Financial Professionals Summer 2025

This is my quarterly agglomeration, intended primarily for my fellow financial professionals. It’s simply a way to share things of possible interest that I have read or thought about this quarter. Enjoy!

First, there are a lot of articles giving advice on how much to spend on a home (including by me at the end of “Adulting” Milestones), but I can’t recall seeing anything similar on automobiles. The White Coat Investor has filled that gap here. (See also this good advice on buying a home.)

Second, too many people have misconceptions about the role of dividends in a portfolio; this is an excellent explanation. NB, the paper mentioned in the footnotes is from 1961 – this is not new!

Third, I see articles such as this one frequently. I assume the data is correct, and the bottom 50% of households have 2.5% of the net worth of the country. But if you do the math (divide the aggregate net worth by the number of households), you will see that the average net worth of the bottom 50% is … wait for it … $60. (That average comprises a range from negative to small positive net worths, I’m sure.)

I’m sorry, I know this will sound harsh, but people with a net worth of (rounding) zero are either very young (as Ben noted, college students), or simply don’t value saving or accumulating anything. Perhaps it should be lamented that many people would prefer to spend everything (or more than everything with debt), but I think it’s simply that different people make different choices – choices that they believe are the right ones for them.

Fourth, I wrote last quarter about Why We Don’t Invest in Alts. Richard Ennis takes on the high costs in the short paper: The Demise of Alternative Investments.

Fifth, this isn’t current any longer, but I thought I’d share it anyway. I sent this to our clients back on April third:

All,

As you may have seen, stocks were down significantly today as the announced tariffs were significantly higher than expected. Free trade is good, tariffs are not. Think about how poor we would be if we had to make everything we consumed or used within our extended family with no trade with outsiders – we would all be living like stone-age scavengers. The U.S. is bigger than a family so it’s less bad, but conceptually it’s identical. It’s much better if you can trade freely with everyone, and the larger the group, the better. Remember trade only happens when both parties think they will be better off by doing the transaction. This is what they call a win-win situation! Trade restrictions and tariffs are lose-lose since both sides are prevented from doing what they would prefer to do.

An economist that I respect and read regularly, Tyler Cowen (recent in-depth profile of him here), wrote this morning:

This is perhaps the worst economic own goal I have seen in my lifetime. I cannot think of any credentialed economist colleague—Democrat, Republican, or independent—who would endorse it. And I haven’t even mentioned the risk that some foreign nations will retaliate against American exporters, damaging our economy all the more.

I agree.

But you may be wondering if there is something that should be done with respect to your portfolio. I don’t think so because:

  1. The amount the market is down today seems very appropriate to the tariff announcement – in other words it doesn’t seem like an over-reaction. So, there’s no (obvious) asset mispricing.
  2. U.S. stocks (large ones, in particular) were already (in my opinion) expensive, so to the extent that my previous point is wrong (and I don’t think it is), then U.S. stocks are just closer to fair value, not cheap.

No one knows what will happen and we should try to be comfortable with that uncertainty (though it’s hard to be). Remember: “Doubt is not a pleasant condition, but certainty is absurd.” – Voltaire

In the markets, what you get paid for is bearing fear, and the psychic pain of doubt and uncertainty.

Finally, we forget how volatile the past has been, so I thought you might appreciate some historical context. I made a list of recent daily declines (just the 21st century) sorted by size of decline:

