May 2020 | Posted By Buddy Reisinger

This podcast episode (42 minutes) is worth listening to for a variety of reasons. Most importantly, Carl Richards is one of the best in the world at connecting money and emotion in ways real people can understand. He is the creator of the Sketch Guy column, appearing weekly in The New York Times since 2010. With over 800 simple sketches, Carl knows how to get us thinking and talking about what really matters in our lives. Through his writing, speaking, and sketches, Carl makes complex financial concepts, easy to understand. His work also serves as the foundation for his two books, The One-Page Financial Plan: A Simple Way to Be Smart About Your Money, and The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.

Matt loved taping this episode with Carl from his new home in London and counts Carl as a long-time friend.

Don’t forget to leave a review wherever you subscribe to podcasts! Your support really helps spread the word.


May 2020 | Posted By PJ McDaniel

We talk a lot about the importance of education because we believe that educated investors are disciplined. In our experience, discipline builds confidence —and confident investors have a better experience. But we also know that we can go months, even years, without a real test of confidence. A test like we are facing now.

The coronavirus pandemic has shaken nearly every aspect of life and sent the markets into wild swings of despair and euphoria depending on the day’s headlines. With this much uncertainty and this level of market volatility, investors must be especially vigilant against falling into the Behavior Gap.

The Behavior Gap is the name coined by author and podcast guest, Carl Richards, to describe the fact that most investors earn less than the market’s returns, simply because they make poor decisions. Chasing hot stocks when the markets are booming or panicking and moving your money into cash—this is the kind of behavior that creates the gap. And it’s a real, quantifiable number.

For 25 years, the research firm DALBAR has been publishing its analysis of the difference between the average investment return, and the average investor return—and it looks bad for the average investor (though some journalists discount the findings and methodology).

For example, stocks have delivered an average annual return of roughly 9% over the last 30 years, while bonds have delivered an average annual return of 6%. If we imagine a 50/50 balanced stock and bond portfolio, that means the investment markets have delivered a 7.5% average annual return over the past 30 years. The average investor, though? They’ve only achieved a 4% average annual return. That difference of 3.5 percentage points per year for the last 30 years adds up to a huge number.

Say you had $1 million in your retirement account. A 4% annual return for 30 years would result in a balance of about $3 million. But if you’d gotten the market’s combined 7.5% investment return, you’d have almost $9 million after 30 years. The Behavior Gap in your savings, then, is missing out on $6 million—all because you let emotions into your investment decisions.

Right now, the risk of succumbing to emotion is especially high. A friend of mine, who is  a successful businessman, recently sent me a note saying he was day-trading while sitting at home in quarantine. He’s buying stock in Zoom and pharmaceutical companies, thinking he can predict what’s going to happen and pick up a few wins. He’s a smart guy who really understands commercial real estate, yet here he is making classic investment mistakes. He’s in the Behavior Gap.

I urged him stop gambling with his money and consider allocating it into 13,000 stocks spread all over the world, like we do. Then I encouraged him to get off the couch and find some other way to pass his time. Because the pernicious thing about the Behavior Gap is that it doesn’t just cost us money. It can have the same draining effect on our happiness as it does on our investment accounts.

As Carl Richards told Matt in his recent podcast interview, he now applies the Behavior Gap concept to any activity that we engage in hoping to improve our situation, but which in fact produces a suboptimal result. Just as making ill-timed, emotional investment decisions hurts our long-term returns, spending emotional energy on things that aren’t useful produces a lot of unnecessary pain, suffering and anxiety.

That’s why we also emphasize to clients the importance of focusing on the things that bring real meaning to their lives. In fact, a framed print of one of Carl Richards’ famous sketches hangs on the wall of Matt’s office, reminding us that our job is to help people stay focused on the small overlap between things that matter and things they can control.

So even as we face ongoing uncertainty about what the post-coronavirus world will look like, remember to focus on what matters, and what you can control. That includes having faith in the evidence that this market downturn, like others, will end. Stocks will recover and disciplined investors will be rewarded. In the meantime, we will be taking care of what we can control, like rebalancing your portfolio and harvesting losses.

Keeping the faith, staying disciplined—that’s exactly what makes our clients different from the “average” investor. And it’s how we help you avoid falling into the Behavior Gap.

May 2020 | Posted By Nell Schiffer

Zibby Owens has been called New York’s most powerful book-fluencer. How’d she do it? Zibby built a community and strong base of fans through her award-winning podcast Moms Don’t Have Time to Read Books. Listen to Matt’s conversation with Zibby (33 minutes), covering stories that made Matt cry, the value of a Harvard MBA, having Blackstone founder Stephen Schwarzman as your dad, and much more.

