Contents of this month’s post include:
- Discussion on two main risks for retail investors and how to mitigate them
- Update on my All Seasons Portfolio on eToro launched on 1 April 2021
- Monthly Update for July 2021 with a fresh set of charts
- Book tip: The Psychology of Money by Morgan Housel (brief review and link at the bottom of the post)
Greetings, and good to see you back for another monthly article about investing using the All Seasons Portfolio strategy.
Today, we are going to go on a slightly different route when it comes to investment strategies, as we are going to take a step back and look at why lower-risk strategies matter.
With the recent strong positive trend in stocks and risk assets since April 2020, I have been thinking quite a bit about a couple risks that face retail investors and which have become more and more relevant now that I get a bit of vertigo from the S&P 500.
These risks are 1) the risk of us not reaching our financial goals by not managing our investment risk properly and 2) abandoning a safer strategy when we see others making more money with high-risk strategies.
I will discuss these risks more in details below and why they matter, and in particular why it is more urgent for retail investors to have understood these risks.
Namely, apart from institutions with more or less infinite investment horizons, we as retail investors are only active on the financial markets for a quite brief moment when you zoom out and consider all the history of investing.
And as we only get one shot at it (no do-overs), it is important that we get it right from the start. It is crucial to avoid making a mess of our investing careers that we cannot repair later.
I hope you find this text useful, and please share your thoughts in the comments or by email to firstname.lastname@example.org.
And as usual, the regular update of my All Seasons Portfolio(s) follows right after the month’s special topic. July was a quite good month for me, and I have made a slight alteration of my portfolio, switching the TIPS ETF from a global one to one with longer-term US inflation-linked bonds.
But more of that to come. Now, let’s have a look at a different way of defining “risk”.
In the two most recent articles, in the portfolio update posts for May and June, we have discussed how the stock market is at unusually high valuations based on three completely different indicators, and that there are several benefits from investing using risk parity strategies for achieving consistently positive excess returns.
On that latter note, one important aspect I did not highlight enough is how often the excess return of the S&P 500 is negative. In the sample period 1927-2014, this happened 32 years, or 36% of the time. But if you look at stretched periods rather than just annual returns, it looks just as grim.
There are three periods of 13 years or longer when the S&P underperformed totally risk-less T-bills. The longest period is 17 years, from 1966 to 1982, followed by 15 years from 1929 to 1943 and 13 years from 2000 to 2012. That is 45 years of underperformance of the sample of 86 years. Note that this is periods of overall underperformance and not that the S&P for each of the years have had negative excess return.
What if we as investors, and particularly as retail investors, would be so unfortunate that we hit one such period with our investments, especially if we would only invest in stocks? As our investment horizons are not that long, having such bad luck could have devastating results for both our current and future wealth.
This exquisitely brings us to today’s topic, namely, what are the greatest risks for retail investors and how to mitigate them?
Especially for new and young investors, it is common that the portfolios to a high degree mainly consist of high-risk assets such as stocks. Nowadays, they could also include extreme-risk assets in the like of cryptocurrencies of varying credibility, but in this article we will focus on stocks.
First of all, as we are going to discuss the biggest risks for investors, we need to discuss what we consider “risk” to be. From an investment perspective, the traditional meaning of the word is “volatility”, but I say that for retail investors there are two additional types of risk that need to be considered and I will elaborate more on this in a moment.
Most are also of the opinion that risk premium is equivalent of the promised reward when taking risk. It should thus also be understood that if you take more risk, you should be compensated for it by getting higher returns.
This is why you see younger investors on internet forums touting that “if you are young, you can afford increasing your risk” with the reasoning mainly consisting of
a) you have the time to regain any losses, and
b) over long periods of time, the stock market will always be the best place to store wealth. I will return a little bit further down to both of these incorrect beliefs, but for now, let us focus on forgetting that risk premium is guaranteed.
Most retail investors have misunderstood stock investing in the way that on the stock market, you have the right to be compensated for the risk you take – that you are entitled to certain profits when increasing your portfolio risk – and thus that you can count on getting high returns.
