Moving On? Don’t Leave Your 401K Behind

 Moving On? Don’t Leave Your 401 K Behind

by Sarah Johnson, CFP®

The average American now changes jobs every 4.2 years, yet many are not just leaving their jobs behind, but are also leaving their 401K with their previous employer. While leaving your funds put may be the simplest solution at the time, it can be detrimental to your retirement picture. 401k plans, especially ones that offer a match, can be a useful tool to save for retirement, however, they are not perfect vehicles.  Not only do 401k plans often carry various fees not always understood by the investor, but due to compliance issues the investment offerings within 401ks leave much to be desired.  Most 401K companies have a “less is more” attitude, severely limiting your investment options, making it difficult if not impossible to invest in your best interest.  For their own protection, they often subtly push investors to select Target Retirement Funds, a much simpler option for investors and one which gives the Benefits companies legal cover. The problem is that simplicity may or may not work to the long-term benefit of the investor. These issues are why it is important that when you leave a company, you leave your 401k plan as well. So, if you shouldn’t leave your 401k plan where it is, what should you do with it? When you leave a company, you have 4 options for your 401k funds, only one of which we recommend in most situations.

  • Stay Put: Keep your funds in your 401k (not ideal):  While this is the most convenient in the short term, each year Americans lose track of billions of dollars in old retirement accounts they forgot how to access.  Even if you manage to keep track of your various accounts, your 401k investment options are limited, and no active management of your funds is occurring.
  • Roll your funds over to another company’s 401k (not ideal): While this would help with the tracking issue of option #1, in this plan you’re simply moving from one poor investment platform to another as your investment options remain limited.
  • Cash out your 401k (not ideal): Cash-out withdrawals are considered income, triggering state & federal taxes, and depending on your age, could trigger a 10% penalty in addition to taxes.
  • Roll your 401k into an IRA (ideal): A 401k Rollover to an IRA is considered a non-taxable event, meaning you owe no taxes at that time, and your investments can continue to grow tax-free.  You will have superior investment options in your IRA compared to what you had in your 401K, and you will likely be paying fewer fees.

Bottom line:  Moving your 401k to an IRA when you leave a company brings with it many advantages, however, make sure to do your due diligence to find an advisor or IRA provider who promise low expenses, and if you need it – active management, as this too will be crucial for your long-term success.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

Inflation, Interest rates and “Trouble with the Curve”

 Inflation, Interest rates and “Trouble with the Curve”

by Bob Schneeweis

In a 2012 movie with Clint Eastwood (Trouble with the Curve), an aging baseball scout (Eastwood) with failing sight and years of experience and can hear how the bat sounds when a prospect hits the ball is in conflict with management that is more centered on data, what looks good and will sell with the public.  We have a new “Trouble with the Curve” (the interest rate curve).  So What? – Well, today there is an opinion that inflation is improving and the Fed should halt interest rate hikes now. This opinion feels good as it forwards the view that recovery will come sooner rather than later.  Many economists (and the Federal Reserve) however know that low income and fixed income (retired) families suffer most from inflation and continue to support elevated interest rates that could result in unemployment and recession until we are more certain inflation is under control.  Not being serious enough over inflation in the 1970s is an economic study on this issue and resulted in the Fed raising interest rates nearly 10% in just over 2 years.

The following graph from Gallup shows that public concern over inflation is the highest in 40 years.

Here’s what I think:

  • Inflation and elevated interest rates are highly likely to remain the dominant considerations influencing the investment environment for the next several years and the Federal Reserve needs to be resolute in addressing them.
  • What’s become clear is that superabundant government stimulus does in fact incur negative consequences, as the inflation of the past few years can attest. We saw an incredible rise in the stock price of companies that made no money. That available “free” money made it difficult, if not impossible, to distinguish investment skill from surfing the tide of superabundant liquidity. 
  • It appears what we have now has gone back to recognizing businesses that actually turn a profit rather than just a dream of one.
  • Fixed Income and “modern alternatives” can support portfolios with reasonable returns and low risk.

What is different now from the last 40 years? Howard Marks, Co-Chairman of Oaktree Capital Management has remarked “It seems to me that a significant portion of all the money investors made over this period resulted from the tailwind generated by the massive drop in interest rates. I consider it nearly impossible to overstate the influence of declining rates over the last four decades.” – So we recognize that along with inflation and rising interest rates, new approaches to globalization and changes in our energy sources have impacts that require investments that not only look to the future, but also protect your money and give some certainty in an increasingly uncertain world. This has always been our focus and continues to protect the assets we manage.