  1. 3/16/2020 (COVID pandemic), down 11.98%
  2. 3/12/2020 (COVID pandemic), down 9.51%
  3. 10/15/2008 (GFC), down 9.03%
  4. 12/1/2008 (GFC), down 8.93%
  5. 9/29/2008 (GFC), down 8.81%
  6. 10/9/2008 (GFC), down 7.62%
  7. 3/9/2020 (COVID pandemic), down 7.6%
  8. 11/20/2008 (GFC), down 6.71%
  9. 8/8/2011 (downgrade of U.S. credit rating by Standard and Poor’s), down 6.66%
  10. 11/19/2008 (GFC), down 6.12%
  11. 10/22/2008 (GFC), down 6.1%
  12. 6/11/2020 (COVID pandemic), down 5.89%
  13. 4/14/2000 (dot com bubble popping), down 5.83%
  14. 10/7/2008 (GFC), down 5.74%
  15. 1/20/2009 (GFC), down 5.28%
  16. 11/5/2008 (GFC), down 5.27%
  17. 11/12/2008 (GFC), down 5.19%
  18. 3/18/2020 (COVID pandemic), down 5.18%
  19. 11/6/2008 (GFC), down 5.03%
  20. 9/17/2001 (dot com bubble popping), down 4.92%
  21. 2/10/2009 (GFC), down 4.91%
  22. 3/11/2020 (COVID pandemic), down 4.89%
  23. 4/3/2025 (today), down 4.81%

As you can see, today was the 23rd worst day since the turn of the century and 19 of the other 22 were either due to COVID or the GFC.

Sometimes folks have the notion, seeing a list like the one above, that they should just get out until the crazy ends, but that doesn’t work. For one thing, while I listed the worst days in recent history, the best days are interspersed with them – you can’t miss the worst ones without missing the best ones as well since volatility (in both directions) clusters in time. The larger problem is, as the old market adage states, “they don’t ring a bell” at market tops or bottoms so it’s never certain when to get back in. In fact, the most dire-seeming point is very likely to be the bottom since that’s when everyone is most likely to have sold. It can only go up at that point! (But, of course, the “most dire” to that point could be eclipsed by a “more dire” point in the near future. Market timing is not just hard, it’s generally impossible.)

Ameliorating the pain, international stocks did much better (still a loss, but not nearly as big) and investment-grade bonds were up slightly.

For those of you who have recently made deposits into your taxable accounts, we will be looking for any available tax-loss harvesting opportunities over the next few days. Few clients are in that situation though since markets were up pretty substantially prior to the past few months.

Sixth, related to the previous item, Morningstar makes the excellent (though well-known) point that “The reason you stand to earn an extra return in securities like stocks is because they pose risk.” See here for more.

Seventh, XKCD had a very good take on tariffs:

Howard Lutnick (Secretary of Commerce) explained on Face the Nation why the tariffs are great: “The army of millions and millions of human beings screwing in little, little screws to make iPhones—that kind of thing is going to come to America.”

And remember, workers in America (unemployment rate, 4.2%) are already doing something. They are going to have to stop doing that so they can screw in all of those little screws. (Or maybe putting screws in iPhones is a needed side hustle since without free trade we will be poorer.)

We aren’t going to on-shore any significant amount of manufacturing for many reasons, yet many seem to think Americans will do this incredibly low-skill, low-paid work that isn’t even profitable in China anymore (see here) – and (generalizing) the right doesn’t want immigrants allowed in to do it and the left wants folks paid a $25 minimum wage to do it!

Finally, here is Milton Friedman on tariffs from back in 1978. (Plus ça change, plus c’est la même chose.)

Eighth, the IRA bankruptcy protection limit is now $1,711,975 (it adjusts every three years, and this was effective on April 1). This excludes any rollovers from employer plans (and the growth on that portion), which has unlimited protection.

Qualified plan balances are protected from creditors while IRAs are protected in bankruptcy. It’s a subtle distinction, but if your only asset is a 401(k) you can tell creditors to pound sand, if it’s an IRA you have to declare bankruptcy to shield the assets.

When the limit was raised six years ago, I did the math on the protection.

Ninth, I’ve had a few conversations recently with folks about the different ways people approach their finances. Scarcity vs. Abundance mindsets, for example. Anyway, there is a good article in the Atlantic about it here. “An emergency expense – say a $1,200 medical bill – would send most Americans into a fiscal tailspin; for the comfort class, a text to Mom and Dad can render ‘emergencies’ nonexistent.”

