Reflecting on Time as an Asset

Tom Levinson Life with Money

When you think of your most valuable assets, how much thought goes into your time?

For many of us – myself included – there is an automatic quality to time, an assumption that the rhythms of our life will, going forward, look and feel much the way they have.

September contributes to this. We live close to a college campus, and while the pandemic tinted the past two Septembers, the current back-to-school – unmasked students walking across campus in the crisp air and changing light – is familiar.

Of course, as the old song goes, it ain’t necessarily so. Our time may seem like it’s moving in predictable cycles, but that’s an illusion. Our time is finite, and precious – an extraordinarily valuable asset.
time as an asset
So – how best to spend it?

A wide body of social scientific research suggests that paying attention to time can help us spend that time better. And the better we spend our time, the greater a return we can get from that investment. In other words: time, like money, is an asset whose value can appreciate over time – if we spend it wisely.

Some takeaways from the research:

  • Pay attention to spending time with family, friends, and people you enjoy: research indicates that “socially connecting activities … comprise the happiest parts of the day.”
  • Having spare time, along with the perception of some control on how to spend it, “has been shown to have a strong and consistent effect on life satisfaction and happiness, even controlling for the actual amount of free time one has.” The research points to a benefit in increasing “discretionary time,” even if you have to pay some money to do so. Interestingly, though, research also points to a diminishing return on spare time: some is good; too much isn’t. Note how this may have implications for the traditional model of retirement.
  • Think about how valuable your next hour or two might be, and how the value can extend beyond that hour: so-called “prosocial” behavior, like volunteering, tends to make people happy. Research has also found, somewhat counterintuitively, that giving away time, as with volunteering, can actually help people feel they have more time. Focusing more on time (vs. money) seems to make individuals more self-reflective, compelling them towards behaviors that are highly aligned with their ideal self.”
  • Simply being reflective about time seems to contribute to people’s happiness. That may have something to do with a recognition of time’s limited nature. “Awareness that one’s overall time in life is limited improves subjective well-being by encouraging people to find greater enjoyment in life’s ordinary pleasures and close relationships.”

I (Tom) found myself reflecting more on time a few weeks ago, in the stretch leading up to the Jewish “Days of Awe,” the period from Rosh Hashanah, the Jewish new year, through Yom Kippur, the Jewish “Day of Atonement.”

It turns out this 10-day stretch (we’re in it now) is a 3,000-year-old cognitive reframing technique. During that time span Jewish people take a break from work, gather as a community, and consider time with one another.

These “High Holidays” ask: What have you done this past year? And what can you do to improve your life, and that of others, in the year to come?

As the contemporary research emphasizes, simply considering the question can have a positive, even a transformative, impact. If time is a precious, finite asset, how will you use it?

New Words for Familiar Feelings: Definitions for Life, Work & Money

Nick Levinson Life with Money

We’ve been sending you our new Life with Money column for several weeks now. Although I (Nick) have written a few of the market updates, this is my first time contributing a more personal essay.

Some of what we’ve written has touched on religious and spiritual traditions and their approach to money. While I don’t have any organized religious practice, a walk in the woods is spiritual for me in the sense of lifting and filling my soul.

To that end, I was fortunate enough to go on a five-day backpacking trip on the Tahoe Rim Trail (TRT) this summer. (I wrote about it for our local online news site, the Piedmont Exedra.) Unfortunately, my wife Julie developed elevation sickness and had to leave the trail before completing the 50+ mile hike. She convinced me that I should continue, but I definitely felt lonely and sad without her. (We completed a different section of the TRT together in 2021.)

In this slightly melancholy state of mind, I turned at the end of each day’s hike to a short (and light, since the pack already weighed 35 pounds) book called The Dictionary of Obscure Sorrows. I heard the author, John Koenig, interviewed on NPR recently, and knew I needed to pick it up for moments like these. If you’re looking for an easy read that might make you cry and could also inspire laughter, but will definitely make you think about life, I highly recommend it.

As Koenig writes in the introduction, “This is not a book about sadness – at least, not in the modern sense of the word. The word sadness originally meant fullness, from the same Latin root … that also gave us sated and satisfaction … When we speak of sadness these days, most of the time what we really mean is despair, which is literally defined as the absence of hope. But true sadness is actually the opposite, an exuberant upwelling that reminds you how fleeting and mysterious and open-ended life can be” (page xii).

With that mindset, I devoured the definitions, all of which Koenig invented. Some have clear resonance with PPA’s work, and some are more loosely connected — and still relevant, such as:

Hubilance (page 115) – the quiet poignance of your own responsibility for someone, with a mix of pride and fear and love and responsibility—feeling a baby fall asleep on your chest, or driving at night surrounded by loved ones fast asleep, who trust you implicitly with their lives—a responsibility that wasn’t talked about or assigned to you, it was assumed to be yours without question. (From hub, the central part of the wheel that bears the weight, + jubilance.)

I think any parent, spouse, or pet owner for that matter, will share this sentiment.

