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Maria Bruno: Hi. I’m Maria Bruno, head of U.S. Wealth Planning Research here at Vanguard.

Joel Dickson: And I’m Joel Dickson, global Head of Advice Methodology at Vanguard. Welcome to our podcast series, The Planner and the Geek, in which we’ll discuss topics that are important to individual investors.

Maria Bruno:  And we’ll have some fun along the way.

Joel Dickson: Hi, Maria.

Maria Bruno: Hi, Joel. Good to back in the studio with you.

Joel Dickson: Back again, another episode today. Actually, it’s interesting, I think we’ve got a great guest, great perspective—we’ll get to that in just a minute. It’s related to this concept of—we’ve talked about in previous podcasts—about how you get started, where you get started, and so forth. I think a lot of times it’s often hard to get started, and how do you think about improving some aspect of your life and just starting it, even though you keep telling yourself all the time that you should do it.

Maria Bruno: Yes. And, as we’re thinking about this, I think I’m going to order bumper stickers for us.

Joel Dickson: Uh-oh, really?

Maria Bruno: Do people still use bumper stickers?

Joel Dickson: Yes, but they’re now magnetic, so you can actually take them off the car instead of having to scrape them off with a knife.

Maria Bruno: Investing, just like other things in life, doesn’t have to be difficult.

Joel Dickson: Oh, I was thinking about maybe something like … my other investment portfolio is a “blank” or something.

Maria Bruno: Oh, I thought it was … my other car is a “blank.”

Joel Dickson: Right, exactly. Building on that theme, absolutely.

Maria Bruno: But it doesn’t have to be difficult. I think the key is just to get started; much with other things in life.

Joel Dickson: Yes, I actually think back to a couple of years ago, Maria, because I was walking like Donald Duck around here with boots on my ankles because of ankle trouble I was having.

And one of the things that was coming out of it at the time, as I’m thinking, there’s just a regular pattern I need to get into with respect to fitness and building up some of my recovery from my ankle issues. So, it was, “I know I need to do this. How do I just get started in a consistent approach to do it?” And, eventually, I said, “You know what, I’m calling up the local gym.” Yes, I can do it at home; I’ve got a treadmill at home. But the fact of the matter is, the treadmill—as I think for most people—ended up being a bit of a clothes hanger. So what is a device that can get me started and get me on a path to where I want to be? So I signed myself up at a local fitness place—a twice-a-week commitment. It was a small group training, so I had to be there for others, with others. And now that two days a week has turned into five, and I don’t even think about it and go early in the morning—where I was never a morning person.

Maria Bruno: Oh, so that’s why you’re late to work every morning.

Joel Dickson: That is exactly why I’m late to work every morning. Yes, exactly.

Maria Bruno: Okay. Invest in yourself, Joel. Good!

Joel Dickson: Yes, very much so, my own personal development. We all do in many ways. It’s sort of like those things about how do we get started.

Maria Bruno: 12–14 years ago, I bought a fixer-upper, and I didn’t know where the heck I was going to get started with this thing. And I looked at some things that needed to get done immediately, and I worked on those things, and I tried to figure it out. Other things could wait, but I knew what I wanted to do. There were a couple of things—time, the money to get it done, but then some of the decisions that I made were contingent upon that vision that I had at the end. So it took time, and then it got done, and now it just continues to—well, it’s never done really with a house.

Joel Dickson: Maybe we should rename this podcast, “The Contractor and the Geek,” or the “Builder and the Geek.”

Maria Bruno: That would actually be kind of fun.

Joel Dickson: Wouldn’t it?

Maria Bruno: We could talk French drains, we could talk window types.

Joel Dickson: Oh, I’m sure the listeners would love that, absolutely love that.

Maria Bruno: Throw a little gardening in there as well.

Joel Dickson: Well, I think what we find though—and we hear this from clients quite frequently—is “How do I get started? How do I get on the right path? Are there a few simple things that we can do?” Oftentimes, it’s the very simple things, such as save 12–15% of your income. Now people may not find that simple to do. But as a way to get on the right path—is that an approach that can be done from a financial standpoint?

Maria Bruno: Yes, for one, when you think about investing for success and what really matters. But sometimes we—as investors—are making decisions, so we don’t think that we’re actually doing something. But we are, and that matters. And you used this phrase in the past, too, in that when you are paying down debt, you are making an investment decision. So, inherently, it’s understanding what your end game is, what your goal is, and then how are you going to get there. And some of these small steps create the discipline to get there. You just may not realize it.

Joel Dickson: Absolutely. So, overall, we want to talk about this concept more directly, and we have guests in for this episode. We’re actually talking with Jonathan Clements, who’s a noted author and former Wall Street Journal columnist. And I think his overall message—as we’ll listen to very, very shortly—is investing doesn’t have to be all that difficult; and it is fairly easy to get started. And, in many ways, he has a step-by-step plan to help think about organizing and realizing that goal that you might have.

Maria Bruno: So, with that, Joel, I think it’s a good time to bring in that conversation that we had with Jonathan.

