that they want to quit the workforce, they are not done doing, there is so much more they want to continue to do.

And that is part and parcel, in my mind, to a fulfilling retirement. You need that sense of purpose after you leave the workforce. So for those who continue to work for money or who leave the workforce but continue to work hard at volunteer jobs, these are people who have said, "I haven't done enough for the world yet.

I need to continue to do things that I think are important, that I'm passionate about, that I find challenging, that I think I'm good at." And I think that's a wonderful thing. I mean, we as humans are not wired to rest and relax. We humans are wired to strive.

We are the great, great, great, great grandchildren of our hunter-gatherer ancestors. They didn't sit around thinking, "Hey, let's take the day off and we'll see whether there's enough food tomorrow." They survived because they strove relentlessly to secure a shelter and secure more food. And we, within us, carry those instincts.

We want to continue to strive. And it's a great source of happiness. So when I was talking earlier about having enough money being one of the pillars of financial happiness, knowing that things are going to be okay, even if bad times strike. So the second pillar is being able to spend your days doing what you love.

And what we tend to love doing is things that give us a sense of purpose. One thing I think about is a little meme that Rick Ferry often shares often on Twitter, which is "Financial Independents Remain Employed" for that FIRE acronym. That's cute. Let's jump to another question from the Boglatz community.

This one is from a user named GreatToBeOutdoors from the Boglatz forums, who writes, "Why aren't books that are written about personal finance and financial independence required reading in an academic setting at an early enough age to make a real difference?" I think it's unfortunate that that's not the case, but I'm not convinced that it would make a huge amount of difference.

I know there's a big push right now to teach personal finance more heavily at the high school level, at the college level, and so on. But studies suggest that even if you teach people about personal finance, it doesn't stick for very long. Instead, what tends to work is just-in-time education.

When you go to allocate the 401(k), you're given a sort of catch-up course on how to invest sensibly. Or when you go to get the mortgage, you have a catch-up tutorial on what's involved in getting a mortgage, and how much this is going to cost you, and what the risks and different types of mortgages are, and so on.

So I think even if we had a huge effort to teach personal finance at the high school and college level, probably for 80% of the people who take those courses, it will go in one ear and out the other, and it won't make a difference to the financial decisions they make two or three years down the road.

Instead, to influence them, they need education at that moment when they're making those decisions. Let's jump to a question from Jordan from Twitter asks, "I've been reading a lot lately about what the Bogleheads say about SPIAs, and that is Single Premium Immediate Annuities. And for those who aren't investing nerds, that just means we give the insurance company a big pot of money, and then they give us a monthly payment for life.

So that's a SPIA. And then also TIPS ladders for guaranteed income when in a drawdown phase in retirement. And again, for those who aren't investing nerds, TIPS ladder is just going to be a series of U.S. government bonds that mature over time that provides income for us to live in retirement." Jordan goes on to say, "It seems to be either a love-hate kind of thing for those subjects.

Are there a place for these SPIAs or TIPS in retirement?" And so my answer to that is yes, absolutely, though we are talking about two completely different animals. I mean, building a TIPS ladder could cover 30 years of retirement costs and with a pretty much guaranteed stream of income, Alan Roth has done an excellent analysis on this that it's got a reasonable amount of publicity.

The problem is, what if you live longer than those 30 years? And that's what you get with the Immediate Fixed Annuity. You get this stream of income that will last as long as you do. And for years, for years, I've talked about Immediate Fixed Annuities, how they are different from other annuities, how they are not this evil insurance product.

I think I may have made two converts over the years. I mean, it's just been such a hard sell. It's not like insurance agents are cheering for people to buy these products. With a Immediate Fixed Annuity, the insurance agent's commission might be 1%. They are not out there pushing it because they don't make very much money from selling Immediate Fixed Annuities.

In fact, there's almost nobody out there who seems to want people to buy Immediate Fixed Annuities, except for me. And the reason I think they're great is that one of the biggest risks in retirement, maybe the biggest risk, is outliving your money. There are only a few ways to hedge that risk.

