Behavioral Finance

What An Intelligent Investor Should Do When an Asset Class Falls Out of Favor

November 16, 2023 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

In this episode of Intelligent Money Minute, I had the pleasure of interviewing Larry Swedroe, head of Financial and Economic Research at Buckingham Strategic Wealth, on what an intelligent investor should do when an asset class falls out of favor.

All Risk Investments: Enduring the Ebb and Flow

Larry emphasizes a fundamental truth: every risk investment, whether it’s stocks, bonds, commodities, or others, experiences prolonged periods of underperformance. Investors often underestimate these cycles, mistakenly assuming that three, five, or even ten years are lengthy evaluation periods. However, historical evidence proves otherwise, with instances where the S&P 500 trailed behind treasury bills for 13-year durations occurring three times since 1929.

The crux of Larry’s advice centers on diversification across various unique risks, aligning with one’s risk tolerance. This strategy, substantiated in his book, “Your Complete Guide to Factor-Based Investing,” promotes the inclusion of assets proven to offer premiums over time. Diversifying globally and including varied sources of risk—be it stocks, bonds, commodities, or currencies—reduces dependency on any single investment, mitigating the impact when a particular asset class is out of favor.

Intelligent Investing: A Holistic Approach

Larry Swedroe’s wisdom underscores the importance of persistence and diversification in an investor’s journey. When faced with an asset class in decline, staying committed to a diversified strategy tailored to individual risk tolerances is key. We invite you to engage with us in exploring your unique risk profile and leveraging our financial technology to fortify your investment journey.

For those seeking a financial advisor or aiming to reevaluate their investment strategies, we extend an invitation to connect with us. Our goal is to help you minimize financial stress and maximize your life’s potential through informed, tailored financial decisions.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

In his role as chief research officer and as a member of the firm’s Investment Policy Committee and Board of Directors, Larry regularly reviews the findings published in dozens of peer-reviewed financial journals, evaluates the outcomes and uses the result to inform the firm’s formal investment strategy recommendations.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television shows airing on NBC, CNBC, CNN and Bloomberg Personal Finance. Larry is a prolific writer, contributing regularly to multiple outlets, including Advisor Perspectives and ETF.com.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

Credits: This blog was written in part by ChatGPT, an AI language model developed by OpenAI. The content of this blog reflects the knowledge and opinions of ChatGPT, may or may not reflect the knowledge and opinions of Intelligent Investing, and is protected by copyright laws. Please do not reproduce or distribute without giving proper credit to ChatGPT and OpenAI.

Is Bitcoin a Good Inflation Hedge

October 12, 2023 by Hans Blake, CFA, CPA

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Reading Time: 3 minutes

Blockchain Technology’s Potential

Larry Swedroe commenced the discussion by emphasizing the potential of blockchain technology, the foundation on which cryptocurrencies like Bitcoin are built. The blockchain is already revolutionizing the financial sector by facilitating faster and more efficient payment transfers and record-keeping.

While the blockchain shows promise, Swedroe took a more skeptical view of Bitcoin. He pointed out that Bitcoin’s value proposition is questionable. Bitcoin has a theoretical limited supply, capped at 21 million coins. However, the existence of an unlimited number of substitute cryptocurrencies means Bitcoin faces a daunting challenge. An asset with an unlimited supply typically sees its value approach zero. Swedroe categorized Bitcoin as a Ponzi scheme, though he acknowledged that it could achieve high trading values based on what people are willing to pay.

Bitcoin: A Poor Inflation Hedge

Swedroe was humble in his skepticism, admitting he might be wrong. He would never recommend shorting Bitcoin. Nevertheless, he found comfort in the agreement of financial economists like John Cochran and Nobel laureate Gene Fama, who shared his view on Bitcoin’s intrinsic value.

Addressing a common belief that Bitcoin is an inflation hedge, Swedroe made it clear that Bitcoin’s performance does not support this notion. Its value is highly volatile and can plummet significantly during times of rising inflation.

Speculation ≠ Intelligent Investing

Swedroe’s insight serves as a reminder that speculation does not equate to intelligent investing. While some may choose to speculate on Bitcoin or other cryptocurrencies, such endeavors come with substantial risks and should be approached with caution.

