With Russia’s invasion of Ukraine this week, many are wondering how a conflict in Europe will influence their own finances. In addressing this headline for our firm, please understand that the loss of life and the disruption of peace weighs heavy on me and our team. While considering investor concerns, our goal is to provide a point of view which I feel we are uniquely positioned to share amid war as a financial management firm.

Markets trade on future expectations. For example, if the market expects new jobs or a strong economy, then people and businesses adjust their decisions today, based on what they believe is coming. Remember how the market crashed when COVID-19 first hit the United States, but bounced back a month later? That’s because people were making choices based on expectations, not necessarily reality.[1] Because war follows a circuitous route, forecasts are less clear. Researchers accurately note that “the impact of conflict on human lives, economic development, and the environment is devastating.”[2]

Previous Wars and Invasions Show That Market Reactions can Range Wildly.

For example, in 1990, Iraq invaded Kuwait and immediately the global stock markets declined.[3] In the three days that followed the Iraqi attack on Kuwait, the Dow Jones Index slid over 6%; yet in the first four weeks of Operation Desert Storm, the Dow gained 17%.[4] Additionally, the European Stock market responded positively to the second conflict with Iraq in early 2000. Stock market history has shown divergent reactions to war.

Surely, the economy of Ukraine will be devastated, but no one knows what the financial repercussions from this Eastern Europe conflict are. For example, when the news broke about Russia’s invasion, the European markets went down around 4%, but the US market went up by about 1.5% at the end of the day. We simply can’t predict the future, and the market changes moment-to-moment, day-to-day. The only real certainty is that volatility will resume as individuals and institutions place their bets on future predictions, and because of this, our client financial plans and asset mixes navigate all types of situations.

Finding your Footing in Uncertainty

Market related volatility is an un-welcomed but natural part of the investing journey, so our client portfolios at Human Investing are constructed with a plan and risk tolerance in mind. For example, a client that has cash needs to support their day-to-day expenses (such as a retiree) will often have a portfolio with equities that pay dividends, bonds that pay interest, and ample cash to cover upcoming obligations. On the other hand, investors who rely on equities should understand that stock volatility is the price we pay for the expected premium we receive in the long run over cash and bonds.

Although the headlines of “war” and “invasion” cause anxiety, the questions investors should ask are, “How is my plan working out?” and “Despite the market volatility, am I still on track?” Keep in mind that although the average annualized return of the S&P 500 since 1926 is approximately 10.5%, market swings may increase considerably. [5]  Investors should think about their financial plan, investment goals, timelines, and overall diversification to determine how well they are prepared to manage the ups and downs. Adjustments can always be made to ease the concern in the short term, but for most of our clients, their financial plan and current asset allocation take into account market downturns, caused by a myriad of events, including invasions and war.  Through it all, we at Human Investing are present in all of life’s ups and downs as we faithfully serve the financial pursuits of all people.

[1] Frazier, L. (2021, February 11). The coronavirus crash of 2020, and the investing lesson it taught us, Forbes. The Coronavirus Crash Of 2020, And The Investing Lesson It Taught Us

[2] Cranna, M. (1994). The true cost of conflict. New York: New Press. The true cost of conflict / | Colorado Christian University

[3] Richter, P. (1990, August 3). Markets react to Kuwait crisis: Stocks: Invasion rocks market; dow slides 34.66, Los Angeles Times. MARKETS REACT TO KUWAIT CRISIS : Stocks : Invasion Rocks Market; Dow Slides

[4] Schneider, G., & Troeger, V. E. (2006). War and the world economy: Stock market reactions to international conflicts. Journal of conflict resolution, 50(5), 623-645. War and the World Economy: Stock Market Reactions to International Conflicts

[5] Maverick, J. B. (2022, January 13). What is the average annual return for the S&P 500? Investopedia. S&P 500 Average Return: Overview, History, and Factors

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Welcome to fall! Before we race to the pumpkin patch, let’s look back on July, August and September. We selected 5 different visuals from the past quarter to share with you.

1: The S&P 500 Reaches an All-time High

On September 2, 2021, the S&P 500 closed at an all-time high (see chart). While this is a record-breaking statistic, the S&P 500 has also experienced more than 50 all-time highs in 2021. Prior to this year, there are only six other calendar years with at least 50 record closes (2017, 2014, and 1995 are the most recent years).

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As a result of these market highs, we have noticed heightened concerns about a looming market crash. Because what goes up, must come down?? The two most common concerns we hear are:

1. “I know the market is at an all-time high. I want to sell my investments today and reinvest these dollars when the market crashes in the coming months”. See chart 2 for our typical response.

2. “I know the market is going to crash. I want to move all my money into something safe like cash or bonds. What do you think I should do?”

If you are someone that is worrying about your investments (maybe it’s something entirely different from the two concerns listed above), please reach out to our team so we can listen to your concerns and build an investment strategy for you going forward. To be frank, the timeline for spending 401(k) dollars impacts the advice we give. For example, we would give different advice to someone planning to spend their 401(k) savings soon than to someone in their mid-forties with no intentions of spending their 401(k) soon.

2: What About This Looming Market Crash?

If you have setup a 401(k) account, then you are investing your dollars every single pay period. This phenomenon is called dollar-cost averaging and it works really well for most retirement accounts. If you have a 401(k) account, we recommend leaning into dollar-cost averaging, setting up annual account rebalancing, and assessing your account strategy periodically. Of course, this strategy is not one-size-fits-all. Some investors prefer to intervene with their investments if they are predicting an upcoming market crash.

That being said, we recently found this article by Nick Maggiulli that compares gradually investing a consistent dollar amount (like per paycheck 401(k) contributions) to saving dollars up to buy a market dip. Please take the time to read the whole article, but if you want the cliff notes here you are:

• The article points out that stockpiling cash in anticipation of a market crash is an unlikely strategy to win out in the long run.

