Hope Is Not Our Strategy

By SJS Director of Institutional Investment Management Kirk Ludwig.

We all hope for things, every day. We hope for good weather, we hope traffic flows smoothly, we hope our favorite contestant will be named the winner on the latest TV talent competition. Hope is a part of human nature – a feeling, an emotion we all experience.

But there are plenty of situations where hope just isn’t enough. Hope may be a lot of things, but it is not an investment strategy. Sure, we hope that our investments allow us to save for our children’s college education, or purchase that vacation home, or retire comfortably. In this case “hope” means that we want our investments and planning to pay off so that we can do all the things that we invest for.

Hope – and fear – can affect the way investors evaluate alternatives. When markets are up, and everything seems to be going our way, feeling hopeful is easy. Hope can lead investors to think optimistically about the future, to ask the question: How good can it get? According to Hersh Shefrin in his book Beyond Greed and Fear, an investor who says, “I’m hoping for…” may be willing to accept more risk to reach that goal.

On the opposite side of hope is fear. These two feelings have a way of affecting our ability to make rational investment decisions. So, that same investor who had been feeling hopeful may now feel fearful, saying, “I’m afraid of …,” and may be less likely to take on more risk. (Hersh Shefrin, Beyond Greed and Fear, 2002.)

How emotions influence decision-making forms the basis of behavioral finance, which seeks to explain why investors may make irrational financial decisions. One concept that can affect investors is “hindsight bias,” which often occurs in situations where a person believes, after the fact, that some past event was predictable and completely obvious. Of course, in reality, the event could not have been anticipated. But the way we feel today is likely the result of what we’ve experienced in the past, and this will influence how we feel about the future. In financial markets, as in many other areas of life, a number of events seem obvious in hindsight. We’ve all heard the old saying, “Hindsight is 20/20.” Psychologists believe that hindsight bias allows us to believe that events are predictable to find order in our world. (Albert Phung, Behavioral Finance: Key Concepts, Investopedia.com.)

Advisors provide value by understanding these behavioral tendencies and helping clients guard against them. The advisor advises, adjusting portfolio risk to meet investor needs, not based on their level of hope or fear.

With MarketPlus Investing, we’re not “hoping” that a single stock will do better than the market, or “hoping” that an active fund manager will continue to outperform.

Instead, we’re using science and decades of research to guide us. (Dimensional Fund Advisors, Putting Financial Science to Work, February 2015.) MarketPlus investing is all about science and structure. We share the Nobel-prize winning investment philosophy of Eugene Fama of the University of Chicago, and other time-tested theories developed with his colleague, Kenneth French, of Dartmouth College.

MarketPlus Investing is based on four core fundamentals.

1. Markets are efficient and priced fairly.

2. Speculating is futile.

3. Global stocks and bonds have rewarded investors over the long term. History has proven this, especially for those who have a strategy and stick with it.

4. Portfolio design matters most.

Interestingly, not one of those fundamentals mentions “hope.” The financial industry has a way of selling hope, and playing on emotions. By relying on science and “controlling the controllables” to an extent, we can help put your mind at ease. A MarketPlus Investing portfolio is designed to best manage asset allocation, risk and tax implications for you – all while optimizing your expected return for the risk assumed. There are always factors we can’t control. But when we rely on what we know through science, we can reduce the anxiety felt when facing challenging markets, providing peace of mind without leaving things to “hope” or chance.

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SJS Is Open For Business With You In Mind!

Yesterday I held my first face-to-face meeting with a prospective client since the early days of March.

We sat together at a conference table, although not too closely together given all of the guidance we have received.

But it felt good to interact in person.

From Arizona to Ohio to points beyond and between, governors and health directors seem to be signaling a new spirit of social reengagement.

Thoughtfully and carefully to be sure, each and every household is balancing health and well-being and finding their own equilibrium.

Business interactions and social interactions are finding new footing. Large gatherings and intimate gatherings are likely further off in the future.

At SJS, your professional advisory team modified their work schedules and locations in March and April, but we remained operational as we conduct financial transactions and were dubbed an essential service. Some of our colleagues have worked remotely. Others have been safe and comfortable commuting to individual offices, mindful of the health concerns that have spanned our nation and the globe.

We have strived to answer phones, answer emails, and continue to be responsive to you and all of our clients while working diligently on your behalf.

You may or may not have known that we made adjustments to our physical workspaces. And hopefully our service to you appeared seamlessly uninterrupted. That’s what you deserve.

With sensitivity to the public backdrop and the current social trajectory, we want you to know that SJS is open for business!

We have been and remain available to talk with you or meet with you, under whatever circumstances you prefer.

There may be a “transitional” normal, but we are striving to get back to normal nonetheless.

Our team is energized by the hope and expectation that we have turned the corner on public health concerns and the social and economic upheaval we’ve never before experienced. We will continue to manage through challenging investment markets on your behalf, whatever may come our way.

For 25 years, SJS has strived to live by the maxim: You come first. All the time. Every time.

We remain committed to you and look forward to seeing you before long!