Joel Dickson: Well, we’re really thrilled today to have Jonathan Clements with us. Jonathan is the founder of, spent almost 20 years at The Wall Street Journal, and is Director of Financial Education for Citi Personal Wealth Management. Jonathan has a new book that ties into what we want to talk about today around family financial planning. That book is From Here to Financial Happiness. It’s really a step-by-step guide. In this case, it’s not a 12-step program but a 77-step program if you think about the day’s pieces of it. Jonathan, I want to thank you for joining us today.

Jonathan Clements: Hi. I really appreciate you having me on the podcast.

Joel Dickson: It is a pleasure to have you here. You’ve been a long-time observer of not just the financial markets but the behavior of those participants in the financial markets. And if you could tell our listeners, what made you decide to write From Here to Financial Happiness?

Jonathan Clements: The real question you should have asked is, does the world really need another personal finance book because we are drowning in financial information. Anybody who has something called the internet—and, of course, something called Google—can find out the basics of personal finance. You can find out what sort of estate planning documents you need, some reasonable idea of how to put together a portfolio, what to do about your credit card debt, and so on. The real issue, I believe, is not figuring out what to do with your money, it’s getting yourself to do it. It’s the behavioral change that’s so tough. And this is why many people struggle to be do-it-yourself investors and why there continues to be a large market for financial advisors. In putting together From Here to Financial Happiness, I imagined what the conversation would be like if you were talking to a really good financial advisor, not somebody who’s trying to stuff an annuity and a whole life insurance policy down your throat, not a broker who’s just trying to get you to buy a load fund. I’m talking about a really good financial advisor who wants to figure out what you want from your financial life, where you stand today, and what steps you should take to get there. From Here to Financial Happiness is that sort of book. It’s trying of takes you by the hand, figure out what you really want, and then push you to take the right steps.

Maria Bruno: Jonathan, I think this is funny. I’m going to read the acknowledgements, and it’s actually at the end of the book. It put a smile on my face, in that you said this wasn’t a book that you had planned to write. You’d been wrestling with three different projects—a series of pithy financial insights, a collection of questions designed to probe readers’ financial views, and a step-by-step guide that would help someone get his or her finances in shape. None of them seemed quite right, so you decided one day that you would do all three.

Jonathan Clements: That’s correct. And, in fact, I should really have given a fuller acknowledgement there. The person who said, “Oh, why don’t you put all three together?” was actually my wife. My wife is a literary agent, and she said, “Well, I’m not sure any of those three are going to work as a book, but if you put them all together, maybe they would.” And so that’s when I started on From Here to Financial Happiness. People always say, “Okay, it’s 77 days. Why is it 77 days?” And the answer is … I actually came up with 78. And anybody who’s spent any time in journalism knows that odd numbers are so much more eye-catching than even numbers. You never see “8 Things To Do Now,” but you may see “9 Things To Do Now” or “7 Things To Do Now.” So I got to 78, and it’s like, nah, let’s make it 77. So I took 2 of the days and pushed them together, and that’s how I ended up with 77 days.

Joel Dickson: Very good. In fact, let’s stick with the odd numbers—that so happen to be prime in the example I’m going to give too.

Maria Bruno: Thank you, Geek.

Joel Dickson: Yes, you’re welcome. Right at the beginning of the book, you talk about 7 basic tenets to think about as you go through this changing of the financial life. It’s really focused on saving, keeping debt to a minimum, insuring against threats, preparing for unemployment, minimizing taxes, and avoiding unnecessarily risky investments. What struck me about that is that we spend so much time it seems in the investment world talking about what do markets do, how has my portfolio done, is this manager better than another—the promise of returns on your investment portfolio being the way to financial freedom. But yet, really only one of those tenets even talks about investment asset allocation portfolio. Could you elaborate on that and why you see those tenets as being the keys?

Jonathan Clements: I think there’s two big reasons we end up focusing on the financial markets. One is in terms of charging investors—it’s so much easier to charge them for portfolio management than it is to these other things. So that’s why we end up focusing so much on the portfolio. Second, the financial markets are really like a whiny child, screaming for our attention. Every day something is going on in the market to get excited about or be worried about until we become fixated on the financial markets. But the reality is there’s really very limited room to improve your finances by devoting huge amounts of time to the financial markets. I mean we all know the statistics. Most people are not going to beat the market by picking individual stocks. They’re not going to beat the market by buying actively managed funds. They’re so much better off simply buying a diversified portfolio of low-cost index funds and letting their money ride.

