What You Should Know About Power of Attorney Resignations

Your power of attorney document formally appoints another person known as a power of attorney agent to take actions on your behalf. As the creator you are referred to as the principal in this document.

There are some situations, however, in which an agent might determine that they wish to resign as your power of attorney. This can include that they do not want the responsibility of looking after someone else’s affairs, if this has caused family fighting or disagreements, or if the arrangement is no longer convenient for them due to work responsibilities or location.

Bear in mind that after appointing a power of attorney agent, they are free to resign from this position at any time, but they must notify you as the principal about this resignation. They should inform you in writing or in person. The agent should also inform you at the point in time at which the resignation takes effect. It is strongly recommended that they write a resignation letter so that there is clarity on both sides as to when the agent’s responsibilities end.

If certain documents have more than one agent listed, you will need to advise other agents about the resignation of the other person. Any financial institutions that your power of attorney agent was working with at the time of their resignation should also be informed about the updates in this plan. For more information about how to choose a new power of attorney agent once a present one has resigned, schedule a consultation with an estate planning lawyer.

Need help? Contact our NJ estate planning law offices today for help.

How Does a Medical Power of Attorney Work?

You may hear a power of attorney for health care decisions referred to in a few different ways. A medical power of attorney is very important for making sure that someone knows your wishes and is able to respond for your medical care if needed. While you hope that you never need to activate a medical power of attorney, you don’t want to put your loved ones in the difficult situation of trying to go to court to get this authority.

Depending on where you live, the person that you choose to make medical decisions for you might be called agent, proxy, surrogate, representative attorney in fact or advocate. Choosing someone who will act as your health care agent is extremely important.

You should choose a person who can be trusted to be your advocate if there are disagreements by other family members about your care, can be trusted to make decisions that adhere to your values and wishes, is not someone on your medical team, meets your state’s requirements for health care agent and is willing and able to discuss medical end of life issues with you.

You will need to trust this person to make a decision about what is best for your interests, so it should be someone that you trust and someone who you believe will hold up these important values if and when the time comes. For more information about creating a healthcare power of attorney and naming a health care proxy, it’s a good idea to meet first with an estate planning attorney. Your estate planning lawyer can help connect your values and goals with documents that address your needs.

Schedule a phone consult today for more assistance with your plan.

Do I Really Need a Living Will?

Has it been some time since you sat down with an estate planning lawyer? If you never created a living will, now is the time to find a lawyer who can help you navigate the creation and maintenance of that document. A living will is a key component of your estate planning process.

There are many different estate planning tools and documents available to you. But it is important to understand that not all of these are created equal. Some documents work well together, and others stand on their own to help you accomplish specific tasks. There are also some confusing terms and jargon that can pop up in the process of you planning your estate.

One common misconception is the difference between a will and a living will. Your last will and testament is the document that you use to pass on assets to loved ones and to name a guardian for your minor children. It is the most basic and important estate planning document and people of all ages should have one.

A living will, however, is a form of an advanced directive, which has legal and written instructions regarding the preferences for medical care if you become unable to make decisions for yourself. Advanced directives like a living will are not only for older people, because unexpected life decisions can pop up at any age. Make sure you set aside a time to consult with an experienced and knowledgeable lawyer to create both a last will and testament and a living will to accomplish your estate planning goals.

At our NJ estate planning law office, we work with individuals and families who want to protect their wishes. Contact us today for a consultation.

What New Jersey Power of Attorney Agents Should Know

When someone else creates a power of attorney document and names you as the agent, you need to read through the document in full to understand your role. Not all powers of attorney are created equal, and having a clear understanding before you’re call into action will make the entire process easier.

Most powers of attorney become active in a specific situation: the creator of the document is incapacitated. However, someone can also give you power of attorney immediately, such as an adult with a disability or an elderly loved one who needs help right away with their finances. It’s critical to understand which of these applies in your situation, since it will determine the time and circumstances under which you have authority.

For a power of attorney that only becomes active when the creator is unable to speak for themselves and they are still in good health, this doesn’t give you the power to make decisions or handle transactions on their behalf.

Another reason to carefully read through the power of attorney is that the document might include general or specific powers. This determines the role you’ll play, and in either situation, you want to be sure you’re clear about this role and are comfortable with what it means.

A general power of attorney gives you broad authority to act on behalf of the agent. So long as you have this validly executed POA document, you can use it to carry out business and manage their affairs. Where possible, the creator should walk you through what they hoped you would use it for so you’re clear on the scope. With specific powers, this might allow only a very specific action. For example, your CPA might hold a POA to speak with the IRS about your taxes or you might appoint your realtor POA to sign closing documents for you when you sell a house. This means that the agent has very specific and limited powers.

If you want to create a power of attorney for any reason, contact an experienced New Jersey estate planning lawyer today to learn more about what this process entails. Contact our office now for help!

Special Planning For Small Business Owners

Neel Shah is a practicing estate planning attorney as well as a certified financial planner(r).  He has conducted over 3000 corporate business and real estate transactions throughout his career and is the author planning for business owners (available on Amazon).

Estate planning for business owners is especially important, but also a delicate endeavor. Business owners are often what is labeled as “asset rich, but cash poor.”

This is because of the illiquid nature of a small business, which can create problems when a business owner has passed away or become incapacitated there’s a need for liquidity.

Further, how are shares to be transferred of a business when the business owner passes away? Should they go to a spouse in which case the widow with a widower- may become partners with the small business owner’s business partner? Or should they go to the adult children? What if one adult child is involved in the business and others are not? Or what if there are no adult children and they are all minors? Business succession planning is paramount for these scenarios.

