Always Beneficial & Enlightening
Paul's Financial Journal
January 2023

“Truth is ever to be found in the simplicity, and not in the multiplicity and confusion of things.”
~ Sir Isaac Newton, English mathematician and physicist”

Happy New Year!

2022 will go down in history as an arduous year for investors. Over the last month my inbox has been filling up with year ahead outlooks. All of the outlooks have compelling narratives and justifications for their projections. Reflecting back on 2022, I don’t recall any outlook reports calling for a Russian invasion of Ukraine, China locking down its economy or the Fed being as aggressive on inflation on the ‘Things to Watch List for 2022’.

Forecasts aside, it is important for investors to understand what way the wind is blowing so they can get a better sense of what direction to face. Most of the outlooks for 2023 that I’ve read seem to agree that global GDP (Gross Domestic Product) growth will keep slowing and that inflation will crest but remain sticky. Central banks will keep tightening, albeit at a reduced pace relative to 2022. Recession in the UK and Europe is seen as highly likely. A U.S. recession in 2023 is more likely than not.

I’m not sure, in fact I’m quietly confident, none of this will help you determine what you should do with your hard-earned cash in 2023. What will serve investors better I believe is reflecting on what lessons or reminders we got from financial markets in 2022. There were plenty, but in the interest of brevity, I’ve included three below which are worthy:

1. The financial media have no incentive to help you succeed

2022 reminded me about the role of financial media and the role of an investment adviser. They have very different incentives. Financial journalism is a business. Its business is in selling advertising. The more attention it can garner via audacious headlines the better. The media has no incentive to help investors succeed. Its role is the complete antithesis to that of an advisor - in the eyes of the financial media, taking a long-term perspective is the worst thing you could do. Bear that in mind as you read or listen to most financial commentary.

2. Professional investors are guilty of behavioral biases too

Behavioral biases aren’t just something experienced by amateurs. We’ve too many acronyms in investing, but one of my least favorites from the last few years was FOMO. A “fear of missing out” gripped global markets, lifting everything from stocks to cryptocurrencies to record highs over the last year. As the FOMO narrative has it, investment money piles into particular assets not because it necessarily believes in the underlying opportunity but because the returns are presented as unmissable and the consequences of delay as harmful. The investment world is a big place. You are guaranteed to miss out on things that do spectacularly well. Stick to what you understand, keep things simple and don’t be swayed by what others are doing, even the very sophisticated.

3. The age-old issue of market timing should be put to bed after 2022

Finally, the futility of trying to time the market is something which again in 2022 proved incredibly hard. The S&P 500 saw swings of plus or minus 2% on 45 trading days during 2022. This compares to only 7 days in the entire calendar year of 2021. Sustained volatility like this is a welcome development for a select few investors. For the average, volatility on this scale is close to unendurable. But it’s a price historically that has been worth paying. Bear markets favor investors who are able to hold their nerve and stick to their investment plan.

May 2023 be a year full of good health, happiness and blessings galore.
Please reach out with questions.


Noteworthy Links:

Chart of the Month

International Stocks Outperformed in 2022

This might surprise you, but the S&P 500 actually underperformed most of the rest of the world last year, at least in local currencies.

Article of the Month

The Best Investment to Make in 2023 Is in Yourself

By Julia Carpenter
Published in WSJ on December 27th, 2022.

Want your stock to rise in 2023?

The same principles investors use to build wealth can be applied to enriching yourself in other ways. Just as we buy stocks and bonds to generate financial growth, we can build a portfolio of how we spend our time and money now that pays off in the months and years ahead. Investments in ourselves, or what economists call our human capital, can be a more productive way to frame efforts for bettering our lives. Diane Ring, interim dean and professor of law at Boston College, has previously researched new developments in human capital investments and the sharing economy. She points to three major categories of growth that can be nurtured by investing in ourselves: professional, personal and health.

“Those buckets are all connected,” she said. “Think of it as wanting different kinds of returns for yourself. They’re all slightly different, but still moving toward stability, with the aim to retire in a way that seems to make sense for ourselves and our plans.”

