IMPORTANT NOTE: Under the CARES Act, small businesses affected by COVID-19 will be eligible to apply for an Emergency Economic Injury Grant (EEIG) of up to a $10,000 advance on an Economic Injury Disaster Loan (EIDL) for emergency capital. To access the advance, you first need to apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
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You can choose a qualified custodian such as Fidelity Investments, Charles Schwab & Co, or TD Ameritrade. We file an add advisor form to view your portfolio and to help you invest.
We employe two primary hedges. The first is a long / short equity. The hedge will be long equities or short equities. Our second hedge is a stock / bond hedge. It is either long equities or long bonds. We usually choose the top performing classes of stocks or bonds to employ in our hedges.
A fiduciary is someone who looks out for your best interest. Typically, salespeople may be compensated in a manner that encourages the presentation and sale of a product that is in the best interest of the salesperson. However, fiduciary advisors are compensated on a fee basis. This is designed to ensure that a fiduciary makes recommendations that are in the client’s best interest.
Most managed investment accounts restrict clients from taking action to buy or sell individual securities without their financial advisor or support department assistance. Your financial advisor might have the authority to place trades on your behalf. Often, discretionary trading authority in managed accounts has been removed from your advisor and placed in the hands of separate managed account client support department. When either of these resources are inundated with client inquiries, clients might not be able to channel these instructions within a timely manner. An alternative option would be to open a separate like-kind account at either the same or different financial institution and process an outgoing electronic account transfer. This will automatically force the managed account department to remove the restriction and deliver the securities to the new account. If it is done within the same firm, it should be delivered within 24-48 hours. Once the assets are delivered, you have the flexibility to invest and control your assets at your discretion.
A) Sell everything to Stop Bleeding.
B) Buy more and pray that works.
C) Shift from Stocks to Bonds.
D) Consult a financial advisor to review your portfolio allocation.
CORRECT ANSWER: D) Making major shifts in your portfolio allocation should be a decision based on your long-term investments goals and not the volatility in the stock market. Protection should be built into your financial plan before the markets become volatile. Always consult your financial advisor before making extreme changes to your portfolio strategy.
Most employer sponsored retirement plan administrators have investment support departments that are licensed and can assist with basic investment decision making. However, your first call should be to your financial advisor. Any decisions made about your retirement assets should be made in the context of your long-term goals and not your in response to short-term movements in the markets. If your financial advisor does not opine about your assets within your employer sponsored retirement accounts, then we advise for the investor to seek investment counsel that will address the entirety of their financial picture.
Individuals holding large amounts of company stock always face the risk of unsystematic risk associated with that particular company. Unsystematic risk is associated with any one company or industry’s business and its potential impact on a portfolio if an adverse event or series of events were to occur. We believe that, where possible, unsystematic risk should be reduced and diversified away. If your company’s stock has fallen and opportunities to divest were not apparent, chances are, this might be an opportunity to divest and diversify. Perhaps the tax implications of the divesting stopped you before, but if the stock price has fallen, then such concerns are mitigated and action should be taken swiftly. Clients should always review how single-stock risk within a portfolio might adversely impact their long-term goals in their financial plan.
Since the global outbreak of Covid-19, we have seen an increase in volatility in the stock and bond markets and an overall decline in global economic output. Due to significant uncertainty as to the decline in global trade and economic activity, a major market correction began on February 17th, 2020 and has continued to the present day. Major market indices have rapidly declined and unprecedented volatility has placed many investors’ financial plans at risk. Many investors have positioned themselves for more risk than was advisable due to the need to obtain yield in the midst of historically low interest rates. We believe this investment behavior, known as return-chasing, leads to perilous results and we do not endorse this practice. We do believe that our clients risk number should be a reflection of their desired maximum risk exposure. An all-weather risk number should reflect a maximum-desired and necessary area of portfolio fluctuation needed to be able to accomplish our clients goals. If an investor feels that their portfolio has declined beyond their expectations, then their risk number should be addressed and adjustments made to reflect the true risk of the investor. Know your risk number!
