The Retirement Rise 1.23.2023
Inflation is falling, Diversify Your Investments, and Put Purpose First
This Week’s Good Financial News
Though it is too soon to call the battle over, inflation is starting to trend lower.
This is great news for Americans struggling with higher prices at the gas pump, grocery stores, and nearly everywhere else.
Inflation, as we now acutely remember, is a scourge on society. So the sooner it drops to more manageable levels, the better.
An Investment Note for Retirees
Most investors know that we are supposed to diversify our investment holdings, but investment concentration tempts us at every turn. Since 2020, investors have been riddled with doubts. Should I buy more U.S. tech shares to profit from innovation and work-from-home policies? Should I load up on crypto? Should I stick to U.S. stocks and avoid international diversification after a decade of underperformance?
These are all questions of diversification versus concentration.
Avoiding international diversification became especially poignant in the wake of Russia’s brutal invasion of Ukraine. Watching Russian shares become essentially worthless was a reminder of global political instability and past conflict. Moreover, it had severe implications for the European economy, especially concerning energy prices, and led to speculation over China’s role in the global economy. As a result, it was tempting to fade international stocks in favor of U.S. stocks.
Yet, when I am tempted to act on my speculations, I remind myself that I know nothing about the future direction of markets over the short term. I have thoughts and ideas, but they rarely turn into accurate predictions.
This month, European shares have recovered nearly all of their losses since the start of the war on a hedged basis (see WisdomTree Europe Hedged Equity or ‘HEDJ’ in blue). On an unhedged basis, U.S. investors are down roughly 7.46% (Vanguard FTSE Europe ETF or ‘VGK’ in green). The S&P 500 TR is still down about 12.74% over the same time frame.
Imagine that.
This isn't an argument for buying Europe. This is an argument to stay diversified.
A Thought on Retire on Purpose
It’s time to redefine money for ourselves. Having a purposeful relationship with money doesn’t start with balancing your checkbook or defining a budget—though both these things are important. It starts with reclaiming language and evolving toward a purposeful money mindset. Money, like all things, must be given purpose. Rather than living in pursuit of money, or even hard-to-define concepts like retirement, wealth, or financial freedom, we should use money as a tool to serve us and how we want to live our lives.
By inverting our relationship with money so that it serves our purposes, we move from a concept of money that bristles with an unacknowledged and often negative emotional charge to one that helps us bring positivity into our lives. We must put purpose first and then use money to support that purpose. —from Money with Purpose: Receive the Dividends of an Undivided Financial Life