The Full Motley - 3Q, 2023

We are halfway through the third quarter of 2023, so it was time for another quarterly rebalance of my old 401(k) account. There has been a distinctly recurring trend of moving less than 1% of this account balance each time. Therefore, I was somewhat surprised to see more than 2% of my account balance was moving during this quarterly rebalance. Predictably, it was moving money from both of my equity funds (index and active) into the other three funds. Less predictably though, the active Domestic Equity fund had risen more than the Domestic Equity Index fund. More than half of the amount moving went into my International Equity Index fund, with about 40% of the amount moving going to my Domestic Bond Index fund, and about 10% of the remainder went into my International Bond Index fund.

As indictive of this transaction, the past quarter has been very good for domestic equities. Unfortunately, the drivers have been limited to a few of the same (notorious at this point) blue chip tech stocks, such as AAPL and NVDA. As an analyst, one problem I have found in rebalancing as frequently as every quarter is that it resets the playing field each quarter, so if a strong run were continuing, it can minimize the tailwind or shorten the runway. On the other hand, if the forthcoming quarter saw a reversal (in keeping with the "buy again on Labor day" limerick), then this exchange would remove money from the strong assets before they hit a headwind.

As an investor, I am agnostic toward these analyses. The most important thing is that I funded the account when I had the opportunity, and with a gentle maintenance, I have fostered its substantial growth over the past decade and I still have more than a decade left to continue fostering more growth.

The Full Motley -- 2Q, 2023

I passed through another quarterly rebalance, and although I submitted the rebalance, I failed to post a blog entry about it. No matter, it was as uneventful as most of the others have been lately (although, I was surprised to see the slant toward International Equity this quarter).

Instead of another rebalance discussion though, I wanted to share this brief article I saw today that I felt reworded tired principles in a new wisdom.

Money Expert Jaspreet Singh Says ‘Becoming Wealthy Is Surprisingly Simple’ — Here’s Why

by Cameron Diiorio

What’s the one piece of money advice you wish everyone would follow and why?

The one piece of money advice I wish everyone would follow is: make yourself rich before you make everyone else around you rich. When you go out and wear Lululemon pants with your Gucci belt and Apple AirPods — you look rich, but the people who are actually getting rich are Lululemon, Gucci, and Apple (not to mention their shareholders, too). The person who isn’t getting rich is you. I want you to flip it around. Make yourself rich first by using your money to buy investments. Then, go out and buy all the Lululemon, Gucci, and Apple you want when you can afford it.

What’s the most important thing to do to build wealth?

Becoming wealthy is surprisingly simple. That doesn’t mean it is easy, it’s actually really tough, but there are only three steps. First, you have to spend less than what you make. Second, you have to work to earn more money. And third, you have to invest the money you don’t spend. Starting with step one, if you spend all of your money, you will never have a chance to become wealthy. This is where most Americans fail. Most Americans work to buy nice things like fast cars, nice vacations, and luxury clothes. But if you spend all your money, you will never become wealthy. Then, you have to work to earn more money. Regardless of how cheap you are, there will always be a limit to how many expenses you can cut. But there’s no limit to how much money you can earn. That means you have more upside by learning how to make more money. YouTube has made this financial education much more accessible, and it’s free! Finally, you have to invest the money. Just like how you can’t get rich by spending all your money. You also won’t become wealthy by saving all your money. You have to invest your money if you want to become wealthy. Where do you invest? Stocks, rental properties, businesses, and your own education. While this can sound very daunting, the good news is you can start investing with less than $100. You just have to get started!

What’s your best tip for fighting the impacts of inflation?

High inflation disproportionately benefits asset owners and it hurts consumers. In other words, inflation makes investors richer and it makes regular people poorer. So, what can you do? Own investments. Diversification doesn’t hurt either. For example, 2% of my investment portfolio is physical gold. When you have high inflation, the value of the dollar falls, causing the price of gold to go up. But, of course, always do your own due diligence before you make an investment and consult a licensed financial advisor.

What’s the biggest mistake people make when it comes to money, and what should they do instead?

The biggest money mistake people make is not doing anything. Time is our most valuable asset [and] wealth takes time to build. If you don’t start, you will never see any of the success — while your time gets sucked away. Get started. Experience is the best teacher and you can’t get experience until you start.

