Holiday Gift-Giving: Making It Merry & Meaningful

Sam Ngooi Life with Money

The holiday season is here! Or rather, major retailers would have you believe holiday gift-giving has been here for quite some time now.

Retail giants like Amazon, Target, and Walmart have moved Black Friday up to early October, giving shoppers access to deals six weeks ahead of Thanksgiving.

This may be good news for some: the “most wonderful time of the year” has been extended to three months (that’s a quarter of the year, for those keeping track). But for others, holiday gift-giving can make the season feel busy and stressful.

“Being obligated to give, and worrying about how people will react, interferes with the happiness we typically feel at the pure act of giving,” according to Harvard Business School professor Michael Norton.

While nearly 7 in 10 Americans would skip exchanging gifts if their loved ones would agree, we’d like to again share a few ways to make holiday giving a bit more merry and meaningful—without saying “bah humbug” to the tradition altogether.

• • •

Set Reasonable Expectations

“Nearly 3 in 10 Americans who used credit cards to pay for holiday gifts in 2023 (28%) still haven’t paid off their balances,” according to a recent NerdWallet survey. Rather than worrying about holiday spending (and potential debt) after the fact, take time now to reflect on your expectations and financial goals.
holiday gift-giving
An early conversation with people in your gift-giving circle can help align expectations around the number of presents, cost, or type of gifts.

Asking, “How do we want to handle gifts this year?” can generate creative gift arrangements, such as pooling money for larger gifts or taking a vacation together.

Shop Thoughtfully

Retailers spend millions to get shoppers to spend more. For example, one-day and limited-time store credit impose pressure on customers to buy things they wouldn’t otherwise.
To avoid getting sucked in, recognize sales tactics and stick to a list, then research the best deals.

Give Intentionally

Research shows that gift recipients are more likely to value an experience or activity over material objects, due to the memories and stories generated by the experience (“Remember that time when … ?!”).

A personal note or token gift (think: a pair of hiking socks in advance of a camping trip) can further enhance the excitement and anticipation that make experiences more appreciated than material gifts.

Interestingly, people feel happier when they receive something they’ve asked for, rather than a surprise. People also enjoy practical, homemade, or timesaving (i.e., services) gifts, provided you carefully consider their likes, wants, and needs.

Finally, charitable gifts on someone’s behalf tend to produce the most happiness when they have a well-defined purpose and a way to report back to donors on their impact.

Involve Kids

One effective way to reinforce values within families is to discuss the meanings behind holiday traditions and the feelings elicited by giving and receiving gifts.

Ron Lieber, author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, notes that involving kids in the gift-choosing process allows parents to encourage family values, such as matching funds allocated to homemade or philanthropic gifts. In addition, a holiday budget helps kids practice money management.

Savor Gratitude

Expressing gratitude can strengthen positive attitudes in the brain and increase happiness and satisfaction. Throughout the gifting process, it’s okay to enjoy the feeling of making someone you care about feel appreciated.

Similarly, communicating your appreciation for the work that went into a gift spreads the good cheer and strengthens your relationship with the gift-giver.

Focus on Values

Reflecting on values and priorities during the holiday season serves as a reminder of what gift-giving is all about: creating special connections and enriching our relationships through caring, kindness, and empathy towards others.

Taking time—either individually, with friends, or as a family—to think about this deeper meaning can help refocus the reason behind the rituals of the season.

• • •
Wishing you a merry, meaningful, and stress-free holiday season!

What the 2024 Presidential Election Means for Your Portfolio

Nick Levinson Comments, Life with Money

The 2024 presidential election has come and gone.

What was projected to be a very close race turned out to be less so. Republicans have re-taken the US Senate and appear poised to retain control of the House of Representatives as well. Whatever your political preference, it appears clear that there will be very different priorities for the US government starting in January 2025. We of course don’t know how any of this will play out over the next four years, but we will be here as always to help you navigate your life with money.

