Author: Raymund Rasco

What does a century of economic cycles teach investors about investing? Our interactive exhibit examines how stocks have behaved during US economic downturns. Markets around the world have often rewarded investors even when economic activity has slowed. This is an important lesson on the forward-looking nature of markets, highlighting how current market prices reflect market participants’ collective expectations for the future.

1926—1927
A few years before the Depression, the US experienced a mild, yearlong recession accompanied by a minor bout of deflation. The stock market slipped 2.9% in the first month of the downturn.

Great Depression
The Depression decimated the US economy—unemployment climbed to 25.2%, and industrial production plunged 48.6%. Before the collapse ended, stocks collectively lost 83.6% in a 33-month market downturn.

1937—1938
A sharp, 13-month recession—marked by high unemployment and a big dip in industrial production—occurred in the midst of the nation’s recovery from the Depression. Stock market investors suffered a 49.2% loss.

World War II Recession
Industrial production plunged 26% during the eight-month recession near the end of World War II. But the stock market dipped only 3.9% early in the recession before rebounding.

1948—1949
A modest stock market slide (—11.0%) began five months before this relatively small economic

1953—1954
The Korean Armistice was signed in the summer of 1953. A stock market slump that had begun in March was over by August, but the recession continued until early 1954.

1957—1958
A huge drop in industrial production (–11.3%) and a contraction in GDP (–3%) interrupted the 1950s boom. Stocks retrenched 14.9% in the midst of a decade-long climb.

1960—1961
This four-month pause followed the previous decade’s bull market. In the election year of 1960, unemployment rose to 6.6%, and the stock market dropped 7.9%.

1969—1970
High inflation and a big jump in unemployment punctuated the 11-month recession that began in December 1969. A volatile

Oil Crisis
Inflation hit double digits during the 1973–75 recession. The stock market lost nearly half its value in the first 11 months of the 16-month economic downturn.

1980
A 12% stock market decline occurred early in 1980’s six-month recession, during which unemployment hit 7.6%. But the market finished the year with an impressive gain of 33.4%.

1981–1982
Historically high interest rates preceded a harsh recession that dragged on for 16 months and saw unemployment peak at 10.4%. The stock market experienced a 15.9% slide before beginning a long rally.

Gulf War
Stocks reacted negatively to the onset of the Gulf War in August 1990, dropping 17% over five months as the price of oil doubled. When the market regained its footing, stocks were set to start a nine-year bull market that peaked in the dot-com era.

Tech Boom and Bust
Many investors may not realize that the stock market had started a deep decline before the relatively mild

Global Financial Crisis
During the Global Financial Crisis, the worst of the 50.4% stock market dive happened in the latter half of an 18-month recession that saw unemployment hit 9.4% and industrial production tumble 17%. But after falling for 16 months, the market started a nearly 11-year bull run.

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

Emerging markets are an important part of a well-diversified global equity portfolio. However, recent history reminds us that they can be volatile and can perform differently than developed markets. In this article, we provide a longer historical perspective on the performance of emerging markets and the countries that constitute them. We also describe the emerging markets opportunity set and how it has evolved in recent years.

RECENT PERFORMANCE IN PERSPECTIVE

In recent years, the returns of emerging markets have lagged behind those of developed markets. As shown in Exhibit 1, over the past 10 years (2010–2019) the MSCI Emerging Markets Index (net div.) had an annualized compound return of 3.7%, compared to 5.3% for the MSCI World ex USA Index (net div.) and 13.6% for the S&P 500 Index. While recent returns have been disappointing, it is not uncommon to see extended periods when emerging markets perform differently than developed markets. For example, just looking back to the prior decade (2000–2009), emerging markets strongly outperformed developed markets, with the MSCI Emerging Markets Index (net div.) posting an annualized compound return of 9.8%, compared to 1.6% for the MSCI World ex USA Index and –0.95% for the S&P 500 Index.

The magnitude of the return differences from year to year can be large. For example, relative to the US, the biggest underperformance in the past 10 years was in 2013, when emerging markets underperformed by over 34 percentage points. Exhibit 2 helps to put this difference into historical context: between 1988 and 2019, emerging markets outperformed US stocks by 34 percentage points or more per year four times (1993, 1999, 2007, and 2009) and underperformed US stocks by that same magnitude four times (1995, 1997, 1998, and 2013).

Over the entire period from 1988 to 2019, investors with a consistent allocation to emerging markets were rewarded. The MSCI Emerging Markets Index (gross div.) had an
annualized return of 10.7% over this period. That exceeded the 5.9% annualized return for the MSCI World ex USA Index (gross div.) and was similar to the 10.8% average annualized return for the S&P 500, even when including the recent decade of strong performance of the US equity market. However, emerging markets returns were also more volatile. Looking at the same indices, the annualized standard deviation was higher for emerging markets: 22.4% vs. 14.1% for the US and 16.4% for developed markets outside the US. This higher volatility, as well as the potentially sizable performance deviation from developed markets, underscores the importance of patience, discipline, and an appropriate allocation that investors can stick with when considering investing in emerging markets.

A CLOSER LOOK AT EMERGING MARKETS COUNTRY PERFORMANCE

Diversification across emerging markets countries can improve the reliability of investment outcomes, as dispersion among country returns can be wide. Exhibit 3 displays individual emerging markets country returns by calendar year for the past two decades. Each country is represented by a different color, and countries are ranked each year from the highest to lowest performer. In the 20 years ended December 2019, no country had the worst-performing market for more than two consecutive years, and no country had the best-performing market in consecutive years. The illustration shows that country performance is volatile and that countries that rank low in one year may rank among the highest performers in the next year.