The Full Motley -- 1Q, 2023

 Putting the past behind us can lead to a bright future. More importantly though is learning a lesson from the past to add to the proverbial toolbox to bring into the future. These live-and-learn lessons apply to finance as much as any other regard of life.

We are midway through the first quarter of 2023, where all experts expect a bounce back from the ~20% of 2022. By all accounts, that is how things have gone for the first six weeks of the new year. Ideally, this will continue (probably not in a straight line, although even the recent past year has been anything BUT a straight line).

As usual, some sectors will recover more quickly than others. Hence the benefit of rebalancing. I submitted my quarterly rebalance for Friday, I moved just less than 1% of the overall account balance, and it all came from a single fund: Total International Stock Index Fund. Based on this information alone, we know that the international equity sector has outperformed domestic equities, domestic bonds and international bonds significantly over the past three months. 

Unfortunately, this information means very little for the future. Next quarter, I might find myself moving money back into the international equity fund, or more could come out of it. The important thing is that it is relatively overvalued compared to my other sectors, so "buy low; sell high" logic supports the idea of selling some from the top to bring into the lagging sectors. This strategy works best when broadly invested across a few sectors and/or index funds because any of these four sectors are equally likely to out- or underperform in a given quarter.

The Full Motley -- 4Q, 2022

Oh my, where did the time go? I guess there are two ways to answer that question. Having missed the third quarter update, even though I submitted a quarterly rebalancing transaction as usual, I wondered whether I was too busy or too disheartened to scribe a blog entry at that time.

Truly, there is no time like now! 

On the one hand, even though the market is cyclical and bear markets are inevitable, each is brought upon through a unique set of circumstances. Not one bear market has started because an alarm rang out and signaled for everyone to start selling (although, a solid counter-argument could be made for that being the start of the Dotcom crash with that alarm being Y2K not ending the world, as so many cynics insisted was possible). Whatever balance of circumstances that sent the markets down, weighted heavily by the Fintech sector and cryptocurrency market, which appropriately are taking the brunt of this bear market, it was due time given the strength of the bull market(s) from 2009 through the end of last year.

On the other hand, there is no time like now because this bear market has been long enough and strong enough to signal the last-chance to buy at these prices. Whether this opportunity extends another year or two, when bear markets surrender, the resulting whiplash propels markets to new heights without looking back to the prior bear market. This year, the 52-week low of the Dow Jones is 28,660. In February 2009, it was 6500. If you had purchased shares of an index fund in February 2009, they would be valued 4-1/3 times higher at the worst point of this year.

Truly, there is no time like now. Is that a blessing or a curse? It all depends on how you look at it (and what you do with it).

As for my rebalance, I found it surprising that my best-performing fund in the past three months (which included the trough of September) was by far the actively-managed equity fund! Active fund managers swear that superior returns are found in actively managed funds (go figure!) but I have rarely found that to be true. But I will give credit when credit is due and note that this past quarter was a great example of times where actively managed funds can significantly outperform passively managed funds.

Bad Habits That Prevent Saving

Six bad financial habits that are keeping you from saving money

https://www.msn.com/en-us/money/personalfinance/6-bad-financial-habits-that-are-keeping-you-from-saving-money/ss-BB1fwp1Q

by Deb Hipp

1.You don’t have a plan

If your strategy for building emergency savings is “Whenever I have extra money, I’ll deposit it in my savings account,” it is no wonder that your emergency savings has never exceeded a few hundred bucks. Plenty of people do not have enough money to pay monthly bills right now, let alone extra funds they do not know what to do with.

If you want to build emergency savings, it is time to make a plan to regularly deposit money in savings each month. Set an achievable savings goal – $1,000, for example – as the initial amount you would like to reach. Do not make your initial savings goal so ambitious you get frustrated along the way. You can always adjust once you meet your first goal.

2. You have no budget

Without a clear idea of where your money is going, you will not get far when it comes to designating a monthly amount for emergency savings. Creating a budget may seem intimidating, but you will be pleasantly surprised at how easy – and even fun – creating a monthly budget can be with all the online tools out there.

For example, you may want to use one of the many budgeting apps available to create a budget and track where your money goes. For example, Mint is a free budgeting app that also links to your bank and credit card accounts to track spending.