What is clear so far is that most parts of the US stock market have reacted favorably to President-elect Trump’s victory. Since election night, the S&P 500 has risen almost 4%, while the Dow and NASDAQ are up almost 5%. Parts of the market that Trump promoted heavily (often referred to as the “Trump trade”) have increased even more sharply, with Bitcoin, for example, up more than 25% since the election.

Other markets have not performed so well. International stocks have declined, with developed markets down about 1% and emerging markets off almost 2%. Sectors that Trump appears to oppose, like alternative energy (i.e., non-fossil fuels), have fallen even further, with an alternative energy index down 9%.

As for bonds, rates spiked, and prices declined, significantly the day after the election but have come back down and appear to have stabilized.

What does all of this mean for your portfolios, and should you be considering any major changes?

Our initial response is probably not, but with at least one caveat to be discussed below.

In general, we find ourselves in broad agreement with New York Times columnist Jeff Sommer. His 11/10/24 piece, “Even Now, Slow and Steady Works in the Stock Market,” outlines the uncertain future, given the vagueness, at least in terms of implementation if not rhetoric, of many of Trump’s policy proposals.

“Will the markets rise or fall further… Tax cuts are likely [our note: which could encourage growth as well as inflation], but Trump has also repeatedly vowed that he will impose tariffs on China and many other countries as well, measures that could lead to increased inflation, reduced international trade, and a drag on the global economy.”

“And while Trump has promised to crack down on illegal immigration and to initiate mass deportations, the effects of such policies on the US labor market, and on industries like construction and agriculture that depend on immigrants, can’t be reliably estimated.”

“The Federal Reserve, which cut short-term interest rates by a quarter point on Thursday, can’t be sure, under the current circumstances, what effect the next administration’s still-undetermined policies will have on the economy. What’s more, Trump has already indicated that he has little regard for the traditional independence of the central bank. Fed policy over the next year must be viewed as even less settled than usual.”

Sommer concludes that “no one can reliably predict the future. Worrying about it is entirely natural, and it’s possible that a second Trump presidency will represent a breach with history so great that what’s come before can no longer serve as a reliable guide to investing. Yet I doubt it. There is considerable evidence that you will be better off putting these worries aside, as far as your finances go, while embracing a slow and steady approach.”

Now for the caveat.

One approach that we do advocate is tax-loss harvesting (TLH). This was a big factor in 2022, when both the stock and bond markets declined significantly. TLH allows you to sell investments with losses and use them to offset gains elsewhere in your portfolio, which can be helpful for re-balancing purposes. If your losses exceed “realized” gains (i.e., from actual sales), then you’re also allowed to use them to offset up to $3K of ordinary income each year. And the losses “carry forward” indefinitely under current tax law.

So there might be opportunities before the end of the year to sell bond funds or stock funds that have declined, such as alternative energy, and realize some potentially valuable losses. If so, your advisor will be in touch with you in the coming weeks.

How to Switch to Paperless Delivery at Schwab

Corenna Roozeboom Life with Money

Are you still receiving paper statements or documents from Schwab? Here is how to switch to paperless delivery at Schwab in just a few steps.

  1. Log in to your Schwab account at SchwabAlliance.com. Log in to Schwab Alliance
  2. Click on the Profile tab in the top right corner, then select Paperless from the drop-down menu. Paperless Delivery Drop-Down
  3. Click Enroll Eligible Accounts to switch to paperless delivery for all eligible accounts and documents. How to Switch to Paperless Delivery at Schwab
  4. Or, scroll to individual accounts to set unique preferences. Click the pencil to edit your email address. Paperless Settings for Individual Accounts at Schwab
  5. Click Save.

As always, we’re happy to answer client questions. If you need assistance, our Client Services team will gladly help you switch to paperless delivery at Schwab.

Client Spotlight: Doctors, Advocates, Leaders

Corenna Roozeboom Client Spotlight, Life with Money

Park Piedmont clients Dr. Marcia Faustin and Dr. Toussaint Mears-Clarke have had a big year.