There are unique opportunities for business owners to take advantage of tax saving strategies beyond traditional IRAs. Business owners may decide to incorporate some combination of 401(k)s, solo 401(k)s, defined benefit plans, cash balance plans, and/or other retirement planning which can greatly reduce income tax liability.

One way to create liquidity is to use life insurance. In fact, business owners can and should evaluate life insurance needs on a regular basis-both for liquidity needs for the family, as well as in a succession planning/buy sell agreement type scenario.

If you’d like to discuss your estate planning needs further use the link below to schedule a call!

https://calendly.com/jmotz-3/15-minute-intro-call-1

Marathons & Markets

Lately, we’ve seen a meaningful uptick in market volatility fueled by economic instability here and abroad. From Chinese real estate woes threatening to disrupt their economy, to political wrangling in Washington that will continue to ripple through our own, there’s no escaping that the headlines have near-term market impacts around the world. But if the ups and downs have you worrying, don’t forget—you’ve trained for this!

Click here to download

 

 

How to Avoid the Financial Pitfalls of Being a Caregiver

Common Caregiver Pitfalls

It takes a special type of heart and selflessness to be a caregiver for a loved one but sometimes the best intentions can backfire. Most often it’s going to be the adult child or spouse that will act as the caregiver. But there may be other interested parties in the circumstances, such as siblings or stepchildren, with different motivations-nefarious or not.

One of the pitfalls I see with caregivers is the commingling of assets. It’s common for the caregiver to pay for groceries, or pay out-of-pocket for certain expenses for a loved one with the expectation that it will all balance out in the end. However, when it’s time to reconcile, everyone may not be on the same page and the caregiver may be out of this money.

We often see caregivers give up jobs or careers to care for a loved one. This may be an active decision made by the caregiver because of the belief that the loved one will take care of them. However, when there’s not clear communication to this regard, the caregiver can find themselves in a financially difficult situation if the family member being cared for as had a change of heart, or if other beneficiaries of the potential estate dispute the value of the services, or any renumeration at all.

Sometimes taking on the responsibility as a caregiver may bestow upon the caregiver a heightened standard. Are the investments be managed properly? Is the cash flow being tracked? Are the proper safeguards in place in the event of a fraud/theft? If the caregiver hasn’t put these things in place, will the caregiver face liability? Often the answer is no, but despite not facing potential legal liability there may still be a negative impact on relationships with other family members.

Neel’s Gift as the ‘Indian’ Cowboy

My parents moved to the US in 1973, I was born in 1975. For some reason, whether it was by omission or intentional – I didn’t learn English.

Imagine showing up for your first day of school, in the country in which you were born – having (a) avidly watched Sesame Street daily & (b) being fascinated with being an American cowboy , only to be placed in an ESL (English as a Second Language) class. 🙄

To be totally honest, I don’t remember what I felt at the time. I really don’t have distinct memories so I don’t think I was traumatized or set back in life anyway. What did happen was something beautiful. And last week, about 40 years later, I was reminded of it:

I was asked to help educate a group of Senior citizens via Zoom on Financial, Tax and Estate planning updates. All. In. Gujarati.

During the meeting, I got to look into the beautiful faces of 150 Indian-American couples who came to this country and raised the kids of my generation.

It was an honor to have spent the time to help those who have helped so many of my peers. The video is available here (https://youtu.be/xHJH7qcBKtI) in case you, or someone you know would like to see/hear it.

And as for the impact of not learning English until I started school? I guess it wasn’t too bad. Pinky and I did the same thing to our kids after all.

I can’t wait to see how they choose to give back when their time comes. Thank you Mom (Anjana) for this amazing gift!

By: Neel Shah 

Enforcement Against Self-Directed IRA Scams Doubled in 2020

The danger of self-directed IRA scams heightened during the pandemic, as many investors were at home and online but isolated from in-person interaction, NASAA says.

The number of investigations and enforcement actions by state securities regulators remained largely steady during the COVID-19 pandemic, though the total amounts of restitution and penalties/fines each decreased by about half between 2019 and 2020, according to the North American Securities Administrators Association’s annual enforcement report released this week.

But the number of state enforcement actions focused on self-directed individual retirement accounts (IRAs) more than doubled, from 24 in 2019 to 53 in 2020. Joseph Borg, the director of the Alabama Securities Commission and the co-chair for NASAA’s enforcement section, said the danger of self-directed IRA scams heightened during the pandemic, as many investors were at home and online but isolated from in-person interaction.

Related: New NASAA President to Prioritize Expungements, Digital Assets

“That became the new trust vehicle for con artists to convince folks that ‘you’re not sending the money to me. You have control over it,’” Borg said.

With self-directed IRAs, investors can use tax-deferred retirement funds from traditional IRAs to purchase “alternative” investments that are not typically accessible; some self-directed IRAs allow people to invest in certain digital assets and cryptocurrencies, according to NASAA. But these options are usually directed at investors with particular interests or expertise in unconventional options, not the typical investor. Additionally, custodians for these IRAs do not tend to work like a typical IRA’s custodian, according to the NASAA report.

Related: NASAA: Nearly 60% of State Advisors Lack Procedures Protecting Senior Investors

“Specifically, (self-directed IRA) custodians generally do not have the fiduciary duties associated with investment advisers,” the report read. “This lack of services, and protections, is fertile soil for scammers.”

