Jun 21, 2022

A New Look at Clean – and Life

A couple of years ago I heard a young guy, James Hamblin, on National Public Radio talking about his new book, Clean: The New Science of Skin. He was challenging our modern norms on cleanliness. In his uncontentious style, he explained how important it was to wash our hands a lot. But he also questioned how necessary it was to suds up our forearms every day in a hot shower. Or do we need a daily shower at all?

I was intrigued by his comments and did a quick internet search on him. He's an M.D. who changed careers into journalism. He looks so young that he is still compared to Doogie Howser, the teenage physician from the sitcom by the same name.

I have heard similar things before. A friend of mine told me several years ago that his dermatologist told him he didn't need to wash his feet, that any water and soap from a shower is sufficient cleaning. I haven't deliberately washed my feet since, and they look about the same today as they always have.

I heard that antibacterial soap is not good for your body and regardless, doesn't clean any better than Ivory. So I quit using antibacterial soap whenever possible.

Years ago when one of my sons was in college, he told me that he hadn't washed his hair in over a month. He claimed it was as clean as it had always been. I tried a lite version of what he was selling. I started washing my hair every other day, using as little shampoo as possible.

I quickly noticed that I no longer had to add gel to my hair. My natural oils were apparently providing the same effect as some fancy French product. My hair feels clean but now it isn't nearly as dried out as it was.

Later, I asked the woman who cut my hair for years if she noticed anything different. She kept looking at my hair, ran her hands through it and, mystified, said it looked like it always did. I explained my new hair treatment and she told me that she mostly does the same. She said that shampoo is hard on your hair and shouldn’t be used daily.

I remembered back to my Saturday night baths as a kid. I loved baths, but like most kids, they were once a week. Between baths, I did what most kids in rural Northern Michigan did. I played outside when possible, including a lot of time in the grass and dirt. I don't remember feeling dirty.

By high school, I was into the daily shower, including a heavy lathering of my hair, a routine I maintained for decades, except for an occasional soap brand switch.

There was one notable exception. For three summers over an extended college experience, I lived canoeing and camping in the Northwoods. It was a life I loved, and in my dreams I would spend the rest of my life in a cabin.

My friend's wife found this interesting. She shared with me her longing for the American dream, a house with a white picket fence. I had no such dream. A one-room cabin with a water pump, wood stove and outhouse was all I wanted.

While living in the woods those summers, the daily shower wasn't happening. But I did spend a lot of time in the water. Other than regularly washing my hands, I cleaned up twice a week, mostly in a lake, using a small bar of soap and a bit of dish soap. No gel. No deodorant. No hairdryer.

Modern cleanliness is an attractant for flies, and the longer I was in the woods and the less I washed, the fewer flies I had to fight with. Eventually, I felt like I was part of the nature that surrounded me. I rarely felt dirty. Quite the contrary, it was the best my skin has ever felt, tanned and weathered, and a bit leathery.

My friend's wife got her white picket fence. Like her, I and most of my friends did the same. I have to admit that it is a comfortable life. I like my pick-up. I like being warm and comfortable. But in some alternative universe, a side of me could still spend at least a portion of my life living much closer to nature.

So when I hear someone challenge the value of a daily shower, I'm curious. After listening to Mr. Hamblin's simple and clear message that modern society has probably overdone what it means to be clean, possibly to our detriment, I started on a new journey, cautiously following the path of less may be more when it comes to clean. My wife notices nothing different. And the only difference for me is my morning bathroom drill is faster than ever.

I finally read Mr. Hamblin's book. It is quite intriguing. It is not a scorched earth assault on modern life and he never suggests that the world follow his lead. What he does, though, is present a short history of cleanliness and the factors that may have pushed our society too far from its roots. He is suggesting a more moderate approach to health and cleanliness, one that may appear more radical than it actually is.

Mr. Hamblin has done extensive research exploring how we got here, examining both the science and the culture of clean. He talks to various medical doctors, scientists, marketeers, capitalists and many others exploring the meaning of clean and its effect on our bodies. He finds that contrary to public perception, the concept of cleanliness is tied up more with class and beauty than with heath and germs.

It is said that we all come from nature and we all eventually return to nature, so staying close to nature may be a good plan for your time alive. This has been my experience.

The currently accepted theory for many diseases is that they come from germs. Modern life leans heavily on removing these pathogens from our environments, which leads neatly into keeping ourselves and our environments clean.

However, contrary to what many want to believe, our bodies do not exist alone. Rather, they are part of a microbiome, the microbes such as bacteria, fungi, viruses, and their genes that naturally live on our bodies, the people we connect with and all of nature that surrounds us.