That doesn’t mean you can’t add value to your financial life, but the places where you add value are these other areas. Should I be paying down my mortgage? Do I have the right estate planning documents? Do I have enough insurance, or do I have too much? All of these things are areas where we can add substantial value to our financial lives, and where it’s really worthwhile spending some serious time thinking about those issues. And beyond that, one of the things we know is that people end up buying legions of material goods that bring them very little happiness and pursuing goals that end up making them miserable. So even before you start thinking about your portfolio and the insurance policies you need, how big an emergency fund you should have, and what size house you should buy, what you really need to do is spend considerable time thinking about what it is you actually want to achieve with your money. And I don’t think that question gets asked nearly often enough. Part of the problem is that our instinctual reactions—“Oh, yes, I want to buy that shiny object that I see in the shopping mall. Yes, I want to have the bigger house. Yes, I want the fast car”—often our instinctual reactions in these situations are actually dead wrong. And if we think about these issues for a day, two days—preferably far longer—often we’ll discover these things we’re pursuing, these goals that are so important to us, actually aren’t, and there are things that we’d be much better using our money to pursue.

Joel Dickson: Yes, a lot of this—you touch on it in the book and a lot of the behavioral psychologists have talked about it—is try to figure out or imagine what will make your future self happy and what those characteristics are. The finances are a way to facilitate the life that you want to lead. They don’t dictate the life that you want to lead.

Jonathan Clements: This is the point at which I bring up my favorite topic, which is that money for so many people does not buy happiness. And you say to people, this notion that money doesn’t buy happiness for so many people, and they’re like, “Nah, that’s wrong.” Listen to the statistics. Every couple of years since 1972 the General Social Survey has asked Americans about their level of happiness. In 1972 when the survey was first conducted, 30% of Americans described themselves as very happy. In 2016, more than four decades later, during which we saw a 120% increase in the real income of Americans—40 years later after that doubling in our standard of living—exactly 30% of Americans describe themselves as very happy. We have more than twice as much money as we had four decades ago, and yet our reported level of happiness has not risen. Money has not bought happiness. I believe it can, if we’re thoughtful about how we use it, but for so many people, it simply doesn’t.

Maria Bruno: I just want to go back to these goals, and I see it a lot, time and time again, with retirees or people thinking about retirement. They’re so busy number crunching and “Do I have enough?” and “What is my number?” But then you stop and ask them, “Well, what do you want to do in retirement?” And they look at you and they can’t readily answer that.

Or, if it’s a married couple, they haven’t had the conversation individually and then together. So to your point in terms of, yes, you might have this money, but how are you going to use it? You really need to think about it and define what your goal is.

Jonathan Clements: Yes, it’s extraordinary. We spend four decades saving desperately for retirement, and yet we give scant thought to what we’re going to do with all that free time. And if you talk to enough retirees—and I talk to many of them—there are so many who are disappointed by their retirement and have not ended up with the retirement they thought. They were sold this notion that what they really wanted from their financial lives was endless relaxation, and what they discovered was that endless relaxation is really endless boredom. What they need to make their retirement happy is activities that they think are important, that they’re passionate about, that they find fulfilling, and that give them a reason to get out of bed in the morning. When you think about retirement, you should have a laundry list of things that you are desperate to do once you no longer have to go to the office to collect that paycheck.

Joel Dickson: I think for Maria that’s going to be watching every season of The Bachelor.

Maria Bruno: Well, you’re assuming that I haven’t seen all of them.

Joel Dickson: No, I know you have.

Jonathan Clements: Is this the point in the podcast when you guys start fighting like an old married couple?

Joel Dickson: Yes, exactly.

Maria Bruno: Maybe that’s on your list because you haven’t seen the episodes.

Joel Dickson: That’s right. Just trying to think of what you’re passionate about, that’s all, Maria.

Maria Bruno: We all have our guilty pleasures, Joel, when it comes to TV.

Jonathan Clements: I’m sorry I didn’t bring a rose.

Joel Dickson: Oh, yes.

Maria Bruno: Maybe we should ask Jonathan what his guilty pleasure is on TV.

Jonathan Clements: So I just persuaded my wife to start—re-watching for me but watching for her for the first time—the five seasons of Friday Night Lights. She said, “I don’t want to watch that. That’s a stupid series about Texas football.” And I said, “No, this is about small-town life in America and the interaction among the individuals.” And it is a great TV series. The critics loved it. It didn’t get great ratings, but for anybody who’s trying to get through a long winter, which is what got me onto this, five seasons of Friday Night Lights will do it. It’s not as good as Downton Abbey, but it’s pretty close.

Joel Dickson: I never got into Downton Abbey.

Maria Bruno: I did binge-watch Downton

Joel Dickson: Yes, that doesn’t surprise me.

Maria Bruno: What does that mean?

Joel Dickson: It was just a comment—random observation.

Maria Bruno: Jonathan liked the show, too, so easy, Joel. Let’s get back to happiness—financial happiness. So, Jonathan, your thoughts in terms of—we talked about people thinking about retirement or retirees. How does it differ, if at all, through life stages? I wanted to get your thoughts.

