Month: March 2020

The End of the World Portfolio

We live in trying times, a recurring feature of our existence.

Our entire investment philosophy is underwritten by a simple fundamental belief: tomorrow will be better than today. We can’t know that this will be true of every single tomorrow, but we’re pretty sure about the long term trend.

Though they say that “past performance does not guarantee future results,” human civilization has a track record thousands of years long of resilience, rebounding from crisis to do better than before. We expect it will continue. Without this belief the idea of investing for the future is meaningless.

We know that there are troubles in the world, with the news full of the virus, death and disruption. People sometimes feel that the latest bad news signals imminent total catastrophe. This isn’t anything new–people have been predicting the end of civilization for the entire span of human history. Yet somehow we’ve always rebounded all the same.

If the most dire predictions ever do come to pass, it isn’t going to matter what investments you own. Your meanest neighbor will be trying to steal your canned goods. So the ideal portfolio for the end of the world is the one that will serve you best in the event that the end of the world fails to show up—again.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

First Light

firstlight

Each one of us remembers some new beginning. Perhaps your first thought at seeing the phrase might be of a first day of school, or first kiss, first day at a new job, new relationship, life in a new neighborhood, or something else.

Beginnings are all about potential, anticipation and excitement: a journey on roads we’ve not traveled.

I often take walks in the first light of dawn. The quality of the light in that hour can be magical, whether in the village of Louisville or the banks of the Platte River, along San Diego Bay or Michigan Avenue or in Pinellas County, Florida.

But the meaning of first light is more special to me than the beautiful scenes it might envelope. First light is a new day dawning, another step on a path never before taken. It is fraught with potential, anticipation, and excitement. Each day is a beginning.

This perspective may be helpful to move forward from past hard times, or to change things we would like to change. But it can also be useful as we seek to strengthen new habits or build on recent successes. Whether things are going well or poorly, a beginning is a chance to reset.

What new beginning excites you? Clients, if you would like to talk about this or anything else, please email us or call.

Liquid Assets

© Can Stock Photo / sparkia

One of the keys to successfully weathering the downturns in the market, large and small, is having sufficient cash to do what you need to do in your real life. That helps avoid selling long term investments at bad times.

A few weeks back we went through investment advisory accounts to check cash balances for ongoing monthly distributions and make sure we had cash positions to last several months. And in our reviews with you, we inquire about upcoming cash needs.

As our lives unfold, our situations may change. For example, we talked with a pair of young adults a few weeks back, a brother and sister, who each are completing advanced degrees. In infancy, they received a gift of shares of stock from their great-grandfather, an old friend of mine.

Their holdings grew over the years. Each one called to talk about the strategy for paying off student loan balances later this year with the value of the accounts. When it became evident that the holding period was down to months, we advised the sale of sufficient stock to clear their balances, at once. Money that you plan on spending in the short term should not be invested for the long term.

The moral of the story is to communicate with us about exceptional cash needs that develop. If together we manage your liquidity to avoid untimely sales of long term investments, you and we will both be better off.

Clients, if you would like to talk about this or anything else, please email or call.

Better Safe Than Sorry

© Can Stock Photo / Subbotina

2020 will certainly go down as a memorable year, between the changes in our every day lives and the economic and market developments. My years as caregiver for a person with an extemely fragile immune system has given me a sense of caution about the coronavirus. (Cathy continues to influence me!)

In the spirit of ‘better safe than sorry’ we are seeking some modifications in our work with you. The median age of our advisory clients is in the area of elevated risk, and many of us have other risk factors as well. Here are the things we can do to limit exposure and illness among us all:

  • Many service matters can be done by phone or email; most forms can be signed electronically. This reduces traffic in 228 Main.
  • Schedule appointments in advance, to minimize the chance to be in a crowded place.
  • One on one consultations can be done by phone at your option; we will soon be able to video conference if you prefer.