Humans cannot live apart from their microbiome. Each of us has literally trillions of microorganisms that live inside us and on our skin. We and these microorganisms have evolved together.

In our efforts to rid ourselves of “germs,” Mr. Hamblin presents strong evidence that we have introduced new medical problems. These problems could come from daily showers, over-processed food, sanitizers, separation from nature and the outdoors, and even antibiotics.

Mr. Hamblin’s suggestion is that we move closer to our microbiome that we are inexorably connected with, that we slow down this senseless fight and that we instead embrace the complexities of the nature that we are intricately part of, that is itself an extension of ourselves. His claim is that our obsession with being clean is harming the microbiome that keeps us healthy. That is, cleanliness is probably bad for our health.

So how did we get here? Here is what I have learned.

Soap is a product that has been available for a very long time, and works about the same today as it always has. The basic process is trivial and most soaps are nearly identical chemically. The rest is sales and marketing. Surprise, surprise that capitalism and our obsessions with ourselves can get us so far off track.

Soap became a household product once it could be produced economically, and then it went from being a luxury to a requirement for living in modern society. Now to even speak of not showering is, as it has been put to Mr. Hamblin, "not really dinner conversation."

Cleanliness is about more than just the broad availability of soap. In past eras, many more people died of infections and injuries than from chronic diseases. Because of advancement in healthcare, including our ability to fight infections, our life expectancy has risen and chronic disease has now become our leading cause of death.

Eczema, acne, psoriasis, multiple sclerosis, diabetes, Crohn’s disease, asthma, allergies and many other autoimmune diseases are all on the rise, some as much as three times what they were just a few generations ago. For example, hay fever was once almost exclusive to isolated, well-off individuals, while farmers who were regularly exposed to higher levels of pollen almost never got it. Today, it is widespread. And this rise in autoimmune diseases is in spite of advances in skincare and modern medicine.

For example, Mr. Hamblin provides evidence that adolescent skin problems are probably worst today than ever possibly because of our efforts to keep unnecessarily clean. He suggests that it is at least worth a try at dropping the common skin remedies, and instead to start washing our faces far less often.

Some of this rise in chronic conditions is because so many people now live longer than in generations past. But other factors include our move from a rural society to an urban society, and our obsession with cleanliness, at least partially because our brains still disproportionately fear infections.

Excessive cleanliness and urban life both further remove us from our microbiome, which may be a big part of our problem with rising chronic illnesses. He notes how children who grow up on farms tend to have lower rates of asthma, hay fever and allergies compared to city kids. Microbiologists have found that Amish people, who spend most of their lives working on farms, have very low rates of autoimmune conditions and associated inflammation.

There is strong evidence in reverse, that low rates of asthma, allergies, eczema and skin problems, are strongly correlated with low rates of skin cleaning.

Science is coming to understand that there is a complicated relationship between our bodies and microbes. This includes their important role in developing our immune systems. Most skin microbes are harmless. They create antimicrobial substances that protect us from pathogens by competing with them for space and resources, lessening the likelihood of autoimmune conditions.

If we scrub off these microbes and the natural oils on which they feed, we lose some of our exposure to the microbes that surround us, microbes that are mostly needed by our bodies, and this may contribute to the increase in autoimmune diseases.

This “biodiversity hypothesis” doesn’t propose that hygiene is bad but that the loss of different kinds of microbes is bad—that modern inflammatory and autoimmune diseases are linked to us being deprived of exposure to the microbes we evolved to be exposed to, including pathogens, as well as beneficial and neutral microbes. And we aren’t just deprived of them by washing and using antibacterial products, but in all the ways we are today isolated and sterile, living in a world that may be too clean.

When people now spend most of their lives indoors, scrubbing all the microorganism they can, they are lacking the wealth of bacterial particles that used to temper our immune systems.

The best advice right now is to think of hygiene as similar to medicine—extremely important in some scenarios, and also very possible to overdo. The same goes for exposure to microbes. Historically, exposure has been a much bigger danger than over-cleaning. Now, in much of the world, it is the reverse.

Which brings us back to our morning shower, sudsing ourselves with our favorite antibacterial deodorant soap, making sure our forearms are clean enough for modern society. I’ve known people who carry the daily shower over to other areas, daily washing every towel and every piece of clothing worn by the family, including the kids’ pajamas.

I spent some time researching this topic, and found little written on it. Most of the mainstream websites – Mayo Clinic, WebMD, CDC, Cleveland Clinic – sell the same message as soap manufacturers. They even note that a daily shower may be needed for your mental health.

Wikipedia has an entry on the “hygiene hypothesis.” It notes that studies have shown that various immunological and autoimmune diseases are much less common in the developing world than the industrialized world, and that immigrants to the industrialized world from the developing world increasingly develop immunological disorders.