Dr. Marcia Faustin spent much of July and August in Paris as the co-head team physician for the gold medal-winning U.S. Women’s Gymnastics team. Dr. Faustin, an assistant professor and Family Medicine and Sports Medicine physician at the UC Davis Health Medicine Sports Clinic, was an instrumental part of the medical team providing care to Simone Biles, Suni Lee, and the other Team USA gymnasts.

Marcia – or “Dr. Marcy,” as she’s known to the athletes – and her co-head physician, Dr. Ellen Casey, have shared the role of USA Gymnastics Team doctor since 2019.

As Candace Buckner from the Washington Post observes, “Together, they’ve worked to rehabilitate the reputation of their field by building trust with the athletes, their families and coaches. It has taken patience, knowing they would have to work on restoring confidence with a community that had utterly lost faith in the medical profession.”

Dr. Marcia Faustin and Simone Biles

Dr. Toussaint Mears-Clarke is a faculty physician and the Obstetrics Fellowship Director at Dignity Health Methodist Hospital of Sacramento Family Medicine Residency. He recently earned the California Academy of Family Physicians (CAFP) 2024 Educator of the Year award, which recognizes excellence in the field of family medicine education.

Passionate about providing care for underserved and marginalized communities, Toussaint has completed training to better meet the needs of the LGBTQ+ community. Earlier this year, he was elected to lead the LGBTQ+ constituency for the American Academy of Family Physicians (AAFP), which represents over 130,000 family physicians, residents, and students.

We’re grateful to Marcia Faustin and Toussaint Mears-Clarke for carving time out of their busy schedules to talk with us a bit about life with money.

Dr. Marcia Faustin and Dr. Toussaint Mears-Clarke

What is your earliest money-related memory?

Marcia: I have three older sisters, and my parents both immigrated from Haiti, and they would take all of us to our local bank, which had a program where if you deposited money, then you got points, and you got to use the points to get a toy, or a stuffed animal. I must have been six or seven – very early.

Toussaint: I’ve always been a collector. And as a kid, I used to collect shells, plants, Pokémon, and rocks. And so when I realized that I could also collect dollar bills, I was immediately excited by the fact that I could collect something that had a purpose – that I could exchange for other goods and services.

Is there a purchase you’ve made that felt especially weighty – or filled with possibility?

Marcia: Together? Buying a home.

Toussaint: Yeah, that’s what I think – the home. And the reason is, when I buy a coffee at Starbucks, all I do is tap to pay. That’s it! And then I own that property! But when we bought a house, I’ve never signed so many documents in my whole life.

Is there a decision you’ve made, or step you’ve taken, that has made your life with money less stressful?

Marcia: I think we both have a similar philosophy of saving. Neither of us are spenders, so we haven’t had a difference in opinion on spending. It’s more like we need to convince the other person to make the purchase. Outside of that, just working hard to be successful within our careers and to make enough money that we don’t have to constantly worry about it.

Toussaint: The only other thing I would add is there’s so much in finance that doesn’t make sense unless you intentionally seek out the knowledge. In elementary school, or high school, or even graduate education – there was no real discussion about what financial products are out there, or about what it takes to achieve financial independence.

And so Marcia and I have been diligent in asking questions of others who have more of an understanding of what it means to be fiscally responsible. And that comes in many different flavors. Obviously, one is through Park Piedmont, but also our parents are very much a huge foundation in terms of what it means to save. And there are several websites – NerdWallet, White Coat Investor – that are fantastic, and the book Finance for Dummies is phenomenal.

You mentioned your parents – how have your parents shaped your life with money?

Marcia: My parents saved – they were always saving. They’re also very generous with money. They often were giving money to people who needed help, or to family or such. And my dad used to always say, “If you’re going to let somebody borrow money, you can’t have the expectation that you’re going to get it back.” But they were constant savers, so that’s how I’ve learned that.

Toussaint: My parents both grew up on farms in low-income settings. Where we grew up in Jamaica, poverty was ubiquitous. And so there’s almost an innate need to survive in that setting, and saving is a part of survival. I always remember my parents saying, “Work because you want to, because you love it, but not because you need to. The right to choose your own direction and destiny comes with having a strong financial foundation.”