Focusing on the countries at the top and bottom of the columns for each year reveals substantial differences in returns between the best-performing and worst-performing market. Exhibit 4 shows that, over the past two decades, the annual return difference between the best- and worst-performing emerging markets has ranged from 39 percentage points in 2013 to 159 percentage points in 2005. On average, that difference has been approximately 80 percentage points per year. Perhaps somewhat counterintuitively, the extreme performers were not necessarily dominated by a handful of countries or by the smaller countries. In fact, 13 different countries were the worst annual performers, and similarly, 13 different countries were the best annual performers. These data illustrate the extreme outcomes that investors may be exposed to by concentrating in a few countries. There is no compelling evidence that investors can reliably add value through dynamic country allocation.1 By holding a broadly diversified portfolio, investors are instead well positioned to capture returns wherever they occur.

THE EVOLVING EMERGING MARKETS OPPORTUNITY SET

As a group, emerging markets represent a meaningful opportunity set for investors. The size and composition of the investible universe of emerging markets have steadily evolved since the late 1980s, when most comprehensive data sets and benchmarks for emerging markets begin. Over the years, major geopolitical, economic, and demographic changes have contributed to shifting weights for individual countries and companies within emerging markets, but in aggregate they have continued to grow. As of the end of 2019, the total free-float adjusted market capitalization of Dimensional’s emerging markets universe was $7.8 trillion and included 24 countries and over 7,000 securities. As shown in Panel A of Exhibit 5, emerging markets represented 12.5% of global markets’ free-float adjusted market capitalization. Measured by gross domestic product (GDP), emerging markets’ share increases to 38.0% (Panel B), reflecting the fact that emerging markets typically have smaller market capitalizations compared to GDP than most developed markets. Regardless of the metric, emerging markets represent a significant component of global markets.

Panel A of Exhibit 6 examines the country composition of Dimensional’s emerging markets universe. The top five countries in terms of market capitalization—Brazil, China, India, Korea, and Taiwan—represented 73.2% at the end of 2019, slightly higher than at the beginning of the decade, when these same five countries represented 68.8% of the universe. A more significant development over the past decade has been the rise in the weight of China, from 17.2% of the universe at the end of 2009 to 31.4% at the end of 2019. This increase has been driven primarily by new equity issuance and new avenues for foreign investors to gain exposure to Chinese companies, including securities listed on the local Shanghai and Shenzhen stock exchanges through Hong Kong stock connect programs.

In addition to changes in size and country composition, emerging markets have undergone important improvements in their market mechanisms and microstructures over the past decade. Generally, emerging markets have become more open to foreign investors with fewer constraints on capital mobility. Evidence of these developments includes fewer instances of market closings, capital lockups, and trading suspensions of individual stocks in many markets. Finally, emerging markets have broadly adopted international accounting and reporting practices over the last decade. Our analysis suggests more than 90% of the firms in most emerging markets now report their annual financial statements according to International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Practices (GAAP). In countries like China, India, and
Taiwan, the national standards have substantially converged with IFRS. This has helped improve the reliability and transparency of financial data in emerging markets.

SUMMARY

In sum, emerging markets represent a meaningful opportunity set within global markets. They continue to evolve in their structures, market mechanisms, and accessibility.
Investors in emerging markets can benefit from a long-term perspective, expertise and flexibility in navigating these changing markets, and an approach that emphasizes diversification and discipline.

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

“I don’t know…something just doesn’t feel right,” you mumble through your mask to your primary care doctor while sitting on the examination table under a flickering fluorescent light in a room decorated with anatomical charts and hand-sanitizer dispensers. After listening to your heart and your lungs, the doctor diagnoses your feelings of worry as a mild condition that is easily treatable but could become serious if a proper treatment regimen isn’t followed. The doctor gives two treatment plans: one coming from the New England Journal of Medicine and the other from a health magazine that can be purchased at your local convenience store. Which plan do you choose?

The health magazines are filled with tips and tricks, such as how to burn body fat, jump start the body’s metabolic rate and build immune system strength. And they might even work sometimes. If you want to choose the treatment plan with the highest odds of success, it might give you more confidence to know that the medical journal, and its recommendations, are based on decades of data collected from research studies performed by medical experts and peer-reviewed by the medical community.

We face the same decision when it comes to investing. Numerous publications tout the latest investment trends and implore their readers to jump on the bandwagon or miss out on the impending financial windfall. And to their credit—sometimes they work. But just like our physical health, we can place more confidence in an evidence-based approach to support our long-term investment plans and ultimately our financial well-being.

Evidence-based investing and evidence-based planning, the foundation of your financial life plan and our philosophy, is an approach guided by thoroughly vetted, peer-reviewed research and carried out by industry thought-leaders, academicians, and practitioners that is tested against decades of empirical data. We used this research to design your portfolio so that you can focus on today and know that your portfolio will be there to support your lifestyle in the future, regardless of what the pundits claim are the latest investment trends in the markets today.

The next time you find yourself questioning your financial well-being or if your portfolio “just doesn’t feel right,” look at what the evidence says. Are you giving yourself the best odds of long-term success?

When you have any questions about your investments, need to inform us of family or work-related changes, or want to discuss your financial planning needs, please reach out. We are ready to help.

A recent New York Times article discussed the stock market impact of Joe Biden winning the 2020 presidential election. The article quoted Lori Calvasina, head of US equity strategy at RBC Capital Markets, who said “The market is starting to worry that Trump will not be re-elected. Trump is consistently viewed as a positive for the stock market.” Before you make changes to your portfolio as a result of these predictions, consider the following three points:

1. Markets have already priced in the possibility of a Biden presidency.
2. Two-step forecasting is difficult.
3. Your political beliefs can lead to investing mistakes.