Thrapt (page 116) – awed at the impact someone has had on your life, feeling intimidated by how profoundly they helped shape your identity, having served as a ghostwriter of a work that nevertheless only appears under your name. (From thrapped, drawn tight, as with nautical ropes, + rapt, carried away with emotion.)

This one of course made me think of Victor, and his enormous influence on my life and on PPA.

Sonder (page 123) – the awareness that everyone has a story … You are the main character. The protagonist. The start at the center of your unfolding story. You’re surrounded by your supporting cast: friends and family hanging in your immediate orbit. Scattered a little further out, a network of acquaintances who drift in and out of contact over the years. But there in the background, faint and out of focus, are the extras. The random passersby. Each living a life as vivid and complex as your own … When your life moves on to the next scene, there’s flickers in place, wrapped in a cloud of backstory and inside jokes and characters strung together with countless other stories you’ll never be able to see. That you’ll never know exist. In which you might appear only once. As an extra … in the background. As a blur of traffic passing on the highway. As a lighted window at dusk. (From sonder, to plumb the depths.)
sonder
Koenig has said that this one is the best known of any of his definitions, and he has heard it used by others who have not read the book.

Other definitions are relevant to work, both for our clients pursuing their life goals and for our team at PPA, offering help in that process:

Elosy (page 215) – the fear of major life changes, even ones you’ve been anticipating for years; the dread of leaving behind the bright and ordinary world you know, stepping out into that liminal space before the next stage of life begins, like the dark and rattling void between adjoining metro cars. (From the Malagasy lelosy, or snail, which is a creature that carries many twists and turns wherever it goes, trying in vain to outrun them.)

This definition of course relates to retirement, buying a house, getting married, or having children. We strive to help clients define these goals and plan to accomplish them in a way that makes them seem less scary and insurmountable. The retirement illustrations we customize for each client are a prime example of this collaborative work.

Addleworth (page 71) – unable to settle the question of whether you’re doing okay in life; feeling torn between conflicting value systems and moveable goalposts, which makes you long for someone to come along and score your progress in discrete and measurable units—points, dollars, friends, followers, or a grade point average—which may not clear up where you’re going but would at least reassure you that you’re one step closer to getting there. (From addled, muddled or unclear, + worth.)

This one raises the perennial question of worth and how each person defines it. We encourage clients to understand their values first, the basic way they want to be in the world. Out of that conversation, we help identify short, medium, and long-term goals that reflect those values. These include the life stages mentioned above, but can also focus on philanthropy, or helping a family member with special needs, or world travel. We then assess whether these goals are achievable, and if so make an investment plan that maximizes the likelihood of achieving them. We consider this a more meaningful way to plan than an arbitrary scorecard, which in many ways focuses on other people rather than you.

Achenia (page 226) – the maddening sense that the world is too complex to even begin to understand, that whenever you try to answer even the most trivial question, it quickly tangles into a thicket of complications and melts into a quicksand of nuance, leaving you flailing for something solid to hold on to, struggling to come up with anything you could say that is definitely 100% true. (From achene, the fruit that contains the seed of a flowering plant, which is often confused for the seed itself.)
achenia
This feeling relates to all aspects of human life, but has great relevance to financial matters and the advice PPA provides. The stock and bond markets, interest rates, inflation, insurance, estate planning – these and related topics can be very difficult to put into context and determine how they affect your life.

It can be very humbling to consider the enormity of these subjects, and we try to bring a sense of humility to all of the work we do with clients. This includes client education, which we tailor to each of your levels of knowledge and interest. Another core part of our approach is the realization that no one knows everything about any of these topics, and no one can predict what will happen in the future.

That understanding drives our advice to invest to accomplish your goals, as opposed to aiming for a specific dollar amount or rate of return. It also directs our focus on indexed investing, which emphasizes exposure to broad parts of the financial markets, since we don’t know which ones will outperform or underperform in any short timeframe.

I enjoyed contemplating Koenig’s words and ideas, and they turned out to be great company on my walk in the woods. Please let us know if you have a favorite obscure sorrow, whether it comes from the book or you made it up on your own.

What a Difference a Day Makes! (Or Does It?)

Nick Levinson Comments

We were planning to write this commentary on Monday, September 12th. If we had, the story might have mentioned the past four days of positive results for the markets, with the S&P 500 index rising more than 5%. This “mini-recovery” came right after a significant decline that interrupted an earlier potential recovery from late June through mid-August.

But we didn’t get started until Tuesday, September 13th, the day the S&P 500 declined 4.3%, the largest drop since the early days of the pandemic in March 2022.
headache

What caused this stomach-churning volatility? A report about inflation in August that actually represented an overall improvement over the same reading in July. “Prices rose 8.3% from a year earlier, a fresh Consumer Price Index report released on Tuesday showed … slightly better than July’s 8.5% …” (The New York Times).

So why did the markets react negatively? Apparently because the better results were not as good as market “expectations.” From the same Times article cited above, “the rate was not as much of a moderation as economists had expected as rent costs, restaurant meals, and medical care became more expensive. Compounding the bad news, a core measure of inflation that strips out gas and food to get a sense of underlying price tends accelerated more than forecast.”