Very truly yours,

Scott J. Savage
Founder and CEO

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CARES ACT: Key Changes in Tax/Benefits Provisions for 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.

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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.

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CARES ACT – Resources For Small Businesses And Nonprofits

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.

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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.

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Grocery Stores And Equilibrium

By SJS Founder & CEO Scott Savage.

Monday, I ran into a supermarket for the first time since our collective world changed with the addition of the word “Coronavirus” to our lexicon. I was struck by certain sections of the market:

• Organic produce

• Rice

• Beans

• Bottled water

• Toilet paper (of course)

They were decimated by nervous shoppers. Many times in my life I’ve experienced similar “runs on the grocery store” when weather, terrorist attacks, past pandemics, and other “exogenous” events occurred. Our limbic (fight or flight) brains kick in to protect ourselves, and we behave in a way that may seem irrational to a casual observer.

At that moment in the supermarket I felt a strong parallel to the stock market, where nervous investors have decimated many sectors of the market as their limbic brains have triggered a “sell everything” reaction to recent events. And while I understand the desire to act on these emotive responses, my experience tells me that this can be a mistake.

I have seen these emotions and corresponding behaviors before. Notably in 1987’s “Black Monday”, 1998’s “Asian contagion”, 2000’s “tech wreck”, 2001’s “9/11”, and of course the 2008/2009 “great recession”. The “why” behind these stock market routs occurred were all different, but what made them similar was FUD: Fear, Uncertainty, and Doubt. And the collective response of investors led to steep market declines. But ultimately, in every case, an economic recovery led to higher markets.

And while this time could be different, the risk I believe we will simply have to endure once again is “how long” will the current reality last? Nobody knows for certain, but I personally envision a time in the not too distant future when the supermarkets will be well stocked, and order will return to the economic system and the stock market.

As human beings, and Americans, we have a history of navigating uncertainty and innovating our way through challenges. I believe we will get to the other side of the COVID-19 challenge together and grow through the process.

Good health and safety to you and your loved ones in the meantime.

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Working To Control What You Can

By SJS Senior Client Portfolio Manager Tom Kelly, CFA

Every day, events happen that are outside our control.

While we may not be able to control what happens around us, what we can do is identify the risks we know of, craft a plan to act appropriately given those risks, act according to the plan, update the plan upon receiving new information, and repeat this process. This tends to be true in health-related matters as well as with investing.

SJS previously wrote about the coronavirus, and our general message stays the same. Since that post, there has been more significant stock market volatility, a new oil price war between Saudi Arabia and Russia, as well as continued societal consequences worldwide due to the spread of the coronavirus.[1]

Here are a few key insights regarding our thought processes and systems in light of the recent stock market volatility and associated news events.

Educate yourself with reliable sources intended to help the general public.

Generally, and particularly in uncertain times, it is critical to receive information and lessons from the most reliable sources who intend to help the general public. Over the past few weeks, many news sources have published a lot of sensationalized stories with little-to-no new and useful information for helping people handle the consequences of the coronavirus. At SJS, we focus on high-quality information from sources including the Center for Disease Control (CDC) and World Health Organization (WHO).[2],[3]

Focus on important short-term and long-term economic indicators.

Long-term investors focus on fundamental economic conditions that drive returns, as well as market valuations relative to those fundamentals. For well-diversified global portfolios, general economic growth (as measured by indicators including gross domestic product (GDP)) drives much of the stock market returns that clients will realize over the long-term. Most economic firms believe that although GDP growth will slow down in the short-run, the coronavirus and oil effects should not significantly alter long-run economic growth expectations, which is what long-term investors should focus on.[4]

Design portfolios that can grow from risk and uncertainties.

Many studies have shown that asset allocation (deciding how much of your portfolio to allocate to stocks and bonds, respectively) drives over 90% of variability of returns, meaning that individual security selection and market timing have little positive impact on expected returns for most investors.[5] In light of this, SJS works closely with each client to develop a well-diversified global portfolio using institutional quality mutual fund that is true to the client’s goals and risk tolerances. (Diversification neither assures a profit nor guarantees against a loss in a declining market.)

For stocks, SJS invests globally in 10,000+ securities through institutional quality mutual funds, understanding these funds will move similarly with general stock markets. For bonds, SJS invests primarily (90%+) in thousands of high-quality investment grade securities, also using institutional quality mutual funds, which tend to perform relatively stable or even positively during times when stock markets are volatile.[5] For example, over the past few days, non-investment grade credit bonds (especially in the energy sector) have decreased significantly in price (likely in part due to the new oil price war), while most high-quality bonds have increased in value.[1] A portfolio consisting of a well-diversified mix of stocks and high-quality bonds is not expected to experience the same volatility or losses as what general stock markets will experience.[6]

Rebalance to influence risk, improve returns, and tax loss harvest.

During volatile stock market periods, rebalancing according to a robust systematic process can both move the portfolio back to targeted expected risk characteristics, with the goal of improving long-term portfolio performance due to selling more highly valued bonds and buying lower valued stocks.[7] Additionally, volatile stock periods tend to provide more tax-loss harvesting opportunities, which may increase long-term after-tax expected return. SJS has robust systems and processes in place to facilitate such rebalancing and has been working with clients to perform any relevant trades over the past several weeks.