What is one thing you purchased that has some meaning, or that brought you joy?

Marcia: Friends I’ve had since sixth grade just spent a weekend together. There was a crew of six of us, and one girlfriend lives in North Carolina, so we went there together. So I’d say purchasing to do that weekend.

Toussaint: Mine was a gift from Marcia. During the pandemic, I started playing trumpet. I had always been interested in music, and Marcia, for my birthday, gave me my own professional trumpet. That’s probably one of my favorite things: to be able to create melodies for and with others – to be in harmony, at peace, with the sound.

Maybe you just inadvertently answered my next question: what’s the best gift you’ve ever received?

Toussaint: My answer is actually my education. My parents helped pay for most of my education. My education was the best gift I’ve ever received.

Marcia: I think I would also say education. My parents helped with a lot of education and the activities that I did when I was younger that helped set me up to get a full scholarship for college. I think their overall investment in myself and my sisters, in our school and activities, and in learning about ourselves and what we enjoy – teaching us those lessons set us up for adulthood.

And it was a privilege that my parents could allow us to participate in those activities, and we very much recognize that, because there are so many people that just don’t have that access. Which is unfortunate, because we know how important it is. But we’re trying to make sure that we do what we can to also help those that are less fortunate.

What do you wish you could tell your 20-year-old self about life with money?

Toussaint: I’d probably tell myself not to worry quite as much about every single dollar spent versus every single dollar saved, and that it’s all going to work out.

Marcia: I think that I would also say that life is more than money – that there’s a lot more to value in life than money. Of course, it’s helpful to have, and it makes life much easier, but to not forget the other important things and to not focus so much on that.

Park Piedmont Named ThinkAdvisor Luminaries Award Finalist

Corenna Roozeboom Life with Money

We’re honored to share that Park Piedmont has been named a ThinkAdvisor Luminaries Award 2024 Finalist for Thought Leadership and Education.

What is a ThinkAdvisor Luminaries Award?

From ThinkAdvisor:

ThinkAdvisor’s Luminaries Awards redefine excellence in financial services, shining a spotlight on outstanding contributions from both organizations and individuals. 

 

ThinkAdvisor Luminaries Award Finalist

 

“The 2024 Luminaries Awards continue to push the boundaries of what excellence means in the financial services industry,” said Janet Levaux, editor-in-chief of ThinkAdvisor.

“This year’s finalists have not only demonstrated exceptional leadership and innovation but have also shown a deep commitment to making a positive impact on their communities and the industry at large. Their contributions are a testament to the dynamic and evolving nature of our business, and we are proud to highlight their achievements as examples for others to follow.”

To view the list of finalists, visit the ThinkAdvisor website. ThinkAdvisor will announce the award winners in December.

Thought Leadership & Education

Innovating on behalf of our clients’ education and growth has always been central to the work at Park Piedmont. Since our founding over two decades ago, we have shared monthly – and, more recently, biweekly – original commentary on money and markets, provided pro bono financial literacy education to young adults, published a book on investing, and co-created a mini-curriculum for families around money, values, and relationships.

Most recently, we launched Money, Meet Meaning, a unique podcast exploring the surprising, practical relevance of the world’s spiritual traditions on our life with money. The podcast is co-produced with Interfaith America, the nation’s premier interfaith organization. In each episode, guests of varying spiritual backgrounds share insights into how their tradition paves a path for navigating our complex financial lives.

We are glad to receive this recognition. Ours is a crowded industry, and so many other, far larger firms leverage seemingly endless marketing budgets to flood prospective clients’ attention. We prefer to use education as a way to both reach prospective clients and connect with current clients.

More than that: we have considered client education an essential aspect of our fiduciary role. We spend a great deal of time and energy to create content that is interesting, accessible – and above all, helpful for our clients.

So while we are glad to spend a moment in the spotlight, rest assured, our focus remains where it’s always been: on you.

Should the Fed’s Rate Cut Shift Your Investing Strategy?