3. You are not taking advantage of automatic payroll deductions

Just think how painless it would be to deposit money into an emergency savings if you did not have to do it yourself. Chances are, you would barely miss $50, $100 (or even more if you can afford it) from each paycheck.

If you have not signed up with your employer for automatic withdrawals into your savings account, do it now. You will reach your savings goal much faster.

4. Dining out too much

We all enjoy the convenience of takeout or a night at a restaurant but if you dine out several times a week, you are probably blowing through anywhere between $400 to $1,000 a month, depending on how fancy or frequent you like your dining experience.

Try going on a dining-out fast for a month while cooking at home and deposit the money you would have spent going out to eat in emergency savings instead. At the end of the month, you may be so impressed with how much you saved that cutting back on dining out becomes a regular habit.

5. Paying fees

You may not pay attention to all those ATM fees, cash advance fees and maybe occasional credit card late fees, but they add up fast. If you need to withdraw cash, visit the ATM at your bank to avoid a fee. As for cash advances, it is a good idea to avoid those altogether, since those transactions carry an array of fees and higher interest rates than regular credit card purchases.

6. Hanging out with big spenders

If you are running around with people who love to charge meals at expensive restaurants, get cash advances from ATMs and bounce from club to club every night, you are going to spend a fortune right along with them.

No one is saying you have to ditch your good-time friends. But while trying to save money, it is a good idea to cut back on the time you spend on entertainment and dining out and sock that money away in emergency savings instead.

One more, from me: You spend too much time “escaping” from life

Most people have therapeutic escapes, which most often show themselves as our hobbies. Many hobbies are rather expensive, but even those that lack up-front costs rear their ugly head in the form of lost time. If you spend 2-3 hours a day or more on a hobby, whether it is sports, gaming, shopping, social media, etc., do not be surprised when you do not advance beyond your status quo. These lost hours add up into lost opportunities and lost money. The solution is the same as others on the list: make a plan, budget your time. Every 15 minutes is 1% of our day, so plan thoughtfully.

The Full Motley -- 2Q, 2022

You put $1,000 into an index fund, but ... what does that even mean? 

Conventional wisdom says that you should never invest in something you do not understand. The problem is that advice leaves most people with nowhere to start. I prefer to start now, then "learn by doing" to understand my investment. With that advice in mind, let us take a deeper look into investing in an S&P 500 index fund.

In this case, we put $1,000 into an index fund at the start of the year. Today, we only have $900. Did we make the wrong choice? Did we pick the wrong fund? Did we invest at the wrong time? Or, is this all a scam? 

First, it is important to understand what happened to our money. We put $1,000 into an index fund. At that point, the index fund was valued at $50 per share. This $50 is its "net asset value" (NAV), which technically means the weighted value of all the stocks in the mutual fund on that day's closing, but effectively, it is the price per share of the mutual fund. Therefore, when we put in $1,000, we bought 20 shares of the index fund (i.e., $1,000 / $50 per share = 20 shares). 

In this example, the index is down 10% so far this year. Accordingly, the NAV of the index fund falls to $45. Now, the value of our 20 shares is only $900. Overall, our investment is down $100, because the index is down 10%. The index closes anew every weekday (excluding holidays) and the NAV is calculated every day after the index closes. 

Because the S&P 500 index will replace failing companies with more promising companies over time, the index is setting itself up for better success in the long run. Accordingly, the NAV of our index fund will rise over time. Periodically, our index fund will also distribute dividiends and capital gains (always be sure to have those reinvested in your fund!) so if the fund paid a dividend of $2.25 per share, then we would gain another share (i.e., $2.25 x 20 = $45 = NAV of index fund). 

Let us jump a bit ahead: the economy suddenly has had a strong turnaround, pushing the index (and our index fund's NAV) much higher. Our index fund's NAV is now $60, and we have 21 shares (20 from our $1000, plus 1 share from reinvested dividends). Without our doing anything else after opening & funding the account with $1,000, our investment is now worth $1,260. Over time, these $260 gains can double, triple, or increase tenfold. Obviously, it varies based on the number of shares you own. 

Now, have you ever heard someone say “I lost all my money in the stock market,” so ... what does that even mean? 

