Thomas Kelly, CFA 2/4/21 Thomas Kelly, CFA 2/4/21

SJS 2021 Capital Markets Expectations: Making Sense Of The Future

SJS uses our 2021 Capital Market Expectations to help design a portfolio that is appropriate for you, and to share insights from the SJS Investment Committee.

To read the full SJS 2021 Capital Markets Expectations, please click here.

SJS works with clients to specify investment goals, and then advises on assets in which to invest, in what percentages, and in which accounts to place these investments. There are many tradeoffs, some of which are known and some that cannot be fully predicted. Using the Four Core Fundamentals of MarketPlus Investing - 1) Markets are efficient and priced fairly; 2) Speculating is futile; 3) Global stocks and bonds have rewarded investors over the long term; 4) Portfolio design matters most - SJS designs low-cost, diversified global portfolios across stock, bond, and alternative asset classes in order to manage the relationship between expected risk and expected return.

One part of this portfolio design process is to project potential expected return and expected risk (volatility) scenarios for each asset class over long term (10+ years) periods. Investing is about forward-looking information. While we learn much from what happened in the past, asset prices are based on expectations of future economic conditions and company fundamentals. These expectations are inherently uncertain, as investors do not know what exactly will happen in the future. Therefore, we believe that providing a range of potential expected returns for each asset class is appropriate, as using a single number may lead to biases or unrealistic & unrealized expectations.

SJS considers numerous factors when designing capital market expectations, including academic research, historical trends, and the current market environment. For example, while the market risk premium (the return of the stock market over the Treasury Bill rate) has been approximately 8% over the last 90 years, muted inflation, slowing growth prospects, and stretched stock market valuations contribute to return expectations being on the lower end of their historical averages.[1] The US Stock Market has far exceeded that market risk premium since 2009 (in large part due to the omission of price declines during the financial crisis while experiencing price gains during the recovery), but international developed and emerging market stocks had a tough decade in comparison, so we would not be surprised to see non-US stocks with greater relative gains in the 2020s. While small value stocks historically captured returns superior to large growth stocks, it was not the case at the end of the last decade. Nevertheless, we remain confident in the statistical evidence and rationale to maintain disciplined exposures to small and value stocks. Finally, with strong bond returns in 2020 and the U.S. Federal Reserve planning to keep interest rates low, bond investors should be prepared for correspondingly low returns.[2]

Every MarketPlus Investing portfolio is globally diversified across and within asset classes, industries, and securities through the use of low cost institutional-class mutual funds and ETFs. Assets are invested where return premiums have historically occurred, and where market indicators imply they will continue. Portfolios are designed for lower turnover by rebalancing based on logical systematic criteria and staying invested regardless of market volatility, which can lead to lower transaction costs. We believe performance lies in the portfolio design itself, rather than stock picking or market timing, and that investors should focus on controlling what they can control. The nominal annualized return on US stocks (as measured by the S&P 500) from 1928 through 2020 was about 10%. But if you had gone to cash and missed the best 76 of the 23,361 trading days (0.33% of trading days), you would have missed all of the return.[3] We do not know ahead of time which days (or months or even years) will have the highest market returns, but through MarketPlus Investing, SJS will continue to support clients by applying these capital markets expectations and using them primarily for long-term strategic planning rather than short-term market decisions.

2021.02.01 SJS Long-Term Capital Market Expectations.png

Source: Morningstar. Asset Classes are represented as follows – US Stock - Russell 3000 TR USD; International Developed Stock - MSCI EAFE GR USD; Emerging Markets Stock - MSCI EM GR USD; Real Estate - S&P Global REIT TR USD; Alternatives - Wilsh… — Source: Morningstar. Asset Classes are represented as follows – US Stock - Russell 3000 TR USD; International Developed Stock - MSCI EAFE GR USD; Emerging Markets Stock - MSCI EM GR USD; Real Estate - S&P Global REIT TR USD; Alternatives - Wilshire Liquid Alternative TR USD; US Aggregate Bond - BBgBarc US Agg Bond TR USD; US Treasury Bond - BBgBarc US Treasury TR USD; US Corporate Bond - BBgBarc US Corp Bond TR USD; Global Aggregate Ex-US Bond - BBgBarc Gbl Agg Ex USD TR USD; Cash / Money Market - USTREAS T-Bill Sec Mkt 3 Mon; Inflation - US BLS CPI All Urban SA.

To read the full SJS 2021 Capital Markets Expectations, please click on the image below.

2021.02.04 SJS Capital Markets Expectations Cover Page.JPG

Important Disclosure Information & Sources:

[1] Source: Dimensional Fund Advisors. Arithmetic average of annual premiums of the Fama/French Total US Market Index minus one-month US T-Bills (1928-2019).

[2] “Fed Signals Low Rates Likely to Last Several Years.” Nick Timiraos, 16-Sep-2020, wsj.com.

[3] Source: Yahoo Finance; S&P Data. See 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. 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.

MarketPlus Investing® models consist of institutional quality registered investment companies. Investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.

Advisory services are provided by SJS Investment Services, a registered investment advisor 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.

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.

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.

All returns represent total return for stated period provided by Morningstar Direct.

Indexes are as follows:

US Stock (Russell 3000 TR USD Index measures the performance of the largest 3000 US companies representing approximately 98% of the investable US equity market. It is market-capitalization weighted.); 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. Intl Development Stock (MSCI EAFE GR USD Index measures the performance of the large and mid cap segments of developed markets, excluding the US & Canada equity securities. It is free float-adjusted market-capitalization weighted.); The MSCI World ex USA Index captures large and mid-cap representation across 22 of 23 Developed Markets countries, excluding the United States. The index covers approximately 85% of the free float-adjusted market-capitalization in each country. Emerging Markets Stock (MSCI Emerging Markets GR USD Index measures the performance of the large and mid cap segments of emerging market equity securities. It is free float-adjusted market-capitalization weighted.); Alternatives (Wilshire Liquid Alternative TR USD Index measures the collective performance of the five Wilshire Liquid Alternative strategies that make up the Wilshire Liquid Alternative Universe. The Wilshire Liquid Alternative Index is designed to provide a broad measure of the liquid alternative market by combining the performance of the Wilshire Liquid Alternative Equity Hedge Index, Wilshire Liquid Alternative Global Macro Index, Wilshire Liquid Alternative Relative Value Index, Wilshire Liquid Alternative Multi-Strategy Index, and Wilshire Liquid Alternative Event Driven Index. The Wilshire Liquid Alternative Index is double-cap adjusted AUM weighted and rebalanced semi-annually); Real Estate (S&P Global REIT TR USD Index measures the performance of publicly traded REITs and REIT-like securities listed in both developed and emerging markets. The index is designed to serve as a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate); US Aggregate Bond (Bloomberg Barclays US Aggregate Bond TR USD Index measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. It rolls up into other Barclays flagship indices, such as the multi-currency Global Aggregate Index and the U.S. Universal Index, which includes high yield and emerging markets debt.); US Treasury Bond (BBgBarc US Treasury TR USD Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. Treasury bills are excluded by the maturity constraint, but are part of a separate Short Treasury Index. STRIPS are excluded from the index because their inclusion would result in double-counting.); US Corporate Bond (BBgBarc US Corporate Bond TR USD Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.); Global Aggregate Ex-US Bond (Bloomberg Barclays Global Aggregate TR USD Index measures the performance of global investment grade fixed-rate debt markets, including the Pan-European Aggregate, the Asian-Pacific Aggregate, Global Treasury, Eurodollar, Euro-Yen, Canadian, and Investment Grade 144A index-eligible securities.); Cash / Money Market (US Treasury T-Bill Secondary Market 3 Month rates are the daily secondary market quotation on the most recently auctioned Treasury Bills for the 13 week maturity for which Treasury currently issues new Bills. Market quotations are obtained at approximately 3:30 PM each business day by the Federal Reserve Bank of New York. The rate at which a Bill is quoted in the secondary market and is based on the par value, amount of the discount and a 360-day year.) Inflation (US Bureau of Labor Statistics Consumer Price Index All Urban Seasonally Adjusted is a measure of the average monthly change in the price for goods and services paid by urban consumers between any two time periods. It can also represent the buying habits of urban consumers. This particular index includes roughly 88 percent of the total population, accounting for wage earners, clerical workers, technical workers, self-employed, short-term workers, unemployed, retirees, and those not in the labor force.)

