Years ago I contributed to a CMU (Carnegie Mellon University) fund to honor John R. Thorne. I received a short report on the performance of that fund this week. I quickly calculated 10% return the last year. That led me to the annual report on CMU’s total endowment fund. It’s similar to most university endowments: they have the goal to beat the heck out of public stocks and bonds. They invest in things that we individuals can’t invest in. Publicly traded stocks and bonds are only about 35% of the total. Private equity is 45%. Hedge funds are another 12%.

 

Are they killing it? NO. Lil old me with four index funds has done better. You’ve done better if you follow the recommendations in Nest Egg Care. We’re not missing out on far better investment opportunities only available to the big guys.

 

Details:

 

Here’s the endowment’s investment mix: that looks COMPLICATED!

 

 

Here’s the performance comparison: I win for all periods displayed.

 

 

The endowment’s mix is 85% equity and 15% fixed income; I used 80% and 20% in my calculation. Had I used 85%-15% (my current mix), my returns would be about ½ percentage point better per year.

 

====

 

I scan this report that reports on the performance of more  than 650 university endowments for the fiscal year ending June 30, 2024. I think the CMU endowment performs better than average. Private equity and hedge funds do not look like paths to riches.

 

CMU’s Chief Investment Officer is the second highest paid employee the University: $1.5 million in 2024!

 

 

Conclusion. We individual investors can’t invest like the big boys can. We can’t invest in private equity or hedge funds to get superior returns. A class of big boys, university endowments invest far more in private equity + hedge funds than publicly traded securities in their effort to dramatically outperform. I show in this post that at least one does not outperform us little guys who hold just a few broad-based stock and bond index funds.

I had a very good picture of our 2025 tax return by January 10 this year. I think you can get a very good picture of your return in about an hour. I’m actually looking forward to completing our return this year!!!

 

1) I made a simpler, clearer template of the 1040 for 2025 as compared to one I provided before. I show lines of the return as they appear on the 1040. Here it is for married, joint filers and for single filer. (I think I’m accurate on the calculations, but no guarantees!)

 

2) I made a list of where I get all the input for all the lines. I can get most that we need for an early look from our 12-31-25 brokerage statement. Our final tax reporting document (due tomorrow) is going to agree with it, but it will have some added detail. One detail is Section 194 dividends that determines the QBI deduction for line 13a of our 1040.  

 

I think you can complete your spreadsheet in less than an hour if you are familiar with your brokerage statements. My task may be easier that yours: we don’t itemize deductions (Schedule A). I really don’t need to track those expenses for our tax return. I do track them out of habit, however.

 

My estimate says we will owe about $450 in taxes before April 15 this year. I need that estimate of taxes due (or refund), since, as I recall, that’s about the only way to track if I’ve been accurate and complete as I progress through TurboTax.

 

 

Conclusion: I prepared two spreadsheet that display the lines on 1040 for 2025: one for married, joint filers and one for single filer. I can fill it out and get very close to what our 1040 should look like well before I get our final consolidated tax return from Fidelity. I provide the list that tells me where and when I can get the information I need. Most is from our year end brokerage statement.  

Nope. Inflation reported Tuesday shows a small uptick in inflation for December, but inflation over the last six months is not much different from prior months. Our annual rate of inflation is about 2.6%, and this is not much different than the last six-eight months. It’s not pointing to the Federal Reserve’s target of 2%, but one cannot conclude that it’s increasing.

 

I display a table and four graphs that I use to follow the trends in inflation. One that I normally include has not been updated since September.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation is the most widely reported measure of inflation. December inflation was higher than the average for October and November, and higher than nine of the prior 11. But the rate for last six months was at 2.8% annual rate; that’s the same rate as the prior four months. The 12-month rate is 2.7%.

 

 

Core inflation excludes volatile energy and food components. It’s a similar story to seasonally-adjusted inflation. The last six months run at 2.6% inflation, and the 12-month rate is 2.6%.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. I exclude this chart: it hasn’t been updated since September.

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U was 2.7%. That’s 0.1% less than last month. We’ve been bobbling around that rate for about 18 months.

 

 

I add a graph that shows the last three months have been below 0% inflation. The more volatile energy prices have declined over the past year. October, November and December in 2024 were also extremely low.

 

 

== Producer’s Price Index ==

 

This chart was updated this week through November. The six-moth rate is at 2.2% annual rate.