Once a victim rolls over their 401(k) and IRA savings into the self-directed accounts, the schemer can access them, depriving the investor of their retirement savings, according to NASAA. Borg said self-directed IRAs were enticing tools for scammers because while investors were familiar with IRAs, they wouldn’t necessarily understand the difference between a traditional IRA and a self-directed equivalent.

NASAA conducts an annual survey of all U.S. members (the survey for 2019 found state regulators collected $700 million in total investor relief that year). Last year, states initiated 5,501 investigations and reported 2,202 enforcement actions in total, including 206 criminal actions, according to the report.

According to Joe Rotunda, the enforcement director for the Texas State Securities Board and vice chair for NASAA’s enforcement section, there were an additional 2,572 investigations that carried over from previous years, with 8,073 investigations in total. State regulators initiated 497 against registered parties, including 153 investment advisors, 115 IARs, 110 broker/dealer firms and 119 b/d agents. States also brought 619 total enforcement actions against unregistered parties in 2020, including 20 unregistered financial planners.

In total, $306 million was ordered returned to investors via restitution in 2020, compared with $634 million in the prior year, while there was $42 million in fines or penalties, a drop from $80 million in 2019, according to the report. In mulling the contrast between enforcement action rates and the drop in monetary restitution and penalties, Borg argued that investigations were less likely to be impacted by remote working, as investigations could still be opened and documents received and analyzed when working from home last year.

But Borg believed there would be a lag in criminal proceedings, though he speculated that was more likely to show up in next year’s data. He noted that restitution was often part of the criminal system, and often came near the conclusion of investigations.

“I do think we saw a slowdown on the criminal side,” he said. “But remember, there’s a time lag between opening up an investigation and moving forward on the cases.”

Earlier this week, NASAA announced a new campaign, partnering with the Financial Industry Regulatory Authority and the Securities and Exchange Commission’s Office of Investor Education and Advocacy to urge investors to supply financial firms with a trusted contact. That person could be contacted by the firm in certain circumstances, including if there is suspicious activity in an account or if the investor cannot be contacted.

“All investors can benefit from adding a trusted contact to their account—having one or more trusted contacts provides another layer of security on the account and puts the financial firm in a better position to help keep the account safe,” FINRA President Robert Cook said about the initiative.

By: Patrick Donachie

Sources: https://www.wealthmanagement.com/regulation-compliance/enforcement-against-self-directed-ira-scams-doubled-2020

 

Will Infation Hurt Stock Returns? Not Necessarily.

Investors may wonder whether stock returns will suffer if inflation keeps rising. Here’s some good news: Inflation isn’t necessarily bad news for stocks.

A look at equity performance in the past three decades does not show any reliable connection between periods of high (or low) inflation and US stock returns.

Since 1991, one-year returns on US stocks have fluctuated widely. Yet weak returns occurred when inflation was low in some periods, and 23 of the past 30 years saw positive returns even after adjusting for the impact of inflation. That was the case in the first six months of 2021, too (see Exhibit 1).

Over the period charted, the S&P 500 posted an average annualized return of 8.5% after adjusting for inflation. Going all the way back to 1926, the annualized inflation-adjusted return on stocks was 7.3%.

History shows that stocks tend to outpace inflation over the long term—a valuable reminder for investors concerned that today’s rising prices will make it harder to reach their financial goals.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Tuning Out the Noise

For investors, it can be easy to feel overwhelmed by the relentless stream of news about markets. Being bombarded with data and headlines presented as affecting your financial well-being can evoke strong emotional responses from even the most experienced investors. Headlines from the so-called lost decade– the 2000s, when the S&P 500 ended below where it
began–can help illustrate several periods that may have led market participants to question their approach.

*March 2000:
Nasdaq Stock Exchange Index Reaches an All-Time High of 5048*April 2000:
In Less Than a Month, Nearly a Trillion Dollars of Stock Value Evaporates*October 2002:
Nasdaq Hits a Bear-Market Low of 1114*September 2005:
Home Prices Post Record Gains*September 2008:
Lehman Files for Bankruptcy, Merrill Is Sold

While these events are more than a decade behind us, they can still serve as an important reminder for investors. For many, feelings of elation or despair can accompany headlines like these. We should remember that markets can be volatile and recognize that, in the moment, doing nothing may feel paralyzing. However, if one had hypothetically invested $10,000 in US stocks
in January 2000 and stayed invested, that would be worth approximately $32,400 at the end of 2019.1

When faced with short-term noise, it is easy to lose sight of the potential long-term benefits of staying invested. While no one has a crystal ball, adopting
a long-term perspective can help change how investors view market volatility and help them look beyond the headlines.

THE VALUE OF A TRUSTED ADVISOR
Part of being able to avoid giving in to emotion during periods of uncertainty is having an appropriate asset allocation that is aligned with an investor’s willingness and ability to bear risk. It also helps to remember that if returns were guaranteed, you would not expect to earn a premium. Creating a portfolio investors are comfortable with, understanding that uncertainty is a part of investing, and sticking to a plan may ultimately lead to a better investment experience.

However, as with many aspects of life, we can all benefit from a bit of help in reaching our goals. The best athletes in the world work closely with
a coach to increase their odds of winning, and many successful professionals rely on the assistance of a mentor or career coach to help them manage
the obstacles that arise during a career. Why? They understand that the wisdom of an experienced professional, combined with the discipline to forge ahead during challenging times, can keep them on the right track. The right financial advisor can play this vital role for an investor. A financial advisor can provide the expertise, perspective, and encouragement to keep you focused on your destination and in your seat when it matters most. A survey conducted by Dimensional Fund Advisors found that, along with progress towards their goals, investors place a high value on the sen se of security they receive from their relationship with a financial advisor, as Exhibit 2 shows.