Jonathan Clements: So what the research tells us is that happiness through life is U-shaped. We start out our early adult years feeling pretty happy. We bottom out in our 40s, the sort of classic midlife crisis, and then happiness tends to rebound from there. And the question is—why does that happen? There are a variety of theories, but the one I like—I could be completely wrong—but the theory I like is that when we start out adult life in our 20s, we really think that we’re going to have this huge impact on the world. We’re going to get these great promotions and these pay raises and we’re going to buy all these material goods—and all of these things are not only going to make us happy, but we’re going to leave our mark on the world. You get to your 40s and you’re changing diapers, your parents are getting older, you’ve owned a house and dealt with all the repair bills, and you’ve been through a couple cars and they keep breaking down—and you start to realize that all these things you desperately wanted in your 20s and 30s simply aren’t delivering your happiness. These external symbols of success have not amounted to very much, and that’s when you start looking inside yourself and say, “Well, what do I really care about?” You’re no longer going to be extrinsically motivated, as the psychologists say; you start to become intrinsically motivated by things that really matter to you. And that’s when people start thinking about second careers. They start thinking about the hobbies they really care about, about volunteering, about things that are really important in their lives. And, also, this is the point in people’s lives when they start saying, “Huh, you know, maybe I don’t need another new car. Maybe I don’t need the latest electronic goods. Instead, what I really want to do with my money is to not buy more and more possessions, but to buy experiences and especially experiences with friends and family.” The research tells us that spending time with friends and family gives an enormous boost to happiness. And that’s why, when you talk to people who are older, they are so much wiser about how they spend their money than people who are younger. My 13-year-old stepdaughter cannot hang on to $20 to save her life. If she gets a $20 bill, what she’s thinking about is what she’s going to buy with that $20 bill. If I give $20 to my mother, she doesn’t really need the money, but if I did, she would be thinking, okay, what am I going to do with somebody else that’s going to be fun?

Joel Dickson: That experience thing and money facilitating that kind of happiness, as you said, is a consistent theme that we’ve heard throughout. By the way, did you have some comment? You’ve been bullying me here visually.

Maria Bruno: Nothing. I just thought it was interesting in terms of the life stages and where you are.

Joel Dickson: That’s what I thought. Yes, midlife crisis. She looked over at me and she was going to give me a hard time about buying a Miata when I did, right?

Maria Bruno: Joel just had a new luxury car purchase that he can’t wait to share with our listeners.

Jonathan Clements: You’re going tell us that it’s not a material good. It’s an experience, right?

Joel Dickson: Yes, it is an experience. Never mind, we’re not going to go there. Jonathan, one of the things that I really like from your book, and when we start talking about how to go about implementing a financial plan and so forth, there are some pretty easy, straightforward rules of thumb that anyone with a lot of detail about any individual would say, “Oh, it doesn’t apply exactly here.” But you can get 85% of the way there with just a couple of things. And three that sort of popped out to me as I was reading the book, one was when you’re starting out—401(k) to the match and no rolling credit card balances. And you’re about there—that covers a large chunk of what you might find you need over the future. Then to the extent overall, if you think about saving about 12% of your income, you’re on a pretty good path. Do you think that fairly summarizes some of the high-level rules of thumb?

Jonathan Clements: If you go to a financial advisor—and they’re a good financial advisor and they look at your finances—the first thing they’ll tell you to do, your top financial priority every year, should be putting at least enough into your 401(k) plan to get the full matching contribution. If your financial advisor doesn’t tell you to do that, get yourself a new financial advisor. Second, after you’ve done that, is paying off any credit card debt. There may be some obscure reason somewhere in the financial world for carrying credit card debt, but for the life of me, I can’t think what it would be. So if you have credit card debt, you should get rid of it. That’s priority #1 and 2. And, of course, saving regularly—that’s pretty obvious. We all know that the key to great fortunes for the everyday American isn’t earning fabulous investment returns. It isn’t even necessarily buying index funds, even though I’m a big advocate. The key ingredient to financial success is great savings habits. If you want to know the secret to success for that millionaire next door, the person who has that seven-figure portfolio—they are extremely frugal, otherwise known as cheap. That is the key to success. So once you go through those first two—max out the 401(k) at least up to the match and pay off credit card debt—it becomes more questionable. You can start to debate—should you buy stocks with your taxable account? Should you pay down the mortgage? Should you fund an IRA? But those first two steps are really basic, and if you’re not doing them, you’re in trouble.

Joel Dickson: Yes. I always like to say that no matter what your return is, if it’s zero in terms of the amount that you’ve saved times whatever return, it’s zero at the end of the day. So, yes, saving is by far the most important component of long-term financial health.

Jonathan Clements: One of the things that I love to talk about—and this really does seem to resonate with people—imagine a world where you can earn 6% a year on average and you save 12% of your income. Through the initial years it’s really discouraging, because the main driver of your portfolio’s growth is going to be the raw dollars that you sock away. But if you can overcome those discouraging years and keep at it, and you do this for a dozen years, you hit what I call the tipping point. And the tipping point is this—suddenly, every year you’re going to get as much help, if not more, from the financial markets than you are from the raw dollars you sock away. So from about year 12 onwards, your portfolio is hitting on both pistons. You’re not only socking away money, but you’re also getting these investment returns, and your portfolio’s growth starts exploding. So if you do this based on a $100,000 income, after about a dozen years you’ll be pretty close to $200,000 to $300,000. And then give it another 7 or 8 years, and you’ll be at half a million. Give it another 9 years, and you’ll be at a million. And it’s just amazing what will happen. But to get there, you have to get through those discouraging initial years. But if you can get through them, you will be a very happy retiree.