The Treasury Department and IRS announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed.
This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax. Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline can file an automatic extension to Oct. 15.
It is our understanding that there are extensions granted for the deadline for prior year IRA contributions until July15, 2020. Please visit the IRS link posted below for more details about changes to tax relief due to the Coronavirus Outbreak.
Portfolio rebalancing is the process of reducing or increasing investment weights in a portfolio. This is due to the uneven fluctuations of assets in the portfolio. In order to maintain a portfolio’s risk-based asset allocation, a portfolio manager must redress (add or reduce) portions of the allocation within the portfolio. Portfolio rebalancing should normally occur on a monthly or quarterly basis. However, during fast-markets (periods of intense volatility or abnormal trading volume) rebalancing assets within a portfolio might need to be addressed on a daily if not weekly basis. This might also be the case if a hedge/protection strategy is added to the portfolio to reduce volatility and down-side capture.
Most investors make decisions to invest based on their understanding of the investment universe available to them. Unless the investor is an institution, the knowledge of the investment universe might be limited to a narrow focus of industry or asset class. We believe that a globally diversified portfolio of assets designed to be allocated within a risk-adjusted allocation program works best to provide the most return for the most appropriate client risk profile. We also believe that a suitable portfolio hedging strategy goes much further to reduce exposure to market declines and hastens the portfolio recovery timeframe in the event of a major market decline. Most modern portfolio managers do not believe in the use of hedges, nor do they include them in their portfolios. Without a hedging strategy, portfolios tend to take longer to recover and investors tend to abandon their investment strategies.
We use a multitude of fundamental and technical analysis indicators to identify suitable investments for consideration within our clients portfolios. We use a proprietary series of capital flow indicators, which provide our money managers with the purview of the market allowing for us to gauge the relative strength of opportunity or danger in the markets ahead. We manage the quality of our clients assets in a risk-based asset allocation program. We also include various hedging strategies within an investors portfolio, designed specifically to reduce downside risk of the market and maximize upside potential during the recovery.
Most financial advisors at major financial institutions are burdened books of business with very large numbers of client relationships (400 clients to 1 advisor and 1 support rep). The average financial advisor, most likely does not implement investment decisions personally and more of a relationship point of contact for financial planning advice. When major market events occur, the advisor does not have the time, nor the bandwidth to proactively address client concerns about their finances.
When stress testing a financial plan, it is common practice for a financial advisor to use Monte-Carlo simulations to make projections on your financial plans’ likelihood of success within a variety of confidence levels. However, many financial planners fail to use financial planning software that emphasizes more weight on the poorly performing years and black-swan events. Black-Swan events are unpredictable events that are beyond what is normally expected of a situation and has potentially severe consequences. When a financial planner fails to account for more frequent occurrences of black-swan events, the probability of a financial plan’s success might be provided as a false positive. We custom tailor our financial plans to include multiple black swan events that provide greater stress testing for our clients peace of mind.
Protection planning can encompass a multitude of concerns. Generally, protection strategies include protecting principal, income, or from taxation. To protect principal, an advisor might designate a portion of the portfolio to invest into FDIC-Insured CD’s, Fixed Index Annuities, Single-Premium Deferred Annuities, or U.S.Government Bonds. To protect clients income-need, an advisor might designate a portion of the portfolio to invest into a Laddered-Bond Portfolio, Single Premium Immediate Annuities, or Hybrid-Variable Income Annuities. To protect from taxation, an advisor might recommend the use of Tax-Deferred Variable Annuities, Whole-Life Insurance, and Fixed Index Annuities. However, without a strong understanding of your financial plan and goals, the use of these vehicles and other strategies might not meet your needs.