While this may seem to be true when only looking at the stock market data for the last decade, there are two main flaws with this kind of thinking.
Firstly, not all risk is compensated. By this I mean that just because you take risk, it does not mean that you should automatically be rewarded for it. Imagine for example two investors taking a position on the S&P 500 of equal size. One of them takes a long position, and the other one goes short. The risk for both investors is exactly the same, as the volatility of the S&P 500 does not change depending on which direction you bet on it to develop. But the two investors will not be compensated the same for taking the same risk. Hence, you should forget about any notion you may have that higher risk is equal to higher reward.
Secondly, what generates returns to you is not expectations of the future, but rather surprises to such expectations. If you invest in a high-risk stock, both you and the market knows that for the investment to be successful, certain events need to happen, for example that earnings grow by a certain percent or that a new product is launched successfully. Such events are usually already priced into the value of the stock, meaning that for any significant gains, the company needs to outperform the market’s expectations. On the other hand, failing to meet the expectations will drive prices downward. By taking risk, you are therefore not even compensated for the risk if the company delivers just as expected, as this was included in the price you paid. This is also what makes it challenging to be a macro investor as it is difficult to have an edge or to know more than anyone else, and at best, you will have invested on the same premises as everyone else.
Most retail investors are already aware of both of these facts and most are conscious of risk and want to avoid taking it unnecessarily. When you ask a retail investor what their goal is, the response is to get as high return as possible with as little risk as possible. This also mean that if you present two similar cases to a retail investor with equal expected returns, but where the other case has higher risk, the investor is rational and will choose the case with the lower risk.
The issue is that we are all flawed as humans. Retail investors rarely pick one completely data-driven strategy with lower risk-level and stick with it for the rest of one’s life. Instead, we make mistakes that do not align with our financial goals and expectations of future wealth. We may not seek fame and glory, becoming the next Warren Buffett, George Soros or Michael Burry, but it is more important to ensure that we can afford the things we expect to be able to afford with our investments at the expected time. That could be a home in 5 years’ time, a college education for our kids in 15 years’ time or a decent retirement in 30 years’ time.
The two main risks for retail investors are therefore a) that you do not achieve your financial goals and b) that you abandon an investment strategy prematurely due to erroneous benchmarking.
Most important risk no. 1 – not achieving your financial goals
Check any forum on the internet dedicated to investing. This could be a subreddit, a Facebook group, or any other forum like Bogleheads. You will often come across questions tied to financial goals like “I want to buy a house in 5 years; how should I invest?”, “How can I become financially independent and retire early by the time I’m 40?”, or “How can I make sure I have a decent pension?”.
The responses you almost always see to such questions is the suggestion to invest in stocks, because they “should” have the best performance “on average” over the “longer-term”.
There are several flaws in the reasoning behind this response, including all words I marked in quotation marks. However, the easiest way to undress the greed is to counter with the question: “how big of a drawdown can you afford to withstand?”, i.e., how much can he or she afford to lose when the market rolls over.
If you invest only in stocks, there is a high probability that within the horizon you are looking to invest, your wealth will be smaller than it is today. New investors in particular fall for this fallacy when examining how the market has behaved since April 2020 when the V-shaped recovery began. But stocks do not always go up.
If you can accept that you might only be able to withdraw considerably less than the amount you invested when you need the money in, say, five years’ time, then stocks could perhaps be an good investment. Otherwise, you may want to look for alternative approaches with less risk. And if you need 100% certainty that the value of your portfolio cannot be less than what it is today, then an interest-bearing savings account is really the only option.
It is true that over extremely long horizons – perhaps infinite horizons – stocks are, on average, one of the best investments as it is the only asset that produces value as an output. As I described at length in the May 2021 monthly blog post, that is, however, not true for any shorter sub-periods such as the investment horizons that most retail investors are looking at. Without going into too much detail in this article (referring you to the May 2021 post instead), much can go wrong in shorter time spans.