Large Growth (Fama/French US Large 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.

GameStop Mania: Another Lesson On Short-Term Speculation

We don’t think that growing revenue, growing profits, or undervaluation can adequately explain GameStop’s valuation growth. Instead, we think short-term price speculation explains the majority of the dramatic growth.

By SJS Senior Advisor Andrew Schaetzke, CFP®.

If you invested in GameStop Corporation (Ticker: GME) five years ago, your holding’s growth would probably look something like the below.

Source: Google Finance, as of 29-Jan-2021. — *Source:* *Google Finance, as of 29-Jan-2021.*

What usually causes such growth? It could be that the company’s revenue has dramatically increased in recent years, and thus people want to invest now in the hopes of significant profits in the future. It may be that the company has become significantly more profitable, either via growing revenue, shrinking costs, or both. It could also be that the company was significantly undervalued in the past, and now the stock price is finally realizing the company’s intrinsic value.

In the case of GameStop, we don’t think that any of these explanations fit. From fiscal years (FY) 2015-2019, GameStop’s net revenue has decreased by roughly 28%.[1] GameStop went from a $379.2 million net profit from continuing operations in FY 2015 to $(464.4) million in net losses from continuing operations in FY 2019.[1] Additionally, GameStop has less total assets, as well as similar liabilities, in FY 2019 relative to FY 2015.[1] Preliminary financial data from GameStop suggests these trends are continuing for FY 2020.[2]

Source: GameStop 2019 Annual Report, Page 22. — *Source:* *GameStop 2019 Annual Report, Page 22.*

If growing revenue, growing profits, or undervaluation cannot adequately explain GameStop’s dramatic valuation growth, what else can explain it?

We think the explanation is short-term price speculation. Price speculation is not new: it has happened many times in the past, and it has many names. For example, in 1936, John Maynard Keynes defined The Castle-In-The-Air Theory.[3] In the book A Random Walk Down Wall Street, Burton Malkiel explains The Castle-In-The-Air Theory as follows:[4]

2021.01.28 The Castle-In-The-Air Theory.png

This price speculation strategy has worked for GameStop stock over the past few years.[5] Famous investors such as Michael Burry (of “The Big Short“ fame) made significant investments into GameStop, while smaller individual investors have collaborated via Reddit and Robinhood to drive up the price.[6] Contrarily, some investors have decided to short the stock (profiting when the stock declines), and have declared their actions quite publicly.[7] Particularly for smaller stocks, in our anecdotal experience, when strong vocal investors publicly argue with strong vocal short sellers, short-term stock price volatility often follows. So far, this volatility has benefitted GameStop investors.

This recent GameStop situation shows the upside of price speculation. However, we do not believe that price speculation works for the vast majority of investors over the long-term. For example, as of 31-Dec-2019, DALBAR found that the average equity mutual fund investor underperformed the S&P 500 (a benchmark for the US stock market) by nearly 5% annually over a 30-year span.[8] For a $100,000 initial investment, that’s a 30-year ending portfolio balance of $437,161 for the average equity mutual fund investor compared to $1,726,004 for the S&P 500.[8] DALBAR argues that price speculation partially contributes to the average investor equity fund investor underperformance relative to the S&P 500.[9]

Other studies have also found significant underperformance for the average investor who invests in individual stocks as well as who engages in short-term price speculation.[10][11] If most investors underperform broad market indices by so much, why do these investors continue to price speculate? We think it’s a combination of psychology - such as not wanting to miss out on big opportunities, wanting to follow others, and not wanting to regret decisions (further defined below) - combined with significant investment costs such as transaction fees (including bid-ask spreads), expense ratios, and unnecessary taxes.

We think that investing well over the long-term is tough, but we think price speculating over the long-term is even harder. As hard as it is to watch stocks such as GameStop go up, we think the evidence is clear: investing in low-cost, tax-efficient, broadly-diversified mutual funds and ETFS will help our clients outperform the vast majority of investors over the long-term.

Important Disclosure Information and Sources:

[1] “GameStop Corp. - 2019 Annual Report“. GameStop, 2020, news.gamestop.com.

[2] “GameStop Corp. - Form 10Q”. GameStop, December 2020, news.gamestop.com.

[3] “The General Theory of Employment, Interest, and Money“. John Maynard Keynes, 1936.

[4] “A Random Walk Down Wall Street: The Time-tested Strategy for Successful Investing”. Burton Malkiel, 2016, W. W. Norton & Company.

[5] “GameStop Shares Fall as Some Brokers Curb Trades.“ The Wall Street Journal, 28-Jan-2021, wsj.com.

[6] “'Big Short' investor Michael Burry made a 1,500% gain on GameStop during its Reddit-fueled rally“. Theron Mohamed, 26-Jan-2021, businessinsider.com.

[7] “The GameStop Short Squeeze Shows an Ugly Side of the Investing World“. Gregory Zuckerman and Geoffrey Rogow, 28-Jan-2021, wsj.com.

[8] “2020 QAIB Report”. DALBAR, 2020, wealthwatchadvisors.com.

[9] “2019 QAIB Study“. DALBAR, 2019, cswadvisors.org.

[10] “Unconventional Success: A Fundamental Approach to Personal Investment“. David Swensen, 2005, Free Press.

[11] “Money: Master The Game“. Tony Robbins, 2016, Simon & Schuster.

Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio.

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.

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.

Thank You Molly!

After over two years with the SJS Team, SJS Associate Advisor Molly LaClair has decided to focus full-time on raising her three young children. Please join us in saying thank you Molly!

After over two years with the SJS Team, SJS Associate Advisor Molly LaClair has decided to focus full-time on raising her three young children: William, Lucille, and newly born Poppy.

A Northwest Ohio native, Molly earned her Bachelor of Science degree in Finance from Miami University, as well as her MBA from the University of Toledo. After spending several years as a project analyst and process improvement specialist with ProMedica, Molly joined SJS in 2018 to help existing and prospective clients through investment portfolio analyses, client presentations, and financial plans.

Molly is both a team and client favorite, known for her reliability, acumen, communication skills, and integrity. Additionally, Molly worked on a wide variety of projects at SJS, including helping to design the new SJS website, working with the SJS Investment Committee, and creating new processes to more effectively and efficiently work with clients. Molly is also just fun to work with and easy to talk to.

We are really grateful to have worked with Molly over the past few years, and to have gotten to know her husband Brad and their children. While we will miss working with her, we are happy that she will get to spend more time with her family. Please join us in saying thank you Molly!

2021.01.31 Molly Children - Smaller Picture.JPG

Important Disclosure Information:

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.

Generation To Generation - Financial Planning Questions As You Get Older

As we move from young adulthood into careers and perhaps marriage and child-rearing and beyond, our priorities shift to try to answer questions like the following.

By SJS Managing Director & Senior Advisor Jennifer Smiljanich, CFP®.

Sometimes we are lucky to find silver linings in times of adversity. As I reflect on all the change that has occurred in 2020, I take away an appreciation of being a part of our SJS clients’ lives. I began working in the planning and investment management profession more than 20 years ago, with the desire to help young people who didn’t understand much about money and investing. Over the years, I have gotten to know and work on behalf of some exceptionally wonderful individuals and families with diverse backgrounds and interests, ranging in age from 20 to 100.

Along the way, we have all added a few years to the bottom line, myself included. As we age and transition along generational positions, from child, to parent, to grandparent and beyond, our priorities and worries also tend to change. And in some ways, perhaps, so does our view of money and what we would like it to do for us and for our families.

