Financial Planning

Is Gold a Good Inflation Hedge?

August 10, 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 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.

Why People Stop Working Even When It Is Healthy For Them

July 20, 2023 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

In this episode of Intelligent Money Minute, we had the pleasure of interviewing Larry Siegel, the director of the CFA Institute Research Foundation and a prolific investment management author. The discussion revolved around why people stop working even when it may benefit them to continue working. In this blog, Larry Siegel sheds light on the reasons behind early retirement and the potential benefits of working beyond traditional retirement years.

The History of Traditional Retirement Age

Larry Siegel explains that the age at which most people stop working, typically between 62 and 67, can be traced back to the 1880s when Chancellor Otto von Bismarck in Germany established the National Pension Scheme. This age has persisted through the establishment of Social Security in the US by President Franklin Roosevelt in 1935 and the subsequent eras of defined benefit and defined contribution pension plans. Tradition and inertia have played a significant role in preserving this retirement age. Additionally, physical limitations and a desire for easier work, which often coincide with age, have also influenced the decision to retire.

The research indicates that for physically demanding jobs, retirement in the mid-sixties may be appropriate. However, for those in less physically demanding roles, retirement at this age might be premature. The concept of retirement has evolved, and now many of us are engaged in think work, which does not necessarily require physical stamina. For such individuals, retirement at this age may be too early, as their skills and productivity could still be valuable to the workforce.

Lack of Flexibility in Retirement Decisions

Despite the potential benefits of continued work, many employees face challenges in transitioning to easier roles or negotiating part-time work arrangements. Rigidity in employment laws and established customs often limit the options for workers who wish to continue working beyond the traditional retirement age. The result is that many employees are forced to retire when they could still contribute meaningfully to the workforce.

The decision to retire should be individualized, considering the unique circumstances of each person and their specific employment situation. At Intelligent Investing, we believe in customizing financial strategies to suit our clients’ goals and preferences. We leverage our proprietary Intelligrations® to help our clients run various scenarios, such as unexpected health crises or part-time work arrangements, to achieve optimal financial outcomes. Our passion is to minimize financial stress and maximize the quality of life for our high-net-worth clients.

Larry Siegel Bio

Laurence B. Siegel is the Gary P. Brinson director of research at the CFA Institute Research Foundation and an author, consultant, and speaker on investment management and economics. Before retiring from full-time work in 2009 he was director of research at the Ford Foundation and, before that, head of research at Ibbotson Associates (since acquired by Morningstar). He attended the University of Chicago (BA 1975, MBA 1977). His book, Fewer, Richer, Greener, has been published by Wiley and is available, along with his other work, at https://www.larrysiegel.org.

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 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

The Pitfalls of Recency Bias

May 18, 2023 by Hans Blake, CFA, CPA

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Reading Time: 3 minutes In a recent episode of Intelligent Money Minute, we had the pleasure of interviewing Larry Swedroe, the head of Financial and Economic Research at Buckingham Strategic Wealth. Our discussion centered around the dangers of recency bias, a common emotional tendency among investors. Larry emphasized the importance of understanding historical context and avoiding the trap of projecting recent events onto the future. In this blog post, we’ll share some key takeaways from our conversation and explore strategies to overcome recency bias in investment decision-making.

Recognizing Recency Bias

Recency bias refers to the tendency of investors to give excessive weight to recent market events when making investment decisions. We have a natural inclination to believe that what has just occurred will continue in the short term. This bias often leads us to ignore historical data and overlook the importance of long-term correlations. Larry stressed the need to become students of history and cautioned against relying solely on recent trends to guide our investment choices. Larry highlighted that recency bias is one of the most detrimental mistakes investors can make. While there is evidence of short-term momentum, where recent winners tend to continue performing well for a limited period, it’s crucial to remember that trees don’t grow to the sky. Valuations can reach unsustainable levels, driven by investor enthusiasm. Larry cited examples like the dot-com era and the recent market bubble, where unprofitable companies achieved sky-high valuations based on recent success. However, high valuations eventually come back to haunt investors. To avoid this pitfall, he emphasized the importance of sticking to your investment plan and not being swayed by recency bias.

Strategies to Mitigate Recency Bias

To counteract the influence of recency bias, we discussed several strategies during the interview. One effective approach is disciplined portfolio rebalancing. By selling some of the high-priced winners and buying assets that have performed poorly but offer higher expected returns, investors can maintain a balanced portfolio and avoid chasing recent winners. Additionally, we explored the role of trend following, specifically managed futures, as an investment class that captures short-term momentum swings. However, it’s crucial not to allocate all your assets to trend following, as it can underperform for extended periods. Larry recommended considering a 5% to 10% allocation to mitigate tail risk during prolonged bear markets. Recency bias can be difficult to overcome alone, especially during times of market volatility. That’s why having a financial accountability partner is vital. This partner can help design a financial plan and keep you grounded when fear and greed tempt you to deviate from your investment strategy. At our firm, we provide clients with proprietary interrogations that guide their decision-making and minimize financial stress. We believe in the power of having someone who holds you accountable and helps you stay on track to achieve your financial goals. Recency bias is a common pitfall that can hinder investment success. By recognizing the bias and incorporating strategies like disciplined rebalancing and selective trend following, investors can overcome this challenge. Moreover, having a financial accountability partner can provide valuable guidance and prevent emotional decision-making. Remember, it’s essential to view investment decisions through a historical lens and remain committed to your long-term investment plan. By doing so, you can minimize the impact of recency bias and maximize your chances of achieving financial success. 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

Why Did Traditional Diversification Fail in 2022?