 

 

== Services ==

 

Inflation for services for the last six months average to 2.8% annual rate. The 12-month rate is 3.0%.

 

 

 

Conclusion: The inflation measures released this week for December were in line with past months. We have not seen much of an increase due to greater tariffs. Inflation runs at about 2.6%. We are not trending to the Federal Reserve’s goal of 2% annual inflation.

I like arranging the most recent calendar year returns in the 3 by 3 matrix of the Investment Style Box. I get a snapshot of what outperformed and what underperformed the US stock market as a whole. This post is a repeat of the prior two years. Real stock returns were far greater than their long run average or expected return rate. Large Cap Growth stocks beat the other eight squares in the matrix.

 

 

What this means for you: the winning tactic is to hold a bland, Total Market Index fund

 

• Ten years ago you could have chosen to overweight one of the boxes in the matrix. Only one in nine handily beat the returns of a Total Market Index fund. You would have clearly been wrong to overweight seven of the boxes. Keep it Simple. Don’t try to tilt your portfolio overweight a sector.

 

Details:

 

• The real return for US stocks of ~14% is the third year of double-digit real returns. We have put 2022 behind us. We are up about 25% from where we were at the end of 2021.

 

 

• Large Cap Growth again was the most attractive segment again. It’s been the leader for longer time periods. I show the style box for returns relative to US Total Market returns for 2025 and five, 10 and 15 years here.

 

== 2025 World stocks +22.1% ==

 

The total world market stock index, MSCI All Cap World Index was 22.1% for 2025. US stocks are roughly 60% of market value of all stocks in the world. Total International Stocks (VTIAX) were +32.2% in 2025. (Patti and I own the ETF of this: VXUS = +32.3%.)

 

 

Conclusion: 2025 was a terrific year for US stocks on top of two prior excellent years. The real return for US stocks was ~14%. That’s ~double the long run or expected return rate for stocks.

 

Every year some segments of the market outperform and some underperform. In 2025, the return for Large Cap Growth stocks again beat the other eight boxes in the 3 by 3 matrix that describes market returns.

 

Over a five, ten, and 15-year history, Large Cap Growth has outperformed all other styles. It’s basically the only box that has outperformed a Total Market fund.

Happy Holidays! Last week I went to a talk by Stu Hoffman, past chief economist from PNC. I think I’ve attended this event in all but one year out of the last ten or so. Here are the highlights of his prediction for 2026, barring major geopolitical events:

 

• The economy is good: expect 10% increase in corporate profits.

 

• Stocks accordingly should improve by roughly 10% – their long run average (including inflation).

 

• Bond interest rates will remain where they are and earn a few percentage points greater than inflation.

 

• Money market rates will be a bit lower and roughly match inflation: 0% real return.

 

Details:

 

Consumer spending is strong. Consumer spending is about 70% of our economy, so this is an important component. Spending is going in the opposite direction of the measure of consumer sentiment; Stu doesn’t put much faith in that measure.

 

Many will see lower taxes on their 2025 tax return and the amount that the IRS sends back to taxpayers for over withholding will be much more this year than in the past. They’ll have more to spend.

 

Unemployment is low and will remain low: it won’t go above 5% which is considered low. It’s 4.6% now.

 

Job growth will be okay. Stu thinks job growth will be less than the Federal Reserve forecast of about 55,000 new jobs/month. We have 1 million fewer in the workforce from low immigration and migration.

 

We have 180 million employed. Even a small error rate in the count results in swings and adjustments of employment. The annual number is revised in greater detail in January, and we may find there was no job growth in 2025.  

 

The Federal Reserve will lower interest rates at least two times in 2026. The ten-year US Treasury bond interest rate will remain roughly where it is now, about 4.1%. Bonds prices won’t change much: expect 4% total return.

 

Inflation will fall to less than 2.5% in 2026 and keep falling in 2027. The current level of tariffs is about 11% on average; we are still working through the final effects, and they may settle at 12% or 13%. They are half of Trump’s initial proposal of 25% tariffs.

 

Economic growth (GDP) will be okay. We have no prospects for a recession. Stu thinks GDP growth will be less than 2%. The Federal Reserve forecasts 2.3% GDP growth for 2026.

 

 

Conclusion:  I attended a talk by Stu Hoffman, former chief economist for PNC. Here are the highlights:

 

Expect stocks to return 10% and bonds to return about 4% in 2026. Our economy is good. We will not have a recession. Expect corporate profits to improve 10%. Expect inflation to fall. Expect interest rates to remain steady.