As we move from young adulthood into careers and perhaps marriage and child-rearing, our priorities shift to try to answer questions like:

2021.01.26 Questions People Ask As They Get Older.png

As we shift into retirement or semi-retirement, our priorities tend to shift again. Maintaining good health is more important, as is spending time with our loved ones, considerations of second or third careers, finding purpose in giving back to our communities, and perhaps enjoying activities that we left behind earlier in our lives. For many, thoughts also turn to legacy and what values, stories, and lessons are being shared with the next generations.

The questions that our team hears being asked, and helps to advise on, become increasingly personal and nuanced, as follows:

2021.01.26 Questions People Ask As They Get Older - 2.png

We are in a time, too, when the generational and financial makeup of the country is changing. The Silent Generation, those who were born between 1928 and 1945, have reached their 75th birthday or more (we won’t tell). And the large cohort of Baby Boomers following behind have reached their mid-50s, or as old as 74 this year. According to Visual Capitalist, these two generations combined hold 70% of American household assets in 2020.[1] As time goes on, there will be significant financial decisions to be made to provide for the well-being of our country’s oldest generations and to help the generations that follow.

We know that our financial decisions take on more meaning as we age, and there are often values and emotions that drive these decisions as we hit different generational milestones. Over the last 25 years, the SJS team has helped many families work through these questions and transitions. We are privileged to hear your stories, to be a part of your lives, to watch your families grow, and to be here for you when you need us. We are grateful for your trust, and we look forward to serving you and your families in the years to come.

Important Disclosure Information and Sources:

[1] “Charting the Growing Generational Wealth Gap.” Omri Wallach, 02-Dec-2020, visualcapitalist.com.

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.

While You Weren't Sleeping - Performance Of Markets In 2020

Ignorance is bliss. At least that’s how we feel about the markets in 2020. The person who did not look at the news or troubles of the world was rewarded with an incredible year in the markets.

By SJS Chief Investment Officer Tom Kelly, CFA.

Ignorance is bliss. At least that’s how we feel about the markets in 2020. The person who did not look at the news or troubles of the world was rewarded with an incredible year in the markets. A good investment approach to 2020 would have been to fall asleep on January 1 and wake up on December 31, with a sleepwalk or two consisting of tax harvesting and rebalancing along the way.

Don’t get us wrong—we know that 2020 brought challenges for many, many people. But if we had told you at the beginning of the year that 2020 would bring a global pandemic that would cripple the U.S. gross domestic product (GDP) by 31% in the second quarter, cause 20 million lost jobs in April, and lead to a contested presidential election in November, chances are you would have sold all your stock.[1][2][3] You and us both!

Source: Dimensional Fund Advisors. See Important Disclosure Information [4] for index information. — *Source:* *Dimensional Fund Advisors. See Important Disclosure Information [4] for index information.*

But that is indeed what happened, and it sure would have been foolish to be wise. In 2020, the broad U.S. stock market went up over 20% and international markets went up over 7%; even bonds had strong positive returns. About the only thing that didn’t go up is real estate, which went down 9% for the year, but ended strong with a 12% return in the fourth quarter. The benefits of a well-diversified portfolio were realized as well, with large caps and small caps trading punches as the months rolled on but sharing similar total year results.[4]

While 2020 was nowhere near perfect, we hope it allowed you to grow closer to loved ones, appreciate the little conveniences a little more, and become a bit more resilient with whatever comes your way. Who knows what’s in store for 2021? Whatever it brings, leave the worrying to us, knowing that your MarketPlus Portfolio is battle tested, incorporating academic advances in portfolio design with our 25-plus years of real-world investment experience to help you achieve your specific financial goals.

Important Disclosure Information and Sources:

[1] “Gross Domestic Product.” U.S. Bureau of Economic Analysis, bea.gov.

[2] “Payroll employment down 20.5 million in April 2020.” U.S. Bureau of Labor Statistics, 12-May-2020, bls.gov.

[3] “Electoral College makes it official: Biden won, Trump lost.” Mark Sherman, 14-Dec-2020, apnews.com.

[4] Source: Dimensional Fund Advisors, Morningstar. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged to USD]).

There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. In US dollars. The index performance figures assume the reinvestment of all income, including dividends and capital gains.

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.

25 Years And Just Getting Started

The reason we exist is YOU, and we were pleased to send each of our clients an American flag as a symbol of our gratitude and our pride in living in the greatest country in the world.

By SJS Founder & CEO Scott Savage.

As the sun sets on an indescribable 2020, we collectively hold our breaths for a successful and rapid rollout of vaccines to combat COVID-19. To sum up, I am awestruck by many of the events of the past year. Public and private leaders leaned into the coronavirus crisis, quickly pivoting to deal with the public health, economic, employment, and financial market disruption that began in February. Legislation, leadership, innovation, agility, emotions, divisiveness, and human fragility were on full display over the past 10 months—a short time that feels like a lifetime. And oh, by the way, SJS celebrated 25 years of business!

The reason we exist is YOU, and we were pleased to send each of our clients an American flag as a symbol of our gratitude and our pride in living in the greatest country in the world.

Your reaction was humbling: notes, calls, texts, emails, and kind words in person made us feel that we “hit the mark” as a way to celebrate 25 years of serving you, in the midst of a pandemic. I have compiled a few themes from your responses that I feel compelled to share:

Practical reactions to receiving the flag

Many of you shared the tired condition of the flag you already owned or the fact that you had never owned a flag and had long intended to buy one. The pictures, stories, and patriotic sentiment jumped out at me, tugging at my deep love for our country. Thank you.

Appreciation for our team at SJS

Your appreciation for the team at SJS was central to many of your kind words. I hear such sentiment often, and never get tired of hearing it repeated. I agree and often am heard saying that I will stack up our team against any team, anywhere, anytime!

Letting us know how long you have been a client

Whether it is a relatively new relationship, or one that goes back decades or even to our beginning in 1995, many of you shared the duration of our relationship and how that has made you feel. I was happy to know that many of you are keeping track!

Personal stories

Thank you for sharing personal stories and SJS moments that you remember and carry in your heart. Your words make me feel that the vision, effort, dedication, hard work, innovation, and bumps along the road that weave the fabric of SJS have been a worthy endeavor thus far—an SJS-spangled banner to call our own.

And we are just getting started! I look to the next 25 years with grounded optimism. There is much to worry about and fear, but there is also much to anticipate and hope for. Your team at SJS is committed to continuing to give you our best each and every day. We are here for you and for your family and friends if you believe we can be of help. As a dear friend reminds me often, onward and upward! Forever may she wave!

Important Disclosure Information:

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.

Should You Change Your Financial Plan Because Of A One-Party Government?

It appears that Democrats will control the Presidency and Congress. Naturally, the question many clients have been asking is “What does this mean for my portfolio?”

By SJS Chief Investment Officer Tom Kelly, CFA.

We’re just a few days in to 2021, and the excitement has already begun. With the Senatorial runoff election in Georgia, the next leaders of Washington are set to be sworn in. It appears that Democrats will control the White House, Senate, and House of Representatives.[1] Naturally, the question many clients have been asking is “What does this mean for my portfolio?”

First, we want to emphasize that this has happened before. As the chart below shows, Democrats have controlled the Presidency and Congress (House & Senate) for a combined 16 years since 1960.[2]

Source: “Types of Cybercrime and How to Protect Yourself Against Them.“ Esteban Borges, 09-Jul-2019, securitytrails.com.

While we believe that speculating about short-term market movements is futile due to the noise and thousands of variables that go into market movements, it never hurts to take a look at the data. If the past is any indication of what is to come, your portfolio will do just fine. Since 1926, the average annualized return of the S&P 500 when both the President and Congress were held by Democrats is over 15%.[3]

Source: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. In US dollars. See Important Disclosure Information. — *Source:* S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. In US dollars. See Important Disclosure Information.

Nevertheless, we believe that recent election results will lead to significant consequences for investors. For example, we would not be surprised if federal income tax rates for high net-worth individuals, federal capital gains & dividend tax rates, and the U.S. corporate tax rate increase. From a financial planning perspective, we believe these potential changes would make tax management even more important.

