The Positive of 2020

Blog post #473

Despite the terrible pandemic and all the difficulties that it has caused this year, the financial markets appear to be finishing 2020 in a very positive manner.

Nearly all US and International asset classes have good returns for the year, some with very healthy gains that are far above their asset class’ historical annual average rate of return.

The 4th quarter (as of this writing, on 12/16/2020) may be one of the best quarters ever for many asset classes, even for asset classes that were underperforming earlier in the year. The fourth quarter of 2020 has produced significant gains across the board, and particularly for small and value stocks, both in the US and Internationally. International and Emerging Markets have outperformed US Large stocks in the last few months.

Thus, despite the hardships that many are experiencing due to the pandemic, diversified stock investors have been rewarded in 2020, on top of very significant gains in 2019.

We want to emphasize a few points:

  • This reinforces the importance of sticking with your stock asset allocation plan, regardless of what is going on in the world or your concerns (as valid as they may be).
  • By sticking with your investments over a long period of time, you are additionally rewarded by the effects of compounding. As your portfolio increases, additional gains added to them have an even greater effect. This is how wealth and assets can build over long periods of time.

As I was contemplating what to write this week, I read about the incredible charitable giving of more than $4 billion that was announced this week by MacKenzie Scott. This brings her pandemic related giving to almost $6 billion for 2020. I didn’t recognize the name MacKenzie Scott. I learned that she is the ex-wife of Amazon founder Jeff Bezos.

After their divorce in 2019, she received 25% of Bezos’ Amazon stock, making her one of the wealthiest people in the world. And the third wealthiest woman in the world. She promptly pledged in 2019 to give away the majority of her fortune over her lifetime.

Due to the pandemic, she has rapidly accelerated her charitable giving as she saw the great need. She announced this week that she has provided $4,158,500,000 to 384 organizations in all 50 states over the last four months (you can read about her incredible donations and the charities that she donated to here). She and her philanthropic advisors identified charities and organizations which provide basic needs such as food banks, emergency relief funds, as well as other issues which have worsened due to the pandemic.

As this difficult year comes to a close, I thought it was important to recognize that many of us are very fortunate and grateful, in so many ways. While we and our clients have incurred financial gains this year, many others are struggling.

While none of us can have the impact that MacKenzie Scott or Bill and Melinda Gates are able to, each of us can make a positive difference by donating to assist others who have been affected by the pandemic in some way, due to no fault of their own. We realize that charitable giving is very personal, but we hope this inspires you.

We hope that each of you and your families enjoy safe and Happy Holidays! We wish each of you the beginning of a Happy and Healthy 2021!

Note about the future of the blog: The blog will not be written for the next two weeks, as next Friday is Christmas and the following Friday is New Year’s Day.

The blog will resume on Friday, January 8th and continue every other week beginning in 2021, after writing weekly since June 2014.

Talk to us.  We want to listen.  We want to assist you, your family members and friends.


Uncertainty, Change and Financial Guidance

Blog post #472

As the saying goes, the only things which are certain are death and taxes.

In providing financial advice, and for you to deal with your financial future, it is important to distinguish between things which should remain relatively permanent (which should not change), and things which are subject to change (and should be reviewed for changing).