History does not repeat itself, but it does rhyme.

Over the past 50 years, the world has experienced many significant stress events, due to health concerns, economic issues, wars, and so on. Below is a chart of the MSCI World Index since 1970 detailing performance and associated stress events.[8]

Additionally, over the past 100+ years, the world has experienced major pandemics like the Spanish Flu (1918-1920), which impacted roughly 27% of the world’s population.[9] Below is a graph of the S&P 500 and associated performance during and after these pandemics.[10]

Throughout these events, people reacted with resilience, and markets continued to function.

Sudden and complex events will happen. We do not know what these events will be, nor exactly when these events will happen – but we know that they will happen. We believe in the resilience of human beings, and accordingly we believe in the long-term growth prospects of global economies and investment markets. Because of this uncertainty and risk, we at SJS help clients focus on what they can control and allow markets to do the rest. We continue to recommend that our  clients rely on MarketPlus Investing to stay invested in well-diversified global portfolios true to each of their goals and risk tolerances.

If you have specific questions or concerns, please call us. We’re always here to explain and assist.

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Sources:

[1] “High-Yield Bonds Are Sinking as Bankruptcy Fears Hit the Oil Patch.” Alexandra Scaggs, barrons.com.

[2] “Coronavirus Disease 2019 (COVID-19).” Center for Disease Control and Prevention, cdc.gov.

[3] “Coronavirus disease (COVID-19) outbreak.” World Health Organization, who.int.

[4] “S&P: Coronavirus to trim 2020 global GDP growth by 0.3 percentage point.” S&P Global, spglobal.com.

[5] Unconventional Success. David Swensen, 2005.

[6] “3 Reasons Why You Should Invest in Bonds.” Nick Maggiulli, ofdollarsanddata.com.

[7] “Opportunistic Rebalancing: A New Paradigm for Wealth Managers.” Gobind Daryanani, fpanet.org.

[8] In US dollars. Source: Avantis Investors. MSCI data © MSCI 2019, all rights reserved. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

[9] “1918 Pandemic (H1N1 virus).” Center for Disease Control and Prevention, cdc.gov.

[10] In US Dollars. Sources: Avantis Investors, using data from Robert Shiller Data Collection at Yale University and Centers for Disease Control and Prevention. S&P 500® Composite Index does not include reinvested dividends.

Important Disclosure Information

Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. Mutual fund investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost. Diversification neither assures a profit nor guarantees against a loss in a declining market. There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results.

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Resilience In The Face Of The Coronavirus

By SJS Senior Client Portfolio Manager Tom Kelly, CFA

Human beings have incredible resilience. When facing obstacles, humans tend to find solutions and persevere, often growing stronger from the experiences.

One recent obstacle is the coronavirus (officially known as COVID-19), an infectious virus that began in Wuhan, China in December 2019.[1] As of February 24, 2020, the coronavirus has affected roughly 80,000 people, resulting in roughly 2,600 deaths. More than 77,000 of these cases – and all but 23 deaths – have occurred in China.[2]

There is significant optimism among infectious disease health experts that the coronavirus will be contained relatively soon. Researchers globally have examined the genome of the coronavirus and have discovered the corresponding infectious proteins.[3] Governments and agencies around the world are considering ways to potentially slow down the spread of the virus, instituting travel procedures and other preventative measures. Additionally, leading global health agencies, including the World Health Organization, and major pharmaceutical companies are devoting tremendous resources to develop vaccines and treatments.[1]

In the past 100 years, the world has experienced many sudden infectious health diseases, including the West Africa Ebola epidemic in 2014, Swine Flu from 2009-2010, SARS in 2003, and the Spanish Flu from 1918-1920. Some of these sudden diseases were significantly greater in magnitude and severity than the current coronavirus. During these past periods, global stock markets experienced some short-term volatility that had little to no significant effects on intermediate- or long-term returns.[4]

Much of the short-term volatility in these past periods is consistent with general market movements, making it difficult to determine if these sudden infectious diseases even caused significant movements in the stock market in the first place.

Additionally, high-quality bonds have experienced little volatility during these periods, and have often increased in market value as investors moved money into safer bond investments.[5]

The stock market, general economic conditions, and societal health trends are a few of the forces that are in constant flux. You may find refuge in knowing that while utilizing our MarketPlus Investing® portfolios, we have worked with you to design low-cost portfolios diversified across many countries and asset classes that we believe can withstand and grow from these uncertain forces. (Diversification does not eliminate the risk of market loss.)

Your team at SJS continually monitors current and historical influences, forms judgments and, in turn, makes decisions about portfolio adjustments, tax saving strategies, and estate and legacy recommendations. We spend our time studying and following these developments, so you don’t have to.

SJS believes in the resilience of people and markets to respond well in the face of new obstacles, with the current coronavirus as no exception. Thus, ­we recommend you continue to rely on MarketPlus Investing to stay invested in your well-diversified global portfolio true to your goals and risk tolerances. Further, you may take solace in knowing that short-term market volatility typically allows us to rebalance portfolios in more tax-efficient ways that may improve your long-term investment experience.

