FINANCIaL
FIELd NOTES
Wealth Is What You Don't See
As I wrote about here before, one of my favorite finance books is The Psychology of Money by Morgan Housel. It is the most approachable book on managing your money I have ever read and tackles many of the softer areas of financial planning, such as common investor biases and psychology.
One of my favorite quotes from the book is “We tend to judge wealth by what we see because that’s the information we have in front of us. We can’t see people’s bank accounts or brokerage statements.”
Calculating Your Minimum Lifestyle Floor
I was recently listening to a financial advisor describe the “minimum lifestyle floor” (MLF) that they have their clients calculate. The idea is that your expenses can be divided into two categories, necessities, and fun money.
The necessities include food, housing, basic transportation, utilities, and health care. I also would add another “other” category for things like basic charitable giving, small gifts, personal care, and pets since you’re probably not going to pass on Christmas gifts or give away Buddy the dog because your finances are tight.
Real Risk vs. Perceived Risk
There are some risks in life that are permanent. If you live in a hurricane-prone area and don’t have hurricane insurance, you are taking a risk that could lead to a permanent loss. That is a real risk.
The financial advising world often talks about investment risk in the context of market fluctuations up and down. We categorize investors as risk-averse if they are unwilling to deal with bouts of volatility. What we are measuring is the perceived risk – the risk that values may temporarily decline in value.
Back Testing a Popular Market Timing Strategy
When we are in the middle of a bear market, sitting on our hands can be unbearable. This is also the time when you’ll start hearing about market timing strategies. I was recently listening to a market analyst describe timing the market as a simple supply and demand equation.
It sounds simple enough, but I know the data does not support this. So, I decided to stress test it. I back-tested the following strategy – one that follows a popular strategy following recent market trends…
Do Home Renovations Increase Resale Value?
Maybe you’re considering renovating your master bath or kitchen – or doing something simple like changing out the toilets or garage door. There are plenty of reasons to do projects like these but one I hear most often is “to increase resale value.” But does it really do that?
According to the Cost vs. Value 2022 report, below are the national averages for what you can expect to recoup from various home renovation projects…
How To Think Critically About Fear-Inducing Market News
Earling this year after a down day in the stock market a headline read “Dow falls more than 500 points…” These attention grabbers are designed to do just that – grab your attention and then sell ad space while your anxiety rises.
It reminded me of the book I read a few years ago, Factfulness, in which the author talks about the importance of bringing in the denominator to any statistic…