I found suggestions that kids shouldn’t be protected from dirt, that eating some dirt is probably good for your system and its ability to fight off infections.

About the only consensus, though, is that you should wash your hands a lot, brush your teeth every day and avoid antibacterial soap. The rest is up for discussion.

Mr. Hamblin suggests a measured, more minimalist approach. As for showers, the consensus is to use them “conservatively." Mr. Hamblin once went five years without a shower.

I quit washing my feet years ago, I quit showering every day and my hair gets a small fraction of the shampoo it once did. I brush, floss and shave daily. After that, it varies. My wife notices nothing different, and I’m sure no one else notices anything different, either. My hair isn’t nearly so dry. I use a lot less water.

I’m being far more cautious than Mr. Hamblin, but I intend to keep pushing the parameters, taking a measured approach. I’ve always maintained that fighting Mother Nature is a bad plan. For all our Western independence, we’re far more locked into the living world we inhabit that any of us want to believe.

May 11, 2022

I Bonds Are Back!

U.S. inflation is now 8.3% and our president has made fighting inflation his top domestic priority. It's no surprise, then, that I bond sales are up over ten times what they were a year ago. Yes, these boring inflation adjusted savings bonds are the new rage, providing a high rate of return on a very safe investment.

I bonds are a great long-term investment for just about anyone, and always have been. Technically, they are Series I savings bonds. There are also Series EE savings bonds, the savings bonds we are more familiar with that were first available around the time of World War II.

I bonds are issued directly from the U.S. Treasury Department at no cost and no fees ever, and come with a variable rate of return based on recent inflation. Therefore, your money is protected from inflation.

This makes I bonds probably the safest way to protect your money, safer than dollars that are exposed to inflation. Although their guaranteed rates of return are low, comparable with savings accounts, they quickly adjust upward to any rising inflation, something a bank account does not do.

Because of the current rate of inflation, new I bonds are now returning over 9.6%. Compare that with 3% for a 10 year Treasury or less than 1% for a savings account, money market or CD.

I bought my first I bonds nearly twenty years ago, making random purchases over several years. I heard some boring National Public Radio guy talking about them, noting their zero expense ratio and their variable rate of return that essentially guarantees you will never lose ground with inflation.

They have worked as advertised. Since I have had them, their rate has been as low as zero (I bonds can never return less than zero) but today some are returning over 11%! During the Great Recession when some bond funds lost nearly 40% of their value, my I bonds were returning over 6%, a nice balance during an otherwise horrible bond and stock market.

I bonds were introduced in 1998 to offer any long-term investor the ability to set aside money for safety against inflation. They are not savings accounts and they are not marketable securities.

I bonds have an annual purchasing limit of $15,000, you cannot cash them in for one year and if cashed in less than five years, you forfeit 3 months of interest. You can also buy them separately for your spouse and kids, allowing more money to be invested in them.

I bonds have a variable yield based on inflation. The bond’s interest rate consists of two components. The first is a fixed rate which will remain constant over the life of the bond; the second component is a variable rate adjusted every six months from the time the bond is purchased based on the current inflation rate.

The fixed rate is determined by the Treasury Department; the variable component is based on the Consumer Price Index for urban areas (CPI-U). New rates are published each year on May 1 and November 1.

As an example, if you purchase a bond in June, the fixed portion of the rate will remain the same throughout the life of the bond, but the inflation-indexed component will be based on the rate published the prior May. In December, six months after the purchase month, the inflation component will change to the rate that was published the month prior (November). Interest accrues monthly and is compounded to the principal semiannually.

The bonds mature in twenty years but if not cashed, are automatically renewed for another ten years at the original fixed rate. The interest earned is taxed but only by the federal government, and if you prefer, you don't have to claim the interest until you cash them up to thirty years later.

I bonds can be part of a program to cover your child’s future college expenses. If you use an I bond to pay for qualified higher education expenses such as tuition, books, and room and board, you do not have to pay any taxes on the gains if your modified adjusted gross income (MAGI) is under $83,000 (2021 single) or $125,000 (2021 married).

My suggestion for long-term investors is that they use I bonds as part of a diversified portfolio. They will never have the allure of some hot stock, hedge fund or cryptocurrency, but they also will never shock you with losses. They are just a plodding way to ensure you reach your goals, minus the drama.

One idea is to buy a certain allotment each month or year and hang on to them until you can either use them for education or retirement. You can also setup an automatic payroll deduction through your employer to make regular I bond purchases throughout the year.