Tom Levinson Life with Money

Much has been reported about the Federal Reserve’s reducing interest rates by 50 basis points, lowering the federal funds rate to a range of 4.75% to 5%. The move represents a pivot from the past two years of rate hikes, which were designed to combat inflation, and signals the Federal Reserve’s conclusion that inflation — down to 2.5% from a peak of 9.1% in mid-2022 — is now under control.

Does the Fed’s move warrant any substantive shift in your overall investing strategy? For our Park Piedmont clients, we would answer: probably not.

Unquestionably, the Fed’s rate reduction will have some impact on varying asset classes.
investment
For savers, the 5-percent-plus yields on money market funds, available over the past couple years, will shift downward. Nevertheless, there may well be a continuing role for investing in cash equivalent money market funds in light of each of our client’s particular circumstances – even though the yields will turn lower.

For bond investors, falling interest rates mean that available yields will decline. Going forward, as new bonds are issued at lower rates, the extent of interest income to be earned will decline somewhat for savers. But the news isn’t all bad, since falling interest rates mean the price of existing bond prices will rise. (Recall that by contrast, when interest rates are rising, bond prices decline.)

For riskier assets like stocks, there is an oft-repeated consensus that stocks tend to perform well after interest rate reductions. That’s because when the Fed reduces rates, one of its objectives is to make borrowing less pricey for consumers and businesses alike, boosting economic productivity. But a recent study by Morningstar cautions investors, noting that “the last four major rate-cutting cycles show why it’s challenging to draw sweeping conclusions. Market performance can vary dramatically in the year after a new [Fed-initiated] easing cycle starts.”

At Park Piedmont, our approach to investing relies on developing an appropriate asset allocation based on each of our clients’ particular circumstances, with a focus on your goals, risk tolerance, and the time horizon for use of your financial assets. Shifts in fiscal policy and accompanying changes in investor sentiment are inevitable for investors, and typically do not call for any adjustment in overall asset allocations.

What might warrant possible rebalancing?

Perhaps your need for the use of your money has changed – either you need money sooner or later than originally anticipated when establishing your asset allocation. Or perhaps you recognize that your emotional tolerance for risk and volatility has changed. Or perhaps the movement of market prices has altered your initial asset allocation significantly enough to justify restoring your asset allocation to its original position.

In any of these cases, your Park Piedmont advisors are here as helpful resources. If you have questions, don’t hesitate to reach out.

The Importance of Trust

Kathryn Baranoski Life with Money

Trust is at the core of the relationship between client and advisor. That’s why trustworthiness is one of Park Piedmont’s core firm values, guiding the way we approach our work.

Firm Value: Trustworthiness

There are many ways we strive to make sure this value of trust shows up in our day-to-day work: acting as a fiduciary, always putting your (and all of our clients’) best interest before our own; being straightforward, honest, and responsive; and doing what we say we’ll do.

Cybersecurity is another important area where we’re building trust with you. Park Piedmont, in collaboration with Schwab and our other technology partners, has implemented various protections to ensure the security of our clients’ sensitive personal and financial information.
The Importance of Trust

Beware Spear Phishing

Our Client Service team recently attended a Schwab conference, and one of the driving themes throughout the conference was the increased sophistication of scammers, along with the importance of fraud prevention to protect our clients.

In particular, the Schwab cybersecurity experts informed the conference that “spear phishing” attempts are on the rise. These targeted attacks are highly personalized and often appear to come from a trusted source, such as a colleague or even your advisor. The aim is to trick you into sharing sensitive information or clicking on malicious links. We have heard from clients about similar schemes.

To protect yourself from these attacks, please be vigilant for any unsolicited communications requesting personal information or prompting urgent action.  If you receive anything suspicious, please feel free to notify your advisor. Our team will work with our outside information technology partner to confirm if the request is legitimate.

Use Schwab’s e-Authorization Tools

An additional layer of trust around your personal information: Schwab’s eAuthorization tools make this sort of fraud much more difficult. Even if the fraudster has access to your email address, they’re unlikely to also have access to your Schwab Alliance credentials or mobile device. Since multifactor authentication is required through these channels, eAuthorization is the best, safest, fastest way to conduct transactions for our clients, while at the same time protecting against fraud.

