SJS 2024 Annual Report
The SJS Annual Report provides updates on the SJS Team, MarketPlus Investing®, SJS purpose, mission, & values, multi-family office services, and SJS community involvement.
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SJS 2022 Annual Report
The SJS Annual Report provides updates on the SJS Team, MarketPlus Investing®, SJS purpose, mission, & values, multi-family office services, and SJS community involvement.
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Suggested Reading
This Too Shall Pass
As advisors and professional investors, we hold vivid memories of the times when markets are volatile and bear markets ensue.
By Scott Savage, CEO & Kevin Kelly, CFA, President.
Past as Prologue?
As advisors and professional investors, we hold vivid memories of the times when markets are volatile and bear markets ensue. So far, 2022 is going to be a year we won’t soon forget, joining 1987, 2000 through 2002, 2008 & 2009, and 2020, among others.
The primary culprit this year for lower bond and stock prices is an unexpected increase in short-term interest rates, reaching levels not seen in over fifteen years. The Federal Reserve that is responsible for the level of short-term rates has acted decisively, raising short term rates by 3.0% between March and September, attempting to halt and reverse the inflation rate from its current annual pace of 8%+. The Fed’s rate hikes flow directly to higher lending rates which tend to slow economic activity, thus increasing the risk of a recession.
All of this has been a significant headwind for stock and bond prices, giving the calendar year of 2022 its bear-market distinction.
Good Decisions vs. Good Predictions
Despite our opinions, we have never held ourselves out as predictors or market timers. However, we believe you rely on us to help make good decisions in a thoughtful and disciplined manner, in good markets and bad; decisions that involve re-balancing and making sure your long-term asset allocation targets are maintained. For your taxable accounts, we harvest losses where appropriate with the intention of deferring future taxes.
Last year at this time we made the decision to add a new alternative manager to our stable of asset managers. This decision has proved to be helpful thus far in 2022, adding some stability to the portfolio with our diversified alternatives fund (symbol: SRDAX) experiencing a nominal decline of 4% through September 30th, compared to much sharper drops of 25% for the MSCI ACWI and 15% for the Bloomberg U.S. Aggregate Bond Index. We continue to look for new managers and strategies that strive to improve the risk/reward profile of your portfolio.
The hard-to-find silver lining in such a difficult time is that going forward, the long-term expected rates of return on our capital market assumptions are higher than they were at the start of the year, due to more attractive price valuations as of September 30, 2022. Does this mean we are close to a bottom? That is never knowable in advance. But if history repeats, we want to make sure that your investments are well-positioned to benefit from rising asset prices, if and whenever that may come.
We remind ourselves, knowing that past performance is not indicative of future returns, that periods following past bear markets have offered very meaningful market returns, the historical “reward” in the risk reward trade-off:
Source: Russell Indexes, Jan 1979 – Sep 2022.
We can only speculate on the short-term vagaries of the markets, and in the meantime, we will keep making what we believe are the best decisions for you!
Important Disclosure Information:
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Statements contained in this report that are not statements of historical fact are intended to be and are forward looking statements. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Indices are not available for direct investment. Index performance does not reflect the expenses associated with management of an actual portfolio. Index performance is measured in US dollars. The index performance figures assume the reinvestment of all income, including dividends and capital gains. The performance of the indices was obtained from published sources believed to be reliable.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice.
MarketPlus Investing
Video on our MarketPlus Investing philosophy.
Important Disclosure Information:
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
MarketPlus Investing® portfolios consist of institutional quality registered investment companies. Investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.
Statements contained in this video that are not statements of historical fact are intended to be and are forward looking statements. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Suggested Reading
What You Need to Know Before You Invest Your Money
Smart investors do their homework, find people they can trust and use strategies that work for them. Here are three things investors must know about themselves.
MarketPlus Investing® Helps Investors Choose What’s Right for Them
By SJS Investment Services President Kevin Kelly, CFA.
With countless investment options available to you, with so much written about the state of the markets, the state of the economy, and the state of the world, deciding how to invest your money - whether it be your own or an organization’s - keeps getting more complicated. Smart investors do their homework, seek out people they can trust, and find investment strategies that work for them. In words, that sounds easy. In practice it isn’t very easy at all.
SJS Investment Services has spent decades helping people choose what’s right for them when it comes to investments through our proprietary investment process called MarketPlus Investing. And through it all, we have discovered the three most important things investors need to know about themselves before they invest.
WHO ARE THE PEOPLE YOU CARE ABOUT AND HOW DO YOU WANT TO TAKE CARE OF THEM?
In the course of conversation, SJS Investment Services gets to the core of what’s important. It might be a person or a cause, but until we know who you care about and how you want to take care of them, we don’t know enough about you to fully guide you.
WHAT IS YOUR TIME WINDOW? (OR, HOW LONG IS YOUR RUNWAY?)
How long before you or the people you care about need your money? This makes a big difference when determining an appropriate investment vehicle for you or your organization. Some individuals have a time window of twenty years or more. Others, including organizations, want investments that cover their expenses next month or next year. Between the extremes are an infinite number of scenarios, and each imply a different investment strategy.
