One of the most striking images from Tolkien’s stories is of the dragon Smaug curled up on top of his massive treasure hoard. How far did his riches get him? Some real lessons from fantastic fiction.
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Friends, a lot of things can happen in three decades. In December 2024, our President Mark Leibman celebrated 30 years of affiliation with LPL Financial. There is a lot of work a person can do in that amount of time, and Mark has chosen to spend a lot of it with you and on this enterprise we now share.
He still intends to work until age 92, and he is energized by the work. Mark’s the founder and he’s still in it for the long haul.
So what’s our story, we “next generation” advisors? All three of us may very well have more years in this industry left ahead of us than there are behind us. It behooves us to remember the importance of the long view.
Thirty years. Something about it just sounded so lovely, it got stuck in our brains.
Back in December, we also celebrated our system of longevity discounts. This is one of the ways that we at 228 Main try to walk the walk: we reward the commitment it takes to become an effective investor, so the program includes fee reductions at certain milestones.
Clients get a fee reduction after 5 continuous years with us and then again at 15 continuous years. Beneficiaries or descendants who come on board with us may also take advantage of their forebears’ start date. In this sense, the longevity discount becomes a “legacy” discount.
But this stuff is all contagious, so we couldn’t help ourselves. We told Mark that we needed to add another level: why not include a 30-year discount? Can you imagine the joy of getting to tell a client of 30 years that you would like them to start paying you less? We could. We’re hungry for it.
And we wanted to give Mark this chance. Another excuse to celebrate some of his oldest friends? Yes, please. Why not?
This is what it’s all about. Growing the buckets. For the long haul. As a team. We’re trying to put our money where our mouth is—which is to say, we’re trying to put our policies where our values are.
Want to talk about this or anything else? Write or call, any time.
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You may have seen headlines in recent weeks about new financial regulations from the Department of Labor regarding retirement accounts.
Some parties affected by the rules are having a pretty sour reaction, but we are looking upon these changes a little more favorably—and believe they have been a long time coming.
A little background: our business is mostly managed on an advisory basis where we make investment decisions on clients’ behalf. That carries with it a fiduciary obligation to disclose and avoid possible conflicts of interest and to put clients’ interests ahead of our own. That’s what being a fiduciary is, upholding that standard.
We prefer this model for many reasons, not least because it aligns our goals with yours: growing your bucket is good for you and us.
So what’s new, now? The latest Department of Labor rule expands this fiduciary duty to almost everyone who services any retirement accounts, whether or not they meet the definition of an “investment advisor.” Now brokerage agents who sell on commission and have no ongoing obligations to clients now also must act in clients’ best interests any time they are dealing with retirement money.
You might be surprised to learn that some financial professionals were not required to act in their clients’ best interest before now. Obviously, fraud is fraud; agents were never legally allowed to lie about what they were selling.
But until now, in one-time brokerage relationships, there was nothing stopping agents from steering clients towards higher-commission products based solely on the peddler’s own benefit.
Owning stocks in individual companies is different than owning packaged investment products. Having equity ownership in companies we’re familiar with gives us transparency in our holdings and avoids adding a (usually hidden!) layer of “middleman” fees to investment product sponsors. That’s our preference, when it’s appropriate by client and situation.
The rules are in place to try and prevent agents from selling complex products with high commissions that are inappropriate for the client. Of course, regulations do have costs. Over the past 20 years, the amount of paperwork required to open accounts and do our jobs has more than doubled. Does practicing within the regulations take time and money? Yes. Will it always stop crooks? No.
But the spirit of the rules… Well, we do happen to believe that when you’re better off, we’re better off. So your best interest has to stay in the center.
Clients, if you have an advisory account with us, and are wondering what impact the new rules will have, the answer is: very little. This rule will bring more change in the world of commission-based agents, which is not what we are to our advisory clients.
When you do have any questions, we are always happy to talk.
Stock investing includes risks, including fluctuating prices and loss of principal.
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Suppose someone told you, “I’m worried about what will happen in the future, so I want to make sure I have less money when I get there.”
