>> Welcome, everyone, to the third episode of "Bogleheads on Investing." In this episode, we'll be speaking with Jonathan Clements, founder and editor of Humble Dollar. He's also the author of several investing books and a former Wall Street Journal personal financial columnist. Hi, everyone. My name is Rick Ferry, and I'm the host of "Bogleheads on Investing." This program is brought to you by the John C.

Bogle Center for Financial Literacy, a 501(c)(3) corporation. Today, my special guest is Jonathan Clements, the founder and editor of Humble Dollar. He's also the author of eight personal finance books, including "How to Think About Money" and his newest book, "From Here to Financial Happiness." Jonathan also sits on the advisory board and investment committee of Creative Planning, one of the country's largest independent financial advisors.

Jonathan was born in London, England and graduated from Cambridge University before coming to New York in 1986. His first job was covering mutual funds for Forbes magazine, and then he went to work for the Wall Street Journal. He worked at the Journal for almost 20 years, wrote over 1,000 columns for the Journal and the Wall Street Journal Sunday edition.

He also worked for six years at Citigroup, where he was the director of financial education for city personal wealth management, before returning to the Journal for an additional 15-month stint as a columnist. Today, I'll be talking with Jonathan about his career and his new book, "From Here to Financial Happiness," plus a lot of other interesting topics that we'll get into right now.

Let me introduce Jonathan Clements. Welcome Jonathan. Rick, thanks so much for having me on your show. I really appreciate it. Jonathan, you've got an interesting background. You've worked at some of the big financial media companies, including Forbes and the Wall Street Journal for 20 years. It didn't take you long, it doesn't seem, that you immediately started looking at what makes performance of mutual funds tick and what makes the performance of accounts tick.

It seemed like you caught on right away in your writing to this idea that the bogleheads believe in low fees and indexing. Can you talk about when you first started as a financial writer, what that process was that got you to that point so quickly? As you can probably tell from the funny accent, Rick, I wasn't born in the U.S., I was born in England, and I had most of my education there, and when I got out of university, I started working in the U.K., and I very quickly discovered that the standard of living for financial journalists, particularly young financial journalists in London, totally sucked.

And so I decided that I wanted an upgrade, so I moved to New York, and I got a job as a fact-checker at Forbes magazine, which was the lowest form of life. And the goal of the fact-checker was to get yourself promoted, and the way I got myself promoted was to start writing about mutual funds, and after almost two years at Forbes, I was promoted to a staff writer and given the job of writing for every issue about mutual funds.

And the standard way at Forbes to write about funds was to do these fund manager profiles. Fly to Boston, fly out to Los Angeles, sit down with a money manager, have him or her describe their investment philosophy, and usually they'd give you three or four or five stock picks that you would describe in that particular article.

And what quickly became apparent to me was that, you know, most of these guys who I considered to be top fund managers, because that's why I was interviewing them, more often than not, their moment of glory faded. The past performance was definitely no guide to future results. I got hired away by the Wall Street Journal in early 1990 to write about mutual funds for them, and I continue to see the same phenomenon.

So you went there and you actually met with these top money managers, these top mutual fund managers, and you were looking at the performance and having this discussion, and you were realizing then, very soon after that, that it was then their performance started to go down. You said their glory faded.

In the years afterwards, these fund managers who had been at the top of their game when I spoke to them, often the reason I was interviewing them was because they had been identified as being top managers and what was called the Forbes Honor Roll, you know, they had good performance in up markets and down markets, they seemed like consistent winners.

More often than not, you know, that hot performance didn't last, and we know that, right? We know past performance is no guide to future results, and so the question arises, well, what is a guide to future results? And the research has clearly shown, the best predictor of future performance isn't past performance, the best predictor of future performance is low cost.

If you want a manager who's really brilliant, you want to find the manager who is smart enough to get hired by a fund company with low annual expenses, because that's what's going to give them a performance edge. I want to go back though to that one point about their glory faded.

So you're seeing this time and time again where the glory faded of the top managers that you went out to interview. You must, at some point in your mind, did you come up with reasons why the glory faded? I mean, what was it that you found that caused the outperforming managers to underperform going forward?

Was there something about just the dynamics of the mutual fund industry as a whole? Well, I think a couple of things go on. Obviously, we have this issue with successful managers tend to attract assets, and the more assets a manager is overseeing, the harder it is for him or her to continue the good performance.

But also, the reason that managers tend to stand out is because they are, in a sense, cheating within their style box. If you have a good period for growth stocks, the value managers that look good are those who sneak a few growth stocks into their portfolio. So you have this value manager that's done well in a period for growth stocks.