You can use the same ideas that guide your personal finance goals to invest in your career, well-being and happiness. By focusing on these three buckets, you can make strides on your 2023 goals.

Set a long time horizon

Investing in your long-term success goes beyond one-and-done actions like joining a gym or stocking your closet with professional attire. These goals for the future require management and attention to develop rewards later on—just like managing your stock portfolio. “Investment means, at the core, planting a seed and then getting returns down the road,” said Megan McCoy, assistant professor of personal financial planning at Kansas State University. “It has to be a path.”

To do this, Prof. McCoy said it is best to envision your investment as a long road with multiple steppingstones. Each step helps you visualize yourself one step closer to the end goal. These same steps also provide opportunities to check in and ask yourself the big questions about how your investment is performing.

“Everyone is so overscheduled, and I feel like everybody is just surviving rather than saying, ‘What is giving me intellectual stimulation? What is my purpose? What is my passion? What am I doing any of this for?’” Prof. McCoy said. “Make time to develop these internal maps.”

Don't forget to diversify

Just as you wouldn’t want to overinvest in a single stock, Prof. Ring said, neither would you want to put too much energy toward a single goal at the expense of your other interests.

Divide your time and attention equally among the career and financial investment, personal investment and investment in health.

Overinvesting in one bucket may weaken the other two, just as when putting all too much money into a single company or industry can hurt your overall stock portfolio.

In self-investment, we have to safeguard ourselves against burning out too soon, Prof. Ring said. “If we’re pushing so hard on the financial side, maybe picking up an extra job on the weekends, ask, ‘Does this put a strain on the personal and health side of things? That could impact your ability to perform at work,’” she said.

Pay yourself dividends

Research shows people are much more successful at accomplishing a goal when they build in rewards and other incentives along the way, said Katy Milkman, professor of operations, information and decisions at the University of Pennsylvania.

In a 2021 study, Prof. Milkman and her colleague Angela Duckworth, a professor who co-directs the Behavior Change for Good Initiative at the University of Pennsylvania with Prof. Milkman, looked at how incentive programs affected gym attendance. In one finding, gym goers who missed a workout received an extra incentive—bonus points they could convert to cash—if they returned after a missed workout. Compared with a placebo control group, this incentive program increased gym visits by 27%.

Rewards help turn a long-term goal—such as starting a new hobby to enrich your retirement years or more carefully considering how you use your working hours—into a series of short-term pursuits.

Prof. Milkman calls this strategy “temptation bundling.” Combining certain tasks with a reward can help them feel less like chores, she said. “If you are bundling it with something that’s super fun for you, like saying ‘I only get to open my favorite bubbly wine when I’m making a fresh meal for my family’ or ‘I am only allowed to binge watch my favorite TV show when I’m at the gym,’ you see more success.” This strategy also allows us to reframe these aspirations as fun things, rather than financial chores or burdensome tasks.

Bringing friends, joining a group or finding a way to make a long-term commitment more social helps more people see their goal through to completion, Prof. Milkman said. Even after you’ve accomplished several steps, you may find that sharing your progress with others and playing the role of “advice giver” leads to progress on your own goals.

“When we coach other people on something we’re also hoping to achieve, we also see better outcomes in ourselves,” she said. “So advice giving helps the advice giver.

–This article is the first in a Personal Finance series, How to Invest in Yourself.

Here is a link to the full article: WSJ - The Best Investment to Make in 2023 Is in Yourself

*Raymond James & Associates, Inc, member New York Stock Exchange/SIPC
*The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material, and is not a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
*Views expressed are the current opinion of the author, but not necessarily those of Raymond James. The author’s opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed.
*There is no assurance any investment strategy will be successful. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Small- and mid-cap securities generally involve greater risks and are not suitable for all investors. Asset allocation and diversification do not guarantee a profit nor protect against a loss. Individual investor’s results will vary.
*Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the U.S. Past performances are not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.
*This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.
*Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site’s users and or/members.
*Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and Federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s Initial and ongoing certification requirements.
*The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

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Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.