Maria Bruno: So how is it different now? You’ve been in the industry—we’ve been in the industry for just a few years, Joel.

Joel Dickson: A while.

Maria Bruno: A little bit.

Maria Bruno: Because you were at The Wall Street Journal for a number of years—for most of your career, Jonathan, right? So you probably dealt with a lot of reader feedback, addressing a lot of personal finance questions, and lending your expertise. How has it changed, if at all, over the years? What differences do you see now? Because some of the things that you had brought up around the behavioral challenges, they’re not necessarily new. But do you think they manifest themselves differently today, and why?

Joel Dickson: I mean have we learned anything at the end of the day?

Jonathan Clements: Well, first I would say that in many ways investors today are far better off than they were 20 years ago. The cost of investing has come down to extraordinarily low levels. Today you can put together a portfolio at a cost that only institutional investors—and only the biggest institutional investors—could put together 20 years ago. It is amazing the sort of portfolios you can build. And you can tap into asset classes that, again, only the biggest institutional investors could tap into 20 years ago. So, in many ways, the financial world is a far better place for investors than it was 20 years ago. The problem is given the proliferation of financial products, it’s also a place where there are many more ways to shoot yourself in the foot. There are many more asset classes that you can invest in that are going to blow up in your face. The value of diversification is, in many ways, more important than ever simply because there are so many ways that you can shoot yourself in the foot. I also would say that the level of understanding of financial issues and the financial conversations that we have are far more meaningful than they were 20 or 30 years ago. Thanks to behavioral finance, we do have a much better idea of the mental mistakes that investors make. Thanks to the research on money and happiness, we have a far better sense for how we should use our dollars in order to improve our lives. Thanks to newer economics, we understand why making impulsive decisions could be such a mistake. Thanks to evolutionary psychology, we can understand why it is that we have these gut reactions to certain situations. And if we could just simply pause and be a little bit more thoughtful about the spending and investment decisions we make, we could behave so much better and get so much more out of our money. So while the financial markets today give me pause, because valuations are so rich, interest rates are so low, the price-earnings ratios on stocks are so high—it’s treacherous in that sense. In the sense of cost of investing and in terms of the knowledge about investing, about our own behavior, I think we’re much better off.

Joel Dickson: Though, at the same time, some of the behaviors that we see—there’s still billions of dollars paid every year in credit card late fees, bank overcharge draft fees, and other account-based fees. It’s almost like we have to continually learn as we go through our financial lives, and it does seem like history—okay, take Mark Twain—it rhymes. It may not repeat exactly, but it sure seems to rhyme sometimes.

Jonathan Clements: If for no other reason that we have new people entering the adult world all the time and they have to learn. My 13-year-old has not yet realized that experiences are more valuable than possessions. Give her 40 years, and she may get there.

Joel Dickson: One of the other things that you mentioned, that I would like to touch on briefly, Jonathan, is taking the whole picture into account when thinking even about your investment portfolio. In particular, two things—the role of human capital and thinking about how to incorporate that as you’re thinking about your investment portfolio. And then another element that sometimes people might not think about is investing and debt may be opposite sides of the same coin, and how you think about those together when thinking about your overall portfolio exposures and risk.

Maria Bruno: And I want to add a third for Jonathan—risk management.

Jonathan Clements: So we have this sprawling messy thing we call a financial life, and many of us think of our financial lives as being a series of manila folders. There’s our home is one manila folder, our insurance policies are another, our investments are another, our car loans are another. But there is a way to bring all of this together and think of it as a cohesive whole. And the thing that brings it altogether is our human capital. It’s our income earning ability. Our human capital has four key implications for our financial life. First, our human capital provides the savings we need for retirement. You can think of our entire adult lives as being about taking our human capital and turning it into a great heaping pile of financial capital, so that one day we can retire. Second, our human capital is the reason it is rational to take on debt early in our adult lives. When you’re a teenager or in your early 20s, and you’re thinking about paying for college or buying that first car or buying that first house, taking on that debt can be nerve-racking. But in a sense, it’s rational— because you’re able to buy stuff you can’t currently afford and you know that you have 40 years of paychecks ahead of you in order to service those debts and, preferably, get them all paid off before you retire. Third, when we think about how to construct a portfolio, we can think of our human capital as very similar to a bond. Just as a bond pays you regular interest, our human capital pays us regular paychecks. In order to diversify that human capital, what you want to do early in your adult life is buy stocks. You might think having a 90% or 100% stock portfolio at age 25 is hugely risky. I would say it’s not really risky at all. Most of your assets, when you start to think about your entire financial life, including your human capital—which at that point is probably worth a couple of million dollars—in terms of your entire financial life, that sliver in stocks is nothing. In fact, in many ways, you’re overly conservative because so much of your assets consists of this human capital generating this paycheck.

