Learning that drives better investment decisions

The Long and the Short of It

Top 5 of the Week of October 24

Morgan Housel heads up our Top 5 this week from Collaborative Fund with a change of perspective about the ‘short run’ we should—as investors—ignore. Libby Kane, writing for Business Insider, showcases some of financial guru, Carl Richard’s illuminating napkin sketches and highlights what we can all learn from them. And Frugal Rules author, John Schmoll, puts us through a financial stability test.

Cullen Roche of Pragmatic Capitalism considers how indexers do better than the market average. And A Wealth of Common Sense’s Ben Carlson discusses the difference between investment management and financial advice…


The Key to Long-Term Investment Thinking

 

  • The most profitable strategies for investing are all about long-term thinking
  • The power of compounding interest works at its best over a long time; decades, not weeks
  • To optimize your long-term strategy though consider it as a group of short-runs, and learn to manage and tend these effectively

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What “Napkin Sketch” Tweets Can Teach Us About Our Finances


 

  • Carl Richard’s drawings aim to simply demonstrate the difference between what you should do with your money compared to what you really do with it
  • This is known as the “behavior gap,” such as how being open and talking about money is healthier; how it can lead to better, more informed financial decisions
  • Or learning that spending money to save money is a counterintuitive strategy
  • And being able to visualize the area between things that matter and things we can control to set our focus on

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Are You Financially Stable? Ask Yourself…

 

  • What is your debt to income ratio (DTI)? The lower your DTI, the better; 36% is a stable average
  • How much ready cash do you have available or is it tied up in investments? 3 – 6 months of income is a good figure to have a safety cushion
  • Could you handle an unexpected loss in pay? Consider what other options you have available in case your income is halved for any reason
  • Do you have appropriate insurance? Ensure you’re covered for all eventualities
  • Do you have positive net worth? Adjust your expenses if not

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Indexers; How Do They Do It?

 

  • Active investing yields more short-term financial gains but underperforms against the market average when you compare the returns after fees and taxes
  • There are managers that occasionally beat the average, but the odds of finding one who can achieve this consistently are improbable
  • Indexing is more economical because it is an asset picking scheme that involves fewer fees and taxes than active investing

Are you an indexer or stockpicker? Do you agree that one beats the average more than the other? Share your thoughts in the comments section below

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Both Are Needed for Long-Term Investment Success…

 

  • …but the two factors differ; understand the difference between both investment management (IM) and financial advice (FA) to succeed
  • IM encompasses asset management, portfolio construction, both risk mitigation and tolerance within the stock market, as well as building your wealth
  • FA is about forming a plan and setting goals to build that wealth, by creating systems to achieve this, as well as managing and adjusting that plan during any market disruptions and life events

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Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form – and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.


 

Anything you would like to discuss about this week’s top 5? Do you have another favorite that isn’t mentioned here? Feel free to add it below. Let’s start a discussion in the comments section!

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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article. The Become a Better Investor Team doesn’t necessarily endorse any stocks or shares mentioned in the articles or the author of such articles linked to and summarized in Top 5 of the Week and cannot guarantee the accuracy of its information.