HOW RISK AVERSE ARE YOU?
When asked this question, investors are often quick to say that they are comfortable with risk. But the reality is that many investors are more risk averse than they think. That’s why SJS Investment Services digs deeper than just this question to find out the real answer. And more importantly, we ask about necessary or desired return on an investment*, so we can help design an investment portfolio appropriate for you.
At SJS Investment Services, these three questions are just a part of getting to know you. The more we know about you, the better we can design a MarketPlus Investing portfolio for you. Because MarketPlus Investing is our proprietary science-based process of structuring investment portfolios to help people achieve their specific financial goals, there are countless options. And the more we know, the better we can apply the academic models, the market trend analysis and consider ever changing key indicators on your behalf. SJS Investment Services through MarketPlus Investing seeks to develop the right portfolio design to meet your needs.
Important Disclosure Information:
*There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Inflation: Necessity or Risk? And What Should We Do?
We believe economic inflation is a real risk - the other edge of the sword in contrast to the risk of stock-market volatility that is so often referenced in investment-risk discussions.
By SJS Investment Services President Kevin Kelly, CFA.
Have you ever had a flat? Re-inflating the tire is a good thing!
Ever over-inflated a tire? Or a balloon? Not so good!
Coming off the severe economic disruption from the early months of the COVID pandemic, you could justifiably argue that daily commerce had a flat tire - or four!
Never fear! Our duly elected leaders in Washington of BOTH parties were ready to help - a few trillion dollars in stimulus payments ought to do the trick!
A classic characterization of economic inflation, or its cause, is “too many dollars chasing too few goods.”
Of course, it is never quite that simple.
While “Money Supply” has increased measurably from this time one year ago, significant slack remains in our U.S. economy such that the “Velocity of Money,” or how frequently a dollar changes hands, has plummeted from the pre-pandemic rate. Both have an influence on inflation.[1][2]
Source: “Inflation, consumer prices for the United States“. Federal Reserve Bank of St. Louis, 03-Mar-2021, research.stlouisfed.org.
Anecdotally, we can point to price increases in housing, automobiles, some groceries, and fill-in-the-blank here based on your personal experience. Asset prices have increased as reflected by the stock market.[3] Producer Price Indices have surged, but this may not sustain as supply chains recover and stabilize.[4] The value of a dollar is on a downward trend compared to many foreign currencies.[5] The “breakeven inflation rate” indicated by the U.S. Treasury bond market suggests a 10-year rate of inflation approaching 2.4%, the highest this indicator has been in about eight years.[6]
But “what to do” quickly becomes the punchline, whether you anticipate inflation or not. SJS professionals believe economic inflation is a real risk - the other edge of the sword in contrast to the risk of stock-market volatility that is so often referenced in investment-risk discussions.
A primary motivation for taking investment risk to begin with is to maintain and grow the purchasing power of your assets. With cash deposits receiving close to a zero-percent rate of return, a general inflation rate of 2.4% will erode your purchasing power in a meaningful way over a period of years unless you invest beyond cash.
We recently “benchmarked” our model portfolios against the Consumer Price Index (CPI) to demonstrate
this inflation-beating characteristic of our investment strategies.
Benchmark: “Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL)”. Federal Reserve Bank of St. Louis, 31-Mar-2021, research.stlouisfed.org. See Important Disclosure Information.
Your MarketPlus Investing® design has allocations to inflation-adjusted bonds and inflation-hedging stocks for environments such as our current one. No hedge or adjustment is perfect, and inflation can put stress on your household budget no matter what. But as “professional worriers,” planners, and managers, your team at SJS has anticipated inflation and works daily on your behalf to align your investments with current valuations, our outlook on the markets, and your best interests.
We can all agree that a flat tire or a stalled economy is not a desirable state of affairs. Let’s hope the government stimulus spending, a resurgent economy, and inflationary dynamics find the right balance and keep us on a steady road of progress in the quarters and years ahead!
Important Disclosure Information And Sources:
[1] “M2 Money Stock (M2SL)“. Federal Reserve Bank of St. Louis, 25-Mar-2021, research.stlouisfed.org.
[2] “Velocity of M2 Money Stock (M2V)“. Federal Reserve Bank of St. Louis, 25-Mar-2021, research.stlouisfed.org.
[3] “MSCI ACWI IMI Index (USD)“. MSCI, 31-Mar-2021, msci.com.
[4] “Producer Price Indexes (PPI)“. Federal Reserve Bank of St. Louis, 25-Mar-2021, research.stlouisfed.org.
[5] “Foreign Exchange Rates - H.10“. Board of Governors of the Federal Reserve System, 05-Apr-2021, federalreserve.gov.
[6] “10-Year Breakeven Inflation Rate (T10YIE)“. Federal Reserve Bank of St. Louis, 31-Mar-2021, research.stlouisfed.org.
Past performance does not guarantee future results.