And who determines these expectations? There isn’t any one economist or entity, private or public, making these predictions. But a conventional wisdom develops nonetheless, with input from academics, media, and staff of financial firms large and small. And if the overall inflation number or, as in this case, components of the number including food and rent, don’t meet the expectations, then the “market” reacts.

Unfortunately for long-term investors like you, this is how markets, and especially the stock market, work in the short-term. Traders, who we at PPA often liken to gamblers, are trying to gain some temporary advantage by buying or, these days, selling ahead of investors. We think of investors as having a longer-term perspective, as defined by your specific circumstances. These daily price movements often have nothing to do with longer-term trends, however, which have historically generated positive returns for stock and bond market investors.

This is why PPA encourages clients to try to tune out what we consider “noise” in the markets. We don’t ignore what’s going on, and we don’t suggest that you do either. But we do advocate for taking a step back in the face of short-term volatility and considering your specific situation.

If you’re younger and have a tolerance for risk, then you should have a portfolio weighted toward growth (i.e., stocks) with the understanding that there should be periods of recovery following declines. That’s what’s happened in all similar periods in recent history, from the Great Depression in the 1930s to the oil crisis in the 1970s, the stock market crash of 1987 (when stocks declined over 20% in a single day), the dot com bust in the early 2000s, the financial crisis of 2007-8, and the Covid declines in early 2020.

If you’re older or have a lower risk tolerance, then your portfolio should be weighted toward income generation and capital preservation (i.e., bonds), despite recent price declines in the bond market too. As we often point out, when bond prices decline, interest rates rise, which means you’ll start earning more interest income, offsetting the price declines over time (the key question being how long that offset process takes).

Because we don’t know what will happen tomorrow, much less next month or next year, we think the most prudent course is to stick with the customized asset allocations PPA has developed with you to fit your particular situation.

We know it can be very difficult to see your portfolio value declines significantly. It’s very much in human nature to want to make changes when things aren’t going well. But if you sell now, you might miss out on an eventual recovery. Buying now might make more sense given discounts on both stocks and bonds, but you could be getting back in with more declines ahead.

This is why we advocate for “re-balancing” as part of this process, which means moving back to your original targets for stocks and bonds as the portfolio “drifts” with longer-term market movements. We also suggest “dollar cost averaging” when re-balancing. This in essence means making changes over time instead of all at once to avoid large moves like the one on the 13th. In other words, focus on the years, not the days.

Mozzarella … with a Pinch of Inflation: Gender Roles & Inflation Expectations

Corenna Roozeboom Life with Money

“Fewer fruits and vegetables, more carbs and cheese.”

That was the recommendation our pediatrician gave us a few weeks ago for our one-year-old daughter. It was enviable. Sign me up for that diet.

The next day I dutifully added “block of fresh mozzarella” to our grocery list. When my husband returned from the grocery store, he dropped the heavy cheese log onto the counter and said, “These aren’t cheap.”

“How much?” I asked.

“$11.49.”

I wouldn’t have bought it if I had been the one shopping. But I wasn’t—and he wasn’t the one who created the list.

Not knowing whether a backup cheese would’ve been acceptable, it was his turn to dutifully do as he had been told. He balked at the price—but then bought the mozzarella anyway.

As I recently heard on NPR’s Planet Money podcast, “Groceries are really where everybody feels the pinch of inflation, unless you’re one of those people who doesn’t eat food.”
alert
I am not one of those people. I would assume you are not either.

It turns out, though, that the pinch of inflation feels more painful when you do the grocery shopping for your household. After all, you’re the one witnessing firsthand the fluctuation in grocery prices from week to week.

Being in tune with those price changes—and directly feeling that pinch—also impacts your expectation of rising grocery prices. That’s called inflation expectation.

According to Planet Money, historical data have shown that women tend to feel more pessimistic than men about future inflation.

“All sorts of hypotheses have been proposed for that: ‘Oh, women have less financial literacy, less education. Or maybe women are innately more pessimistic about the future of the economy,’” says Ulrike Malmendier.

Malmendier is a professor of economics and finance at University of California, Berkeley, who recently studied how supermarket prices affect inflation expectations.

As she and her colleagues dug into their research, they considered more deeply those gender role assumptions.

“We thought about how women are being bombarded with these price signals while grocery shopping. Men are, at least traditionally, not doing that so much.”

Their research did indeed confirm that within households of heterosexual married couples, wives consistently expected higher inflation than their husbands.

And this is interesting:

In households where men didn’t do any of the grocery shopping, “this gender gap in inflation expectations almost doubled…” In other words, those wives were significantly more pessimistic about future inflation than their husbands.

However, “in households where the spouses share grocery shopping more equally, the gender gap disappeared.”

So never mind the hypothesis that women are less financially literate than men.

In fact, the gender gap in inflation expectations is due to women’s frequent exposure to volatile grocery prices—at least those women who do the grocery shopping.
inflation
In my family, the roles are reversed. If my husband hadn’t remarked on the price, I would have remained blissfully unaware of the astounding price of fresh mozzarella.

What about in your household? Who does the grocery shopping? If you don’t normally discuss the state of the economy over dinner, give it a try tonight, either with a partner or with friends.