Through MarketPlus Investing, we do all of these tax smart things for our clients:

Source: “Warren Buffett’s historic ride at Berkshire has taken the stock from $19 to $300,000.“ Shawn Langlois, 12-May-2018, marketwatch.com.

Use Tax-Advantaged Investment Accounts

Via tax-deferred (401(k), 403(b), 457, IRA, Keogh, etc.) and / or tax-exempt (Roth 401(k), Roth 403(b), Roth 457, Roth IRA, 529, HSA, etc.) investment accounts, eligible investors can use tax-advantaged investment accounts to decrease intermittent tax payments, thus allowing more time for investments to compound.

Choose Tax-Aware Investments

In order to lower taxable capital gains and dividend distributions, we typically advise taxable clients to invest in lower turnover, broadly-diversified, tax-aware mutual funds and ETFs.

Long-Term Investing Focus

Within the U.S., higher net-worth investors tend to have lower capital gains and distribution marginal tax rates if they hold an investment for more than one year. Additionally, investing for the long-term allows investments to compound with potentially lower intermittent tax payments.

Asset Location

In order to maximize after-tax expected returns, we believe that tax-inefficient investments should be invested in tax-advantaged accounts when possible. We work with clients to design personalized asset location strategies based on their available options and limitations.

Tax Loss Harvesting

As part of a robust rebalancing process, opportunistically realizing losses in your portfolio can help to offset current and future realized gains, thus potentially lowering short-term tax payments and allowing more time for your investments to compound.

Charitable Contributions

Many investors have charitable intentions. By creating a well-designed financial plan for charitable giving, and using available tax-advantaged techniques (such as donor-advised funds), investors can increase the wealth that goes to the causes that they care about.

Source: Dimensional Fund Advisors. In US dollars. Growth of wealth shows the growth of a hypothetical investment of $1 in the securities in the Fama / French US Total Market Research Index. See Important Disclosure Information. — *Source:* Dimensional Fund Advisors. In US dollars. Growth of wealth shows the growth of a hypothetical investment of $1 in the securities in the Fama / French US Total Market Research Index. See Important Disclosure Information.

Ever-changing economic, political, and investing environments inspire SJS professionals to continually improve upon our investment processes, controlling what we can in efforts to maximize our clients' after-tax share of returns. We have been doing this for over 25 years, and it’s what we love to do. Regardless of election outcomes and political landscape in Washington, we believe that your SJS MarketPlus Investing strategy is designed to handle market movements of all kinds.

If you have any questions on how potential upcoming legislation may impact you, please reach out to us. We are always here to listen and assist.

Important Disclosure Information And Sources:

[1] “Updating: The Latest From Washington — And Georgia.“ FiveThirtyEight, 06-Jan-2021, fivethirtyeight.com.

[2] “Divided government in the United States.“ Wikipedia, en.wikipedia.org.

[3] 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.

Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. 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 but which are not warranted as to accuracy or completeness.

The growth of wealth chart begins with the start of the first full presidential term (March 4, 1929) for which Fama / French Total US Market Research Index data is available and ends on June 30, 2020. Data presented in the growth of wealth chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment.

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

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.

SJS Outlook: Q4 2020

SJS Q4 2020 Outlook on recent market conditions, financial planning considerations, and SJS news.

Are You Starting To Invest? Some Considerations

We think having the next generation beginning to invest is a great thing. We believe these points can help you as you start your investment journey.

By SJS Associate Advisor Michael Savage.

During the COVID-19 pandemic, there has been a mass movement by younger people to establish investment accounts.[1] They see the potential value of taking extra cash from work, economic stimulus checks, etc., and putting it to work in investments.[1] Online investment services like our own MarketPlus Online offering, Acorns, Betterment, Wealthfront, Robinhood, and others are allowing younger generations to easily establish investment accounts. For example, online brokers such as Charles Schwab, TD Ameritrade, and eTrade have seen major increases in new account openings in 2020, with some online brokers experiencing year-over-year new account growth of more than 100%.[1] Many if not most of these new accounts have been opened by millennials (ages 24-39 in 2020).[1][2]

We think having the next generation beginning to invest is a great thing. They (We) will develop years of experience and knowledge on the markets. We previously wrote about strategies to help create solid investment plans for young professionals, emphasizing the following:

Building off of the above, investors have experienced a lot over the past year. 2020 has been one of the most volatile years - in particular, March was the most volatile month - in U.S. stock market history.[3] Many growth stocks have experienced a lot of volatility, and yet have grown significantly over the past year.[4] Other stocks have not experienced similar success.[4] Particularly over the short-term, so much can happen in the stock market that doesn’t necessarily align with what is happening in the economy and society at large, as partially evidenced by how global stock markets have provided positive returns in 2020 despite the COVID-19 pandemic and associated shutdowns.[5] We think investors can learn a lot from uncertain and volatile times, and we believe the below points can help you on your investment journey.

Sources: Statista, U.S. FBI Internet Crime Complaint Center. See Important Disclosure Information for additional details.[4]

Invest For The Long-Term

Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it…. He who doesn’t, pays it.“[6] We believe that the longer you invest in a well-designed portfolio, the more you can increase your chances of positive expected returns and higher portfolio values.

For example, Warren Buffett, the famous 90-year-old investor with an estimated net worth around $85 billion in 2020 (even after donating $37 billion to charities since 2006), has repeatedly said, “If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.“[7]

Beware of Taxes and Dividends

Dividends may seem like the best thing about investing. Lets say you have a stock worth $10 and you receive a dividend of $1. At first glance you may think “Hey, I just got a free dollar!”.

The truth to the matter is you didn’t. If a company pays $5 million in dividends, then the enterprise value (market value of equity + market value of debt) of that company would decrease by $5 million dollars. The stock value declines, in your case, by $1 to create an equal transaction. So, theoretically you still have a stock worth $10.

But we aren't done yet. Within taxable accounts, that $1 dividend will then be taxed. If your dividend income is taxed around 20%, that leaves you with $0.80. So in reality your $10 just turned in $9.80.

Additionally, if you sell a stock for a capital gain, you may end up paying taxes on the gain. You also pay more taxes if you held the stock for < 1 year.

While selling a stock for a gain may make sense under various circumstances, and while dividends can help prevent companies from spending too much money, young investors should be careful with taxes and dividends within taxable accounts.

Contribute to and Invest via a Traditional IRA and / or Roth IRA

To decrease the amount of taxes you pay, contributing to and investing via a Traditional IRA and / or Roth IRA can help you set yourself up for long-term success in the future.

Depending on your current income, when you contribute part of your income (up to $6,000) to a Traditional IRA, you don’t pay taxes on the contributions and growth until you begin withdrawing some time after turning 59 1/2. When you contribute part of your income to a Roth IRA (up to $6,000), you pay taxes now on the contribution, but do not pay taxes on the contributions and earnings as long as you wait until 59 1/2 to withdraw. This website from the U.S. IRS summarizes important information about IRAs.

Beware of Margin Trading

Margin means borrowing money, often to invest. Margin trading can amplify your gains, but it also amplifies your losses, particularly during volatile market periods like March 2020.[3] Additionally, investors usually have to pay interest on the margin, thus decreasing investment returns. Margin usually ends up hurting investors when they are not cautious using it. Just be aware that you are paying interest on the cash you borrow, and stay on top of it.

“Free Trades” Are Great, But Don’t Get Carried Away

Many investing platforms offer “free trades“, meaning that investors don’t have to pay a commission per trade. However, there are still less obvious costs to any stock trade, including bid-ask spreads, moving market prices, wash sales, capital gains taxes, etc. On its own, paying no commissions means lower costs for investors. However, since they no longer pay commissions, many investors are trading more and more, thus paying more of the less obvious costs. Additionally, increased trading can decrease the habit of investing for the long-term. Therefore, we advise people to not get carried away by “free trades.”