SJS Investment Services (SJS) has created hypothetical performance returns for each of its MarketPlus® Asset Allocation Models. The hypothetical performance was calculated by applying the actual performance of a mutual fund to the asset class percentage within a MarketPlus® Asset Allocation Model. The Model Portfolio Historic Returns do not reflect actual trading or the performance of actual accounts. Actual client results may be materially different than the hypothetical returns. All returns presented include reinvestment of dividends and other earnings. The hypothetical results presented reflect the deduction of a 1.10% annual SJS advisory fee, the maximum fee charged. Advisory fee may be less than illustrated. Performance may be reduced by other fees charged by your custodian. The effect of fees and expenses on performance will vary with the relative size of the fee and account performance. Please refer to Part 2A of SJS’ Form ADV for additional information on SJS’ advisory fees.
There are inherent risks in the presentation of hypothetical performance data because the data may no t reflect the impact of material economic and market factors. The results presented reflect the effect that material market and economic conditions had on the actual performance of the underlying mutual funds but does not reflect the impact that these factors might have had on decision-making.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Market Movements Q2 2020: The Sequel
In our estimation and experience, most predictions are largely speculative and unreliable. The only prediction we are prepared to make is based on historical evidence that prices/economies tend to recover after economic shocks.
By SJS President Kevin Kelly, CFA.
EQUITY MARKETS
Last quarter, global markets experienced a synchronous drop in equity asset classes. Investors around the world arrived at lower market valuations that included falling revenues and newly identified risks. We can now offer a more encouraging picture as a rising trend has been evident in the same asset classes during the second calendar quarter:
Source: Morningstar.com, July 1, 2020. Equity asset classes are considered representative by SJS Investment Services based on actual results of institutional mutual funds within these categories (DFQTX, DFIEX, DFCEX, and DFGEX). Actual performance for each client may be different. Past performance is no guarantee of future returns.
As of June 30, 2020, the quarterly gain in major equity asset classes spanned a positive range of 12 to 22%.
THOSE DOGGONE PREDICTIONS!
It is worth re-stating that in our estimation and experience, most predictions are largely speculative and unreliable. The only prediction we are prepared to make is based on historical evidence that prices/economies tend to recover after economic shocks.
But we acknowledge that things can get worse from here and the current upward trend is in no way guaranteed to continue. Predicting where the dog at the end of the leash will go is range-bound at best…and even then, the dog can sometimes break his leash!
Investments, by their nature, are unpredictable. Yet we continually strive to manage your investments so that you can have the confidence that your MarketPlus® portfolio has been trained at obedience school!
If you ever find the investment markets make you “uncomfortable,“ let us do the worrying for you, so you can focus on the people and causes that matter most to you. We are always here for you, to lend an ear, to listen, and assist!
Important Disclosure Information:
Past performance is no guarantee of future results. There is no guarantee investment strategies will be successful. Diversification neither assures a profit nor guarantees against a loss in a declining market. MarketPlus Investing® models consist of institutional quality mutual funds. Mutual fund investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. The performance of the indices was obtained from published sources believed to be reliable but which are not warranted as to accuracy or completeness.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Value Opportunities
When you “buy low,” and prices go lower, it can test conviction. Nonetheless, we believe now is a good time to stick with and lean-in to MarketPlus Investing.
By SJS President Kevin Kelly, CFA.
Investor Howard Marks recently wrote, “All great investments begin in discomfort… ‘When the time comes to buy, you won’t want to.’ It’s not easy to buy when the news is terrible, prices are collapsing and it’s impossible to have an idea where the bottom lies. But doing so should be the investor’s greatest aspiration.”[1]
In an effort to buy low and sell high, many investors attempt market timing. However, studies have repeatedly shown that most investors who attempt to time the market significantly underperform broad market indices, due to many factors.[2] So if market timing is not reliable, what else can investors do to achieve higher expected returns?
MarketPlus Investing focuses on broad global diversification across thousands of securities via mutual funds. At the same time, we systematically seek stock attributes that have demonstrated higher expected returns over time.[3] Relative to broad market stock indices, MarketPlus Investing invests in mutual funds that tend to overweight stocks with financial qualities that, relative to their trading prices, have provided premium returns historically.[3,4]
Some of these qualities point us to smaller company stocks.[3] Other financial attributes suggest a bias towards “value stocks”, a quality that famed investor Warren Buffett tends to favor.[3,5]
In the spirit of Howard Marks, recent returns of small value stocks have provided plenty of discomfort, especially compared to the “blue chip“ index as represented by the S&P 500.
Sources: Ken French Data Library, Dimensional Fund Advisors Returns Web. As of 30-Apr-2020. See Important Disclosure Information for additional details.
But other than “discomfort,” are there any measurable indications that small value stocks may be a good place to invest? Perhaps one indication is that the valuation differences between US growth stocks and value stocks are at or near their greatest dispersions in history.[6] In particular, US growth stocks (particularly large growth stocks) are currently trading near valuations not seen since the 2000 Dot Com Bubble.[7] Contrarily, value stocks (particularly small value stocks) are below 40-year valuation averages, as demonstrated below.[8]
Sources: Dimensional Fund Advisors, CRSP, and Compustat. As of 31-Mar-2020. See Important Disclosure Information for additional details.