What are principles and things which should not change?
  • You should strive so that your investments be low cost and the money be readily available (be liquid).
  • Your portfolio should be managed with your short and long-term goals in mind.
  • Your portfolio should be managed to be tax-sensitive, to strive to obtain solid after-tax returns. We strive to do this.
  • Your fixed income investments should be high quality. You should not utilize high yield or junk bond / low quality investments.
  • You should be broadly diversified across many asset classes. You should generally have some assets in International investments, as the US does not always outperform International asset classes.
  • Your allocation to stocks should not change due to your emotions or concerns about the financial markets. You should generally not make portfolio decisions based on your emotions or fears.
  • You should always be emotionally prepared for stock markets to decline at least 10% at some point during every calendar year and to drop more than 20-30% every few years. These types of temporary declines will repeatedly occur, often when they are not expected, as part of the stock market’s long-term trend to move higher.
  • Your stock allocation should be set at a level that you are comfortable with, to be able to handle these types of downturns. You should not change your overall allocations frequently.
  • Some advice should rarely change….you should not email your social security number or other sensitive personal data. You should not repeat passwords for important online accounts. You should always use strong passwords.
What are some principles and things which should change or be subject to change?
  • As your financial circumstances change over time, your asset allocation to stocks may change. As we plan with you, your need to take risk may change, which should prompt changes in your asset allocation.
  • You, or your financial advisor (us), should regularly monitor your portfolio for rebalancing. That is a good reason to make some investment changes (some adjustments).
    • When an asset class or specific investment does very well, you should likely take some profits and rebalance the money into other, under-performing assets. This helps to put in place the discipline of buying low and selling high.
  • If you own individual stocks, you should not be afraid to take profits, even if you must pay capital gains taxes. Very few investments go up forever. Don’t be greedy.
  • Estate planning and tax planning strategies should be subject to change, as the laws in these areas change quite frequently. You should consult with experts in these areas.
  • You should review your mortgage and interest rates frequently and be willing to change through refinancing. You should take advantage of opportunities when they are presented to you to refinance. Like now.
  • You should review your use of credit cards for rewards and cash back benefits. If you have premium or point rewards cards, you should review your spending and what cards are best to use. What was good in the past may not be best now.
    • Are airline miles the best way to get benefits from credit card spending? How can you earn the most points or cash-back for groceries? Are you getting at least 1.5% on everyday spending (non-restaurant or travel related) for your credit card purchases?
  • One major key to being financially successful is your level of regular savings. Are you saving money? Are you spending more than you earn? Are you contributing to retirement and college savings programs (as appropriate), as soon as you can? If you need assistance to change in these areas, please contact us.

Change can be hard. We know that. We can help you deal with change, when it is needed.

We would be pleased to discuss any of these topics with you.

Talk to us.  We want to listen.  We want to assist you, your family members and friends.


How was November?

Blog post #471

November was one of the best months ever for nearly all asset classes of public stocks, both in the US and Internationally. 

Many asset classes gained 10-15% in November 2020 alone, with several asset classes exceeding 15%.

Let’s put that into perspective. The expected return for a full year for US large company stocks is in the 8-10% range. In one month, nearly all asset classes exceeded the historical average return of a full year.

If you go back to October, things didn’t look quite so good. There was great uncertainty about the US elections. People were very emotional and concerned. Covid cases were growing and continue to grow. There was hope about vaccines, but no news at the end of October about the progress of vaccine trials.

If you had let your emotions control or influence your investment strategy, you may have wanted to pull money out of the stock market or waited to invest new money into the market earlier this fall.

Emotions don’t lead to good investment decision making. We have learned this repeatedly. It is hard to do….but being rational and reasonable is a better strategy than relying on what your emotions want you to do.

2020 has taught each of us many things. One major lesson of 2020 is that having a disciplined investment strategy is much better than having an emotional investment strategy.  

With all the change and uncertainty that exists, you can rely on our consistent investment philosophy.  The stability of our beliefs and advice should provide you with comfort.

We regularly encourage you to stay in the market and adhere to your asset allocation plan, regardless of what you are worried about or what is going on in the world. Talk to us if you have concerns, so we can discuss those issues with you. 

Last February and March, in the depths of the stock market downturn, no one could have predicted that stock markets would rebound so strongly and be at the levels they are at today.

Emotionally, the stock market gains since March 2020 may not make sense to you. The gains are logical. The stock market reflects the current and future earnings, and expected future cash flows, of public companies. The stock market does not directly reflect the misery of neighborhood restaurants and unemployed workers in certain sectors. The stock market looks forward. The economic data and corporate earnings of many public companies are quite positive.

As a firm, we don’t let our own emotions guide our investment recommendations and actions. When markets fell, we recommended clients to purchase stocks. We pro-actively placed trades to do tax-loss selling where we could, to save clients taxes.

Now, as markets have rebounded, we are looking to take some profits. We are reviewing client portfolios for rebalancing if their stock exposure has increased above their respective target range. These are rational and disciplined actions, not emotional reactions.

We are taking the disciplined steps that you expect us to be doing. Buying low. Selling high. Rebalancing. Making sure that you are not taking on more risk than you need to.

For most investors and clients, their primary long-term concern is about not having enough money to live comfortably in retirement. We understand this.

When markets plummet, as they did earlier this year, it may have been hard to stay the course and remain in the stock market.  It can be hard not to be worried and emotional, and still feel that you will have enough money and be comfortable for years into the future.  The gains of the past months, and November in particular, should make those hard months worthwhile.

This is another reason why you work with us. By being rational and non-emotional, our investment strategy strives to help you make progress towards your financial goals and provide those of you in retirement with comfort and financial security.

Talk to us.  We want to listen.  We want to assist you, your family members and friends.