Markets Have Already Priced in the Possibility of a Biden Presidency

Right now, if you look at the odds on betting markets, the consensus estimate is that Biden has about a 55% chance of winning the election, while Trump has about a 40% chance. The remaining 5% is allocated to various candidates and non-candidates. What will wind up moving financial markets is if conditions change such that the odds of Biden becoming president significantly increase or decrease. President Trump was a heavy underdog in 2016; betting markets gave him just a 20% chance of winning the day before the election. And yet, even after the surprise outcome, market moves were relatively muted the day after the election (the S&P 500 was up 1.1% that day). It should be noted that some forecasters were predicting a sharp decline if Trump won. Dallas Mavericks owner and TV personality
Mark Cuban said “there is a really good chance we could see a huge, huge correction” in the event of a Trump victory.

Two-Step Forecasting is Difficult

Two-step forecasting is when someone says, “I forecast X, and as a result Y will happen.” Let’s say you’re 60% sure Biden is going to win (which is roughly in line with the consensus estimate). Let’s also assume that you’re 60% sure a Biden victory means stocks will decline in value. Then assume that if you’re wrong and Trump wins (a 40%chance) there’s another 30% possibility that stocks will decline for other reasons.

Keep in mind that going back to 1926, the S&P 500 has had negative returns in 27% of calendar years, so these assumptions are essentially saying that a Biden presidency is more than twice as likely to cause a stock market decline as has happened historically, while a Trump presidency means that the chances are roughly the same as history.

Using the above assumptions, the math works out on this so that there is a 36% probability (60% x 60%) that you’re right about Biden winning and then also right about the market declining as a result, plus another 12% probability (40% x 30%) that you’re wrong about Biden winning but accidentally right about the market decline anyway. This totals out to a 48% chance of getting your two-step forecast correct, or essentially a coin-flip.

Of course, so far I haven’t even mentioned how difficult it is to get the first prediction correct, much less getting both predictions right. Philip Tetlock, who teaches psychology, business and political science at the University of California, Berkeley is the author of “Expert Political Judgment: How Good Is it? How Can We Know?” The book, which was published in 2006, discusses the findings of his 20-year study, the first scientific study on the ability of experts from various fields to predict the future. Tetlock found that so-called experts who make predictions their business are no better than random luck. RBC head of US equity strategy Lori Calvasina should have learned this lesson in October 2019, when a Bloomberg Businessweek article shared her analysis of the Democratic presidential primary: “If politicians were stocks, she would advise shorting Joe Biden. Elizabeth Warren, on the other hand, looks like a buy.”

Your Political Views Can Lead to Investing Mistakes

There’s actually evidence that election results have the power to affect how investors handle their portfolios. The 2010 study “Political Climate, Optimism, and Investment Decisions” examined the link between investors political affiliations and their investment choices. Simply put, when your political party is in power, you feel much more confident about the economy and markets, and vice versa. Being aware of your biases can help you make better investment decisions. Trying to time the market due to concerns about the upcoming election is not likely to be a winning strategy. The reason is that you have to be right not once, but twice. In order for market timing to work, you need to know when to get out and when to get back in. Suppose you get out now. Do you get back in if Trump wins? Or if, Biden wins, do you stay out of the market for four full years waiting for the 2024 election? The bottom line is that you shouldn’t let the latest economic or political news cause you to abandon your well-developed plan.

Sources: © 2020 Buckingham Wealth Partners. Buckingham Strategic Wealth, LLC, & Buckingham Strategic Partners, LLC (Collectively, Buckingham Wealth Partners) IRN-20-748

The world is changing, this crisis has cemented the dominance of a handful of very large technology companies (FAANG – Facebook, Amazon, Apple, Netflix, Google). Why shouldn’t investors just focus on them?

Investors may be surprised to learn that it is not unusual for the market to be concentrated in a handful of stocks, but keep in mind that any expectations about the future operational performance of a firm are already reflected in its current price.

Tech standouts are drawing attention for their perceived sway on stocks, but history undercuts that view.

A breakdown of the largest US stocks by decade in Exhibit 2 shows some companies have stayed on top for a long time. AT&T was among the largest two for six straight decades beginning in 1930. General Motors and General Electric ranked in the top 10 at the start of multiple decades. IBM and Exxon were also mainstays in the second half of the 20th century. Hence, concentration of the stock market in a few large companies such as the FAANG stocks in recent years is not a new normal; it is old normal.

Moreover, while the definition of “high-tech” is constantly evolving, firms dominating the market have often been on the cutting edge of technology. AT&T offered the first mobile telephone service in 1946. General Motors pioneered such innovations as the electric car starter, airbags, and the automatic transmission. General Electric built upon the original Edison light bulb invention, contributing to further breakthroughs in lighting technology, such as the fluorescent bulb, halogen bulb, and the LED. So technological innovation dominating the stock market is not a new normal; it is an old normal too.

Another trend attributed to a new normal is the extraordinary performance of FAANG stocks over the past decade, leading some to wonder if we should expect these stocks to continue such strong performance going forward. Investors should remember that any expectations about the future operational performance of a firm are already reflected in its current price. While positive developments for the company that exceed current expectations may lead to further appreciation of its stock price, those unexpected changes are not predictable.

To this point, charting the performance of stocks following the year they joined the list of the 10 largest firms shows decidedly less stratospheric results. On average, these stocks outperformed the market by an annualized 0.7% in the subsequent three-year period. Over five- and 10-year periods, these stocks underperformed the market on average.

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

Original article can be found at https://us.dimensional.com/perspectives/large-and-in-charge-giant-firms-atop-the-market-is-nothing-new

Americans are living longer than ever but that doesn’t always mean a longer quality of life. A proper elder care plan should account for not only having the right people in the right roles in order to make the proper financial & health Care decisions, but also guidance and direction with respect to your wishes should you not be able to speak for yourself.

When should one look for an Elder Care Attorney?