Having a strong relationship with an advisor can help you be better prepared to live your life through the ups and downs of the market. That’s the value of discipline, perspective, and calm. That’s the difference the right financial advisor makes. For a short video on this topic, please see
us.dimensional.com/perspectives/tuning-out-the-noise.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

 

Swing in Small Value Stocks Shows Benefits of Staying the Course

Value stocks, or those with low relative prices, have outperformed higher-priced growth stocks in the US over the long term. Similarly, the stocks of smaller companies have fared better than the stocks of bigger ones in the US.
But the performance of these stocks has varied at different points in history.

As the global pandemic rocked markets in March 2020, large growth stocks outdid small value stocks by 19.6%, the greatest monthly margin on record. From March through September, the large growth index beat small value by a cumulative 38%.

But history has shown that a disappointing period for a premium can be followed by a quick turnaround, and that’s what happened beginning in October 2020.
Through March 2021, the small value index saw its own
noteworthy outperformance: 63% over that span, among
the best stretches since the 1920s.

History hasn’t presented a reliable way to predict when
small value stocks will outperform. Swings can be swift
and sharp—staying invested is the best way to capture
expected gains over the long term.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Are Concerns About Inflation Inflated?

KEY TAKEAWAYS
*Recent Dimensional research suggests that simply staying invested helps outpace inflation over the long term for a wide range of asset classes.

*The protection offered by inflation-indexed securities still appears to be the
most effective for investors who are particularly sensitive to unexpected
inflation.

*Our analysis of data from 1927–2020 covers periods with double-digit US
inflation as well as periods with deflation.

US consumer prices were up by 5.4% for the year ending June 2021, the largest annual increase since August 2008.1 Naturally, inflation is at the center of attention for many US investors.

Our recent paper US Inflation and Global Asset Returns provides some good news for investors looking to outpace inflation over the long term. But it also contains some sobering facts for investors trying to hedge against inflation through alternatives to inflation-indexed securities.

INFLATION OUTPACED
Exhibit 1 shows average real returns (that is, returns net of inflation) to different asset classes in years with high (above-median) inflation from 1927 to 2020. We consider a total of 23 US assets that span bonds, stocks, industries, and equity premiums. Over this period, inflation averaged 5.5% per year in high-inflation years. While average real returns were mostly lower in years with high inflation compared to years with low inflation, the exhibit shows that all assets except one-month T-bills had positive average
real returns in high-inflation years.

The analysis over 1927–2020 is useful because it covers periods with double-digit US inflation (like the 1940s and ’70s) as well as periods with deflation (like the Great Depression, 1929–32). But we find similar results over the most recent 30-year period (1991–2020), when US inflation was relatively mild and stable. Over this period, we also expand our analysis to non-USD bonds, developed- and emerging-market equities, real estate investment trusts (REITs), and commodities. Overall, outpacing inflation over the long term has been the rule rather than the exception among the assets we study.

INFLATION HEDGED
Despite the reassuring findings presented above, emphasizing growth assets that have historically outpaced inflation may not be appropriate for everyone. If you’re highly sensitive to inflation and have a low tolerance for market risk, you’ll likely want some exposure to inflation-indexed securities (such as TIPS and inflation swaps), and with good reason: they are designed to provide inflation protection. While stocks from certain industries, REITs, commodities, and value stocks are sometimes considered “inflationsensitive”
assets, the data provide little support that they are good inflation hedges.

Nominal asset prices already embed the market’s expectation of inflation. So inflation concerns are really about the negative impact of unexpected inflation on the real value of your invested wealth. An asset is therefore most useful as an inflation hedge when its nominal returns move closely with unexpected inflation. In the paper, we find mostly weak correlations between nominal returns and unexpected inflation. For the few exceptions where the correlations are reliable, such as for energy stocks and commodities over 1991–2020, the assets’ nominal returns have been around 20 times as
volatile as inflation, and more than half of their nominal-return variation has been unrelated to inflation. Exhibit 2 illustrates this by showing how the annual nominal returns to energy stocks and commodities differ dramatically from the annual realizations of inflation. If the goal is to reduce the variability of future purchasing power, it is questionable that hedging with something this volatile will effectively achieve that.

INFLATION DEFLATED
What will next month’s inflation reading be? How will it compare to market expectations? Is the rise in inflation temporary or long-lived? Nobody has a crystal ball. Fortunately, we don’t need a crystal ball to address inflation in our portfolios. The data suggest that simply staying invested helps outpace inflation over the long term. And for those of us who are particularly sensitive to unexpected inflation, the protection offered by inflationindexed securities still appears to be the most effective.

DATA APPENDIX
US inflation
The annual rate of change in the Consumer Price Index for All Urban Consumers (CPI-U, not seasonally adjusted) from the Bureau of Labor
Statistics.

US government securities and long-term corporate bonds. The returns to US government securities (one-month T-bills, five-year notes, and long-term bonds) and long-term corporate bonds are from Morningstar (previously from Ibbotson Associates).

US equity portfolios and factors. The US equity market is proxied by the Fama/French Total US Market Research Index. The US industry portfolios are the 12 Fama/French industry portfolios. The US style portfolios (small cap value and growth and large cap value and growth) are from the Fama/French six portfolios sorted on size (market cap) and book-to-market equity. The US size and value premiums are proxied by the Fama/French size and value factors. The returns to all of the above are from Ken French’s data library: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.