Expect Verbal Verification

We have also implemented a new policy requiring verbal verification for all one-time Move Money transaction requests from clients. You can still send in these requests via email, but before we process anything, your Park Piedmont advisor or a member of our Client Service team will reach out via phone call to verbally confirm that the request is legitimate.

(We want to be clear that this new policy only applies to one-time requests. If you have a recurring monthly distribution from your Schwab account, we will continue to process those transfers as normal.)

These changes mean you might be hearing from us more frequently – we look forward to it!

The Importance of Trust

In closing, we know well that trust is an ongoing process. Please be in touch with your valuable input and any feedback – we are eager to continue to earn your trust every day.

The Way We Do Our Work Matters

Corenna Roozeboom Life with Money

Park Piedmont’s mission is to help our clients gain clarity and peace of mind in their life with money. In doing so, we promise fiduciary guidance that’s principled, personal, and practical.

Personal and practical are fairly straightforward — but what do we mean by “principled”?

Park Piedmont has ten firm values. Each one informs the way we work with our clients and the way we work with one another. Some values are demonstrated in our investment philosophy or approach to ongoing education. Others inform how we communicate. Still others characterize the posture we strive for when showing up to work each day.

To keep our firm values top of mind, we take turns during weekly team meetings recognizing our colleagues and sharing specific examples of how our values are reflected in our work.

This weekly practice keeps the importance of our mission in front of us – and reminds us that the way we do our work matters.

In our Life with Money newsletter, we’ll highlight and describe one firm value at a time to demonstrate the ways they inform our principled approach to our work and our relationships with our clients.

If you don’t receive our newsletter, we welcome you to join us! Sign up for Life with Money.

 

Obstacles to Successful Long-Term Investing

Tom Levinson Comments, Life with Money

In March of 2016, and as published in our book Thinking About Investing, we added to our behavioral finance principles by discussing Richard Thaler’s book, Misbehaving: The Making of Behavioral Economics, and articles in The New York Times “Your Money” section from March 27, 2016.

The point of the discussion was to present some of the personality traits that can become obstacles to successful long-term investing:

“Changing how people think about the money they save for retirement is a central tenet of a movement based on behavioral finance, the approach to economics that aims to understand how average people, not rational economists, make financial decisions. After all, it’s the way people behave around money that tends to derail their plans, not a lack of knowledge about what they need to do if they want to retire comfortably.”

The article, written by Paul Sullivan, discusses ways behavioral finance helps people save more for retirement and also helps people “limit their investment choices, so they would need to opt out of a broadly diversified portfolio, which is the portfolio most likely to produce the best returns over time.”

The primary article in The New York Times “Your Money” section, “Why We Think We’re Better Investors Than We Are,” was written by Gary Belsky. The article starts by explaining why Behavioral Finance focuses so many of its studies on the investment markets – because they “provide unusually robust data sets for analyzing ‘judgment under uncertainty,’ … how people make choices when resources are at stake and the outcome is unknown.” The article then comments on the “sunk cost fallacy,” which causes investors to focus on their original cost, not wanting to sell at a loss, representing “a nonconscious desire to justify their earlier decision.” This idea feeds into the “key tenet of ‘loss aversion,’ which tells us that humans typically respond to the loss of resources – be it time, emotion, material goods or their proxy, i.e., money – more strongly than they react to a similar gain.

The article continues:

“Despite the spectacular growth of index funds – passive investment vehicles that track market averages and minimize transaction costs – millions of amateur investors continue to actively buy and sell securities regularly. This despite overwhelming evidence that even professional investors are no more likely to beat the markets than a monkey throwing darts at security listings. Money managers, at least, are paid to make investment bets. But why do amateurs believe they can outperform the professionals – or even identify those pros who will outperform?”

(Performance of mutual funds cannot be predicted with any greater degree of accuracy than individual stocks or bonds).

Many biases and cognitive errors contribute to this costly behavior, but a few deserve mention.