May 11, 2023 by Hans Blake, CFA, CPA

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Reading Time: 3 minutes Traditional diversification failed in 2022, but why did it happen, and will it happen again? On this episode of Intelligent Money Minute, Hans Blake interviews Larry Swedroe, the head of economic and financial research at Buckingham Wealth Partners, who also co-authored 18 books. According to Swedroe, traditional diversification, which was within the 60/40 stock and bond allocation, failed in 2022. Both stocks and safe treasuries had double-digit losses, which is the first time this has happened, making it almost the worst year for a 60/40 portfolio. Moreover, longer-term treasuries lost over 20%, and the S&P was down by about 18%. Correlation between these two risk assets has been negative for the last 20 years. However, if you look at the last hundred years, the correlation was positive at about 0.2. Therefore, traditional diversification failed because correlations between stocks and safe bonds are time-varying. Swedroe emphasizes that investors shouldn’t treat correlations as a permanent number, as they are time-varying. He explains that correlations do not mean that when one asset goes up, the other goes down. It means that when one has a better-than-average return, the other one has a worse-than-average return. During the last 20 years, we had a negative correlation between stocks and safe bonds, so investors thought that when stocks got crushed, bonds would tend to do better than their average. However, that didn’t happen in 2022, making investors rely solely on safe bonds and equity bonds, which could be risky. Swedroe recommends that investors consider including other non-traditional assets that will do well in such periods. For instance, reinsurance, private floating debt, long-short equity, private real estate, and other alternatives can help dampen the risk in an investor’s portfolio. He mentioned that last year, all of the alternatives he owned were up, which helped diversify his portfolio. He advises investors to consider adding other unique sources of risk to their portfolio and not rely solely on safe bonds and equity bonds. Lastly, he says that investors must have a diversified portfolio to help mitigate these unusual time periods when correlations of traditional assets rise. 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

Top Tips to Keep Your Financial New Year’s Resolutions

January 27, 2023 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

Top Tips to Keep Your Financial New Year’s Resolutions

If you are like me, it is easy to set a bunch of new year’s resolutions for the new year, only to struggle to keep them until the end of January. Did you know that making New Year’s resolutions possibly started 4,000 years ago by the ancient Babylonians? And I bet they didn’t do a good job of keeping their resolutions either. In fact, I saw a t-shirt that said, “My new year’s resolution is to do last year’s resolution, which was also the previous year’s resolution. Today, I’d like to share with you a resource that should help you as you consider making your New Year’s resolutions. Though the following video was created last year, the truths mentioned are still true.

New Year’s Resolution Facts

This is the time of year where most people make New Year’s Resolutions. According to the University of Scranton, only 8% of those who make New Year’s resolutions actually keep them. In fact, research conducted by Strava using over 800 million user-logged activities in 2019 predicts the day most people are likely to give up on their New Year’s Resolution is January 19. Well that’s depressing. Wouldn’t it be better to just not have resolutions, that way there isn’t the associated guilt of not keeping them?

As Zig Ziglar says, “If you aim at nothing, you will hit it every time.”

I’ve found that one of the best ways to meet your financial goals is to break them down into smaller chunks.

I tend to start with writing down annual goals (including some stretch goals) that are a little beyond my reach.

Let’s say you want to pay off a $50,000 loan next year, you can break that down into quarters, months, and even paychecks. Remember, there is only one way to eat an elephant: a bite at a time.

Financial Freedom Calendar

Intelligent Investing believes in minimizing financial stress to maximize your lives. We created this financial freedom plan that includes monthly tasks as well as things to consider buying and things to avoid buying each month.

For example, the Financial Freedom calendar suggests that in January you should consider automation. Recently, I decided to automate all my bills to be paid and I can already tell you that the stress has been reduced instead of wondering, did I already pay that bill? When is that one due?

We love organizing our clients’ “financial junk drawers” and would love to organize yours as well. Feel free to share this Financial Freedom Plan with others.

A Resolution You Can Keep

One last resolution to consider…becoming more financially educated. You can start by simply subscribing to our Intelligent Insights Newsletter. You can also subscribe to our Intelligent Money Minute podcasts.

If you are ready to get some accountability partner and are looking for a new financial advisor, we’d love to have a complimentary call or coffee with you. Click here to get started.

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.