Here are some additional details on I bonds. Check out more information at TreasuryDirect.gov:

  • I bonds are only available from TreasuryDirect.gov or the IRS. The minimum purchase is $25 and the maximum is $10,000 a calendar year. In addition, you can purchase $50 to $5,000 of printed I bonds from the IRS using a portion of a federal income tax refund (see Form 8888).
  • You must have a Social Security number and be a U.S. citizen or resident, or a civilian employee of the U.S. government.
  • The website is dated and sometimes painful. Further, it is difficult to find the specific details of your interest gains. But it works and it's totally free. No fees—ever.
  • You can provide a beneficiary who can then retain the bonds for the full thirty years.
  • At thirty years, the bonds remain but do not earn any more interest, and you must claim all unclaimed interest earned to date to the IRS.
  • You can purchase the bonds into a trust or other entities but transferring them from an individual into a trust is more complicated.
  • During times of deflation, the negative inflation-indexed portion can drop the combined rate below the fixed portion, but the combined rate cannot go below 0% and the bond cannot lose value.

Aug 29, 2021

Proverbs for Today

During the turmoil in the U.S. the last several years, I have occasionally taken a fresh look at what people were saying, regardless of how little sense it has made to me. The commentary I struggle with has come from both sides, left and right, and all generations.

For example, Modern Monetary Theory violates everything I’ve ever thought regarding government finance. From the right, it’s still hard for me to realize that behind Trump’s personally offensive behavior, he actually had some policies that were broadly supported, such as extricating us from a decades-long war in the Middle East.

We have the cancel culture telling us there’s only one right opinion on their subjects. Tucker Carlson, a brilliant media marketing person, is working to out-do Trump, and the Squad torments even Nancy Pelosi. We have people who don’t think vaccines are safe or needed and believe that more people pulled a lever for Trump than for Biden. And the world is consumed by a pandemic that has made many of us lose track of some basics, such as time.

And for a while it seemed that lynching blacks was going to once again be acceptable behavior.

In the mix, Me Too and Black Lives Matter have both gained momentum while too many accept holding immigrants in cages. Equality and identity politics have become the rallying cry for everything, both concepts that have little history of driving cultures.

In my ponderings, I wondered what Proverbs would have to say about my struggles. So I read the book, along with some additional commentary. Assuming for a moment you won’t consider writings from thousands of years ago fake news, today I’m sharing my experience with this ancient book. My observation is that it has a lot of good advice for anyone - any religion or not, any political persuasion, any country, any time. Here’s what I learned.

A proverb is a short, traditional saying, often in metaphorical form, that expresses some obvious truth or familiar experience which may be applied to common situations; an adage; a maxim.

Examples include “a path is made by walking,” or “be swift to hear, slow to speak.” “Haste makes waste.” “Practice makes perfect.” “A penny saved is a penny earned.” Or from Afghanistan, “You have the watches, but we have the time.”

The first proverbs came from Egypt about 3000 B.C. About 600 years later Ptahhotep, an Egyptian minister, attained high repute for his wisdom. He wrote the first known piece of Egyptian wisdom literature, “The Maxims of Ptahhotep.” It is possibly the oldest known book in the world. This Egyptian "wisdom literature" was meant to instruct young people in appropriate behavior, with speculations about the very worth and meaning of human life.

Wisdom literature is universal among more advanced cultures, including Egypt, Sumeria, Babylonia, Persia, India and Israel. It was pervasive throughout the ancient east.

The most famous examples of wisdom literature are found in the Old Testament, including Proverbs, but also Job, Psalms, Ecclesiastes and Song of Solomon. I grew up with the protestant Bible and have read it most of my life.

Proverbs are probably the oldest existing documents of the Hebrew wisdom movement, generally attributed to Solomon. Both the Jewish Bible and the Quran consider Solomon a prophet, and a wise and famous king of Israel, dating to the 10th century B.C.

Proverbs is put together from numerous independent collections around the 4th or 5th centuries B.C. Its earliest collections came into being about 700 B.C.

The word proverbs comes from the Latin word proverbium, “a common saying, old adage, maxim.” It literally means “words put forward.” The Latin comes from the Greek, pro,which means “forth,” which is derived from the Proto Indo European (PIE) language root, per, meaning “forward, in front of.” Verb is from Latin verbum, “verb” or “a word,” from the PIE language root were, “to speak, say.”

About half of Proverbs is short, catchy sayings implied by the English word, proverb. But the other half is made up of longer poetic units of various types. These include "instructions" formulated as advice from a teacher or parent addressed to a student or child; dramatic personifications of both Wisdom and Folly; and the "words of the wise" sayings.