How much is enough? Anitha and I have been talking about the Generational Wealth vs. Enough topic a lot for the last few years.

See also It’s a Weird Time to Be Rich Right Now and The rich, the ultra-rich and America’s shifting political landscape.

Tenth, should allocations change with time-horizon? Samuelson notwithstanding (here, sorry, I can’t find a non-paywalled version), Blanchett has some interesting research here.

Eleventh, nice explanation of CRUTs here – with the rarely-seen math!

Twelfth, we’ve all heard the phrase, “Fake it ’til you make it.”

While I get the meaning behind it, “faking it” seems wrong. I’ve long preferred “Act as if” as meaning basically the same thing, but it seems less deceitful. Anyway, someone shared with me an even better version that she just heard at a leadership conference: “Act yourself into a new way of thinking.”

I like that.

Thirteenth, Barry Ritholtz had good advice on avoiding investment errors, and the FT had a fun article on mindless math and premature enumeration here (or here).

Fourteenth, is college worth it? See here and here. “In recent years, the median college graduate with just a bachelor’s degree earned about $80,000, compared to $47,000 for the median worker with only a high school diploma. This means a typical college graduate earned a premium of over $32,000 per year, or about 68 percent—near its all-time high.”

Related, there is some surprising data here. I think the graduate degrees throw off the data some though. Out of curiosity I downloaded the data and made a correlation matrix for Unemployment Rate, Underemployment Rate, Median Wage Early Career, Median Wage Mid-Career, Share with Graduate Degree.

Un Emp. Under Emp. Median Early Median Mid Grad. Deg.
Unemployment Rate 100% 27% 1% 10% -4%
Underemployment Rate 27% 100% -58% -36% -18%
Median Wage Early Career 1% -58% 100% 92% -14%
Median Wage Mid-Career 10% -36% 92% 100% -14%
Share with Graduate Degree -4% -18% -14% -14% 100%

The graduate degree rate is negatively correlated to being unemployed or underemployed, but also negatively correlated with wages both early in the career and at mid-career. I assume that means that more people in those areas need to get graduate degrees because the major isn’t very attractive in the marketplace. But those folks are less likely to be unemployed or underemployed. I can’t really deduce much because we need to know what the results are with the graduate degree folks stripped out. In other words, just results of those without more advanced degrees. (For example, you might have a lot of attorneys with undergrad English majors or something which might make English majors look much more attractive than they really are.)

Still, some useful information for the college-bound folks in your life.

See the original data, etc. here.

Fifteenth, Charlie Ellis has a brand new, very short, book out: Rethinking Investing

I have been a fan of his Winning the Loser’s Game book for decades (we keep copies on hand in the office to give away to people for whom it would be helpful), so I was prepared to really like it, but unfortunately it has a number of substantive errors. For example, just picking the most egregious ones:

  • The full retirement age for Social Security is 67, not 65 (now).
  • The maximum Social Security claiming age is 70, not 70½. (This error is repeated four times in two pages; it’s not a typo.)
  • The increase in Social Security benefits from age 62 to 70½ (see previous error) is not 8% compounded over 8½ years. (It’s 8% per year from FRA to age 70, and it’s not compounded). He gives a total of 76% return from claiming at 70½ vs. 62, but I can’t replicate that math with any assumptions (even his wrong ones). For folks with a FRA of 67, the discount to claim at 62 is 30% and the extra for waiting to 70 is 24% so the total benefit increase is 1.24 / 0.70 = 77% (I think it being close to his number is probably a coincidence.)
  • Home equity is not equivalent to fixed income. (As you probably remember, in 2008 stocks were down a lot, while bonds were up. Real estate was …  not up.) At best unlevered (no mortgage) real estate is equivalent to some mix of stocks and bonds (perhaps 50/50), and the mortgage is an offsetting short bond position (i.e., it subtracts from the bond portion). He says to take the FMV, subtract the mortgage (to get equity) and consider that equity a bond equivalent. Ah, no.

