Investment Insights Podcast – May 28, 2014

Bill MillerBill Miller, Chief Investment Officer

On this week’s podcast (recorded May 22, 2014), Bill gives a review on the controversial book, Capital in the Twenty-First Century by Thomas Piketty:

What we like: Emphasis on returns to capital (savings); savers will continue to be rewarded.

What we don’t like: Modern-socialistic state belief using high tax rates in order to deal with societal inequalities.

What we are doing about it: We encourage opening savings accounts for children and grandchildren; fund 401(k)s to the max; watching if some of the societal inequalities as outlined by Piketty are dealt with sooner than later.

Click the play icon below to launch the audio recording or click here.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Spending Triggers

Sue BerginSue Bergin

One of the first steps to losing weight is to identify your eating triggers.  Hunger, boredom, sadness, anxiety, and habit are all called trigger feelings.  They are the emotions that set off overeating.

Certain environments also stimulate overeating.  These are specific social situations that lead to overindulgences.  For example, you’ve been getting popcorn at the movies since you were 10 years old.  You don’t even think about it.  You probably don’t even like it.  Yet, you do it each and every time.

By tuning into triggers, you can avert derailment. You can avoid the trigger or engage in a substitute substance or activity that won’t have a negative impact.

The same principles apply to over-spending.

Whether trying to reduce debt, save for the future, or live responsibly within your means, it is important to identify spending triggers.

spending trigger Converted

Like hunger is to eating, necessity is the purest motivation for spending.  Most of us, however, indulge in items and activities that far exceed necessity.

As I wrote about in my, “Impatience and Sadness: Two Costly Emotions,” post, people who are sad seek immediate gratification and are more prone to self-defeating financial decisions.

Pain can also lead to overindulgent expenditures.  As reported in a recent study, people perceive pain as a form of punishment.[1]  A typical response is to give oneself permission to indulge in a guilty pleasure.

While evaluating the connecting between pain and indulgence, a research team from the University of Queensland in Australia found that people who had to submerse their hands in ice water later took 73% more pieces of candy than those who hadn’t.

73% more candy is likely to impact the waistband more than the wallet; however, the concept holds.  We treat ourselves.  M&M’s probably won’t harm the wallet, but if a shopping spree is the salve of choice, there might be a problem.

We also spend more than is financially healthy out of a sense of entitlement, or we give in to peer pressure.  Sometimes a purchase sets off a ripple effect which some have dubbed the,  “I Got This So I Need That” conundrum.   For example, a luxury car often leads to higher maintenance costs, a more substantial tax liability and increased insurance premiums.

As with overeating, the key to controlling overspending is to recognize triggers for what they are and strategize ways to prevent them from allowing them to cause financial harm.

[1] Bastian, B., Jetten, J., & Stewart, E. (2012). Physical Pain and Guilty Pleasures Social Psychological and Personality Science

Phones Will Be Ringing by, Sue Bergin

For many advisors, the phone lines seem to simmer down just a bit during the summer months.  That is about to change, however, according to a recent survey conducted by Edward Jones.

In mid-July, 2012 Edward Jones interviewed 1,010 U.S. adults to determine the issues that will impact investment and savings decisions the most. They found that 90% of Americans plan to change their investment strategy in the next six months. 

The election was sited as the most significant reason for driving strategy changes.

39% percent of respondents indicated that the election was, again, the most significant reason prompting investment and savings changes.  The next most significant factor was healthcare costs, representing 30% of those surveyed.  Global economic issues were prompting 20% of the respondents to consider investment strategy changes.

96% of people earning more than $100,000 a year were the most likely to say that they will make changes to their investments and savings.[1]

Take advantage of these final few weeks of summer by proactively scheduling investment review meetings. This will give you more control over your calendar in the fall, and help you prepare for the discussions that will inevitably occur.

Sex Ratio In Economics

If you want men to open their wallets, make them think there aren’t a lot of women around.

The University of Minnesota recently released a study showing that when potential mates are scarce men will behave more aggressively with their money.

Researchers had participants read articles that described the local population as male-dominated.  Then, participants decided how much money they would save, and how much they would borrow using credit cards for immediate spending.

The savings rate plummeted 42% for men who believed women to be scarce.  These same men indicated that they would borrow 84% more money each month than their counterparts who did not perceive gender inequities.

In a related study, participants examined photos with varying gender ratios.  Some assortments had more men than women, others had more women than men, and a third group had a balanced sex ratio.  Participants then choose between receiving $20 immediately or $30 in a month.

Pictures with just a few women prompted the men to opt for the fast cash rather than wait a month for a higher return.

Women’s financial decisions do not appear to be impacted by sex ratios.  Their expectations, however, change.  In a predominantly male environment, both men and women expected men would need to spend more on mating efforts.

Researchers also calculated the sex ratios and evaluated debt levels of more than 120 U.S. cities.  Predominantly male communities had more credit cards and higher debt levels than those with balanced sex ratios.

For example, in Columbus, Ga., there are 1.18 single men for every single woman.   Consumer debt averaged $3,479 higher in Columbus than in Macon, Ga., where there were 0.78 single men for every woman.  Macon is less than 100 miles from Columbus.

Could the reverse be true?

If men perceive potential mates to be plentiful, would they save more and take on less debt?  Could the fact that women live longer than men subconsciously suggest to men that spending levels can taper off in later years because they may live in predominantly female retirement communities?

Source: January 2012 University of Minnesota’s Carlson School of Management Study, “How do humans compete for access to mates? What you find across cultures is that men often do it through money, through status and through products.”