While most of today’s news seems challenging, with the Russian invasion of Ukraine, Global Warming and a looming recession, we believe opportunities exist. We see new opportunities for fixed income returns, modern alternatives investments that we’ve championed for years and a return to more equally weighted stock selection. Yes, rising interest rates and a need to reduce Federal debt is a new government focus, but adjustments can be made in your investment approach to deal with it.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

Gas, Hybrid or Electric: Changing Investment Models

 Gas, Hybrid or Electric: Changing Investment Models

By: Tom Schneeweis & Bob Schneeweis

Within the past week, my brother stopped over to my house, to present his new model of hybrid electric/gas automobile. While certainly different from the gas-based vehicle I have in my garage, I realized it was part of the transition of the auto industry to a new means of propulsion. Knowing absolutely nothing about the process by which a hybrid electric/gas vehicle worked, I asked my neighbor (in this case an engineer who works for SpaceX) to describe the advances in automobile propulsion (gas to electric) and the implications for current and future modes of transportation and auto ownership. In our brief discussion I also came to realize not only how little I really understood about how new forms of automobiles worked but how much I currently depend on outside sales personnel and local service personnel in keeping my gas auto version alive. The move to increasingly electric centered vehicles will likely require the help and service of higher-level service stations and personnel and many current local auto services firms may soon be a thing of the past.

It occurred to me how similar the transition from gas to electric automobiles was reflective of today’s investment transition. Today we are moving from a simple stock/bond portfolio (aka today’s auto’s gas engine) to investment technology that, like cars, are more hybrid and rely on advanced artificial intelligence (e.g., ETFs, modern alternative investments). In short, I have come to understand that all of us will have to move to newer investment approaches to propel us into the future and one that is less dependent on the local investment service stations with less advanced personnel. We also should not necessarily focus on ‘large scale investment management firms’ that hope to sell investment products that may fit their own broad strategy but not your world. We at Yes Wealth have been leaders in modern alternative investments for over 20 years and still work with your individual needs. Simply put, we look forward to helping you in the transition from the current world of wealth management to the future one with more hybrid or advanced forms of investment. 

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

It’s a Brave New World – For Investors

 It’s a Brave New World – For Investors     

By: Yes Wealth Partners

From Bitcoin to Zero Interest Rates, from slowing economies to skyrocketing stocks that defy logic, many people today are confused of both how to grow their investments and how to protect themselves from large “corrections.”  Investors often would like to go back to the world they grew up with where they believed that by finding the right stock/bond balance, their money could grow and also be protected.  First, this was never really true, but it is even less true today as bonds fail to provide much return and even some unexpected downside if interest rates rise.  Despite overwhelming evidence that during periods of investment crisis (most significantly like 2008 and 2020), traditional stock/bond diversification fails to deliver true downside risk mitigation, many still stick with the old beliefs. Today, even most investment advisors still fail to consider “modern liquid” alternative investments which provide real risk mitigation in a down equity market and conservative upside potential even when interest rates rise. So, what are modern liquid alternatives? These are strategies that provide upside potential like stocks do or more conservative returns like bonds used to provide, but are designed to limit the large downside risk of equities or the impacts of rising interest rates on fixed income. Traditional alternatives such as private equity, derivatives, fine art and commodities promise to provide significant return in the long run, but are often not liquid and have high investment minimums.  Unlike most traditional alternatives, liquid alternatives include mutual funds or exchange traded funds that can be bought and sold daily and have investment minimums most individuals can handle. Some of these strategies are called Market Neutral, Merger/Arbitrage, Event Driven and Hedged Equity.  Holding a portion of liquid alternatives in your portfolio can help you reach for return, while still allowing you to sleep at night, knowing you have protection on the downside. 

If you would like to know more about these options, or if you’d like to discuss a plan for you, please give us a call. 

Yes Wealth Management:

651-426-5854

What Is A Fiduciary? Why Should It Matter For Investing And How Can You Know If Your Advisor Is One?

 What Is A Fiduciary? Why Should It Matter For Investing And How Can You know If Your Advisor Is One?      

By: Robert Schneeweis, Chief Executive Officer

By definition, a fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other’s best interests.