Summary

Starting to invest can be really valuable at a younger age. Your portfolio can grow or decline over time, and you will learn more and more as you keep investing and keep up with what is happening in the markets. We want you to be aware of what you are paying to enter the markets, do your due diligence on any investment service before opening an account, and remember that nothing is free or guaranteed.

If you would like to discuss how to better design and implement your investment portfolio, please reach out to us. We are always happy to listen and assist.

Important Disclosure Information And Sources:

[1] “Young investors pile into stocks, seeing ‘generational-buying moment’ instead of risk.“ Maggie Fitzgerald, 12-May-2020, cnbc.com.

[2] “Robinhood’s Addictive App Made Trading a Pandemic Pastime.“ Annie Massa & Sarah Ponczek, 22-Oct-2020, bloomberg.com.

[3] “The Craziest Month in Stock Market History.“ Nick Maggiulli, 01-Apr-2020, ofdollarsanddata.com.

[4] “Growth versus value: Will the tides change?“ Vanguard, 02-Sep-2020, vanguard.com.

[5] “Performance Derby: Global Markets.“ Ed Yardeni & Joe Abbott, 25-Dec-2020, yardeni.com.

[6] “Albert Einstein - Compound interest.“ Quotesonfinance.com.

[7] “How Warren Buffett’s winning investing strategy can be applied to any purchase you make.“ Emmie Martin, 04-May-2018, cnbc.com.

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.

Are Your Assets Protected From Cyber Attack?

The alter ego to the Internet’s free-flow of information is “cybercrime.” There are several steps you can take to help protect your personal, private information.

By SJS Senior Advisor & Managing Director Jennifer Smiljanich, CFP® and SJS Associate Advisor Catherine Stanley.

If I asked you the question: How have computers, mobile devices, and the Internet benefited you, you probably would have no trouble answering. These tools have become such a part of everything we do that we often take them all for granted. The fact is – technology has completely upended how we view the world, how we share information, how we do business, and how we communicate.

There is, however, an undesirable side to the technology revolution that seems to reveal its depths daily. The alter ego to the Internet’s free-flow of information is the creature called “cybercrime.” And as long as we are wired together, the network we all enjoy will include the criminal element from around the globe.

Case in point, the Internal Revenue Service recently announced that Americans who received COVID-19-related stimulus checks have been subject to many text and email scams, thus costing many Americans significant money (and time) at a time when they may most need it.[1] According to PurpleSec LLC, cybercrime since COVID-19 onset is up nearly 600% compared to previous years.[2] The IRS Commissioner recently said, "Criminals are relentlessly using COVID-19 and Economic Impact Payments as cover to try to trick taxpayers out of their money or identities. This scam is a new twist on those we've been seeing much of this year. We urge people to remain alert to these types of scams."[1] It is important to emphasize that the IRS doesn't initiate contact with taxpayers by email, text messages, or social media channels to request personal or financial information.[3]

At SJS, we know that cybercrime is becoming more prevalent, and we recognize that no business is immune. We are aware that client accounts may be targeted, and email fraud can be a real threat.

CYBERCRIME IS COMMON

According to a Securities and Exchange Commission report from February 2015, 74% of Registered Investment Advisors like us reported they have experienced cyber-attacks, primarily involving malware and fraudulent emails; we think that this number has probably increased over the past few years.[5] Our core value of “Continuous Improvement” comes into play as we work vigilantly to keep up with an ever-changing landscape.

The custodians we typically work with, including Schwab Institutional and TD Ameritrade, are deeply committed to safeguarding client assets. Both custodial web sites use advanced encryption technology, including 128-bit Secure Sockets Layer (SSL3) encryption. This allows us and you to communicate and share information more safely with them. Both custodians also maintain advanced firewalls, which separate public web servers from the servers that contain account holders’ personal data, to keep unauthorized parties from accessing your personal information. Additional measures, including security certificates, token technology, anomaly detection, and restricting access to client information further help to protect the privacy of your information.[6][7]

There are several other steps you can take to help protect your personal, private information:

2020.12.22 Steps To Protect Your Personal Information.png

Update your computer’s operating system and browser.
Activate / install your computer’s firewall, antivirus software, and anti-spyware software.
Use two-factor authentication (such as requiring both an online password and phone security code text when logging into an account).
Be cautious using public computers.
Use wireless networks you trust.
Don’t use sensitive information in your login ID or password, and especially avoid using your social security number and date of birth.
Create a unique password and change it at least every six months, and DON’T share it with others.
Be very cautious responding to an email, call, or text that asks for your account number, user ID, PIN, password, or other personal information, even if it appears to be from a source you trust or recognize. Always double check that the source is legitimate, such as by asking for a separate way to provide this information and searching online whether the request is safe.
Make sure that SJS has updated contact information for you, especially email and telephone numbers – including an emergency contact, if you so desire.

So the next time we ask you to provide a verbal confirmation before we act on an email request, or when we send you information via your MySJS portal or an encrypted email, know that we require this extra step with your best interests in mind. Our goal is to make sure any attempted fraud is unsuccessful. It’s important to be aware and prepared, but we are hopeful this information will reassure you, not raise additional concerns.

If you want to learn more about our privacy and security policies, or those of the custodians we typically work with, please ask us. In the meantime, we’ll continue doing our best to safeguard your information, leaving technology a true enhancement to our lives.

Important Disclosure Information And Sources:

[1] “Security Summit partners warn taxpayers of new COVID-related text scam.“ Internal Revenue Service, 04-Nov-2020, irs.gov.

[2] “2020 Cyber Security Statistics.“ PurpleSec LLC, 2020, purplesec.us.

[3] “Tax Scams/Consumer Alerts.“ Internal Revenue Service, irs.gov.

[4] The numbers refer to internet crimes reported to the governmental Internet Crime Complaint Center.
Methodology of evaluating loss amounts: FBI IC3 Unit staff reviewed for validity all complaints that reported a loss of more than $100,000. Analysts also converted losses reported in foreign currencies to dollars. The final amounts of all reported losses above $100,000 for which the complaint information did not support the loss amount were excluded from the statistics.

[5] “Cybersecurity Examination Sweep Summary.“ Office of Compliance Inspections and Examinations, 03-Feb-2015, sec.gov.

[6] “Schwab Bank Online Security.“ Charles Schwab Bank, schwab.com.

[7] “Our Security Procedures.“ TD Ameritrade, tdameritrade.com.

Advisory services are provided by SJS Investment Services, a registered investment advisor 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.

'Tis The Season: 7 Tips To Help Your Favorite Nonprofit Raise More Money

For nonprofits, less than 50% of donations come from the previous year’s donors. Here are 7 ways to potentially inspire more giving to your favorite nonprofit.

By SJS Founder & CEO Scott Savage.

Recently, I was at a nonprofit board meeting, and the new Executive Director explained that she is focusing on increasing annual giving and building a large base of people who support the nonprofit’s mission every year. We started discussing the reasons why nonprofits don’t inspire consistent annual donations from the same donors, as well as potential strategies to increase donations. Little did she know that just the night before, I had an identical conversation with the leadership of another nonprofit client!

Predictable donations allow nonprofits to better plan operating budgets, create more reliable spending policies, and focus more on advancing their missions. The more that nonprofits have to worry about donations, the less time they may have to fulfill their missions; this also can make nonprofit donations less effective, creating a negative reinforcement cycle.

For nonprofits, less than 50% of donations come from the previous year’s donors.[1] If donors were motivated to give last year, why wouldn’t they want to give to the same nonprofit this year? We believe there are three primary reasons:[2][3]

They weren’t personally thanked in a meaningful way.
They weren’t personally asked to donate again.
They don’t know whether their donations made an actual difference.

2020.12.15 Three Reasons Why Donors Dont Donate In Consecutive Years.png

So how can nonprofits inspire donors to give more frequently?