GLOSSARY
T-bills: Short-term debt issued by the US Treasury Department.

Treasury Inflation-Protected Securities (TIPS): Bonds issued by the US Treasury Department that provide protection against inflation. The
principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures,
the investor is paid the adjusted principal or original principal, whichever is greater.

Inflation swaps: An inflation-swap agreement is a two-sided contract in which one party receives floating payments tied to the actual
inflation rate and pays fixed payments based on expected inflation and the inflation risk premium for a given notional amount and period.

Nominal return: The rate of return on an investment without adjusting for inflation.

Real return: The rate of return on an investment after adjusting for inflation.


By: Wei Dai, PhD -Head of Investment Research and Vice President

Mamdouh Medhat, PhD – Researcher

References:  Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to,
Dimensional Fund Advisors LP.

The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information
only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.

“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

The Next Normal

A year ago, at the end of March 2020, the S&P 500 was down nearly 20%1 and the world was scrambling into lockdown. Many experts wrote articles telling us where we would be in a year. I don’t remember reading any that said the S&P 500 Index would be up 56% over the next 12 months. But that’s what happened.

I didn’t predict any of that. I never do. Last June, I spoke about the Old Normal and how we should be prepared for market downturns once or twice a decade, while accepting we just can’t know when they’ll happen. We can’t predict financial crises, but we should plan for them. That’s why I always recommend having a trusted financial advisor, a fiduciary who puts your interests first, who can help you understand the range of possible outcomes and create a plan tailored to your goals and acceptable levels of risk.

If you stayed in the market, it might be time for a victory lap. Dimensional’s US Core Equity 2 Portfolio, which holds a diversified mix of broad US equities and is Dimensional’s largest core portfolio, returned nearly 72%, as Exhibit 1 shows. Within the US market, small cap value stocks2 were among the hardest hit. Dimensional’s US Small Cap Value Portfolio was down 39% in the first three months of 2020 and subsequently returned a showstopping 112% over the next 12 months.

Sticking to long-term investment plans in the face of such extreme uncertainty wasn’t easy. I have so much appreciation for what the financial advisors we work with went through to keep their clients in the market, and nothing but admiration for what they achieved.

We were all stressed out last March. There was pressure to “do” something, to make changes just for the sake of reacting. People might get out of the market in an effort to reduce uncertainty. But getting out of the market can actually increase uncertainty because it can force investors to make a difficult decision: choosing the best time to get back in.

This highlights something I’ve long believed to be true: while all investments have risk, many people who think they’re investing are actually gambling. It is a really simple distinction for me; if you’re trying to time short-term market movements, you’re gambling.

Staying focused on a long-term strategy during times like the past year is hard work. Short periods like the first quarter of 2020 and the past year are not signals of future performance, but reminders of just how hard being a long-term investor can be. We didn’t know returns like that would come this year, but we knew we needed to be in the market to capture them when they do show up.

As I’ve said before, every crisis is different, but I think the best way to deal with them is always the same. We can’t control crises, but we can control our response to them. You want to be prepared to deal with the unexpected before it happens. Not when you’re stuck in the middle of it.

What is the Next Normal? It’s expecting uncertainty and committing to a plan that addresses it. It’s rising above the temptation to make changes when things get tough. It’s understanding the difference between investing and gambling. And it’s remembering how good it feels when things work out according to plan.

If you don’t already have a plan that includes crises among the range of possible outcomes, it’s never too late to create one. This is not the last crisis any of us are likely to experience. If we make thoughtful planning the New Normal, we’ll all be ready for the Next Normal.

By: David Booth
Executive Chairman and Founder

References: 

Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. Consider the investment
objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the
Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors
collect at (512) 306-7400 or at us.dimensional.com. Dimensional funds are distributed by DFA Securities LLC.

Investing risks include loss of principal and fluctuating value. Small cap securities are subject to greater volatility than those in other asset
categories. These risks are described in the Principal Risks section of the prospectus.

Shorting Stocks and the Open Market

In 1984, 33-year-old Gary Kusin started an educational software retailer named Babbage’s. Started in Dallas, Texas, Babbage’s quickly expanded from educational software to focusing on Atari and Nintendo video games. Little did Gary know at the time, but his company would one day become a symbol of a market movement and capture the attention of households, Congress and regulators across the United States. But before we get into what Gary Kusin’s small company became, we need to understand a few key terms and mechanics of a stock market.

Stock markets are exchanges, and in their simplest form are simply open-market auctions. Think Sotheby’s or a local estate auction, where potential buyers raise their paddle until only one buyer remains – but at a much larger scale. Thousands of buyers meet thousands of sellers every day through brokers on stock exchanges,(2) and the items of interest are shares of a company’s stock. Generally, none of the money in these transactions goes to the company; rather the two parties barter for existing shares of the stock. Most of this activity has moved digitally, but the fundamentals are the same: every transaction has a buyer and a seller, and presumably both sides think they are getting a good deal.