• Trying to buy the dip usually fails because large dips are rare. As a result, the strategy turns into stockpiling cash which is not a good idea for the long-term.

• If you do want to try and buy the dip, think about getting your cash invested in the stock market as soon as possible.

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For some help interpreting this chart, here is the text directly from Nick Maggulii’s blog post. “This chart shows that there is roughly a one in four chance of beating DCA when using a Buy the Dip strategy with a 10%-20% dip threshold. If you were to use a 50% dip threshold, the chance of outperforming DCA increases to nearly 40%. But this doesn’t come without a cost. Because while you are more likely to outperform DCA when using a bigger dip threshold, you also underperform by more (on average) as well.”

3: Monthly Child Tax Payments

July 2021 was the beginning of the monthly child tax credit payment for parents. Did you see our 20-minute webinar about the child tax credit, why it matters, and some financial planning considerations for parents?

Flash-forward a few months, and we have found a study of 1,514 American parents who received the monthly child tax credit payments. As you can see, most parents have saved their payments for emergencies which is a disciplined usage of the excess cash.

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4: Vanguard Announces Lower Fees for Target Retirement Funds

In late August, Vanguard announced they are lowering the expense ratio (the cost) of their target-date funds by February 2022. We believe this is good news for all investors using Vanguard target retirement funds!

Vanguard will lower the expense ratio to 8 basis points meanwhile they are committed to maintaining the same glidepath methodology and asset allocation.

To articulate the cost savings, we assembled a table showing the potential impact for someone invested in a Vanguard target retirement fund with the updated expense ratio. For someone with $100,000 in a Vanguard target retirement fund, this lowered expense ratio means immediate annual savings. Just to be clear, the $90 vs $80 are annual fees which add up to be meaningful cost savings for you over a long period of time. Cheers!

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5: Be Careful who you Get Advice From

How many self-proclaimed market savants are sharing their opinions with the world? So many! Be careful who you listen to. We couldn’t help but include some humor in this post. Feel free to relish in the ridiculousness of this chart.

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That concludes our Charts of Q3 2021 post. We will be assembling the next Charts of the Quarter post before we know it. Take care! — Your Human Investing Team

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In a recent interview Jason Zweig, a personal finance columnist for the WSJ, had a quote that resonated with me.   

  "Emotional discipline is the single hardest thing about the investment game."   

After accumulating over 30 years of writing and thinking about investing and personal finance, Jason points to emotion (not market valuations, stock picking, or market corrections) as the most difficult part of investing.  As financial advisors, we witness the struggle of emotional discipline firsthand. Recent news (and noise) around tech stocks, housing prices, federal spending, cryptocurrencies, inflation, and interest rates have made it more difficult for investors to maintain this discipline.  

are you an investor facing FOMO or FOBI?  

This lack of emotional discipline manifests itself typically in one of two ways:   

1. Fear of Missing Out (FOMO) in the market. If you are 15 years old, FOMO is seeing your friends doing something without you on social media. If you are an investor, FOMO is the internal dialogue of “I see my neighbor making money on ____, I need to buy ___.” Someone who has FOMO tends to follow the crowds. FOMO can lead an investor to think their rate of return is a benchmark for their success rather than achieving a return needed for a successful financial plan.

2. Fear of Being In (FOBI) the market. FOBI is the internal dialogue of “I have seen how this story ends. I need to sell ____.” Someone who has FOBI likely listens to news sources who make a profit off pessimistic news. Note: It is easy to push the sell button, it is always harder to get back in.  

FOMO and FOBI may seem different, however, both are ultimately trying to guess where the market will go next and are speculative in nature. Let 2020 be a great reminder that it’s difficult to predict how the market or a particular investment will do year to year.  

Periodic Table of Investment Returns from the last 20 years

One of my favorite charts to illustrate the difficulty to predict short-term performance is "The Periodic Table of Investment Returns". This graph ranks the annual returns of popular asset classes from best to worst over the last 20 years.   

Source: Blackrock; Past performance is no guarantee of future results. The information provided is for illustrative purposes and is not meant to represent the performance of any particular investment. Assumes reinvestment of all distributions. It is not possible to directly invest in an index. Diversification does not guarantee a profit or protect against loss.

An investor experiencing FOMO is likely paying attention to the top row, the best-returning asset classes over the last 20 years. This investor is likely trying to guess what will be the highest performing asset class in the coming year.  

Meanwhile, an investor experiencing FOBI is likely paying closer attention to the bottom rows, with a specific focus on larger market selloffs like 2001, 2002, and 2008. A FOBI investor is worried about being invested in the wrong asset class and will try to avoid the worst-performing asset class in the coming year.  

The Periodic Table of Investment Returns reminds me of three investing truths:   

1. It can be dangerous to try and guess what is next. Consider US small-cap stocks (Sm Cap – in light green), which had the highest average annual return over the 20 years. While small-cap stocks were the best performer they also showed the widest variance in outcomes. Guessing right in 2003 would have provided a positive return of 47.3%. Guessing wrong in 2008 would have provided a negative return of 33.8%. 

2. Past performance is not an indicator of future returns. Making investment decisions based on recent performance (e.g., looking at 1, 3, and 5-year returns) can be detrimental to an investment portfolio.  International’s performance as a prime example (Int’l – in yellow), over the five years from 2003-2007 international was the best performing asset class by a long shot. International seemed like the sure thing. Unfortunately, the investors who followed international’s high returns were greeted with a brutal 43% selloff in 2008.   

3. Portfolio diversification is the answer to combating FOMO and FOBI – See “Div portfolio” in purple along the middle rows.  Diversification is an investment strategy that aims to maximize a level of return for the risk desired. Diversification accomplishes this by strategically spreading money across different types of investments.   