We as human beings make most decisions based on emotion. We choose with our hearts and justify with our minds. When we consider donating, we try to find the feeling that makes us pause and get a lump in our throats because the nonprofit’s mission and story resonate so closely with us. When a story emotionally affects us in a way that’s hard to put to words, yet we want to help, then the nonprofit has an opportunity to really connect with potential donors. If the nonprofit has good processes in place to collaborate with these donors, then this can increase the chances of more consistent donations. It tends to be easier to motivate existing donors to keep donating than to inspire new donors.

Here are 7 ways to potentially inspire more giving to your favorite nonprofit:

2020.12.15 7 Ways To Inspire More Giving.png

Tell More Stories

Tell stories that resonate emotionally with donors first, then back up these stories with critical and relevant statistics. Heart first, then head.

Use Visuals To Evidence Impact

So many of us skim words, but we love pictures (hence the adage that they are worth 1000 words!). Illustrate mission impact visually for a lasting impression.

Express Gratitude - Often

Personally thank donors - and not via email or text. In-person (or virtual) conversations or phone calls are the most effective ways. Handwritten notes are also highly effective (given that they are so rare). If you must email, be sure it’s custom and individualized.

Provide More Opportunities For Engagement

Did you know that a volunteer donates up to 10x more than a non-volunteer?[4] It makes sense of course - the more engaged we are in a nonprofit’s mission, the more loyal we are to it.

Public Recognition

If you ask donors if they want recognition for their gifts, most will decline; it’s human nature. But we know that donors are motivated to give when they see their friends, peers, or others doing great things. Leverage newsletters, luncheons, and social media as much as you can.

Don’t Forget To ASK!

It’s amazing how often nonprofits “leave money on the table” by not cultivating and soliciting gifts. It should be part of the daily routine for leadership, no matter how big or small the organization.

And On That Note… Ask For Automatic Donations!

Invest in the technology that ensures recurring gifts. Instead of asking for $120, you could ask for $10 per month which will renew year-after-year - and will also give 11 more occasions to say thank you and illustrate impact!

All of the above is easy to say, hard to do. In my experience, seeking the expertise of an experienced nonprofit consultant is worth its weight in gold. They can make sure your organization has the right people doing the right things at the right time to build the critical mass of annual donors who are your key to the future and to further cement your legacy.

We at SJS try to help nonprofits accomplish their missions, helping with strategy, spending, and investment policies. If you want to talk about your favorite nonprofit, we would love to serve you as well.

Important Disclosure Information and Sources:

[1] “4 Surprising Donor Retention Statistics.“ Simone O’Connor, 31-Jan-2020, causevox.com.

[2] “Why Donors Don’t Give Second Gifts (And How You Can Improve Your Chances).“ Tina Jepson, causevox.com.

[3] “Fundraising Solutions.“ Aly Sterling, alysterling.com.

[4] “How to Measure Volunteer Impact.“ George Weiner, wholewhale.com.

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.

There's Always Something Smart To Do: Harvesting Losses

Some taxable clients have recently asked us: what can we do with our harvested losses? Investors may have the following options.

By SJS Senior Advisor Andrew Schaetzke, CFP®.

2020 has been one of the most volatile years in the stock market’s history, largely driven by uncertainty surrounding the COVID-19 pandemic.[1] From February 12, 2020 through March 23, 2020, the global stock market (as measured by the FTSE Global All Cap Index) fell roughly 34%. Since the bottom on March 23, 2020, it has rallied upwards almost 68% through December 10, 2020. This has provided a year-to-date 2020 global stock market return of 14%.[2]

Source: Google Finance. See Important Disclosure Information for additional details. — *Source:* *Google Finance. See Important Disclosure Information for additional details.*

In a perfect scenario, your investments would only go up and you would never experience a down market. Unfortunately, this is not how markets behave and not a scenario that many people have experienced, not even Warren Buffett. However, just like past market crashes, there is a lesson to be learned from this year.

We believe that most investors should buy-and-hold broadly diversified investments for the long-term, and, more importantly, stay invested through periods of extreme market volatility, which is not easy. Nonetheless, we believe that investors can use market volatility to their short-term and long-term advantage. For example, in order to decrease clients' potential taxes over the short-term, SJS used tax loss harvesting particularly during February and March by selling certain investments with significant losses in taxable accounts and buying similar investments. As a result, many taxable investors now have significant net realized losses for 2020. This means that they may owe little to no taxes this year, and be able to carry any additional losses forward for years to come.

Some taxable clients have recently asked us: what can we do with our harvested losses? Investors may have the following options:

2020.12.11 What You Can Do With Harvested Losses.png

Sell investments with unrealized gains that you no longer want

Particularly if you want to sell out of specific investments in your taxable accounts in order to increase diversification and / or buy other investments, you can use your harvested losses in order to decrease your short-term expected taxes.

It is important to emphasize that you can use long-term harvested losses to first offset long-term capital gains, and then short-term capital gains. Similarly, you can use short-term harvested losses to first offset short-term capital gains, and then long-term capital gains.[3]

Rebalance your existing investments

If some of your investments in your portfolio have significantly outperformed, you can use your harvested losses to sell a portion of the outperforming investments.

We generally believe that over the long-term, deferring the sales of your highest-capital gains tax lots will potentially increase your long-term expected returns. Therefore, we generally advise clients to sell their lowest capital gains tax lots when rebalancing.

Decrease your federal taxable income by up to $3,000 for the year

If you have net losses from your taxable portfolio, you may be able to decrease your federal taxable income by $3,000 (or $1,500 if married filing separately). You can use this $3,000 annual net capital loss deduction regardless of whether you itemize or use the standard deduction when filing taxes. Additionally, some states allow you to decrease state income taxes using net harvested losses.[3]

Carry forward net realized losses for future years

While filing taxes, you can carry forward your unused net realized losses in order to do any of the above in future years. You do not have to use all of your net realized losses, and net realized losses typically do not expire.[3]

We think the above details productive uses for your harvested losses. However, there are some actions we generally advise clients to avoid. For example, we typically advise clients:

2020.12.11 What To Avoid With Harvested Losses.png

Do not realize capital gains just in order to use your net realized losses

Since you can carryforward net realized losses to future years, you do not need to use all of your harvested losses.

Do not take more investment risk in order to try to make up for realized losses

Sometimes, investors think that they should take additional investment risk in order to make up for losses earlier in the year. We often strategically realize losses for our taxable clients, and thus realized losses are not necessarily indicative of poor investment performance for the year. Therefore, we believe that investors should stick with their long-term investment plan instead of trying to make up for perceived poor investment performance.

Do not buy a substantially identical investment within 30 days of realizing a loss (Wash Sale Rule)

Because of the Wash Sale Rule, investors who realize a loss by selling an investment and then buy a substantially identical investment within 30 days cannot deduct the realized loss for tax purposes.[4]

Overall, we believe that using your harvested losses strategically as part of your tax loss harvesting process can increase your portfolio’s expected return over the short-term and long-term.

We spend our days helping clients figure out and improve their investments. If you have any questions on what to do with your harvested losses, or want to create a better tax loss harvesting process going forward, we would be happy to help you as well.

Important Disclosure Information And Sources:

[1] “The Craziest Month in Stock Market History.” Nick Maggiulli, 01-Apr-2020, ofdollarsanddata.com.

[2] The FTSE Global All Cap Index is a market-capitalisation weighted index representing the performance of the large, mid and small cap stocks globally. The index aggregate of around 8,000 stocks cover Developed and Emerging Markets.

[3] “Topic No. 409 Capital Gains and Losses.“ IRS, irs.gov.

[4] “Wash Sales.“ U.S Securities and Exchange Commission, investor.gov.

Advisory services are provided by SJS Investment Services, 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.

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.

2021 Financial Planning: Tax Rates, Retirement Plan Contributions, and More

We want to provide the below resource to help you easily find important financial planning numbers for 2021.

By SJS Senior Advisor Andrew Schaetzke, CFP®.

When planning for the coming year, it can be hard to keep track of all of the new tax and investment information. And yet, effectively managing your budget, investments, and taxes together can help decrease the amount of time to reach your financial goals as well as provide you more financial flexibility going forward.