There is not an exact time when one should look for an elder care attorney but I see it most commonly when one is considering retirement, most commonly in the late 50s and onward. The need for elder care planning evolves from a properly structured financial plan & estate plan. Another way to regard it is as “Estate Planning with a very specific purpose.” If estate planning is most often is associated with ‘death planning’, then elder care planning is more ‘life & longevity planning.’

How does one choose an Elder Care Attorney?

The ideal way to choose an elder care attorney is by speaking with him or her.  Referrals can be extremely helpful, as are testimonials.  Credentials, such as Certified Elder Law Attorney and other such designations are helpful – but those are often an indication of standardized exams, experience, an ongoing continuing legal education & a commitment to the practice. Not to diminish those very important aspects – but elder Care planning is a personal endeavor.  Traditionally, Estate Planning and Elder Care planning was done with a cookie cutter-like approach. But it’s important that the attorney who guides you on this level of planning emphasize customized solutions and listens to you. Although your pattern and your facts might be similar to others, every family has unique and deserves to be treated as such.

What should one expect when dealing with an Elder Car Law Firm?

When working with an elder care attorney, you should expect to be heard, and to have conversations. Much like going to a physician who needs to have x-rays, MRIs, lab work, etc prior to guiding you on your health needs, an Elder Care attorney is going to need baseline information with respect to your finances, health, family situation, goals and concerns, among other aspects.  Be prepared to be open and forthcoming. You wouldn’t hesitate to tell your doctor if you are taking medications that may have contraindications & adverse effects – treat elder Care attorney with the same manner if you desire proper, effective advice.

Anything else I should know?

It’s important to know that Elder Care attorneys typically handle only the legal aspect of planning. However your elder care plan needs to be integrated with your financial plan, investment plan, tax plan, long-term care plan, and insurance plan. Not all attorneys are going to be equipped to handle all of these services in-house. At Shah Total Planning I handle them in-house because my clients prefer that integrated, one-stop shop. But if you can’t find somebody who does it all in the house, it’s important to find someone who is willing to communicate with your team of professionals.

When I’m speaking with a client regarding their Estate Planning, and we are discussing their Will specifically, I encouraged them to think of the Will as a recipe:

If I was going to write a recipe for a cake which required one to get the milk, sugar, eggs, etc. from various places, then blend them in a certain way, then put the mix the oven that’s been preheated, and follow the rest of the instructions – will they get a cake at the end if they follow the recipe properly? Yes.

What if I inserted instructions in the recipe that they must hop on one leg while they are mixing the ingredients? Is that going to be enforced? Will that play into the desired outcome of having a cake? Probably not.   One can regard certain provisions is a Will in a similar manner.

VIDEO: What can frying eggs teach you about Wills, Trusts and Asset Protection?

 

If there are specific steps you are seeking for someone to take when carrying out your wishes or conditions to be met – you’re probably better off looking at a trust (bake the cake now, instead of leaving behind a recipe.) It allows you much more flexibility and control.

Remember a Will is a public record document once somebody passes away. The Will doesn’t have any “power” until it goes through probate. At that point the Will would be submitted to the surrogates court and the executor is given the appropriate documentation to carry out the wishes.

VIDEO: What is the difference between a “Will”, a “Living Will”, and a “Living Trust?”

 

That means having a provision such as “everything goes to my spouse as long as they don’t get remarried” would then be part of the public record. That may not be your intention.

But even beyond that – most courts will generally try to find ways to NOT enforce provisions if they are deemed to be against public policy, such as discouraging marriage.

Also, circumstances may make those restrictions inconsistent with your ultimate wishes. What if you had a provision that said a grandchild will only receive an inheritance upon receiving a degree from a four-year college institution, but then that grandchild is diagnosed with a learning disability or another condition which makes it impossible for that condition to be met? Is that consistent with the grandparents planning objective? Possibly not. But to undo that might require Court approval or even a challenge.

I don’t have an exact percentage as to how many Wills get challenged versus how many Trusts get challenge, but I would wager that it’s at least 5:1 if not 10:1 with Wills being challenged much more often.

That’s not to say you shouldn’t have specific incentive provisions or conditions which are consistent with your wishes in your Wills. However, your attorney should guide you as to whether or not there is a potential challenge looming due to either ambiguity in your desires or a difficulty in enforceability.

Challenges can be costly, but attorneys generally make more money when litigating Will disputes than they do simply administering trusts or properly carrying out the intentions in a Will. Therefore, much care should be taken in ensuring that the will is clear, enforceable, with as little complication as possible to carry out your wishes.

And if you need us, we’re here to help.

There is great news for clients with certain family members or other beneficiaries – this year brought with it a huge change in the law that benefits beneficiaries who are disabled or chronically ill. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was integrated into the Further Consolidated Appropriations Act of 2020. The SECURE Act has been big new in the special needs planning community, as it carved out special considerations with regard to inheriting retirement accounts for those beneficiaries who are classified as disabled or chronically ill.

Before the change in the law, almost any individual could inherit a retirement account and stretch the distributions from that account over their life expectancy. That would allow the funds to be able to sit in that tax-deferred account and accumulate wealth, with the exception of a required amount that must be distributed each year. However, the SECURE Act drastically decreased which individuals would be eligible to stretch distributions over their life expectancy. Beneficiaries who are now not entitled to a stretch must withdraw the funds within either 5 or 10 years, which doesn’t allow for those funds to keep growing. But under the new rules of the SECURE Act, one category of individuals who are still entitled to the financial benefit of stretching distributions from the account over their life expectancy include beneficiaries of the retirement account who are disabled or chronically ill. So, this is a huge benefit and advantage for those disabled or chronically ill beneficiaries, possibly over other beneficiaries you may have.