The number one way is to delay Social Security till age 70. That's what I plan to do. And anybody who's in reasonably good health, I'd encourage them to do that as well. That'll give you the best annuity you can buy, this inflation-adjusted stream of income backed by the government, and it's at least partially tax-free.

But if that alone is not going to comfortably cover much of your retirement expenses, I think there's a good case to be made for buying an Immediate Fixed Annuity. And I'm certainly planning to do that. I'm not fully retired yet, but when I reach the point when I do, I'm certainly going to think about putting at least a portion of my portfolio into an Immediate Fixed Annuity, probably with an eye to at least covering my fixed living costs.

With that SPIA, that Single Premium Immediate Annuity, I'm going to give this insurance company a big pot of money, and then they're going to give me an income stream for life. It is the right way to think about insurance, and it's a great way to manage that longevity risk, the risk that we're going to live longer than maybe our assets would provide if we invested in a stock and bond portfolio.

A lot of folks are worried about inflation. With that approach, hey, this payment, it's not going to increase for inflation. Fortunately, there is research that we even talked about on the last episode of the Bogleheads on Investing podcast, where retiree spending decreases on a real level over the years.

And that's just an early way of saying, after inflation, we're still spending less in retirement. One of the things that I mentioned to people often is you happily stay with your employer for 20 or 30 years to get this traditional pension. You're willing to make that sacrifice, and yet come retirement age, you're not willing to take $100,000 or $200,000 out of your portfolio and use it to buy the same income stream.

So you're willing to sacrifice 20 or 30 years out of your career to get a pension, but you're not willing to sacrifice money out of your nest egg to get the same thing. It doesn't make any logical sense. And then also, and I see this a lot when working with folks, there's going to be the financial nerd of the family, and then we're going to have the more normal spouse.

So we want to think about, "Hey, what sort of investment plan are we setting up in that worst case?" For those households out there where we have the financial nerd of the family, and then the more normal person, what happens when that financial nerd isn't able to manage that household finances anymore?

That SPIA is pretty great. That money, it shows up into your checking account every month. It is zero maintenance. So for our non-financial spouses, SPIA can also be a really great fit just for that reason. And just to add onto that, which is even as you think about an immediate fixed annuity to provide that guaranteed lifetime stream of income that makes your financial life that much simpler, folks should also think about how else they should simplify their financial life as they approach retirement age.

So John, I don't think this is any great secret. I think I'm substantially older than you. I'm on the cusp of retirement and I'm thinking about ways that I can simplify my finances. I obviously have no problem handling it now, but will that be the case 15, 20 years down the road?

So I'm striving to have fewer credit cards, fewer checking accounts, deal with fewer financial firms, and I'm also looking to simplify my mutual fund portfolio. I have over the years owned sort of more specialized funds, small cap value, large value, stuff like that. I think that as the next decade continues, I will probably look to either ease out of those positions, perhaps eliminate them entirely, because at some point I'm not going to want to deal with it.

And I might not be capable of dealing with it. Absolutely. On Bogleheads Live episode 36, we had Mike Piper on speaking about one of his books, After the Death of Your Spouse, and that was a huge theme there as well. Simplify, simplify, simplify, to quote Mike in that episode.

I'll link to that in the show notes for our listeners. Mike made a similar point with respect to simplifying your investment portfolio. I know that he personally uses one single mutual fund, a balance fund, roughly 80% stocks and 20% bonds, rebalances automatically. Now he has all his money in tax advantaged accounts, so tax efficiency is a little bit less of an issue for him, but gosh, that makes it very easy.

Just one single mutual fund. Everything is in that. Set it and forget it. You don't even have to think about it. Let's jump to another question from the Bogleheads forums. Username JPM writes, "The way of the Bogleheads, live below your means, seek safety and diversification rather than market timing, invest consistently and with taxes in mind, keep investing fees low, time is your friend so use it, avoid acting on impulse and emotion as they are your enemies.

Does he know of any comparably successful approaches for the non-financial professionals?" The short answer is no. Those are the key components of a sensible portfolio. We can quibble about the details, what should be your precise asset allocation, how should you diversify, how frequently should you rebalance and so on, but yeah, those are all the key components.

