The Art & Science of Spending Money

Behavioral finance is now well documented. However, most of the attention goes to how people invest and the science often overlooks how people spend money and how these habits can reveal an existential struggle of what they find valuable in life and who they want to spend time with. 

 There is a science to spending money – how to find a bargain or how to make a budget. But there’s also an art to spending. A part that can’t be quantified and varies person to person.

 This week's highlight article from Morgan Housel at Collaborative Fund sheds light on the behavioral science behind our spending habits.

Equities More Reasonably Valued in 2023

Last year at this time, equity markets were near record highs after the economy and corporate earnings surged in 2021 and interest rates remained low. As it became clear that the Federal Reserve would need to aggressively hike interest rates to control inflation, investors reduced exposure to risk assets — sending equity valuations lower. Higher interest rates can put downward pressure on price-to-earnings (P/E) ratios, and we saw this play out in 2022. While earnings grew throughout the year, valuations declined — with the S&P 500 Index forward P/E falling from 21.7x to now 16.8x, close to the 15-year average (black diamond).

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