Proverbs is composed of 31 chapters, divided into several distinct sections, each section sometimes its own collection of wisdom literature. The first nine chapters are an invitation to the young to take up wisdom as a model for a successful life. The next thirteen chapters, the bulk of the book, have hundreds of sayings, often contrasting the wise person with the foolish person.

The third section (three chapters), titled the thirty sayings of the wise, appears to be a facsimile of an Egyptian wisdom text written by Amenemope (“The Instructions of Amenemope”), dated to 1250 B.C. The fourth section picks up from the second section, focusing now on social awareness, contrasting the just and the wicked, and the rich and the poor.

The final section (five chapters) is attributed to Hezekiah, who according to the Hebrew Bible was a famous king of Judah around the 8th century B.C. The remainder of the book is a mix of appendices that cover a multiple of random subjects.

So what does Proverbs have to say for today? I looked through the current issues plaguing the U.S. and address three areas: prudence, justice and temperance.


Prudence is the importance of wisdom, discipline and reason. Today, we see a country that seems to have left these traits behind, whether instant gratification, avarice, debt, dishonesty, foolishness or general disregard for inner human qualities.

Proverbs first challenges us to seek wisdom versus folly. It asks again and again, “Do you see persons wise in their own eyes? There is more hope for fools than for them” (26:12). “The wise lay up knowledge, but the mouth of a fool brings ruin near” (10:14). I wonder where the anti-vaxxers lie on the wisdom-fools continuum?

Or the notion that we can borrow our way to prosperity? If this is such a great idea, why didn’t we do it centuries ago? (Countless countries have tried, and for the most part failed miserably.) Does anyone but a fool believe our recent election was “stolen”? If so, by whom?

“Do not answer fools according to their folly, or you will be a fool yourself. Answer fools according to their folly, or they will be wise in their own eyes” (26:4-5). We would be wise to answer today’s fools accordingly.

The wisdom of Proverbs doesn’t say we’re all equal, a common notion of modern society. Instead, it says that “One is commended for good sense, but a perverse mind is despised” (12:8). Or "Wise warriors are mightier than strong ones... Wisdom is too high for fools; in the gate they do not open their mouths." (24:5-7). Or “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty” (21:5).

Think buying things you can’t afford. Hasty comes only to poverty, says Proverbs. “How much better to get wisdom than gold! To get understanding is to be chosen rather than silver” (16:16).

And finally a word to those who see debt as their ticket to freedom: “The borrower is the slave of the lender” (22:7).

Instead, today, we have an abundance of people who value those who talk over others, whether our leaders or our media. Proverbs has plenty to say to them: “To watch over mouth and tongue is to keep out of trouble” (21:23). “One who spares words is knowledgeable; one who is cool in spirit has understanding. Even fools who keep silent are considered wise” (17:27-28). “The mind of one who has understanding seeks knowledge, but the mouths of fools feed on folly” (15:14).

Shame, mouths of the wicked, babbling fools, perverse minds, mouths of fools, folly, haste. I see too much of it in our society.


Proverbs speaks clearly in support of justice, including social justice, and despises injustice, depravity, decadence and laziness. This includes respect for righteousness, harmony, charity and generosity.

“When justice is done, it is a joy to the righteous but terror to evildoers” (21:15). “Whoever sows injustice will reap calamity” (22:8). “The evil do not understand justice” (28:5) “Some give freely, yet grow all the richer; others withhold what is due, and only suffer want.” (11:24). “The righteous know the rights of the poor; the wicked have no such understanding” (29:7).

George Floyd’s nine minute strangulation by four police officers - all on video - has challenged the notion that the U.S. provides proper justice and charity to its minorities. The video vividly shows how little terror exists within parts of our police, and at times how truly wicked they can be. It brutally displayed the lack of respect segments of our society have for other groups.

I acknowledge that the U.S., with 4% of the world’s population, is incapable of taking in all the millions of people around the world that would so welcome immigrating here. We are in the enviable position of having to secure our borders, not to keep people in but to keep others out.

At the same time, people seeking to immigrate here are often in difficult circumstances, badly in need of help. So, although we justifiably cannot fix the problems of all those asking our help, we can still be kind, generous and sensitive to their issues. Washington - both parties - has been negligent in developing a reasoned approach to this complex problem, compounding the suffering.

Still, this is little excuse for our sometimes insensitive and even callous behavior. An example is our policies to punish so-called sanctuary cities, where our citizens are trying to provide a modicum of social justice. Other examples include indefinite detention, separating families and efforts to arrest illegal immigrants while engaging in otherwise legal behaviors.

What does Proverbs say regarding those who are not in power? “Open your mouth for the mute, for the rights of all who are destitute. Open your mouth, judge righteously, defend the rights of the poor and needy” (31:8-9). Those who are generous are blessed, for they share their bread with the poor” (22:9-11).


