Here in Gaia Capital Management's Viewpoint you will find a selection from our weekly commentaries and from our quarterly Strategic Insight publications. Just contact us if you would like to receive these publications on a regular basis. They're complimentary, free of charge.

Strategic Insight

Brushing aside worry closets of concerns, stocks and bonds – particularly those in the U.S. – have soared past their 2007 peaks. Stocks have done their two steps forward, one step back dance for over eight years now, the back step getting scary only twice (in 2011 and in 2016). The wheels are in motion for all the good times investors have had to endure an autumn, followed by a winter before seeing another spring, so to speak.
Eating snails? Yep, the French consider the escargot (sea snail) a delicacy. Flavored with enough garlic, they really aren’t too bad. And dividends? You don’t have to flavor nor cringe when you hear their name. Given that dividend income and growth forms the core of our investment strategy, we thought you would like to know more about these little building blocks of permanent wealth.
Most of us have seen our income from dividends and interest drop in the five years from 2011-2015. We have been touting growing income as a major objective of ours. Read on to find out why it can temporarily drop.
When we begin investing it is wise to think about the outcome we want to receive and the volatility or uncertainty we are willing to accept as our investment progresses toward our desired outcome. To illustrate outcome and investment experience, Michael Kitces, a noted financial planning thinker, ran a study of three retirement income strategies, each with thousands of investment observations over a 50-year period.
Diversification reduces risk, a widely known fact. But few agree on exactly how to diversify across investment types to achieve the promised low-risk land. The diversified model has the advantage of offering excellent risk-adjusted returns year after year, though one or more of its components may have soared or crashed. This is diversification in action. Read on...
If investing were only about accumulating an account balance, we would all go nuts as investment accounts wind to a peak, then give back some before rising again and repeating the process - with the effect that we are notably higher after some years of the back and forth movements. Those back and forth movements represent uncertainty more than anything else, as markets try to be predictors of the next six to nine months.
How do we get the high long-term returns stocks offer without the worry they cause when they fall hard every few years? Furthermore, how can we build a high, sustainable and growing income in our retirement years? Read On...
Our emotions are wired so that we smile when we make money per the report of a statement and growl, moan, shriek, cry or otherwise express anguish when we have had what seems like a serious paper loss. How can we keep our emotions from flaring up when we have suffered one of investing’s inevitable setbacks?

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Are you limiting enjoyment because you need to have something “now”? Do you struggle mightily with your instincts to flit from one thing to another – and back again? You might be pleasantly surprised if you could escape the “get it now” trap – enjoying fewer things more deeply.
Success creates its own aura, but digging deeper into its sources we find good fortune to be at least its handmaiden. Good fortune can be cultivated. Here are some general rules to place yourself in the path of good fortune.
Credit cards are the proverbial two edged sword. They can be very useful as a fairly short-term loan from an issuer (yes, credit card purchases or advances are loans) or they can be a sieve out of which money flows to pay for past purchases (plus generous interest to the card issuer). You might consider the ideas presented here.
Here in Brazil many consumer goods are priced as if they will be bought on credit, with a small down payment and several periodic payments to complete the purchase. Parcelando, as they call it, is popular in no small part because services here are cheap and goods are expensive. In the States, credit cards are the equivalent of parcelando as you get the bank’s money up front. Unfortunately, you end up paying substantially more than the cash price by the amount of interest you pay...
Personal money management starts with two simple questions: “How long will the purchase I am considering give me pleasure?” and “How much joy will I receive by having it?” Multiply your happiness by balancing consumables with durables even as you progress toward the day when your savings will be your paycheck.
Today we discuss what today’s “retirement” really is and why even at an early age it will serve you well to envision the day when you can be self-sustaining.
While it’s true that a penny saved is a penny earned, it is also true that a penny left to invest at 7% for 100 years is worth $10.96. How can something so small grow into something useful when nothing is added (or taken away)?
When I was 21 and a sailor in Japan, I received a check for $300, a distribution from the Federal retirement plan in which I was briefly enrolled. I spent it. But now as I look back, what did I trade off for a few days of fun and games in Yokosuka?