As highlighted in the introduction to this post, out of the 86 years of data, the S&P 500 underperformed T-bills (the risk-free rate) in periods equaling 45 years, whereof the longest stretch of underperformance was 17 years (1966 to 1982).
For an investor with an investing horizon of around 40 years, a 17 year-period of negative excess return will unsurprisingly have a substantial negative effect on your future wealth, especially when such bad stretch is ill-timed. You must consider this when you are making your plans for what you want to be able to spend your invested money on in the future.
Imagine thus that you already now have a plan for your retirement in, let’s say, 30 years’ time so by around 2050. You want to be able to withdraw a moderate amount of about €1,500 per month in addition to any state or employment linked pension plans you may have to live a quite decent life as a retiree. If we for the sake of simplicity use a withdrawal rate of 4%, you would need to have accumulated €450,000 to be able to sustain your preferred living standard.
The greatest risk you face in investing is thus that you will fall short of that amount. For each €50,000 you miss your goal with, it is €166 less each month to finance your retirement. And, comparing €50,000 with the goal of €450,000, it is the equivalent of just a 11% drawdown. This is just a third of what the S&P 500 drew down in the Covid-19 crash in March 2020.
This means that even smaller drawdowns can have significant effects on your financial goals. Especially if you are near the time when you plan to start spending your money but sun into the bad luck of an ill-timed decline on the stock market just as you are about to retire, your living standards would be exposed to huge risk if you would be only invested in stocks. This is also true if you encounter bad luck in the markets in the first years of your retirement.
The fact is that of the total probability of you running out of funds before you die, 85% is explained by the performance of your portfolio during the first five years into retirement (ReSolve with further credit to Michael Kitces).
It is therefore extremely important that you safeguard your wealth as best as you can and minimize risk in your portfolio. As retail investors, we only have one shot at getting or investments right. If we stand there in 2050 noticing how we have much less money saved than we had planned, there are no Mulligans or do-overs. So what we do today will have consequences further down the road.
When using a compounding calculator to calculate our estimations for how much we will need to save to reach a financial goal, the most common approach is to use the long-term average rate of return for the stock market, or around 7%.
But, as discussed, our probability of success mainly lies with how our risk is managed and how near we can be that 7% annual return target. The deviation of our returns thus need to be as small as possible, avoiding large drawdowns that could set us back several years’ worth of saving and investing.
For achieving this, and thereby improving your probability of investment success, you are better off forming your portfolio that provide you with similar returns as the stock market, in combination with decreasing the total volatility of your portfolio by diversifying between asset classes and by balancing how much each asset class contributes to the total risk in your portfolio.
This is done by selecting assets with low correlation that do well in different economic regimes, and weighting the assets based on their relative risk, i.e. that you allocate a smaller share of the portfolio in assets with higher volatility. The All Seasons Portfolio is a great example of one such portfolio, which over time will reward you with similar average annual return as the stock market, but with much lower risk.
However, this brings us to the next risk to be aware of.
Most important risk no. 2 – Impatience and Erroneous Benchmarking
When faced with a choice between two investments with equal expected return, a rational investor should select the strategy with the lower risk.
I mentioned this already earlier in this article, but it is worth iterating. Better risk-adjusted return is the wiser choice if the expected absolute returns are similar.
For most retail investors, when bearing in mind the risk of not achieving our financial goals that we discussed above, it is rational to rather select a risk parity approach to investing to increase your probability of achieving your financial goals. Logically, you thus understand that you should decrease your portfolio risk to make sure you can pay for a new home or to retire with comfort. But, are you safe with this knowledge?
I would claim that you are not out of the woods just yet. Namely, there is another huge potential risk that is especially targeting retail investors, and which we must understand.
The problem is that most investors, and most people, are borne with two perhaps disgraceful traits. Namely, we are all impatient and jealous. There’s no shame in admitting this to oneself, as both are part of human nature.