We do not believe these major valuation differences will continue over the long-term. Much of the recent outperformance of growth stocks is attributable to the performance of five of the largest stocks in the S&P 500: Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), Alphabet (GOOG / GOOGL), and Facebook (FB).[9] These stocks currently make up > 20% of the S&P 500, and are all trading near all-time highs.[9] Based on forward price / earnings ratios, the stock market has already priced in high growth into these companies’ valuations.
Sources: Morningstar Direct, YCharts, Yahoo Finance. As of 29-May-2020. See Important Disclosure Information for additional details.
We think historically cheap investments are more likely to provide higher returns over time than expensive investments, and the data suggests small and value stocks are relatively quite cheap today.[10,11]
There are sometimes rare opportunities when specific parts of the market are very attractively valued relative to broad markets, which often leads to higher expected returns over time.[12] Is this such an opportunity? Only time will tell. But we believe broad diversification and a disciplined rebalancing mechanism that incorporates valuations helps investors get appropriate returns for the risk they are assuming.
When you “buy low,” and prices go lower still, it can be a test of investment conviction. Nonetheless, we believe right now is a good time to stick with and lean-in to our disciplined investment approach called MarketPlus Investing.
If you ever find the investment markets make you “uncomfortable,“ let us do the worrying for you, so you can focus on the people and causes that matter most to you. We are always here for you, to lend an ear, to listen, and assist!
Important Disclosure Information and Sources:
“Calibrating.“ Howard Marks, 06-Apr-2020, oaktreecapital.com.
Unconventional Success. David Swensen, 09-Aug-2005, Free Press.
“A Five-Factor Asset Pricing Model.“ Eugene Fama and Kenneth French, September 2014, Journal of Financial Economics.
“Dimensional Fund Advisors: A Deeper Look At The Performance.“ Mark Hebner and Murray Coleman, 04-Dec-2019, ifa.com. Please see Important Disclosure Information for additional information on MarketPlus Investing All Equity Model Portfolio.
“Berkshire Hathaway Inc. Shareholder Letters – 2020.“ Berkshire Hathaway, 2020, berkshirehathaway.com.
“Is (Systematic) Value Investing Dead?“ Cliff Asness, 08-May-2020, aqr.com.
“Lessons From the Dot-Com Bust.“ Mark Hulbert, 08-Mar-2020, Wall Street Journal.
“Spread the Word: What’s New with Valuation Ratios.“ Dimensional Fund Advisors, 14-May-2020, mydimensional.com.
“How Markets Work and the FAANG Mentality.“ Dimensional Fund Advisors, 2019, us.dimensional.com.
“Vanguard’s economic and market outlook for 2020: The new age of uncertainty.“ Vanguard Research, Dec-2019, vanguard.com.
“An Apology for Small-Cap Value.“ Verdad Capital, 04-May-2020, verdadcap.com.
“Crisis Investing: How to Maximize Returns During Market Panics.“ Daniel Rasmussen, Brian Chingono, Graham Infinger, Bryce McDonald, Greg Obenshain, and Chris Satterthwaite, 2019, verdadcap.com.
Past performance is no guarantee of future results. There is no guarantee investment strategies will be successful. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. The performance of the indices was obtained from published sources believed to be reliable but which are not warranted as to accuracy or completeness.
MarketPlus Investing® models consist of institutional quality mutual funds. Mutual fund investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
As of 29-May-2020, the MarketPlus All Equity Model is composed of the Dimensional US Core Equity II Fund (DFQTX: 54% weight), Dimensional International Core Equity Fund (DFIEX: 27% weight), Dimensional Emerging Markets Core Equity Fund (DFCEX: 9% weight), Vanguard US Real Estate Fund (VGSLX: 5% weight), Dimensional International Real Estate Fund (DFITX: 5% weight). There are limitations inherent in model allocations. In particular, model performance may not reflect the impact that economic and market factors may have had on the advisor’s decision making if the advisor were actually managing client money. Not to be construed as investment advice.
Advisory services are provided by SJS Investment Services, Inc.., a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide tax advice. Please consult your tax professional for specific advice. This material has been prepared for informational purposes only.
Statements contained in this report that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
The S&P 500 Index is a free float-adjusted market-capitalization-weighted index of 500 of the largest publicly traded companies in the United States.
SJS Investment Services (SJS) has created hypothetical performance returns and financial information for the S&P 495 using actual historical performance and financial information of the S&P 500 and five constituent equities: Microsoft (Ticker MSFT), Apple (APPL), Amazon (AMZN), Alphabet (GOOG / GOOGL), and Facebook (FB). The S&P 495 is not an actual index created nor managed by Standard & Poor’s. The S&P 495 hypothetical historical returns do not reflect actual trading or the performance of actual accounts. Actual client results may be materially different than the hypothetical returns. All returns presented include reinvestment of dividends and other earnings.