Wow! Inflation reported for October + November was REALLY LOW. We have not had two months with inflation this low in the last +five years.

 

I display a table and graphs that I use to follow the trends in inflation. One that I usually include has not been updated since September.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation is the most widely reported measure of inflation. Oct + Nov averaged inflation of 0.10% per month. Inflation for the last six months was at 2.7% annual rate. This is the same as the 12-month inflation rate.

 

 

Core inflation excludes volatile energy and food components. Oct + Nov averaged 0.08%. The last six months ran at 2.6% inflation. This is the same as the 12-month inflation rate.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. It’s similar to Core inflation, but tends to run a bit lower over time. We have no updates on Oct + Nov. This data is through September. One would expect Oct + Nov to be similar to the two months for core inflation.

 

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U was 2.7%. That’s 0.1% greater than last month.

 

 

I add a graph that shows this Oct and Nov averaged to -0.10% and replaced very low months of a year ago. December of last year was also very low.

 

 

== Producer’s Price Index ==

 

We don’t have data for Oct or Nov. No graph.

 

== Services ==

 

Inflation for services for Oct and Nov was low. The last six months average to 2.8% annual rate. The 12-month rate is 3.0%.  

 

 

 

Conclusion: The inflation measures released this week for October and November were much lower than expected. We have not seen two months with inflation this low for +five years.  Inflation runs as about 2.7%. similar to the rate for the past year or so.

I’ll use this spreadsheet to track how well our portfolio is doing for our calculation year ending November 30, 2026: will we calculate to an increase in our Safe Spending Amount for 2027? (SSA. Chapter 2, Nest Egg Care [NEC]) If you use this date, you can use this spreadsheet. This spreadsheet is a lot simpler than ones I’ve provided in the past.

 

Details:

 

You will enter your age-appropriate Safe Spending Rate (SSR%, Chapter 2, NEC) you used this year and the one you’ll use next year. You’d adjust the cells in the blue column for your weights and mix of US vs. international and stocks vs. bonds.

 

I update this chart on the first of each month. The return data from Morningstar for the prior month and year-to-date are accurate on that date. I get data from the table on the performance tab for each of our securities.

 

== We need 0.35% real return!? ==

 

The calculation for Patti and me shows we will calculate to a real return in our SSA with a 0.35% real portfolio return.

 

 

What the heck! Why so little for us?

 

1. We all just calculated to a real increase in our Safe Spending Amount (SSA, Chapter 2 Nest Egg Care [NEC]). That means all of us assume we are just beginning to ride along on the most harmful sequence of stock and bond returns in history.

 

2. If our age-appropriate Safe Spending Rate does NOT change for the calculation next year, we’d have to earn back more than the amount we withdrew for our spending this year to calculate to a real increase next year. If we earn back all that we withdrew,  we obviously didn’t start on a most harmful sequence of returns. Our real return rate has to be slightly greater than the percentage we withdrew.

 

Patti and I don’t have to earn back all that we withdrew, because our age-appropriate Safe Spending Rate use for our calculation next November 30 increases. We need less portfolio value for the same SSA when we calculate with the the greater SSR%. We withdrew 5.50% and ur SSR% increases by 5.50% [(5.80%-5.50%)/5.50%)]. The math works out that we need a bit more than 0% real return to calculate to a real increase next year.

 

SSR%s increase over time for the same reason our RMD percentages increase over time: our retirement period – life expectancy – is shrinking.

 

 

Conclusion. This post gives you a spreadsheet you can use to track to see if you will earn a real increase in your Safe Spending Amount that you’ll calculate a year from now. Patti and I need a small real return in our portfolio – less than 1% – because I’ll use a 5.5% greater SSR% for the calculation next year.

I use the 12 months ending November 30 to calculate our Safe Spending Amount for the upcoming year (SSA, Chapter 2, Nest Egg Care [NEC]): that’s what we can safely sell from our portfolio for our spending and know that we will not outlive our portfolio. Our real portfolio return for the year was 12.2%. That works out to be 6.0% real increase for our SSA. If your portfolio is similar to ours and you are younger, you would calculate to a greater increase: you would have withdrawn a smaller percentage last year.

 

Details:

 

== 12.2% real portfolio return ==

 

Stocks returned about twice their long-run average of 7.1% real return. Bonds were slightly above their long-run average of 2.3%. Our 12.2% real portfolio return led to our 6.0% real increase in SSA. You can also see this display on this sheet.

