Success That Lasts – Episode 74: Finance 101 with Larry Swedroe
Once again, we welcome economic researcher, author, and speaker Larry Swedroe to the podcast. He joins Jared Siegel to discuss all things financial: inflation, allocation, and even hedging. He shares the peer-reviewed empirical data that informs his strongest convictions.
Larry Swedroe is the Director of Research at Buckingham Strategic Wealth, one of the nation's largest evidence-based investment firms. He is responsible for reviewing academic research on financial and investing matters and determining how that research should inform Buckingham's investment strategy. His dedication to helping others make evidence-based decisions has made him a sought-after national speaker. Larry has made appearances on national TV shows airing on NBC, CNBC, CNN, and Bloomberg Personal Finance. He has also co-authored eight books about investing. His latest work, "Your Complete Guide to a Successful & Secure Retirement," was co-authored with Kevin Grogan and published in January 2019.
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Here are a few highlights from Jared's conversation with Larry:
- You should never use forecasts to time the market, Larry says, as all evidence shows that it is largely ineffective. “Forecasts should only be thought of as the mean of a very wide potential dispersion of outcomes,” he adds. “There are always unknown events that we didn’t even think would occur, so your plan should always incorporate those possibilities.”
- Though the unemployment rate is down to 4%, there has been a massive decline in the labor force that’s willing to work, and an increase in early retirements. In a shocking and unprecedented turn of events, there are now far more job openings than there are unemployed people.
- “I think the Fed has underestimated the risks of [their] excessive amounts of fiscal and monetary stimulus,” Larry claims. “They’re [conducting] a grand experiment here; they think they can tighten quickly enough without pushing the economy into recession or raising rates too much.”
- Typically, with low interest rates supporting higher valuations, you should see higher than average valuations for value, Larry remarks. “To me, the only place that you have risk that valuations are too high is in U.S. large growth stocks… In value stocks everywhere else around the world, valuations are historically in the 100th percentile of cheapness,” he shares.
- While the data has always shown that high valuations predict low future returns, that doesn’t mean they’re predicting negative returns, according to Larry.
- Jared asks Larry about the helpfulness of economic predictions and how to prepare for the certainty of uncertainty. “You should always rely on evidence from peer-reviewed academic journals, not people’s opinions,” Larry responds. “There’s a huge body of research that has analyzed investors’ ability to time market, tactically allocate assets, etc., as a loser’s game.”
- All risky assets should have similar risk adjusted returns; this also includes similar Sharpe ratios, which adjust for returns.