In response to the new law changes, a special trust has been created to best provide for these beneficiaries. The purpose of this unique SECURE Supplemental Needs Trust is to provide for the maximum benefit of the law for disabled or chronically ill beneficiaries.

· The trust allows retirement account benefits to receive a maximum stretch under the law. This means that the beneficiary can stretch the distributions from that retirement account over their life expectancy. This allows those funds in the retirement account to keep accumulating and growing.

· The SECURE Supplemental Needs Trust also allows the beneficiary to benefit from the retirement account proceeds while still being eligible for public benefits, such as Medicaid or Supplemental Security Income.

· The trust allows for a care manager or advocate, so that someone can always be looking out for your beneficiary after you have passed.

· The trust provides for asset protection from creditors, divorce, or other bad actors.

· The trust gives you peace of mind knowing that your beneficiary will be taken care of for years to come.

If the following applies to you, then you might benefit from this new law and new SECURE Supplemental Needs Trust:

· You have a loved one or another beneficiary who is disabled or chronically ill.

· You have a retirement account, such as a 401k or IRA.

· You want to make sure that your retirement account receives maximum tax advantages after your death.

The time to plan is now. Regardless of who your beneficiaries are, you need to ensure your estate plan is up-to-date in light of the new SECURE Act. Contact our office to schedule an appointment to see how to best make the new rules work in your favor.

No one could have foreseen or wished for this Pandemic, or the impact that it has had on our planet. Yet one of the silver linings of all the current events has been the compassion and willingness that humanity has exhibited in helping one another. The amount of kindness, charitable gifting & volunteer work has been tremendous, and it is quite different than it was prior to the Pandemic.

Specifically, under the CARES act passed earlier this year, there are several changes to the way gifting is done to charitable organizations.

To start, there is now a $300 deduction available for Charitable Gifts to qualified organizations, even if you’re not itemizing your tax deductions. That is a change from the current law. It’s not clear whether this will continue beyond 2020, but it has certainly made it easier to obtain a tax benefit as a result of the gift.

Also, there is a suspension for tax year 2020 of the rule that requires you to limit your charitable deduction to 60% of your adjusted gross income – no matter how much you’ve gifted. There seems to be no limit in 2020.

Gifting for Retirees has taken on a different angle as well.  Because of the suspension of the rule that requires retirees to take Required Minimum Distributions from their Qualified retirement accounts, retirees might be less incentivized to utilize the Qualified Charitable Deduction tool which allows them to gift directly to a charity from retirement accounts such as and IRA and 401k (thereby reducing potential tax liability.)  Although that rule is still an acceptable method of gifting, and should still be considered when gifting above the $300 amount.

Unfortunately situations like this also bring out the worst in some people. That also means that scammers and those with less altruistic intentions can take advantage of generosity. Two tools which can be used to investigate whether or not a charity is in fact a legitimate charity and determine whether or not is properly formed for tax purposes are (a) the IRS website and (b) the Charity Navigator website. Specifically under the IRS website you can do a search to see whether it is a tax exempt organization.

It’s important to set the expectation at the onset whether or not you are expecting to receive a tax benefit as a result of your charitable gift. It’s not always the case that the donor is seeking tax benefits.  However, if a tax benefit (deduction) is sought, best to confirm that it is a 501 (c) (3) organization & obtain proper documentation of the gift.

Checking on some smaller charities & grassroots organizations/movements is much more difficult – it’s important to know how you came across the charity – a personal connection? Social media? Or did they solicit you from out of the blue.  Don’t be afraid to ask probing questions of the organizers.

Gofundme.com  pages have had a tremendous impact on helping with causes, although they’re usually not for tax-exempt charities. You should know that there is minimal supervision & policing of what exactly is done with the money after it’s been collected. Again, here a personal connection to the cause and to the persons in charge of the cause is helpful to determine legitimacy.

Neel and Pink recently hosted a Webinar on Facebook and on Youtube with such grassroots organizations, you can find the replay here: https://m.facebook.com/story.php?story_fbid=10221506184629053&id=13845705

Taking Control (5/12/20): How We Are Taking Care of Each Other

With activity in many industries sharply curtailed in an effort to reduce the chances of spreading the coronavirus, some economists say a recession is inevitable, if one hasn’t already begun.1 From a markets perspective, we have already experienced a drop in stocks, as prices have likely incorporated the growing chance of recession. Investors may be tempted to abandon equities and go to cash because of perceptions of recessions and their impact. But across the two years that follow a recession’s onset, equities have a history of positive performance.

Data covering the past century’s 15 US recessions show that investors tended to be rewarded for sticking with stocks. Exhibit 1 shows that in 11 of the 15 instances, or 73% of the time, returns on stocks were positive two years after a recession began. The annualized market return for the two years following a recession’s start averaged 7.8%.

Recessions understandably trigger worries over how markets might perform. But history can be a comfort for investors wondering whether now may be the time to move out of stocks.

GLOSSARY
Fama/French Total US Market Research Index: The value-weighed US market index is constructed every month, using all issues listed on the NYSE, AMEX, or Nasdaq with available outstanding shares and valid prices for that month and the month before. Exclusions: American Depositary Receipts. Sources: CRSP for value-weighted US market return. Rebalancing: Monthly. Dividends: Reinvested in the paying company until the portfolio is rebalanced.

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Nelson D. Schwartz, “Coronavirus Recession Looms, Its Course ‘Unrecognizable,’” New YorkTimes, March 21, 2020; Peter Coy, “The U.S. May Already Be in a Recession,” Bloomberg Businessweek, March 6, 2020.

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

The picture below was taken at Six Flags Great Adventure on a ride called Kingda Ka. To protect the innocent, I blurred out the faces of my friend as well as the kids who rode with us. I didn’t think it would be right for me to cover my face. 