 A diversified portfolio helps investors maintain emotional discipline. Diversification can avoid the fear of missing out on the next hot investment. Owning more of the market will naturally provide more opportunities to not miss out on the growth of specific sectors or individual investments. Diversification can also temper being fearful of being in the market and owning the next big loser. Diversification disperses your dollars across many asset classes, which means if one company is a dud it will not sink the ship.  

If you struggle with emotional discipline when investing, congratulations you are a human. If helpful, please use The Periodic Table of Investment Returns as a great reminder that emotional discipline is difficult. Putting a plan in place along with proper diversification can help investors make smart long-term decisions.

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The term speculation[1] has been on the steady decline since 1840. The decline in use is somewhat surprising given the current market environment where speculation runs rampant. In recent weeks, our team inked a well-thought-out article about the speculation du jour titled, The Big Short: Volume II Starring $GME . Interestingly, they could have been writing about any of the past's speculations—like the Dutch Tulipmania in the 1630s and the roaring 20s that ran up to the 1929 crash. More recently, tech stock speculation reached a fevered pitch in the 2000s and was followed by an equally thrilling run-up in housing which peaked in Q1 2007.

“Speculation is easy to spot, but it is difficult to understand what brings speculative environments to an end.”

Memory Lane (1995-2000)

Speculation in technology stocks lasted for six years. Money managers and even the Federal Reserve Board Chairman Alan Greenspan noted the overall frothiness of the markets. In his 1996 public address, Chairman Greenspan pondered, "but how do we know when irrational exuberance has unduly escalated asset values…?" From 1995 to 2000, the Nasdaq grew sixfold (see Figure 1 below). Over several years, beginning in March of 2000, the tech-heavy Nasdaq stock index lost nearly 80% of its value. Even the "blue chip" tech stocks of the day: Cisco, Intel, and Oracle, fell fast. But because they had well established and viable business', they crawled from the rubble and thrived. But the road to recovery took 15 years as the Nasdaq crossed through its previous market peak set in March of 2000 in April of 2015.

Figure 1

Reason for the speculation?

As was the case leading up to the peak of the .com era, much of today's speculation has been brought about by venture capital (VC) investment. Key statistics surrounding VC investment are at or near all-time highs. This includes deal activity, VC-backed IPO's, and VC-backed M & A. You can learn more about VCs and speculation here. The influence of M & A on the market dynamics is meaningful—particularly for retail investors who see what VCs are doing and want a piece of the action. In the book, The Psychology of Money, the author notes that "people have a tendency to be influenced by the actions of other people who are playing a different financial game than they are." VC investors are some of the most sophisticated investors in the world.  Simply put, VC investors are playing a different financial game than most people who want to get a piece of their action.

One reason for concern is that a mass of money is being put into the capital markets, including VCs, with a speculative bent. This changes the market's disposition. The stock market can quickly turn from a place to save for retirement and invest for college to a casino or dog track, where a quick buck can be made. The bottom line is that investing and speculating are not the same thing. In the last 25 years, the most successful investors I have observed have relied on simple truths to accumulate their wealth. They make their money by saving and investing over a lifetime. To be sure, some speculators hit it big, and those will be the stories you hear about. Others, as is the case with most speculative investments, will lose everything.

Access, Gamification, and Human Nature

This go-around, the rise of speculative investing seems to have a social appeal. With stock trading commissions at zero and gamified investment platforms, both access and the fun factor are present at levels I've never seen before. On the one hand, I'm thrilled that more people are interested in the capital markets. But I wonder if tools and access make investing more like a casino or betting app than serious investors' tools to achieve lifelong financial goals. If investing is being marketed to fulfill all your dreams in a couple of keystrokes, why wait a lifetime?

It is human nature to want a piece of what is working—after all, who wouldn't?  We all know someone who made their money quickly. For every person who made an easy buck and won the lottery, millions of us are going to need to do it the hard way. Yes, the wet blanket approach to investing—like spending less than what you earn and putting a little away each month to an emergency fund. Forgoing a slice of your paycheck today so that you have something to live off when you are no longer generating an income from your labor. Driving the same old car so the payments you would otherwise have with a new car can go to your child's college savings account. I know what some of you may be saying, "he just doesn't get it." Maybe not, but what is true is that if investors do not choose a path, it will be selected for them. Or if not, they may bounce around from one path to another, making for a very emotional and disjointed investing experience. One path has a high probability of success because it relies on disciplined saving and investing behavior over a lifetime. The other approach is speculative, looks fun, is incredible to talk about, and has social equity—but unfortunately has a fractional probability of success.

Tesla and bubbles

There are plenty of speculative investments that will make an article like this seem out of touch and tired. Maybe so. Take the electric car manufacturer who recently booked its first full year of profits. Yep, the investor and media darling Tesla is worth $800 billion and just turned a profit in 2020 for the first time since it was founded in 2003. The only issue is that it is not from selling cars. The bulk of their profit comes from selling regulatory tax credits, not from selling cars. Read more about Tesla here. This is fine, and I own a few Tesla shares inside my low-cost Vanguard S&P 500 index fund. The point in sharing a story about Tesla is not to shame those that own the stock, nor is it a knock on the product as they make a good car. Instead, it highlights the influence of VC money and corresponding expectation for speculative investing and returns.

Dr. Olivier Blanchard, the most cited economist in the world, penned a 1979 masterpiece where he said this,

"Self-ending speculative bubbles, i.e., speculative bubbles followed by market crashes, are consistent with the assumptions of rational expectations. More generally, speculative bubbles may take all kinds of shapes. Detecting their presence or rejecting their existence is likely to prove very hard."

If speculation were a person, I would write it a letter. It would be short. It would go like this, "As for our families and how we advise Human Investing clients, we view each dollar as hard earned and essential to a well thought out financial plan. There is no play money or money we can afford to lose. As such, we are not much for speculation." Sincerely, your wet blanket.