In short, it can mean a few things – but it would not mean they put $1,000 into an S&P 500 index fund and lost all of it. If the person is not simply embellishing, then they might mean that they lost all of their gains above their initial investment as the stock market dropped. That can happen. It most likely will happen when you start investing. It happened to me between starting in 2003 and the “Great Recession” in 2008-09. Thankfully, I spent 2006-07 with regret for not putting more money into the market in 2003, so when the Great Recession happened, I saw it as buying shares at yesteryear’s prices today. That is a rare opportunity, and as such, it is long gone now. But today, the market is falling from its 2021 peaks, and it couple drop below what it was through most of 2020. The market’s initial reaction to the global pandemic in mid-March 2020 was a major depression (somewhat different than the type of major depression many people experienced at that same time) so I doubt that the current trends will match the lows of 2020. 

Regardless, this decline in the market is an ideal time to begin investing. Putting $1,000 in right now will buy more shares than $1,000 would have bought at the end of last year. As the NAV increases and the fund reinvests its dividends, the value of the investment will increase exponentially.

Signs You're Living Beyond Your Means

15 Alarming Signs That You're Living Beyond Your Means
https://www.msn.com/en-us/money/personalfinance/15-alarming-signs-that-you-re-living-beyond-your-means/ss-AAVR2f1

by Larissa Runkle

Believing that the gambler’s fallacy is not a fallacy

Living above your means is a classic money mistake that is all too easy to fall into. Whether you are spending more than your budget allows, or you are not setting enough aside to pay for the essential bills, it is hard to see exactly where the problem began once you finally notice it.

These harmful money habits tend to sneak up, which is why we have created this list of 15 signs you are living above your means — complete with our best advice for getting back on track and protecting your finances. Worried you might be setting yourself up for some bad financial surprises? Keep reading to find out.

You are only making minimum payments on credit cards

One sure sign you are living above your means is only being able to afford to make minimum payments on your credit cards. Racking up credit card debt is never a good thing, but especially if you are doing it at a rate that makes catching up impossible. Although the occasional big purchase on your credit cards is fine, if you find yourself constantly buying things that take months to pay off, it is probably a good idea to slow down and reel in your budget.

You are using your credit card to pay for vacation

Speaking of using your credit card to pay for impossibly large purchases, using it to cover your vacation costs without paying it off is another sure sign you are living above your means. Because most vacations will cost far above any paycheck, paying for them using a credit card is a dangerous gamble that could cost you dearly in interest payments.

Instead, consider setting aside a small amount of money in a savings account each month. The best savings accounts offer a higher-than-average annual percentage yield, which can help you earn a little extra in interest. By making regular small deposits, you will be able to watch your travel fund grow into something that can easily finance your next dream destination.

Your savings account is not growing

Another sure sign you might be overspending is when your savings starts to stagnate. Making regular deposits into your various savings accounts is important, not only for the peace of mind it brings, but also in the event that you need to tap into your savings to cover an unexpected cost. Instead of constantly shopping for all your latest wishlist items, consider redirecting some of that spending to make sure you’re saving up enough to be financially secure.

You have stopped your retirement contributions

Unfortunately, it is all too common to start neglecting your retirement funds whenever money is tight. But unless you plan on working the rest of your life, planning for retirement should be at the top of your list when it comes to how you allocate your income. One thing that can be helpful for getting back on track is coming up with a budget. Budgeting does not mean depriving yourself of everything, but rather finding a smarter way of spending that still allows for reaching your financial goals.

You are living paycheck to paycheck

Nobody likes living paycheck to paycheck, and yet we have all been there at least once. Barely scraping by on your expenses between paychecks is a sure sign you are living above your means, and that you should consider revising where your money is going and how quickly. Skip the drama of not knowing whether you will be able to pay for your essentials by trying out a simple envelope budgeting method — a classic style of budgeting that ensures your most important expenses get paid for first.

Your money is gone, but you do not know where

Another stressful money situation to be in (and a clear sign of overspending) is when your checking account seems to continuously turn up lower than you expected — as in, the money has been spent but you do not know how. One way to get around this is by using a budgeting app such as Clarity or Truebill. This app will not only help you keep track of where your money goes, but also offer helpful tips for cutting expenses and saving more toward the things that matter.

