Dedicated readers of TGIF 2 Minutes will recall highlights two weeks ago of Morgan Housel’s excellent book, The Psychology of Money. Digging deeper into the book revealed the theme that human nature and psychology most often lead people to hear – and believe – only what they want to hear and believe or see happen.
This statement is not an insult or meant to sound arrogant. Rather, in matters of money, financial markets and even the economy there is evidence that people, the more they want something to be true, most often will believe a story that overestimates the odds of the story being true.* The markets, following recent comments by Fed Chairman Jerome Powell, nudged UP on thoughts the Fed might “pivot” (meaning: possibly slow the pace of interest rate increases and even lower interest rates next year – a wishful “story”). But more recent moves down in markets reflect the less popular belief that the US Federal Reserve likely will NOT reverse course, thus continuing to raise interest rates until inflation shows evidence of cooling.
Record-breaking, big outlier events tend to move the needle the most in the economy and stock market.* Note the word, “outlier.” Outlier events typically are surprises and are indeed unlikely. In his beyond excellent book The Psychology of Money author Morgan Housel lists five events that were outliers with world-changing consequences:
The Great Depression
World War II
The dot-com bubble
The housing crash of the mid-2000’s.
A conclusion could be drawn from the book’s chapter titled, “Surprise!” that surprises are perhaps the most reliable thing going. But the irony of the reliability of surprises is we do not know what the surprise is until after it has unfolded.
One of the most critical factors of long-term personal financial success is… guess:
And the answer is…. SPENDING. This fact is why a truly competent financial planner will spend the most time on discussing spending, both today and future projected, along with GOALS. (Goals are what people spend money on.)
These are crazy times, almost chaotic. Chaos is defined as complete disorder and confusion – and parts of the world and our lives may be nearing that point, or at least feel that way. How does an investor get financial satisfaction in times like these? Carefully and patiently.
“Carefully” can equate to:
having a plan that addresses saving, spending, taxes, & investments
being able to monitor and adjust the plan, perhaps with an adviser
then continually executing the plan.
The “patiently” part can be more difficult and is just as critical.
A high-level update & follow-up on cryptocurrencies
Brief comments on Inflation & 1st quarter 2022
Continuing with the whirlwind of interest generated by “To Crypto Or Not To Crypto” and “Crypto Superbowl” there is more to say including highlighting the recent 36% decline in Bitcoin since November 2021. There is broad evidence that high-profile, fiduciary financial advisers are hesitant – for good reason – to include cryptocurrency across the board in client portfolios. At the same time, a good number of high-profile, responsible, fiduciary financial advisers are including cryptocurrency in some – emphasis, “some” – client portfolios, depending on the client’s goals and risk tolerance.**
Clearly, war and invasions have far more repercussions than merely financial. But somewhat luckily, the financial toll in most cases, for us as Americans (exception September 11th), has been what hits closest to home. And unluckily financially speaking, the biggest savers and investors are then most affected by the financial toll of war and invasions around the world.
Currently, the world – most notably the Ukraine, Eastern Europe and Russia – is experiencing the effects of an invasion that (God help us) may or may not turn into a larger situation. Specifically, the financial effects of the Ukraine invasion by Russia are being felt far beyond Europe and Russia. US and worldwide stock markets are down both from late 2021 highs and most notably in late February.
Clearly another topic with multiple sequels, aging has its positives and not-so-positives. Recently a slight positive – from the IRS.
Its Life Expectancy Tables, otherwise known as the “IRS Uniform Life Tables I, II and III”, have adjusted the American life expectancy UP by approximately two more years. That means that RMD amounts, or required minimum distributions, from IRA, 401k and other retirement accounts will be slightly lower when calculated. These RMDs count as taxable income so even a small break will be welcome!
Inflation has a funny (not “haha” funny) way of changing consumer and market behavior. We are presently seeing these changes play out in the economy and stock and bond markets. Time for the rocket photo again, which equates rapidly increasing prices with a rocket launch.*
In conversations with clients and friends in every segment – younger newly-employed, mid-career folks, parents, single people, workers at the tops of careers, those not in the workplace, heads of families and (mostly) comfortably retired folks – every one of these groups reports noticing inflation in their daily lives. This fact is unlike any time in my 35+ year professional life…and then some.
From the Archives of TGIF 2 Minutes… with an addition on hopefulness.
Bottom line: Being Thankful, Grateful and Hopeful are all positive things.
Simply saying “Thank you” out loud is hard to do without smiling either inwardly or outwardly. Try it! Then say, “I am grateful for X” and it likely brings an even deeper feeling. Perhaps that is why gratitude is central to the science of happiness –yes, there is a whole branch of science around happiness. The newer science around hope is equally, if not more, powerful!