This makes no sense, and yet, it is essentially what conventional investing wisdom tells anxious investors to do: “Hedge your risks! Seek safety!” But what does this mean? When investors choose “safety,” they are sacrificing their growth over the long term. In return for stability in the short term, they are choosing a smoother ride to a poorer future.
It’s human and normal to feel concern for the future. But choosing, in the moment, to soothe that short-term fear about long-term returns by avoiding volatility means you may be sacrificing those exact long-term returns that would soothe your concerns.
And investing for the long term doesn’t mean foregoing spending—it means a little bit less short-term spending now in exchange for (hopefully) a little more spending overall, in the long run. Spending more money now does mean that you will miss out on opportunities to invest that money for compounding returns, so it can be another road to a poorer future.
Choosing to invest for the long run is not a path of deprivation. Suppose the worst of the worst just happened last week: nuclear war broke out, or a giant asteroid hit Texas, or maybe you got struck by lightning. Should the worst happen, you are not likely to go out wishing that you had invested more conservatively: “If only my balances hadn’t wiggled so much! If only my returns had been lower!”
But maybe you could go out a little more content knowing that at least you committed to a possibly-more-abundant path: you chose to focus on the long term, and maybe you enjoyed some of it along the way. Maybe you found the perfect house for you, maybe you took that amazing vacation with your loved ones that you’d been dreaming of. You made your life happen along the way.
We invest for the long run; we spend for the long run too, so to speak. We don’t invest for a poorer future; we don’t spend beyond our means. (The road to broke is never worth it.) And, as always, you need to understand where your short-term money is—and keep it out of your long-term buckets.
We think the smart money is in investing for the best possible future. But we never know what the future may hold, so it does make some sense to hedge your bets. At 228 Main, we don’t tend to think of hedging investments in terms of bonds or gold or real estate—or any conventional option that sacrifices returns for Future You in order to pander to the fears of Current You.
Instead, you could continue investing for long-term growth and spend some money on the ultimate hedge: living your own best life.
Ready to talk about what this means for your portfolio? Call or write, anytime.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.
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While paying taxes is generally a good sign that you are making money, it seems most people want to avoid paying more tax than they need to. It’s a common enough question we field, and one worth considering.
How do we handle the tax impacts of our choices?
For smaller investors with tax-deferred vehicles like IRAs or 401(k) plans, tax considerations are simpler. Only deposits and withdrawals have any tax implications (and for Roth IRAs, rarely even then.)
Things get more complicated for investors with substantial balances outside of retirement accounts: most trading activity has tax impacts. You pay taxes on interest and dividend payments; you also become subject to capital gains tax when selling investments.
The principle of capital gains is straightforward enough. For instance, if you buy stock for $100 and later sell it for $100, you made no money and owe no tax. If you were to sell it for $110, you would have to pay some percentage of the $10 profit in tax (but not the rest of the $100: that was money you had in the first place.) And if you sold it at $90, you would have a loss of $10 that you could use to offset taxable gains elsewhere.
The important thing here is that the IRS generally only cares about the value of investments when they are bought or sold. If your $100 stock position balloons up to $1,000 one year and then collapses back down to $100 the next, the IRS has no interest in the round trip. They only see the difference from your original purchase, regardless of how high or low the price got in the meantime.
It is easy to despair when an investment is underperforming, but according to the IRS, those losses do not exist until you decide to sell. And if a high-flying investment should pull back from its highs, the IRS would give you a very funny look if you tried to claim it as a loss.
So if the IRS does not care about your gains or losses “on paper,” why should you? A drop is not a loss, and value at inception is a great anchor to come back to when you need a jolt of perspective.
And if after all this you find yourself with more resources than you would need in your lifetime, there are estate planning opportunities to consider. If you are sitting on long-term investment gains that you do not think you will be spending, there is little reason for you to sell those holdings and pay taxes on your gains yourself.
If those assets are passed down to your heirs, however, they would generally only need to worry about gains made after they inherited them, so whatever gains you accumulated during your lifetime can pass to them tax-free.
Lots to think about! It’s an important topic for many investors. Clients, when you need to talk about your tax considerations, please reach out.