Saturdays With Jim

Politics in the United Kingdom (think England) tend to precede those in the U.S. by a few months to a few years. Might Jeremy Corbyn, the U.K.’s hard left Labour Party leader, become the nation’s next Prime Minister if the Tories can’t hang on until the next general election? Perhaps likely.
It is hard to predict a following year’s best performing investment type (asset class) based on prior year performance or just about anything else. For reference, we provide Ben Carlson’s asset allocation quilt (A Wealth of Common Sense) that is organized each year by the best performing asset class at the top and the worst performing one at the bottom.
Exciting investing is akin to riding a rollercoaster at an amusement park. There is a long, somewhat steady climb to the top and a rapid, terror filled descent to the bottom. Today we dispel the myth that investment excitement is the way to gain solid investment wealth over periods of ten, twenty or more years.
Today we look at the December 4, 2017 post in Cory Hoffstein's blog, Flirting with Models, which shows how to dramatically increase returns in a 60% stock, 40% bond portfolio by applying enough leverage (borrowed money) to the bond portion so that the bond portfolio's volatility equals the stock volatility. Should we find his risk parity example enticing enough to use it in our portfolio designs?
When predictions of future returns based on current valuation of stocks, bonds and real estate are low single digit or worse, it will probably be profitable to lighten up progressively as prices rise, fully expecting to see a stellar time to reduce the safety guardrails and put more risk money to work within three to five years.
I was moved recently when I encountered a mediator whose thought processes enabled him to distill complex issues into a few words. The product of this man’s genius enabled him to not only grasp thorny differences between people, but to distill them in a few poetic words – Haiku. I decided to try my hand at investment Haiku. Here are the results of my first effort.
Does the VIG-SPY study we wrote about last week give us anything we can replicate going forward? What is the source of VIG’s win? Is it VIG alone that could have outperformed the S&P 500? Hint: the factor underlying VIG’s outperformance is the same factor that drives Gaia’s investments for you. It also drives the performance of the funds in the following study.
We want to illustrate today why investment should not be evaluated annually or anything less than a full market cycle. What seems best while looking up close can turn out not to be best when viewed by a long-term perspective.

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Gaia Investment Process

Why invest in funds of securities rather than the securities themselves? To mitigate the “business risk” inherent in one company or a few of them, professionally managed funds were created. The fund investor gets instant diversification to reduce business risk, the buying power of a larger portfolio and professional management of their invested money.
“The Market” is common parlance for the stock market, or the place(s) where stocks are originated, bought, sold and (sometimes) die. But what is “The Market” really and why is knowing important to investors like us?

Getting Ahead

Today we continue a new series called Getting Ahead Financially. Should everyone who can qualify own a home? Do the benefits of owning a home outweigh the benefits of alternative uses of the significant chunk of money that must be committed to owning a private residence? The bottom line – maybe, for some. Read on...
Financial planning for most people seldom proceeds successfully when planning steps and outcomes are dependent on goal setting at the outset. Today we discuss an alternative framework which is more process than goal oriented, in which goals flow in a natural, unforced way.

Uncommon Knowledge for the Common Good

Accumulating a pot of money for later use involves 1) saving, setting aside money from current income, and 2) investing, putting the savings to work earning a return. What we earn on our money is far more important than how much we save; however, the amount we save is also a key component to long-term wealth.
Looking beyond such obvious requirements as having adequate savings for emergencies and health care, enough retirement capital to meet at least our minimum retirement income requirements and our expected longevity from the date of retirement, there are three investment-specific drivers of our retirement income. Read on...
Reaching for maximum returns magnified timing risk, the risk that markets would be overvalued when we begin our program, resulting in perhaps a large initial loss for us as markets return to normal valuations. Here we discuss how we can moderate the risk of underperforming our potential returns.
This is the first in a series which discusses how the interplay of savings rate, investment return and investment time horizon should be considered as we set out to invest. We will examine how the three factors work in a long-term (35 year) program. Afterwards, we will consider how they combine in a shorter program (15 years).

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