[1] Merriam-Webster defines speculation as “a risky undertaking.” Thesaurus notes it is a “theory, guess, risk, or gamble.”

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Last week GameStop went viral as a topic unlike anything I’d seen in my 10 years at Human Investing. Probably just like you, I googled “Gamma Squeeze”, had someone two degrees of separation from me divulge they had been a part of wallstreetbets, and now have significantly more money, and felt like I was watching a version of March Madness play out real-time in the financial markets.

With the introduction of free trading and the gamification of trading stocks with apps like Robinhood, this past week was the culmination of many factors colliding (more on that later). Different than in The Big Short (2008 Real Estate Crisis) where select hedge funds were taking advantage of large investment banks being overleveraged in the housing market, this time it was retail investors taking advantage of hedge funds overleveraged in GameStop. If Michael Lewis or someone else isn‘t writing this book already I’d be shocked, and I can’t wait for the movie too.

Most of the questions our team has been fielding this week looked like a version of:

• Why GameStop?

• Why now?

• Explain this to me like I’m 5

• Is this a one-time occurrence or is something like this going to be happening more frequently?

• And probably most importantly what does this mean for me, my investments, and the markets as a whole?

To help me answer some of these questions I’ve enlisted our head analyst, Andrew Gladhill. In our office known as Glads. For those of you who haven’t spoken with Glads or seen his work, he’s a CFA and anyone who knows him would most likely have him on their Who Wants to be Millionaire “phone a friend” shortlist. Maybe most importantly, one of the ways Glads makes our team better is being able to take complex topics and break them down in very digestible terms. Take it away!

Some key terms you need to know

Shorting

The short answer: Shorting is betting that a price will go down (not up), and you benefit as the price goes down. For example, if you short a stock trading at $20, and it goes down to $15, you have made $5.

The long answer: Shorting works through a few steps:

• Step 1 – you borrow the stock today from someone who holds the stock (Let’s call them Emily) with a set date you must return the stock back to Emily. Emily lends you the stock because Emily charges you interest.

• Step 2 – you sell the stock today (say for $20)

• Step 3 – you must return the stock to Emily, plus interest (say $1) buying it at the current market price to do so (say $15)

• In this example, you have made $4 (Sold for $20, bought for $15, charged $1 interest)

Why do you short? Because you believe something is overvalued, and you want to profit from when the price goes down.

Short Squeeze

The short answer: When a shorted position has the price increase, those who are shorting it (the shorters) are forced to buy the position, driving the price up further.

The long answer: If the price rises on a short position, the shorter starts losing money. They can either hedge their losses by buying the stock before the return date, or wait to buy and hope the price falls. Remember, the shorter must return the stock to the original owner by a set deadline. Because the price of the stock can rise higher and higher, the shorter’s potential loss is limitless.

So a short squeeze is when the price of a company goes up because lots of people are buying a heavily shorted stock, increasing the price. The rise in price causes some shorters to close out their positions, which involves buying the stock. More buying activity causes the price to increase, causing greater losses for the shorters. If the price rises high enough, the losses get large enough that more shorters are forced to close out their short position to avoid having their total portfolio value go negative. This creates a positive feedback cycle of buying activity, pushing the stock price even higher.

Why WAS Gamestop ($GME) TARGETED?

The Short answer: GME had an unusually high amount of shares sold short, allowing the short squeeze to be possible. Retail investors gathered online & decided to try to make it happen.

The Long Answer: Short float is the number of shares sold short (borrowed & then sold) that have not yet been repurchased. Gamestop had a short float over 100%, meaning some shares of Gamestop had been lent out more than once. This happened because many believed Gamestop (a retail video game store) was the next Blockbuster and would go out of business. The share price would go to $0 a share, and they would profit from the price dropping. Some retail investors noticed the high short float on GME in an online community known as reddit wallstreetbets (aka WSB, aka retail investors). The retail investors saw an opportunity for a short squeeze due to the large short interest, and GME being a relatively small company.

The retail investors planned to force a short squeeze on GME. The retail investors would buy up as many shares of GME as possible, driving up the price. The retail investors would hold their shares, drying up the supply, pushing the price up even further. All this upward price movement would force a short squeeze, driving the price up even further, and the positive feedback cycle would result in astronomical price increases for GME as the short squeeze hits. Retail investors will be able to sell their shares at high prices to the shorters forced to closing out their position.

Why was trading restricted?

The short answer: Companies that execute trades (brokerages, i.e. Robinhood) must have money to cover trade differences with clearing firms (the back end companies that finalize trades) as collateral. The rapid, unexpected movement in GME brought some brokerages ability to do that into question, and they had to pause the trading until they could secure more funding.

The long answer: When you sell or purchase a stock, that trade isn’t finalized until settlement, which is 2 days later. This time is used to verify the transfer of cash & the security purchased. It’s like when you deposit a check at the bank, the bank makes sure the check clears before you can withdraw cash. Clearing firms finalize stock transactions. The brokerages (i.e. Robinhood, Fidelity, Schwab, e-Trade) are required by law to maintain cash deposits as collateral with clearing firms to cover any losses. The required deposits by the clearing firms for the brokerages went up because GME was having higher price volatility. Some brokerages had to pause trading in GME while they secured enough funding to make the deposits required by the clearing firms. The financial system rarely handles meteoric rises in stock prices in such a short amount of time, and certain parts of the system that normally work so smoothly we never think about them suddenly brought trading to a screeching halt.

what does this mean for me and my portfolio?