You say, "Okay, this is a guy who really knows his stuff. He's been able to pick superior stocks and shine in a period when his investment style is out of favor." But of course, what happens when styles rotate and when value stocks come into favor, the guy who's been cheating, who's been sneaking some growth stocks into his portfolio suddenly finds it hard to keep up with the other value managers because he's not a true value investor.

I saw that repeatedly in the managers that I looked at. I'd be trying to benchmark funds and compare them to their peers, and a particular fund would look good even if his or her style was out of favor. But then when the style returned to favor, they were out of step because they owned the wrong sort of portfolios.

I think a lot of that cheating goes on, and that's a lot of the reason why we think managers are good, and it just turns out they weren't true to their mandate. So at some point, you came to the epiphany or the "aha" moment that, "Gee, maybe forget about active management and we're just going to use index funds." When did that occur?

It would have been in the early 1990s. At that point, there weren't a whole lot of index funds out there, but those that were out there were regularly performing better than the typical actively managed fund that they were competing against. It wasn't just that I started writing about this stuff, it was also that I started investing my money in these funds.

I became a big believer in indexing, particularly in index funds that were offered by Vanguard. The good performance of those funds, coupled with me personally benefiting, was what helped to cement my view that purchasing actively managed funds and trying to actively manage a portfolio is really a fool's errand.

In the early '90s, you went to the Wall Street Journal and you picked up the "Getting Going" column. In 1994, the Wall Street Journal, which at the time had no columnists outside of the editorial page, the managing editor announced that he was willing to experiment with columns within the news pages, and being an uppity 31-year-old, raised my hand and said, "A column, I'd like to have one of those." Shockingly, really, the journal gave me a column at H31, so in 1994, towards the end of the year, I started writing this column that was dubbed "Getting Going," and I did it for another 13 and a half years, writing that column both for the regular Wall Street Journal and also once it was launched for Wall Street Journal Sunday.

>>STEVE: The first time you actually wrote about index funds in the "Getting Going" column, do you remember approximately what year that was? >>RICK: It was part of the "Getting Going" philosophy from the start. I would have been writing about index funds even before the "Getting Going" column was launched in 1994, but precisely when, I couldn't tell you, Rick.

>>STEVE: Did you get any blowback from the journal? Because after all, there's a lot of advertisers in the journal, I mean, these mutual fund companies advertise in the Wall Street Journal, and when you start talking about indexing and low fees and how that is the reason why index funds outperform most active managers, and you started talking about active managers, did you get a talking-to by anyone, or were you allowed to pretty much say what you wanted?

>>RICK: I got to tell you, Rick, back in the 1990s, and indeed throughout my period of the journal, from a point of view of advertisers being allowed to influence the copy that appeared in the newspages, it was verboten. In fact, advertising reps for the Wall Street Journal could be fired for calling up a reporter.

On a few occasions, I was called by one of the advertising guys and asked to speak at some particular event, and whenever they called, they only called after they'd cleared with their boss, and they called very tentatively. It was really, it was a magnificent organization from that point of view.

I can't swear that it's like that today, but back then, there was a church and state separation between the news department and the advertising department. >>STEVE: But I know that I've spoken with a lot of other journalists over my time, and it's not that way at a lot of publications.

That Chinese wall, if you will, has got a lot of holes in it at a lot of companies. >>RICK: Yeah, I can believe that, and there were occasions when executives would come in and complain about my coverage. I remember one particular meeting, there were some guy who came in from Merrill Lynch to complain about my commentary on actually managed funds, and there was a big meeting in the main news conference room on the ninth floor of the journal building, and I was down there, and some other people were down there, and the managing editor was down there.

The guy from Merrill Lynch spoke his piece, and then I responded, and as we walked out after the meeting, the managing editor sidled up to me, and he whispered in my ear, "He didn't lay a punch on you." That was pretty much the attitude of the journal. They were going to, unless you were making factual errors, they were going to defend you to the hilt, but again, I can't swear that it's that way today.

>>STEVE: I understand. Thank you. It wasn't only mutual funds, the way I met you, where you were taking investment advisors to task as well, and that's how you and I first talked, I think it was in 2001, because I had started the company and I was charging low advisory fees, and I think you were really onto this idea of what is that 1% AUM fee buying you, and she caught onto that very quickly as well.

>>GREGORY: Well, generally, I would say that the world of investing has become much friendlier to the average investor over the course of my career. You think about all the things that have happened. We've seen the collapse of brokerage commissions. We've seen tighter bid-ask spreads. We've seen this proliferation of low-cost index funds, and we've seen a total change in the advisory model so that while there are still financial advisors out there who are charging 1% and simply giving you a bunch of expensive mutual funds, that is less and less the case.