Both of these traits, however, have started to become much more noticeable since most of our lives, including our investment accounts, moved into a dopamine-inducing machine in our pockets (the smartphone, for the avoidance of doubt). There, all information imaginable about ourselves and others is accessible within seconds. You can quickly get a sense of how the broader stock market indices or the portfolios of your friends and peers are performing if they are sharing this.
Investors – both retail investors and institutional investors – therefore have gotten an even shorter emotional horizon when it comes to investing than you might expect. This could be a problem if we do not actively suppress the compulsions it gives rise to.
Even though you may first be convinced that a low-risk strategy of your choice is rational and good for you, the fact is that you have a high chance abandoning it in not a too distant future.
Why is this, you may ask. It is simply due to subconscious benchmarking. Most investors only manage to hold on to their convictions of a certain strategy for a maximum of 3-5 years if the strategy underperforms a benchmark, meaning that if you underperform the benchmark, you are likely to abandon your long-term strategy and adopt the strategy that has performed better recently.
The interesting – and somewhat disturbing – element to this is how arbitrary such benchmark can be. The thing is that the benchmark does not even have to be relevant at all for your personal financial goals, but if you see that the S&P 500 index is up 15%, or your friend has made 20%, but you are only up 5% for the year, you might feel like you are losing out.
Often, this kind of benchmarking is completely unconscious. Even though you might rationally know that you with a low-risk strategy and the S&P 500 index are competing in completely different classes, if we fall behind even for short periods of time (a few years or so), we start to feel uneasy about it. And it only gets worse for every year if your “relative” underperformance continues.
This issue is however not isolated to retail investors either, as institutional investors face the same problem. If the manager of a pension fund, a university endowment fund or the money of wealthy clients underperforms the S&P 500 over just a few years, the manager is at risk at losing his customers and/or his job. The fund manager’s clients are also investors who, as I said, are both impatient and jealous of other peer investors who are raking in greater profits.
How does this fit into the first risk we discussed above? Well, if we elect to invest with a more defensive and diversified portfolio with lower volatility, it is likely that the performance of such portfolio will have lower year-on-year returns than stocks during a growth phase of the economic cycle. It is during these times that most unseasoned risk parity investors get envious of investors with 100% stock allocation. It is easy to begin to question oneself and think, “Why should I be satisfied with 7% return this year, when the S&P 500 has returned 20% and other investors on Twitter have earned 40%?”
This is exactly where the second great risk for retail investors lie.
Based on our long-term financial goals, we built a safe and secure portfolio with lower volatility for a reason, as we rationally found better risk-adjusted returns to be more appealing than a high-volatility strategy with increased uncertainty. We had decided that we want consistently decent returns, rather than the great volatility in annual returns of the stock market. But if we forget why this particular investment strategy was implemented in the first place and we let jealousy and impatience take over, problems will arise.
Namely, if your conviction of a portfolio with managed risk is lost, two possible problems can arise.
Firstly, your probability of reaching your financial goals will be in danger when you abandon a safer strategy for a strategy which has a poorer risk profile and where annual returns fluctuate greatly.
Secondly, the timing of switching from a diversified strategy to a strategy with higher equity allocation because you have seen that stocks have performed better recently may be ill-timed and carried out when the bull market has already went on for quite some time. We can never predict for how long an upward moving market will continue to rise, or when it will turn over.
The whole idea of investing in risk parity portfolios with low volatility is rather to protect our growing wealth against all eventualities of the financial markets through broad exposure to each asset class.
This means that during bull markets in equities, your portfolio will with great certainty lag the S&P 500, but over periods longer than just a few years (or an economic cycle), you will catch up significantly as you will not encounter the same drawdowns as the stock market does.
Do you remember the intro to this text? In the last 86 years, there have been periods as long as 17 years when even risk-free T-bills outperformed stocks. This could very well happen again, but we cannot know beforehand when we are entering one such period. Maybe such period is coming nearer, as we discussed in the June blog post?
How can you mitigate these risks?