Occasionally an investor may see a stock that they believe is overvalued. In other words, they believe that buyers are willing to pay more for that stock than what it is actually worth. For those brave investors who are so convicted that a stock price is trading higher than its true value, a process exists for them to bet against the company. Through a broker, the investor connects with another investor who owns shares of the stock, borrows the shares and then sells them. This is called shorting the stock. Assuming the price of the stock declines, the investor can buy back the shares at a lower price and return them to the lender, pocketing the difference in price. However, just as a bank may monitor a borrower’s creditworthiness, the lender of the shares needs protection to ensure that the borrower will eventually be able to repay the loan. The broker of the deal monitors how much it would cost for the borrower to purchase the shares compared to how much money the investor has available in their account. If the price of the stock rises too much, the broker can demand the investor either put more cash into their account or return the shares. If the investor is forced to return the shares, they must go back out to the market, find a buyer willing to sell, and repurchase them. This, known as a margin call in financial jargon, essentially just protects the lender against someone taking on a loan they can’t repay.

So, what does all this have to do with a software retailer from the 80s? In 1999, fifteen years after being founded, Barnes & Noble purchased Babbage’s for nearly $200 million.(4) Three years later, Babbage’s was combined with other similar retailers, and the company went public under a new name, GameStop.(5) Now, nearly 20 years after going public, GameStop has become a stock market phenomenon with the stock price jumping from $18.84 on December 31, 2020 to $325 at the end of January, a 1,625% jump in a single month.

For those watching the financial media (or social media for the matter), the obvious question is how can this happen? Well, a lot of investors were betting against GameStop at the end of last year – a lot. In fact, every share of GameStop had been borrowed and sold, at least once. In January, more investors started to take interest in buying shares of GameStop, partially spurred by speculative investors in an online forum, and that demand pushed the price of GameStop higher. As the price continued to climb, the investors who had borrowed shares were forced to either put more money into their account or buy shares at a higher price to close their loan. As the price of GameStop’s stock climbed, more investors bought shares to cover their loans, which created more demand for shares of GameStop’s stock, which continued to push the price higher. This phenomenon is called a short squeeze, and the cycle continued throughout January, with the stock hitting a high of $483 on January 28.

What does this all mean for your portfolio? Honestly, not a lot if you are our Investment Management client. You own thousands of stocks to mitigate the risk of any short-term dysfunction of any single name in the markets. Investors who bet against GameStop were wrong, at least for now, and they had to buy a lot of GameStop stock to make up for their error. If margin calls didn’t exist, January may have looked very different for the price of GameStop’s stock. But, margin calls exist to protect lenders and they functioned as expected. Thousands of buyers met thousands of sellers, and they agreed to exchange shares of a stock for an agreed-upon price. And if you are not our client & need to know what it does mean, feel free to contact us.

We know that on any given day, the stock market can look like a casino with random outcomes. But, when viewed over longer horizons, the outcomes are logical. That is why we continue to encourage our clients to look past the daily noise – no matter how entertaining – and keep a long-term focus. And in case you’re wondering, I don’t think that it’s a good time to buy GameStop’s stock.

Sincerely,

Neel Shah

 

Resources: 

This information is for educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Investing involves risk including loss of principal. Information from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. IRN-21-1776

Tales from the Crypto: How to Think About Bitcoin

“Everything you don’t understand about money combined with everything you don’t understand about computers.”—HBO’s Last Week Tonight with John Oliver, March 11, 2018

Bitcoin and related cryptocurrencies (now numbering in the thousands) are the subject of much debate and fascination. Given bitcoin’s dramatic price changes, it is not surprising that many are speculating about its possible role in a portfolio.

In its relatively short existence, bitcoin has proved extraordinarily volatile, sometimes gaining or losing more than 40% in price in a month or two. Any asset subject to such sharp swings may be catnip for traders but of limited value either as a reliable medium of exchange (to replace cash) or as a risk-reducing or inflation-hedging asset in a diversified portfolio (to replace bonds).

Assessing the merits of bitcoin as an investment can be problematic. Adding it to a portfolio could mean paring back the allocation to investments such as stocks, property, or fixed income. The owner of stocks or real estate generally expects to receive future income from dividends or rent, even though the size and timing of the payoff may be uncertain. A bondholder generally expects to receive interest payments as well as the return of principal. In contrast, holding bitcoin is similar to holding gold as an investment. Even if bitcoin or gold are held for decades, the owner may never receive more bitcoin or gold, and unlike stocks and bonds, it is not clear that bitcoin offers investors positive expected returns.

Putting aside squabbles over the future value of bitcoin or other cryptocurrencies, there are other issues investors should consider:

  • Bitcoin is not backed by an issuing authority and exists only as computer code,
    generally kept in a so-called “digital wallet,” accessible through a password chosen by the user. Many of us have forgotten or misplaced computer passwords from time to time and have had to contact the sponsor to restore access. No such avenue is available to holders of bitcoin. After a limited number of password attempts, a user can permanently lose access. Since there is no central authority responsible for bitcoin, there is no recourse for the forgetful owner: a recent New York Times article profiled the holder of more than $200 million worth of bitcoin that he can’t retrieve. His anguish
    is apparently not unusual—a prominent cryptocurrency consulting firm estimates that 20% of all outstanding bitcoin represents stranded assets unavailable to their rightful owners.
  • Mt. Gox, a Tokyo-based bitcoin exchange launched in 2010, was at one time the world’s largest bitcoin intermediary, handling over one million accounts in 239 countries and more than 90% of global bitcoin transactions in 2013. It suspended trading and filed for bankruptcy in February 2014, announcing that hundreds of thousands of bitcoins had been lost and likely stolen.
  • The UK Financial Conduct Authority cited a number of concerns as it prohibited the sale of “cryptoasset” investment products to retail investors last year. Among them were the inherent nature of the underlying assets, which have no reliable basis for valuation; the presence of market abuse and financial crimes in cryptoasset trading; extreme price volatility; an inadequate understanding by retail consumers of crypto assets; and the lack of a clear investment need for investment products referencing them

The financial services industry has a long tradition of innovation, and cryptocurrency and the technology surrounding it may someday prove to be a historic breakthrough. For those who enjoy the thrill of speculation, trading bitcoin may hold appeal. But those in search of a sound investment should consider the concerns of the Financial Conduct Authority above before joining the excitement.