As you approach retirement and the disappearance of that paycheck, you want to start to introduce bonds into your portfolio so that you have income-generating investments to replace the paychecks that are about to disappear. And, finally, the fourth thing when you think about your human capital is should it drive your insurance needs. When you’re in your working years, you should have life insurance if you have dependents who rely on your paycheck and would be left in the lurch if you died suddenly. Similarly, you need to have disability insurance in case you can’t work because of illness or accident so that you have a source of income to carry you through to retirement if you suffer some sort of unfortunate incident. Then you raised the question about debts and bonds. When you think about your debt, I always refer to them as negative bonds. A bond pays you interest. On your debts, you pay interest to others. So given a choice between paying down debt or buying bonds, what you should think about is the relative after-tax interest rate on those two. So if you have credit card debt that’s costing you 20% in nondeductible interest a year, paying down that credit card debt is so much more valuable than buying a bond that might only be paying you 3%—even if that 3% is bought in a retirement account where you don’t have to pay taxes on the interest that you’re earning.

Well you mentioned risk, Maria.

Maria Bruno: Yes. That’s where I wanted to go a little bit—when you think about your household in terms of disability insurance as well as life insurance and how that can change throughout your life as well. You touch upon that in the book. Joel and I talk about this a lot too. For many, disability insurance could arguably be a little bit more important than life insurance at certain points of your life, because the probability of an illness or accident could be greater, and the financial ramifications of that are just as significant as an untimely death.

Joel Dickson: As we wrap this up, Jonathan, you said you wrote the book from the perspective of what a good financial advisor should walk you through in terms of getting your financial life in order. What about those that feel they need that help, they need to seek out some sort of level of advice—how should they think about choosing and finding someone or some ability to get that kind of advice? I mean is it a personal advisor, robo-advice, hybrid? How do you think about that issue?

Jonathan Clements: So let me start with the two things I wouldn’t do. I would not use an insurance agent as your primary financial advisor, because if you go to an insurance agent and you use them as your primary advisor, you’re going to end up buying a series of extremely expensive products—particularly cash variable life insurance and annuities that might be charging 3% in annual expenses. So don’t use an insurance agent as your primary financial advisor. Second, I would think long and hard before using a broker who’s paid on commission. Again, there’s a huge conflict of interest. The broker is going to have an incentive not only to get you to trade too much but also to buy those products that charge the highest commissions. I know there are plenty of good stockbrokers out there and they would never do anything unethical, but it’s better not to have the conflict of interest and not have the temptation there.

So where does that leave you? Well, there are three alternatives to consider. First, you could look to a robo-advisor. I think robo-advisors are a great option, particularly for people early in their financial life who don’t have enough money to get the attention of a fee-only financial advisor. The caveat, I would say, is that when you go to a robo-advisor, you will principally get help with your portfolio. You’re not going to get help with your larger financial life. And that’s a drawback because, as we discussed earlier in the podcast, there’s so much more value that can be added in these other areas of your financial life. And, indeed, I would go so far as to say that if you’re thinking about a robo-advisor simply for portfolio purposes and you’re not going to get any other benefit, you’re probably just as well off in a target-date fund built around index funds. A target-date fund built around index funds is going to use a portfolio very similar to what you could get from a robo-advisor, but it’s going to be less expensive. Now the robo-advisors will respond, “Yes, but you’re not going to get tax-loss harvesting. They’re not going to sell the losing investments each year and give you a small tax break.” And my response is, if you’ve been invested for anything more than a couple of years, you should not have any tax losses. I would kill for a tax loss at this point in my portfolio. The market would have to drop by 75% for me to be able to take a tax loss. So I think the tax-loss harvesting thing is really oversold. So, but anyway, a robo-advisor is not a bad option if you’re young and you need help with portfolio construction. If you have say $250,000 or more, you might think about a fee-only advisor who’s going to charge you a percent of assets. The reason I say 250 is because it’s only at that asset level you can really start to find people who are going to give you some serious attention. Finally, I wouldn’t overlook financial advisors who charge by the hour. There aren’t many of them out there, but I think it’s a great model. There’s no conflict of interest beyond the fact that they might dillydally in their work and charge you for an extra 15 minutes. If you can find an advisor who charges by the hour, that hour may be mighty expensive, and you may have to buy three or four of them, but it could be dollars well spent.

Joel Dickson: As opposed to an ongoing asset management charge.

Jonathan Clements: Right. If you go to an advisor who charges a percent of assets and you’ve got a million-dollar portfolio, you’re paying $10,000 a year for that advisor’s help. You go to a planner who charges $250 or $300 an hour and you spend five hours—maybe you spend $1,250 or $1,500. That’s less than you would pay to an advisor who’s going to charge you 1% of assets in the first year.

Maria Bruno: So, Jonathan, as we wrap up, any final thoughts that you wanted to share as you wrote this book or reflected on your years of working as a personal finance expert? Any final thoughts that you want to share with us and our listeners?

