Why do we own the orchard? It’s a long-term endeavor, our favorite metaphor for retirement planning. We plant and tend the trees in our working years, but in our retirement years, we live on the fruit crop! It’s about the balances, until it’s not. Then it’s about what they produce. 🙏
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Listening to one another is a gift that costs nothing but means everything. We know that our time and attention are precious resources, which is why our team here at 228 Main always has our “listening ears” on. 🙏
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“Who knows what is good and what is bad?” What an ancient parable has to teach us about getting a “luck-proof” approach to investing: a message from Caitie this week.
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When to buy, when to sell—some believe those are the most important decisions when selecting investments.
But far more consequential for our clients? The portfolio management protocols we use to manage your positions, all the things we might be doing in between the first purchase and the last sale.
This is called rebalancing.
Textbook rebalancing means periodically restoring a holding to a set percentage of the total portfolio value. This means adding shares when prices are lower and paring back when prices are higher. You may see these many, smaller transactions in your accounts when we go through our quarterly trading cycles.
Rebalancing is not about jumping in or out of a position. You may notice over time that we’re generally aimed at buying low and selling high within single holdings. The goal of this discipline is to try to improve overall returns of any holding across the long run—no matter when exactly we got in or when we get out.
Even clients with tenures as short as six or seven years may see holdings where the “net dollars invested” goes negative: as in, the holding has yielded more cash from the sales along the way than ever went into the purchases. And this could be true for shares that might still hold substantial value at the end of their ride.
What may be even more worthwhile, however, are those cases when our timing was “off” in the first place: when to buy. As an example, more than a decade ago our research indicated that copper production was likely to be short of global needs for many years. We identified a copper producer that was, at that time, down by two-thirds from its all-time peak. A bargain, we believed—but then it became an even better bargain.
That is to say, the stock fell. And fell. And fell.
Our outlook did not change, however. We still saw merit in our estimation about the state of copper production globally. So we bought, and bought, and bought in our rebalancing process.
By the time the stock recovered to our original purchase price, we had taken out more than we had ever invested on behalf of clients. Even a misidentified “bargain” can become a historical gain in a portfolio.
The search for good companies to buy is key to what we do. Sorting out when to eliminate a holding is also important. But the work in between—setting and adjusting our percentage allocations and rebalancing periodically to restore those allocations—is where we hope the true value of our work might emerge.
Rebalancing is a great example of the type of activity we mean when we talk about “ongoing portfolio management” and “investment research,” the things that go into our ongoing advisory work.
Rebalancing can help try to mitigate an otherwise disappointing selection, as our average cost per share declines when we add less expensive shares. And it can help us make sure we book profits if we happen to get in on a shooting star. No guarantees either way, but our protocols and discipline have the chance to make both more likely.
Clients, if you would like help reviewing your overall returns by holding in AccountView, call or email us.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
Investing involves risk including loss of principal.
No strategy assures success or protects against loss.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
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We’re big fans of making the most of things. But it takes a little perspective to learn how to prioritize our goals. What are our very next needs? What are the wishes that can wait?
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When people talk about “the stock market,” they might actually be thinking of the Dow Jones Industrial Average, or the S&P 500 Index. These lists are what they sound like: averages and indexes of exchange-traded securities.
And one popular school of investing calls for buying index “funds,” collections that offer a slice of what’s happening on one of those lists. The goal is to capture the list’s average return. It’s simple, easy, and relatively inexpensive to seek to replicate those market averages.
But there’s a tradeoff. There have been extended periods when those averages basically went nowhere for many years at a time. The “average” approach means you are by definition going with the crowd. But crowds can become herds, which can turn into stampedes.
This is what happened with the raging Nifty Fifty and again in the Tech Wreck.
Back in 1973, the “Nifty Fifty” stocks were all the rage. Many scrambled to buy and hold these dominating stocks, names like IBM, Xerox, or Coca Cola. One might say there was a stampede into the favored names. Valuations got stretched, the S&P 500 peaked—and proceeded to fall about 50%.
