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Catching a Falling Knife
investing has a rich and varied lexicon of colorful words and phrases like “dead cat bounce” and “garbatrage.” “Catch a falling knife” is a particularly colorful term that refers to buying a stock at a perceived bottom after a sharp decline in value. It’s a cautionary tale, a word to the wise. It follows statements like “How much farther can it fall?” and “It’s never been so cheap.” This can happen on the upside, too. Sometimes, prices become irrationally exuberant, and FOMO—fear of missing out—can create an irresistible urge to get in on the action. Residential real estate has been on fire since the Pandemic began, and the work-from-home megatrend began in earnest. We suggest our readers carefully consider either buying or selling: prices have never been higher, and the knife may soon begin to fall. They should take great care before reaching out.
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Climbing a Wall of Worry
The history of the U.S. Stock Market is a fascinating thing, both a child of and a progenitor of the American technological and cultural dynamic. It both reflects and enables our unique form of capitalism, which, by any measure of wealth creation, is unparalleled in world history. Once the exclusive club of the truly wealthy, the stock markets now represent the wealth of our entire nation: according to the Fed, over 58% of U.S. households owned stocks in 2022. Yet the distribution of success in stock investing is wildly skewed; a scattergram of investing success would be U-shaped, with a tremendous amount of people experiencing very low and even negative total returns and another large group enjoying very significant real gains. Trying to explain this phenomenon is among the most perplexing things about the market, as all investors have what economists call perfect information: complete and instantaneous knowledge of all prices, and access to all the externalities that could affect them.
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The Debt Also Rises
Our goal here is not to advocate or even to opine on any governmental or political policy. Rather, our responsibility is to inform our readers of threats to their financial plans and retirement security. As we write this, there are two threats that are particularly concerning for those seeking to build a sufficient nest egg and to have reasonable certainty that they will not outlive the sources of their lifestyle. Those threats are taxes and inflation; one can reduce portfolio growth, and the other can destroy purchasing power. Higher taxes, combined with high inflation, can create a “double whammy” that can threaten a lifetime’s effort to provide lifestyle security in retirement.
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Demography is Destiny
Americans are living and working longer. It seems likely that breakthroughs in medical and health technology will continue to expand the human lifespan even further. While that seems like a very positive forecast, it will put a strain on retirement security, as nest eggs will have to last for many, many years.
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The Tortoise Is Retired Comfortably
In this clickbait world, it can be easy to miss a significant news story. Newsletters about money and investing, like this one, can venture far from corporate profits, stock prices, and interest rates because so much of the world’s political, economic, social, and cultural news impacts asset prices. However, occasionally, there is news that is entirely within the domain of finance, and in 2024, we’ve already had a big one. It’s a story of the tortoise finally beating the hare, and the wisdom of focusing on the truly important things.
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Resolution in a Confounding Time
Sometimes the market news is good even when the economic news is terrible, and that was the case in 2023. When they go to make their New Year’s financial resolutions, Investors should bear in mind that it’s the things inside their control that will ultimately make all the difference.
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The Cruelest Month
Events of the past year demonstrate the essential difficulty in predicting what the stock market will do but also remind us to put our efforts into maximizing after-tax returns. In this edition of the Family Office Chronicle, we’ll recommend some practical tips to keep more of what you earn in your investment accounts.
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Frenemies
The world is a messy, complicated, often dangerous place. But it’s also a global marketplace of raw materials, finished goods and energy, decades into the process of Globalization. That process requires that very different cultural and political societies and nations compete but also cooperate. For now, and for a long time to come, China and the United States will be the dominant players in this dangerous game.
The Fortunes of War
The brutal images coming out of Ukraine remind us of Schindler’s List, and a bit of dialogue from that movie. Oskar Schindler is ruminating on