Of course I will meet with you in person if you need that. We work with you on vital subjects, and we want you to have what you need. For the present we see no reason to suspend face to face visits.

We are doing what we can in the shop to keep it safe, wiping down public surfaces and shared objects, making hand sanitizer available. Handshakes and hugs need to stay virtual for now, not physical.

The best thing that can possibly happen is for everyone to be laughing at me in a few weeks for the needless over-reaction. I desperately hope for that outcome.

Having some experience with respiratory failure leading to death, I’m just wary of a virus that can produce that in a slight fraction of cases in a period of a couple weeks. Thank you for humoring me on this.

Clients, if you would like to talk about this or anything else, please email us or call.

Flattening The Curve

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We have worked to understand as best we can the coronavirus. There are a lot of aspects to it: the health and safety of our family and friends, public health considerations, economic and investment effects. All this, while sorting through information and misinformation of varying quality.

Which of these are true?

“Most people experience negligible symptoms, or those of a typical case of the flu” or “The virus can cause rapid respiratory failure and death”?

“People who have no other health problems and are below age 60 have little risk” or “It is important for everyone to do what they can to slow the spread of the virus”?

“The experience of other countries should comfort us” or “The experience of other countries should concern us”?

Get your mind wide open, because all of these things contain some truth. Those who are below age 60 and healthy will likely only get mild symptoms with a low risk of death. But healthy people can spread it to at-risk people.

Do you have an elderly neighbor? A young cousin with asthma? Relatives with diabetes or cardiac disease? Are you around people that have organ transplants? Or being treated for cancer? No matter what course the virus takes in the weeks and months ahead, some people with those conditions are probably going to be struggling to stay alive. Not all will survive.

To protect ourselves and others, it makes sense to do what we can to slow the rate of infection. If cases spike up rapidly, hospitals will be overwhlemed, with catastrophic effects on care. (This happened in parts of Italy.) If the rate of infection is more moderate, health facilities have a better chance to stay ahead of the curve. It makes a difference on the death rate.

The experts call this moderating effect of slower infection rates “flattening the curve.” It’s a good thing.

The extremes are not where we want to be: the virus is not going to kill us all, but neither is it a big hoax. Clients, if you would like to talk about this or anything else, please email or call.

Our Work With You

© Can Stock Photo / gajdamak

One of the blessings of a periodic travel day is time to think. My thoughts about our work together recently crystallized at 40,000 feet in the air. The guts of our business may be captured in a single sentence:

People who know us believe we are worthy of helping them manage some part of their net worth.

This thought has three distinct facets.

1. “People who know us” highlights the key role of communicating our principles and values. Who are we? What are we doing? Why are we doing it?

2. To determine if “we are worthy” of helping you, it helps if you can get a feeling for our competence and consistency. Whether we are focused on your results or ours is a key thing, too.

3. “Net worth” figures into our work. We strive to help you two ways, by investing effectively and helping you frame major financial issues so you can make effective decisions. The better off you are, the better off we will be.

It seems to us that this concept of the financial advisory business is timeless, has always been true. Yet our experience with 21st century communications over the past few years says each facet is powerfully improved by the new methods.

People get to know us much more quickly by reading our blogs and seeing the videos. What makes us tick? What are we focused on? Are we paying attention to business? Do we care about our clients? This digital presence makes it easier for you to form an opinion about our worthiness to work with you.

Apart from all that, we know that communication can help drive understanding and attitudes about effective investing behavior. Although some do not need it, others may benefit from the perspective and context we provide. If we are successful in promoting effective investment behavior, we may be helping people build their net worth over time.

It feels invigorating to be using 21st century methods to do business according to timeless principles. Clients, if you would like to talk about this or anything else, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

What Comes Next? Three Paths

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Psychologist Shawn Achor wrote about crisis and adversity, recurring features in both the markets and life. Stuff happens, as they say.