  • Do you and your dinner companion(s) feel the pinch of inflation equally?
  • What are your expectations for prices over the course of the next several months?
  • Are your opinions similar—or surprisingly different?

Now that I’m more keenly aware of the economic impact of our grocery list, I’ll be more strategic about our weekly meal plans.

Fingers crossed, carbs are less expensive these days than cheese. But given my newly pessimistic expectations … I kind of doubt it.

Stress and Investing Amid Volatility

Tom Levinson Life with Money

Buried near the end of the August 29 Bloomberg Businessweek story, “Hope You Enjoyed the Summer Rally,” was a remarkable piece of data.

“The American Association of Individual Investors’ latest survey showed that bears [PPA note: those pessimistic about market prospects] went from outnumbering bulls [those optimistic about market prospects] by 41 percentage points in June to less than 4 percentage points as of mid-August.”

As you’re very likely aware, the stock market declined sharply through roughly the first half of this year. The S&P 500 hit its year-to-date low point on June 16. A summer rally then lifted stocks; the S&P 500 rose roughly 8% from its mid-June low through the end of August, which includes this past week’s declines.

Amid all this topsy-turvy performance, we would note that investor sentiment was at its lowest at nearly precisely the moment in time that the market upswing began. For investors who acted on their pessimism and sold during that time period, they would have locked in their losses and missed a significant rebound.

bad day

Sentiment is a feeling. It’s not the Truth.

Being a long-term investor can be stressful. Especially when short-term fluctuations — most of which are the result of traders placing bets on short-term events with no connection to your longer-term goals — are covered tirelessly by the financial news media and an investment establishment that stands to profit when investors feel anxious.

Stress can make us do things we would not typically do when our minds and spirits are calm. Financial writer and author of The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, Morgan Housel, writes about this phenomenon in his short essay, “Five Lessons from History”:

“…the idea that people who are under stress quickly embrac[e] ideas and goals they never would during calm times has left its fingerprints all over history.

“In investing, saying ‘I will be greedy when others are fearful’ is easier said than done, because people underestimate how much their views and goals can change when markets fall apart.

“The reason you may embrace ideas and goals you once thought unthinkable during a downturn is because more changes during downturns than just asset prices.

“If I, today, imagine how I’d respond to stocks falling 30%, I picture a world where everything is like it is today except stock valuations, which are 30% cheaper.

“But that’s not how the world works.

“Downturns don’t happen in isolation… So my investment priorities might shift from growth to preservation. It’s difficult to contextualize this mental shift when the economy is booming. That’s why more people say they’ll be greedy when others are fearful than actually do it.

“The same idea holds true for companies, careers, and relationships. Hard times make people do and think things they’d never imagine when things are calm.”

• • •

So what should investors do amid the volatility, uncertainty, and stress?

doing nothingLikely not much.

This is the advice of New York Times “Strategies” financial columnist, Jeff Sommer, in his August 26 piece “To Make Money in the Stock Market, Do Nothing.”

Sommer writes:

“…buying and selling at the right moment isn’t going to happen regularly enough to beat the market. Instead, this year shows why it’s better, for the vast majority of people, to take a longer-term approach.

“Once you have set up a solid investing plan, using low-cost index funds for steady purchases of stocks and bonds, you can do absolutely nothing…further except rebalance your holdings every so often to make sure you have the proportion of stocks and bonds that you really want.”

This rebalancing process is one of the most important pieces of ongoing advice that Park Piedmont provides to clients.

Assuming your personalized investing plan is already in place, the asterisk here, as always, is if you’ve had a change either in your life circumstances, or your time horizon for the use of your financial resources, or in your long-term financial life goals. Then, it’s important to re-assess and ensure your custom asset allocation is still aligned with your longer-term objectives.

Otherwise, better to ignore the noise, and focus on enjoying the tail end of summer.

Financial Advice from the Buddha

Tom Levinson Life with Money

Twenty-five hundred years ago, a middle-aged man – a husband and father – walks miles across the Indian countryside to pay a visit to a teacher with an extraordinary reputation for insight.

Then as now, the Indian landscape was dotted with gurus and spiritual teachers.

But there’s something special about this teacher – his humility, his wisdom – that makes people travel great distances, at great personal risk, for a few minutes of his time.
lost the way
When the man at last arrives and his turn comes, he says (and I’m paraphrasing here):

“Great teacher, I’m just an ordinary guy, married, with a few kids. What can you tell me that will help us be happy in this world and hereafter?”

The teacher, who has come to be known as the Buddha (“he who is awake”), nods. He’s given this question some thought.

“There are four things that are conducive to happiness in this world,” the Buddha says.

“First: find a profession you know well, and in which you can be skilled, efficient, earnest, and energetic.

“Second: save the money you’ve righteously earned through your hard work.

“Third: make and keep good friends who are loyal, thoughtful, intelligent, and open-minded – and who’ll keep you out of trouble.

“And fourth: live within your means, not spending too much or too little, avoiding both miserly hoarding and extravagance” (Rahula, 1959, p. 82-83).