If you have specific questions or concerns, please call us. We’re always here to explain and assist.

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Sources:

[1] “Q&A on coronaviruses (COVID-19).” World Health Organization, who.int.

[2] “Coronavirus disease (COVID-2019) situation reports.” World Health Organization, who.int.

[3] “How Bad Will the Coronavirus Outbreak Get? Here Are 6 Key Factors.” Knvul Sheikh, Derek Watkins, Jin Wu, & Mika Grondahl, New York Times. February 7, 2020.

[4] “How Will Coronavirus Affect Your Portfolio?” Nick Maggiulli, Of Dollars and Data. February 11, 2020.

[5] In US dollars. Source: Dimensional Fund Advisors, using data from Bloomberg LP. Includes primary and secondary exchange trading volume globally for equities. ETFs and funds are excluded. Daily averages were computed by calculating the trading volume of each stock daily as the closing price multiplied by shares traded that day. All such trading volume is summed up and divided by 252 as an approximate number of annual trading days.

Important Disclosure Information:

Past performance does not guarantee future results. Diversification does not eliminate the risk of market loss. MarketPlus Investing® models consist of institutional quality mutual funds.

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Making Sense of the Future: SJS 2020 Capital Markets Expectations

For the full SJS 2020 Capital Markets Expectations, please click here.

As much as we might wish to, we cannot predict the future. But, one thing we *can* do is reasonably plan for what may happen.

When you work with SJS, one of our first conversations is about helping you determine your overall investment goals. Then, when we create your portfolio, we decide which assets to invest in, in what percentages, and in which accounts to place these investments with those goals in mind. By following our MarketPlus Investing® philosophy, we strive to design low-cost, diversified global portfolios across asset classes using institutional quality mutual funds in order to better manage the relationship between your accepted level of risk and expected return.

As we review the risk and return potential of your portfolio, we’re always looking forward to project potential expected return and risk scenarios for each asset class in which you’ve invested over the long term – meaning 10 years or more.*

While we can learn from what has happened in the past, asset prices are based on expectations of future economic conditions. These expectations are inherently uncertain, as investors do not know what, exactly, will happen in the future. So, we believe that providing a range of potential expected returns for each asset class is appropriate, as using a single number often creates a bias that leads to unrealistic and unrealized expectations.

SJS uses these Capital Market Expectations to help us design a portfolio that is appropriate for you, and to share with you some of the insights from the SJS Investment Committee. We continue to strive for better information and research where appropriate, and we will update these long-term expectations alongside changing market conditions and economic realities.

We can’t know ahead of time which months (or even years) will have the highest market returns, but through MarketPlus Investing, SJS supports you and your investment goals by applying these capital market expectations with caution and using them primarily for long-term strategic planning rather than short-term market decisions.

For the full SJS 2020 Capital Markets Expectations, please click on the image below.

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Important Disclosure Information:

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

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Welcome, Catherine Stanley, to SJS Arizona

SJS is delighted to welcome Phoenix native Catherine Stanley, who joins our team in Scottsdale, Arizona as Advisor Support Associate.

Catherine earned her bachelor’s degree in marketing from the University of Arizona, and she also holds her MBA from the Thunderbird School of Global Management at Arizona State University. Before joining SJS, Catherine worked for more than 20 years in international marketing and operations throughout Latin America and China. She loves the richness and challenge of communicating across cultures, speaks both Spanish and Portuguese fluently, and learned some Mandarin while living in China.

Catherine has had a passion for personal finance from a young age, and her interest in studying global markets arose from her extensive experience living abroad.

Most weekends, you’ll find Catherine supporting her son’s soccer competitions, or spending time with her family, including her two adult children, granddaughter, and her parents who live nearby – as well as her two dogs.

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The SECURE Act Shifts The Rules Of Retirement

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By SJS Managing Director Jennifer Smiljanich

It seems like the only constant in life is change.

Last December, President Trump signed The SECURE Act as part of the year-end 2019 spending legislation.[1]

The SECURE Act – “Setting Every Community Up for Retirement Enhancement” – shifts the existing rules on retirement saving and distributions, for both account owners and their beneficiaries.

As happens often with tax legislation, there are some people who may benefit from the changes and others who may view the changes as detrimental. We’ve highlighted some of the more significant modifications within the Act that affect your retirement planning:

The SECURE Act extends the current required minimum distribution age from 70½ to 72

If you turned 70½ in 2019, you must begin taking a minimum distribution from your IRAs and other retirement accounts no later than April 1, 2020. In a nutshell, if you reached age 70½ in 2019 or before, you must continue taking at least minimum distributions from IRAs or retirement accounts. For this group of retirees, there are no changes to the distribution rule.

The change comes into effect if you will turn 70½ in 2020 or later. If you are in this age group, you can wait until age 72 to begin taking distributions from your IRAs or other retirement accounts.