With taxable assets, when an investor makes major shifts in a portfolio, without regards to tax implications, capital gains can mount up and create a large tax burden for the investor. Tax-loss harvesting and wash-sale considerations should be amongst the major factors considered when making major allocations decisions. Also, if an investor holds mutual funds, they might be in a circumstance where the fund has declined in value and due to the internal trading activities throughout a volatile market year, the fund pays out a larger than usual long-term and short-term capital gain distribution. When this happens, it’s most likely at the end of the year without much time to harvest tax losses to offset the capital gains distributed.
There are many different types of financial applications and softwares that can provide investors with a high level of financial reporting of their wealth and financial net worth. Through the use of API links, investors can connect the reporting of financial assets held at various institutions into one financial software. At first glance, this type of single-software reporting feature can consolidate reporting and help provide useful surface level analytics. However, when analytics expose vulnerabilities in the risk of an investors financial strategy, implementation through splintered custodial firms and institutions can be quite challenging and very difficult to benchmark. We believe that investors should consolidate their financial assets into one custodial house and utilize the professional financial software resources of a financial planner. The tools may be great, but the analytics are only as good as the context in which they apply to the financial plan. Very few investors manage their finances as it pertains to their financial plan.
When considering what to do with your 401(k)/403(b) from a former employer, you have three options:
- You can directly rollover your previous employers 401k into an IRA. A direct rollover is a non-taxable movement of your funds from one tax-deferred account to another tax-deferred account. By moving your assets to an IRS, you have access to professional portfolio management and financial planning services with your choice of wealth management companies. Your portfolio strategy is open to a larger universe of investments and tactical decision making processes. Many portfolio managers must provide their clients with a financial plan in order to make recommendations appropriate for their long-term financial goals.
- You can leave it in your former employer sponsored plan account and maintain the account with the current plan administrator. You can maintain your investment allocation within the funds selected by your former employer and may need permission to move the account when ready.
- You can directly rollover your previous employers 401k plan into your current employer’s 401k plan. You will be able to take advantage of a variety of benefits including being able to access a portion of your savings in the form of short-term loans. However, you will be limited to investing into the investment choices chosen by your employer.
During the week of March 16, 2020- March 20th, 2020, the fixed income markets (treasuries and investment-grade corporate bonds traded in direct correlation with the equity markets. During this period of intense equity market volatility, a liquidity scare created a whipsaw trading action that saw yields and prices on all fixed income markets move precipitously throughout the trading week. In the preceding week of March 9th, 2020-March 13th, 2020 intermediate and long-term bond prices fell 11.57% and during the week of March 16th, 2020-March 20th, 2020 prices dropped by another 10.48%.These moves in the bond market happened during a time that the equity markets whipsawed with the bond market and fell 20% within the same period. This historic volatility in the bond market made many investors realize that even the bond market couldn’t provide any degree of safety and were no longer inversely correlated. When this phenomenon occurs, portfolio managers can use assets known as Inverse ETF’s/ETN’s, which are funds that sell market index fund in a short-position, and repackage it into a tradable ETF. The performance of an Inverse ETF is the exact mirror opposite as the index that is designed to hold in a short-position. Thus, holding an inverse ETF can serve as a hedge to protect against the positive correlation that might arise with between stocks and bonds.
Generally, as an economic cycle moves from expansion to contraction, market valuations of equity assets tend to correct and fall to valuations reflecting their forward earnings during an economic contraction. As a result of capital flows moving away from risk-on assets (stocks), capital will follow into risk-off assets (high quality bonds and treasuries). However, this process is not an orderly process and does not occur directly, but over many series of capitulations in all assets classes. However, as the market prices in economic contraction and the economic cycle moves from trough to early-stage recovery, businesses must replenish their inventories and must invest into raw material to manufacture new inventories to restock for new demand levels for goods. During this period of the economic cycle, we believe it prudent to hold industrial companies, raw materials producers, utilities, commodity producers, and consumer staples. It is for this very reason we believe that a well diversified risk-adjusted portfolio designed to cycle industry and sector-based exposure is the appropriate solution for those investors looking for direction in the midst of an economic recession.