This vignette comes from a slim, highly readable book called What the Buddha Taught, by the late Sri Lankan Buddhist monk, professor, and writer, Walpola Rahula.

If you’re keeping score at home, at least 75 percent of the Buddha’s instructions about finding happiness relate to our financial life. And the percentage is even higher when you consider that one way good friends prove their mettle is by helping us avoid doing extremely dumb stuff — including in the realm of money.

We’re curious: Does it surprise you that the Buddha’s teachings articulated such a clear relationship between good financial decision-making and happiness?

Rahula, W. (1959). What the Buddha Taught. Oneworld Publications.

 

Inventing the Kwan: The Search for Meaning in the World of Money

Tom Levinson Life with Money

Word association:

When I say, “Rod Tidwell,” you say…
Game show host? Nope.
Congressman somewhere? Incorrect.
Cuba Gooding Jr.’s breakout role in “Jerry Maguire”? Bingo. Well done.

Now, knowing what you do, when I say Rod Tidwell, you probably say…

SHOW ME THE MONEY!

There in his modest kitchen, dancing, jacking his body, holding that now-antique cordless phone, giving his agent Jerry Maguire a singular marching order.

Do you remember that scene? If you’re over 18 and have had access to basic cable, you must. It’s a great scene, and it still holds up 20 years later.

For those who don’t remember, here are the basics:

Rod is a young, talented, cocky wide receiver for the Arizona Cardinals, and Jerry Maguire is Rod’s agent.

For much of Rod’s career, Jerry has been a “super agent,” focused on tending the needs of the biggest stars of professional sports. Clients like Rod Tidwell – good, but not great players – would get the leftovers of Jerry’s time and attention.

But when nearly all of Jerry’s clients are poached by a rival at his agency, Rod is the lone hold-out who stays with Jerry. And this gives Rod some serious leverage with Jerry.

“Show me the money” is such a memorable movie line. But writer-director Cameron Crowe expected – perhaps better said, hoped – that a different catchphrase would emerge from Jerry Maguire.

And that’s Rod Tidwell’s invented word, the “Kwan.”

Recall that the “Kwan” is conceived in the Cardinals’ locker room. Jerry Maguire is talking to Rod, who’s still in the shower, about Rod’s contract negotiations.

Rod steps out of the shower, naked as a jaybird, and criticizes Jerry for just “talking,” while his peers, other NFL All-Pro receivers, are making the “big, sweet dollar… they are making the Kwan.”

“Kwan? That’s your word?” Jerry, now at Rod’s locker, asks.

“Hell yeah that’s my word. You know, some dudes might have the ‘Coin,’ but they’ll never have the Kwan.” Rod is still air-drying.

Jerry starts to ask, “What is –“ but Rod anticipates his question.

“It means love, respect, community, and the dollars too. The entire package. The Kwan.”

Jerry pauses. And then, upon reflection, says: “Great word.”

Despite Crowe’s high hopes for the Kwan, audiences were lukewarm – “pleasant, at best” – when screening the Kwan scene (Premiere Magazine, 2000). It’s hard to compete with the hilarious call and response of “Show me the Money!” Even Nick and Tom’s dear, departed Grandma Ruth loved saying that line.

As it turns out, Jerry Maguire isn’t really about football. And it’s only partly a love story, even though “You had me at hello” remains a cinematic signpost to this day.

What’s Jerry Maguire about, really? The search for meaning in the world of money. What we do for a living; why we do it; and what we aspire to in our professional lives.

Recapturing some lost meaning in the world of money is what prompts Jerry’s sleepless night in the movie’s opening moments. It’s the fuel behind his “mission statement.”

Other people reject his vision, and Jerry’s subsequent downward professional spiral is steep. In a fit of desperation, he launches his new agency. And that’s what sparks Dorothy Boyd (Renee Zellweger’s character) to trade her stable secretarial job at the big sports agency for the chaos of Jerry’s start-up.

Finding meaning in the world of money is at the heart of the conflict in Rod Tidwell’s character.

On the one hand, he is driven by “Show me the money!” The desire to amass it, flaunt it, and center his life’s work around that pursuit.

On the other hand, he is called to pursue the Kwan, a shopping cart of aspirations so eclectic – “love, respect, community, and the dollars too” – that Crowe had to invent the word because, tellingly, the concept didn’t already exist in our contemporary American lexicon.

Re-watch Jerry Maguire, and you see people act badly, underhandedly, immorally, contrary to their best selves, when their money doesn’t reflect their values.

woman preaching Money for the sake of money is what “Cush,” the presumed savior of Jerry’s fledgling agency and the number one pick in the NFL draft, is focused on. Cush’s father assures Jerry that they’ll stay with Jerry’s agency – but then they ditch Jerry without a word of warning.

Money for the sake of money is what “Show me the Money” Rod Tidwell is all about.

In a climactic scene, Jerry and Rod, now friends as much as client and agent, are arguing. Rod’s frustrated that despite a great season, he still has not received a contract extension. Jerry tells Rod:

“I’ll tell you why you don’t have your ten million dollars yet. Right now, you’re a paycheck player. You play with your head, not your heart.