 

 

== History of 11 years ==

 

My historical spreadsheet assumes that Patti and I withdrew our full SSA each year. That spreadsheet has a dizzying amount of detail. Here are highlights.

 

1. Our real portfolio returns have ranged from -18.4% (2022) to 22.1% (2024). The average is 7.8% annual return. That’s above the long-run or expected 6.4% real return for our portfolio for our mix of 85% stocks and 15% bonds.

 

 

2. Our investment portfolio increased in real spending power despite annual withdrawals for our spending. I indexed our investment portfolio to $1 million in December 2014 before my first $44,000 sales of securities for spending in 2015. Measured in the same spending power, our portfolio now is $1.27 million before I sell securities for our spending for 2026. The spreadsheet assumes we’ve withdrawn $545,800 for our spending from our investment portfolio; we used our Reserve for our spending in 2023.

 

3. The increases in portfolio value have fueled increases in our SSA. Our SSA – sales of securities for our spending – increased from $44,000 in December 2014 to $70,000 now. That’s a 59% increase in real spending.

 

 

 

 

Conclusion: I calculate our Safe Spending Amount (SSA) for the upcoming year based on our 12-month returns ending November 30. Our real portfolio return was 12.2%. That’s nearly twice the expected return rate on our portfolio of 6.4%. I calculate 6.1% real increase for our SSA. Those younger with a similar mix of stocks and bonds will calculate to a greater increase: they withdrew a smaller percentage for their SSA last year.

 

Our investment portfolio is +27% more in real spending power than we had in December 2014 despite withdrawals that have been more than half of the amount we started with.

My sister-in-law called and wanted me to help her understand how close she and her husband might be to crossing an IRMAA tripwire. I said I would send a spreadsheet. She said she did not know how to use a spreadsheet. I gave her the simple addition. She’ll add without consideration of QCD. If they cross an IRMAA tripwire, they could then use QCD to lower the taxable portion of their RMD. This post shows the addition you can use for your 2025 return to see if you might cross an IRMAA tripwire.

 

You can also plug in what your 2026 return might look like. Your RMD for 2026 may be roughly 10% greater than it was this year: if your portfolio mix is similar to ours, your portfolio is up about +15% year to date; your RMD that you will take soon (if you take it the way I do the first week of December – that’s Monday!) knocks off ~4%  of the amount you have now; and your RMD percentage will increase ~4%.

 

I also include updates to the 2025 tax templates I provided in August: I update to show greater surcharges if you cross an IRMAA tripwire. This one is for a single filer. This one is for married, joint filers.

 

== The addition to get to MAGI ==

 

MAGI for purposes of IRMAA on your 2024 return was line 11 + line 2a: Adjusted Gross Income (AGI) + Tax-Exempt interest. I display all the lines that add to AGI and MAGI. You can download a sheet here.

 

 

Add all your income before consideration of QCD to see if you cross an IRMAA tripwire. If you do, QCD will lower taxable income from RMD.

 

Conclusion: Those retirees with large Traditional IRAs and RMDs worry about IRMAA – the surcharge paid for Medicare B and D that are deductions from Social Security benefits. The tripwires are based on MAGI: that’s AGI (Adjusted Gross Income) + tax exempt interest on your tax return. This post provided lines on your tax return to estimate and add to see if you might cross a tripwire that will trigger a surcharge. If you do, you can sneak under the tripwire with QCD which lowers your taxable RMD.

Popular press reports and indicators of value like the Shiller’s analysis of P/E ratios say the US stock market is way overvalued. Some experts are predicting a crash due to massive government debt, over-hyped AI expectations, Trump’s tariffs and trouble in the lending markets. We aren’t even getting a good picture of how our economy is doing with the government shutdown.

 

The market has boomed the last three years: US stocks are up more than 66% from the -18% real decline in 2022. You have more money now than you’ve ever had in your life. What should you do?

 

 

== Here’s what I did ==

 

I’m sticking with the plan. If a storm comes, I will  ride it out. I have no risk of depleting our portfolio. But I took some “profits” now.

 

1. I sold securities at the start of this week for our QCD donations that are part of our RMD and tax plan. In the past, I’ve sold for QCD on December 1. I thought it prudent to sell now. I can cut the QCD checks now. I can mark that off my checklist of December tasks.