We want to provide the below resource to help you easily find important financial planning numbers for 2021, including:

Federal income tax rates, capital gains tax rates, Social Security tax rates, estate tax rates, etc.
Standard federal tax deductions, retirement plan deduction limits, estate tax exemption, annual gift tax exclusions, education tax credits, etc.
Required Minimum Distribution (RMD) table for tax-deferred retirement accounts (401(k), IRA, SIMPLE IRA, etc.)
Retirement plan & Health Savings Account (HSA) options and contribution limits
Medicare premiums & IRMAA surcharges

We spend our days helping clients figure out and improve their finances. If you have any questions, we would be happy to help you as well.

2021 Financial Planning Important Numbers - Page 1.JPG

2021 Financial Planning Important Numbers - Page 2.JPG

Important Disclosure Information:

Advisory services are provided by SJS Investment Services, 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.

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.

SJS 25th Anniversary: In Gratitude To You

Thank you for all your collaboration, confidence, and trust in us over the past 25 years. Please know the depth of my gratitude is impossible to put into words.

Seems like yesterday, but 34 years ago, I started working in the stock brokerage business. However, I quickly learned that the work expected of me was often at odds with the best interests of my clients, and I didn’t like that very much.

So, 25 years ago, I started SJS Investment Services with the goal of providing people and organizations with a major money center investment experience that embraced a small-town value system that puts our clients first, all the time, every time, right here in Northwest Ohio.

Twenty-five years later, we still love helping people and organizations go where they want to go and leave the legacy they want to leave. The team we have assembled is working hard every day to make good on our promises, and we happily continue to add new clients, often at the introduction from you, our loyal clients!

We feel this is a good time to say: thank you for all your collaboration, confidence, and trust in us over the past 25 years. Please know the depth of my gratitude is impossible to put into words.

With gratitude,

Scott Savage, SJS Founder & CEO

Important Disclosure Information:

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.

Always Expect The Unexpected

Here is a short list of what you can do now to ease the burden on your loved ones in case some unexpected event prevents you from caring for your family.

By SJS Senior Advisor & Managing Director Jennifer Smiljanich, CFP®

Life is a journey, predictably full of the unexpected. We do our best to plan for the future we hope we will have, and then life events get in the way and throw us for a proverbial loop.

We have all experienced some variation of the unexpected. Sometimes, the unexpected can result in a positive change, and we count our blessings. It can get more challenging when an event has a negative outcome – you or a spouse lose a job or have a tough year in your business, a family member experiences a serious illness or disability, a child returns home after college with no future plans, and so on.

One of the most difficult experiences we face in life is the loss of a loved one, whether unexpected or not. Family members may be left with a lot of pieces to pick up and put back together, especially if they aren’t familiar or involved with the family’s finances. This can lead to uncertainty, and put a lot of pressure on the family at a time when they are least prepared to handle it. In our experience, when a person leaves a well-planned out path for their family, it provides some relief to their loved ones at a time of grief, even as their loss may still be difficult.

While we can’t be fully prepared for every possible contingency, we know there are smart things we can do to make life a little easier in the stressful times. So what can you do now to ease the burden on your loved ones in the event that some unexpected event prevents you from caring for your family?

How To Ease The Financial Burden On Your Loved Ones

Keep a list of important websites, usernames and passwords in a secure location, and – most importantly! – tell someone where to find it

This list might include email accounts, websites where you store family photos, and social media sites, in addition to information about sites where you can access your bank accounts and other financial information. Make a note to update this list any time passwords are changed. There are a number of apps that are available to store personal information. In fact, PC Magazine annually rates the best password manager apps best password manager apps.

Review your estate plan periodically with your attorney

At least every five to ten years, or sooner if you experience a significant change in your personal situation. Also, take care to review your beneficiary designations every few years. If you have young children, be sure that the guardians you have listed in your will are still appropriate.

Consider keeping a list of contact information for trusted advisors and others who may be able to help fill in the blanks for your family members

If you rely on certain individuals to care for family members, pets, or even a second home, these might be useful contacts to include as well. There are web-based platforms, such as Everplans, that will store and organize this type of data for you for a fee.

No matter where life’s journey may take you, please know that all of us at SJS are here for you, all the time, every time. Let us know when and how we can help, whether by analyzing a financial decision, helping you understand a document, or just being there with an ear to listen.

Important Disclosure Information & Sources:

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.

How Will Inflation Impact Your Portfolio?

Since expected U.S. inflation is now near the long-term target of 2.00%, we think it is reasonable to expect that interest rates will remain near current levels.

History and Signaling Suggest Both Inflation and Interest Rates Will Remain Low

By SJS Investment Associate Bobby Adusumilli.

The Federal Reserve of the United States of America (the Fed) has a dual mandate: to maximize employment and to stabilize prices for goods and services. To pursue this mandate, the Fed believes that a 2.00% increase in annual inflation is most appropriate in the long run.[1]

While the Fed cannot completely control inflation, the Fed influences inflation by setting a target Federal Funds Rate (the rate at which banks borrow money from the government) and more directly changing the amount of money circulating in the economy in order to push the current Federal Funds Rate to the desired rate.[1] Consequently, while the Fed doesn’t directly control most other interest rates, shorter-term interest rates (< 1 year) generally follow changes in the Federal Funds Rate, and longer-term interest rates (>= 10 years) tend to follow as well (though with more variability).[2]

Source: “A Look at the Fed’s Dual Mandate.” Federal Reserve Bank of St. Louis, 08-Aug-2018, stlouisfed.org.

When inflation is higher (lower) than the Fed targets, the Fed will typically aim to decrease (increase) the money supply in the economy, which consequently typically increases (decreases) both the Fed Funds Rate and other interest rates, with the goal for individuals to spend less (more) and save more (less).[1]

As of September 30, 2020, the Fed projects inflation to average 1.79% over the next five years, close to the long-run target of 2.00%.[1][3] As illustrated in the graph below, the Fed has worked over the past 50+ years to influence (primarily to decrease) inflation to that 2.00% goal, significantly through affecting interest rates.

Sources: Morningstar, FRED, as of 30-Sep-2020. Interest Rates: 3-Month Treasury Bill: Secondary Market Rate (TB3MS); Inflation: Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL).

Generally (all else equal), as interest rates decrease, prices of existing bonds increase, partially because of increased investor demand for higher-yielding investments. Much of the strong returns for US bonds over the past 40 years is due to positive price changes caused by generally declining interest rates.[4]

However, since expected inflation is now near the long-term target, we think it is reasonable to expect that interest payments, not price changes, will drive the majority of positive bond returns over the next 10+ years, and that interest rates will remain near current levels. This provides significant justification for why SJS projects a 2.50 – 3.50% return for US aggregate bonds over the next 10+ years (as further detailed in the SJS 2020 Capital Market Expectations). Using these return expectations as part of the MarketPlus Investing approach allows SJS to help clients develop portfolios designed to meet their current and future needs.

If you would like to talk about how inflation and interest rates may impact your lifestyle and investment portfolio, please reach out to us. We are always here to listen and assist.

Important Disclosure Information and Sources

[1] “How does the Federal Reserve affect inflation and employment?“ The Federal Reserve, federalreserve.gov.

[2] “Monetary Policy Actions and Long-Term Interest Rates.“ V. Vance Roley and Gordon H. Sellon, Jr., Q4 1995, kansascityfed.org.

[3] “5-Year Forward Inflation Expectation Rate.“ Federal Reserve Bank of St. Louis, 30-Sep-2020, fred.stlouisfed.org.

[4] “An Appreciation for the Bull Market in Long-Term Bonds.“ Ben Carlson, 16-Aug-2019, awealthofcommonsense.com.

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.

How Will The Presidential Election Impact Your Investments?

Based on our research, we believe your portfolio allocation and the discipline to stick to it are far more important to your results than who is President.

By SJS Senior Client Portfolio Manager Tom Kelly, CFA.