Proverbs values temperance, the quality of balance and moderation, restraint, discipline and decorum. Compare these values with many so prevalent in today’s society: a bad tongue, arrogance, obesity, anger, pride and vainglory.

“Pride goes before destruction, and a haughty spirit before a fall. It is better to be of a lowly spirit with the poor than to divide the spoil with the proud” (16:18-19). “When pride comes, then comes disgrace, but with the humble is wisdom” (11:2). “Before destruction one's heart is haughty, but humility goes before honor” (18:12). “Like a city breached, without walls, is one who lacks self-control” (25:28). “Do not boast about tomorrow, for you do not know what a day may bring. Let another praise you, and not your own mouth—a stranger, and not your own lips” (27:1-2).

Ironic, isn’t it, that white evangelical protestants were primarily responsible for giving us a leader who has little value for temperance or justice, and not a lot of prudence. And this same group persists today, willing to lead an insurrection for a man who is the antithesis of Proverbs. Decorum, restraint, harmony, charity, judgement. These are words that he does not know.

I wonder how such church-going, religious Christians can reconcile their leader with a Bible that shouts otherwise.

Proverbs presents a picture of the proper human life that is far different than much of what we see today. It emphasizes wisdom versus folly, temperance versus excess and extremism, and justice versus inequality and bias.

But a world that dismisses wisdom is hardly much interested in what anyone said thousands of years ago. I would ask, though, that we consider for a moment that people are rarely as smart or independent as they think they are, and some quiet contemplation may present a better way forward than today’s shouting match.

And for those who don’t share my Judeo-Christian heritage, I suggest that you look into your own traditions. Wisdom literature and proverbs are widely found in probably all cultures. And I suspect their observations are quite similar.

Mar 10, 2021

The Case for Coverdell Education Savings Plans

Much is written about 529 plans, the standard tax-advantaged savings plan for a college education. (They are legally known as “qualified tuition plans,” authorized by Section 529 of the Internal Revenue Code.) Their benefits are wonderful - nearly unlimited savings and tax advantages, flexibility and sometimes a state tax credit or deduction.

For those few with significant resources, it is the no-brainer choice for putting away tens of thousands of dollars into a tax-free college fund for your children's college education.

But for most parents, a Coverdell Education Savings Plan (ESA) not only works just fine, they generally provide more investment options and lower fees. Further, withdrawals can be used for qualified elementary and secondary education expenses as well as for college.

Coverdell accounts limit contributions to $2,000 a year per child for those with an adjusted gross income under $220,000 (joint). But the vast majority of households are under this income limit. Further, for the average family with about two children, saving $4,000 a year is realistically about their college savings limit.

Both 529 plans and Coverdell ESAs offer great benefits. They allow for tax free growth as long as the proceeds are used to pay for qualified education expenses. The plans remain your assets, not your child's, which means you are not committed to giving them this money.

And because the assets are yours, they have significantly less negative impact on financial aid. (Note that if funds are not used for education or other purposes the IRS approves of, the gains are eventually taxed with an additional penalty.)

529 plans are set up separately in each of the fifty states and their rules vary by state. In general, contribution limits are much higher than Coverdell’s, there are no income limits for contributors and have no age limits for beneficiaries.

Further, some states offer a state income tax deduction or credit for contributions to 529 plans but not for Coverdell plans. Again, these are great benefits for high income families trying to save a lot of money for their children's college expenses.

But at the more modest income and savings levels most of us live, a Coverdell ESA is often the better plan. Further, even if you have a Coverdell ESA, you can also have a 529 plan. Here's how the Coverdell works.

Coverdells are widely available at large brokerage firms, such as TD Ameritrade, E-Trade and Charles Schwab, with low minimum balances and no annual fees. You can generally invest in most of what they sell, which is just about everything, usually with no trading costs. Further, they offer broad very low-cost indexed funds, which are considered the best investment for most investors.

For example, you can open a Coverdell at Charles Schwab with no minimum and no maintenance fees. They charge no commissions on online equity trades with no minimums on trades. They also offer standard indexed funds with fees as little as .03%. Note that this is three hundredths of one percent, which is essentially zero. For a typical education savings account of $25,000, the fee comes to less than ten dollars a year.

Here’s some quick math on such a Coverdell. Over the past 100 years, the S&P 500 index (an index of the 500 largest U.S. stocks covering approximately 80% of the U.S. market capitalization), has returned a little over 8% a year after accounting for inflation.

Let’s assume you invest the maximum $2,000 a year into an S&P 500 indexed fund with near zero expenses. Assuming an average rate of return, your child will have about $80,000 in their Coverdell account in today’s dollars, which would cover most of the expense of a 4-year in-state college degree.