Funny thing, I still remember exactly how I felt at that very moment on the ride. Anybody who’s been on that ride knows it’s a little ridiculous – it goes from 0 to 128 miles per hour in a few seconds. 

Then why the heck am I smiling? Clearly, it’s not a comfortable smile. I’m smiling because somewhere deep down inside of me I have confidence that this roller coaster isn’t coming off the tracks. If I didn’t have that confidence, I wouldn’t be excited – I would be fearful. (Okay, honestly speaking – there’s some fear there as well too.) 

As I type this message, the stock market has had two consecutive down days and drops of almost 2000 points. Even the most confident investors are probably a little fearful. But long-term investors cannot and should not try to predict if this is the start of a longer trend or an isolated time period. The only other 1,000-point drops for the Dow Jones Industrial Average (DJIA) were on February 5th and 8th of 2018. Since then, the DJIA went on to make many new highs. (In case you missed it, I recorded a video about this a few weeks ago: click here 

About a hundred years of history tells me, with confidence, that: 

A. Roller coasters don’t go off the tracks, and 

B. Long-term investors come out ahead in the long run. 

When you integrate your legal plan, tax plan, and financial plan you will come out ahead. I’m continuing to watch the markets, but I’m sending this message to remind you that this is not the time to react emotionally. 

If you are currently a client and are interested in learning how developments in 2020 on the tax, financial and legal fronts will impact you – we are hosting a dinner event on March 4, 2020. I’m not sharing the details in this email because it’s only open to our clients and their guests. We are keeping the room small and intimate, but if you’re interested in attending please reply and we will get you on the list.  

The impact of missing just a few of the market’s best days can be profound, as this look at a hypothetical investment in the stocks that make up the S&P 500 Index shows.

A hypothetical $1,000 turns into $138,908 from 1970 through the end of August 2019. Miss the S&P 500’s five best days and that’s $90,171. Miss the 25 best days and the return dwindles to $32,763. There’s no proven way to time the market—targeting the best days or moving to the sidelines to avoid the worst—so history argues for staying put through good times and bad. Investing for the long term helps to ensure that you’re in the position to capture what the market has to offer.

Hypothetical growth of $1,000 invested in US stocks in 1970

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

What will happen to the family business when you’re not around?

Simple, my children will take helm and run it JUST LIKE I DID! Are you 100% sure that’s what will happen? 9 out of 10 times when the owner passes or becomes incapacitated, everyone has their own ideas on how they’re going to run the family business. And, if there are multiple children involved, who’s going handle the many aspects of running the business like, marketing, advertising, networking, etc. The scenario becomes even more scary when the children cannot agree on who’s more competent to lead. Family relationships are often severed due to these disagreements. Why leave it to chance? Why not plan ahead and leave exact instructions on who will do what.

If we can help you or your loved ones to safeguard your most prized assets: RELATIONSHIPS, then feel free to call, email or use the link below to schedule a time to speak with me.

You’ve signed your Estate Planning Documents, CONGRATULATIONS!!! BUT…  

• Signed Documents ✔
• Estate Plan Constructed ✔
• Pat on Back ✔ 

Why the BUT??? Because there is one more important item left to be checked off on your list: Asset Alignment.

Let’s explore an analogy of purchasing a home. You have furniture but, all your furniture is on your front lawn. Are you finished? No. You have to move your furniture into your home. Well, it’s the same with creating an estate plan and not ‘moving’ your assets into the plan. 

Aligning your assets into your estate plan is an essential step that is often abandoned. Whether it’s changing the title on your account or changing beneficiaries, it’s important to complete the process by aligning the assets and optimizing your plan. Let us guide you in moving your ‘furniture into your home’ and check off Asset Alignment on your list.

The first decade of the 21st century, and the second one that’s drawing to a close, have reinforced for investors some timeless market lessons: Returns can vary sharply from one period to another. Holding a broadly diversified portfolio can help smooth out the swings. And focusing on known drivers of higher expected returns can increase the potential for long‑term success. Having a sound strategy built on those principles—and sticking to it through good times and bad—can be a rewarding investment approach.

“THE LOST DECADE”?

Looking at a broad measure of the US stock market, such as the S&P 500, over the past 20 years, you could be forgiven for thinking of Charles Dickens: It was the best of times and the worst of times (see Exhibit 1).

For US large cap stocks, the worst came first. The “lost decade” from January 2000 through December 2009 resulted in disappointing returns for many who were invested in the securities in the S&P 500. An index that had averaged more than 10% annualized returns before 2000 instead delivered less‑than‑average returns from the start of the decade to the end. Annualized returns   for the S&P 500 during that market period were −0.95%.

Yet it was a good decade for investors who diversified their holdings globally beyond US large cap stocks and included other parts of the market with higher expected returns—companies with small market capitalizations or low relative price (value stocks). As Exhibit 2 shows, a range of indices across many other parts of the global market outperformed the S&P 500 during that time span.

FLIPPING THE SCRIPT

The next period of nine‑plus years reveals quite a different story. It has looked more like best of times for the S&P 500, as the index, when viewed by total return, has more than tripled since the start of the decade in the bounce‑back from the global financial crisis. US large cap growth stocks have been some of the brightest stars during this span. Accordingly, from 2010 through the first half of 2019, many parts of the market that performed well during the previous decade haven’t been able to outperform the S&P 500, as Exhibit 3 displays. Since many of these asset classes haven’t kept pace with the S&P, these returns might cause some to question their allocation to the asset classes that drove positive returns during the 2000s.

THE CASE FOR GREAT EXPECTATIONS

It’s been stated many times that investors may want to take a long‑term perspective toward investing, and the performance of stock markets since 2000 supports this point of view. Over the past 19½ years (see Exhibit 4), investing outside the US presented investors with opportunities to capture annualized returns that surpassed the S&P 500’s 5.65%, despite periods of underperformance, including the most recent nine‑plus years. Cumulative performance from 2000 through June 2019 also reflects the benefits of having a diversified portfolio that targets areas of the market with higher expected returns, such as small and value stocks. And it underscores the principle that longer time frames increase the likelihood of having a good investment experience.