Jonathan Clements: I think what I would come back to is the behavioral change aspect. As we mentioned in the beginning, figuring out what to do with your money is not that complicated; getting it done is the real issue. If you can get it done on your own, that is great, and my book is certainly designed to help people get it done on their own. But if you can’t, then seek out help. And it doesn’t necessarily have to be a financial advisor. It just has to be somebody who’s going to hold your feet to the fire. As I say to people all the time, if I say to myself that I’m going to go to the gym in the morning, it is so easy for me to roll over and go back to sleep. But if I tell my wife, I am on the hook, because I seriously do not want that nasty look she’s going to give me in the morning when I’m still in bed. So I set the alarm clock and I get up and I go to the gym. Find somebody in your financial life who will hold your feet to the fire. If you’re not saving enough, tell a friend or a colleague or your spouse—whoever it is—that you’re going to start saving 12% or 15% of your income so that they ask you about it down the road. If you need to get a will or you need to get life insurance, tell that friend or that colleague or your spouse so that you actually do it. Make a commitment in front of other people so that you really do feel like you need to get this done.

Maria Bruno: I think that’s a good way to get started.

Joel Dickson: Yes, have you made your IRA contribution yet, Maria?

Maria Bruno: I did, yes. You need to move on past that.

Joel Dickson: Just checking.

Maria Bruno: Save it for January 2019, Joel.

Jonathan, thank you very much for being here in the studio today. We really enjoyed talking with you. And we wish you much success with your new book From Here to Financial Happiness.

Jonathan Clements: Thank you so much; it’s been a lot of fun.

Joel Dickson: Well, Maria, I think that was a really interesting discussion on a number of levels about how to think about getting started and getting going and getting organized in terms of how Jonathan plays it out. Now, 77 days’ worth of that I think is a bit of a challenge, I have to admit. What do you think? When we talk about these types of issues—getting started and getting motivated to invest and save—how do you think this ties into how we at Vanguard have normally talked about it?

Maria Bruno: It’s interesting—as Jonathan was talking, we’re both sitting there nodding our heads and in complete agreement because the principles are very straightforward and manageable. And when we think about Vanguard, we have our Vanguard investing principles. These are our basic tenets in terms of how investors should think about building their investment portfolio, their financial life, to meet their best chance for investment success—and they’re simple. You can boil it down to goals, balance, cost, and discipline. We have the white paper on our website. But when you think about the things that Jonathan talks about, first is having a goal—understand what it is that you’re investing for.

Joel Dickson: Yes. Why are you investing and for what purpose?

Maria Bruno: Right. We talk about this with retirement—what do you want to do in retirement? Think through it, write it down. If you’re married or have a partner, make sure you check each other on these things. With our next investing principle, it’s balance. How do you build that portfolio—a globally diversified low-cost portfolio, for instance—with the right asset allocation to meet those goals? That can be fairly simple.

Joel Dickson: Absolutely. And balance, as Jonathan talked about, can also be—it’s not just the investment portfolio, it is the other financial aspects of your life. How are you balancing debt? How are you thinking about savings and different types of savings and so forth?

Maria Bruno: Right. And those are the things that, because investing can be so simple and straightforward, putting the other pieces together of your financial well-being may be even more important because they impact whether or not you can actually invest, for instance. Third is cost—I think Jonathan talked about that as well. I think about it in two ways. One is how much are you paying for investment costs. The second is, taxes are a reality for individual investors as well. That’s a cost. But also, when you think about—and this kind of leads into the fourth one, which is discipline—Jonathan talks about living beneath your means. And that’s really keeping your spending in check. And that, even though we talk about accumulators and managing debt and investing, it’s the same thing regardless of where you are in your life stage. Retirees have to balance that as well in terms of spending and then thinking about the longevity of their portfolio. But the discipline really is, and I think we talked about this—you did early on with your example in terms of creating that foundation—it’s not once and done, it’s sticking with it. And in investing, that’s not always easy. Working out is not necessarily easy when it’s cold and dark in the morning.

Joel Dickson: You don’t want to get out of bed. Yes, absolutely, if you don’t feel up to par that day. I was struck by, in many ways, how—and I think Jonathan did a really nice job of talking about this issue—first of all, there are some very simple things that can get you started and get you further along the path. Right up front says, invest in your 401(k)—especially if you have matched contributions—and don’t have revolving credit card debt that you’re paying high interest on. If you’re doing those two things—you’re saving enough and you’re making sure there’s not so much leakage from your portfolio—you’re already well over 50% of the way there to success with just those two simple things. And then from there, build on it. It’s kind of like that start two days a week with the fitness thing and then wait—and then it is naturally building. You learn a little bit more, you internalize what you’ve done before, and progress along those lines. The other thing, though, that really struck me—that I think is really important—is the noninvestment pieces that are needed in order to think about whether you’re going to meet your goals. So whether it is things like if you’re accumulating for retirement savings and you have a disability. Well now, all of a sudden—you were on track, but now you can’t work or something else, or you’re taking care of an aging parent. And now you can’t work and all of that income that was going to paying for your expenses and from which you could save for the future is now not there for you in the same way. And so things like a disability insurance policy, and how much and so forth, being a component of how you think about these things. So many of the things that Jonathan talked about were not necessarily directly the investment portfolio, even though that’s an important component of success.