This term “fiduciary” is a very good thing to hear if you’re searching for a financial advisor. It means the advisor is “legally required” to put your interests first, rather than enhancing their compensation. Fiduciary duty eliminates conflict of interest concerns which makes advice more trustworthy. Not all financial advisors are fiduciaries. All investment advisors registered with the SEC or a State securities regulator (Registered Investment Advisors or RIA) must act as fiduciaries. Broker-dealers, stockbrokers and insurance agents are only required to fulfill a “suitability obligation”. This means that while the advice they give you may be suitable to your situation; they may substitute a higher cost product that pays them more for a similar product that better aligns with your interest at a lower cost. This same conflict exists – albeit in a less visible way – with a group of advisors known as “Hybrid” advisors. These advisors work for large firms that offer both “fee-based” services and brokerage services and manage some of your money on a Fee-based basis but also put some of your money in products where they receive a commission. Fee-only advisors are sometimes seen as operating with less of a structural conflict of interest than brokers or other advisors who earn commission, which can vary from one product to another. However, in that mode, the advisor might have the incentive to engage in excessive trading activity or favor a specific investment that will net the largest commission or fee.

What about automated / on-line or “Robo-Advisors” which advertise as RIAs? They insist that they are fiduciaries. They are registered investment advisors, but are they fiduciaries? They typically only offer advice based on a relatively short risk questionnaire, but rarely get a full financial picture or understanding of goals. An back and forth discussion of goals and attitudes toward risk seems critical to providing fiduciary services and cannot be adequately addressed by checking a few boxes.

Choosing a fiduciary financial advisor can give you greater peace of mind. With a fiduciary financial advisor, you’ll know that the person managing your money is legally obligated to make decisions in your best interest. While non-fiduciary advisors are not necessarily bad actors, it’s easier to ensure that you’re working with someone who has your best interest at heart if you opt to work with a fiduciary.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854

The Present Versus the Past

Those Who Only Follow the Past Are Plagued to Repeat It

By: Yes Wealth Partners

Today our world seems to be so chaotic that people are wondering how safe their investments are and is “just hang in there” or “stay the course” still the best way to go.  They are often surprised and often disappointed when I tell them that investment programs based primarily on the ways things were done in the past (e.g., stocks and bonds) may not be the best way to actively manage assets in the future. Research now shows that stock/bond mutual funds may underperform portfolios which use investment vehicles such as ETFs and/or modern liquid alternatives which are not directly tied to interest rates.  Today our world and the various means of government financial support or control changes so quickly, that individual stock picks or even the S&P 500 may not reflect the changing direction of the economy or its’ performance going forward.  In addition, bond investments in a portfolio may not provide the risk reduction benefits once believed. Unlike most of the last 30 years we may see rising interest rates and actually see the value of our fixed income holdings decline.  Lastly, today fixed income investments that once offered yields near six to eight percent are currently offering two to four percent. 

 

In short, investment opportunities and investment conditions have changed. In this new world, if one’s current portfolio is based on past conditions, it may need to be changed. If you need help in implementing these changes, YES Wealth provides meaningful investment advice using a broad range of modern investment solutions representing the very best in investment advice. 

 

We look forward to hearing from you or seeing you soon.

What To Do About Market Volatility?

What To Do About Market Volatility? 

By: Robert Schneeweis, Chief Executive Officer

It’s not investor mania but Investor complacency about big stock and bonds moves that concerns me.

If you are not confused right now about what investment direction to take, you should be! Even market experts are uncertain about future market direction and volatility. A WSJ article from the other day said “Investors should get used to big stock-price moves, like Monday’s 600 point drop in the Dow, because they’re here to stay”. Well, after that Monday drop, we had VERY FEW calls of concern about the market. Now that may be because we have done a wonderful job creating confidence in our customer base, or possibly, people have already become “used to big-stock moves”.

The S&P 500 was down 13.5% in the fourth quarter of 2018. It had people panicking. So much so that on December 21st the SPDR S&P 500 ETF “DREW IN” the most money it had since February of that year (another dip period). And after the Monday May 13th 617 point drop, the market promptly went up by an almost identical amount over the next three days. So what’s to make of this?

After the Q4 correction of 2018, famous bond investor Jeffrey Gundlach of DoubleLine funds reflected on new money flows and said “… People have been so programmed, and feel so frustrated by selling when we get dips that this time they weren’t going to be fooled. This time they were going to buy the dip. I worry about that, though, because it reminds me a little bit about how the credit crisis developed in 2007 and 2008.” Whoever bought in December is “feeling good today” no doubt, but does the upward trajectory of the market continue?