No one knows what the next 10 months will bring, much less the next 10 years. But maintaining patience and discipline, through the bad times and the good, puts investors in position to increase the likelihood of long‑term success.

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

Whether you’ve been investing for decades or are just getting started, at some point on your investment journey you’ll likely ask yourself some of the questions below. Trying to answer these questions may be intimidating, but know that you’re not alone. Your financial advisor is here to help. While this is not intended to be an exhaustive list it will hopefully shed light on a few key principles, using data and reasoning, that may help improve investors’ odds of investment success in the long run.                                                                                                                   

1. What sort of competition do I face as an investor?

The market is an effective information-processing machine. Millions of market participants buy and sell securities every day and the real-time information they bring helps set prices. This means competition is stiff and trying to outguess market prices is difficult for anyone, even professional money managers (see question 2 for more on this). This is good news for investors though. Rather than basing an investment strategy on trying to find securities that are priced “incorrectly,” investors can instead rely on the information in market prices to help build their portfolios (see question 5 for more on this).

2. What are my chances of picking an investment fund that survives and outperforms?

Flip a coin and your odds of getting heads or tails are 50/50. Historically, the odds of selecting an investment fund that was still around 20 years later are about the same. Regarding outperformance, the odds are worse. The market’s pricing power works against fund managers who try to outperform through stock picking or market timing. One needn’t look further than real-world results to see this. Based on research*, only 23% of US equity mutual funds and 8% of fixed income funds have survived and outperformed their benchmarks over the past 20 years.

3. If I choose a fund because of strong past performance, does that mean it will do well in the future?

Some investors select mutual funds based  on  past returns. However, research shows that most funds in the top quartile (25%) of previous five-year returns did not maintain a top-quartile ranking in the following five years. In other words, past performance offers little insight into a fund’s future returns.

4. Do I have to outsmart the market to be a successful investor?

Financial markets have rewarded long-term investors. People expect a positive return on the capital they invest, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation. Instead of fighting markets, let them work for you.

5. Is there a better way to build a portfolio?

Academic research has identified these equity and fixed income dimensions, which point to differences in expected returns among securities. Instead of attempting to outguess market prices, investors can instead pursue higher expected returns by structuring their portfolio around these dimensions.

6. Is international investing for me?

Diversification helps reduce risks that have no expected return, but diversifying only within your home market may not be enough. Instead, global diversification can broaden your investment opportunity set. By holding a globally diversified portfolio, investors are well positioned to seek returns wherever they occur.

7. Will making frequent changes to my portfolio help me achieve investment success?

It’s tough, if not impossible, to know which market segments will outperform from period to period. Accordingly, it’s better to avoid market timing calls and other unnecessary changes that can be costly. Allowing emotions or opinions about short-term market conditions to impact long-term investment decisions can lead to disappointing results.

8. Can my emotions affect my investment decisions?

Many people struggle to separate their emotions from investing. Markets go up and down. Reacting to current market conditions may lead to making poor investment decisions.

9. Should I make changes to my portfolio based on what I’m hearing in the news?

Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future, while others tempt you to chase the latest investment fad. If headlines are unsettling, consider the source and try to maintain a long-term perspective.

10. So, what should I be doing?

Work closely with a financial advisor who can offer expertise and guidance to help you focus on actions that add value. Focusing on what you can control can lead to a better investment experience.

• Create an investment plan to fit your needs and risk tolerance.
• Structure a portfolio along the dimensions of expected returns.
• Diversify globally.
• Stay disciplined through market dips and swings.

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

What is Probate? How do I avoid probate? Should I even TRY to avoid it?

(If you haven’t checked out the Link to the video in this e-mail-it may be worth watching if for no other reason than you get to see me 20 pounds heavier. It’s the second most-watched video on our channel (12,000 views baby!), And I’m pretty sure only a third of that was me playing it on repeat.🙂) 

In short, probate is the act of going to court to appoint a person (executor) to distribute assets, notify next of kin, and possibly file estate taxes for assets owned by a deceased person.

So now you’re probably thinking: ‘what’s so bad about that?’

Well, as I mentioned, that was just the ‘short’ of it.

The process could get complicated based on the laws of the state you live in and how many ‘hoops’ the executor may have to jump to through to fulfill the last wishes of the deceased. Another concerning factor could be that the probate process is public record, so anyone has access to the information.

So, what’s the other option you ask? The answer is <drumroll>: PLANNING. Not all assets go through probate, probate avoidance is not/should not be everybody’s goal.

To determine whether or not probate could be cumbersome to your situation, and how to ease or avoid the toll on your loved ones charged with fulfilling your last wishes feel free to contact us.

Happy New Year! It is 2020 and if you’re anything like me, you’ve set some goals for this year.

Maybe your goals involve estate planning. Maybe your goals involve financial planning. Maybe your goals involve just eating healthier. This is not an optical illusion. This drink is actually green and it is made for me with love by my wife, Pinky. It’s spinach, there’s a protein powder and if you really want the recipe, I’m not the right person to ask.

My point is I have goals that I want to accomplish this year and I know what I’m capable of. I know that I’m a powerful strong person. But I also know that I need a little bit of help and there’s nobody who’s a bigger advocate for health that I know than my wife and I’m going to get her help.

To that point, if there’s anything that we can help you with, don’t hesitate to reach out to us. Check out our blog piece on setting your goals for 2020. And as a final note, cheers to 2020. Hope to see you this year!