If people are paying 1%, they're often getting a very low-cost portfolio, and they're getting help with their broader financial life, so they're getting help not just with the choice of stocks and bonds and which particular funds they're going to buy and so on, but they're also getting help with a financial plan, they're getting help with their estate plan, help with tax management, help with insurance.

Today, for that 1%, if you're with the right fee-only financial advisor, you're getting much more than you would have got 20 years ago, and of course, as we know, if all you want is portfolio management, you can go out and you can get portfolio management for 25 basis points these days, and you'll get a portfolio for that 25 basis points that is as good as the portfolio you would have got 20 years ago, probably better, in fact, and be paying 1% back then.

>> And there are a lot of other models that have come out, too, like flat-fee portfolio models, subscription-based organizations like XY Planning, and then hourly-fee advisors as well, so it seems like it's a much more diverse way in which you can pay for this advice rather than just AUM.

And I think one of the benefits of this is that, you know, you go back 20 years, and people really believe that, you know, if you went to Merrill Lynch, if you went to Morgan Stanley, you were somehow investing with the best and the brightest. I think the message has got through that going to the big wirehouses, these big brokerage firms, is actually bad for your financial health, and you're far better off, you know, looking elsewhere to some of these smaller financial planning outfits, looking to the robo-advisors, trying out an hourly planner, and the stranglehold that the big brokerage firms had on the way, you know, advised clients manage their money is over.

And that is definitely a plus. >> So let's talk about the brokerage firms and such, because both of us worked for Citigroup for a while. You changed jobs, and you actually went over to what I call the dark side. I was on the dark side, so I'm just saying that facetiously.

You went to work for Citigroup, and it almost at the time when you did that, there was some of us who had been following you were kind of questioning, scratching our heads, saying you wrote about these companies for years, and now you're going to work for one. I mean, was that an experiment, or could you tell us about that?

>> Sure. Well, back in 2008, I was pretty burned out on writing the column. I'd been doing it for 13 and a half years, and I was casting around for something new to do. And I didn't want to become an editor of the journal. I didn't really want to start writing about something else, so I wanted a total change.

And I was approached by Citigroup to be involved in a financial startup that they were working on. And the financial startup was this. Their plan was to create an advisory service to everyday Americans that would deliver financial advice in return for a flat monthly fee. And so I joined Citi in April of 2008, and that's indeed what we worked on.

We were working on this flat fee advisory program. We actually launched a pilot version of it in January 2009. If you remember what things were like in January 2009, there was a worse time to launch a new financial advisory service. I'm not sure when it would have been. I mean, January 2009 probably wasn't quite as bad as 1932, but we were at the height of the financial crisis, and this thing went nowhere.

In the months that followed, Citigroup was in turmoil. Smith Barney was sold off. This startup I was working on fell apart, and Citigroup had to make a call. They needed some sort of advisory offering for regular retail investors. With Smith Barney gone, what they decided was they were going to take this startup that I was involved in at the time, which was called MyFi, and then what was left, which was the bank-based brokers, they threw us together and said, "Figure out what you want to do." They brought in a woman called Debbie McQuitty, who had been at Schwab and had overseen their RIA business, and Debbie announced that what she wanted was all these bank-based brokers to become the only financial advisors, and this innovative group of people who were part of this startup were put in charge of this group of bank-based brokers, and as you might imagine, it was complete turmoil.

That is indeed what happened, and that's how I ended up going from being part of this startup to being, as I like to put it, in the mainstream of Citibank. I stayed on because they were having this experiment trying to turn these bank-based brokers into the only financial advisors, and it worked to a degree, but just purely from an economics point of view, and you'll probably appreciate this, Rick, to go from charging commissions every time you buy and sell, you might be getting a 4% or 5% commission on a product sale, to charging 1% a year, what you effectively do is you give up right away three-quarters of your annual revenue, and so this business went from being profitable to being extremely unprofitable, so after a year or so of this, there was yet another U-turn, and they moved towards a fee-commissioned model, but they still continued to try to favor the fee-based business, so I hung on there.

I actually ended up spending six years at Citigroup. Towards the end, I had got to the point where I had enough money that I didn't, the salary I was earning there, and I decided I was sick of dealing with lawyers and sick of dealing with compliance people, so I quit.

And you went back to the Wall Street Journal for a little while. I went back to the Wall Street Journal, and I have to say, even though I can't claim that I didn't much good when I was on the dark side, I'm sort of glad I did it. I learned a lot about the business that I never would have learned purely being on the outside.