The other thing is, Jack Bogle and many other people have said investing may be simple and it should be simple, but it isn't easy. The really tricky part is not only getting yourself to do it, but then staying the course thereafter. As we were mentioning earlier in the podcast, there are so many temptations to stray, but if you can resist those temptations to stray and continue to do the right thing decade over decade, and that is a great list that the writer included, good things will happen.

Certainly with respect to that broader financial planning approach, I'm going to 100% agree with you, Jonathan. I can't think of anything similar. And then with respect to the investing piece, one thing that makes low-cost index funds so great is not necessarily that we get to invest in the stock market, it's that we are able to invest in a diversified manner at low cost simply and easily.

I can't think of another way you can invest simply and easily at low cost that is also diversified. So, let's think about private equity. Let's say you do private equity yourself. That's going to keep your fees low, right? You go out, you find companies, you invest in them, but the catch is it's really hard to be diversified that way.

You have to invest in hundreds of companies. Meb Faber talks about this a lot, I'll link to some resources in the show notes where he does that. He'll say, "Hey, private equity could make sense if you keep your fees low, but now that means you're doing it yourself, you're not using a money manager, and therefore getting diversification is quite hard." I believe Meb invests in perhaps 300 companies, so you've got to go out and you've got to look at more than 300 just to get the level of diversification he's gotten in his approach, and it's going to be the same thing for real estate.

You can invest in real estate directly, that's going to keep your fees low, there's no money manager between you and your money, but now you've got to invest in a lot of properties, and that takes a lot of money because you can't buy just part of a property, you've got to buy the whole thing.

Now, certainly, there are private equity funds and there are real estate funds, and you can get diversification there, and they're passive as well, but you can't get low costs there. Index funds are so fascinating because we can invest at low cost, be diversified, and it is a leave it alone approach.

I don't know of any other investment where you can do that. Just picking up from that point, John, I had a chance to look through your request for questions on the Bogleheads, and one of the things that was put there was like, "What is Clemens' biggest financial mistake or biggest financial regret?" And gave that question a lot of thought, maybe it's particularly pertinent to me right now, so my biggest financial mistake or my biggest financial regret doesn't relate to my portfolio, I'm super diversified, I've tried to keep costs low, I've kept an eye on taxes, instead my regrets or my financial pain has all come from real estate.

I've owned four houses over the course of my lifetime. One was a big success, and the other three have been, to use a technical phrase, royal pains in the ass. And it is an illustration of why index funds are great, so many other ways of investing are awful, which is that this real estate is a big undiversified bet on a single piece of property, and when it goes well, it can go really well, and when it goes badly, it can be dreadful.

Right now, I'm in the middle of renovating the latest home that I bought, had it thoroughly inspected when I bought it, there was no sign of any major problem. The kitchen was gutted about four weeks ago, it was the beginning of the remodeling project. Your usual standard Philadelphia row home, and what the contractor discovered when they ripped out the kitchen and all the wallboard and so on, is that at the right-hand backside of the house, there is no load-bearing wall, no load-bearing wall, period.

So suddenly the cost of this renovation has gone up by 12 or 13% because they have to repour concrete floor and rebuild a wall to support the back right side of the house. I, as a buyer of a home, who's typically ignorant, and even with the help of an inspector, had no idea, nor did the contractor, until they tore out that wall.

But that's the danger of making a big undiversified bet, and that is what real estate is. Let's jump to another question. This one is from Vogelfangau, who writes, "I've been a regular reader of Jonathan since his Wall Street Journal days and never missed his weekly Humble Dollar newsletter. My question is, if he had the power to change one past column or piece of advice from his Wall Street Journal days, what would it be?" I would say that over the course of my journalistic career, there are three things that I regret.

One is in thinking about some past columns that I wrote, even though I avoided getting into the prediction business, I don't think anybody can predict what's going to happen to the markets in the short term. I think the only reasonable assumption is that a globally diversified portfolio will go up over time, but that doesn't tell you anything about the short term.