It took until 1982 to regain that 1973 peak, before moving any higher: a decade with essentially no progress.
It happened again from March 2000 to 2013, a time that got the nickname the “Lost Decade.” This time, the mania was internet stocks. Technology and communications companies dominated the S&P 500, and investors got excited. Again, more people stampeded in, valuations got stretched, the S&P 500 peaked—and proceeded to fall about 50%. Not until 2013 did the index begin to make and hold new, higher ground.
So what was problematic about those peaks? The largest companies became a much larger fraction of the total value of the S&P 500. The top companies in 1973 and 2000 had become worth many times the bottom companies combined.
Staying with the crowd—buying indexes and aiming to capture averages—is not the only way to invest. In those episodes from history, some other sectors fared better than the fallen favorites and broad U.S. market averages. There were those smaller companies, value-style investments, and overseas markets that generally went up during the Lost Decade.
At 228 Main, our core investing principles include “avoid the stampede” and “seek the best bargains.” As such, while the largest companies in the S&P 500 are becoming increasingly concentrated at the top—reminiscent of 1973 and 2000—valuations may be getting stretched once again. We are seeking to have more and more of our portfolios invested other places. (Research is a core activity here, a daily discipline, and we invest a lot of time and energy into it.)
That is to say, we’re seeking opportunities outside the averages. We’ve got our eye on value-style companies—those that seem to provide a lot of current profits, or cash flow, or dividends relative to each dollar invested. We’re seeking companies operating in faster-growing economies, the ones that provide food, shelter, transportation, communications, or energy (and are trading at more attractive prices). We want to know what’s happening with smaller companies, the opportunities that don’t fit the profile of those mega-sized names that dominate the market averages today.
There are tradeoffs involved with either approach.
To be clear, we are still invested in those large U.S. growth companies we’ve mentioned. But, clients, we’re more diversified now than we’ve been at any time since the early 2000s. Even though we may be on the right track for long-term investors, it can be lonely to be contrarian. So it’s times like these that it helps to check in, take the long view, and make sure the methods suit the goals.
And for us, it’s the pursuit of capturing the potential growth, for the long run. No guarantees, but that’s what we’re working toward.
Clients, please call or email us if you would like to talk about this or anything else.
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.
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If you are of a certain age and have certain retirement accounts, you probably need to know about the annually required withdrawals from those accounts. The IRS calls them “Required Minimum Distributions”—RMDs.
One special note: Clients, many of you are already treating your retirement account like an orchard, taking out the fruit crop each year to live on. The RMD is not an “extra” amount on top of the crop: it is just a minimum. If you are already taking out 5% in monthly payments to fund your retirement, you don’t need to worry about what happens at age 73.
We’ll talk about the details here, then how it works out in practice.
People born in or before 1950 with any form of retirement account (other than Roth IRA) have already begun doing this RMD process each year (or should have). People born in 1951 or later will have to begin by the year they turn 73.
Basically, the RMD needs to be calculated for each retirement account you have (except Roth IRAs). You must take out the total amount required by December 31, and you will receive a 1099-R showing taxable income.
Clients, you know we pay attention to this and strive to keep you informed about what needs to be done. But there’s one thing to be careful of: take this as an opportunity to check whether there is some account somewhere that we don’t know about, like a 401(k) from a former employer, an odd IRA balance somewhere, 457 or 403(b) plans, and so on. It happens, but it would be a pain to get yourself into some trouble over an account that’s been out of sight, out of mind.
Some people may choose to use the onset of RMDs as a time to consolidate all of their retirement funds into a single rollover IRA, to make this process simpler going forward.
One of the advantages of Roth IRAs is that they have no RMD requirement. As a matter of good planning, it may make sense to convert partial IRA balances to Roth, pay tax when you choose, and whittle down that balance that is subject to RMDs in traditional retirement accounts.