So what’s an investor to do? On one hand, serious questions about global growth and geopolitical events are creating uncertainty which can make us want to sell on dips. On the other hand, the strong US economy and the Federal Reserve’s easy money policy make us want to take advantage of market dips! Well, Robert Shiller, the Yale University economist who shared the Nobel Prize in economics in 2013 reminds us “The professionals may be better at reading balance sheets and income statements and the like, but not at evaluating whether this is 1929 all over again” (or 2008).

So, as I said, we should all be confused. As articulated by Peter L. Bernstein, an economic historian and a widely read popularizer of the efficient market theory: “Understanding that we do not know the future is such a simple statement, but it’s so important. Investors do better where risk management is a conscious part of the process. Maximizing return is a strategy that makes sense only in very specific circumstances. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. …. The riskiest moment is when you’re right……. As incredible as it sounds, that makes you comfortable with not being diversified.” And he goes on to say “I view diversification not only as a survival strategy, but as an aggressive strategy, because the next windfall might come from a surprising place. I want to make sure I’m exposed to it.”

Combining survival and growth requires real diversification (which is no longer provided by traditional stock /bond portfolios alone – a story for another day). What are the future growth drivers, Alternative Energy or Environmental and Social Governance (ESG)? And how do you survive economic contractions? We find that real diversification requires us to utilize market neutral, risk controlled and risk protected alternative funds in our portfolios to protect our clients during market volatility and from dreaded “market corrections”. In short, prepare yourself for market downturns before they happen, not after. That is how we manage volatile times like these.

Investing In Our Coronavirus World

Investing In Our Corona Virus World.

By: Robert Schneeweis, Chief Executive Officer

To Our Clients: 

First of all, we hope you and your family are healthy. Here in Minnesota, our state has a “Shelter in Place” order for the next two weeks – and our public elementary and high schools for the most part have gone to “on-line” education until May 4th. I think this is a fairly common look across the rest of our country, so we’re in it with you. These realities point to the many adjustments in our social and economic life that containing the Coronavirus pandemic is requiring. Obviously, the questions we get most consistently these days are:

“Should we be buying the dip?”
“Should we be more in cash?”
“What should we do now?”

So, let’s be clear: we are living in a time dictated by a global health issue. “We all think of a recession as having an economic underpinning, but this has nothing to do with economics. This is literally about trying to stay away from people,” said Aparna Mathur, a scholar at the American Enterprise Institute. This “pandemic” has in its wake, however, also created a world-wide “economic slowdown” that is affecting our lives and our investments. Of course, it is the health issue that needs to be resolved first. In his initial appearance on morning television Thursday, Federal Reserve Board Chair Jerome H. Powell told NBC’s “Today” show that the nation “may well be in a recession” already, but making the country safe has to be the top concern. “The first order of business is to get the virus under control, and then resume economic activity,” he said. The Federal Reserve, and now Congress, have recently made significant moves to help stabilize our economy until social conditions themselves stabilize. What the recovery will look like depends greatly on how soon that starts. The good news here is that it appears our government will not be shy about further stimulus, if needed by our economy.

What sets this downturn apart is how rapidly the virus — and the economic pain — have spread. The question remains whether this will become a long-lasting slump or a short-lived flash recession. Markets try to estimate the future for businesses. Despite current opinions from media pundits, the future essentially relies on how long the US and the global economies will remain hampered by closures and restrictions of various business activities. Unfortunately, the question of when the virus comes under control remains unknown. And money and rhetoric only go so far. All this makes for an incredibly complicated situation for investors who are deciding whether to buy, sell or just sit tight. Two well-known investors (Leon Cooperman and Mohamed El-Arian) state that until the end of April, any statement is one of hope rather than knowledge.

As a result, despite the losses in stocks and bonds that have already taken place this year, our discussions with you will recommend continued caution. Market volatility won’t settle until we reach some sort of inflection point in the coronavirus crisis. It would be at this point that economists would be able to begin modeling the outlook for the economy with any degree of certainty. We then believe that investing in areas the government has decided to support, and companies with strong cash positions, will be attractive options.

Know that we are here for you in both good times and difficult times, to give you our perspective, to discuss your options, or simply to talk things through.

There’s Reason for Optimism (But Are Stock and Bond Prices Already Showing It?)

Reasons For Optimism
By: Robert Schneeweis, Chief Executive Officer

Many headlines today reflect data that show things are getting better.  Most important, of course, is the coronavirus.  Even with vaccine issues in Europe and a peak in India, the global trend is encouraging.  Good news indeed, but for investors we have to ask “Does this mean we will see a rise in the market or is much of the good news already in the prices of stocks and bonds?”

