Wednesday Reading List

Shining Moment by HumbleDollar

Sharing the best article I’ve read on investing in gold. It has done well recently as interest rates have come down and cash and bonds are less attractive. It has benefited from geopolitical instability since investors tend to consider it a safe haven. Also, China purchase more gold last year than in the 1970’s. However, it didn’t perform well during 2022 when inflation rose, as most would expect. It’s also hard to value and price, key aspects of a good investment process.

The Most Important Concept in Finance by A Wealth of Common Sense

A loss hurts more than a win feels good. While a lot of sports fans and athletes understand this, it took the pioneering behavioral psychologist Daniel Kahneman to explain what this meant for our money. This post explains why understanding loss aversion and the behavioral mistakes it can cause are essential to good investing. “The ability to deal with losses is what separates successful investors from unsuccessful investors. You’re in trouble if losses cause you to overreact or make big mistakes at the worst possible moments.”

What Does a Financial Advisor Even Do? by Morningstar

Morningstar surveyed investors who work with financial advisors and found that the top three reasons they work with them are:

  1. Offer peace of mind with their knowledge and expertise.
  2. Create tailored financial advice.
  3. Help clients make better financial decisions.

Investment returns? It was only cited by 12% as the reason for keeping their advisor.

See also: Finding a Good Financial Advisor

Chart of the Week – The Calm by Topdown Charts

We talked about this earlier this week on the Wealthy Behavior podcast. Markets have been calm for a while, which can lead to complacency, a desire to take more risk, and false expectations that we won’t face tougher times. This article shares a chart that shows the VIX (measure of volatility) and credit spreads (amount you’re compensated for taking extra credit risk) are at low levels they usually don’t spend much time at. Stick to your long-term investment strategy and understand we could have a double-digit stock market pullback at any time.

For more on why investors are optimistic these days, check out Professor Siegel’s latest: Continue to Make the Trend Your Friend, in which he shares that good inflation numbers, a weakening dollar, stable labor market, broadening of the stock market rally, and no major red flags that he sees make this a market he likes.

When Increasing Stock Exposure Makes Sense by Heritage Financial

The traditional advice to decrease stock exposure over time isn’t necessarily what you should be doing. Besides the market environment, which might be favorable towards stocks, you also have to build a plan and understand your willingness and ability to take stock market risk. Potential benefits (if it makes sense based on your plan and situation) include mitigation of longevity risk, inflation hedging, and higher growth for multigenerational wealth transfers.