  • Overconfidence: “The tendency to overrate our abilities, knowledge and skill, at whatever level we place them … There is a disconnect between actual and perceived financial sophistication, evidence of how widespread the overconfidence bias is.”
  • Optimism bias: “Helps explain why many investors believe they can outperform the market.”
  • Hindsight bias: “The tendency to rewrite our own history to make ourselves look good … People consistently misremember their forecasts, in ways that make them look smarter.”
  • Attribution bias: “When remembering our failures, we remember them in a way that neutralizes their ability to inhibit our present-day decisions. When events unfold that confirm our thoughts or deeds, we attribute the happy outcome to our skills, knowledge, or intuition. But when life proves our actions or beliefs to have been wrong, we blame outside causes over which we have no control.”
  • Confirmation bias: “Giving too much weight to information that supports existing beliefs and discount that which does not … Once one entertains the idea that this seems like a good investment, the processing of relevant information narrows considerably – and in a direction that leads to over confidence.”

The final pertinent article in the “Your Money” section was written by University of Chicago Professor John List. The general point made by Professor List is that, because of loss aversion, people underinvest in the stock market. They look at their investments too frequently, and when they see declines, they sell their stock positions in order to avoid further declines. This behavior occurs even though people are aware of the long-term outperformance of stocks:

“Market research shows that when your horizon is not today, not next week, but way in the future, the most profitable strategy is to invest more heavily in riskier assets – stocks – than people are prone to do. So why don’t people invest more in stocks? … Because people are loss averse … keenly more aware of losses than comparable gains … Those who evaluate their investments frequently, see lower returns on their risky assets like stocks … So what can be done? Not paying too much attention to your portfolio is a good first step.”

More specifically, List’s advice – which he says he follows – is to look at one’s portfolio no more than once every three to six months.

The Thaler book presents all the behavioral finance ideas and their chronological development. We have presented a few highlights that relate specifically to investing.

On investing for the long term:

“The equity premium is defined as the difference in returns between equities (stocks) and some risk-free assets such as short-term government bonds … With a 6% edge in returns, over long periods of time such as 20 or 30 years, the chance of stocks doing worse than bonds is small … (But) the more often people look at their portfolios, the less willing they are to take on risk, because if you look more often, you will see more losses … Defined as myopic loss aversion, those who saw their results more often were more cautious … So the equity premium, the required rate of return on stocks, is so high because investors look at their portfolios too often.”

But in an important footnote, Thaler comments that “this is not to say stocks always go up … they quite recently fell 50%, which is why the policy of decreasing the percentage of stocks in your portfolio as you get older makes sense.”

In a chapter devoted primarily to John Maynard Keynes, he quotes Keynes as follows:

“Day to day fluctuations in the profits of existing investments, which are obviously of an ephemeral and non-significant character, tend to have an altogether excessive, and even an absurd, influence on the market.” – John Maynard Keynes

Thaler writes:

“Keynes was also skeptical that professional money managers would serve the role of smart money, but rather they were more likely to ride a wave of irrational exuberance than to fight it … as it is risky to be a contrarian … and that professional money managers were playing an intricate guessing game, similar to their judging a beauty contest, where the winning judge is the person who picks the faces of those who most of the other judges picked as the prettiest, rather than the faces that he (the judge) thinks are the prettiest.”

In another chapter, Thaler writes:

“When prices diverge strongly from historical levels (our note: that is, long-term average valuation measures such as price/earnings ratios), in either direction, there is some predictive value in these signals. And the further prices diverge from historic levels, the more seriously the signals should be taken. Investors should be wary of putting money into markets that are showing signs of being overheated, but also should not expect to be able to get rich by successfully timing the market. It is much easier to detect that we may be in a bubble than it is to say when it will pop, and investors who attempt to make money by timing market turns are rarely successful.”