 

2. I “pre-rebalanced” our portfolio. I dislike that rebalancing task each December. In most years, when stocks far outpace bonds, I only sell stocks for our spending and then I sell more stocks to buy more bonds to get to 15% bonds. I grind my teeth on that second sale (or exchange from stocks to bonds). We’ll all be faced with two sales of stocks again this year, since stocks most likely will be far greater in return than bonds.

 

I calculated our mix over the weekend and found that I’ve been sloppy: I did not get enough in bonds last December. That error “cost us” (Patti and me) more portfolio value than we would otherwise have (Oh, the Shame), but we don’t have the proper level of insurance. This was a good time to clean up my sloppiness and hit my design mix of 15% bonds. (I may have to tweak in December.)

 

(I did not grind my teeth when I did this! Maybe I should consider separating this step from my sales in December for our spending for the upcoming year.)

 

= Four years ==

 

My design mix of 85% stocks and 15% bonds means I don’t have to sell a significant amount of stocks for more than four years. I’ll sell about 5% from our portfolio this December and have that in money market for our spending in 2026. The 15% that I have now in bonds is three years of spending: I can avoid selling stocks in December 2026, 2027 and 2028.

 

 

My first sale of stocks would be December 2029, and I wouldn’t have to sell that much then. I could sell the amount that I would sell stocks to withhold for taxes for 2030 and transfer the rest of our RMD as shares from our traditional IRAs to our taxable account. I would sell shares throughout 2030 for the monthly “paychecks” – transfers from our Fidelity brokerage account to our checking account. (I used this tactic for our spending in 2024.)

 

== Is that enough? It’s a judgment call. ==

 

Four years is a good cushion in my mind. I wouldn’t want fewer years. The worst would be a repeat of 2000, 2001, and 2002 in mind: US stocks declined 42% in real spending power those three years. Those three years burst the “Dot-com bubble” of the late 1990s.

 

If I sold in December 1999 for spending in 2000 and then had 15% in bonds, I would have been able to delay selling stocks until December 2004 and pushed most sales into 2005. Stocks rebounded in 2024 with +23% real return. That didn’t get all the way back, but that delay in selling would have been much less damaging to our portfolio.

 

== What I did not do ==

 

I did not consider permanently changing my design mix of S vs. B. That’s not a good way to lower the chances of depleting a portfolio. The far better tactic is to spend a little less from your portfolio.

 

The probability of depleting a portfolio for a given constant-dollar spending amount looks like a hockey stick: your spending rate locks in the number of years of Zero Chance of depletion (the shaft of the hockey stick); you have a rising probability of depleting the years after that point (the blade of the hockey stick). (See Chapter 2, Nest Egg Care [NEC]).

 

 

You extend the length of the shaft when you are retired – gain more Zero-Chance years – by spending a bit less. Not by lowering your mix of stocks. (See Chapter 8, NEC.)

 

Selling just 5% less – that would be 4.75% and not 5% in our case – at 85% S has the same effect on shaft length and blade angle as shifting mix to 60% S. (Graph 8-1 in NEC). But, boy, that can be costly: the table below shows you give up $500,000 in future portfolio value (assuming $1 million start) in 20 or so years if you ride a normal and not Most Harmful sequence of returns. You would always choose to spend $2,200 less per year for 20 years in return for expected result of $500,000.

  

 

== Good stewardship for our heirs ==

 

At our age (I’m 80), we’re not investing just for ourselves. We’re at least partially investing for our heirs. They should be 100% in stocks at their age. Good stewards of the amount they will inherit will have a high mix of stocks but just spend a little less than they could from a lower mix of stocks.

 

 

Conclusion. The pundits think the stock market is way over valued and primed for a big correction. They may be right. What should you do?

 

I plan to stick with the basic plan. I’m basically going to ride out whatever comes as I have for all my life. I sold stocks now for our QCD that is part of our tax plan for 2025. I “pre-rebalanced” our portfolio to make sure I had my target of 15% in bonds now. When I sell in December for our spending for 2026, I’ll have four years in money market or bonds. I like that.

 

I definitely am not going to change my design mix – e.g., lower it to 60% stocks – because I’m older or because I think that is a way to lower the chances of outliving our portfolio. A greater mix of bonds is a weak lever to lengthen the number years of Zero Chance of depletion year. A greater mix of bonds means you’ll have MUCH LOWER portfolio value when the future sequence of returns is other than worst case. The lever for more Zero-Chance years is to spend a little less.