We at SJS are constantly discussing the markets – how they’ve been doing, where they’re going, what we’re doing about it. Recently, the conversations have surrounded the upcoming election and our views on how one particular outcome might affect the markets. While it makes for lively discussion, what is more interesting is looking at the actual returns of the S&P 500 during election years and subsequent years that follow.

Source: S&P 500 data. In US dollars. See Important Disclosure Information.

Based on our research such as the graph above, there are no noticeable or statistical patterns on the given year or outcome. It doesn’t seem to matter if the results are expected or unexpected, or whether an elephant or donkey inhabits 1600 Pennsylvania Avenue. On average, stock market returns (as measured by the S&P 500) have been positive both in election years and the year following (and every year for that matter!). What about predicting a subsequent year based on the election year results? Don’t count on that either. The correlation between those two is -0.32 (values at or close to zero imply weak or no relationship), based on the same S&P 500 data used for the graph above.

We dug even further into the data to see if there was discernible trepidation in the 6 months leading up to new presidents, or the November-December months that coincide with election years, as shown in the graph below. Surprisingly, the annualized average return in July-December during election years was 18.6%, compared to 10.6% during non-election years. The months of November and December were great times to be invested in the markets regardless of an election, with the annualized average return for those two months being 19.4% during election years vs. 19.8% during non-election years. We believe your portfolio allocation and the discipline to stick to it are far more important to your investment results than who sits in the White House.

The big takeaways from our research are consistent with the MarketPlus Investing’s core fundamentals, primarily that speculating is futile and the stock market rewards investors over the long term. Regardless of the presidential party, policy changes, and the unknown events, we recommend sticking with your MarketPlus designed portfolio to help you reach your goals.

If you have any questions on how the upcoming election may impact your portfolio, please reach out to us. We are always here to listen and assist.

Source: Dimensional Fund Advisors. In US dollars. Growth of wealth shows the growth of a hypothetical investment of $100 in the securities in the Fama / French US Total Market Research Index. See Important Disclosure Information.

Important Disclosure Information and Sources

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.

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. Source: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

Unmasking The 2020 Stock Market

As we begin the last quarter of a surreal 2020, SJS feels compelled to “unmask” the U.S. stock market’s performance year-to-date.

By SJS Founder & CEO Scott Savage.

Irrespective of your opinion about wearing a mask, all of us can now better relate with what Batman (aka Bruce Wayne) had to deal with while fighting crime in Gotham City. As we begin the last quarter of a surreal 2020, SJS feels compelled to “unmask” the U.S. stock market’s performance year-to-date, shining a light on how the returns of just five stocks are obscuring how, in our opinion, the average U.S. publicly traded company is doing.

Despite unprecedented market volatility and the resulting decline fueled by panic selling in February and March, the S&P 500 Index has seemingly fully recovered. As of September 30th, the S&P 500 enjoyed a positive return of 5.6% year-to-date. During the same time, the “S&P 495”, that is, the same index with the five largest companies removed had a negative return, -7.7%! These five companies are Apple, Amazon, Microsoft, Facebook, and Alphabet (Google’s parent).

Sources: Yardeni Research and Yahoo Finance, as of 30-Sep-2020.

How did this happen? Well, the S&P 500 and many market indices are “cap-weighted” meaning, the larger the company, the more “weight” it carries in the index. In fact, these five companies made up 25% of the S&P 500 as of September 30th. And these five stocks have gained 47.5% year-to-date through the end of September. That’s right, 47.5%! This remarkable performance so far in 2020 has masked the fact that the average stock is down this year!

Sources: Yahoo Finance, as of 30-Sep-2020.

A similar phenomenon happened in the technology sector during the dot-com era of the late 1990’s. The dot-com bubble burst, and the average investor in an S&P 500 index fund earned no return during the subsequent ten-year period. Some have called this “the lost decade.” And with these five companies trading at a price earnings multiple of 35, we are happy to be more diversified in our investment strategies than these cap-weighted indices.

While we are not predicting a crash in the five companies that have led the U.S. market’s advance so far this year, diversification remains a foundational principle of MarketPlus Investing® and is instrumental in managing future risks and reaping future expected returns. Risks include those we perceive as well as those we cannot yet anticipate. Expected returns will vary across market environments, and the SJS Investment Committee reviews future capital market return expectations in decisions about investment design and asset allocation. Just another way that we work on your behalf to help you unmask the noise of the markets, and to focus on the time-tested strategies that can help you achieve your goals.

Important Disclosure Information and Sources

Past performance does not guarantee future results. Diversification does not eliminate the risk of market loss.

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.

SJS Welcomes Michael Savage!

After interning at the SJS Arizona office in Spring 2020, Michael Savage has joined our team in Sylvania!

A Sylvania native, Michael attended Arizona State University, where he earned his Bachelor of Arts degree in Sports Business from the W. P. Carey School of Business. During his time in Arizona, Michael interned for Phoenix Rising F.C., Arizona’s top professional soccer team.

Michael is active in the community and has previously volunteered to helped set up and participate in multiple charitable events including The Walk to End Alzheimer’s, Take Steps, and Feed My Starving Children.

Michael is currently pursuing his goal of becoming a Certified Financial Planner®.

In his downtime, he enjoys being with friends and family, watching sports, exercising, and traveling.

Please join us in welcoming Michael to the SJS Team!

Important Disclosure Information:

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.

When Should You Refinance Your Mortgage?

What should you think about when considering refinancing a mortgage? We provide this resource for you to help determine whether to refinance your mortgage.

By SJS Senior Advisor Andrew Schaetzke, CFP®.

Over the past year, mortgage interest rates have unexpectedly fallen due to economic response to the COVID-19 pandemic.[1] This provides a good opportunity for mortgage holders to review and possibly refinance their mortgages. As refinancing calculators can demonstrate, mortgage holders who switch to a lower fixed rate can sometimes save thousands of dollars or more in interest payments with a new mortgage.

There are many reasons people consider refinancing, including:

2020.10.01 Why People Refinance Mortgages.png

However, there are important considerations and tradeoffs when refinancing. For example, it can require a lot of time and additional paperwork, and the interest rate change may not justify the work.

Thus, what should you think about when considering refinancing a mortgage? We provide the attached resource for you to help determine whether to refinance your mortgage. As always, please reach out to us if you have any questions, need a referral, or want to work through the decision-making process. We are always here to listen and assist.

2020.10.01 Should I Consider Refinancing My Mortgage.JPG

Important Disclosure Information & Sources:

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

Suggested Reading

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Practical reactions to receiving the flag

Appreciation for our team at SJS

Letting us know how long you have been a client

Personal stories

Suggested Reading

Use Tax-Advantaged Investment Accounts

Choose Tax-Aware Investments

Long-Term Investing Focus

Asset Location

Tax Loss Harvesting

Charitable Contributions

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Suggested Reading

Invest For The Long-Term

Beware of Taxes and Dividends

Contribute to and Invest via a Traditional IRA and / or Roth IRA

Beware of Margin Trading

“Free Trades” Are Great, But Don’t Get Carried Away

Summary

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CYBERCRIME IS COMMON

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Tell More Stories

Use Visuals To Evidence Impact

Express Gratitude - Often

Provide More Opportunities For Engagement

Public Recognition

Don’t Forget To ASK!

And On That Note… Ask For Automatic Donations!

Suggested Reading

Sell investments with unrealized gains that you no longer want

Rebalance your existing investments

Decrease your federal taxable income by up to $3,000 for the year

Carry forward net realized losses for future years

Do not realize capital gains just in order to use your net realized losses

Do not take more investment risk in order to try to make up for realized losses

Do not buy a substantially identical investment within 30 days of realizing a loss (Wash Sale Rule)

Suggested Reading

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Keep a list of important websites, usernames and passwords in a secure location, and – most importantly! – tell someone where to find it

Review your estate plan periodically with your attorney

Consider keeping a list of contact information for trusted advisors and others who may be able to help fill in the blanks for your family members

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History and Signaling Suggest Both Inflation and Interest Rates Will Remain Low

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