Let’s compare this with a 529 plan. My quick check found that most firms admit to fees up to 1% a year, an amount that could cut your total return significantly. 529 plans generally invest in a limited number of mutual funds, which tend to have higher turnover in their accounts, raising the total fees for these funds.

In life, simple and easy is not always preferable to complex and difficult. But in the financial world today, simple and easy usually means cheaper and better. In the past several decades, largely because of software and the internet, complex financial dealings have become simple products readily available at ultra-low costs to almost anyone.

But financial firms have struggled moving to a world where much of their former work has become largely valueless. Therefore, many work hard to obfuscate how little is needed to get a great return on your investments, instead encouraging products and services you probably have little need for.

This appears to be the case with 529 plans. Most aren’t set up, as are Coverdell’s, to have you simply invest your money in a near-zero fee indexed exchange traded fund, where the firm receives little income and you receive almost all of the gains from the underlying investments.

I did some research on 529 plans offered by Edward Jones. They quickly told me that “investing is personal” and immediately wanted my name so they can put me in touch with one of their financial advisors “to help.”

Unfortunately, these financial advisors are probably not going to help show you that your best option may be an ultra-low-cost Coverdell account where their firm will get less than $10 a year in fees. No surprise, Edward Jones doesn't even offer them. Instead, they quickly try to convince you of all the benefits of their 529 plans.

I tried to find fee information for their 529 plans. I never found any figures but I did find this buried away in their documentation: “529 plans will have fees and expenses, which will lower the rate of return. 529 plans generally carry sales charges (and) built-in operating expenses that affect the fund’s return (including) distribution and marketing fees (12b-1 fees), management fees, networking fees, annual account maintenance fees and transaction fees. Edward Jones receives a portion of the sales charge on 529 plans, and your financial advisor receives a percentage of that sales charge. Further, Edward Jones receives ongoing service fee payments, provided by the 12b-1 fees, and your financial advisor receives a portion of those ongoing service fees.”

Sales charges, distribution and management fees, networking fees, annual maintenance fees, transaction fees, sales charges, service fees. Only a fool would believe their fees are anything close to the $10 a year a typical education savings plan can cost you in a Coverdell ESA with a low-cost brokerage firm.

In comparison to these often complicated plans, a Coverdell ESA is just a simple brokerage account with IRS tax advantages. Otherwise, they function as another brokerage account, often including ultra-low costs.

Coverdell accounts have one other great feature, and that is they generally allow you to purchase almost any investment sold by the brokerage firm. In comparison, 529 plans are often limited to a subset of their mutual funds, often with higher fees than low-cost indexed exchange traded funds broadly offered by brokerage firms.

If you have a 401(k), this may sound familiar. 401(k)s are great retirement savings plans, but a little investigation shows that the same money in an IRA with a low-cost brokerage firm offers far more investment options at a lower cost. That is why whenever you are given the option, it is normally wise to transfer a 401(k) into an IRA, but that’s another topic.

529 plans are a great plan for many, especially for high-income taxpayers, primarily because they have few upper limits for income and contributions, and can offer a state deduction or credit. But when these are not considerations, which is true for most of us, a Coverdell account is a better option. They generally are easy to set up, have lower costs and more investment options, and provide more ways that the money can be used for a child’s education.

As always, 529 plans are different for each state and Coverdell accounts are different with every brokerage firm, so you are encouraged to do your own research before investing in anything.

Jan 11, 2021

Investing for 2021

We just closed out one of the most dramatic years for investing in a long time. The NASDAQ rose nearly 50% in the past year and has nearly doubled in the past two years; the S&P 500 rose 18% in 2020 and is up nearly 50% (including dividends) in the past two years. Tesla is up about nine times in a year, 25% so far in 2021, and bitcoin nearly five times in a year.

Ignoring for a moment the short and steep COVID drop this past March, 2020 continued what may be the biggest and best bull market ever. It started just weeks after Obama took office twelve years ago. From that low, the S&P 500 has risen over five times.

So where do we go now with this "everything rally" continuing to climb? I'll start with my general investing thoughts for any time.

The message that may be hardest to hear in a moment like this is that market timing is a bad plan. But it is still the plan that the human mind naturally goes to. A short history in human evolution shows that for most of our existence, the longest time frame normally needed for survival is one revolution of the earth around the sun. That's a good time period for growing crops, hunting animals and selecting a place to live.

And that's about the timeline that people unfortunately use for many aspects of modern life, specifically investing. Whereas following the crowd has been solid fishing advice for eons, it's not very good advice for investing. Buying now into any of 2020s hot investments is most likely a bad timing plan, but it is the prevailing thought.