Albert Einstein stated that “compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

Most Americans know the benefits of saving and investing early to take advantage of compounding, yet many (if not most) of them don’t.

Why is that?

• 

 There’s not just one answer as to why Americans are not investing, but there are some reasons which are given more than others. Most often, the reasons/excuses I hear from clients are:

1) My expenses are just too high. I don’t have anything left over after my expenses to save and invest.

2) I don’t trust the financial industry enough to invest.

3) The market is inflated and it is due for a correction.

4) I cannot emotionally handle the volatility of the market.

I’m not one to dismiss anyone’s reasons for not investing in the market. However, the downside of not investing, and particularly, not starting early, are well-documented. To address each of the items above:

 1) If your expenses are too high and you don’t have anything left over after your expenses to save and invest, start with a smaller, disciplined approach. Treat saving for investing as if it was a tax. If the government was taxing you 25%, you could not come up with an excuse that you don’t have enough for those taxes. If you treat investing as something which is not discretionary, but more like an obligation like taxes, you can deduct a small amount from your paycheck or bank account directly to have it invested as part of a disciplined approach. 

This strategy is used most often by employees and their 401(k)s or their health insurance. It works because there is no “pain” associated with having to take money out of your account – it was never deposited there in the first place.

2) The financial industry has earned its share of criticism in the media – and much of it is well warranted. The trick is to get yourself in front of a financial advisor whom you can trust. Most often, this is not going to be your local bank or insurance agent.

Ask for referrals and try to find someone who is independent (that is to say, someone who is not obligated to serve the interests of their employer). Ask if they are a fiduciary 100% of the time. If they are a fiduciary, they are required to act in your best interest. If they’re not a fiduciary, they are held to a lower standard-suitability. Even the best hearted people in the industry sometimes have conflicting goals due to mandates by their financial brokerage employer. 

One piece of advice a client has given me: “if they have a football stadium or a professional sports arena named after them, chances are they’re not independent.”

3) Is the market inflated? Maybe. Or maybe not. The point is if you make sure that you are invested with the right mix of risk and reward, your investment horizon should be dictating whether or not such a correction (if and when it happens) does not impact your lifestyle. 

A 30-year-old investing today can take a substantial amount of risk, particularly with their retirement accounts, because they’re expected to work for a longer period of time. A 55-year-old may need to adjust their risk downward, thereby not subjecting themselves to market fluctuations as much. Even during our most recent financial crisis, from 2007 to 2009, if you held your course and didn’t overreact, today your money would be more than doubled. That’s even if you got in days before the big drop.

The point is: you can’t time the market – nobody has done so consistently over multiple periods, so don’t try. Make sure you stay within your risk zone and rebalance as necessary.

4) Everything sounds great on paper, particularly when it’s backed up by evidence – but the reality is, we are human beings. And you’re entitled to your emotions. It’s important to discuss with your financial advisor how comfortable you are with receiving a statement that shows losses.

As an example, when you exercise strenuously or challenge yourself learning a new skill, there is short-term pain and even some frustration in order for you to get the positive results you’re seeking. Sometimes it might be a bit of an emotional roller coaster. If it’s causing you stress or anxiety, it is probably because you may not know, or may need to be reminded of, the positive results you’re seeking. Knowledge will help with emotional volatility most of the time.

Sometimes, knowledgeable even do that for you. In that case, it’s time to make sure that the risk you are taking is appropriate and necessary. It also helps identify different risk pools – knowing that you have an emergency fund which is adequate, and sometimes more than adequate, can help with the emotional impact involved with investing.

Lastly, if you trust your advisor and you have the right person at the helm, you may not want to check the market on a regular basis. Intraday, intra-week, and intra-month fluctuations have been happening since the beginning of the market. So long as you know you have a long-term goal, there’s no need to suffer anxiety from these short-term fluctuations that may never impact you.

I’ve been told in the past that it’s easy for me to discuss Estate Planning, Elder Law and Financial Planning with my loved ones because I do it for a living. “You don’t even need to leave your ‘comfort zone’ to discuss it.” So I am now leaving my comfort zone and putting my money where my mouth is. I left my ‘safe space’ a year ago, and now I am doing it again by sharing a video of it with you and the world (explanation below.)

I get it. Telling someone important to you that:

• they need to take care of their health care documents because you want to know their wishes,
• their tax situation needs to be reviewed because you think they might be paying too much,
• or you want to know how to pay for their long term-care, can be very difficult and awkward.

You know what’s even more awkward? Trying to have a conversation with a sibling about Mom’s care when you don’t know what Mom wanted. Or finding out that you will have to use most of your assets for your spouses care. Or realizing your adult children never named a guardian for your grandchild because you never asked if they had completed their Plan? I don’t have to tell you which has the more tragic outcome: having an uncomfortable conversation now, or waiting for event to happen and regretting never having had the conversation.

So here’s where I am putting it out there and showing you my awkwardness, but first a quick background: Last summer we went a cruise with about 50 family members. It was fantastic. I’ve always enjoyed singing, but I’ve never done it outside of a small group of extremely close friends. But I decided one night, to sign myself up for karaoke. It was to be in front of a room of strangers or the family members. I’d have to face my family for the rest of my life, and I would have to stand & perform in front of strangers, but I did it. You can probably sense my discomfort in the video, I was still shaking for a half-hour after doing it. But I am happy I did it. If for no other reason than to prove a point today.

Now I’m sharing the video with you (and everybody else on my mailing list.) But then it’s your turn. But you don’t have to do it alone: we can help you with the potentially uncomfortable dialogue about your or a loved one’s planning. Just reply to this email & we’ll make it happen. Click below to schedule your free call with me. 

And in case you know anyone from “American Idol” or “The Voice” – feel free to forward it to them & let them know they can schedule a call with me too 😉

Have a great day,

Neel