“Your personal life? Heart. But when you get on the field, it’s all about what you didn’t get, who’s to blame, who underthrew the pass, who’s got the contract you don’t, who’s not giving you your love.

“You know what? That is not what inspires people. Just shut up, play the game. Play it from your heart. And you know what? I will show you the Kwan. And that’s the truth.”

To which Rod says, “Quit using that word, Kwan. That’s my word!”

As opposed to an attitude of “Show me the money,” money in service of the Kwan – money as one crucial component of the good life – is the journey that the movie’s main characters, Jerry and Rod and Dorothy, all take in one way or another.

The Kwan is only attainable when money is an expression of authenticity, of one’s true self.

Real Estate as Part of Your Portfolio

Nick Levinson Comments

We’ve written extensively over the last few months about inflation, interest rates, and how recent changes have impacted the stock and bond markets.

This month we take up the effects of inflation and interest rate increases on real estate, which, along with an investment portfolio, is one of the largest assets many of us own.

First, a little background:

We refer to the stock and bond markets as “liquid,” because stocks, bonds, and funds that own stocks and bonds are all inexpensive — a few dollars per transaction — and fast — cash proceeds can be available in a day or two — to buy or sell. This is a basic definition of financial “liquidity.”

Real estate, whether for personal or investment use, is an “illiquid” asset. Completing a real estate transaction can be very expensive — with broker fees and closing costs of several percent on properties worth hundreds of thousands or millions of dollars — and slow — closing periods typically start at two months.
moving out
There’s nothing inherently better or worse about liquid or illiquid assets in an overall investment portfolio. Long-term returns for stocks, bonds, and real estate have all been significant, and PPA typically recommends having some of both, to the extent possible, as part of a broadly-diversified asset allocation.

But there are some significant differences between the two types of assets that are important to understand.

Volatility:

As we saw through June of 2022 and in other recent periods (2000-2, 2008-9, early 2020), stock prices can decline by large percentages, and very quickly.

This measure of change in markets is known as “volatility.”

We typically think of bonds as being less volatile than stocks, but bond prices have declined very significantly in 2022 as well.

With the slower pace of real estate valuation, which typically requires a lengthy appraisal process, and transactions, large swings in the real estate market typically happen over longer periods of time than in the stock and bond markets.

Once declines start, however, they can still cause damage to your overall portfolio.

According to Conor Dougherty, a real estate reporter for The New York Times, “home prices are still at record levels, and they are likely to take months or longer to fall — if they ever do. But that caveat, which real estate agents often hold up as a shield, cannot paper over the fact that demand has waned considerably and that the market direction has changed.

“Sales of existing homes fell 3.4 percent in May from April, according to the National Association of Realtors, and construction is also down. Homebuilders that had been parsing out their inventory with elaborate lotteries now say their pandemic lists have shriveled to the point that they are lowering prices and sweetening incentives — like cheaper counter and bathroom upgrades — to get buyers over the line.”

Ronda Kaysen, Dougherty’s NYT colleague, reports that “prices are unlikely to take a nosedive, but cracks are showing. In the four-week period ending June 26, the median asking price for newly listed homes was down 1.5 percent from its all-time high this spring, and, on average, 6.5 percent of listings dropped their prices each week, according to a Redfin report.

“Demand is down, too. The same Redfin report found that fewer people were searching Google for homes and asking to tour properties. Mortgage applications were down 24 percent, and pending sales fell 13 percent from the same time a year earlier, the largest drop since May 2020, according to Redfin.”

Sensitivity to Interest Rates:

Mortgage applications have declined in large measure due to recent interest rate spikes.

While rising rates can lead to price declines for stocks and bonds, they can have particularly large impacts on housing demand and prices, since most people borrow significant amounts — typically 70-80% of the purchase price — to finance home purchases.

The US Federal Reserve has raised short-term rates in 2022 from basically zero to 2.25% currently. The 10-year Treasury note rose from 1.5% in January to 3.5% in June. The thirty-year fixed rate mortgage has skyrocketed in turn, from just over 3% at the start of the year to almost 6% in June.

Variable rate lending has also been affected, with the US “prime” rate, which determines pricing on many home equity lines of credit (“HELOCs”), rising from 3.5% to 5.5% in 2022.

Many of our clients have also started using Pledged Asset Lines (“PALs”) for short-term financing, and the Secured Overnight Financing Rate (“SOFR”) and 30-day London Interbank Offering Rate (“LIBOR”), which underpin PAL rates, have increased from 0.05% in January 2022 to about 2.3% today.

The key point is that all these increases happened very quickly. That has led to the signs of dislocation in the US housing market mentioned above.

Diversification:

Stocks and bonds can be purchased through mutual funds and exchange-traded funds, which gather many investments in one place in an attempt to reduce risk by “diversification.”

Funds can be extremely broad-based, including Total World Stock Market funds and Total Bond Market funds. They can also focus on different countries, different size companies and bond maturities, and niches such as alternative energy and infrastructure.

But the common denominator is pooling investments to mitigate risk. Individual pieces of real estate, whether homes or investment property, lack the moderating influence of diversification.