Nonetheless, at various times, I feel like I wrote about different parts of the financial markets with more or less enthusiasm, because I imagined I knew something that was unknowable. I may not have made a prediction in those columns, but the reason I wrote those columns was because, in my head, I thought I did know something.

And second, related to that, was I think that over the course of my career, I spent far too much time talking about stock market valuations. And at this point, looking back over the past four decades, I have to say, and this sounds like a sort of completely butt-ignorant thing to say, but I have to say that at this point, I would have been much better off over the course of my career just ignoring all these stock market yardsticks, these valuation metrics, because they are not predictive.

Even if you know everything about the Shiller Ratio, P/Es on forecasted earnings, trailing earnings, book value, the Q Ratio, whatever it is, the Tobin's Q, it's not going to tell you where the market is going. And yet, I spent way too much time writing about these things that, nothing more than intellectual noise.

I did a paper on dollar-cost averaging that looked at the question, "Hey, markets are expensive. Should I be dollar-cost averaging?" I did that paper in 2017 using 2016 data because people were concerned about market valuations then. Can you imagine if you thought, "Hey, the market's expensive." Back in 2017 and didn't invest in stocks for that reason, you would have missed out a lot.

So I think one takeaway from that is, yes, markets are expensive, but that doesn't mean they can't continue to go on to be even more expensive. - One of the basic asymmetries of the markets that's worth keeping in mind is that the most the stock market can lose is 100%.

Very few have ever managed to achieve that, except maybe the Russian market of late. But the potential gains are unlimited. You don't know how high the sky is. So bailing out on the way up because you think the market is expensive can turn out to be a huge mistake.

I've been writing about the financial markets since 1985. And from the earliest days, the old-timers were saying, "Oh, this rally we're in, we could be going back to the 1970s anytime now." And then of course, the 1987 stock market crash came along to confirm that, yes, they were right to be fearful, and they've continued to be fearful ever since.

If I had listened to the old-timers decrying the sky-high valuations, I would never have owned stocks over the past four decades, because every year it looks unattractive and best based on valuations, and yet the market has continued to rise. - I think about what is the worst case with respect to a globally diversified portfolio?

That's to say, if the market does go to zero, then your portfolio is going to be the least of your concerns. So it makes it hard for me to figure out a situation when it's ever the right reason to sell out. Because if the global society does not collapse, then you want to stay invested.

And if it does collapse, then there's no real benefit to selling anyway. Either of those situations, I can't ever think of a reason why it makes sense to sell if you have the right mix of stocks and bonds for you that matches your personal goals, et cetera, et cetera.

- If the stock market went to zero, what do you imagine bonds are going to do? They're also going to zero. We are facing economic apocalypse, and nobody will be able to make interest payments on their bonds. At that point, probably the only thing that will save you are canned goods and ammunition.

Think about economic apocalypse, yeah. Get out of everything. But if you think that the economy will continue to grow, then stocks are the place to be. And I do believe that to be a stock market investor, you need to be an optimist. Every day, almost 8 billion people around the world wake up and say to themselves, "How can I make my life better?" And the human energy that is unleashed drives the growth of the economy, leads to improving productivity.

And we all benefit from that. That is what trickles through to the stock market, and it's why the stock market rises over time. And if you have any doubt about that, just think back to 2020 and the pandemic. Faced with this economic shutdown, faced with this virus that we knew very little about, somehow people managed to go on.

Restaurants moved their tables out onto the street. Companies figured out how to get employees to work from home. The amount of innovation that occurred because of the pandemic was huge. And of course, the biggest innovation was the discovery of a way to vaccinate people. We developed a vaccine in record time, extraordinary scientific achievement.

If you have any doubt about the stock market, think about that period and the human energy that was unleashed, and that should make you optimistic about the future. And then the final thing I regret, I now have less enthusiasm for target date funds than I did 10, 20 years ago.

And it's simply because I'm at a different point in my life. When I thought about target date funds initially, it's like, this is a great solution for people who are saving for retirement. And I still believe that's the case. If you're in a 401(k) plan and you're not sure what to do, putting all the money into a target date fund is a great solution.