Thank you, Glads. This story and its ramifications are certainly not finished. As more details come out it will continue to paint a clearer picture of what it means for investors over the past week and looking forward as well. To bring this all home and answer the question, “what does this mean for me and my portfolio” a few thoughts:

While Gamestop took up all the headlines this past week, for most investors it had little to no impact on their portfolio. For example, the Vanguard Total Stock Market Fund (VTI), is a staple in many retirement accounts across the country, the fund was down 3.59% last week (in line with the market). GameStop contributed a positive 0.04% return to the fund (basically nothing!) despite being up nearly 655% on the week, a bi-product of how small of a company GameStop is relative to other companies in the fund that truly move the needle.

So should I get in?

Should you open up a trading account in preparation of the next public short-squeeze? The boring/correct answer is this is not the forum to be giving specific financial advice for your specific situation. If you’re truly speculating about that and want to talk to it through, PLEASE sign up for a Calendly link with one of our advisors and they are happy to talk with you about it.

My favorite book I’ve read in the past few months is The Psychology of Money by Morgan Housel. It’s one of the best (in my opinion) personal finance books because it focuses on behavior (potential controllable actions) rather than guessing what’s the next best stock is. He has an entire chapter devoted to the topic of, “People have a tendency to be influenced by the actions of other people who are playing a different financial game than they are.” This is the case for most people saving for retirement when thinking about GameStop, shorting, and what we’ve seen in the news. It’s Human to feel like you missed on an opportunity with GameStop and to want to hit it big on the next trade. But most likely that’s not your game.  Most likely your game (and mine too) involves saving and investing for a long time, letting compounding interest take care of the rest, and maybe most importantly staying out of your own way. And while that game doesn’t create the same headlines, as Housel writes in a different chapter it can create a different type of headline to aspire to.

See the full article here

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According to most research, although millennials are considered the most highly educated generation, we are the least informed when it comes to our financial decisions. Not only do we lack financial literacy, but pre COVID-19, 63% of millennials felt anxious when thinking about their financial situation, and 55% felt stressed when discussing their financial situation. I imagine COVID-19 has negatively impacted those figures even further.

There are many factors that affect our personal financial stress levels, but historically, the financial industry has felt inaccessible to those who lack financial literacy and/or feel insecure about their financial situation. How are we supposed to learn if we lack access to knowledge?

SAVINGS APPS TO SAVE THE DAY

I love the concept of savings apps, because it improves accessibility of investing and saving for a large population. Basically, if you have a smart phone and a few extra dollars, you can be a saver. A study conducted in 2019 found that individuals who used savings apps kept better track of their finances and were more resilient when faced with a financial shock. However, accessibility without education can be hazardous. So, here are two recommended savings apps that provide learning and saving opportunities.

• Mint is a free app powered by INTUIT (think Turbo Tax) that houses all of your financial information in one place. Mint uses a holistic view and budgeting tools to find extra savings for you. Not only do they provide you with custom savings tips, but they also have a hub of resources, ranging from building a grocery budget to investing advice, so you can learn along the way!

• Digit has the same philosophy as Mint: find savings within your current financial situation. With this philosophy, Digit analyzes your current income and expenses and then lets you know what you can afford to save. They invest your dollars in FDIC insured account using a portfolio based on your risk level and comfortability. You are also able to attach these savings to a specific goal – emergency savings, honeymoon, a doggo—you name it. There is a monthly cost of $5, but you do receive 1% annual bonus savings every three months.

NOT FEELING IT? FOLLOW THEIR SAVING PHILOSOPHIES

It’s okay if you don’t vibe with the savings app world. But if you do want a better grip on your finances, follow the philosophy behind the savings apps:

1. Keep track of your income.

2. Assess your spending habits.

3. See where you can save.

For me, that looks like walking past the gluten-free bakery every so often instead of into it (which is usually the case) and saving the extra $5. At the end of the month it can make a difference (Don’t believe me? See how much you can save by ditching your morning coffee here).

Finally, allow yourself to interact with financial resources without being too hard on yourself. The purpose of these apps is not to be a report card. The purpose is to empower you to make thoughtful decisions that will improve your financial health. If you have questions, check out our Financial Wellness Center or reach out! We are here for you.

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In March, we were inundated with updates about the coronavirus and the unknown ramifications to follow. In the same month that the NBA was postponed, children were sent home from school, toilet paper fled the grocery store shelves, the US stock market had three of the worst days in US history.

Behind the scenes

Unlike the year 2020, your 401(k) account is routine and emotionless. If there is no user interference (yes, that is you), your account will continue to invest in the stock market every paycheck. A 401(k) account can help alleviate market-timing decisions by adopting an investment strategy called dollar-cost averaging. Instead of waking up in the morning and deciding “is today a good day to buy some stock?”, your 401(k) systematically makes those timing decisions for you.

To review the ease of these timing decisions, I wanted to show investors what happened if you made a $50.00 contribution to your 401(k) account every paycheck during 2020. In this scenario, we assume employees were paid every two-weeks (starting on January 3, 2020) and invested in the Vanguard Target Retirement 2055 (VVFVX) fund.

Slowly building a foundation

These dollars represent the trading value of the Vanguard Target Retirement 2055 (VVFVX) on specific days. In this exercise, the lowest trading price was $31.16 on March 20th, and the highest trading price was $48.55 on November 27th.

Thank you, automation.

As you can see, the best time to invest in the stock market this year (March) was also arguably the most uncertain and scary time to be an individual investor. From a February 21st paycheck to a March 6th paycheck, the price of this target date fund dropped 9%. From a March 6th paycheck to a March 20th paycheck, the price dropped 21%.

When prices were falling, your 401(k) account bought shares at a lower price without panicking, consulting the news, or making impulsive decisions. For that reason, we should give 401(k) accounts a standing ovation for being a reliable, unemotional investment vehicle this year.

Let 2020 be a reminder that if your boxes are checked, outsourcing and automating your account is one way to ease your emotions.

