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Behavioral Finance
The Case for Global Investing: Beyond U.S. Market Dominance
In recent years, many investors have questioned the value of international diversification, given the U.S. stock market’s outstanding performance since the Great Financial Crisis. With the U.S. stock market significantly outpacing international markets, it’s understandable why some might feel international diversification is unnecessary. However, this perspective might be too narrow.
The U.S. Market’s Dominance
Since 2009, the U.S. stock market has delivered impressive returns, with a total U.S. stock market index fund up over 660%, compared to around 180% for a total international index fund. This dominance can be attributed to various factors such as a larger tech sector, a strong dollar, and a more favorable regulatory environment. Additionally, many large U.S. corporations generate a substantial portion of their sales and earnings from overseas markets, further strengthening the case for investing solely in the U.S.
But does this mean international diversification is obsolete?
The Case for International Diversification
Despite the U.S. market’s recent success, there are compelling reasons to consider international diversification. Historical performance is not a reliable indicator of future performance. The stock market is cyclical, and the best-performing market in one decade may not be the best-performing market in the next. For instance, U.S. stocks performed poorly in the 1970s and 1980s, highlighting the importance of diversification across different regions and markets.
At Intelligent Investing, we believe in the value of a diversified portfolio that spans the globe, echoing the investment philosophies upheld by the CFA Institute. Diversification helps mitigate risks inherent in concentrating investments in a single market, which can be prone to specific economic, political, and financial factors.
Risk Management and Potential Opportunities
Diversification isn’t just about mitigating risk; it’s also about uncovering new investment opportunities. By diversifying globally, investors can potentially benefit from the growth of emerging markets and other regions that may outperform the U.S. market in the future. As legendary investor Peter Bernstein once said, “I view diversification not only as a survival strategy but as an aggressive strategy because the next windfall might come from a surprising place.”
Emerging markets, for instance, offer growth potential that is often unmatched by developed markets. Countries in Asia, Latin America, and Africa are experiencing rapid economic growth, increasing urbanization, and favorable demographic trends. These factors can drive higher returns in the long term. Moreover, investing in international markets allows investors to capitalize on different economic cycles, currency fluctuations, and industry trends that might not be present in the U.S. market.
Conclusion: Embracing a Global Perspective
While the U.S. stock market has been a strong performer in recent years, history has shown that market leadership can change. International diversification remains a prudent strategy for managing risk and potentially uncovering new investment opportunities. By diversifying across different regions and markets, investors can position themselves to navigate the uncertainties of the global economy and capitalize on the growth of diverse markets.
At Intelligent Investing, we stand by our commitment to act in our clients’ best interests at all times, providing holistic and personalized investment strategies. By embracing a global perspective and diversifying investments, we help ensure that our clients are well-positioned for the future, no matter where the next market windfall may come from.
International diversification is not just a theoretical concept but a practical approach to building a resilient and growth-oriented investment portfolio. It’s about being prepared for the ever-changing dynamics of the global economy and seizing opportunities wherever they arise. So, let’s look beyond the U.S. market dominance and embrace the benefits of a globally diversified portfolio.
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.
Navigating the Ice: A Tale of Family Adventure and Financial Resilience
An Unforgettable Ice Skating Experience
The Christmas and New Year break brought a delightful family adventure as I took our kids to The Pavilion ice skating rink. Amid the frosty air and laughter, an unexpected turn of events unfolded, weaving an unforgettable tale of resilience and vulnerability.
After an hour and a half of joyful skating, my twin daughters approached, their eyes filled with excitement. They requested their older teen brother’s company, seeking the comfort of holding his hands as they navigated the icy rink. You can guess how that went. Knowing that their older brother would not want to hold their hands, I embraced the opportunity to be my daughters’ hero. I laced up my skates, envisioning a daddy/daughter skate that would etch itself into the fabric of their memories.
However, the canvas of smooth ice turned out to be a bit rough, as the Zamboni had missed re-icing before our skate. Undeterred, we embarked on our adventure.
A Tumble and a Lesson in Vulnerability
I should have calculated that the ice was in bad shape after an hour and a half of usage. However, eager to keep pace with the youthful exuberance around me, I took off too quickly, lost my balance, and found myself hurtling forward. In an attempt to regain composure, I leaned too far forward, and the ice skating brakes hurled me forward, resulting in a hard landing on my left shoulder.
Embarrassed and hoping to maintain an air of nonchalance, I rose to my feet. Internally, however, I was grappling with the physical aftermath of the tumble. After concluding our skate with my twins, I headed to the car for a dose of ibuprofen to alleviate the discomfort.
From Ice Rink to Examination Room
Concerned that I had separated my shoulder, given the audible pop and the peculiar sensation akin to hitting my funny bone, I sought the expertise of my brother-in-law, an orthopedic surgeon based in Anderson. The following day, he worked me into his schedule for a thorough examination and X-rays.