He should have had a practicing financial planner read it over pre-publication.

Sixteenth, “This study reveals that the income gradient in life expectancy in Sweden has steadily increased since the 1960s, despite a reduction in income inequality until 1990. This challenges the ‘absolute income hypothesis’—the notion that economic resources per se affect life expectancy and that increasing income inequality directly drives health disparities. Instead, a ‘third factor’ appears to be associated with both income and life expectancy, leading to greater gains in life expectancy among higher income groups. These gains are evident in both preventable and treatable disease mortality and appear more strongly for preventable causes, suggesting that higher-income individuals are more rapidly adopting healthier lifestyles. This finding highlights the need to consider factors beyond economic resources in addressing health inequalities.” (link)

This reinforces my opinion that people who exercise, eat right, see their doctors, take their medications, etc., also tend to not amass debt, save in their retirement plans, get more education, work, etc.. As I wrote here, I believe wealth (and also health) is the result of an internal locus of control and a longer time-horizon.

TL;DR: In the developed world, lower-SES individuals do not appear to have shorter life expectancies due to lack of resources (though they do have shorter life expectancies).

Seventeenth, incentives matter! From the NYT during the conclave:

The conclave that ended with the election of Pope Gregory X on Sept. 1, 1271, took two years, nine months and two days.

Gregory subsequently wrote new rules to speed up the process. If a new pope was not elected within three days, he decreed, rations would be cut to one meal a day. After five more days, the cardinals would be restricted to bread and water. The next conclave lasted a day.

Maybe we should use a version of that to get Congress to pass budget resolutions.

In related news, Pope Bob’s taxes are about to get complicated. (I know he took the name “Leo,” but “Pope Bob” is a lot funnier so I couldn’t resist writing that at least once.) Unless he renounces his citizenship, he will be filing U.S. tax returns, FBAR reports, etc.

Eighteenth, I was quoted back in 2011 as saying reverse mortgages are a good last option. My opinion hasn’t changed, but these are being actively recommended to financial advisors as options for their clients and I think they will almost never be appropriate so I thought I would explain why. I’m not going to explain reverse mortgage mechanics, I assume you know what they are and how they work and if you don’t there are innumerable sources for that. I will say I think they have an undeserved stigma (much like viatical settlements) that I don’t really understand. Both reverse mortgages and viatical settlements are tools. (Tools that should only be used – IMHO, of course – when folks are in dire straits, but tools nonetheless. Why only in dire straits is what I’m about to explain.)

First, mortgage brokers will frequently recommend setting up the line-of-credit version very early when it’s not needed. You can always take out a reverse mortgage later, when and if it is needed. Yes, the line may create a larger pool of funds in the future as the limit grows, but it is a very expensive option – the client could invest (in fixed income, we should be careful not to compare apples and oranges) the up-front cost of setting up the line and create future funds that way. I haven’t done the math, but I’m not sure the amounts (closing costs grown at fixed-income rates, vs. the difference between the limit on a line that has grown vs. the amount available on a new reverse mortgage) would be materially different. And, of course, the client owns the investment! So, unless they are very sure it’s going to be needed, I think it is too expensive as a mere option. This line of thinking reminds me of the argument for a young, single person buying unneeded (permanent!) life insurance because they “might” be uninsurable in the future for some reason. Both seem advisor-commission driven rather than client-need driven to me.

Second, a mortgage (including a reverse mortgage) is simply a negative bond position – the homeowner is short fixed-income. The rate on a new reverse mortgage is, of course, much higher than on Treasury bonds (and both are risk-free to the individual, which is why that is the appropriate comparison) so if you have both a new mortgage and Treasury bonds you are foolishly both long and short risk-free investments while paying on the spread. So, a client should not have any fixed income in their portfolio before taking out a reverse mortgage. Then, of course, what they are effectively doing is owning stocks on margin – something that would generally not be recommended! (Of course, you can’t get a margin call with this financing, but still!)