In summary, the two main risks that a retail investor faces is a) not reaching our financial goals and b) that we abandon an otherwise sensible strategy due to unconscious benchmarking.
But how can you mitigate these risks?
Firstly, make sure you clarify for yourself what your financial goals are. You may not have an exact number in mind, but presumably, you are using the long-term average return of the stock market when doing any calculations for compounding simulations. You should, however, remember that the average historical return is just that, it is “average” return and it is “historical” return, without any guarantees for the future.
The annual returns of the stock market deviates by a lot year to year from that average, and you would therefore be much better off trying to find strategies that over the longer-term provide you with similar average returns, but with much lower volatility. Risk parity strategies fit this description quite well. This will significantly increase the probability of you achieving your financial goals.
In the next step, you should avoid abandoning your strategy in a few years when your impatience and jealousy comes bubbling to the surface (don’t be upset if you feel like this from time to time, it is human). By unconscious benchmarking, you may be caught in the trap to throw your risk management out the window and jump on the latest fad of the markets. Doing so will increase the risk in your portfolio, which in turn could significantly reduce your probability of reaching your financial goals.
For mitigating this second risk, write down for yourself why you make your investments and your rational behind them. This will help you remind yourself of the purpose of your strategy and why you chose it in the first place.
To summarize it in one sentence: it boils down to committing to a low-volatility portfolio strategy that helps you achieve your financial goals, and always reminding yourself of why you chose this path in the first place, so that you do not abandon the strategy due to relative underperformance against an arbitrary and irrelevant benchmark.
For me, the up keeping of this blog serves exactly this purpose. Despite lagging the S&P 500 this last year, I am reminded almost daily why I invest the way I do and not once have I felt the need to abandon this strategy. At most, I have made some additions and small improvements as I have learned more, but I cannot imagine myself only investing in stocks knowing what I have learned since starting this blog. I have set my financial goals and I intend to reach them with the All Seasons Portfolio strategy.
The only time when one should invest only in stocks is when your investment horizon is infinite, as it is only over such long periods when you can be sure that stocks will outperform everything else. If your horizon, on the other hand, is in fact finite, for example five years or fifty years, then investing only in equity is far from advisable.
All assets return a risk premium, but do not do so consistently and all the time. Thus, when the risk premium is zero or negative for some assets in your portfolio, for example stocks, you need to have included other assets that will award you with positive return during such down-period in the stock market. Over time, you will be receiving the average risk premium of all assets included in your portfolio, but the profits are collected more consistently throughout your investing career.
In the end, the fact is that we cannot predict the markets – no one can. The only thing we can do is to observe what is going on and make sure the risk balance is right in our portfolios. A sound worldview is to be profoundly agnostic in a sense that you prepare for any eventuality as six months from now, you cannot know if we will se stagflation, an inflationary boom, a deflationary boom, or a deflationary bust. There are just too many variables that no model can cover everything.
If you are looking for getting started with your own All Seasons Portfolio and need some inspiration, check out my post on How to get started with the All Seasons Portfolio strategy or check out some example portfolios. While stocks have been a great investment the last decade, there are no guarantees that this trend will last, as their continued success depends on several factors. Instead, consider diversifying your portfolio to include other asset classes, and benefit from the rebalancing period over the long-term, as described in this article.
Last month, I asked about your thoughts on Treasury Bond Yields and whether an investor using the All Seasons Portfolio strategy or a other risk parity strategies should sell bonds in favour of other assets with similar seasonal biases.
As majority (almost a third), favoured the approach broadcasted by Ray Dalio and Bridgewater Associates earlier this year, where long-term treasury bonds would be substituted for a risk-balanced mix of gold and TIPS.
This is sensible, as both will work as a safe-haven and protect against stock market crashes. Over longer periods though, both have an inflation bias, while treasury bonds are biased to perform well in times of deflation and disinflation. The latter may not be a problem, as stocks – a more volatile asset – also has the deflation/disinflation bias.
Other popular answers that I tend to agree with are real estate and international government bonds.