I mean, as you know yourself, Rick, once you've been on the inside, you see how it works. You understand much better the culture of these institutions and why they do the screwed-up things that they do. >>Corey: For the benefit of the shareholders. >>Steven: Whatever it is, it isn't for the benefit of the everyday investor who walks into the bank branch.

>>Corey: No, not for that. I haven't heard that one yet, but that's what they might say to me, but that's not what I saw. Anyway, so you went to the Wall Street Journal, and you were there for about a year and a half, and then you decided to go out on your own and start your own business, the Humble Dollar, in 2017, which is a great blog and a lot of good advice there.

You continue to author books. In fact, you wrote How to Think About Money, and also your latest book, From Here to Financial Happiness. Can you talk about the transition to starting your own business and going from a paycheck, if you will, to starting from scratch and seeing how it goes?

>>Steven: I wouldn't claim that I'm the most courageous person in the world, at least not courageous financially, so I wouldn't have ended up in the position I am now if I depended on the income I earned today in order to cover the bills. Essentially, this is my retirement job.

It just happens that I'm working harder than ever. >>Corey: I know how that goes. >>Steven: If the books don't sell and the website doesn't make any money, it's okay. Nobody's going to starve tonight. I do this more than anything at this point. I have a sense of public service.

I know this stuff backwards and forwards. I love writing about it, and I love being part of the conversation. That's what the books and the website allow me to do. >>Corey: Well, I read From Here to Financial Happiness recently. Thank you for sending me the copy. I appreciate that.

In typical Boglehead fashion, if I can get a free book, of course I'll get one for free, and I did here, so thank you. I started reading the book a few weeks ago. The subtitle is Enrich Your Life in Just 77 Days. It occurred to me as I was reading the book.

I need much longer than 77 days to enrich my life. The book is only ... Let me see how many pages it is. It's got 77 chapters. It's 240 pages roughly, but as I began to work through the book, and it's not just a book. It's a workbook and a book.

Reading day one, day two, day three, day four, there are some of these days where I was reading about where, my God, I had to put the book down. I literally had to say, "I really have to think about that. That's going to take a long time for me to process what you just wrote." Now, some of the days went by pretty easy, but some of them were much more difficult.

In fact, I found it aggravating in some ways to have to think about some of the things you wrote about in the book, but as I kept on going through it, I realized it was a method to the madness. Then I read about why you did it this way, why you wrote the book this way.

Could you talk about that? You're thinking of how you put this book together as opposed to all your other books. The book grew out of a couple of different things I've been thinking about. One of the ways I've described the book to people is that I like to think of it as the conversation that you should be having with a really good financial advisor.

A really good financial advisor isn't going to be purely concerned with making sure that you end up with the right seven mutual funds. A really good financial advisor should be trying to figure out what it is that you really want from your financial life. What's going to improve it today?

What's going to make you happy in the future? What are the goals that you truly care about? Not simply that you want to retire, but what sort of retirement do you want? What is it that you're going to do with this last 20 or 30 years of your life?

A good financial advisor is going to figure out that stuff, and then he or she is going to help you figure out how to get there. It's not just about building the right portfolio. There's so much more to managing money than having those six or seven mutual funds. You need to figure out your estate planning.

You need to figure out whether you should be paying down your debt faster than is required. You need to be figuring out insurance. You need to be figuring out what sort of house you can afford to buy, what you should be doing with your cars. All of this stuff is part of building a robust financial life, and that's what the 77 days are about.

It's about figuring out where you stand, what you want, and how you're going to get there. The premise is that you can do it with these 77 steps, and the 77 steps are a mix. Some days it is about information gathering. Some days it's about teasing out what you want.

Some days it's giving you a brief financial lesson about some topics that I think is crucial to understanding money, and some days it's setting up specific steps that you ought to take. The book gets deep into behavioral finance without calling it behavioral finance. What I find is that you're able to describe things in layman terms without having to put 100 footnotes in there and references to behavioral finance studies and such, but you're able to take a lot of the biases and behavioral finance things that we know in academia and you're able to very efficiently and very cleanly use it to describe what people should do or shouldn't do, or at least get people to think about their behavior and how their behavior affects their finances.

That's what I found very interesting about the book is most of the time when you read a book like this, you're constantly seeing footnote, footnote, footnote, footnote, footnote. This study, that study, this study, that study. You've avoided all of that in the book, and I commend you for that.

I think that's great. But this is a very well-researched and very well-written book that encompasses just so much, and I think you really hit what you were trying to do here with this book. Well, in many ways, Rick, and thank you for your kind words, but in many ways, you know, the book is a product of the decades I've spent, you know, thinking about money, and one of the challenges of writing regularly about money is that the basics are indeed pretty basic.