So, I believe a reverse mortgage is appropriate only for people who 1) don’t have enough income in retirement, and 2) who have already exhausted all of their liquid assets. I don’t think people with no liquid assets are usually wealth management or financial planning clients (maybe pro-bono ones though).

Nineteenth, an advisor replied to a recent Financial Foundations email (our monthly retail-oriented communication) to ask about what we use for TIPS exposure and congratulating me on the good “call.” I’ve talked about this many times, but I think it might bear repeating, so here was my response:

Thanks, we use SCHP.

NB, it isn’t a tactical position; we structurally have half the fixed income in TIPS unless the client has an unusual inflation exposure. (See #3 here)

If you have less than half TIPS in fixed income, then (in fixed income) you are short unexpected inflation. With BE inflation at about 2.2% that seems like an aggressive call!

There’s an argument that stocks are an inflation hedge, and they might be in the long run (though usually people just mean in the long run they’ve gone up more than inflation which isn’t a “hedge”), but in the short run it tends not to work because of the money illusion.

Twentieth, the 2026 numbers are out for HSA limits (yes, 2026, that’s not a typo) see here. (The “additional amount” for folks over 54 is always $1,000 because it is statutory – i.e., not inflation-adjusted.)

Twenty-First, I agree with this. You should have slack in your business, your finances, your time, etc.

Twenty-Second, I thought this was a good analogy:

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

Twenty-Third, QCD reporting is now better with a specific code for the 1099, details here.

Twenty-Fourth, great, very simple, summary of factor investing here.

Twenty-Fifth, it’s hard to envision the future, see this from the 1950s. Every single TV is a cube! (And note the vinyl records in the first one.) Even on the non-technological items, it’s interesting: men are mostly wearing suits and women a dress even when relaxing at home.

Twenty-Sixth, TOD deeds have existed in FL for a long time (so-called “Lady Bird” deeds) and have been enacted recently in many more states (including GA). See here (or here if you don’t have access).

Twenty-Seventh, as a grammar pedant enthusiast, this article peeved me. Here’s how *I’d* put it:

“Do not use semicolons… All they do is show you’ve been to college.” – Kurt Vonnegut

“Use semicolons; they show you’ve been to college.” – Educated People

(The full quote would be considered offensive today.)

Twenty-Eighth, this is not what you’d think from what’s reported in the media:

Related, some interesting statistics (h/t Tony Isola):

  1. There are over 300,000 items in the Average American home. LA Times
  2. 25% of people with two-car garages don’t have room to park cars inside them, and 32% have room for one vehicle. U.S. Department of Energy
  3. 3.1% of the world’s children live in America, but they own 40% of the toys consumed globally. UCLA
  4. Americans spend $1.2 trillion annually on nonessential goods. WSJ
  5. Americans spend more on shoes, jewelry, and watches than on higher education. Psychology Today
  6. Throughout our lifetime, we spend 3,680 hours or 153 days searching for lost items. The Daily Mail
  7. The average American throws away about 81 pounds of clothing yearly. The Saturday Evening Post

And Cliff Asness takes on the prevailing doom-and-gloom here. (Echoes of It’s Getting Better All the Time.)

As an example of the pessimism, this is from a recent email. The quibble I have with it is that it is looking at GDP growth, and not per capita GDP growth.

So, I got some data to see how different it is now:

It’s hard to see if there is a trend change there; we really need a log scale:

It does look like the slope is different pre-GFC vs. post-GFC. I exported the data to Excel, and the CAGR from:

  • 1/1/1947 to 10/1/2007 was 2.2%
  • 4/1/2009 to 1/1/2025 was 1.7%

So it does appear that we are growing more slowly now, but the relevant figure (IMHO) is 1.7% vs. 2.2% (per capita) rather than 2% vs. 3% (aggregate).