On her own podcast, Zibby talks with authors to give her busy listeners the inside scoop and in 2019 Oprah Magazine listed her podcast as one of the “21 of the Best Book Podcasts to Listen to When You’re Not Reading.” Beyond her podcast, Zibby is a writer and published her first article, a personal essay for Seventeen magazine when she was in high school and has been writing ever since. Her work has appeared in the Washington Post, the New York Times, Parents, Real Simple, Redbook, Marie Claire, and many others.

One of our favorite profiles of Zibby is the recent piece (8 minutes) that aired on CBS This Morning.

Good Morning America, Good Day LAGood Day DCABC-7 Eyewitness News, and NY1.

A graduate of Yale University and Harvard Business School, Zibby has a marketing and branding background. She currently lives in the New York area with her four children ages 5-12 and her husband, Kyle Owens.

*Zibby gives one of our favorite answers to the question Matt asks about the best example of “taking the long view” from her life. Check it out below or wherever you listen to podcasts.

May 2020 | Posted By Katie Ackerman

We are serious about our mission to help investors take the long view, but that doesn’t mean we aren’t open to a little fun. “Fun” has been a core value since the founding of Hill Investment Group and the team at HIG had a moment of laughter this month when the famed sportscaster Joe Buck (lower right of image) was a surprise guest on our daily team Zoom call. His humor and impromptu “play-by-play” announcing of our team call gave us a memorable quarantine moment and a boost of energy that has yet to fade.

Being “Zoom Bombed” by a sports legend like Joe Buck made our May, but we’re also excited this month because we are celebrating the anniversaries of two All-Star members of the HIG team. Nell Schiffer (Sheriff) has cranked out three years and PJ McDaniel (McDoogle) has been making things happen for two years with the firm. PJ’s friendly demeanor and passion for extending evidence-based investing to everyone have made him an asset to our group. Nell puts her unique abilities to work by keeping us all in order. Beyond tending to the financial, compliance, and HR functions of our firm, “The Sheriff” is creating structure and workflows, allowing us to provide a higher service level to all of our clients.

April 2020 | Posted By John Reagan

Do you ever feel the urge to make a big change? We understand the temptation and share a story from our experience to help you reframe the way to win. Please enjoy the audio version of our client letter entitled, “The Big Move” to help you hold tight.

You can read it here.

April 2020 | Posted By Scott Krajacic

We like to share updates from our Investment Policy Committee, which makes key decisions involving the specific evidence-based tools and funds we use to execute our approach. The following is a note they wanted to share for our readers:

The year has been off to a rocky start – with global equity markets roiling from the coronavirus pandemic, and volatility remaining elevated above historic levels. When rough markets come, our clients are ready. How? Uncorrelated asset classes. One of the ways we help combat the inevitable ups-and-downs are by including certain asset classes in clients’ portfolios that move differently from equity markets.

The most familiar of these is fixed income. Most people know intuitively that investing in fixed income reduces risk exposure, as we saw most recently during the 2008 financial crisis. We are a firm believer that while equities help you “eat well,” fixed income helps you “sleep well.” In other words, equities are the source of your return, and fixed income is your stability. That’s why we believe in holding high quality bonds with short to intermediate maturities – solid and sturdy.

Fixed income is the way most of us are  familiar with capturing this benefit. At HIG we go a couple of steps further – capturing other uncorrelated asset classes through market neutral funds. Market neutral funds do basically what their name says – they seek to access return no matter what is happening in the market. They do this by targeting sources of return unrelated (and therefore uncorrelated) to the traditional equity and fixed income markets.

We believe incorporating the right market neutral fund can help smooth the ride, while maximizing your odds of success – making it easier for you to stick with your allocation when things get rough. An added benefit? Market neutral funds can allow you to capture a higher expected return than fixed income – a win-win in our book.

Just like with all things, not all market neutral funds are created equal. The market neutral fund we recommend is the Style Premia Alternative fund (QSPIX), created by AQR.  With this fund, AQR takes a disciplined and systematic approach that aligns itself with our evidence-based investment philosophy. The fund invests across five different asset types and four investment styles, that over the long-term have shown very low correlation to the equity markets.

Here’s some hard data to illustrate the point: since the markets peaked on February 19th this year, the S&P 500 has dropped by 23.3% while AQR’s Style Premia Alternative fund has shown a decline of only 7.5% through the end of March. Although diversification is not meant to eliminate risk completely (which would mean no reward on the other side) it can reduce the extreme highs and lows, offering a smoother ride to help our clients take the long view.