You know, the basics of putting together a portfolio, of figuring out how much insurance you need, what you need to do in terms of estate planning, you know, paying down debt, and so on. This stuff is really not that complicated, and if you're going to survive as a financial writer, you need to have some intellectual curiosity and start to delve into other areas of finance, and I've been the beneficiary, at least in terms of my longevity as a financial writer, of some of the great research that has come out of academia, the research on behavioral finance, on neuroeconomics, on evolutionary psychology, on money and happiness, all of these four areas have produced incredible insights that are so useful to us as managers of our own money, and I've had really the pleasure of swimming in this research for the past 20-plus years, and so while the book reflects that research, it's not like I sat down and read it all over, you know, in the year running up to the book's publication.

I have been absorbing this for years and years, and it's sort of become part of the way I think about money. I'm not an original thinker, but, you know, I am pretty good at synthesizing what's out there, and that's what the book represents. There's a few things you wrote in here, which caught my attention very quickly.

You have these great little quotes at the end of every chapter, but it's not, "This is what you've learned in this chapter." It's a saying, or it's something that you put together, and I want to read you one of them, because I found it very interesting. It's actually from day 44.

You said, "If our net worth was displayed on our foreheads for all to see, libraries would be mobbed, and used cars would be status symbols." And it took me a second to think about that, saying, "Libraries would be mobbed, and used cars would be status symbols." Well, of course, yeah, I started thinking about it, saying, "Sure, you wouldn't buy a book.

You'd go to the library and get one for free, and you wouldn't buy a new car. You'd go out and buy a used car, and that would be a status symbol, because what would be on your forehead is a big number." You know, probably one of the most influential books I think that any of us have read over the past 20 years is "The Millionaire Next Door," and this notion that it's not the money that you see, it's the money that you don't see, right?

It's the millionaire next door living in the modest home, wearing clothes from J.C. Penney, and driving the second-hand car. That's the millionaire. The millionaire isn't, you know, the big house with his or her European sedan and the beautifully landscaped lawn. That's not money. That's money that is gone. That's money that is spent.

And yet, the money that is still there often isn't visible. You see this on the Bogleheads Forum. The Bogleheads Forum isn't just about low-cost investing. It's about having sensible habits when it comes to spending money. I think this is one of the reasons why you see so much overlap between the Bogleheads and what's become a very hot topic in recent months, which is the FIRE movement, you know, Financial Independence Retire Early, that frugality cuts not just across investing, but across our entire financial lives.

And being frugal about how we handle our money is the key to wealth. And that's why, you know, I came up with that. If we all knew how much everybody was worth, and you saw somebody driving a BMW with a negative net worth, you would just laugh out loud.

>>STEVE: I get it. Yeah, that's true. >>JOHN: But because we don't see the net worth on their forehead, we don't get the chance to laugh at them. >>STEVE: Great. Yeah, that's perfect. That's great. And you, in fact, you followed up with that. And another day, Day 52, you talked about want to hurt your happiness, buy a big house involving lots of upkeep and a long commute.

I think a lot of us are guilty of that. You know, as soon as you buy the big house, now you've got big bills to keep it up. And it might be nice to show off for a while, but after a while, people stop coming and you just have bigger bills.

>>STEVE: You had one more thing in here I want to talk about. And that is something you wrote on Day 70, which talked about limiting yourself to one financial advisor, one bank, and one brokerage firm or mutual fund family. And I want to talk about that because it always comes up on the Bogleheads where people say, "Oh, I have three or four banks because I want to diversify.

I have two or three different advisors because I want to diversify. I don't want to keep all my money at one particular firm, call it Vanguard or Schwab or TD or wherever. I want to diversify because what happens if one of those companies go under?" You're actually saying, "No, don't worry about that here." >>TOM: So in terms of what I call naive diversification, multiple financial advisors, multiple banks, multiple mutual fund companies, multiple brokerage firms, yeah, I don't see that there is much benefit to this with one narrow exception.

I do appreciate that there is this FDIC limit of $250,000. And if you have a ton of money in the bank, in order to make sure that you're covered by that $250,000, you may need to use multiple banks. But other than that, why would you use two financial advisors?

What you're going to end up probably is two portfolios that have massive amounts of overlap, for which you're paying excessive cost. You're not getting any added value. If you can't find one financial advisor who's doing the job for you, you've got a big problem. Similarly, if you go to a brokerage firm, you're getting diversification not from the brokerage firm, but from the investments that you buy.

If you have 10 different ETFs, that's your diversification. The fact that they're all held at one brokerage firm is of no import. It's not like the brokerage firm is going to go under and suddenly all your assets are gone. Those assets are held by a separate custodian. You should have no reason to worry about that.