By: Weston Wellington
Vice President

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Resources: The opinions expressed are those of the author and are subject to change. The commentary above pertains to bitcoin cryptocurrency. Certain
bitcoin offerings may be considered a security and may have different attributes than those described in this paper. Dimensional does not offer bitcoin.

This material is not to be construed as investment advice or a recommendation to buy or sell any security or currency. Investing involves risks including possible loss of principal. Stocks are subject to market fluctuation and other risks. Bonds are subject to increased risk of loss of principal during periods of rising interest rates and other risks. There is no assurance that any investment strategy will be successful. Diversification does not assure a profit or protect against loss.

The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information
only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide
a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform
themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this
document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.

“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

How to Avoid a Trust

Asset protection, tax planning, or legacy control are just some of the numerous reasons why trusts can be used. However, the most common use for a trust is to avoid probate, therefore allowing for an easier transition of assets. This is most likely accomplished using a revocable living trust.

For some, it may be important or even desirous to avoid or sidestep the use of a trust. This may be because individual circumstances do not allow for planning using the trust due to factors such as cost considerations.

The benefit of a trust is that it allows the creator to establish their own set of rules, rather than rely on those of a beneficiary designation or probate courts. The biggest detriment of trust planning typically is the creation and fermentation of it. If it is not done properly, it could have disastrous impacts, or at a very minimum, be a waste of time and money to create.

Often, folks will resort to using legal strategies or titling strategies to avoid a trust. This might be done by adding beneficiary designations, transferring on death/payable on death titling, or just including family members or other beneficiaries on title during lifetime. But taking a shortcut is not without its unintended consequences. For example, naming someone as a beneficiary means they will get the asset outright. There is no guarantee that the asset will be protected against creditors, lawsuits, divorcing spouses, etc. Additionally, if the beneficiary were to pass away, you can then see the assets making their way to individuals or organizations who may not have been intended contingent beneficiaries. A trust can prevent that. You may also want to avoid having certain classes of beneficiaries receive assets outright, such as feeling members, receiving government benefits, or have special needs or substance abuse issues. In such cases, one should strongly consider using trust planning.

When asset protection is a concern, one should consider trust planning, but they may also consider using certain legal planning strategies. In many states, life insurance proceeds are protected from creditors and lawsuits. In other states, one’s home may be protected from creditors. Individual retirement accounts are treated differently from state to state, while ERISA governed plans such as most 401(k)s and defined-benefit plans have federal asset protection rules built in already.

If you are not sure if a trust is right for you & would like guidance, please feel free to call us at 732-521-9455. 

YOLO, Meme, and EMH: What’s Your Investment Style?

You only live once! Social media investors have banded together on unconventional platforms to drive up the prices of a handful of “meme stocks,” seemingly without traditional evaluation of investing risks and rewards. They made headlines with their “short squeeze” of GameStop (GME), and, as they garner media attention, their tactics continue. While it’s not the intended victim of the YOLO traders, will the efficient market hypothesis be a casualty of these events? The answer depends a lot on your definition of efficient markets. Perhaps long-term investors would be better served questioning the potential impact on their investment philosophy.

Fama (1970) defines the efficient market hypothesis (EMH) to be the simple statement that prices reflect all available information. The rub is that it doesn’t say how investors should use this information. EMH is silent on the “correct” ways investors should use information and prices should be set. To be testable, EMH needs a companion model: a hypothesis for how markets and investors should behave. This leaves a lot of room for interpretation. Should asset prices be set by rational investors whose only concerns are systematic risk1 and expected returns? It seems implausible to link recent meme-stock
price movements to economic risks. Rather, they seem fueled by investor demand to b part of a social movement, hopes to strike it rich with a lucky stock pick, or plain old schadenfreude.

There is a vast ecosystem of investors, from individuals investing in their own accounts to governments and corporations who invest on behalf of thousands. Ask investors why they invest the way they do, and you’ll likely get a range of goals and approaches just as diverse. It’s this complex system that generates the demand for stocks. Another complex system fuels the supply of stocks. Supply and demand meet at the market price. People may contend that the market is not always efficient, or rational, but the stock market is always in equilibrium. Every trade has two sides, with a seller for every buyer and a profit
for every loss.

There are plenty of well-studied examples that show supply and demand at work. The huge increase in demand for stocks added to a well-tracked index often creates a run-up in the stock price. Some of this price increase can be temporary and reversed once the tremendous liquidity demands at index reconstitution2 are met. Index reconstitution is just one example; instances of liquidity-driven price movements happen all the time. It is well documented that liquidity demands can produce temporary price movements.
Investors may wonder if temporary price dislocations motivated by users of r/
WallStreetBets differ from those caused by changes to an index. Lots of buying puts temporary upward pressure on prices, which later fall back to “fundamental value”–it sounds familiar. The more relevant observation may be that markets are complex systems well adapted to facilitate the supply and demand of numerous market participants.