Maria Bruno: No, I agree. A lot of times the focus is on investing, and we’ve talked about this before, what type of investments to pick, and that can be fairly straightforward. It’s putting all the pieces together in terms of—we talk about tax diversification. How do I direct my monies? Risk mitigation is a big one—disability, life insurance, even homeowners, car insurance, things like that. That all matters.

Joel Dickson: Absolutely. And I think, at the end of the day, it’s about getting started. If you don’t know where you are, get started. If you feel you’re overwhelmed—just start. Even if it’s a couple of checklists of, “Hey, what do I need to do and how might I go about doing it? What am I going to do today?” Jonathan, as he said, here’s Step 1, here’s Step 2, here’s Step 35. But just going through that and in sort of small chunks, what’s most important. And, at the end of the day—or even at the beginning of the day—what is most important is often, what are the things that can make the biggest difference up-front? Am I saving enough? Am I making sure that there’s not too much going out the other side in terms of spending or debt that’s just financing consumption that I’m paying high interest rates on? So those types of elements and then building.

Maria Bruno: Yes. I think keeping track of it, and he talked about that, is a big piece of the puzzle. It’s not necessarily fun; however, it’s very easy to do in the digital world these days in terms of being able to see where the money’s going. But you can get a pretty good sense of what you’re saving and what you’re spending.

Joel Dickson: Absolutely. It ties back to something we had talked about in a previous episode as well, that there is an inventory that you can do of your financial life. We have a financial inventory, and it may be even more expensive in terms of the types of things you have in terms of in your house—

Maria Bruno: Oh, yes, that’s the Financial Inventory Document. We have that on

Joel Dickson: Exactly, but that has a lot of these components in there.

Maria Bruno: Yes, that’s a good start. Actually, I just had dinner with an old colleague a week or two ago and he was saying that—

Joel Dickson: Wait, a colleague that you’ve known for a long time or an old colleague?

Maria Bruno: A prior colleague.

Joel Dickson: Oh, okay.

Maria Bruno: He was saying that he really needed to do this in terms of—they’ve got stuff all over the place—but he needs to put it all together in one place in case something were to happen, because the kids don’t know where it is or whatnot. And then, of course, I did plug the inventory sheet we have on

Joel Dickson: Of course.

Maria Bruno: Well, because you can edit it and then you can save it. And then I did tell him, too, that just make sure they know where the passwords are in case something were to happen. So, we are learning from these podcasts. So that’s part of the problem. It’s not necessarily fun, but once you do that you feel so much better, and then you just go back and you fine-tune it and you revisit it. I think the book is good because it does break it down. Yes, it’s a 77-step program, but it breaks it up in small chunks, and it does make you self-reflect and get a better understanding of your financial situation, where you are, and what matters. I do wonder sometimes that I could go through this exercise, but I still need to—I want to just make sure, am I doing the right things? And I think many investors have that. And that’s where you can think about, well, we talk about the need for advice, and I think it’s perfectly fine. Somebody may not need ongoing financial planning advice, but they may just want to have a check-up and just say, “Hey, these are things that I’m doing. Should I fine-tune anywhere?” And that’s okay. And that keeps you on track.

Joel Dickson: Absolutely. If you don’t know what those first steps might be—

Maria Bruno: Yes. And then others will be like, “Oh no, I just want to turn the keys over and have somebody else manage my financial well-being, because I don’t have the time or the inclination to do that.” But others might just want to get a check-up every once in a while, and that’s perfectly fine.

Joel Dickson: I couldn’t agree more.

Well, my Fitbit is telling me it’s actually time for my workout, so I’m wondering whether we should just leave it there.

Maria Bruno: I thought you worked out this morning before you did this.

Joel Dickson: Hey, I’ve got to stand up every hour, otherwise I get a nastygram on my fitness tracker.

Maria Bruno: Okay. You go do that, Joel. I will thank our listeners.

Joel Dickson: For putting up with us yet again. We have some fun with these podcasts and lots of different topics that we try to address. Hopefully, from a listening standpoint, we’re getting something out of it as well.

Maria Bruno: So to learn more about Vanguard’s investing philosophy, our listeners can go to for a closer look at our investing principles and further research around the topics. They can also go to and search for “investor education” to learn more about investing and then some of the things that we talked about today. So with that, Joel, I want to thank you. I want to thank Jonathan for joining us in the studio, and our listeners. Look forward to next time. We hope you enjoyed this episode of The Planner and the Geek. Just a reminder that you can find more episodes of The Planner and the Geek on iTunes and on

Joel Dickson: Or simply subscribe to our series and you won’t miss an episode. And please don’t forget to rate us on iTunes. Your ratings will make it easier for others to find us when they’re looking for investing podcasts. Please join us next time for another episode of The Planner and the Geek.


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