Ditto for using multiple mutual fund companies. I don't see any point in that. You can have all your mutual funds at one company. Each fund is a separate company. Each of those investments is held by the outside custodian. There should be no extra risk involved. It's true. It is that way.

Some people still have this belief that they need to be diversified amongst where they keep their money. I'm glad you wrote that in the book because it's just not true. I personally have all my money at Vanguard. I don't have any reason to put it anywhere else. Even if I wanted to buy an exchange-traded fund that was traded by iShares, I could buy it through Vanguard.

I don't need to have multiple custodians. Now, if somebody has a 401(k), of course, they have to have the money in that 401(k), but once they retire, they can roll that into an IRA account at the one custodian that they choose. I'm not saying Vanguard's the place. It could be Schwab.

It could be wherever, but why complicate it? Why have a number of accounts at a number of custodians? Not only does it make it complicated for you, the investor, but if you should happen to pass away, it becomes 10 times more complicated for the person who has to pick all this up.

Yeah, no, absolutely. I mean, I do as you do, Rick. I have all of my investment dollars at Vanguard. In fact, this may surprise people, I don't own any ETS. I own purely mutual funds, and the goal is simplicity here. When I pass away, my kids should be able to settle my estate in a couple of hours.

Yeah, I think that that's the whole idea of simplicity is the next phase of what's going on with financial writers. I know personally me, I just launched a new website, Core4Investing, and it's all about being simple and simplicity. I think that the next phase, at least baby boomers like me, need to make things much more simple, need to make their portfolios simpler, need to make their estate simpler, need not to have five different IRA rollover accounts.

If you're not going to go back to work, put them all together into one. There's no reason to have five anymore. If you have 401ks all over the place from different jobs, you don't need that. Bring them all together into one IRA, make it simple. I think simplicity and how we manage our money is important, not just for us, but for the future generations.

And I would just add the corollary to that, which is that Wall Street battles this notion fiercely. They want investors to believe that there is some correlation between sophistication, complexity, and investment returns, and it simply isn't the case. I know so many high net worth individuals who end up in complicated investment products because they think they're getting something special, and they aren't.

What they're getting is a complicated investment product as an excuse for charging high fees. If you want to be truly sophisticated, you should have a simple portfolio. Very well put. Let's get back to one more item before I come to questions by the Bogleheads Forum. You talked about FIRE, Financial Independent Retire Early.

This is getting to be quite a phenomenon, especially among millennials. First of all, could you elaborate a little bit more on what FIRE is, and then talk more about your viewpoint of these different facets of FIRE? So the Financial Independence Retire Early movement is really about being extremely frugal early in your career, quickly buying yourself some financial freedom so that you can potentially retire at a relatively early age.

Now, let's unpack that a little bit. When we talk about retirement, it's really not about retiring in the sense of you're going to go and live in Florida and spend all your days doing nothing. It's really about buying yourself the freedom to spend your days doing what you love.

Of course, for many people, this idea of being frugal, buying yourself financial freedom quickly, and then using that freedom to spend your days doing what you love, that notion has been around for many decades. That certainly drove a lot of my financial behavior. I was a prodigious saver when I was in my 20s and 30s, and that's what allows me today not to worry about earning a paycheck.

What the Financial Independence Retire Early movement, the FIRE movement, has done is it's conceptualized it in this single word, FIRE, and it's become a rallying cry for a certain group of devotees, but it's not that different from anything that we've known before. It's simply that it has coalesced around this one phrase and it has become something of a movement.

I think it's to be applauded. In a country where far too many people save way too little, the idea that we're celebrating people who are being smart about their money and saving diligently, what's wrong with that? Not a thing. Parlaying that, there are big companies out there that are being formed and have been around now for a while, companies like Betterment, where they're teaching young people right from the beginning, use low-cost index funds.

Don't try to beat the market. Just put a simple portfolio together of low-cost index funds. Granted, they're using ETFs because they're custodying the assets at a brokerage firm, but I always applauded companies like Wealthfront and Betterment and other robo-advisors because they're teaching young people right from the beginning, and don't bother trying to beat the market.

Just have a consistent investment strategy, a consistent saving strategy. Just put the money away. It's all part of the same movement, and I think it's all very good. Yeah, I think anything that focuses on holding down costs, whether it's the costs in your day-to-day living, the costs in your investment portfolio, the costs of your insurance, the cost of putting together your estate plan, as long as you're being smart in the choices you make, what's wrong with that?

The less money that goes to these financial service providers, the more money that ends up in your pocket. In the last part of the interview today, I'm going to go to the Bogleheads forum. I asked the Bogleheads on bogleheads.org to come up with some questions for you. A lot of people had a lot of great comments for you saying how they followed you for years and gave you a lot of kudos, but there were a few questions.