Your debt balance remains the same

As with your various savings accounts, when your debt balances stay the same for too long, it is a sure sign you are living above your means. Because unpaid debts are likely costing you in accumulated interest, delaying your payments is never a good idea. Rather than avoiding your debts, try to put a cap on how much debt you are accumulating, then make a plan to start paying them back little by little each month. There are different approaches you can take to get out of debt, including the debt avalanche and debt snowball methods.

Making your monthly payments is a struggle

Bills, loans, mortgages — all of these things demand monthly payments, and if you have recently started falling behind, it could be time to rethink how your income is being spent. One solution is the Mvelopes app. Much like the envelope budgeting method mentioned above, this system of saving has you put aside enough money to cover your major expenses immediately after getting paid — that way, you never have to worry about being able to afford your monthly bills again.

You are seriously considering a high-interest loan

High-interest loans like payday loans are a risky financial move for anyone, but especially if you are already struggling to make ends meet. Rather than jumping right in and signing on the first loan you are offered, take a minute to consider your options. Ask yourself why you need to take out a loan in the first place, and if there is an alternative to the funds you need. For instance, choosing one of the best side hustles could be a good option if you have room in your schedule. Revisiting your budget will also likely be important if you find yourself in this position.

You are buying things you cannot afford to pay for upfront

Much like maxing out your credit card balance every month, buying things you cannot afford to pay for is bad news when it comes to the health of your finances. For some, buying things out of budget might be a necessity. If that is the case, try and find a way to regularly set aside some of your income to pay for those things. If it is just a matter of splurging on expensive wishlist items, just remember: there is no way anything you buy will make you as happy as a well-earned sense of financial security.

You justify unnecessary spending

Another story so many of us tell ourselves is that we really need this new phone or that new thing for the house or a nice new dress to be happy — when, in fact, we really do not. Retail therapy (and the addictive spending behavior that comes with it) is a real problem, and it all starts with justifying unnecessary spending. Rather than continuing to come up with reasons to buy things, try and switch your mindset to start a savings habit. For this, it helps to come up with some clear financial goals and have a way to regularly track your progress. When you do so, you can change the question from “why do I need this?” to “would I rather have this or that important thing I am saving up for?”

You are avoiding your bills

Although they might seem like they are hiding in that big pile of mail, the fact is that your bills are not going anywhere, and avoiding them will only make things worse. Instead of pretending they do not exist, come up with a plan to conquer your bills. This might include things like renegotiating the monthly cost of your bills, or even coming up with a simple solution for lowering those bills. Whatever it is, start taking baby steps toward paying them off — we promise, the peace of mind will be worth the expense.

You are receiving collection calls

When things go unpaid, the collection agencies start calling. This is a sure sign not only that you are living above your means, but also that you may need to rethink how to manage your money. The first step here is to figure out what the collection agencies are calling about, and if you can afford to pay it back straight away. If not, you may need to negotiate something called a collection agency payment plan. Either way, do not waste any time ignoring these calls, especially because the damage of unpaid debts could far outweigh the cost of repaying them.

Your credit score has taken a hit

After several months of taking on debt or neglecting to pay your bills on time, you can expect to see your credit score to take a pretty big hit. Again, do not underestimate the power of a good credit score, as this number often determines your buying or borrowing power when it comes to things like big purchases (a home or car), loans, and even new credit cards. Take the time to find out why your credit score has dropped, then take the necessary steps to fix it. This could be as simple as getting a handle on your budget and ensuring you make your monthly payments on time, or as complicated as working with a credit repair company. The right option for you will depend on your financial situation.

You are losing sleep over money

Whether it is the stress of unpaid bills or just living paycheck to paycheck, your financial health will often affect your physical well-being as well. Although we often take the time to address our personal self-care, we easily forget about the importance of financial self-care. Fortunately, you have the power to change that. Take a hard look at your finances so you can pinpoint where the problems are. Then get on a path to fixing them, and make a promise to yourself to practice better financial self-care.

The bottom line

Living beyond your means is an all too common problem, and whenever you find yourself in this situation, it is important to do the work to fix it. Although a few weeks or months might pass without issue, overspending will always catch up in the form of neglected savings accounts and unpaid debts. Do not let yourself become a victim of overspending. Instead, work on setting a budget you can reliably stick to — one that allows for paying your bills, working toward your financial goals, and still splurging every once in a while on the fun stuff.