Hopefully it'll be one of those ones that are built around index funds, kind of out of Vanguard or Fidelity or Schwab. But even these funds that use actually managed funds, for probably the majority of investors, are a better option than anything else they might get up to. But as you approach retirement, which is where I am today, and I look at these products, they look much less attractive for a couple of reasons.

One is when you decide to sell, you're selling out of the entire fund. You can't choose whether to throw money from the bond side or the stock side of the portfolio. But the other thing that I find myself more critical of is the glide path of these funds. I mean, they do become amazingly conservative as you get into retirement, down to 30% stocks.

And I don't think it's wise for somebody who is 75 years old to be a 30% stock. Could be a lot of life ahead of you and a lot of inflation ahead of you. I believe that you should have more in stocks in order to make sure that you have the portfolio that will carry you into your 90s.

The way target date funds are structured today, they just don't fit the bill. So yeah, they're good for people early in their career. I wish I'd been less enthusiastic about them and caution people more about the dangers as you approach retirement and get into retirement. I 100% agree. They are great on the way to retirement, but once you hit retirement, certainly you want to reevaluate them for precisely that reason.

It might make sense to even increase the amount you have in stocks once you hit that first day of retirement. Wade found Michael Kitsis, they've done some work on this. I'll link to that in the show notes for folks who want to check that out. And certainly when you are looking for those target date funds, Vanguard has some great low cost ones.

Fidelity and Schwab, they actually have two varieties. They do have a low cost index fund variety and they also have a higher fee active management variety. Most Bogleheads know which one is going to be the better fit for them. This question is from username unwittinggulag from the Bogleheads forums.

To what extent is financial independence quantifiable, accumulating 25 times one's annual expenses or 50 times versus is it purely subjective being a feeling that one already has enough? So in terms of financial independence, you don't necessarily need 25 times your annual expenses because at least a portion of that is going to be covered by social security and you may also have a pension.

What you want as a rule of thumb is 25 times whatever you need in addition to the money that you're going to get from social security, from a pension, from any income annuities that you're the beneficiary of. So yeah, as a rough rule of thumb, 25 times, not a bad guideline.

I would be happy with that. And for those who aren't investing nerds, you might be wondering why 25 times? Well, because that gets you a 4% withdrawal rate. Why 4%? Well, that is the research that Bill Bengen created showing, hey, you could take 4% out of your retirement portfolio, adjust it for inflation each year and not run out of money after 30 years.

We interviewed Bill Bengen on episode 35 of the Bogleheads live show and we also interviewed Christine Benz on episode 37. That takes a little bit of a different approach to answering that same question. I'll link to all that in the show notes so folks can check that out. So the Bengen research has been subject to some controversy over the years and people say, well, you can withdraw more than 4%, less than 4%.

You could follow a different method rather than stepping up every year with inflation. But as a rule of thumb running up to retirement, I think it's as good as anything else out there. And once you get into retirement, I think most people will probably do something somewhat different from Bengen's rule.

I mean, I find it hard to believe that there is a single sentient human being who will sit there and increase their portfolio withdrawals every year by the inflation rate, no matter what's going on in the financial world. Nonetheless, as a basic rule of thumb, I think Bill Bengen's work is excellent.

And 25 times the income that you need over and above what you're getting from social security and other guaranteed income sources is a good rule of thumb. Certainly to echo your point, Jonathan, is 4% the right answer? We can't know, but it is certainly a reasonable answer. One thing that people who haven't been kicking around for as long as I have should know is that before Bill's research came along with suggestible withdrawal rates were all over the map.

6%, 8%. I heard 10% was an okay withdrawal rate. Bill with his research didn't at least introduce a note of sanity into this discussion. Imagine retiring and trying to use a 10% withdrawal rate. I don't know what this flavor of cat food these people were eating by their late seventies, but it must've been a pretty ugly retirement.