There are numerous reasons people may be willing to hold different stocks at different expected returns. Can all those differences be explained by risks? Doubtful. To quote Professor Fama, “The point is not that markets are efficient. They’re not. It’s just a model.” EMH can be a very useful model to inform how investors should behave. We believe investing as if markets are efficient is a good philosophy for building long-term wealth. Trying to outguess markets might be a quick way to destroy wealth.

It’s true, you only live once. The good news is that investors can look to market prices, not internet fads, to pursue higher expected returns. Theoretical and empirical research indicate higher expected returns come from lower relative prices and higher future cash flows to investors. Long-run investors can be better served by using markets, rather than chatrooms, for information on expected returns.

– Marlena Lee, PhD
Global Head of Investment Solutions


Resources: The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information
only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.

“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong 2 Dimensional Fund Advisors
Please see the end of this document for important disclosures.

Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

Named securities may be held in accounts managed by Dimensional. This information should not be considered a recommendation to buy or sell a particular security. Diversification does not protect against loss in declining markets. There is no guarantee strategies will be successful.

Eugene Fama is a member of the Board of Directors of the general partner of, and provides consulting services to Dimensional Fund Advisors LP.

UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Think Investing Is a Game? Stop.

It’s easy to view the stories of market speculation that have dominated the news recently as cautionary tales for individual investors. But we can also look at the current moment as an opportunity to welcome a new group of investors to the market: those who have been drawn in by all the high-stakes action, and yet may want a consistent, long-term investment solution that doesn’t keep them up at night. This is probably a good time to mention that investing and gambling are not the same thing.

If you’re not the type of person who feels comfortable betting your life savings on a long shot, the good news is that you don’t have to find the next big stock to win in the stock market. Concentrating your whole investment on one or two companies means the stakes are high enough to expose you to unnecessary risk. Even if you manage to land a few big winners, our research has found that good luck is unlikely to repeat throughout a lifetime of investing. For every individual who got in and out of a hot stock at the right
time, there’s another who bought or sold at the wrong time. If you treat the market like a casino, not only do you have to pick the right stock, but also the right moment.

I’ve always believed you’re better off betting with the whole market than on individual stocks, through a low-cost, highly diversified portfolio. Then let time and compounding do their work. Compounding is the investor’s best friend: if an investment grows at a rate of 10% a year, that means a dollar invested has doubled every seven years.1 As a point of reference, the S&P 500 has grown at rate of 10.26% since 1926, though it’s worth noting that the path is rarely smooth.

With all the options now available to investors, putting together a solid investment plan —one that you can stick with—is key. Markets have never been so accessible, and information has never been so widely available. And despite the fact that stories of stockmarket gambling keep making the news, many investors have managed to enjoy growth in their investments using low-cost, highly diversified strategies like index funds

Indexing has turned out to be a good solution for many people. I was involved in the creation of one of the first index funds early in my career, and I’ve enjoyed watching the positive impact indexing has had on the industry. For those who want more customization and flexibility, there are ways to build on the strengths of indexing while correcting for some of its weaknesses. At Dimensional, we’ve been working on improving upon indexing for the past 40 years.

If you’re looking to become a long-term investor, commit to a long-term strategy that takes your own personal goals, situation, and risk tolerance into account. (A financial advisor can help with this part.) And remember that although the US stock market has returned about 10% a year on average, returns for individual companies and individual years can vary wildly. (We call these uneven distributions “fat tails.”) It’s always important to look at the big picture. A huge win on a stock bet today doesn’t mean much if you lose it tomorrow.

Investing is a lifelong journey. Making money slowly is much better than making—then losing—money quickly.

– David Booth
Executive Chairman and Founder

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Resources: The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information
only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide
a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform
themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this
document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.

“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are
Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund
Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd, Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong
Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and
does not provide asset management services.

Copyright 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment;
therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

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should not be construed as investment advice or an offer of any security for sale and does not represent a recommendation of any particular
security, strategy or investment product. Commissions, trailing commissions, management fees, and expenses all may be associated with
mutual fund investments. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns,
including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales,
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redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Please read
the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be
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Should I convert my Term Life Insurance to Permanent Life Insurance?

The decision as to whether or not to convert from a term policy to a permanent life insurance policy is very fact-specific and dependent upon the family circumstances.

There have been circumstances where term policies were taken for a temporary reason. It may have been because children were younger, or for a business purpose such as a buy/sell policy. However, as the term marches on, or sometimes comes close to expiration, the importance of those temporary reasons varies extremely. For example, if one has a child or spouse who is dependent on the insured and their earning capacity (such as a special needs situation or a nonworking spouse), there might be a need for financial security well after the term would have expired. In this situation, it does make sense to consider a conversion. However, many circumstances must be considered. In addition to the need, the financial means to pay for the insurance is a huge factor. Will the insured or the owner have the capacity to continue paying premiums on a permanent policy, which are generally higher than a term policy. What other insurances are available? What is the health situation of the insured-they qualify for a new policy today?

It is recommended that you do not wait until the end of the term or close to the end of the term to convert a policy if you have already recognized the need for permanent insurance. The insured health circumstance is unpredictable, as it might give rise to an increased premium, or even a lack of insurability, which is a high risk to take. However, if you choose not to convert your policies, you may elect to self-insure. This usually means allocating certain savings for potential future needs. The decision of whether or not to let a term policy expire should be made proactively. It is a factor in one’s financial plan just like any other financial consideration.

Feel free to contact us If you need help deciding whether or not you should convert a term life policy into a whole life, universal life, or other types of life insurance policy”