This doesn’t make them bad investments. As mentioned above, real estate can produce very strong long-term results, especially in desirable locations.

And there are ways to pool real estate investments, including syndication and, in the public markets, real estate investment trusts (“REITs”), which PPA includes regularly in clients’ portfolios.

But the geographic, economic, and emotional focus of the typical home, which comprises a large — if not the largest — percentage of many families’ overall financial situations, does create specific risks that need to be acknowledged and understood.

How to Proceed in Uncertain Times:

In terms of how to proceed in these uncertain times, if you don’t need to buy or sell real estate now, that’s probably a good place to be.

For buyers, according to Kaysen, “as the market cools, it could return to one that resembles a prepandemic normal, with homes that take a few months to sell and prices that increase gradually. Buyers may be able to start making a few reasonable demands — for appraisals, inspections and mortgage contingencies. And as inventory increases, they may even be able to compare a few options before making a decision.”

For sellers, on the other hand, “the time has come…to reset expectations. List your house today, and it is unlikely that 24 hours from now you will get to pluck an all-cash bid that’s $150,000 over list price from a sea of contingency-free offers.

“‘Those days are over,’ said Lawrence Yun, the chief economist for the National Association of Realtors. ‘Don’t expect multiple offers.’

“Your home may sit on the market for a few weeks and, if priced well, sell for around the asking price — which will be more than you would have gotten a year ago.”

Veronica Dagher, real estate reporter for The Wall Street Journal, quotes Benjamin Dixon, a real-estate agent in New York City:

“Several sellers he is working with would have sold their apartments in a matter of days if they listed earlier in the year. Now, some owners are considering a price cut, others are considering delisting until the fall and yet others have decided to rent out their homes to capitalize on the hot rental market.

“Renting, though, comes with its own challenges for sellers.

“‘Trying to sell a home with a tenant isn’t optimal for showings, and becoming a landlord isn’t much fun,’ said Mr. Dixon.”

Whatever your current real estate situation — from heavily-allocated in housing and/or investment properties to looking for your first home — please feel free to contact your PPA advisor to discuss how real estate might fit into your overall allocation, as well as how to finance any property you decide makes sense for you.

 

On the Trip of a Lifetime, How to Budget and How to Splurge

Tom Levinson Life with Money

Working remotely the past several years, our Park Piedmont team has stayed close in a number of ways – chief among them, team huddles over Zoom.

The huddles are our virtual water cooler: a space to convene, connect, and catch up.

As you’d expect, when any of us has a big plan on the horizon – say, a family move or a long-planned vacation – we revisit their progress regularly.

That was the case this past winter and early spring for our colleague Kathryn, who with her boyfriend was planning the trip of their lifetimes: a road trip across Iceland.
strategizing
As you’ll read in Kathryn’s thoughtful essay below, money always had a seat at the table – both in the planning process and during their travels.

A big challenge: how to be thoughtful around budgeting and spending, without letting the ongoing money conversation overwhelm their fun?

• • •

“Do you have any idea how expensive that’s going to be?”

When my boyfriend and I booked our trip to Iceland in November of 2021, that was the most common feedback we received – closely followed by remarks about how exciting or beautiful the trip was going to be.

It was the trip of a lifetime for us, something we had dreamt about for years.

But when every conversation about it began with budget concerns, we started to get worried.

Could we afford this? Would we be able to experience Iceland to its fullest, or would we have to make some sacrifices?

In reality, most vacations require some sacrifices. It’s rare to be able to see and do absolutely everything on your bucket list in a single trip.

For us, it was time to have an honest conversation about how to prioritize our vacation spending.

When we travel, our expenses typically fall into the following categories: transportation, lodging, food/dining out, activities, and souvenirs or extras.

We knew immediately that we wanted to rent a camper van. With that decision we were able to take care of transportation, lodging, and most food expenses thanks to the van’s tiny kitchenette.

We saved some money by renting the smallest and most affordable camper van offered by the rental company.

In hindsight it would’ve been worth spending more money to get a bigger van – the one we rented was so small we couldn’t even sit upright in the back.

Overall, though, we loved our experience with the camper van and really felt like it was a good value.

To help manage costs, we agreed that we would cook breakfasts and lunches in our van and then go out for dinners. This ended up being a great arrangement.

Given our limited space, we stopped at local grocery stores every couple days to pick up fresh fruits, vegetables and other staples, rather than doing one massive shopping trip to stock up.

Allowing ourselves to dine out for dinners gave us the chance to try some classic Icelandic foods, like lobster soup, fish & chips, and Icelandic lamb. Everything we ate was delicious.

We consider ourselves foodies, so our one big splurge with food was making a reservation at a Michelin-starred restaurant in Reykjavik.
wine tasting
It was worth every penny, as we were treated to a 10-course tasting menu with wine pairings for each course.

The meal focused on foods that are either native or closely linked to Icelandic culture. Each course came with fascinating information about the origins and histories of the ingredients used.

Our next decision was how to budget for activities. There are so many options in Iceland!

From glacier hiking to whale watching to volcano tours and everything in between, the sky really is the limit.