Achor says there are three alternate mental paths in the aftermath of crisis.
The first one leads nowhere. We simply expect the crisis conditions to continue. The second one leads downward to more trouble, a continuation of the trend. We humans do tend to believe current conditions or trends will continue.

Finding the third path is difficult when times are tough. Many people do not see it because they do not believe it exists. The third path leads from the challenging conditions to greater strength, capabilities, opportunities and success. Think of it as falling forward.

Studies show those who conceive of failure as an opportunity for growth are more likely to find the third path, and experience that growth. Others have talked about the same concept with words like resilience and grit, or more vividly, post-traumatic growth.

We see this pattern in the investment markets. Although historically the stock market has recovered sooner or later from every downturn, some investors do not recover. Those who can only see the first two paths have a hard time staying invested. If they sell out at low points, believing the crisis conditions will continue or worsen, what might have been a temporary loss becomes permanent.

By the time they see the third path, the market may have already recovered. Their diminished pool of capital can only get reinvested at higher prices, perhaps to repeat the cycle of crisis and loss.

Fortunately, here at 228 Main you clients tend to have productive attitudes toward investing. You can see the third path, which is a big advantage. If you would like to talk about this or anything else, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Rocks, Pebbles, and Sand

© Can Stock Photo / Elenathewise

I recently heard the simple lesson about rocks and pebbles and sand again. You probably know it.

If you take an empty jar and fill it with rocks, you can still add pebbles and shake it until it is full again. Then you can fill it again with sand. The pebbles fit in around the rocks, and the sand fills in around the pebbles. Everything fits.

But if you empty it the jar and try to refill it first with the sand, then the pebbles, and finally the rocks, it comes out differently. The rocks will not all fit.

The moral of the story: focus on the big things, and do not let the little things get in your way. We each are happier and more effective when we have thought about our priorities and acted on them first. When we have time to take care of less important matters when they fit in. When we aren’t focused on little things that just bog us down.

We have rocks – priorities – in our personal lives, in our relationships with others, in our work or business. Our best lives may be when we can put all of our rocks from all parts of our lives into the jar, thinking about priorities and taking action. And keeping the sand out of the works, no matter the source.

Narrowing the focus to you, what are the rocks in your financial plans and planning, the big priorities? Let’s work on them first, and get to the fine points later.

In our work for you, the rocks are doing our research and taking care of portfolios, handling the service you need so your money connects to your life, and communicating with you every way we can.

Rocks – pebbles – sand. Clients, if you would like to talk about this or anything else, please email us or call.

Silver Lining Playbook

© Can Stock Photo / AnglianArt

Recent market action featured normal stock market volatility in a remarkably compressed time period. (We all know which direction the volatility took us, don’t we?)

Some clients see a silver lining in stock market downturns. They are able to do Roth IRA conversions on a more favorable basis. These transactions are taxed on the value transferred from traditional IRA or rollover accounts into Roth IRA accounts.

Think about $60,000 invested that temporarily declines to $50,000 before bouncing back to $60,000. If the conversion happens at the low point, tax is paid on $50,000 but the Roth ends up with $60,000 of assets. This is a way to build after-tax wealth over the long term. If the rules are followed, gains in the Roth are never taxed, even when withdrawn.

By intentionally selecting the specific holdings with the most potential to snap back, an additional edge may be gained. (Of course, we have no guarantees on the selections we make.)

Many of you are looking at the lowest tax brackets in years, due to recent tax reform, changes that are scheduled to disappear in the years ahead. And income tax rates may rise anyway, as the government seeks to deal with record borrowing and national debt.

So the silver lining in the stock market decline is a pair of potential advantages in Roth IRA conversions: we may be converting assets at a temporary market value discount, taxed at temporarily low tax rates.

We have a crystal ball. It does not work. We could be wrong about future tax rates, and nobody knows their own specific future tax situation. And there is no guarantee that depressed investments rise again. We just do the best we can with what we know.

Clients, if you would like to talk about this or anything else, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.