Three Things I Saw This Week…

If you’ve been following my writings for a while, you may recall that my weekly blog had formerly been named “Three Things” because I’d hand pick three articles, photos, videos, etc. which stood out to me over the course of the week and share them with you

(If you’re new to the newsletter, that’s okay too. Thanks for reading!)

As a bit of a throwback, I’m doing that again this week.

Enjoy,

Adam

Thing #1: Dogecoin

The meme-based cryptocurrency which was started as a joke is up BIG this year.

I’ve opined on cryptocurrency many times in recent years, with my opinion consistently hovering around the notion that it’s not part of what I believe is an investment strategy. But I also wouldn’t say Powerball Tickets are an “investment strategy” even though I’m generally fine with someone throwing away a couple dollars on a low cost, ultra high risk strategy.

I don’t encourage clients to hold currencies in a foreign country unless they were imminently buying something in that country, so I don’t similarly encourage people to own cryptocurrency in their investment portfolio. Aside from some of the most despicable criminals on planet, people aren’t really using crypto as a medium of exchange for goods and services. Instead, it’s purely an instrument of speculation.

With instruments of speculation, the only way to make money trading something like cryptocurrency is to do the following:

1) Buy it from someone who is hoping the price stays flat or falls after they sell it to you.

2) Have the price rise when you’re holding it.

3) Sell it to someone who is hoping the price rises after you sell it to them.

In order for you to win, you have to outwit two people: the initial seller to you and then the subsequent buyer from you.

You’re good enough, smart enough, and doggone it, people like you, but I’m not confident in you or me or anyone else being able to consistently outwit people en route to a successful long term investment outcome.

However, this same observation can be made about all sorts of other things I don’t specifically recommend people invest in:

Art & collectibles
Lumber, gold, silver, water
Raw land with no plans to develop or rent

If you wanted to own any of those above things I wouldn’t think you’re crazy, and if you want to own cryptocurrency I don’t think you’re crazy. However, if you buy crypto I would encourage you to channel the mindset of other commodity investors:

Be like the art collector buying pieces because they like to look at them and can enjoy the art if the investment merit dissipates.

Or be like the baseball card collector who loves his Hank Aaron card because it reminds him of his childhood.

Or the land investor who likes knowing they own a spot up in the mountains in case they ever need to escape the zombie apocalypse or something.

… If you get some entertainment value out of a Dogecoin purchase, that gives you something to fall back on if its merit as an investment ends up being sub par.

One last observation about Dogecoin:

Dogecoin just passed the market cap of the iconic Ford Motor Company….The insanity continues.

Thing #2: Default Options

According to the American Transplant Foundation, 18 people die every day in the United States for want of an organ transplant, and some 122,344 people are waiting for a donated organ...

Countries whose laws make organ donation the default option at the time of death require that people must explicitly “opt out” of organ donation. They often see more than 90% of people register to donate their organs. Yet in countries such as the U.S., people must explicitly “opt in” if they want to donate their organs when they die. In these opt-in countries,usually fewer than 15% of people register.

The ≈75% difference is just the tiny roadblock of checking the box vs having it already checked for you. The truth is that most people don’t really have a strong opinion on it….

So what does this have to do with money? Default mindset, that’s what.

When given two choices and one is better for yourself or society, have the default choice be the better one.

I strongly encourage everyone’s default financial condition to reflect the following:

1) A high automated savings rate. This means that funds make their way to your various savings/retirement/brokerage/education accounts automatically every month. Make it so you have to opt-out of saving every time you aren’t able to.

2) A 100% invested portfolio. We often start with our cash and then elect how much we want to invest. I think you should start with the assumption that more of your assets will be invested and then decide how much cash you need.

3) Opt in to more aggressive strategies rather than less aggressive. Risk and return are related. If you go in knowing that volatility is a strong possibility, but that this is the price of admission for higher expected returns, it creates a better view of the situation.

If you need to opt out of any of the above, it is totally okay. You would simply decrease your savings rate, increase your cash, and de-risk your portfolio. But historically, much like allowing organ donations to save lives, it’s been a good thing for people to save more, invest more, and be willing to take smart risks.

Thing #3: “I Can’t” vs “I Don’t”

There is sacrifice on the path to wealth accumulation, and because there are competing needs for our time, dollars, energy, and effort we must arrive at tradeoffs.

One popular tradeoff I hear often is from Dave Ramsey. While working to become debt-free, he claims that people “should not see the inside of a restaurant unless they’re working there.”

Bold, but fair.

Of course, the math supports completely stopping all discretionary spending while working to pay off debt — but humans are more complex than calculators and we often need to frame things slightly differently in order to stick with positive habits. This is where a slight change in language arises.

Consider this dieting example from an article I stumbled on this week:

If you’re at a restaurant and your waiter offers you chocolate cake for dessert, would you think to yourself:

“I can’t eat chocolate cake.”

Or

“I don’t eat chocolate cake.”

If you think there is no real difference, I implore you to think again. Don’t and can’t may seem somewhat interchangeable, but they are very different psychologically. And if there is one thing that social psychologists have learned over the years, it’s that even seemingly subtle differences in language can have very powerful affects on our thoughts, feelings and behavior.

Saying “I don’t” feels empowering, right?

”I don’t eat at restaurants right now because I’m trying to build financial independence.” sounds a lot more palatable than “I can’t go to a restaurant because I’m in debt.”

Here are a couple more “Can’t” statements we can reframe into “Don’t” ones:

I can’t take that vacation because I can’t afford it.

— I don’t take trips I don’t have the money for. In the future, maybe.

I can’t sell my investments during a market decline even though I want to.

— I don’t sell my investments after declines even though I want to.

I can’t withdraw more than $5,000/mo from my portfolio.

— I don’t withdraw more than $5,000/mo from my portfolio because I want it to last.

Saying that you don’t do something helps keep an eye on the reason why you don’t do it — which is usually some kind of future benefit.

Let that future benefit be the driver.

That’s all for this week.

Be well,

Adam Harding | Advisor | Smartvestor Pro | Dad | Amateur Guitar Player