The SECURE Act allows individuals who don’t want or need the income from their retirement accounts to delay taking these distributions, and delay paying taxes to Uncle Sam. Statistically, this provision may help the 20% of retirees who take only the minimum amount required. The remaining 80% of retirees take out more than the IRS-required minimum.[2]

Interestingly, the SECURE Act still allows anyone who is 70½ to make Qualified Charitable Distributions from IRAs and avoid having the distribution count as taxable income.

The SECURE Act allows IRA contributions after age 70 if still employed

Many Americans are delaying retirement longer than ever. As of February 2019, the Census Bureau reported that about 20% of Americans over age 65 – more than 10 million people – were either working or looking for work, representing a 57-year high.[3]

The SECURE Act allows anyone who still earns income from employment, or is married to a spouse earning income, to contribute to an IRA after age 70½. Traditional IRAs had been the only retirement account that did not allow contributions to be made after age 70½.[2]

The SECURE Act eliminates “Stretch IRA” benefits for some beneficiaries

Until now, when IRA owners passed away, their beneficiaries could take distributions from those IRAs over their lifetimes. By doing so, they could allow the IRA funds to grow tax-deferred and potentially stretch out the tax liability over their lives.

Under the new legislation, when IRA owners die (any time in or after 2020), most non-spouse beneficiaries must fully distribute the IRA balance within 10 years following the year of inheritance. (The prior IRA distribution rules remain unchanged for any beneficiaries of IRAs whose original owner died prior to January 1, 2020.)

There is some flexibility, in that IRA beneficiaries who inherit this year and going forward could choose to distribute at any time during their 10-year window. Exceptions also may exist for spouses, minor children, or those with special needs or chronic illnesses.

As always, we at SJS stand ready to listen and work with you and your other professional advisors to guide you in understanding how these changes may affect your plans for the future. Please give us a call – we’re here for you, and happy to help!

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Sources:

[1] “The SECURE Act.” Chairman Richard E. Neal, House Committee on Ways & Means.

[2] “SECURE Act and Tax Extenders Creates Retirement Planning Opportunities and Challenges.” Michael Kitces, www.kitces.com. December 23, 2019.

[3] “Millions of Americans are Working Past 65, and It’s Not Because They Can’t Afford to Retire.” Tanza Loudenback, Business Insider. April 29, 2019.

Important Disclosure Information:

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.

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3 Cheers For 20 Years

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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.

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You're A Winner (By Design!)

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By SJS Founder & CEO Scott Savage

When you find yourself at your family get-together, or football watching party, and the conversation switches from football, to the kids, grandkids, and golf, to the inevitable subject of the stock market – we want you to know that SJS Investment Services has your back.

When “Cousin Eddie” starts boasting about the killing he made in his Apple or Tyson Foods stocks last year, while conveniently saying nothing about the “hit” his portfolio took on cannabis stocks, recognize you could be just as much the bragger, although you may not even realize it. How so? Well, your MarketPlus Investing® portfolio held this year’s big winners, too.(1) And not just one or two, like Eddie, but all of them. Yes, that’s right – all of them. In fact, as of November 30, 2019, you owned every one of the top 20 performing stocks in the S&P 500 Index in the institutional quality mutual funds that make up your MarketPlus equity portfolio.(2)

Interestingly, the likelihood of Eddie, you, or most people “picking” these individual stock winners in advance out of the pool of 500 stocks, let alone picking all of them, is virtually zero. Some of the 2019 S&P winners listed in the “Top 20 U.S. Equity Performers of the Year” article as of November 30 are quite surprising, such as Xerox Holdings, up 97%, and Chipotle Mexican Grill, up 88%. Others are a little obscure, like COTY, a multinational cosmetics company, which was up 76%, and Copart, Inc., a company that offers online vehicle auctions around the globe, up 86%.(2)

So how can you get in on these winners even before the stock market recognizes them? By implementing the first tenet of MarketPlus Investing: broad diversification.(3) It’s an intentional part of the design of your portfolio to hold most, if not all, of the top-performing stocks found in indexes like the S&P 500. There’s a lot of science behind our proprietary portfolio strategy that puts the “plus” in MarketPlus – and allows you to tell Cousin Eddie a thing or two.

Admittedly, MarketPlus strategies will hold losing, or even the bottom-performing, stock positions as well. But that is part of the strength of the strategy: any given “up year” in the markets is usually driven by a select number of winners. And, as shown in the graph above, the winners will outweigh the losers in an “up year” and provide relative benefit to your holdings even during a “down year.”(4) Holding the winners – even when balanced by some losers – is what we believe to be the key to successful investing for the long-term. And your MarketPlus Investing strategy will hold most of the winners, year in and year out, by design.

So, as we look ahead into 2020, we’ll keep our focus on the numbers and the science. You can have a glass of New Year’s cheer while you high-five Eddie and tell him how great it is to know your portfolio was designed to hold all of the 2019 S&P winners. And you can feel free to emphasize ALL.

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Important Disclosure Information & Sources:

(1) Stock positions held indirectly through institutional class mutual funds.

