One of the hard parts about trying to focus on the long-term as an investor is the short-term toys with your emotions.

In years like 2022 when everything is going down, you’ll always wish you would’ve taken less risk.

In years like 2023 when everything is going up, you’ll always wish you would’ve taken more risk.

Long-term returns are the only ones that matter but you have to get through a series of short-term emotions to get there.

Short-run returns can play tricks on you.

Perhaps you’ve seen charts like the one below, which comes from Dimensional Fund Advisors. The message: Investors who try to time the market in search of better returns often end up damaging their results. To many investors, this seems intuitive, because trading isn’t easy.

But to others, market timing appears to make a lot of sense. For instance, for years, Yale University professor Robert Shiller has been maintaining a measure of market valuation known as the cyclically adjusted price-earnings (CAPE) ratio. It’s a way of measuring how expensive the market is, and it has an intuitive appeal of its own.

One of the smartest advocates of low-cost, evidence-based investing is the neurologist-turned-investment-adviser William Bernstein. He is the author of several books, including The Intelligent Asset Allocator, If You Can: How Millennials Can Get Rich Slowly, and The Delusion of Crowds. A new edition of his best-known book, The Four Pillars of Investing, has just been published.

Bill this week makes his third appearance on The Long View podcast, produced by Morningstar, and we highly recommend you listen to it. Here are seven key takeaways.

As we manage our financial life, we’re compelled to cope with heaps of uncertainty—which way the stock and bond markets will head, what financial misfortunes will strike, how long we’ll live and so much more.

But there are also ways we can exert a measure of control: spend thoughtfully, save diligently, keep a close eye on risk, hold down investment costs and manage our annual tax bill. To this list, I’d add one other key way to reclaim the advantage: have a good handle on who we are.

To that end, below are nine questions I believe we should all try to answer for ourselves. As you’ll see, the questions often probe the same issues but from different angles.

Owning your own home, in your dream suburb, and living a lifestyle you’ve always aspired towards, is arguably seen as the Australian dream. Significant wealth assets such as your home represent the fruits of your hard work, family bonds, stability, and security. However, to live a life free of uncertainty, wealth deserves to be managed purposefully. That’s why it’s essential to evaluate whether having too much of your wealth tied up in one asset such as your home, aligns with your long-term goals. By being crystal clear on your goals, it is possible to stay on track, make the most of your resources and lean into the best decisions for your future.

Do you have $50,000 invested in KiwiSaver? These days that’s not an unusual achievement, given the scheme has been around for 15 years. If you’re a full-time older professional, it’s more likely your savings sit in the $100,000 to $200,000 range.

Despite this enviable success, this scares the heck out of me. Why? Because all your money is invested with one manager.

Frank Rabinovich was a portfolio manager and technology specialist at bond giant PIMCO in the 1990s.

The way his colleagues treated him was a microcosm of the culture at the firm in its heyday.

Co-workers would douse him with bug spray, claiming he smelled bad. They cut off the bottom of his ties when they didn’t like the look of them. They tackled him relentlessly in games of touch football since he wasn’t as athletic as the other employees.

We are pleased to enclose our Winter Update covering the period from April to June 2023.

With the global fight against inflation ushering in higher interest rates, the economic environment has remained challenging. Growth in most regions is currently slowing or even slightly negative.

Investing can be fun. That doesn’t mean it should be.

Technology’s increasing role in investing has made dabbling in the market more accessible than ever. In 2021, 44% of investors used mobile apps to place trades, up from 30% in 2018, according to the Financial Industry Regulatory Authority’s investor education foundation. A substantial swath of new investors entered the market in recent years, platforms like TikTok and Instagram became forums for bragging about investing wins, and even high schoolers took to trading investing tips between classes. Investing newbies watched as meme stocks like GameStop and popular cryptos like dogecoin exploded in value.

This is an edited transcript of an interview between Dr. Daniel Crosby and Dr. Michael Finke, Professor of Wealth Management at The American College of Financial Services, on the Standard Deviations podcast.

Dr. Daniel Crosby: I've read your writing on the three pillars of retirement satisfaction. Can you tell us what they are and spend a little time unpacking what can be done about the nonfinancial ones to help us prepare for the nonfinancial dimensions of retirement that I think are often overlooked?

Global financial markets have been volatile in recent times, for a whole range of reasons.

They include the overhangs of high inflation and interest rates around the world and their flow-on impacts to different economies. Then there’s the ongoing geopolitical tensions occurring in different parts of the world, primarily in Europe, Asia, and Africa, but also in the United States.

There is a long-held pattern in markets:

Consumers and businesses become accustomed to prevailing interest rate conditions.

The situation changes, and then rates rise rapidly.

Interest rates hit a level that becomes restrictive, high enough to slow activity. Two signals that become restrictive are:

• Activity in interest-rate-sensitive industries, such as housing and used car sales, contracts.

• The yield curve (the difference between 10-year and six-month interest rates) turns negative.

• From that point, when interest rates become restrictive, 12-18 months later, activity starts to contract, company profits start falling, layoffs rise, and stock prices tend to fall.

Historically, it has been worthwhile paying attention to when this interest rate pattern started unfolding - and we are seeing this same pattern unfolding today.

I write this article because of a conversation I had with a long-term client who was overwhelmed by the complexity of everything happening in the world.  It was useful for me because it was a timely reminder that occasionally people feel out of their depth – perhaps a little out of control.

Humans gain comfort from the consistency and predictability of their everyday lives, and when something big happens, we tend to get uncomfortable. We accept change, but most change in the world occurs slowly. When it happens too fast, we are left feeling all topsy turvy.

The last new all-time high for the S&P 500 was on January 3, 2022.

That means it’s been almost 450 days since we’ve experienced new highs in the stock market.

That feels like a long time.

On Friday, March 10, regulators took control of Silicon Valley Bank as a run on the bank unfolded. Two days later, regulators took control of a second lender, Signature Bank. With increasing anxiety, many investors are eyeing their portfolios for exposure to these and other regional banks.

During the past four months, investors have aggressively flocked to the biggest U.S. consumer-tech stocks for their perceived defensiveness, helping drive their lofty valuations even higher. In fact, the most highly valued public company in the U.S. today has a valuation greater than the entire U.K. stock market, and twice the size of Germany’s.

The collapse of First Republic Bank is a harsh reminder that any stock can go to zero, no matter how established a company is, or how loyal and wealthy its customers are. The failure of what many considered to be a rock-solid regional bank should serve as powerful evidence of the importance of diversification, what I consider to be one of the first principles of investing. 

Charlie Munger is 97 years old and has been Warren Buffett’s business partner for five decades. Despite giving away vast amounts of his wealth, he is still worth nearly $2 billion.

One of the traits that has helped Munger become wealthy is his ability to learn from his mistakes, and also those made by others. Munger advises “I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.”

Ernest Shackleton’s ship, the Endurance, became stuck in Antarctic ice. Before long it was crushed, ruined.

Shackleton and his 27-man crew then spent 19 months – from January 1915 to August 1916 – rowing 800 miles to safety in tiny lifeboats, with nighttime temperatures hitting 10 degrees below zero.

They were constantly frozen, soaked, hungry, and sleep-deprived.