Value (Fama/French US Value Research Index), Growth (Fama/French US Growth Research Index), Small Value (Fama/French US Small Value Research Index):
Composition: The index portfolios for July of year t to June t+1 include all NYSE, AMEX, and NASDAQ stocks for which we have market equity for December t-1 and June of t, and (positive) book-to-market equity data for fiscal year ending in t-1.
Exclusions: ADRs, Investment Companies, Tracking Stocks, non-US incorporated companies, Closed-end funds, Certificates, Shares of Beneficial Interests, and negative book values. Sources: CRSP databases for returns and market capitalization: 1926 -present Compustat and hand-collected book values: 1926- present CRSP links to Compustat and hand-collected links: 1926- present.
Breakpoints: “The size breakpoint is the market capitalization of the median NYSE firm, so the big and small categories contain the same number of eligible NYSE firms. The BtM breakpoints split the eligible NYSE firms with positive book equity into three categories: 30% of the eligible NYSE firms with positive BE are in Low (Growth), 40% are in Medium (Neutral), and 30% are in High (Value).”
Rebalancing: Annual (at the end of June) 1926-Present Fama/French and multifactor data provided by Fama/French.
Stocks are sorted on book-to-market ratio each June, where book-to-market for year t is computed using the book equity for the last fiscal year end in t-1, divided by market equity for December of t-1. Value and growth are stocks with book-to-market ratios above and below the 70th and 30th percentiles for NYSE stocks, respectively. Aggregate price-to-book value computed as the inverse of the weighted average book-to-market ratio where market equity is for the current month.
Small stocks are NYSE, AMEX, and NADSAQ stocks below the median market cap for NYSE stocks, and big stocks are above the NYSE median. Value portfolios include NYSE, AMEX, and NASDAQ stocks above the 70th percentile of the book-to-market equity ratio (B/M) for NYSE stocks. Small Value stocks are both small and value, Big Value stocks are big and value, and Market Value includes all value stocks. Market Growth includes NYSE, AMEX, and NASDAQ stocks below the 30th percentile of the book-to-market equity ratio (B/M) for NYSE stocks. Small is the portfolio of all small stocks with no value tilt. The portfolios are value-weight (VW) and are reconstructed at the end of June each year. For each return horizon, the table shows average premium (Ave), standard deviation of premiums (Std), skewness (Skew) and kurtosis (Kurt), the percent of negative premiums (Neg), and percentiles of the distribution of premiums. The Monthly row in each block summarizes the distribution of actual monthly returns. Each of the remaining rows summarizes the distribution of returns produced by 100,000 simulations of returns for a particular horizon. The simulations allow for uncertainty about expected premiums.
Suggested Reading
CARES ACT: Key Changes in Tax/Benefits Provisions for Families and Businesses
We want to share a summary of recent legislation that may affect you as you navigate through future decision-making for your families and businesses.
By SJS President Kevin Kelly, CFA.
In these times of change, when news seems to hold more emotion and impact, it can be difficult to keep track of relevant news and sift through the noise. To that end, we wanted to share a summary of recent legislation that may affect you as you are navigating through the next couple of months of decision-making for your families and your businesses.
Tax Filing Dates and Estimated Tax Payments
As you may be aware, the IRS delayed the date for filing and making federal tax payments from April 15 to July 15, 2020.¹ This change applies to individual returns, payment due from trusts and estate, and C corporations. Businesses or other entities that have filing due dates other than April 15 have not been granted a tax extension.
While some states have adjusted their tax return filing and payment deadlines to match the new federal dates, each state is making their own decision. To see if your state has delayed its filing deadline, you may check this website.
For those who pay estimated taxes, the first payment will be due June 15, with the second payment following on July 15.² As always, please be sure to check in with your tax professional for guidance.
IRA Contribution Deadline Extension
The IRS has extended the deadline to make IRA contributions for tax year 2019 to July 15, 2020.
Relief for Small to Midsized Businesses and Their Employees
On March 18, Congress passed the Families First Coronavirus Response Act. Taking effect on April 2, this law provides benefits to businesses with up to 500 employees, with possible waivers for businesses under 50 employees. While some of the details are being determined by the Department of Labor, the Act assists both employees and employers. Workers may be eligible for up to 80 hours of paid sick leave and expanded paid childcare leave. Employers are eligible to receive 100% reimbursement for paid leave pursuant to the Act, including coverage for health insurance costs and payroll tax liability. Self-employed taxpayers are eligible to receive a similar credit.³
CARES Act Stimulus
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion stimulus package. This is the third piece of legislation since March 6 aimed at combating the economic disruptions caused by the coronavirus epidemic. Some notable provisions of the CARES Act include the following⁴:
Cash Payment Payout: Individuals will receive $1,200 as a one-time cash payment from the federal government, while married couples will receive $2,400. Note that cash payments are available to individuals who had less than $75,000 of Adjusted Gross Income (AGI) in 2019, and to married couples with less than $150,000 AGI. Taxpayers will receive an additional $500 per qualified child. Payments are anticipated to be made in April.
Small Business Help: Certain businesses with fewer than 500 employees impacted by coronavirus will be able to take out loans of up to $10 million. These loans may be eligible for forgiveness if used to cover payroll, rent and utilities. Employers will also be able to delay paying Social Security payroll tax normally paid in 2020; payments will be due at the end of 2021 and 2022.