Unlike fishing, market timing normally turns into "buying high, selling low." The people that make money in hot markets are those who were in early and stayed in. The people who lose get in late and then leave after they've lost.

Market timing mostly devolves into chasing returns, sometime referred to as "managing for mediocrity." The adage "a fool and his money are soon parted" aptly applies.

So what can we do in a hot market like today? One of the first things is to evaluate how you are currently invested. What is the allocation you earlier established for your investments, if any? The simplest thing to do is to reallocate back to where you said you wanted to be. That's an easy way to "sell high."

Whether or not you have an allocation established, this is a good time to revisit that allocation. Consider how, regardless of recent returns, you should have your money allocated for the next several years. A good approach, regardless of age, is to keep any money you need in the next five years in cash or fixed income investments, and invest the rest in equities. Equities can safely be kept in a simple, low-cost S&P 500 index fund. They also can be partially allocated into foreign markets.

Another good review of your investments is to figure out the expenses incurred with each investment. Modern technology has made equities available to even the smallest investor at almost no cost. If you have funds charging over .5%, they should go.

Many "no-cost" investments have insidious hidden fees. Funds with high turnover are indirectly charging you for all their trading costs. 401K's are notorious for high fees. If you are able to transfer out, fees are normally considerably lower in an IRA with a low-cost brokerage firm than in a 401K. (But be careful with any transfer to ensure you are not taxed or penalized.)

If you are using a professional investment manager, make sure you understand where they make their money. They are professionals not just at managing your money, but also managing it to ensure they are paid well for their services.

As part of a review of your investments and allocation, also be sure you include all your investments, including you (and your spouse's) 401Ks, IRAs, savings accounts, savings bonds and brokerage accounts.

Do you understand everything you own? If not, either research the investment so you do understand what it is, or sell it and buy something you do understand. The two easiest investments for a well-managed portfolio of any size are an S&P 500 indexed fund and an indexed U.S. bond fund (commonly indexed to the Bloomberg Barclays Aggregate U.S. Bond Index). Both are widely available at almost no cost, either as mutual funds or exchange traded funds.

I've survived two horrendous market crashes, the 2000 dot-com crash and the financial crisis of 2007-2008. The first was a bubble in tech stocks where the NASDAQ lost 78% of its value. The second, part of the Great Recession, was broader, with the S&P 500 dropping 56%. I suspect we are in some form of equity bubble today.

But bubbles can expand for years longer than imaginable. And they can quickly crash unceremoniously, or they may drag out poor returns for years. That is, timing what will happen in the next few years is nearly impossible.

I've vowed that I will never again be caught surprised by a crash, but here we are again. For any of you who think it is time to get out, ask yourself what you will do if the market doubles in the next few years. I've known people who waited years after the last crash for still bigger drops. They lost out on most of this current bull market.

And if you do get out, when will you get back in? After a 20% drop? 30%? 50%? There's no guarantee any of these benchmarks will ever be reached. In fact, the market may never again be lower than it is today.

So here's my 2021 advice. Take this opportunity to familiarize yourself with your current investments and to revisit your target allocation. Understand where your costs are and where you have essentially duplicate investments. Then quickly reallocate to your plan, possibly with some consolidation of equities. Don't buy anything you don't understand and don't buy anything you aren't comfortable owning for several years.

And stay there. If the market changes dramatically, up or down, deal with the changing environment by reallocating.

For years I have done this. When markets are raging, I will occasionally and painfully sell some equities. When markets head down, I just as painfully take the opportunity to buy into a market I do not like. Occasionally, only by accident do I get it right, selling at the highest point and buying at the lowest point. But in total, I'm buying low and selling high.

When surrounded by wonderful stories of stocks doubling and more, it can be tempting to want to buy some individual stocks. Normally, the returns don't justify the risk but it's not all bad thinking. If you do, be sure you understand what you are buying and why you believe it is at least a stable investment.

If a stock drops quickly, you may want to sell before you get in too deep. If it rises, be aware that stocks can rise for a long time, even after their financials don't support it. At its worst, you may learn something about yourself. A safe place to start is the list of S&P 500 Dividend Aristocrats, the bluest of blue-chip U.S. stocks.

At a larger level, your 2021 resolution may instead be to find yourself a financial advisor who can help with all your financial needs, such as insurance, debt, kids' education, emergency funds and retirement. But like your investments, be sure you understand their fees. A danger sign is when they offer their services, including personally directly all your accounts, for free. These are normally the highest cost services, mostly hidden from you. Your best start is with a Certified Financial Planner who works on a set fee.

Good luck. And let's hope that our investments are our biggest problem in 2021!