For real estate, what you are after is the cash flow from tenants, which is attractive in a deflationary environment when cash is king, and the future cash flows will increase in value when discounted with negative inflation. As long as you do not need to liquidate the real estate holdings during the disinflationary time when property values may decrease, I agree with this approach.
International long-term government bonds make sense as well in terms of diversifying the bond holdings. My problem with this is that while US Treasury bonds are nearing the zero bound, most other Western countries with low risk have already hit both zero and negative. For example Germany’s 10Y bund yield is -0.46, and the 30Y yield is just 0.015% (yield curve below from Marketwatch, 14 August 2021).
In the next monthly update, I intend to elaborate on my view on bonds, as I think that I have finally reached a conclusion of how I think about them. Stay tuned for this as I hope it will be a good read and basis for discussion.
Here below are the answers from last month’s poll.
July 2021 Portfolio Update
Let’s begin with a quick review of my eToro Portfolio, which I launched in April 2021.
As a recap, I follow the same principles there as for my euro denominated portfolio that I have published on this blog, but with 1.34x leverage as I am using a 3x levered long-term treasury bond ETF. Still, the volatility of this portfolio remains lower than that of the stock market.
The strong development has continued through the month of July, and total returns in the four-month period since inception was about +11%, with shallow drawdowns to date.
I aim to write a more descriptive summary of that portfolio in due course, as I have implemented additional layers of Risk Parity into that All Seasons Portfolio. I have done so my adding an Inverse Volatility strategy for the Stock part of the portfolio, where the weights will dynamically shift between geographical regions depending on their relative volatilities. I you cannot wait for a description of this feature, you can already now find a summary on my eToro profile page.
Follow me there by finding user Allseasonsport. And feel free to copy my portfolio there with a small amount of your portfolio if you want a more hands-off approach to risk parity investing. I do all my trading there in a rule-based manner.
As for my “regular” All Seasons Portfolio, i.e. the one which I have been describing in more details on this blog through the years, July was a good month also here.
I did a tweak to the portfolio in July, where I changed the ETF tracking TIPS from IUS5 (iShares Global inflation Linked Bonds UCITS ETF) to UIMB (UBS Bloomberg Barclays TIPS 10+ UCITS ETF). The benefits of this latter ETF are in my opinion twofold: firstly, the maturities of the underlying inflation-linked bonds are longer which thus makes this ETF more volatile and therefore improves risk balance in the portfolio, and secondly, I prefer access to American assets currently as it is the largest and most liquid financial market in the world.
I do not rule out that I will return to IUS5 in the future, either completely or by splitting the allocation to TIPS between UIMB and IUS5, but for now, it is out of my portfolio.
Other than that, there are no major news to share about the allocation in my portfolio, as I have let my ETFs drift. Still, I am underweight in Long-Term Treasury Bonds, and overweight in gold and commodities.
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The last 12-month performance of my portfolio has been in line with my expectations, as you can see in the below data to the right. 7-10% annual return of an unlevered risk parity portfolio is exactly according to plan, and at less than a third of the volatility of the S&P 500 now that the worst Covid-19 volatility has dropped out of the comparison period.
Iterating the points I made in the first section of this article about the risks retail investors face, the below table on the right is a clear visualisation of why I am comfortable with the All Seasons Portfolio strategy.
My rolling 1-year return is above 9%, with an annualized volatility of just below 6%. Also the Value-At-Risk measures make me sleep well at night, showing that my portfolio should rarely make monthly losses in excess of 3%. With high probability, my long-term financial goals should be within reach.
The last month, though, my portfolio has lagged the S&P 500 and a 60/40 portfolio slightly, mostly due to the strong performance of stocks and the fall in treasury bond yields – developments that benefit both stock and stock/bond portfolios.
But as I constantly remind myself through the upkeeping of this blog, that does not worry me much as I avoid the erroneous benchmarking – I know that the S&P 500 and the 60/40 portfolio do not live up to my standards for risk management.