(2) Financial Advisor Magazine, “Top 20 U.S. Equity Performers of the Year,” 12/11/2019, Raymond Fazzi. Securities cross-referenced with mutual fund equity holdings as held in MarketPlus Investing® strategies.

(3) Diversification does not eliminate the risk of market losses. Past performance is no guarantee of future results.

(4) Dimensional Fund Advisors, “Study of Total Market vs. Excluding Top 10% vs. Excluding Top 25%, Performance 1994-2018,” May 2019.

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Increased 401(k), 403(b) Contribution Limits In Effect For 2020

By SJS Senior Advisor Andrew Schaetzke, CFP®

As we settle in to the new year, the IRS has announced the new retirement account contribution guidelines for 2020. As always, contributing more to your retirement accounts now can lead to a lower tax bill – not to mention more invested income in retirement.

Those who contribute to many common types of retirement plans, including 401(k) and 403(b) plans, will be able to increase their annual contribution by $500, to $19,500.

The IRA and Roth IRA annual contribution limits remain unchanged for 2020 – at $6,000. Catch-up contributions for workers ages 50 and older also remain the same, at $1,000.

The income ranges that determine eligibility for deductible contributions to traditional IRAs, Roth IRAs, and to claim the saver’s tax credit also have been increased for 2020. The IRS highlights these changes at IRS.gov, but please talk with your tax professional for specific advice.

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The "One" Number That Matters Most

By SJS Founder & CEO Scott Savage

Have you ever stopped to think just how much numbers rule our lives?

Numbers help make our streets easier to navigate, save us from speeding tickets, remind us that we’ve been sitting too long and need to move around, and so much more.

In the world of investments, numbers are ever-present and always changing. Numbers saturate the quarterly reports we provide to you, illustrate the ups and downs of the markets, allow us to help you minimize taxable gains – and the list goes on.

Numbers are critical in our daily activities at SJS. Yet to us, ONE number stands out among the many.

What is that number, you ask? It’s the measurement of how many clients stay with SJS from year to year. That number is known as client retention, and our calculations tell us that, for the last year, our number was a humbling 98%.

Our client retention number has been consistently high over the years, meaning few people choose to depart from SJS. But that number makes us happy because it is ONE indicator that tells us we are doing what we say we do – which is putting you first, all the time, and every time.

Our clients tell us that there is a lot more to SJS than portfolio returns. Of course, performance over time matters, but client retention is that ONE indicator that shows how well we are serving clients through the year, and throughout their lives. SJS has been through many bull, bear, and boring markets and countless client life changes. This ONE number demonstrates we’ve been there together.

A high client retention number is indicative of your loyalty, a demonstration we have never taken for granted. Your loyalty allows us to learn how to serve you better, and that can take time. Seldom does life reveal your complete needs over a year or two. And when life happens, we are humbled when one of your first calls is to us.

You know how much we enjoy hearing from you and helping you get to where you are going. Our team is loyal to you, and their loyalty inspires new team members to provide you with the same level of care. Long-term retention, and the loyalty that follows, allows us to be our best for you. Because, when it comes down to it, the ONE number that means the most to us – is YOU.

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SJS Welcomes (Back) Bobby Adusumilli

Former SJS intern Bobby Adusumilli has returned to SJS to take on the role of Advisor Support Associate.

A former SJS Intern in 2013 and 2014, Bobby brings to SJS a wealth of experience from his years with Dimensional Fund Advisors. During his time with Dimensional, Bobby served as a Portfolio Management Analyst / Associate at offices in Austin, Charlotte, and London, where he worked closely with emerging markets equity portfolios.

Bobby graduated Valedictorian from St. John’s Jesuit High School in Toledo, helping St. John’s win the 2011 Ohio Tennis Team State Championship. He earned his bachelor’s degree in Economics from the University of Chicago, where he captained the men’s varsity tennis team, which advanced to the Final Four twice during his tenure. Bobby recently passed all three levels of the CFA Institute’s CFA Program, and may be eligible for the charter upon his completion of the required work experience.

In his free time, Bobby teaches Sunday School at the Hindu Temple of Toledo, coaches tennis, and has taken up Latin dancing.

Please join us in warmly welcoming Bobby (back) to SJS!

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The Price Is Right

By SJS Senior Client Portfolio Manager Tom Kelly, CFA

We live in the information age. We have more information at our fingertips than generations before us could have ever dreamed. It can be overwhelming to try to process all the information available – and that holds true for just about any subject, including the markets and investing.

How in the world can an individual investor hope to read, analyze, calculate, and compare all of the available information about a company and its stock?

Simple. By looking at the price.

A stock’s current price reflects the collective expectations from ALL investors about risk and return for that stock. With more than $400 billion in stock transactions across the globe each day1, the markets combine to form an efficient and effective information-processing machine.

And the information found in market prices steers our MarketPlus Investing® approach.

For your portfolio, SJS selects mutual funds that hold stocks that have more attractive prices compared to similar companies with less attractive prices. Buy low, sell high. While a simple idea, this is an important element of the MarketPlus approach.