Unemployment Benefits Expansion: There will be an increase of $600 per week for up to four months for unemployment benefits. Benefits will also be extended to self-employed individuals and independent contractors.
Student Loan Payment Deferral: Federal student loan payments are deferred through September 30, 2020.
IRA Withdrawal Changes: Required minimum distributions from IRAs are waived for tax year 2020. The ten percent early withdrawal penalty that may apply to distributions made from retirement accounts for “Coronavirus-Related Distributions” is eliminated.
Additional IRA Distribution Information
As part of the CARES Act, Required Minimum Distributions (RMDs) are now suspended for 2020. RMDs do not have to be taken from Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b), and governmental 457(b) plans. Individuals who turned 70 ½ in 2019, do not have to take their 2019 RMD (normally due by April 1, 2020) or their 2020 RMD.
Distribution rules vary for beneficiaries of inherited IRAs. Beneficiaries taking “stretch IRA” distributions over their lifetimes do not have to take these distributions for calendar year 2020. However, beneficiaries of IRAs who must distribute the entire inherited IRA in a five-year period are given an additional year to distribute the full inherited IRA balance. Those beneficiaries subject to a ten-year distribution schedule for inherited IRAs will not receive an extension, as the first IRA distribution would be required in 2021.
So, should you still take an IRA distribution if there is no requirement? The answer is, it depends. If you need to take IRA distributions to support your lifestyle expenses, then you may still need to make distributions. You might consider making a partial or full IRA distribution if you can do so at a relatively low tax rate. Also keep in mind that if you are at least 70 ½, you can continue to use IRA distributions to make charitable gifts, which may reduce taxable income distributed to you, if you cannot itemize deductions on your tax return.
What should you do if you have already taken a distribution? In some circumstances, it may be possible to reverse unnecessary RMDs.
1. RMD has taken place within the last 60 days:
An individual may be able to write a check or transfer an amount equal to the distribution back into a retirement account before the end of the 60-day rollover window. Care must be taken to comply with the once-per-year rollover rule (the funds cannot have been rolled from a plan in the last 365 days, go to a plan in the next 365 days, and/or no other IRA-to-IRA rollover can have been made within the past 365 days).
2. RMD took place more than 60 days ago:
If the individual meets one of the qualifications for taking a Coronavirus-Related Distribution (CRD) in 2020, then the IRA funds can be repaid within three years from the date of distribution. Alternatively, the distribution can be taxed over three years. Distributions of up to $100,000 from an IRA or retirement plan may be eligible for CRD treatment if the taxpayer, spouse or a dependent is diagnosed with COVID-19, or any of the following circumstances apply:
Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease;
Become unable to work due to lack of childcare as a result of the disease;Own a business that has closed/operate under reduced hours because of the disease; or
Meet some other reason approved by the IRS.
What about for beneficiaries of inherited IRAs who made distributions already? These individuals are not able to make a rollover or return the funds to an inherited IRA. The only exception is for surviving spouses who took distributions from an inherited spousal IRA – the surviving spouse may be able to deposit the RMD back into their own retirement account as a spousal rollover.
Please know that your SJS team is here to help guide you and your organization through these difficult times.
Important Disclosure Information and Sources:
[1] Erb, Kelly Phillips. “All You Wanted To Know About The IRS Tax Filing & Payment Extensions & Relief But Were Afraid To Ask.” Forbes.com. March 19, 2020. www.forbes.com/sites/kellyphillipserb/2020/03/19/all-you-wanted-to-know-about-the-recent-irs-tax-payment-relief-but-were-afraid-to-ask/#73b88b8845d5
[2] “Filing and Payment Deadlines Questions and Answers.” IRS.gov. March 24, 2020. www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers
[3] “Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave.” IRS.gov. March 20, 2020. www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus
[4] “Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic.” Kitces.com. March 27, 2020. www.kitces.com/blog/analyzing-the-cares-act-from-rebate-checks-to-small-business-relief-for-the-coronavirus-pandemic/.
SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
CARES ACT – Resources For Small Businesses And Nonprofits
To help small businesses and nonprofits, we have summarized a few key provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The past few weeks have been anything but normal. Federal and state mandates have impacted how most small businesses and nonprofits operate. According to JP Morgan, the median business holds cash reserves to cover just 27 days of expenses.[1] Even if your organization operates with a bigger cushion, anxiety about the future is forcing many business owners and organizational leaders to face difficult decisions.
The good news is that health and government officials have worked together to craft the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help small businesses and nonprofits through these tough times.
We have summarized a few key provisions below. These programs can provide a significant boost to struggling businesses. If you believe that you may be eligible or have any questions, please reach out to your team at SJS. We are here to help and can direct you to the correct resources.
Economic Injury Disaster Loans (EIDLs)
The Small Business Administration’s (SBA) EIDLs are the first line of support. While not new, these loans are available in the event of disaster.[2]
The SBA offers many favorable terms in their EIDLs:
Loans up to $2 million with terms up to 30 years. Interest rates are 3.75% for small businesses and 2.75% for nonprofits.