Thus, with the above graph and data in mind, I am still very happy with how the All Seasons Portfolio strategy is playing out for me. It is giving me exactly what I am after: same returns as stock market long-term average return but with much lower volatility.
Looking at individual assets, in July 2021, there was a rather tight grouping of positive returns of each asset class throughout the month, but where they all told a rather different story around mid-month with some divergence, only to regroup again toward the end.
On the rolling 3-month chart, the nowadays usual culprits in VIX and Bitcoin have seen quite negative performance since early May. These are also the two assets with the smallest weight in my portfolio. At the same time all other assets have seen slightly positive returns in the range between 1% and 5% over the period.
Lastly, as usual, here is the table of my ETFs and the changes laid out in table form.
|IUS5||iShares Gl Infl Lnk Govt Bd UCITS ETF USD Acc||TIPS||€618.68||€0.00||-100.00%|
|UIMB||UBS LFS Bloomberg Barclays TIPS 10+ UCI ETF(USD)Ad||TIPS||€0.00||€657.47||#DIV/0!|
|DTLE||iShares $ Treasury Bd 20+yr UCITS ETF EUR Hgd Dist||Long-Term Government Bonds||€806.96||€839.30||4.01%|
|IGLE||iShares Global Govt Bond UCITS ETF EUR Hedged Dist||Long-Term Government Bonds||€635.97||€642.42||1.01%|
|M9SA||Market Access Rogers Int Com Index UCITS ETF||Commodities||€458.62||€475.64||3.71%|
|VGWL||Vanguard FTSE All-World UCITS ETF USD Dis||Stocks||€1,497.30||€1,515.30||1.20%|
|VOOL||Lyxor S&P 500 VIX Futures Enhcd Roll UCITS ETF C-E||VIX||€97.44||€101.50||4.17%|
Thank you yet again for following my blog about risk parity investing and the All Seasons Portfolio. If you haven’t done so already, make sure to subscribe to the newsletter via the form in the page footer, and to drop any comments you may have on the content with the comment section or via email to email@example.com. The greatest value I have received from upkeeping this blog is the fantastic conversations with great people, such as yourselves, about ideas on investing and strategies. Thanks for that!
Remember also to check out the Resources page which I will be filling up with useful tools and resources for managing an All Seasons Portfolio. If you have any suggestions for any particular spreadsheet or tool that you are after, let me know in the comments below and I will see what I can do to have it included.
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If you wish to support me in alternative ways without donations, you can share the post through social media or with your friends who should invest more responsibly. Alternatively, occasionally click any ads or access Amazon via the links included in the book tip section below any time you are making any purchase from their platform (it does not necessarily have to be the book I am linking to).
We’ll catch up soon for the August update!
Book tip: The Psychology of Money by Morgan Housel
Tying back to the topic of what I wrote above about what risks are most important for retail investors and how to mitigate them, I was reminded by this great book by Morgan Housel.
Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people.
Money-investing, personal finance, and business decisions is typically taught as a math-based field, where data and formulas tell us exactly what to do. But in the real world people don’t make financial decisions on a spreadsheet. They make them at the dinner table, or in a meeting room, where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together.
In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.
This is a book that has quickly gained a huge following and was an overnight success. It belongs in every investor’s book case, and my copy arrived in the mailbox just earlier this summer.
From the stories told in the book, a few directly relate to the risks I discussed today, like how you should allow room for error (chapter 13) or that you should beware of taking cues from people playing a different game than you (chapter 16). Do these sound familiar from the post above?
But then this book includes additional lessons of great value in 16 other chapter, ranging from how we perceive wealth to how to avoid the pitfalls along the way to building wealth.
I have found this book incredibly helpful for my way of investing and as I understand you too have an inclination toward sensible and reasonable investing, I think you would enjoy reading it as well.
Have you already read The Psychology of Money? Let me know what you thought about it in the comments below.
Or check out other great books on the topic on the Book recommendation page.
Buy it today on Amazon (affiliate link):