When comparing price relative to a standard measure, we can make an educated guess that mutual funds made up of lower-priced stocks may offer an opportunity for a greater return in the future.

For instance, MarketPlus Investing selects mutual funds made up of stocks that are cheaper as opposed to more expensive. These stocks are commonly referred to as “value” as opposed to “growth.” There are many ways to measure for this, but the comparison comes down to price-per-unit – and in this case, we like lower priced stocks per the net assets, or book value, of a company, when compared to those that are higher priced for the same book value.

When holding “total shares issued” constant, MarketPlus Investing again prefers mutual funds that are made up of lower priced stocks – or small caps – compared to higher priced stocks, or large caps.

In other cases, price may be held constant, and managers may compare which stocks have higher profits per unit of price. If profitability persists, investing in mutual funds made up of more of these higher profitability stocks may lead to greater returns in the future, or so the theory goes.

Prices can be volatile, to be sure. And all of our “buy low, sell high” philosophy and management strategy may require multiple years to play out advantageously for an investor.

So risk management and diversification2 have a role to play in designing a portfolio that will stand up to short-term individual preferences and tolerances, but still strive for long-term returns that deliver the market rate-of-return – “plus”!

It’s an ongoing pursuit, and one that we carry out with enthusiasm and rigor day after day, and year after year, for you.

We believe that the scientific and data-driven engine of your investment vehicle is state-of-the-art for this information age. And with our “You Come First” package of service and accessories, it’s hard to put a price on that!

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Sources:

[1] In US dollars. Source: Dimensional Fund Advisors, using data from Bloomberg LP. Includes primary and secondary exchange trading volume globally for equities. ETFs and funds are excluded. Daily averages were computed by calculating the trading volume of each stock daily as the closing price multiplied by shares traded that day. All such trading volume is summed up and divided by 252 as an approximate number of annual trading days.

[2] Diversification does not eliminate the risk of market loss.

Important Disclosure Information:

Past performance does not guarantee future results. MarketPlus Investing models consist of institutional quality mutual funds.

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When You Call, Use Your "Smart" Phone

“There is always something smart to do.”

By SJS Founder & CEO Scott Savage

These are the words we often use among the team at SJS, as we regularly review your portfolio, make rebalancing decisions to stay true to your goals and risk tolerance, and evaluate your portfolio to determine whether new investments might provide a good opportunity for you.

The stock market, interest rates, tax laws, and estate rules are a few of the forces that are in constant flux. We monitor these influences on a daily basis, form judgments and, in turn, make decisions about portfolio adjustments, tax savings strategies, and estate and legacy recommendations. We spend our time studying and following these changes and developments so you don’t have to.

We know that your situation is unique, as is every client’s. But, there are times when we believe it might be helpful to point to a market force that may be actionable for you, your family, or your loved ones.

One such market force right now? Falling mortgage rates.

The chart below from Freddie Mac illustrates the changes in the average rate for a 30-year fixed rate mortgage in the United States over the past five years.

Source: 30-Year Fixed Rate Mortgage Average in the United States, Freddie Mac, fred.stlouisfed.org.

As the chart shows, today’s mortgage rates are close to the historic lows we saw during the second half of 2016. While rates may continue to fluctuate, we believe there is opportunity now to review any mortgage you hold to see if there may be a benefit in refinancing.

Wonder if these lower rates might work in your favor? Give us a call – we can help you understand how refinancing might fit in to your bigger financial picture. There is always something smart to do, and we’re always here to assist.

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What is YOUR Expected Return?

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By SJS Managing Director Jennifer Smiljanich

When you make an investment, you are probably hoping to receive a return of, and on, that investment.

As a client of SJS, we know that what you expect from your investment return is a great deal more than just a number or percentage. And what you expect is specific and incredibly meaningful to you.

You might be looking for peace of mind when you retire, or sell your business.

You might want help with monetizing your life’s work in a way that preserves and protects what you’ve built for your loved ones.

You might wish to provide your children and grandchildren with opportunities you never had – without undermining their ambition.

For some of you, your goal may be to leave a legacy to an organization that you feel is making the world a better place.

No matter what you expect as the return on your investment, our pledge to you is that we will strive to match your risk tolerance to appropriate investments and returns.

MarketPlus Investing® is designed to capture premiums, or patterns, that have historically persisted in global financial markets. We stand on the shoulders of some really smart academic people who discovered these patterns, and believe these patterns will continue into the future.

This does not mean that every quarter will result in a positive return on your investments. We know that there will be periods of time where the markets take a turn in a negative direction, leading to returns that we neither expect nor want.

By following the discipline of our MarketPlus Investing strategy, our goal is to design your portfolio to capture the benefits of premiums that have persisted over time.

We understand that your investment return has a purpose, that the numbers on your statement have meaning beyond their intrinsic value. They are connected to the people, the enterprises, and the causes that matter to you.

The responsibility of this task is not lost on us – ever. We work hard every day to help you achieve the return that matters to you.

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Important Disclosure Information:

Past performance does not guarantee future results.

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A Fly On The SJS Wall

By SJS Founder & CEO Scott Savage

Ever wish you could be a fly on the wall?