Borrowers can receive an emergency grant cash advance of $10,000, which can be forgiven if spent on paid leave, maintaining payroll, supply chain disruption costs, mortgage / lease payments, or repaying obligations that cannot be met due to revenue loss.
You apply for these loans directly through the SBA.
Paycheck Protection Program Loan Guarantee
This program can provide a business with a loan up to $10 million for payroll and other expenses including:[3]
Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000.
Rent pursuant to a lease in force before February 15, 2020.
Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020; and
Group health insurance premiums and other healthcare costs.
The amount spent on the above expenses during the first eight weeks after the loan origination date is potentially eligible for loan forgiveness. To qualify for loan forgiveness, you must maintain the same average number of employees for the first eight-week period beginning on the loan origination date. If you don’t meet this requirement, the loan amount forgiven is reduced.[4]
Employee Retention Credit for Employers Subject to Closure Due to COVID-19
If you are not receiving a loan, you may be eligible for a new payroll tax credit. To be eligible, your organization must continue to pay employees while not working, as well as satisfy one of the following criteria:
Organization operations were fully or partially suspended during Q1 2020 due to governmental authority.
Organization has less than 50% revenue in the quarter compared to the same quarter in 2019.
In simplest terms, the credit is equal to 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee.[5]
Deferral of Payment of Payroll Taxes
If not receiving a loan, you may be eligible to defer payroll taxes from the date of the CARES Act enactment through the end of 2020, ultimately paying these payroll taxes in 2021 and 2022. More specifically, 50% of the payroll taxes that would otherwise be due during this period may be deferred until December 31, 2021. The remaining 50% is due by December 31, 2022.[4]
Net Operating Loss Rules Are Loosened
The CARES Act adjusts Net Operating Losses (NOL) rules to allow NOL from 2018, 2019, or 2020 to be carried back up to five years. In theory, this should allow companies to reduce tax bills from prior years, allowing them to claim refunds of amounts previously paid.[4]
Please know that your SJS team is here to help guide you and your organization through these difficult times.
Important Disclosure Information and Sources:
[1] “Cash is King: Flows, Balances, and Buffer Days.” Diana Farrell & Chris Wheat, jpmorgan.com.
[2] “Small Business & Nonprofit SBA Programs Available with the Impacts of COVID-19.” Jim Ashley & Corey Stone, bkd.com.
[3] “Paycheck Protection Program.” U.S. Small Business Administration, sba.gov.
[4] “Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic.” Jeffrey Levine, kitces.com.
[5] “CARES Act Includes Employee Retention Credit.” Amy Barnes, Michael Goller, & Karla Nettleton, reinhartlaw.com.
SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
3 Cheers For 20 Years
We are thankful to have Kevin Kelly, CFA and Meredith Sleet as part of the SJS team, and we look forward to their leadership, guidance, and the sound of their friendly voices for many years to come.
By SJS Founder & CEO Scott Savage
The world looked a lot different 20 years ago. Your mobile phone was large and unwieldy, and could be used to make a phone call, and that’s about all! The Y2K scare had just passed with barely a blip – to the great relief to anyone with a computer. The New York Yankees were dominating Major League Baseball, and Florida State University was the team to beat in college football. Much has changed as the past 20 years have ticked by.
Something that hasn’t changed? The voice you hear when you call SJS. Twenty years ago, SJS Founder and CEO Scott Savage asked his then-neighbor, Meredith Sleet, to answer the phones at his office – for just a few weeks. Meredith agreed … and a few weeks turned into a few years, which turned into two decades last November.
“When I try to describe what Meredith means to me, I start to tear up,” reveals Scott. “If I am the length and shadow of SJS, Meredith is the one holding the flashlight and making sure there are always spare batteries in the closet.”
Meredith is similarly reflective about her time at SJS: “From just four of us in the office when I started, to the ‘Sweet 16’ we have today, it’s hard to call it work when everyone makes it fun!”
And then, just two months after Meredith joined the SJS team, Scott reached out to Kevin Kelly to fill the role of Managing Director.
Kevin served in that capacity until 2008, when he was named SJS President. “Twenty years ago, Kevin brought a method to my madness,” says Scott. “Turning all that we do into a reliable process has allowed SJS to serve more clients at the high standard they have come to expect from us. I am eternally grateful for our friendship.”
From Kevin’s point of view: “It has been a tremendous experience and blessing to get to know and serve the wonderful clients working with SJS over the past two-plus decades. Working with Meredith, Scott, and a team of colleagues that are second-to-none, we strive daily to make MarketPlus Investing® the investment approach with the highest service standards in the industry.
“What a fulfilling challenge to serve individuals, families, and institutions – where our success can directly impact goals that are meaningful to them!”
As we start the new year, the time is right to look back and reflect on the past year – or, in this case, the past 20 years! We are thankful to have Kevin and Meredith as part of the SJS team, and we look forward to their leadership, guidance, and the sound of their friendly voices for many years to come.