Absolutely. And then I'll add no matter what medium you choose for making that spending approach to retirement, 4%, something less, something more, you always want to reevaluate it regularly. That's going to be way more important keeping an eye on it, adjusting as needed than whatever initial plan you start out with.

Yeah. I think it's one of the things with retirement is there's this end of history illusion that as of retirement, everything's going to be settled for the rest of your life. And the fact is once you get into retirement, there will be constant upheaval just as there has been constant upheaval in your life up until that point.

And that means that not only will you have upheaval in the financial markets that will make you rethink your financial strategy, you may find that whatever house you thought you were going to live in for the rest of your retirement is not going to be the house that's going to work for the longterm.

You may discover that you move for retirement, that wherever you ended up isn't the right place. There are all kinds of decisions that you're going to revisit through your retirement years. The world does not stop the day you stop getting a paycheck. This question is from a user named Rad Audit from the Bullguards Forums who writes, "I believe it was Clements who related the story of when he was writing for a financial column in a newspaper, and he asked the question, 'Why don't we just tell them to invest in the S&P 500?' His editor said, 'Okay,' then asked, 'What are you going to write about next week?'" So actually that was not my story.

The time I heard that story was from Greg Spears, who actually writes for Humble Dollar and helps me with the editing of the site. Greg used to work for Kiplinger's Personal Finance, and he traveled up to Valley Forge, met Jack Bogle, and wrote about the S&P 500 for Kiplinger's back in the mid-1990s.

He used the analogy that if investing is a 100-yard dash, buying an index fund is like starting on the 10-yard line. You're just starting way ahead of everybody else. And so he wrote this story, Kiplinger's ran it, then his editor said, "That's it. That's your last index fund story, because if we ran that story every month, nobody would ever buy the magazine again." So Greg went on to work for Vanguard.

He worked there as a senior writer and editor for a few decades until his recent retirement. My story about indexing, or my joke, is always that there are only 20 personal finance stories, which means that by the time I left the journal and written 1,000 columns, I'd written each of those 20 stories 50 times each.

Now Jason Zweig, who I've known since the 1980s and I consider to be a good friend, claims that he made that comment as well. So we debate about who actually made the joke first, but essentially it's the same joke, which is there's only so much sensible advice that you can give about personal finance.

As a writer about personal finance, you are reduced to trying to take this advice, which the earlier question talked about, living below your means, diversifying, keeping costs low and so on, and finding some way to make it sound fresh and interesting every week. So yeah, everybody should own total market index funds.

It's great advice, but if you're going to say that regularly, you've got to find some new way to say it, or you're going to quickly be out of a job, and you'll probably bore your readers. I think about that investing piece, and really it is simple. There's not much more to it than get the right mix of low cost index funds, hold them forever.

There's so much more to financial planning that can be more complicated. I wish I could figure out a way to get folks more interested in those other areas, making sure that they have the right insurance coverage, making sure they have their estate planning done. Super boring compared to investing, at least for some folks.

Yeah, when I think about the financial world, I really think about it in three buckets. So there is this investing piece, which we talk about endlessly. People spend all day staring at CNBC, and it is information without insight. I mean, there is no way that you are going to add anything to your portfolio's performance by taking in all of this useless information.

And then there are these two other parts that you can focus on. One is everything else, what I would call personal finance, estate planning, when to claim social security, insurance, buying the right size home. All of these are areas where you can add so much more value than you can add by fiddling around with your portfolio.

And yet, these are the topics that barely get covered in the financial press, and certainly don't get covered on financial TV, but this is where you can add true value to your financial life. And then the third bucket is really this whole area of money in the mind. How do you use your money to have a happier financial life?

What does money mean for you? What are you going to do with your money once you reach financial freedom that's going to give you this sense of purpose? This is a whole area that has only lately come onto people's radar screen, but I think it's such a rich area and there's so much to be learned and so much that we can add to our financial life by thinking about what money means to us and how we can use money as a tool to make our lives better.

Everybody should own total market index funds, be broadly diversified, save diligently, blah, blah, blah, blah, blah. But what are you going to do with all that money? How can you do it in a way that's going to enhance your life? Because that is what money is all about. It's about having a better life, about having a happier financial life.