At times, for instance, such as when you take your car in for service, and leave the mechanic thinking to yourself, “Did my transmission really need that much work?”

Or, how would you like to be a fly on the wall in the locker room when your favorite basketball team loses by two points? How about when they win by two?

We all can’t help but imagine at one time or another what words are said, and what actions are taken when no one is looking, when the public eye is nowhere to be found. Intriguing, isn’t it?

Well, what if you were buzzing around and landed on the windowsill in the conference room at SJS during one of our regular Investment Committee meetings?

You would have a nice view of the great outdoors, and maybe see a deer ramble by. You’d also hear some open and honest discussions about your investments, such as:

• How heavily should we weight international stocks in your portfolio?

• Do we adjust bond duration longer in light of the Fed’s position on interest rate hikes?

• If a change seems compelling, is this the right market condition to implement?

As a fiduciary, we are committed to this level of due diligence. In other words, we sit on the same side of the table with you, whether there is a fly on the windowsill watching, or not.

How can the work of SJS’s Investment Committee benefit you?

• We look for ways to lower your cost of investing. We review the expenses of the funds we recommend to see if there may be an alternative that invests in the same way but costs less, which may help your bottom line. If we see a clear benefit to you that outweighs any potential costs of making changes to your investments, we will make adjustments to your portfolio.

• We review investment offerings that might be appropriate for clients who share a specific need, such as greater tax efficiency or a preference for an investment strategy that prioritizes social responsibility. This extra effort helps us provide investment strategies that are meaningful for you, even if they may not be the best fit for all clients.

• We consider whether rebalancing or tax loss harvesting may be appropriate, either to manage risk or to offset portfolio income by selling investments to realize losses.

By observing this meeting, you’d discover the massive amount of research and thoughtful evaluation that we consider when making decisions on your behalf. You might be surprised by how much work had gone into the design of your portfolio long before you ever flew into our building.

A lot of what you would hear might sound technical and complex, but as the fly on the wall, you also would hear something beyond all that financial talk. You’d hear our genuine concern for you, your family, and your well-being. And if you heard all that, we’d be glad to know you were listening.

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What Is The Value Of Your Advisor?

By SJS Senior Client Portfolio Manager Tom Kelly, CFA

At SJS, we are constantly analyzing the markets – how they’ve been doing, where they may be going, what we’re doing about it. While it makes for lively discussion, we believe that making any significant changes to your portfolio based solely on headlines is investing on speculation rather than evidence.

Market timing can have an effect on your return, but not in the way you may hope. The lure to buy or sell based on the news is certainly enticing, but the average investor ends up with meaningful underperformance in both the equity and fixed income markets when doing so.

The 2018 DALBAR Quantitative Analysis of Investor Behavior shows, time and time again, that average investors fall into psychological and behavioral biases that often cause them to buy and sell at the wrong times, costing nearly 2% annually in the equity markets, and more than 4% in fixed income, over a 20-year period.[1]

Another classic example of how investor behavior can impact returns comes from Peter Lynch’s famous Magellan Fund. The Magellan Fund doubled the S&P 500’s return during Lynch’s 1977-1990 managing tenure, posting a 29% annualized return. However, he found that the average investor in his fund posted a return of only roughly 7% a year during the same period.[2} Money would leave when the fund had hiccups, only to flow back in after it was back on track, missing any recovery.

One approach to combat the emotions that may tempt us to buy and sell at the wrong time is to have a trusted advisor. Someone who can help us see compelling valuations when times feel tough, and help identify risks when investing feels like a “sure thing.”

Numerous studies have shown the estimated value of a financial advisor to be worth anywhere from 1.6 to 4.1 percent, annually. [3],[4],[5],[6]

While each of these studies applies a different research methodology, SJS strives to implement many of the “value-add” services they highlight. We believe the value of your SJS advisor includes:

• Designing portfolios to support your goals.

• Consolidating and simplifying your holdings.

• Helping you optimize expected returns based on the risk you are willing to assume.

• Reviewing your current investment approach and recommending revisions that might make sense for you.

• Monitoring and managing your taxable investment activity.

• Communicating with your tax, legal, and financial professionals.

• Benchmarking portfolio returns on your quarterly reports.

• Adjusting your portfolio based on market conditions and your situation.

If you have questions, feel uncertain about the markets, or simply need a listening ear – give your SJS advisor a call. Your family, your future, your legacy depend on sound investing.

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Sources:

[1] Quantitative Analysis of Investor Behavior (QAIB) Report. Dalbar, 2018.
[2] Heads I Win, Tails I Win: Why Smart Investors Fail and How to Tilt the Odds in Your Favor. Spencer Jakab, 2016.
[3] Advisor’s Alpha. Vanguard Research, 2014.
[4] Capital Sigma: The Sources of Advisor Created Value. Envestnet|PMC’s Quantitative Research Group, 2015.
[5] Alpha, Beta, and now…Gamma. Morningstar, 2013.
[6] Value of an Advisor Study. Russell Investments, 2017.

Important Disclosure Information:

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

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