I'm going to go through a few of those questions now and sort of wrap them off, one, two, three, four. Here was the first question, and this was by Rosemary 11. Actually, she asked you three questions, so I'll do one, two, three, and then you can put them all together if you'd like.

I am in retirement. What is an acceptable asset allocation in retirement? That was her first question. What is an acceptable asset allocation in retirement? Her second one was, what international allocation, I think she's talking about stocks, as a percentage of the asset allocation? Thirdly, what is a safe withdrawal rate in retirement?

Some three broad general questions. One, two, three, if you can hit them. In terms of the right asset allocation, that's going to vary from one person to the next. Much depends on how much of your expenses are going to be covered by Social Security. It's going to depend on whether you have a traditional employer pension.

It also might depend on whether you have anything else that's generating income, for instance, rental real estate. As a rule of thumb, 50 to 60 percent in stocks is probably a reasonable target. What I would say as an upper limit on that is, you should know exactly where you're going to get your next five years of portfolio withdrawals from, and that money, at a minimum, should be invested in something conservative.

CDs, short-term bonds, high-yield savings accounts, something like that. To get to your third question, Rick, if you're using the four percent withdrawal rate, which I think is a fine number, at a bare minimum, you should have at least 20 percent of your portfolio in cash or near-cash investments so that you can cover the next five years of portfolio withdrawals.

Now, that suggests that potentially you could have 20 percent in stocks. I think that's way too much. I would probably go, as I said, for 50 or 60 percent in stocks. At a minimum, you want that 20 percent for five years of four percent withdrawal rates stacked in cash or cash-like investments so that you're covered in case the market goes down steeply.

In terms of the second question about international allocation on a stock portfolio, my view on this has shifted over the years. Personally, I now have a market-weighted portfolio when it comes to stocks, which means, effectively, that I have half my money in U.S. stocks and half of my money in foreign stocks.

I've done that for one simple reason, which is, who am I to think that I know better than all other investors collectively? If all other investors worldwide collectively believe that half of global stock market value is in the U.S. and half is outside the U.S., shouldn't I, as a hardcore indexer, replicate those percentages?

The caveat in that is, of course, you are introducing a fair amount of currency risk into a portfolio. If you're uncomfortable with the degree of currency risk, I would say either hold less in international stocks or potentially seek out a fund that hedges its currency exposure. But as things stand, I'm not sure of a fund that would give you low-cost foreign stock exposure with a currency hedge.

Well, thank you, John. That was a good answer. Let me go to another question, which is something to do with what you just talked about, so we can hit this one too. This is from CW Radio, who asks, "As a safety-first investor that is in retirement, what investment should I put my safe money in?" And I think you already touched on this with the 20%, but I think he's looking for SPIA, which is a single premium insurance annuity, a bond ladder, tips, and so forth.

He's asking if these are also acceptable places to put safe money. I think all of those are acceptable places to put safe money. If you're going to buy an immediate fixed annuity, I would buy from more than one insurance company, and I would buy from insurance companies with a high rating for financial strength.

An immediate fixed annuity is a great way to hedge longevity risk and ensure that you have a stable stream of monthly income. You just don't want to get it derailed because you buy from a single shaky insurance company and the insurance company goes under. In terms of the bond portfolio, I've always favored taking risk on the stock side of the portfolio and playing it safe with bonds.

In my own portfolio, I own pretty much a 50/50 split for the bond portfolio between inflation index, treasury of bonds, and high-quality short-term corporates. But if you want to go for added safety, you might add in a mix of high-quality short-term treasuries as well rather than taking the credit risk that comes even with high-quality corporates.

This is from a poster by the name of Beanie. It says, "Jonathan Clements used to recommend putting 15% to 20% of one's stock allocation in diversifiers such as merger arbitrage funds, commodity funds, gold funds, and REITs." I haven't seen him talking about this in a long time, maybe 10 years or more.

Have his views changed? If so, why? I never recommend as much as 20%. I do remember writing a column for the Wall Street Journal when people were all hot and bothered about alternative investments, and this was a question I was getting a lot. I did indeed say that if you really want alternative exposure in your portfolio, I could see allocating 10% of a portfolio and no more to alternative investments.

In terms of alternative investments, it was the list that you recommended -- real estate investment trusts, gold stocks, commodity funds, and precious metals funds. I still think that's a reasonable allocation. I have to say, I don't particularly like merger arbitrage funds because they involve active management, and I have soured on commodities funds.

Those have become more actually traded. It's gone from being a market where companies and farmers hedge to being a market dominated by investors. The historic, impressive returns from the commodity indexes hasn't been replicated and, in all likelihood, will not be replicated. So I'm not that crazy about commodities funds.