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.
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It’s been months, but one of the biggest words from 2022 is still in the air: recession.
Are we headed into a recession?
Are we currently in a recession?
Are we already recovering from a brief, sort-of recession?
Depending on how you want to answer, any of these might be true. The definitions vary, so the answers do too.
The most common definition is based on multiple quarters of falling gross domestic product—the sum of all national economic activity. With GDP numbers declining slightly throughout the first half of the year, we technically found ourselves in a recession.
But the next important figure economists look at to determine recessions is unemployment, which remains near 50-year average lows. So by that measure, the economy is still sizzling!
Through the lens of the stock market, we again find conflicting answers. For most of the statements investors received in 2022, many holdings were down. But at the same time, many of those companies were reporting record earnings. According to stock prices, we are in a recession; according to stock earnings, we are still in a growth cycle.
So how can investors make informed decisions, when even economists struggle to agree on the nature of a recession?
Here, we believe taking the long view is instructive: we cannot say with full certainty whether we are currently in a recession, nor whether we will be in a recession a month or two from now. But we can know with absolute certainty that there will be recessions in the future—which also means that recoveries are still on the horizon, too. Night, day. Recession, recovery.
We know that the economy is cyclical. It has its upturns and downturns. But if you are investing for the decades ahead—maybe your future retirement or for a legacy for your children and through generations—your concern should not be on what the economy is doing today, next quarter, or even next year.
Your focus should be on trying to grow the bucket the best we can for the long haul.
We don’t ignore the day-to-day action, of course. But in good times and bad, we allow ourselves to be guided by simple, timeless principles. We focus on avoiding market stampedes and looking for the best bargains we can find. And these principles, we believe, are equally important whether we are in the depths of recession or a roaring expansion.
The talking heads can keep on debating whether we are in a “real” recession or not. That is what they are paid to do, after all. Meanwhile, we are going to keep on doing what we are paid to do: trying to grow the bucket, find opportunities, tweak portfolios.
Feel free to drop in or give us a call if you’d like to talk about this, or anything else.
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Clients, looking back over these decades together, the word “collaboration” is what comes to mind for me. I have worked with some of your households for years, and I am most proud of what you and we have created together. Successful investing requires effective attitudes and intentional actions with money. You, the best clients in the world, have been stellar partners in this regard. It has truly been a team effort.
But I’m realizing that “collaboration” will have even more meaning for our work in the years and decades ahead. The success we’ve enjoyed together has resulted in an enterprise that is now beyond my ability to run by myself (and not that I would want to—to my estimation, the gang and I seem to be having a pretty good time together!).
Greg Leibman became an integral part of the effort a long time ago; Caitie Leibman and Billy Garver bring us perspectives and skills we formerly lacked and now rely on.
Two of our core activities are investment research and portfolio management. With the increasing wealth you’ve brought to us, these activities are more important than ever. Our capacity to do them depends on the team we’ve assembled. It’s a collaboration that’s become vital to our daily work.
Even as we conduct our work as a team, however, I remain the regulatory head: as an Investment Advisor Representative of LPL Financial, I am the business structure. The others, on paper, are technically assistants working under my direction.
This regulatory structure is a vestige of the days when this was a one-person operation, and it no longer aligns with what we’re trying to do here. So, for the rest of the year, we plan to work toward restructuring our firm as a Registered Investment Advisor: this arrangement should more clearly reflect how we can best serve you in the years and decades ahead.
Friends, you know about my intention to work to age 92, and that is still the case. But I also believe that part of my responsibility to you is to help shape an enterprise that can outlast me. The mortality rate remains 100%, so sustainability is the watchword here.
A team format—four officers, working collaboratively—gives this entity some of the durability it deserves. Fortunately, LPL Financial has developed plans and processes for this exact scenario, which is not unique to us. I’ve not lost my sense of gratitude for what LPL Financial has meant to my family and me; your funds will continue to be custodied with them. Account numbers and history and online access and statements and all that will remain essentially unchanged.
There will be just a bit of paperwork to transition each account. Details will follow as we learn more.