At Intelligent Investing, we prioritize serving high-net-worth clients. Through our proprietary financial technology, Intelligrations®, we help our clients minimize financial stress and maximize their quality of life. If you’re seeking a new financial advisor or haven’t had one before, we’re here to discuss your financial goals and risk tolerance. We aim to provide sound financial advice and services tailored to your unique circumstances.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

Is Gold a Good Inflation Hedge?

August 10, 2023 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

Evaluating Gold’s Track Record

Gold and Bitcoin have often been promoted as potential shields against inflation. However, to make an informed decision, we turn to empirical evidence. Let’s explore whether history validates gold’s reputation as a reliable inflation hedge.

When scrutinizing gold’s performance in the face of inflation, we find surprising results. Take, for instance, the period from 2020 to 2022, a time marked by significant inflation. Curiously, gold ended this phase down by about 4%, while inflation surged by approximately 14%. In essence, gold’s value slipped by 18% in real terms, negating its purported role as an inflation hedge.

An even more striking example stretches over two decades, from 1980 to 2002, a period characterized by high inflation. During these 22 years, gold lost over 85% of its real value. These historical data points prompt a reevaluation of gold’s effectiveness as an inflation hedge.

Alternative Perspective

Interestingly, gold’s claim to being an inflation hedge stands on firmer ground when we extend our horizon to a century or more. Across this extended span, an ounce of gold has maintained its purchasing power, reflecting its role as a long-term inflation hedge. However, this century-long hedge comes at the cost of a lack of real returns.

As Intelligent Investing, we believe in providing our high-net-worth clients with well-informed financial guidance. Gold’s questionable track record as a short-term inflation hedge underscores the importance of considering other strategies to preserve wealth and manage risks.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

How Intelligent Investors Should Respond to Volatility

July 13, 2023 by Hans Blake, CFA, CPA

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Reading Time: 3 minutes

In this episode of Intelligent Money Minute, I had the pleasure of interviewing Larry Swedroe, head of Financial and Economic Research at Buckingham Strategic Wealth, on the topic of how intelligent investors should respond to volatility. As a CFA and CPA, I understand the importance of navigating market volatility and its impact on investment strategies. In this blog, I will summarize the insightful discussion with Larry, providing key takeaways on the causes of volatility and how intelligent investors can respond to market uncertainties.

Causes of Volatility

Larry Swedroe begins by explaining that volatility is primarily caused by unexpected events. Since these events are unforecastable, investors should expect and prepare for periods of high volatility. Intelligent investors should incorporate this certainty into their investment plans and avoid taking more risks than necessary. Swedroe suggests assessing one’s ability, willingness, and need to take risks, ensuring that the investment portfolio aligns with these factors. He also highlights recent trends that have contributed to increased volatility, such as the shift from active to passive strategies like indexing. The rise of passive investing has led to lower turnover and reduced liquidity, resulting in greater volatility in pricing. Additionally, changes in trading rules and the Volcker Rule have further limited liquidity in the markets, amplifying volatility.

Intelligent Investor’s Response to Volatility

In response to market volatility, intelligent investors should adopt a well-structured investment plan. Swedroe emphasizes the need for a diversified portfolio and advises against taking excessive risks. He recommends keeping equity exposure within a range of 25-30% for those with enough wealth. Building a portfolio with more diversified assets can help mitigate risk without sacrificing returns. Additionally, Swedroe emphasizes the importance of sticking to the plan and not succumbing to panic-driven selling. By setting realistic expectations and aligning risk tolerance with portfolio composition, intelligent investors can navigate market volatility more effectively.

The Price of Admission

Volatility is often referred to as the price of admission for higher expected returns. Intelligent investors understand that market fluctuations are an inherent part of investing and should be prepared to weather these storms. By accepting the uncertainty and having a well-defined investment plan, investors can focus on long-term goals and avoid making impulsive decisions driven by short-term market fluctuations. Swedroe and I agree that risk should be carefully evaluated based on an investor’s financial situation, willingness to take risks, and specific investment goals.