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A week ago, I came across a chart that does a nice job representing the call volume we have been experiencing at Human Investing in 2020. While the amount of calls we receive does not equal the amount of times people search for CNBC, the two data points are certainly correlated.

The image is titled, “When Markets Fall, We Search”, and ultimately shows that individuals have been more likely to seek out CNBC (market related news) any time the market has fallen over the last 15 years.

I’d argue that you could replace ‘search’ with ‘speculate’ and both the phrase and the chart would remain true, “when markets fall, we speculate”. Given the state of current affairs and the upcoming presidential election, individuals are worrying about their retirement accounts. A growing number of conversations our team has with individuals inside of retirement plans sound something like this:

Caller: “I’m fearful of (X) candidate winning the election because I’m affiliated with (Y) political party (both sides are saying this). Additionally, there is uncertainty around COVID, and I don’t feel comfortable staying invested during these unpredictable times. I’d like you (Human Investing) to help provide me with a more conservative investment recommendation.”

Before I respond with market research, I want to reiterate that you aren’t alone with your concerns and fear. We hear you. At the same time, before making any decisions related to your portfolio, take the time to think through all the angles of your decision. The rest of this post will hopefully provide some anecdotes in your process. Here are few thoughts about what it looks like to plan for the end of 2020 and into 2021. Remember, it is better to plan than to speculate.

The correlation between your Politics and Your Portfolio

Generally speaking, there is low correlation between political parties and the stock market. However, that statement is easy to say and difficult to live out in practice. Tread lightly when reading articles that try to align which stock/sectors to own with the political party that takes office. This article from 2016 couldn’t have been more wrong prognosticating that energy companies (specifically Exxon Mobile) would be top performers for the proceeding four years. It goes without saying this was a massive miss.

The bigger influence: Are you a speculator or planner?

If you think like a speculator, you will make rash decisions around your investment accounts and have no plan for re-entering the market if you move your dollars to cash or to a conservative investment.  

If you think like a planner, you will use both quantitative and qualitative measurements to evaluate your decision. For example:

• If you have a long-term horizon (greater than 15-20 years), political changes should not impact your investment decisions.

• Irrespective of the political environment, review if your account is too aggressive or too conservative for your financial landscape.

• Have a clear understanding of both candidate’s tax policies. Changes to the federal tax code should be a factor in your financial planning for the remainder of 2020 and into the future. If you are working with a CPA and/or Financial Advisor, make sure they are staying abreast with any impactful tax code changes.

  • Biden Tax Proposal

  • Trump Second Term Tax Ideas
    

Ditching The Market

Trying to time the market when negative news arises (or the anticipation of negative news) is a dangerous game to play. Luckily, we have a recent case study of how dangerous it can be. From January 1st to March 23rd, the stock market fell 30%. Since then, the market has recovered all losses and then some. If you were thinking like a spectator, it would have been easy to create a narrative around mid-March to pull your money out of the market and wait for greener pastures. If an investor did so, most likely that investor is still waiting for the market to dip and has missed out on the recent recovery as indicated by the second chart.

If you think like a planner when the market is more volatile, sometimes taking some form of action itches a behavioral scratch. Here are some ways to take action while not compromising your account:

• Raise your contribution in your retirement account to take advantage of a decreasing market (buying more shares at discounted prices).

• Open a small “fun money” account to track if your predictions are correct.

• If the market does significantly drop, look at converting pre-tax dollars to ROTH.

The concept of thinking like a speculator vs. thinking like a planner represents the cultural moment we are living in right now.

Speculating = headlines, fast moving social media, and the potential for instant gratification.

Planning = well thought out strategies that take time and often require no action.

As we head into this season of elections and COVID uncertainty, I hope this post provides some perspective on how to approach your portfolio. As always feel free to reach out to our team to talk through your thought process. We are happy to help!

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“Am I okay?” Fear ripe in my voice. 

We just heard what no climber ever wants to hear: one loud scream, three thuds, then nothing.

At that moment, I was sixty feet in the air doing the routine work of cleaning the anchor, removing all the gear that protected us as we climbed up the route and re-setting the rope to be lowered and move on to the next climb when we heard it.

That sound? It was someone falling. Hard. We didn’t know how far or how badly, but we knew that climb was higher than mine: about eighty feet top to earth.

“I got you!” He called back. “Take a deep breath. Tell me what you’re doing.”

I did. I called out every single step I was taking to clean the anchor and secure the rope back to my harness –triple checked for safety – and he held the rope. Eventually, my feet and wobbling legs arrived safely back on earth.

When you rock climb, there is obvious risk involved. Risk that you accept as the price of admission for moving higher than twenty feet – the height where, if you fall, you most likely will not be fatally injured. 

Confidence matters. Confidence in your gear, skill, weather, and your risk tolerance. Yet there is a confidence that is as important – if not more important – than all the confidence inside you: that is confidence in your belay partner.

Your partner is the one on the other end of the rope, your safety line, whose responsibility it is to pay attention, catch you when you fall, and lower you safely from sky to earth. A good belay partner must not only know the mechanics of climbing and safety but must also know you. They communicate clearly and are always paying attention – often mitigating the risks that are out of your control when you chose to leave the earth and head toward the open blue.

At no point after hearing those falling sounds did anything feel ok. My imagination was a wild hostage situation, forcing in front of my focus nightmares of gear failing and my body hurling through space.

But in reality, I was okay. I was safely anchored.  We had a plan and practice in place for climbing safely. My belay partner was paying attention, “I got you”. He heard the sounds too, but he did not take his focus off the rope and my safety.

Investing in the stock market can be a lot like rock climbing

There is risk involved in climbing your portfolio value higher than a modest, though acceptable, goal of beating inflation.

When the market takes a dive and the media heads are talking about total economic fall-out, it sure doesn’t feel okay. Do you have a good partner? A good advisor is a good partner. 