It will take the balance of this year for us to continue this work and implement the new structure. Clients, we will be in touch with more detail about this journey as it unfolds—and we are excited to get things more aligned with the big picture.
Please email us or call with questions or comments. Thank you all again, for everything.
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Do you remember The Hobbit? If you ever read J. R. R. Tolkien’s novel or watched the movies, you may remember the scene where the title character discovers the dragon Smaug sleeping atop an enormous pile of gold and treasure.
It’s a striking image: the entire wealth of a once-prosperous kingdom, gathered up, a bed for a giant dragon. Tolkien uses this splendid scenery to good effect, exciting the reader’s imagination with his description of riches. In the story, after reclaiming the dragon’s hoard, the hero Bilbo Baggins is able to ransom an entire city with just a one-fourteenth share of the treasure.
You have to wonder… what good did owning such unimaginable riches actually do for Smaug? After all, he was a dragon. It’s not like he had shopping to do or bills to pay. Piling it up to make a nest for naptime just seems like a poor use of the assets.
What’s more, the misused treasure had become a burden over time. When Bilbo first encountered the dragon, he managed to steal a single gold cup from the hoard. The loss of even this smallest part of his holdings made Smaug miserable and furious. For all his vast wealth, Smaug spent all his time and energy worrying about it.
We don’t know many dragons or hobbits, but wealth is certainly important to the humans we know.
Money can buy a better bed than a pile of gold (for a lot less, too). But money can also be a source of stress and frustration, from unexpected home repairs to medical bills and car accidents. It can feel like life keeps sending hobbits to pilfer the hoard you worked so hard to accumulate.
But these moments are precisely what we saved for in the first place. As stressful as paying bills might be, it is less stressful than having bills and not being able to pay them.
A pile of money can make your life easier, but only if you let it.
At the end of The Hobbit, Bilbo returns home only to find that his house and possessions have been auctioned off in his absence. He is forced to spend his remaining fraction of the treasure buying his own belongings back from greedy relatives.
Where Smaug lost sleep over a single gold cup, Bilbo feels only relief at giving up his hard-earned treasure to secure the happy and comfortable hobbit life he wants for himself.
It’s no burrow, and there’s no tea kettle over an open fire, but you’re always welcome to our office in beautiful downtown Louisville, where there’s always a pot of coffee going.
Call or drop by anytime: we’re glad to share the adventure.
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At the start of 2020, few people could have guessed the whiplash and lasting impact the novel coronavirus has caused. The pandemic has affected each of us in different ways, some minor and some profound.
“The return to normalcy” has been a stated goal for many individuals, leaders, and communities. And different people have different perspectives on the types of costs they are willing to pay in the interest of the return to normalcy.
But what is normal?
Some of you are reading these words on the screen of a cell phone. A few decades ago, this moment would’ve sounded absurd. Our website is available online: 50 years ago, the internet was still firmly in the realm of science fiction. Heck, a century ago, the notion of an electronic programmable computer itself was beyond imagination.
Many things that we take for granted in our lives, it turns out, are hardly “normal” at all: in the big scheme, our everyday circumstances would be new and alien to those who came before us. The routines of our daily lives, the things that feel so comfortable and natural to us, are often a product of a specific time and place in human history.
The oldest among us—just at the edge of living memory—were born in a world that would have found many of our habits and rituals unrecognizable.
Other things, however, they would recognize in an instant. Survivors of the 1918 influenza epidemic would have been keenly familiar with wearing face masks in public and witnessing the ongoing debate about their usefulness and appropriateness. Stories about overcrowded hospitals and overworked doctors and discussions about “flattening the curve” would not have been new (or surprising) to them.
It turns out that not only is our “normal” actually abnormal, but our “abnormal” is more normal than we might think.
Someday, hopefully in the not-too-distant future, we will be able to close the chapter on this pandemic and our lives will return to normal.
… Which is to say, they will be different, new, and unprecedented. Just like always.
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One of the most striking images from Tolkien’s stories is of the dragon Smaug curled up on top of his massive treasure hoard. How far did his riches get him? Some real lessons from fantastic fiction.
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