Kicked out of Congress

• George Santos was expelled from Congress last week following the conclusion of an investigation into his use of campaign funding and the falsity of many of his campaign statements. He is only the sixth person ever expelled from the House in its 234 year history.

• Congressional Democrats and Republicans remain far apart on a deal to send more funding to support Ukraine in its war against Russia. Republicans are stating they want stricter immigration rules, specifically around asylum and parole applications, which is a non-starter for Democrats. Ukraine is at risk of running out of money to finance their war according to President Biden.

• Kevin McCarthy will resign at the end of the year, only months after he was voted out as Speaker of the House.

Most Americans got richer… annnddd it’s gone

A Pew Research report noted “after-tax income of the typical U.S. household increased 3.5% from 2019 to 2021, according to Census Bureau estimates.” While the rich saw some of the largest absolute gains, low and middle income Americans saw a larger percentage wealth increase than those at the top. A lot of these gains are attributable to stimulus payments and other government assistance, but a lack of consumption during the pandemic was also a large driver. Lastly, increases in asset values, namely stocks and homes, also drove wealth increases.

Unfortunately, it is likely most of these gains have reversed due to high inflation, stagnant home prices, and a down year for stock prices in 2022.  

What does this mean for you?

Though the stock market saw large declines in 2022 housing market is largely flat in 2023, so it still makes sense to own assets. The S&P 500 (the indicator for the stock market as a whole) has increased almost 19% this year. Cash saved in US Treasury Bills or High-Yield Savings accounts is still earning more than 4%. A financial planner can help decide which asset classes are best for you, but the bottom line is that it’s always preferable to own appreciating asset classes. Some examples include bonds, real estate, and cash/cash equivalents (such as money market funds).

The second lesson is reducing spending. Since the pandemic, Americans have been spending like crazy… and the momentum is continuing. The new issue is that the consumer, much like the US government, is using debt to finance their purchases. Inflation is attributable to a lot of the increase in spending, but everyone’s priority in the new year should be around only spending on things that truly matter.

Chasing trends is a great way to go broke

2023 has given us great examples of trend-chasers losing big time.

In 2022 the top 3 best performing stocks were…

1. Occidental Petroleum Corp. (OXY) +119.1%

2. Hess Corp. (HES) +94.1%

3. Exxon Mobile Corp (XOM) +87.4%

Here’s the problem.

In 2023 so far these stocks looked like…

1. Occidental Petroleum Corp. (OXY) -6.95%

2. Hess Corp. (HES) -0.29%

3. Exxon Mobile Corp (XOM) -6.54%

Now don’t get me wrong, I am loving the fact that gas in Denver is $2.69, but it has spelled disaster for these three companies.

Here’s why this matters.

The best-performing US stocks of 2023 so far are…

1. Carvana Co. (CVNA) +560.8%

2. ImmunoGen Inc. (IMGN) +491.7%

3. Golden Heaven Group Holdings Ltd. (GDHG) +438.2%

What connects these 6 companies? Absolutely nothing. The chances of these 3 stocks being the best performers next year? Essentially 0.

The reason the stock market creates value is because it is risky. You make money by taking risk rather than working!

If we can’t predict, how do we win?

For most investors, the simplest way to increase the odds of consistent returns is to invest in a market index. These indices track between 100 - 2,000 individual stocks. Each year some stocks perform well, others not so well, but the average index return for the last 100 years has been over 9% per year.

Which indices you might ask? Unfortunately, we can only share exact investment recommendations with our clients.

These behavioral biases are hurting your investments

1. Overconfidence: Investors tend to overestimate their knowledge and ability to predict market movements. This bias can lead to excessive trading, unwarranted risk-taking, and poor decision-making.

2. Loss Aversion: Investors fear losses more than they value equivalent gains. This bias can result in a reluctance to sell losing investments, leading to portfolio underperformance and missed opportunities.

3. Confirmation Bias: People tend to seek information that confirms their existing beliefs and ignore contradictory data. In investing, this can lead to a lack of diversification and a failure to consider alternative viewpoints, resulting in suboptimal decisions.

4. Herding Behavior: Many investors follow the crowd rather than conducting independent research. This can lead to asset bubbles and market crashes when everyone rushes in or out of an investment simultaneously.

5. Anchoring: Investors often anchor their decisions to past prices or valuations. This can result in holding onto an investment long after it is overvalued or selling too soon if it has appreciated significantly.

6. Overreaction and Underreaction: Investors tend to overreact to news and events, causing exaggerated price movements. Conversely, they may underreact to less-publicized information, missing opportunities for profit.

7. Recency Bias: Investors give more weight to recent events and extrapolate them into the future. This can lead to overemphasis on short-term performance and neglect of long-term fundamentals.

These biases hurt investment performance by causing investors to make decisions based on emotions and flawed heuristics rather than rational analysis.

They often cause people to buy high and sell low and fail to maintain a well-diversified portfolio. Over time, these biases erode returns and hinder long-term wealth accumulation.

How do we beat the bias?

First, never invest for this year or even next year. Investing is a long game! Choosing a strategy and sticking to it is far more effective than constantly changing the approach.

Second, stay diversified. It’s easy to “tilt” a portfolio when technology or oil stocks are looking successful, but that tilt turns into losses the moment that one industry starts to stagnate.

Finally, seek out diverse sources of information to make more rational and less emotionally-driven decisions. Being aware of these biases and working with a professional financial planner to counteract them can lead to improved investment outcomes.

Saving 7 years on a mortgage

Here’s how to turn a 30 year mortgage into a 23-year mortgage and save hundreds of thousands of dollars in interest.

Rather than paying your mortgage every month, you can pay half of your mortgage payment every two weeks. Switching to biweekly payments means each year you make one extra mortgage payment.

But how do 23 extra mortgage payments save you 77 monthly payments?

The secret is in how loan amortization works. Early in your mortgage, the interest on the loan is so high that almost none of your monthly payment is going toward the principal of your loan.

This means the next year, you didn’t pay off much of the principal, so the interest payments are STILL really high. But as more money goes toward the principal instead of interest, the result is exponential.

By making an extra payment every year, you are accelerating the flat part of the exponential curve.

On a $350,000 mortgage, this will save you $125,000 in interest.

Even if you sold the house after 10 years you would still save $11,000 in interest and you would make an extra $34,600 when you sell.

This strategy does cost extra money every year, but it also lines up nicely if you get paid every two weeks.

Here’s an easy way to decide if it’s right for you: 

if you can invest that extra mortgage payment and have it pay you more than the interest rate on your mortgage, it’s better to invest it in that other thing.

If you can’t get that kind of return, it may be worth putting more money into your home.

Are you treating money the way you would treat a friend?

Work with Hoskin Capital

Knowing is half the battle, we help you get it done.

We manage your entire financial life for a fixed annual fee. 

Meet our team of experts, peep our services, and learn why we exist.