Suggested Reading
Non-Profits – Are You Planning for the Next 100 Years?
Responsible governance is less about the newest trends in leadership and investing, and more about being responsible and calm no matter what markets do.
By SJS President Kevin Kelly, CFA
Despite all the complicated rhetoric about business and finance and strategy and methods, by doing the basics as a finance chair or board of directors, you stand a good chance of creating an endowment that lasts many years – perhaps forever.
The fact is that responsible governance is less about the newest trends in leadership and investing, and more about being responsible and calm no matter what the markets are doing.
We’ve been guiding and advising non-profits for decades through up and down market cycles, and experience tells us that these things work:
Develop a long-term plan and stick to your investment strategy.
We can help. Many institutions have turned to us for guidance, and we can share what we believe are the best strategies, and help you model those strategies within your organization. Then we do what we do best – which is keeping you focused during markets ups and downs.
Institutionalize the vision and the plan.
You know there will be investment committee changes and asset reallocation required. There will be spending policy changes and leadership turnover. Every change need not be a new direction, if you make the vision and the plan the guiding force of the organization.
Surround yourself with experience.
You don’t have to know everything. You just have to know people who know a lot about the different aspects of your responsibilities. When you bring all those people together, you tend to set yourself and your organization up for success. We are often part of that team. Call us, and we’ll share with you everything we know. We’ll also recommend others who are just as knowledgeable and giving.
You probably guessed that your role is not a solo act – it is a team sport.
By building a great team, you stand the best chance of keeping your cause funded for decades – if not centuries – to come.
Suggested Reading
Three Common Mistakes Many Investors Make
Through helping clients invest through MarketPlus Investing, we have discovered three main reasons why investors often have difficulty investing on their own.
MarketPlus® Investing Helps Investors Avoid These Common and Costly Pitfalls
By SJS President Kevin Kelly, CFA
You’d think that anyone who wanted to be a highly successful investor could achieve that goal on his or her own, given all the access to financial information and the speed of information we enjoy today. After all, the Internet, television, radio, magazines—just about everywhere you turn—provide round-the-clock access to anyone who’s interested.
Why then does the 2014 edition of the “Quantitative Analysis of Investor Behavior” performed by DALBAR, a financial services research firm, confirm that individual investors’ portfolio performance trails overall market performance? And not just for one year, but for 30 years running. In 2013 alone, with the S&P 500 up about 32%, the average do-it-yourself mutual fund investor underperformed with an average 25.5% return.* Over the 30 years ending December 2013, the S&P 500 gained 11% annually while the average individual investor earned less than 4% annually. According to the AAII Journal, in some years the gap between the benchmark performance and the average individual investor portfolio was as high as 10%. (Steven Sears, The American Association of Individual Investors Journal, July 2012.)
Why the disparity? And why isn’t the gap smaller now that we have such easy access to information? Through our experience at SJS Investment Services helping clients invest through our time-tested process called MarketPlus Investing, we have discovered three main reasons why individual investors often have difficulty investing on their own:
Timing the Market
Individual investors often believe the best way to drive increased performance is to try to time the market. They watch the trends and attempt to get in when the market is low and get out when the market is high, then wait for it to drop again before getting back in. Our experience tells us this is a fool’s errand, and numerous studies prove it. Marlena Lee, in her paper titled “Stock Returns Over Business Market Cycles,” published in March 2009, demonstrates why trying to stay out of harm’s way through market timing is a less than optimal strategy. She calls it a “costly decision.”
Stock Picking
Individual investors sometimes try to pick one, two, or a handful of stocks that they think are going to out perform the market. And given the thousands of securities that are out there, the odds in an individual investor’s favor are pretty slim, particularly over time. MarketPlus Investing is a science-based process built on the Nobel Prize-winning work of Eugene F. Fama that places portfolio design at the center. Owning various asset classes instead of trying to pick stocks may minimize risk. And based on an investor’s financial goals, the focus is on designing a portfolio diversified across and within asset classes, not individual stocks.
Chasing Performance
Individual investors often choose an investment based on performance and with the assumption that that performance will continue. They, in essence, look to the past success of the fund manager and hope that the manager will have the same success in the future. In the study “Luck vs. Skill in the Cross Section of Mutual Fund Returns,” in the October 2010 issue of the Journal of Finance, the authors, Eugene F. Fama and Kenneth R. French, showed that active fund managers cannot accurately speculate on where individual prices are going to go and systematically beat the market. We couldn’t agree more. Our experience with new clients has been that they have rarely been rewarded by chasing performance.
At the root of these common mistakes that many individual investors make is the simple fact that too many investment decisions are made emotionally, without a process and in the absence of discipline. That’s perhaps the biggest asset we bring to our clients. At SJS Investment Services, we like building relationships with our clients and getting to know them, but when it comes to investing on their behalf, we have a process and a discipline. Our clients hire us to help guide their futures. But they really hire us to stick to our process, maintain discipline and be there for them. And it’s a role we’re equipped and honored to take on.
Important Disclosure Information:
It is not possible to invest directly in an index.