I still have a soft spot for gold stock funds and I still have a soft spot for real estate investment trusts, but I probably wouldn't put more than a couple of cents of a portfolio in each. What if somebody did any of that and just bought the three-fund portfolio?

I think the three-fund portfolio is a great portfolio to own. You and I have had this conversation, Rick. People tend to mess around way too much with their portfolios. I think I've done too much of that myself over the years. If you simply buy the three-fund portfolio -- total U.S.

market, total international, and total bond -- I think that's a great mix. You may even want to consider the two-fund portfolio. You can now go to Vanguard and buy the total world index fund and add the total bond market fund onto that, and you could have an incredibly diversified portfolio with an asset allocation of your choice with just two mutual funds.

Incredible. It wasn't that way years ago, though. Things have gotten so much better in indexing space where you can really reduce the number of holdings that you need nowadays to be diversified globally. It's really gotten a lot better, and the fees have come down so much. That total world index fund, I believe, has something in the range of 8,000 stocks in that fund.

For a $3,000 investment -- or you can buy the ETF and invest even less -- you can buy a portfolio with 8,000 different stocks in it. Think about that. That is astonishing. Today, the everyday investor, with $10,000 or $20,000 to invest, can build a portfolio that many institutional investors two decades ago would have died to have.

It would be lower cost and better diversified. It's astonishing what ordinary investors can do with their money today. Really astonishing. The last question has to do with buying happiness. This is from TomP10. I'm going to just paraphrase what he's saying. You've always talked about, and one of the things that make you unique is the spending side of happiness.

If spending actually makes people happy. He was wondering about your thoughts on spending. We've talked an awful lot about investing and saving, but he wants to know specifically your thoughts about spending and how to spend correctly to make you happier. As I've written in numerous places, I believe that money can buy happiness in three ways.

First, money can buy happiness simply by eliminating financial worries. So many people in America pursue happiness at the shopping mall, rack up their credit cards, and end up miserable because they leave themselves in a financially perilous state. Whatever they manage to buy at the mall is no solace when they're awake in the middle of the night worrying about what happens if they lose their job or how they're going to pay the credit card bill.

Simply being smart about money, having a little money in the bank, saving for the future, avoiding debt except for mortgage debt, that alone is going to buy you substantial happiness. So that's the first way that money can buy happiness. Second, money can buy happiness if you can reach the point where you can spend your days doing what you love.

There are a few things in life that bring greater happiness than working hard at something you care passionately about. So if you can get yourself to that point, like the fire people talk about, where you don't need a regular paycheck or you need a much smaller paycheck and you can spend your days doing what you love, that is the second way that money can buy happiness.

The third way, and this is probably what the question is getting at, is I believe the third way that money can buy happiness is we can use it to create special times with friends and family. And there are a couple of different elements to this. First, we know that spending time with friends and family gives an enormous boost to happiness.

Research suggests that that is indeed the case. In fact, the research suggests that having a robust network of friends and family not only makes you happier, but it also gives a boost to longevity equal in effect to not smoking. So having a robust network of families is not only good for your happiness, but it's also good for your health.

So in terms of using money, what you want to do is spend it not on material goods, which are often enjoyed on your own, but on experiences. Taking the family on vacation, organizing the family reunion, going out to dinner with friends, going to the theater with a colleague. Those experiences enjoyed with friends and family can give a big boost to happiness.

But there's another element to this, which is if you really want to get a lot of happiness out of your spending on experiences with friends and family, you should arrange these things far ahead of time so that you have a long period of eager anticipation. That way, you'll get a lot more happiness out of the dollars you're about to spend.

And you should make sure that you keep mementos to remind you of the event in question. When you go on vacation, you should take photographs, and then you should put them up around your house so that the months afterwards, you can think, "Wow, that was such a great trip.

I had such a good time. And here, every day when I walk to the living room, is that photograph that reminds me of what a special time in my life that was." So that, in terms of actually spending money, would be my number one tip. Well, that's great, Jonathan.

I want to thank you so much. You've made us all very happy by being on our program today. Well, good luck with the book. And again, the name of your new book is From Here to Financial Happiness, Enrich Your Life in Just 77 Days. Jonathan, thank you so much for being our guest on Bogleheads on Investing.

Well, thanks so much, Rick. It's been a pleasure talking to you. This concludes the third episode of Bogleheads on Investing. I'm your host, Rick Ferry. Join us each month to hear a new special guest. In the meantime, visit Bogleheads.org and the Bogleheads Wiki. Participate in the forum, and help others find the forum.

Thanks for listening.