How are you going to take this nest egg that you've massed over your lifetime and make sure that you have a rich retirement that is filled with friends and family, that is devoted to things that you care deeply about? These are much more important questions than whether I should switch from this total market index fund to that total market index fund to save one basis point.

Jonathan, you're going to be attending the Bogleheads Conference this year. This will be my fourth Bogleheads Conference. And on the Saturday, there's an investing panel, so I'm going to be there. And then on Sunday, Bill Bernstein and I are going to be in conversation, so I'm looking forward to that.

He's got a new edition of The Four Pillars of Investing coming out, and I wrote the foreword for that. If people haven't read The Four Pillars of Investing or they want to see the latest version, I'd really encourage them to pick it up. Bill did a complete makeover on that book, and it's a great read.

Absolutely. It is a classic. I'm certainly looking forward to reading the new version. Jonathan, thank you so much for joining us today. Any final thoughts before I let you go? One of the things that I would encourage people who are a little further along in their financial journey, which I am at age 60, is to think about your portfolio and what you're going to leave behind because it becomes a question of what are you going to use during your lifetime and what are you going to end up bequeathing?

In my case, I've reached this point where it's like, okay, everything that I have in my Roth accounts, I'm probably not going to spend during my lifetime. So I'm going to invest this money for the benefit of my children, and as a consequence, the risk profile of those dollars is completely different.

I'm not going to be spending it during my lifetime, so that is 100% stock money, and because I don't want to worry about it, I've stuck it all in the Vanguard Total World Stock Index Fund. I'm just going to let it ride between now and whenever I shuffle off this mortal coil.

So for those who are further along in their financial journey, I do think it's worth thinking about how much you're going to spend during your lifetime and what's going to be left over for others. And once you've made that decision, I think an additional question you want to ask yourself is what do you want to give now and what do you want to give upon death?

If you're going to give it to charity, I would encourage you to give it now. You might as well see the benefit of your generosity today in your own lifetime. With your children, it's a judgment call. To the extent that you think you can give them money, it's not going to dent their financial ambition.

I think it's valuable to do. I remember the financial stress I had in my 20s when I had absolutely no money, so you could actually make your kids' lives much better by giving them some money now. But also, there's a trade-off. You don't want to give them so much that you dent their financial ambition.

I know this is a sort of a first-world problem and maybe a first-world problem for people of relative affluence, but it is worth thinking about. It's certainly something that I think about a lot at this point in my life. Thank you, Jonathan. I know that we certainly touched on that topic with Mike Piper.

He discusses a bit of that in his book, More Than Enough. Hey, which generation should you give money to? Your children or grandchildren? Giving it to that younger generation might make a bigger impact. Your children might already be financially set by the time you pass and leave them your assets.

I know everybody's probably already got this message, but along with Bill Bernstein's book, Mike Piper's new book, More Than Enough is well worth reading. I thought it was excellent. Well, Jonathan, thank you again so much for joining us and look forward to seeing you at the Bogleheads conference later this year in October.

It was great to talk to you, Jon, and yeah, I look forward to seeing you and everybody else from the Bogleheads who's going to be there down in Bethesda. And that wraps up our interview with Jonathan Clements. Don't forget that there are still just a few slots remaining to register for the 2023 Bogleheads conference.

Go to boglecenter.net/2023conference for more information. I'll be back next month returning as guest host for the Bogleheads on Investing podcast, interviewing Cody Garrett, who specializes in working with early retirees just a few years out from retirement. So if you're interested in the FIRE movement, financial independence, retire early, as we touched on during this episode, you'll want to check that out.

Until next month, you can check out a wealth of information for do-it-yourself investors at the John C. Bogle Center for Financial Literacy at boglecenter.net and check out bogleheads.org, Bogleheads Twitter, Bogleheads Wiki, the Bogleheads YouTube channel, Bogleheads Facebook, Bogleheads Reddit, the John C. Bogle Center for Financial Literacy on LinkedIn and local and virtual chapters.

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