Fortunately for us, we are nature lovers, so we knew most of our activities would be free, like hiking to waterfalls and beaches and dramatic oceanside cliffs to see puffins.

We did spontaneously book an ATV tour that took us across a black sand beach and through a river to the site of an old plane wreck. But we booked the shortest tour offered to keep costs low.

As far as souvenirs go, we brought a few small things home for our families (Icelandic chocolate, lava salt, etc.).

Still, there was one thing I knew I wanted to splurge on: a hand-knitted Icelandic wool sweater known as a lopapeysa. I found and bought one in downtown Reykjavik at a store that includes the knitter’s name on the sale tag.

Our week in Iceland was everything we dreamed it would be. And, deciding where to save and where to splurge really allowed us to make the most of an otherwise expensive destination.

By combining our lodging and transportation into one cost, and bypassing most of the expensive tourist activities to focus on the rugged wilderness of the country, we were able to comfortably spend on things like dining out and spontaneous experiences that really made our trip memorable.

• • •

When we’re having a discussion about spending, either with our clients or as a team, one of the books we frequently revisit is Happy Money: the Science of Happier Spending.

Written by two academics, it’s a surprisingly breezy exploration of the research on what makes for fulfilling spending.

Not like her vacation is getting graded or anything, but by the standards of Happy Money, Kathryn kind of crushed it.

First, the entire trip emphasized “experiential purchasing.”

As Happy Money’s authors Elizabeth Dunn and Michael Norton write, studies repeatedly show that people are in a better mood when they reflect on their experiential purchases rather than on “stuff” – the experiences are generally regarded as “money well spent.”

When people have regrets about “experiential purchasing,” it’s generally about what they didn’t do.

By contrast, when people have regrets about “material purchasing,” it’s typically about what they went ahead and bought.

The trip was one big experiential adventure. And Kathryn and her boyfriend found plenty to do, from hikes to time with puffins, that they were thrilled to be doing – and free to boot.

One other finding spotlighted in Happy Money: one’s sense of satisfaction with experiential purchases tends to increase as time passes. The opposite tends to be the case with material purchases.
memories
So Kathryn and her boyfriend will be able to revisit their Iceland trip for many years to come.

Second: when they splurged, they “made it a treat.”

Happy Money makes clear that when you’ve been eating out of a camper van, that restaurant dinner will be extra special.

Third: their satisfaction increased with their anticipation.

During the planning phase, Kathryn and her boyfriend had roughly six months to imagine their trip: What would the glaciers look like? How would that handmade sweater feel?

According to Happy Money, research shows we tend to derive more joy from things coming to us in the future than from things already received.

Anticipation “provides a source of pleasure that comes free with purchase, supplementing the joy of actual consumption.”

Using some of the lessons from Happy Money, life with money can become a kind of mini laboratory. Through micro-experiments and trial-and-error, you can figure out if these findings are consistent with your own experiences.

Let us know what you’ve found!

The Unwritten Rules of Money

Tom Levinson Life with Money

Not long ago, on our neighborhood’s email list serve, a family having their kitchen gutted and remodeled posed a question.

“Is it appropriate (expected/customary),” they asked, “to give the workers, not the contractor, a cash gratuity?”

Around the same time, a friend was recounting a recent family road trip in Montana. The parents and their high school age kids had gone whitewater rafting for the day.

The friend shared that he’d asked the rafting guide how much he typically gets tipped — was it a dollar amount? A percentage of the total? A “tip of the cap”?

These questions, prompted by curiosity, logistics, and budgeting needs, also illuminate a larger, more mysterious topic: how do we learn money’s unwritten rules?

From the time we’re little kids, money is complex. Most of us don’t learn the ins and outs of money in school.

And within families, money is often shrouded in secrecy, due to family preferences and/or wider cultural norms — among them, a widespread taboo against talking openly about money.

This disinclination to discuss money is itself complicated and has many possible sources. (A 2020 article from The Atlantic is thought-provoking and eye-opening on the topic.)

So how do we all learn about money, if we’re not actually taught?

In reality, all of us, in one form or another, absorb what educators call a “hidden curriculum.” This refers to the things we learn, even though they’re not being formally taught.

Consider how you have, and haven’t, learned about money in your own life.

Who and what have been your sources of information? Was it family? The daily paper? Shakespeare? Sitcoms?

What do you wish you knew more about? Budgeting? Saving? Borrowing? Splurging?

At what points in time do you wish you’d asked more questions? Prepping for college? Contemplating a career path? Estate planning?

We can all point to some moment in time – very likely more than one – when we relied on our “hidden curriculum” about money to guide us.

One countercultural antidote for gaps in one’s financial education toolkit is, as we saw at the outset, asking questions.

On topics where you’re confused, or unsure, or could use a refresher, asking questions of reliable sources — including PPA advisors and our outstanding team — is an important way to keep learning about money.

While we at Park Piedmont might not know the proper amount to tip a whitewater rafting guide (this particular guide recommended 20%!), we are here to help with investing and financial decision-making, and to demystify some more of the unwritten rules of money.