Are they paying attention? When you hear the rumble and scary sounds of the market moving and you call out, “Am I okay?”, how does your advisor respond?

At Human Investing, we are your partner on the other end of the rope

• Our climbing anchor is the fiduciary standard. Every trade, conversation, and piece of back-office work is done to mitigate unnecessary risk as your portfolio climbs, and it is all done with YOUR best interest in mind.

• Our figure-eight is clean and tight.  Your financial plan is like tying the climbing rope in to your harness – it is your safety line that serves to mitigate risk by informing how your dollars are invested to avoid and securely catch any falls. When the market crashes, we are on the other end of the line. 

• Our GriGri is loaded and locked.  We have the highest standard in investment tools.  We know our tools and we use them well, monitoring the “weather patterns” of the market, watching your portfolio as it climbs and responding as appropriate.

• “On Belay? Belay on! Climbing? Climb on!”  Before you climb you say to your partner:  Are you ready and paying attention?  We are paying attention and ready to serve you. There is more than one set of eyes on your accounts – you are more than dollars and stock holdings to us.  We will not be distracted by the noise around us.

• “I got you!”  As with any good partner: We know you.  We will respond to fear or a fall.  Your time with us is invested in discussing your goals, your values, and your reactions when your portfolio climbs or lurches.  We answer when you call, and sometimes we call you first because we also hear the sounds of the news and peers, and it may be scary. But in the end, we “got you.” We will not allow a fall-fear to inflict avoidable loss.

If you would like to talk to an advisor about how to climb your portfolio the Human Investing way, give us a call or send us an email.  It would be our pleasure to partner with you.

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One of the interesting subplots in the finance industry during COVID-19 has been the rise of the day trader. Robinhood, an online brokerage and trading platform, acts as a proxy for many investors who are rapidly opening accounts at other brokerage firms including Charles Schwab, E*T, TD Ameritrade, Fidelity, etc.

Our firm works with thousands of employees via their company-sponsored retirement plans and has had many conversations end with a question/comment along the lines of, “What do you think of this Robinhood thing? Is it worth putting some money in there? Seems like (fill in the blank tech company) is making money! Should I buy some?”. So, I felt compelled to address the question(s) and provide some context around where a speculative trading account fits into a greater financial plan.

THE MAJOR PLAYERS

Source: Piper Sandler

E*TRADE: more users opened accounts in the month of March than any full year on record.

Charles Schwab: 1 million new accounts so far in 2020.

Robinhood: 3 million users opened accounts in Q1 2020. For perspective, there have been 13 million accounts opened at Robinhood since its founding in 2013.

The GROWING appeal OF DAY TRADING

The barrier of entry has never been lower to open an account and buy shares of publicly traded companies. Because many individuals are at home, trading is as cheap and accessible as ever, and some firms have incentive offerings (like a free share of stock when you open an account). Pair that with the stock market reaching its low point for the year on March 23rd and having one of its fastest recoveries ever (in other words the last 5 months have been a winning proposition for many investors), and you get to the point where we are today.

Today could be a euphoric place for an investor owning stocks since March. To me, euphoria looked like TMZ coming out with a trading subscription service… yikes. Stocks have only gone up, and popular tech companies have led the way. Kudos to those who might have doubled their money on a company like TESLA, but the last 5 months do not paint a realistic picture of what investing looks like over the long haul.

the emotional rollercoaster of Owning single stocks

When talking about owning a single company, I like this example. Owning a company like Amazon over the last 10 years seems like a no brainer (today). If you had invested $10,000 10 years ago, it is worth over $268,000 today. However, when you see that over the last 10 years, an investor would have had to hold through down periods of -25% over 5 times to get to where the stock is today. In other words, the stock was down 25% of its high over 5 times. Holding a company through those periods can be difficult, emotional, and in my opinion, is an objective way of capturing what owning a stock (even one that has performed as well as Amazon) is like.

Investing advice for smarter day trading

Whether you are someone who has already played around, are thinking of dipping your toe in the water, or your ego is already as big as ever because you’ve been a successful trader for the last 5 months, here is some advice on what it looks like to invest in your long-term plan vs. speculating.

Boundaries, Boundaries, Boundaries: If you are going to buy a stock on your own, don’t have it impact your overall investment strategy and long-term plans. What does that mean? Invest a dollar amount that you would feel comfortable taking a 100% loss on.

A positive outcome can mean… many things: Recently the Winklevoss twins (yes those Winklevoss twins) were quoted saying that Elon Musk is going to mine gold on asteroids orbiting the Earth, thus decreasing the value of gold and increasing the value of bitcoin (I promise this isn’t fake). One scenario is that their theory is wrong but in the next 5 years, owning bitcoin could be a profitable trade. In the same light, if you have owned a technology company or a fund that tracks technology companies since March, you have probably made money. Does this make you the next great market predictor? Most likely not. At Human Investing, we have a saying "process over results". So, in these situations, whether or not your account is checking up on your process is equally or more important.

Trading Journal: If you are seriously interested in the market and having a brokerage account, a trading journal is imperative. If you have a prediction, write it down, track it, and review your track record. It’s not a bad idea to do this for a few weeks to test the waters before you open an account.

Small Losses Can Lead to Long-Term Positive Outcomes: Here’s a hypothetical, stay with me. You read this post, you open an E*TRADE account, and deposit $200. You end up buying a few stocks and start following the market. You are following investing influencers on social media, listening to podcasts, and even watching CNBC in the morning. Then life happens. You get a little bored, lose track of your password, reset your password, and lose track again (this version of you doesn’t have LastPass 😊). Six months go by, and you see that your $200 is now $50. As a byproduct of this experience, you realize that you are better off opening up a ROTH IRA at Vanguard contributing $100 a month into an age-based target-date fund because you now care more about retiring comfortably. Your $150 loss on your account made you realize:

1. You are not interested in picking stocks and it isn’t easy.

2. You educated yourself about the market, the benefits of a ROTH IRA, and moved the needle on helping yourself retire.

Time will tell if this Robinhood movement is a fad or a long-term trend. Either way, if you have questions, want to grab coffee via zoom and talk markets, or talk longer-term planning, our team is here to be a resource.