The journey to the examination room was an experience in itself. Clad in a flimsy green gown with darker green crowns, an unconventional take on camouflage, I pondered the parallels between vulnerability in medical situations and our approach at Intelligent Investing.
Financial Vulnerability and Intelligent Investing’s Approach
Just as changing into a gown signifies a willingness to be vulnerable for a medical diagnosis, at Intelligent Investing, we encourage our clients to be open about their financial situations. Our aim is to diagnose and prescribe a financial portfolio that not only supports their financial plan but aligns with their unique goals and dreams.
We delve into the intricacies of our clients’ lives, understanding family dynamics to aid in estate planning and unraveling their fears and investment backgrounds. Sensitivity plays a pivotal role, especially when clients have encountered challenges with past financial advisors.
The Importance of a Full Picture
Just as my brother-in-law needed to see the X-rays to comprehend the full extent of my injury, obtaining a complete picture is crucial in the financial realm. Without a deep understanding of our clients’ goals, family situations, risks, and dreams, we cannot choose or tailor an appropriate portfolio to suit their needs.
Misdiagnosis, whether in a medical or financial context, can lead to suboptimal outcomes. In my case, the accurate diagnosis allowed for the prescription of steroids to alleviate inflammation in my left shoulder, paving the way for a gradual recovery.
Gratitude for Professionals and a Financial Invitation
Reflecting on the entire experience, I’m grateful for the professionals who, through years of practice, lend their expertise to guide us through various challenges. As we step into 2024, the team at Intelligent Investing aims to be your financial professionals.
Catering to high-net-worth individuals and couples heading towards retirement, we employ our proprietary Intelligrations® to organize financial complexities. Our mission is to minimize financial stress and maximize lives, leveraging our understanding of complex concepts like inflation, taxes, volatility, and investor behavior.
If you resonate with our approach and seek a financial partner to navigate the intricacies of your financial journey, we invite you to reach out. Whether for a call or a coffee, let’s explore how Intelligent Investing, with its proprietary integrations, can be the compass guiding you towards financial success.
P.S. Exploring Vulnerability in Finance
For a deeper dive into the parallels between vulnerability in personal experiences and financial interactions, I’ve written a blog post titled Getting Naked. Feel free to explore and gain insights into the essence of our approach at Intelligent Investing.
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What An Intelligent Investor Should Do with Market Outlooks
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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 with market outlooks.
The Reality of Market Forecasts
Larry firmly grounds his perspective in empirical evidence, highlighting that market forecasts hold no genuine value. The research indicates that predicting the future is beyond the prowess of even the most esteemed experts. Warren Buffett, revered for his investing prowess, hasn’t entertained macro forecasts for over 25 years, emphasizing their futility in guiding long-term plans. An intriguing paradox emerges when investors revere individuals like Buffett or Peter Lynch yet often disregard their advice. Larry notes the danger of succumbing to predictions by market gurus like Jeremy Grantham, whose forecasts have often faltered, leading investors astray. The empirical evidence reaffirms that forecasting market trends accurately remains elusive.The Ark Investment Phenomenon
Kathy Wood’s approach at Ark Investments soared on a narrative of disruptive technologies, akin to the late 90s tech boom. However, as Larry points out, this strategy historically led to significant volatility and long-term underperformance. Wood’s fund initially gained traction, attracting billions of dollars during its successful periods, only to face substantial challenges when those speculative trends faltered. The pattern echoes a cycle familiar in investing: rising investor interest leads to inflows, magnifying the fund’s exposure and driving up the prices of thinly traded stocks. This reinforcement ultimately feeds back into the momentum, creating a self-fulfilling prophecy. However, when these high expectations are not substantiated by earnings, the bubble bursts, leaving investors vulnerable.Prudent Advice for Investors: Tune Out Market Forecasts
Larry’s analysis emphasizes that while Kathy Wood’s strategies occasionally yield short-term successes, they often culminate in long-term disappointments. This rollercoaster ride in performance, influenced by speculative investments in disruptive technologies, serves as a cautionary tale for investors. Larry Swedroe’s wisdom is clear: investors should tune out market forecasts and strategists and adhere to well-crafted investment plans. Instead of chasing returns or following the latest headlines, the focus should remain on executing well-thought-out plans. He cautions against hasty reactions driven by market noise. 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.What An Intelligent Investor Should Do When an Asset Class Falls Out of Favor
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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
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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 whether Bitcoin is truly a good inflation hedge.
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 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 Gold a Good Inflation Hedge?
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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 the topic of whether gold is truly a good inflation hedge.
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 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.How Intelligent Investors Should Respond to Volatility
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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.