Certainly, some companies like airlines, hotels and resorts with the most to gain from economic reopening still look to have ground to make up from the virus-stalled economy.  Housing prices are up dramatically across the U.S.  From those perspectives, the market hasn’t come back too far.  Unemployment numbers appear to be getting better, short-term interest rates are low and government stimulus for infrastructure is likely and kids are back in school.  All reasons for optimism.

What can we expect then going forward?   Many Americans have cash to spend or invest as Congress has been so aggressive with fiscal stimulus.  Will this lead to rising stock prices or concerns over inflation and unpaid loans if they don’t continue these programs?  Investors should be aware that the stock market overall is incredibly expensive in historical terms, and prices are very dependent on the Federal Reserve continuing to support low bond yields.  One measure of long-term return vs risk is the “Cyclically Adjusted Price Earnings” (CAPE) ratio or “Shiller PE ratio”.  At the current number of 37 it is more expensive than at any time in 150 years other than late 1999 and early 2000 (the dot-com bubble) and long-term interest rates are at historically low levels.  The Federal Reserve is no doubt watching the prospects for employment, wages and prices, but they need investors to understand that it’s willing to rethink its monetary policy when the numbers demand.  At the moment, I’m not sure that message is getting through to investors.

As we look at the current pandemic, it’s interesting to see that 1920 had a number of similarities to 2021 – digging out from the Spanish Flu beginning in 1918 vs today’s Covid-19, the combustion engine of a century ago vs the incredible new computer technology of today.  So, will we have a booming stock market like the 1920’S?  One critical difference between the start of the 1920s and today is as 1920 came to a close, the U.S. stock market was the cheapest on record – before or since – and today’s market by contrast is one the most expensive.  The CAPE/Shiller ratio is not a signal about what will happen to stock prices in the near term or any specific path in the years ahead but it has been a good barometer of the return one may expect over the medium term.

Bottom line, the CAPE/Shiller ratio is not a holy grail of return forecasting, and factors other than “valuation” also impact future returns, such as GDP growth, investor sentiment (outlook for future investment returns), politics (stimulus and spending bills) and productivity gains.  Investors need to be aware though that US stock market returns may be lower the next 10 years than they have been the last 10.  Interest rates, while historically low now, won’t stay that way forever and existing bond holdings will suffer when rates do rise.  More growth potential may exist outside of the US.  But for now, the issue of the pandemic is getting better, kids are back in school and people are getting back to work, and for that we can all be thankful.

 

Developments In The U.S. Coronavirus Saga

Developments In The Corona Virus Saga.

By: Robert Schneeweis, Chief Executive Officer

The daily reports on the Coronavirus and our economy can create anxiety for just about everyone. Are we in or headed to a prolonged recession? Has the stock market bottomed and should be investing now? Positive news from the health care sector and unprecedented support by the government appears to be helping stabilize our economy and the stock market. What is the way forward and what will the next year or so look like?

The Mayo Clinic and the University of Minnesota are proposing an increase in their ability to test and track the virus. Similar efforts are being made elsewhere. Our Health-Care system has remained afloat to date and recently we have seen unprecedented and swift actions by the Federal Reserve and Congress to support the economy while science works on a vaccine and a better understanding of the virus. When the Federal Reserve is as aggressive with its actions as it its now, and interest rates are low as they are now, the stock market is generally supported. So, what is the way forward and what will the next year or so look like

Given that it is widely expected that the Fed and Congress will continue providing economic support, the stock and bond markets should be able to weather near-term news on unemployment and corporate earnings. We are also optimistic about the ability of our scientific community to come up with solutions soon and believe that once the crisis is contained, the nation and economy will revive, and possibly faster than some expect. But some sectors may have bigger problems – airlines, restaurants, brick and mortar retail, landlords, and possibly hotels. Lots of jobs there. And a good number of small businesses may just not come back. Thing is, it could be a lumpy recovery with quite a bit of job dislocation and higher long-term unemployment. But overall, GDP growth should come back starting this fall, driven by pent-up demand. An important economic factor is how soon business can get back to work. The longer businesses and their employees are out, the more economic pain we will endure and the longer it will take to get our world functioning again.

Exactly how the pandemic will end depends in part on medical advances still to come. It also will apparently depend on how we all behave in the interim. Given all of these factors, we are optimistic, but also aware of the questions still to be answered, including yours. We are here to talk over your situation at any time.