Finally, in our extensive experience with individual investors, we would add one more item to the list of behaviors that cause problems: the financial media’s emphasis on day-to-day activity, which turns many people into short-term investors, with the negative outcomes observed by the behavioral finance group. When the short-term results of financial markets are turned into a sports event, or a casino, as they are often reported on by the media, it becomes difficult for even the most disciplined of investors to ignore the “noise” and focus on their long-term objectives. At Park Piedmont, we view overcoming this challenge as a major priority.

A Note on Recent Market Declines

Nick Levinson Life with Money

In case you missed it, we’re re-publishing the note we wrote originally on August 5, 2024, when the S&P 500 stock index declined by 3%. Stocks have been up and down since, with the S&P gaining 2.3% on August 8. This is yet another example of why it’s impossible to make short-term predictions about market movements, and why it’s therefore best not to react to large declines, since you might miss an eventual recovery.

• • •

The US and other world stock markets have declined significantly over the last few weeks. We have no way of predicting what will happen, of course, but we think it’s helpful to put these declines in context.

We hope this provides some comfort going forward. As always, we’re available to discuss any of these topics at your convenience.

  • Broadly diversified stock indexes and funds have fallen since their recent peaks on July 16. The S&P 500 index is down 8.5% in this period, while Vanguard’s total US stock fund has declined 9.1% and Vanguard’s total world stock fund (including US, developed and developing country international stocks) is down 7.7%.For 2024 year-to-date, however, all three of these indicators are still up between 6% (world stock) and 9% (S&P 500). Despite recent less-good news on employment and consumer spending in the US, which appear to be a significant factor in the recent sell-off, the US and world economies have seen declining inflation and positive economic growth for the year.
  • While stock prices have declined, bond prices have risen significantly in 2024. Bond prices rise when interest rates fall, and the benchmark 10-year US Treasury has gone down from 4% at the start of the year to 3.78% currently. The declines are more dramatic compared with the 4.9% level in October of 2023 and 4.7% as recently as April of this year.There are many factors involved in falling interest rates, including reduced inflation and expectations of upcoming rate cuts by the US Federal Reserve. In any case, the rising bond prices have served to cushion diversified portfolios against the stock price declines, as also happened during 2000-02 (“dot com bust”) and 2007-09 (“Great Recession”).
  • Stock price declines happen regularly. The most recent market correction (generally defined as a decline of 10% from a previous high) occurred from August through October of 2023. No one likely remembers that now, since it happened in the middle of a year when stock markets around the world rose more than 20%. Stocks fell more than 30% in the early months of the pandemic in 2020, but quickly recovered to gain around 20% by the end of that year. Recoveries from the larger declines in 2000-02 and 2007-09 took longer, but generally occurred within a couple of years.The key point is that you only benefited from the recoveries if you stayed invested in the markets. Anyone who sold during these admittedly difficult, often scary periods had to decide when to buy back into the markets, and potentially missed the recoveries completely.
  • This brief history highlights a few important investing concepts:
    1. Trust your asset allocation. All of our Park Piedmont clients have customized plans for investing in a diversified portfolio of riskier (generally stocks and high-yield income investments) and less risky (generally bonds and cash) assets. These are designed to meet your specific long-term needs and goals, and account for your time horizon and risk tolerance (see discussion in Jeff Sommers’ article, “Why You Should Be Taking a Hard Look at Your Investments Right Now,” in The New York Times on August 2). That means the allocations are supposed to help you to live through the occasional downturns, with the understanding that you’ll participate in recoveries and do well when the markets rise. If that’s not the case, please let us know and we can revisit your asset allocation.
    2. Re-balance as appropriate. The Sommers article mentioned above highlights the importance of regular re-balancing, or returning to your target allocation when one asset class has drifted significantly from its target. The stock market gains since 2022 might have pushed your stock allocation above your targets, for example, while the recent declines might have brought the stock allocation back into line. We review re-balancing opportunities regularly on your behalf.
    3. Re-invest over time. If re-balancing does make sense for you, we recommend making any changes over time instead of all at once. This is referred to as “dollar cost averaging” and represents an attempt to mitigate the risk of making a large change all at once.

Again, your Park Piedmont advisors are here to discuss any of these topics and answer your questions, as they arise.