As the U.S. Government inches closer to its maximum borrowing limit, here’s a primer on what the debt ceiling is and what happens when it’s breached pushing the U.S. Government into technical default.
As the U.S. Government inches closer to its maximum borrowing limit, here’s a primer on what the debt ceiling is and what happens when it’s breached: https://t.co/EFtEFSiVjn pic.twitter.com/7CUctvhEmY
— J.P. Morgan (@jpmorgan) May 3, 2023
April is Financial Literacy Month. It’s a month to raise awareness around financial literacy and wellness, and highlighting the importance of financial planning and of developing healthy financial habits.
A new National Financial Educators Council (NFEC) survey found that lacking financial literacy — and not knowing how to manage personal finances — carried a high cost in 2022.
The NFEC survey showed that 38% of Americans said their lack of financial literacy cost them $500 or more, and a whopping 23% said it cost them more than $10,000 — a steep increase from the 10.7% who said the same in 2021.
As a result, the estimated average amount of money that financial illiteracy cost Americans was $1,819 in 2022 — the highest average since the first annual survey took place six years ago. This figure correlates with record-high inflation rates and other economic challenges, the NFEC noted.
🤔 How does financial literacy impact investment behavior?
This #FinancialLiteracyMonth, @Nasdaq experts & partners explore financial investment behaviors to strengthen awareness of financial education opportunities.
➡️ Learn more with #SmartInvesting: https://t.co/lYRQNlfoRK pic.twitter.com/hiqFWKz6BV
— Nasdaq (@Nasdaq) April 5, 2023
In terms of common costly mistakes, overdraft fees were prominent: the median overdraft fee on a debit card is $34, according to the Consumer Financial Protection Bureau (CFPB).
According to the survey, which cites CFPB data, most debit card overdraft fees happen on transactions of $24 or less — and American consumers end up spending $17 billion a year on overdraft and non-sufficient funds fees.
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“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.” ~ Morgan Housel, The Psychology of Money
Individuals must understand that there is a psychological mindset that the successful investor tends to have.
The successful investor will focus on probabilities, intrinsic values and safety of margin while letting decisions be ruled by rational, as opposed to emotional, thinking.
Investors’ emotions are their worst enemy.
The psychology of money is the study of our behavior with money. Billionaire investor Warren Buffett contends that the key to overcoming emotions is being able to retain your belief in the fundamentals of the business, and not get too concerned about the stock market price.
Investors should realize that there is a certain psychological mindset that they should have if they want to be successful, and try to implement that mindset. Dave Ramsey has said that building wealth is “20% head knowledge and 80% behavior.”
Value investing mindset
Value investing derives the intrinsic value of a common stock independent of its market price. By using a company’s factors such as its free cash flow, earnings, return on invested capital, and dividend payouts, the intrinsic value of a stock can be found and compared to its market value. If the intrinsic value is more than the current price, the investor should buy and hold until a mean reversion occurs.
Mean reversion is the theory that over time, the market price and intrinsic price will converge towards each other until the stock price reflects its true value. By buying an undervalued stock, the investor is, in effect, paying less for it and should sell when the price is trading at its intrinsic worth. This effect of price convergence is only bound to happen in an efficient market.
The fundamental principle of value investments lies in the ability of the markets to eventually correct to their intrinsic values. Common stocks are not going to remain inflated or bottomed-out forever despite the emotions and irrationality of investors in the market.
"Savings can be created by spending less.
You can spend less if you desire less.
And you will desire less if you care less about what others think of you.
Money relies more on psychology than
finance."– The Psychology Of Money
— The Psychology Of Money (@Psy_of_Money) January 27, 2022
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“The way to make money is to buy when blood is running in the streets.” ~ John D. Rockefeller
Contrarian investing believes that the worse things seem in the market, the better the investing opportunities are for profit.
Contrarians, as the name implies, try to do the opposite of the crowd. They get excited when an otherwise good company has a sharp but undeserved drop in share price. They swim against the current and assume the market is usually wrong at both its extreme lows and highs. The more prices swing, the more misguided they believe the rest of the market to be. (For more on this, read “Finding Profit In Troubled Stocks.”)
Bad Times Make for Good Buys
Contrarian investors have historically made their best investments during times of market turmoil. In the crash of 1987, the Dow dropped 22% in one day in the U.S. In the 1973-’74 bear market, the market lost 45% in about 22 months. The terrorist attacks of Sept. 11, 2001, also resulted in a major market drop. Those are times when contrarians found their best investments.
The 1973-’74 bear market gave Warren Buffett the opportunity to purchase a stake in the Washington Post Co. at a deep discount (the company could have “sold the [Post’s] assets for not less than $400 million.” Meanwhile, the Post had an $80 million market cap), an investment that has subsequently increased by more than 100 times the purchase price–that’s before dividends are included.
Sir John Templeton, founder of the Templeton Growth Fund, was also a serious contrarian investor, buying into countries and companies when, according to his principle, they hit the “point of maximum pessimism.”
As an example of this strategy, Templeton bought shares of every public European company at the outset of World War II in 1939, including many that were in bankruptcy. He did this with borrowed money. After four years, he sold the shares for a very large profit.