Volatility is an unavoidable aspect of investing, but intelligent investors can respond effectively by incorporating it into their investment plans. By understanding the causes of volatility, such as unexpected events and shifts in market dynamics, investors can adjust their strategies accordingly. Building diversified portfolios, aligning risk tolerance with portfolio composition, and maintaining a long-term perspective are key elements of intelligent investing in the face of market volatility. Remember, a well-structured investment plan and disciplined approach can help you weather market uncertainties and maximize your investment potential.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

8 Key Takeaways from the SECURE 2.0 Act

January 19, 2023 by Hans Blake, CFA, CPA

Reading Time: 3 minutes

Do you have questions about SECURE 2.0 Act that passed in the final hours last year? You are not alone. I’ve been reading a lot about it and I too even have some questions for lawmakers.

As we wrapped up 2022, President Biden signed the SECURE 2.0 Act into law on December 29th.[1] The new act is being called SECURE 2.0 based on the name of its thematic predecessor, the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”). This legislation makes notable changes to qualified retirement plans. These will increase the age for RMDs, make enrollment and escalation automatic for most new 401(k)s and 403(b)s, and increase tax credits for low-income retirement savers, among other changes. Here’s a summary of some notable changes that occurred.

The age for RMDs goes up to 73 for those who turn 72 in 2023 and 75 in 2033. This is great news for those who don’t need the funds from qualified accounts. We help our clients with Roth conversions, and this allows more years to do this.
Most of the new 401(k)s and 403(b)s will be required to enroll employees automatically and escalate contributions automatically after December 31, 2024. This is what we preach about–improving investor behavior. Check out our behavioral finance page to learn more.
RMDs are eliminated from Roth accounts in 401(k)s and 403(b)s for tax years after December 31, 2023. As a result of SECURE Act 2.0, plan Roth accounts and Roth IRAs will be on more of a level playing field. It won’t be quite so obvious to determine whether or not rolling over a plan Roth account to a Roth IRA is in your best interest going forward. (We can help you with the decision)
Catch-up contribution limits will go up for those age 60 and 63 after December 31, 2024 to the greater of two: either $10,000 or 150% of the regular catch-up amount for those 50 and older. (Keep in mind that high wage earners will be required to use Roth option for catch-up contributions.)
The bill decreases the penalty for missed RMDs (or distributing too little) from 50% to 25% of the shortfall, and if the mistake is corrected in a timely manner, the penalty is reduced to 10%. (If you are a client of Intelligent Investing–we handle this automatically for you.)
There are some great (and complicated) planning options around Roth accounts inside and outside your employer plans. The Act authorizes the creation of both SIMPLE Roth accounts, as well as SEP Roth IRAs, for 2023 and beyond. Previously, SIMPLE and SEP plans could only include pre-tax funds. We help business owners setup Simple IRAs and manage their wealth in a cohesive way. (Side note: do you know it typically makes sense to put your “efficient” assets in a Roth IRA and your “less-efficient” assets in qualified accounts. It’s called tax location and something we love doing for our clients to reduce their tax bills)
Transfers from 529 plans to Roth IRAs (max amount in individual’s lifetime is $35,000) may be an area for high-net-worth families to consider. Great planning opportunity for high-net-worth families who have been funding their 529 Plans for a long time.
Those who are charitably inclined can give from qualified accounts directly to charities via Qualified Charitable Contributions (QCDs) and they can still be taken at 70.5 before reaching the new RMD ages. (We currently do this for some clients and can help you with this)

This summary scratches the surface on what all is in the SECURE 2.0 Act. Taxpayers (and especially those approaching retirement) are all but guaranteed to continue to have an endless stream of questions with respect to this complicated area.

Ask yourself: Do I have a trusted advisor who specializes in tax planning? Does my financial advisor have the right credentials (such as being a qualified CPA?) Is my advisor a true fiduciary? (i.e., do they put your interest AHEAD of their own at ALL times?)

Why don’t you make a new year’s resolution to get your “financial junk drawer” in order this year. We would love to help. We love serving our high-net-worth clients by minimizing financial stress and maximize their lives using our proprietary Intelligrations™.

You can start by subscribing to our Intelligent Money Minute podcasts or by subscribing to our Intelligent Insights blogs. Or if you are finally ready to get some professional help, please let us know.