Related, from the Journal of Finance (here, or here for non-paywalled version):

Recent influential work finds large increases in inequality in the United States based on measures of wealth concentration that notably exclude the value of social insurance programs. This paper shows that top wealth shares have not changed much over the last three decades when Social Security is properly accounted for. This is because Social Security wealth increased substantially from $7.2 trillion in 1989 to $40.6 trillion in 2019 and now represents nearly 50% of the wealth of the bottom 90% of the wealth distribution. This finding is robust to potential changes to taxes and benefits in response to system financing concerns.

Twenty-Ninth, I’ve seen a lot of items on private equity and private credit recently. Instead of making each one a separate topic, I’m just going to list them here:

Just as problems in real estate bled over into other markets in the GFC, perhaps problems in alts might do the same in the not-too-distant future. I’m also seeing signs of “irrational exuberance” from some clients (particularly those of a more conservative political persuasion). Anecdote is not data, but I’m starting to worry…

Thirtieth, tax-deferred bond ETFs are an interesting development, see here for details.

Thirty-First, excellent points about retirement (source):

  • People tend to retire early (about three years, on average)
  • Retirement tends to happen more suddenly than expected (more like a waterfall than a glide path)
  • The actual odds of working during retirement are a lot lower than expected (75% expect to work, but only about 30% do so)

I’ve made those points many times (here, for example), but it’s nice to have them all together with a source.

Thirty-Second, in this article, the 17 years that Larry Swedroe mentions is an accurate, but mostly irrelevant, statistic since most of the improvement is from decreases in infant mortality. I see it bandied about a lot though. That is life expectancy at birth. The relevant statistic for Social Security is how long retirees are going to draw benefits, and “[Since 1940], life expectancy at age 65 [has] increased by roughly 6.5 years.” (source)

6.5 isn’t nothing, but it’s also not 17.

Thirty-Third, in a good post on the value premium, Larry Swedroe makes a good point about stocks in general. People are very overconfident about the equity risk premium being positive over any time horizons other than the very shortest, but as he notes: “[T]he S&P 500 … underperformed risk-free T-bills for 15 years (1929–1943), 17 years (1966–1982), and 13 years (2000–2012).”

Those periods would seem very long as you went through them, and, of course, you don’t know that it’s going to be fine eventually.

Thirty-Fourth, you are undoubtedly aware of the demise of the penny:

Today, the CPI is roughly 38 times higher than back in 1900. At that time, the smallest coin produced by the US government was the penny—just as today. In terms of today’s dollars, the Americans of 1900 chose not to produce any coins of a denomination below 38 cents. Not only is it not at all clear that we need pennies, even nickels and dimes are of very questionable utility. We seemed to do fine without coins of that purchasing power back in 1900.

I’d lop off everything (including electronic stuff) to the nearest 10 cents. In other words, remove a decimal place from everything. Eliminate paper dollars (switch to a coin), and just have that and dimes. Maybe a 50-cent-piece.

Thirty-Fifth, there are lots of charts in this housing report. Some highlights that I think most people would find surprising:

  • 95% of mortgages are fixed rate (page 34)
  • 40% of homes don’t have a mortgage (page 36)
  • The average equity in homes is 73% (page 39)
  • Combining the last two statistics, since 60% (1-40%) have a mortgage and the average debt overall is 27% (1-73%) then even for folks with a mortgage, their LTV averages just 55% (1-0.27/0.6)
  • 56% of outstanding mortgages have a rate under 4% (page 63)
  • People don’t move as much as they used to, about half the rate today as in the past, and it’s been a gradual change (page 67)

Thirty-Sixth, on a lighter note, here are a few very good twitter comments prompted by Zohran Mamdani’s winning the NYC mayoral primary:

Finally, my recurring reminder that J.P. Morgan’s updated Guide to the Markets for this quarter is out and filled with great data as usual.

That’s it for this quarter. I hope some of the above was beneficial.

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