But there are risks to contrarian investing. While successful contrarian investors put big money on the line, swam against the current of common opinion and came out on top, they also did some serious research to ensure the investing herd was indeed wrong.
So, when a stock takes a nosedive, this doesn’t prompt a contrarian investor to put in an immediate buy order, but to find out what has driven the stock down and whether the drop in price is justified.
While successful contrarian investors have their own strategy for valuing potential investments, they all have the one strategy in common–they let the market bring the deals to them, rather than chasing after them.
References:
https://www.socialsecurityintelligence.com
Start listening at 5 minutes and 3 seconds to forward past the intro and opening banter between host and guest.
“Faith is the first factor in a life devoted to service. Without it, nothing is possible. With it, nothing is impossible.” ~ Mary McLeod Bethune.
Faith is the substance or assurance of things we hope for, but have not yet received. Faith (confidence, belief, trust) is also our evidence of that which is not seen—the invisible spiritual things.
Faith comes before a prayer is answered or before an individual has received what he or she has requested from God. If we have received what we asked for, then faith is not needed.
An example of faith was demonstrated by educator Mary McLeod Bethune who was quoted as saying: “I considered cash money as the smallest part of my resources [for starting the school for Negro girls]. I had faith in a loving God, faith in myself, and a desire to serve.”
“Now faith is the substance of things hoped for, the evidence of things not seen.” ~ Hebrews 11:1,
The wise man saves for future days,
Delaying pleasure in frugal ways,
Building wealth with each coin saved,
A future secure, a life well paved.
Achieving financial freedom and building wealth require a combination of the right mindset, focus, self-discipline, patience, gratitude and knowledge. “The freedom to do what you want, when you want, with whom you want, for as long as yo want, is true freedom,” says Morgan Housel, in The Psychology Of Money.
The six keys to building wealth over the long term are mindset, focus, discipline, patience, knowledge and gratitude. A seventh key is health.
It’s effectively about your mindset. Wealth is achieved by habitually investing in yourself first and foremost. Winning at finance and at life is 80 to 90 percent habit/behavior and 10 to 20 percent knowledge/skill. Knowing what to do isn’t the problem; actually doing it is. Most of us know what to do, but we just don’t or won’t do it. If you can control the person in the mirror, you can be fit and wealthy.
Once you adopt the mindset of the individual you aspire to become, there are no limits to what you can achieve.
Once you realize that everything in this life is but a thought, mindset and resulting habits, you are guaranteed to alter your life’s trajectory. “Doing well with money has a little to do with how smart you are and a lot to do with how you behave,” explains Morgan Housel, in The Psychology of Money
Be disciplined enough to delay instant gratification while building wealth. “Rich is the current income. Wealth is income not spent. Wealth is hard because it requires self-control,” concludes Morgan Housel, in The Psychology of Money. The truth is that wealth is what you don’t see. Wealth is the nice cars not purchased. The diamonds not bought.
Careless spending and a conspicuous consumption lifestyle make you a slave to capitalism, while saving and investing in assets builds wealth. “Spending money to show people how much money you have is the fastest way to have less money,” writes Morgan Housel, in The Psychology of Money.
Building wealth requires a long-term perspective and a willingness to make sacrifices in the present for future benefits.
Final key point, getting healthier should be equally as important as building wealth. It is stated repeatedly and for a very good reason that “health is wealth”.
References:
If you by stocks you MUST know how to analyze a Cash Flow Statement.
I'll teach everything you need to know: pic.twitter.com/jpJDiitvg6
— Compounding Quality (@QCompounding) March 26, 2023
Inflation and rising prices erode your purchasing power.
The national inflation rate ended 2022 at 6.5%, after peaking at 9.1% in June—a rate not seen in more than 40 years. The inflation rate had averaged 4% from 1972-2022, according to the US Bureau of Labor Statistics.
No one can be sure how long inflation will stay elevated above historical averages but it could stick around longer than anyone would like. Regardless, not everyone experiences inflation in the same way. You may find your expenses rising faster than your friend in another part of the country or more slowly than your next-door neighbor.
Since everyone experiences inflation differently. Fidelity’s analysts parsed mountains of government data on inflation rates and spending patterns.
Fidelity identified 4 key factors that can make inflation different for everyone.
Answer these 4 questions and get an estimated inflation rate that may better reflect the impact of rising prices on people like you than the national headline inflation rate. Knowing where you stand can help you plan.
4 key factors that play into how you're affected by #inflation: https://t.co/stIS0KJ6oV pic.twitter.com/zzXmQRSkpR
— Fidelity Investments (@Fidelity) March 21, 2023
With the price of food and energy rising fast, inflation is already hitting most Americans right in the budget. A recent analysis from Moody’s Analytics found that the average household is spending almost $460 more per month because of inflation. As you look for ways to tighten your belt, keep an eye on your budget. Fidelity suggests spending no more than 50% of your take-home pay on essential expenses like food and housing, to give you room to save for retirement, plan for short-term goals, and spend on nonessentials.
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