If you want to collaborate or outsource this to qualified fiduciary professionals, please click here to reach out for a complimentary call or coffee.

Reference: Michael Kitces’ Perspective on the Secure Act 2.0

Matt Hougan’s ETF & FinTech Journey

December 22, 2022 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

In this episode of Intelligent Money Minute, we interviewed Matt Hougan, Chairman of Inside ETFs, on his journey in the ETF and FinTech industry. As Matt Hougan states, his passion is identifying and developing technology that elevates the finance industry. Matt used this passion to build the world’s first ETF data and analytics system. During this episode, Matt shares the backstory of his financial career and how he landed in the ETF and FinTech industries.

As a reminder, the views and opinions expressed on the Intelligent Money Minute podcast are those of the interviewee and do not necessarily reflect the views of Intelligent Investing, LLC. Intelligent Investing does not imply any endorsement or approval of any of the investments mentioned on the podcast. This podcast is to educate the public, and the investment strategy and themes discussed may not be unsuitable for investors depending on their specific investment objectives and financial situation.

Our boutique firm serves high-net-worth individuals and families. We would be honored to sit down with you to discuss your investment objectives and financial situation.

We are excited to be interviewing Matt Hougan, and we have several more episodes where we explore the ins and outs of ETFs, bitcoin, and blockchain, so be sure to subscribe to our podcasts to hear all the interviews.

Matt Hougan Bio

Matt Hougan is one of the world’s leading experts on crypto, ETFs, and financial technology. He is the Global Head of Research for Bitwise Asset Management, creator of the world’s first cryptocurrency index fund. Hougan is also Chairman of Inside ETFs, the world’s largest ETF conference. He was previously CEO of ETF.com, where he helped build the world’s first ETF data and analytics system. Hougan is co-author of the CFA Institute’s Monograph on ETFs. He’s also a crypto columnist for Forbes and a three-time member of the Barron’s ETF Roundtable. For more resources from Matt Hougan click here.

How Did Riskalyze Work During the COVID Pandemic Selloff

December 1, 2022 by Hans Blake, CFA, CPA

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Reading Time: < 1 minute

On today’s Intelligent Money Minute, we interview Aaron Klein on how Riskalyze worked during the Covid-19 pandemic selloff. During this episode, Aaron talks about the market “snap back” and how his company prepares for various scenarios. Aaron reflects on the early days of the pandemic and how Riskalyze helped intelligent investors weather the storm of uncertainty.

If you are looking for a financial advisor who can be your accountability partner who will help you with the emotional rollercoaster of financial markets. We believe in a data-driven approach to help minimize our human tendencies to sabotage our portfolios and improve the chances for success in sticking to a long-term plan.

Intelligent Investing is a boutique wealth management firm serving high-net-worth individuals and families. We’d be honored to take the first step with you by having a complimentary and confidential call or coffee.

If you are interested in becoming our next high-net-worth intelligent investor or want to learn more about our philosophy on risk management, click here. We’d be honored to have a brief confidential call or coffee with you to learn about your needs.

Aaron Klein Bio

Aaron Klein is co-founder and CEO at Riskalyze, the company that invented the Risk Number® and empowers the world to invest fearlessly. The company is headquartered in Auburn, California, and serves tens of thousands of financial advisors.

He is husband to Cacey Steward Klein, dad to Spencer (born in South Korea), and Emma and Teddy (born in Ethiopia). Aaron and Cacey cofounded Hope Takes Root, an initiative to use vocational training and life mentoring to change the future for orphans and at-risk kids in Ethiopia. He also sits on the board of Invest in Others.

Crypto’s Impact on the War in Ukraine

October 27, 2022 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

In this episode of Intelligent Money Minute, we interviewed Matt Hougan, Chairman of Inside ETFs on the crypto’s impact on the war in Ukraine. During the war in Ukraine, Ukraine President Zelenskyy called upon other nations to donate via cryptocurrency in an effort to combat Russia. As Matt Hougan states, war is chaotic derailing standard infrastructure while crypto remained intact. Matt highlights the potential positives of an established cryptocurrency as a means of anti-fragility in the midst of uncertainty.

Our boutique firm serves high-net-worth individuals and families. We would be honored to sit down with you to discuss your investment objectives and financial situation.