There are lots of ways to handle things! If you’d like to talk about it, we’re here for it. Email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
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 have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
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The object of our work can be distilled into four words: Invest wisely, spend well.
You’ll notice that half those words have nothing to do with saving more, investing more, or putting off pleasure today in order to have more wealth tomorrow. They are a call to action for the present moment: spend well.
But who gets to do the spending? And for whose benefit?
(To put it more bluntly, as one of you has told us before, “I’m not living my life to make my kids rich.”)
We each have to decide what it means to spend well. Our spending habits have a chance to make an impression on the next generation. In fact, what we give away today might inspire even more generous habits in our offspring, or our neighbors, or our students.
It can be downright fun to spend today rather than waiting to leave our mark. Bequeathments, retirement gifts, and other forms of legacy planning can be fitting vehicles for our generosity, but for some people, it might also be prudent to consider what it is we’re waiting for.
If “enough is as good as a feast”—another gem one of you taught us!—then the excess might be spent in a specific direction, today.
A Donor Advised Fund (DAF) is one vehicle for committing to a charitable intent, whether or not the exact destination of the gift is known right now. Spending well might actually mean investing for someone else’s long haul: an organization or cause near and dear to us, a community effort that’s bigger than what any one of us could achieve alone.
This is what we do at 228 Main: help connect the resources we manage to their sources of meaning. We’re not accumulating wealth for the sake of having it. It’s what those resources might mean, what they might do.
But if you can “invest wisely,” you may end up with even more to “spend well”—both now and in the future. No guarantees, but this is what we strive toward: Invest wisely, spend well.
Clients, if you would like to talk about this or anything else, email us or call.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not a guarantee of future results.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
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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Clients, the wealth you bring to the shop is meant for the long haul.
We often say that the grocery money doesn’t live in here. The car breaks down or the washing machine gives out? You don’t call us for that. Long-term money lives in long-term investments, aimed at long-term goals—the next stage of life, retirement, perhaps the needs of descendants, and so on.
But once all those different goals are on track, we’ve still got some choices to make. (It’s a nice problem to have, surely.)
As habits or hobbies or whole stages of life come and go, we might take a fresh look at our discretionary spending.
What if you started thinking about your legacy and impact as a regular part of your budget, now?
Starting a project like this is just like budgeting for any other financial goal. Just ask the big question today: what would you have to change in order to afford this new choice?
We don’t mean to make any of this prescriptive. After all, you are the one who must live your life—not us! But there might be a chance to unlock some exciting opportunities, if only we get a little more intentional or organized now. Who knows?
Clients, if you would like to talk about this or anything else, please email us or call.
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Clients, there’s been plenty of buzz in the public sphere. Policy changes are on their way in many arenas, including potential tax breaks, increases in the national debt, and cutbacks in benefits.
Some of you have been wondering what it will all mean for you. It makes sense to have questions, especially when so many issues are in play right now. Here are a few of the policies that could impact you or someone you know:
We know the pendulum swings back and forth, and mandates to change law are sometimes modified before they can even go into effect. But it still can pay to do some planning when changes could be headed our way.
You may have questions about where to start, and the answers will depend on the particulars of your own situation. Instead, we’ll try to speak generally to some of the personal choices you might consider.
No matter what stage of life you find yourself in, it may be more important than ever to make sure that your long-term money is invested for the long term, meaning that long-term money is invested for growth—rather than stability.
Think of it this way. Higher government deficits may mean higher inflation, which typically makes the value of things go up while hurting the purchasing power of dollars. Rather than burying those dollars in the backyard—where the erosion will be worse!—we put them to work, buying stock.
Stock represents indirect ownership of the real assets of companies—it’s in mining operations and railways, factories and foundries, offices and stores, and on and on. Investing for the long term means we have a chance to capture the growth of dollars out there in the world, at work.
A lot of it comes back to this: so much seems beyond our control, yet it always pays to think creatively. How do we make the most of it?
Call or email us when you’re ready to talk.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
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