Other Articles You Might Enjoy On This Subject

* Inside Story On Robinhood

* WSJ video on Robinhood

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Since Human Investing has shifted to remote work for 5 months, I wanted to peek into what daily life looks like for two of our fabulous and industrious moms. Shelly Chase and Eve Bell are candid, funny, and share some family tips!

JILL: Shelly, you are a seasoned Client Service Specialist, so how has it been working remote these past 4 months while managing your work and your family?

SHELLY: Multi-tasking is key! I’m never far from my computer while working from home, and when the “ding” comes in for an email or message (if I’m not right in front of it), it’s a sprint back to the computer so I don’t miss anything and reply in a timely manner. Of course, I sometimes trip over the dog….

JILL: That is a funny image! I’m sure all dogs—yours included—are wondering why we’re all home, and if it means they get more snacks. Eve, as our Workplace Advisory Administrator and young mom, you have also had a lot going on. What was your before- and after-work routine with your young daughter prior to COVID, and how has that changed?

EVE: Pre-COVID our nanny picked up our daughter every morning, and my husband and I took turns picking her up after work. We were in for a shock when we all went remote on March 15th. Having an active little toddler means my husband and I are re-evaluating routines every few weeks and upping our communication game. Our almost 2-year-old is home most days, so we have to communicate A LOT about our meeting and project schedules, work together to make adjustments, and have at least one parent watching out at all times, so that our toddler isn’t having a tea party with the dog’s food and water.

JILL: What a full plate, Eve! How long did you think you would be working remotely? I would love to hear your initial thoughts.

EVE: I thought it was only going to be for two or three weeks! I knew it was going to be a challenge, but I Pinterest-ed all the DIY toddler activities and bought a two-week supply of snacks (for both my baby and me).

SHELLY: I kept thinking how can I work from home and stay focused….kids’ noise, dog barking, FedEx knocking…how can I work from the dining room and keep my home life under control while serving our clients?

JILL: Let me say you each have done an incredible job and probably did not realize just how much strength you had within you to manage it all.Shelly, with summer in full swing and school on the horizon, how are you working through the options for schooling and what is top priority?

SHELLY: The top priority is what is best for my almost sophomore son. He did okay with ending the school year online, but it did take a lot of coaxing from mom to keep him on schedule and get his work done. It was recently announced that his school will be online until at least October 30th. I better brush up on my US History facts!

JILL: I really admire you parents; whose kids are in grade school or high school. It’s not an easy feat to work and ensure your child learns new things and retain some of what they have already learned! You have seemed to weather this valiantly but being human, we all know we’ve had moments of struggle. What walls have either of you ‘hit’, what has been the biggest thing you have tackled, and how are you rising above it all?

EVE: The first wall I hit was trying to make a typical 8am to 4pm workday schedule work from the dining room table. Once I recognized that my workday would need to look and feel different, I began adjusting to new routines. As a result, both work and family life got a lot easier to navigate. And then prioritizing! I have had to dig deep, practice more patience, and become laser focused. It has been a funny balance of being super chill about some things (who needs an organized Tupperware drawer anyways) while also pushing myself to strategize and implement new ways to serve clients.

SHELLY: I have been really surprised so far. There has been no dead ends and no walls hit. I have tried to stay focused on doing my best to maintain the same work schedule at home as I did in the office. I am working a bit longer each day since I save time without a commute, but I also have more flexibility. I have grown more confident in my ability to be an earner, mom, maid, cook and as of recent, teacher. I remind myself all day long to take deep breaths and take a little time for myself by walking, listening to my favorite music, or making my homemade salsa.

JILL: Such great, practical advice and wise counsel coming from you both! Thanks for taking time out of your busy days to share your experiences with me. And Shelly, what about that homemade salsa recipe?

SHELLY: I am making it every day now and my family still loves it! It is simple and always delicious. I even think the title fits its appeal. I hope you all try it and add your own flair!

Click here for Shelly’s homemade salsa recipe!

Jill has spent over a decade at Human Investing honing her skills in the areas of service, administration, sales, operations and human resources. As a SHRM certified practitioner, Jill now puts all her past experience to work - ensuring that the Human Investing team is cared for and the operations run smoothly.

Eve helps clients navigate the nuanced and complex landscape of qualified retirement plans by providing plan design expertise and advocating for employers and their employees.

Shelly draws from her 20 years in financial services to uniquely care for clients while meeting the administrative needs of their accounts on a daily basis. She strives to always provide personalized, and honest, and up-to-date client service and plans to continue to love, care and serve our clients for the next 10+ years.

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“In this world nothing can be said to be certain except death and taxes” – Benjamin Franklin.

HERE’S A SNAPSHOT OF HISTORICAL TAX RATES

You can compare 2020’s highest marginal income tax rate to years dating back to 1913. Although this chart is not an all-inclusive story about someone’s individual tax situation, it does suggest that overall tax rates are lower today than they have been in the recent past.

How to Take Advantage

The current tax rates are locked until December 31, 2025, unless there is an update to the Tax Cuts and Jobs Act (TCJA). Without a crystal ball, we do not know where tax rates are heading. However, as this image illustrates, we do know tax rates can increase in the future. 

One way to take advantage of today’s low tax rates is to utilize accounts like a Roth IRA or saving Roth inside your 401k plan.

Do you have questions?

We know that interpreting the tax code is an unpleasant and complicated experience. We have a team of CPA’s at Human Investing who are ready to answer any questions you may have.

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